(b) Discuss how management’s judgement and the financial reporting infrastructure of a country can have a
significant impact on financial statements prepared under IFRS. (6 marks)
Appropriateness and quality of discussion. (2 marks)
第1题:
(b) Explain how the non-payment of contributions and the change in the pension benefits should be treated in
the financial statements of Savage for the year ended 31 October 2005. (4 marks)
第2题:
5 Ambush, a public limited company, is assessing the impact of implementing the revised IAS39 ‘Financial Instruments:
Recognition and Measurement’. The directors realise that significant changes may occur in their accounting treatment
of financial instruments and they understand that on initial recognition any financial asset or liability can be
designated as one to be measured at fair value through profit or loss (the fair value option). However, there are certain
issues that they wish to have explained and these are set out below.
Required:
(a) Outline in a report to the directors of Ambush the following information:
(i) how financial assets and liabilities are measured and classified, briefly setting out the accounting
method used for each category. (Hedging relationships can be ignored.) (10 marks)
5 Report to the Directors of Ambush, a public limited company
(a) The following report sets out the principal aspects of IAS 39 in the designated areas.
(i) Classification of financial instruments and their measurement
Financial assets and liabilities are initially measured at fair value which will normally be the fair value of the
consideration given or received. Transaction costs are included in the initial carrying value of the instrument unless it
is carried at ‘fair value through profit or loss’ when these costs are recognised in the income statement.
Financial assets should be classified into four categories:
(i) financial assets at fair value through profit or loss
(ii) loans and receivables
(iii) held-to-maturity investments (HTM)
(iv) available-for-sale financial assets (AFS).
The first category above has two sub categories which are ‘held for trading’ and those designated to this category at
inception/initial recognition. This latter designation is irrevocable.
Financial liabilities have two categories: those at fair value through profit or loss, and ‘other’ liabilities. As with financial
assets those liabilities designated as at fair value through profit or loss have two sub categories which are the same as
those for financial assets.
Reclassifications between categories are uncommon and restricted under IAS 39 and are prohibited into and out of the
fair value through profit or loss category. Reclassifications between AFS and HTM are possible but it is not possible from
loans and receivables to AFS. The held to maturity category is limited in its application as if the company sells or
reclassifies more than an immaterial amount of the portfolio, it is barred from using the category for at least two years.
Also all remaining HTM investments would be reclassified to AFS.
Subsequent measurement of financial assets and liabilities depends on the classification. The following tablesummarises the position:
Amortised cost is the cost of an asset or liability adjusted to achieve a constant effective interest rate over the life of the
asset or liability.
It is not possible to compute amortised cost for instruments that do not have fixed or determinable payments, such as
for equity instruments, and such instruments therefore cannot be classified into these categories.
A company must apply the effective interest rate method in the measurement of amortised cost. The effective interest
rate method determines how much interest income or interest expense should be reported in profit and loss.
For financial assets at fair value through profit or loss and financial liabilities at fair value through profit or loss, all
changes in fair value are recognised in profit or loss when they occur. This includes unrealised holding gains and losses.
For available-for-sale financial assets, unrealised holding gains and losses are deferred in reserves until they are realised
or impairment occurs. Only interest income and dividend income, impairment losses, and certain foreign currency gains
and losses are recognised in profit or loss.
Investments in unquoted equity instruments that cannot be reliably measured at fair value are subsequently measureat cost. Unrealised holding gains/losses are not normally recognised in profit/loss.
第3题:
(b) (i) Discuss the main factors that should be taken into account when determining how to treat gains and
losses arising on tangible non-current assets in a single statement of financial performance. (8 marks)
第4题:
(b) Describe with suitable calculations how the goodwill arising on the acquisition of Briars will be dealt with in
the group financial statements and how the loan to Briars should be treated in the financial statements of
Briars for the year ended 31 May 2006. (9 marks)
(b) IAS21 ‘The Effects of Changes in Foreign Exchange Rates’ requires goodwill arising on the acquisition of a foreign operation
and fair value adjustments to acquired assets and liabilities to be treated as belonging to the foreign operation. They should
be expressed in the functional currency of the foreign operation and translated at the closing rate at each balance sheet date.
Effectively goodwill is treated as a foreign currency asset which is retranslated at the closing rate. In this case the goodwillarising on the acquisition of Briars would be treated as follows:
At 31 May 2006, the goodwill will be retranslated at 2·5 euros to the dollar to give a figure of $4·4 million. Therefore this
will be the figure for goodwill in the balance sheet and an exchange loss of $1·4 million recorded in equity (translation
reserve). The impairment of goodwill will be expensed in profit or loss to the value of $1·2 million. (The closing rate has been
used to translate the impairment; however, there may be an argument for using the average rate.)
The loan to Briars will effectively be classed as a financial liability measured at amortised cost. It is the default category for
financial liabilities that do not meet the definition of financial liabilities at fair value through profit or loss. For most entities,
most financial liabilities will fall into this category. When a financial liability is recognised initially in the balance sheet, the
liability is measured at fair value. Fair value is the amount for which a liability can be settled, between knowledgeable, willing
parties in an arm’s length transaction. In other words, fair value is an actual or estimated transaction price on the reporting
date for a transaction taking place between unrelated parties that have adequate information about the asset or liability being
measured.
Since fair value is a market transaction price, on initial recognition fair value generally is assumed to equal the amount of
consideration paid or received for the financial asset or financial liability. Accordingly, IAS39 specifies that the best evidence
of the fair value of a financial instrument at initial recognition generally is the transaction price. However for longer-term
receivables or payables that do not pay interest or pay a below-market interest, IAS39 does require measurement initially at
the present value of the cash flows to be received or paid.
Thus in Briars financial statements the following entries will be made:
第5题:
(b) Discuss the key issues which will need to be addressed in determining the basic components of an
internationally agreed conceptual framework. (10 marks)
Appropriateness and quality of discussion. (2 marks)
第6题:
(c) Discuss how the manipulation of financial statements by company accountants is inconsistent with their
responsibilities as members of the accounting profession setting out the distinguishing features of a
profession and the privileges that society gives to a profession. (Your answer should include reference to the
above scenario.) (7 marks)
Note: requirement (c) includes 2 marks for the quality of the discussion.
第7题:
4 The transition to International Financial Reporting Standards (IFRSs) involves major change for companies as IFRSs
introduce significant changes in accounting practices that were often not required by national generally accepted
accounting practice. It is important that the interpretation and application of IFRSs is consistent from country to
country. IFRSs are partly based on rules, and partly on principles and management’s judgement. Judgement is more
likely to be better used when it is based on experience of IFRSs within a sound financial reporting infrastructure. It is
hoped that national differences in accounting will be eliminated and financial statements will be consistent and
comparable worldwide.
Required:
(a) Discuss how the changes in accounting practices on transition to IFRSs and choice in the application of
individual IFRSs could lead to inconsistency between the financial statements of companies. (17 marks)
第8题:
Discuss the principles and practices which should be used in the financial year to 30 November 2008 to account
for:(c) the purchase of handsets and the recognition of revenue from customers and dealers. (8 marks)
Appropriateness and quality of discussion. (2 marks)
Handsets and revenue recognition
The inventory of handsets should be measured at the lower of cost and net realisable value (IAS2, ‘Inventories’, para 9). Johan
should recognise a provision at the point of purchase for the handsets to be sold at a loss. The inventory should be written down
to its net realisable value (NRV) of $149 per handset as they are sold both to prepaid customers and dealers. The NRV is $51
less than cost. Net realisable value is the estimated selling price in the normal course of business less the estimated selling costs.
IAS18, ‘Revenue’, requires the recognition of revenue by reference to the stage of completion of the transaction at the reporting
date. Revenue associated with the provision of services should be recognised as service as rendered. Johan should record the
receipt of $21 per call card as deferred revenue at the point of sale. Revenue of $18 should be recognised over the six month
period from the date of sale. The unused call credit of $3 would be recognised when the card expires as that is the point at which
the obligation of Johan ceases. Revenue is earned from the provision of services and not from the physical sale of the card.
IAS18 does not deal in detail with agency arrangements but says the gross inflows of economic benefits include amounts collected
on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the
principal are not revenue. Revenue is the amount of the ‘commission’. Additionally where there are two or more transactions, they
should be taken together if the commercial effect cannot be understood without reference to the series of transactions as a whole.
As a result of the above, Johan should not recognise revenue when the handset is sold to the dealer, as the dealer is acting as an
agent for the sale of the handset and the service contract. Johan has retained the risk of the loss in value of the handset as they
can be returned by the dealer and the price set for the handset is under the control of Johan. The handset sale and the provision
of the service would have to be assessed as to their separability. However, the handset cannot be sold separately and is
commercially linked to the provision of the service. Johan would, therefore, recognise the net payment of $130 as a customer
acquisition cost which may qualify as an intangible asset under IAS38, and the revenue from the service contract will be recognised
as the service is rendered. The intangible asset would be amortised over the 12 month contract. The cost of the handset from the
manufacturer will be charged as cost of goods sold ($200).
第9题:
(ii) Briefly discuss FOUR non-financial factors which might influence the above decision. (4 marks)
第10题:
4 (a) The purpose of ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements is to
establish standards and provide guidance on the auditor’s responsibility to consider laws and regulations in an
audit of financial statements.
Explain the auditor’s responsibilities for reporting non-compliance that comes to the auditor’s attention
during the conduct of an audit. (5 marks)
第11题:
(c) With specific reference to Hugh Co, discuss the objective of a review engagement and contrast the level of
assurance provided with that provided in an audit of financial statements. (6 marks)
第12题:
(b) (i) Discuss the relationship between the concepts of ‘business risk’ and ‘financial statement risk’; and
(4 marks)
第13题:
3 The directors of Panel, a public limited company, are reviewing the procedures for the calculation of the deferred tax
provision for their company. They are quite surprised at the impact on the provision caused by changes in accounting
standards such as IFRS1 ‘First time adoption of International Financial Reporting Standards’ and IFRS2 ‘Share-based
Payment’. Panel is adopting International Financial Reporting Standards for the first time as at 31 October 2005 and
the directors are unsure how the deferred tax provision will be calculated in its financial statements ended on that
date including the opening provision at 1 November 2003.
Required:
(a) (i) Explain how changes in accounting standards are likely to have an impact on the provision for deferred
taxation under IAS12 ‘Income Taxes’. (5 marks)
(a) (i) IAS12 ‘Income Taxes’ adopts a balance sheet approach to accounting for deferred taxation. The IAS adopts a full
provision approach to accounting for deferred taxation. It is assumed that the recovery of all assets and the settlement
of all liabilities have tax consequences and that these consequences can be estimated reliably and are unavoidable.
IFRS recognition criteria are generally different from those embodied in tax law, and thus ‘temporary’ differences will
arise which represent the difference between the carrying amount of an asset and liability and its basis for taxation
purposes (tax base). The principle is that a company will settle its liabilities and recover its assets over time and at that
point the tax consequences will crystallise.
Thus a change in an accounting standard will often affect the carrying value of an asset or liability which in turn will
affect the amount of the temporary difference between the carrying value and the tax base. This in turn will affect the
amount of the deferred taxation provision which is the tax rate multiplied by the amount of the temporary differences(assuming a net liability for deferred tax.)
第14题:
(ii) Explain the accounting treatment under IAS39 of the loan to Bromwich in the financial statements of
Ambush for the year ended 30 November 2005. (4 marks)
第15题:
(iv) Tyre recently undertook a sales campaign whereby customers can obtain free car accessories, by presenting a
coupon, which has been included in an advertisement in a national newspaper, on the purchase of a vehicle.
The offer is valid for a limited time period from 1 January 2006 until 31 July 2006. The management are unsure
as to how to treat this offer in the financial statements for the year ended 31 May 2006.
(5 marks)
Required:
Advise the directors of Tyre on how to treat the above items in the financial statements for the year ended
31 May 2006.
(The mark allocation is shown against each of the above items)
第16题:
5 Financial statements have seen an increasing move towards the use of fair values in accounting. Advocates of ‘fair
value accounting’ believe that fair value is the most relevant measure for financial reporting whilst others believe that
historical cost provides a more useful measure.
Issues have been raised over the reliability and measurement of fair values, and over the nature of the current level
of disclosure in financial statements in this area.
Required:
(a) Discuss the problems associated with the reliability and measurement of fair values and the nature of any
additional disclosures which may be required if fair value accounting is to be used exclusively in corporate
reporting. (13 marks)
第17题:
(b) Prepare a consolidated statement of financial position of the Ribby Group at 31 May 2008 in accordance
with International Financial Reporting Standards. (35 marks)
第18题:
(d) Sirus raised a loan with a bank of $2 million on 1 May 2007. The market interest rate of 8% per annum is to
be paid annually in arrears and the principal is to be repaid in 10 years time. The terms of the loan allow Sirus
to redeem the loan after seven years by paying the full amount of the interest to be charged over the ten year
period, plus a penalty of $200,000 and the principal of $2 million. The effective interest rate of the repayment
option is 9·1%. The directors of Sirus are currently restructuring the funding of the company and are in initial
discussions with the bank about the possibility of repaying the loan within the next financial year. Sirus is
uncertain about the accounting treatment for the current loan agreement and whether the loan can be shown as
a current liability because of the discussions with the bank. (6 marks)
Appropriateness of the format and presentation of the report and quality of discussion (2 marks)
Required:
Draft a report to the directors of Sirus which discusses the principles and nature of the accounting treatment of
the above elements under International Financial Reporting Standards in the financial statements for the year
ended 30 April 2008.
第19题:
(c) Discuss the ethical responsibility of the company accountant in ensuring that manipulation of the statement
of cash flows, such as that suggested by the directors, does not occur. (5 marks)
Note: requirements (b) and (c) include 2 professional marks in total for the quality of the discussion.
第20题:
(b) Discuss the relative costs to the preparer and benefits to the users of financial statements of increased
disclosure of information in financial statements. (14 marks)
Quality of discussion and reasoning. (2 marks)
第21题:
(ii) Briefly discuss THREE disadvantages of using EVA? in the measurement of financial performance.
(3 marks)
第22题:
(d) Discuss the professional accountant’s liability for reporting on prospective financial information and the
measures that the professional accountant might take to reduce that liability. (6 marks)
第23题:
3 (a) Financial statements often contain material balances recognised at fair value. For auditors, this leads to additional
audit risk.
Required:
Discuss this statement. (7 marks)