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Based on the FIFO cost flow assumption, compute the value of inventory at May 31, 2009, September 30, 2009, and December 31, 2009. Solution Weighted-Average Cost Method Facts CASE STUDY 3 Vigilant LLC, a newly incorporated company, uses the latest version of a software package (EXODUS) to cost and value its inventory. The software uses the weighted-average cost method to value inventory. The following are the purchases and sales made by Vigilant LLC during 2009 (as a newly set up company, Vigilant LLC has no beginning inventory): Required Purchases Sales January 100 units @ $250 per unit March 150 units @ $300 per unit September 200 units @ $350 per unit March 150 units December 170 units Vigilant LLC has approached you to compute the value of its inventory and the cost per unit of the inventory at March 31, 2009; September 30, 2009; and December 31, 2009; under the weighted-average cost method. Solution
NET REALIZABLE VALUE Inventories are written down to net realizable value (NRV) on the basis that assets should not be carried in excess of amounts likely to be realized from their sale or use. Write-down of inventories becomes necessary for several reasons; for example, inventories may be damaged or become obsolete or their selling prices may have declined after year-end (or period-end). Inventories are usually written down to their NRV on an item-by-item basis, but in certain conditions, also by a group of similar or related items. It is, however, not appropriate to mark down inventories by classification of inventories, such as finished goods, or all inventories in a geographical segment or industry. NRV estimates are based on the most reliable evidence of the inventories’ realizable amounts. They take into account price fluctuations or costs directly related to events after the period-end, confirming conditions that exist at the period-end. Estimates of NRV also take into account the reason or purpose for which inventories are held. For instance, NRV of a quantity of inventory being held to satisfy firm sales contracts or service contracts are based on contract prices. Inventories of raw materials and other supplies held for use in the production of inventories are not written down below cost if the finished goods in which they will be used are expected to be sold at or above cost. However, when a decrease in the price of raw materials indicates that the cost of the finished goods exceeds net realizable value, the materials are written down to NRV. In such cases, the replacement cost of the raw materials may be the best available measure of their NRV. NRV is assessed in each successive period. If changes in economic circumstances warrant, earlier write-downs are reversed to make the new carrying amount equal to the lower of cost and the revised NRV. Facts CASE STUDY 4 Moonstruck Enterprises Inc. is a retailer of Italian furniture and has five major product lines: sofas, dining tables, beds, closets, and lounge chairs. At December 31, 200X, quantity on hand, cost per unit, and net realizable value (NRV) per unit of the product lines are as follows: Required Compute the valuation of the inventory of Moonstruck Enterprises at December 31, 200X, under IAS 2 using the “lower of cost and NRV” principle. Solution RECOGNITION OF EXPENSE When inventory is sold, the carrying amount of inventory should be recognized as an expense when the related revenue is recognized. Moreover, the amount of any inventory written down to net realizable value is recognized as an expense. The amount of any reversal of a write-down of inventory should be a reduction to the amount written off in the period it was reversed. The financial statements should disclose DISCLOSURE
Page 4 and 5: Title Page Copyright Page Foreword
Page 6 and 7: DIVIDENDS DISCLOSURE: KEY ELEMENTS
Page 8 and 9: CONSOLIDATED FINANCIAL STATEMENTS A
Page 10 and 11: ELABORATION AND INTERPRETATION OF T
Page 12 and 13: MULTIPLE-CHOICE QUESTIONS Chapter 3
Page 14 and 15: FOREWORD TO THE FIRST EDITION by th
Page 16 and 17: PREFACE Achieving consistency in fi
Page 18 and 19: ABOUT THE AUTHORS Abbas Ali Mirza i
Page 20 and 21: ecognition and use of IFRS. A major
Page 22 and 23: SIC 12, Consolidation—Special-Pur
Page 24 and 25: The IFRS Advisory Council shall com
Page 26 and 27: Chapter 2 IASB FRAMEWORK INTRODUCTI
Page 28 and 29: ELEMENTS OF FINANCIAL STATEMENTS Th
Page 30 and 31: Chapter 3 PRESENTATION OF FINANCIAL
Page 32 and 33: XYZ Inc. is a manufacturer of telev
Page 34 and 35: Statement of Comprehensive Income I
Page 36 and 37: Available-for-sale financial assets
Page 38 and 39: Notes The notes should disclose the
Page 40 and 41: equired by the counterparty to sett
Page 42 and 43: The costs of purchase constitute al
Page 46 and 47: • Accounting policies adopted for
Page 48 and 49: f. Choices a and c. g. Choices a, b
Page 50 and 51: 1. They should be “short term”
Page 52 and 53: 2. Proceeds from disposal of debt i
Page 54 and 55: 1. Cash collections from customers
Page 56 and 57: 3. Placements and withdrawals of de
Page 58 and 59: Additional Information Retained ear
Page 60 and 61: c. Indirect Method Cash paid to sup
Page 62 and 63: Notes to the Consolidated Cash Flow
Page 64 and 65: Chapter 6 ACCOUNTING POLICIES, CHAN
Page 66 and 67: een applied. The impact of the new
Page 68 and 69: • For current and each prior peri
Page 70 and 71: An entity should disclose amounts a
Page 72 and 73: Notes to the Financial Statements (
Page 74 and 75: d. The entity would find the determ
Page 76 and 77: Given these facts, what is the “a
Page 78 and 79: existed at the end of the reporting
Page 80 and 81: Chapter 8 CONSTRUCTION CONTRACTS (I
Page 82 and 83: 2. Costs that are attributable to c
Page 84 and 85: 4. Revenue, costs, and profits to b
Page 86 and 87: Facts 34 Construction contracts Mil
Page 88 and 89: ecognized as revenue. Therefore, $7
Page 90 and 91: The Standard Applies to the Account
Page 92 and 93: ACCOUNTING FOR DEFERRED TAX To acco
Page 94 and 95:
TEMPORARY DIFFERENCES NOT RECOGNIZE
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Required Show the impact on the fin
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Solution Zero. There is no temporar
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Solution Facts CASE STUDY 13 East i
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Since 20X4, Frontier has incurred s
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calculated that the liability and e
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Chapter 10 PROPERTY, PLANT, AND EQU
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Required 2. Initial delivery and ha
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disposal. Any gain on disposal is t
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financing liability and the financi
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Chapter 11 LEASES (IAS 17) BACKGROU
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the fair value of the asset. During
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ate in the lease is 9.3% (approxima
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Discuss how this transaction should
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The basic lease accounting model ha
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6. The lease of land and buildings
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Chapter 12 REVENUE (IAS 18) BACKGRO
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• Do not involve the same counter
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• The costs incurred and the cost
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Up to March 31, 20X9, the value of
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e that the real estate developer as
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Turnover is recognized when the ris
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Chapter 13 EMPLOYEE BENEFITS (IAS 1
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The accounting for a defined contri
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The amount of the expense or income
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• Fair value of plan assets: $50
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8. Past service cost: $115 million.
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Pensions Employee costs Employee co
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9. An entity operates a defined ben
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For quite some time, it has been un
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Solution Citimart Inc. would need t
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The Standard does not favor either
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Chapter 15 THE EFFECTS OF CHANGES I
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Facts An entity purchases equipment
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The exchange difference is calculat
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disposal was recognized. The same a
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Difference 7 Total 89.5 (say 90m) T
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ate on December 31, 20X9 is $1 =
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On December 1, 2009, Compassionate
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1. In order to capitalize the borro
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Chapter 17 RELATED-PARTY DISCLOSURE
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Solution Yes, under IAS 24 (revised
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warrant disclosure because it may n
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Facts Zeeba Inc. is part of a major
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The Used Equipment Co (Pty) Limited
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Key management personnel are define
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Chapter 18 ACCOUNTING AND REPORTING
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Total accounts payable 41,000 Accru
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Employee contributions 50,000 Total
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Chapter 19 CONSOLIDATED AND SEPARAT
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2. Noncontrolling interests in the
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When an entity loses control of a s
Page 198 and 199:
Initially, the fair value of the as
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c. The ultimate parent entity produ
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EQUITY METHOD Under the equity meth
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What is the relationship between Co
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What amount should be shown in A’
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(f) (g) (h) December 31 60 73 Assoc
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. The carrying value of the associa
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PRACTICAL INSIGHT Turkiye Petrol Ra
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Cash 5,150 Share capital (300/100
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Chapter 22 INTERESTS IN JOINT VENTU
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Facts Three entities decide to form
Page 220 and 221:
current period (IFRIC 1.5). Thus in
Page 222 and 223:
Methods of valuation techniques use
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of impairment exists, the carrying
Page 226 and 227:
Chapter 23 FINANCIAL INSTRUMENTS: P
Page 228 and 229:
Contracts for contingent considerat
Page 230 and 231:
has the unconditional right to refu
Page 232 and 233:
principal and interest cash flows)
Page 234 and 235:
On January 15, 20X5, Entity A issue
Page 236 and 237:
instruments. A financial instrument
Page 238 and 239:
The major components of market risk
Page 240 and 241:
Credit risk is the risk that a cust
Page 242 and 243:
1. Are there any circumstances when
Page 244 and 245:
• A purchased put option to sell
Page 246 and 247:
• Sales that are so close to matu
Page 248 and 249:
eceived nothing on entering into th
Page 250 and 251:
price plus interest. In this case,
Page 252 and 253:
CASE STUDY 4 This case illustrates
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financial liabilities measured at f
Page 256 and 257:
Example If Entity A receives a cash
Page 258 and 259:
If the reporting period does not co
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cash flow pattern, credit quality,
Page 262 and 263:
of the cash flows. 2. Entity A purc
Page 264 and 265:
PRACTICAL INSIGHT IAS 39 does not p
Page 266 and 267:
This case illustrates how to accoun
Page 268 and 269:
This case illustrates how to accoun
Page 270 and 271:
This case illustrates when to separ
Page 272 and 273:
change in fair value of the derivat
Page 274 and 275:
A cash flow hedge is a hedge of the
Page 276 and 277:
This case illustrates the accountin
Page 278 and 279:
PRACTICAL INSIGHT It is often possi
Page 280 and 281:
Derivatives are measured on the bal
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15. Which of the following is not o
Page 284 and 285:
• As amounts attributable to the
Page 286 and 287:
The theoretical ex-rights fair valu
Page 288 and 289:
Diluted earnings per share Adjusted
Page 290 and 291:
Earnings: diluted earnings per shar
Page 292 and 293:
• Basic and diluted earnings per
Page 294 and 295:
The numbers of shares included in t
Page 296 and 297:
Chapter 26 INTERIM FINANCIAL REPORT
Page 298 and 299:
should be applied and previously re
Page 300 and 301:
Consolidated balance sheet at June
Page 302 and 303:
1. Under IAS 34, interim financial
Page 304 and 305:
was $5 million. It was planned at t
Page 306 and 307:
development costs. An impairment lo
Page 308 and 309:
The fair value less cost to sell of
Page 310 and 311:
can be reasonably allocated. 3. Thi
Page 312 and 313:
PRACTICAL INSIGHT Austrian Airlines
Page 314 and 315:
Impairments charge in the year Ther
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. Loss on goodwill. c. Loss on a bu
Page 318 and 319:
Recognition of Provisions Those lia
Page 320 and 321:
An onerous contract is an agreement
Page 322 and 323:
In order to recognize a provision (
Page 324 and 325:
A Singapore-based shipping company
Page 326 and 327:
c. Because Amazon Inc. can avoid th
Page 328 and 329:
In order to meet the definition of
Page 330 and 331:
Examples of activities that may fai
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• These costs can be measured rel
Page 334 and 335:
Entities are to apply the provision
Page 336 and 337:
Future changes in expected cash flo
Page 338 and 339:
Chapter 30 INVESTMENT PROPERTY (IAS
Page 340 and 341:
If, on acquisition, it is not possi
Page 342 and 343:
pool in which the fair value model
Page 344 and 345:
Chapter 31 AGRICULTURE (IAS 41) BAC
Page 346 and 347:
Required Value of biological asset
Page 348 and 349:
2-year-old animal at November 1, 20
Page 350 and 351:
Notes to Group Financial Statements
Page 352 and 353:
d. There is no requirement in the S
Page 354 and 355:
Financial statements presented by a
Page 356 and 357:
Solution In order to prepare the op
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• Identification of assets acquir
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2. No journal entry is required as
Page 362 and 363:
IFRS 1 discusses exemptions under t
Page 364 and 365:
Solution In valuing the shares of V
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• Unilever was an early adopter (
Page 368 and 369:
Chapter 33 SHARE-BASED PAYMENTS (IF
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date of the cancelation is deducted
Page 372 and 373:
party, to satisfy its obligations t
Page 374 and 375:
Playful has ordered an amount of in
Page 376 and 377:
May 31, 20X8 August 1, 20X8 5,000
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Should the plans be valued at fair
Page 380 and 381:
4. An entity issues fully paid shar
Page 382 and 383:
Chapter 34 BUSINESS COMBINATIONS (I
Page 384 and 385:
Future losses or other costs that a
Page 386 and 387:
93 Interest (13) Profit before tax
Page 388 and 389:
This choice of method of accounting
Page 390 and 391:
The error in 20X9, regarding the om
Page 392 and 393:
This makes a total NCI of $554m. c)
Page 394 and 395:
$m J retained earnings 360 Share of
Page 396 and 397:
Intercompany transactions and the r
Page 398 and 399:
11. The “excess of the acquirer
Page 400 and 401:
Chapter 35 INSURANCE CONTRACTS (IFR
Page 402 and 403:
Required Discuss how the reinsuranc
Page 404 and 405:
Guaranteed residual values Guarante
Page 406 and 407:
Chapter 36 NONCURRENT ASSETS HELD F
Page 408 and 409:
SUNDRY POINTS Exchanges of noncurre
Page 410 and 411:
Before classification of the item a
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Noncurrent assets Current assets No
Page 414 and 415:
c. At carrying value. d. In accorda
Page 416 and 417:
IAS 8 specifies a hierarchy of crit
Page 418 and 419:
fuel used, rig costs, delay rentals
Page 420 and 421:
Chapter 38 FINANCIAL INSTRUMENTS: D
Page 422 and 423:
other than credit risk (i.e., chang
Page 424 and 425:
2. Whether fair values are determin
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d. Transfers into or out of Level 3
Page 428 and 429:
equires that any derivative that do
Page 430 and 431:
The amount recognized in the income
Page 432 and 433:
a. To provide presentation and disc
Page 434 and 435:
amongst the top management personne
Page 436 and 437:
Recreational clubs $ 50 million vs
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Chapter 40 FINANCIAL INSTRUMENTS (I
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Discussion The entity’s objective
Page 442 and 443:
The following are indicators of whe
Page 444 and 445:
However as IFRS 9 eliminates the av
Page 446 and 447:
Facts CASE STUDY 6 Hant has an equi
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Chapter 41 IFRS FOR SMEs INTRODUCTI
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the IFRS for SMEs, if an entity can
Page 452 and 453:
2. The subsidiary’s business acti
Page 454 and 455:
All grants are measured at the fair
Page 456 and 457:
The present value of the fine will
Page 458 and 459:
3. If SMEs choose to follow the Sta
Page 460 and 461:
1. b 2. a 3. a 4. c 5. a 1. a 2. c*
Page 462 and 463:
1. b 2. a 3. b 1. d 2. b 3. c 4. c
Page 464 and 465:
2. b 3. b 4. a 5. a 6. b 7. b 8. b
Page 466 and 467:
18. d* 19. b 20. b 21. a 22. b 23.
Page 468 and 469:
INDEX Abandonment Accounting compou
Page 470 and 471:
Control business combinations conso
Page 472 and 473:
interests. See IAS 32, Financial In
Page 474 and 475:
events after the reporting period G
Page 476 and 477:
gross basis versus net basis indire
Page 478 and 479:
IAS 18, Revenue amendment to backgr
Page 480 and 481:
net assets available for benefits n
Page 482 and 483:
fair value per share financial stat
Page 484 and 485:
initial measurement interest income
Page 486 and 487:
scope of share-based payment transa
Page 488 and 489:
credit risk effective date fair val
Page 490 and 491:
property, plant, and equipment Impa
Page 492 and 493:
Market risk Materiality Measurement
Page 494 and 495:
Recoverable amount, impairment loss
Page 496 and 497:
usiness combinations financial inst
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