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. The carrying value of the associate increases by $2.2 million and the gain on dilution is $2.2 million. c. The carrying value of the associate increases by $0.2 million and the gain on dilution is $0.2 million. d. The carrying value of the associate decreases by $2.2 million and the gain on dilution is $2.2 million.
Chapter 21 FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES (IAS 29) SCOPE This Standard deals with the measurement problems of entities that are reporting in the currency of a hyperinflationary economy. In this situation, financial information reported in historical terms would present a distorted picture of the entity’s performance and financial position. This Standard sets out procedures for adjusting the financial information for the effects of hyperinflation. DEFINITION OF HYPERINFLATION The Standard does not define hyperinflation but sets out the general characteristics of a hyperinflationary economy. These characteristics would include the following five: 1. Where the preference is to keep wealth in nonmonetary assets or in a stable foreign currency. Any local currency would be immediately invested in order to attempt to maintain its purchasing power. 2. Where prices are quoted in a stable foreign currency and the population regards monetary amounts in that currency, as effectively a local currency. 3. Where transactions are priced at an amount that includes compensation for the future expected loss of the purchasing power of the local currency. This characteristic would be taken into account even if the credit period is quite short. 4. Where prices, wages, and interest rates are closely linked to a price index. 5. Where cumulative inflation rates over a period of three years approach or exceed 100%. Although IAS 29 sets out the characteristics that may indicate a hyperinflationary economy, it also states that judgment will have to be used in determining whether restatement of the financial statements of the entity is required. CEASING TO BE HYPERINFLATIONARY Likewise, judgment will be required in determining whether an economy is no longer hyperinflationary. The criteria used for this is whether the cumulative inflation rate drops below 100% in a three-year period. When the economy ceases to have hyperinflation, then the entity should discontinue preparing financial statements in accordance with IAS 29. If possible, all entities in that environment should cease to apply the Standard from the same date. The carrying amounts in subsequent financial statements will be taken as the amounts expressed in the measuring unit current at the end of the previous year. FUNCTIONAL CURRENCY AND HYPERINFLATION The functional currency should be based on the economic circumstances relevant to the entity and not based on choice. If the functional currency is one of a hyperinflationary economy, the financial statements should be stated in terms of the measurement unit current at the end of the reporting period. PRACTICAL INSIGHT Wella AG discloses in its 2002 accounts that the functional currency of foreign subsidiaries is normally the national currency, as the subsidiaries operate independently. The entity also states that the financial statements of subsidiaries operating in Turkey have been restated to reflect the purchasing power at the end of the reporting period. If a parent entity operates in a hyperinflationary economy but a subsidiary does not, then the parent’s results should be restated for hyperinflation but the subsidiary’s results need not be restated but should comply with IAS 21. If a subsidiary is operating in a hyperinflationary economy and the parent entity is not, then the parent entity would prepare financial statements using IFRS and the subsidiary would use IAS 29. RESTATEMENT OF FINANCIAL STATEMENTS: STATEMENT OF FINANCIAL POSITION IAS 29 requires the restatement of financial statements including the cash flow statements and requires the use of a general price index.
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Title Page Copyright Page Foreword
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DIVIDENDS DISCLOSURE: KEY ELEMENTS
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CONSOLIDATED FINANCIAL STATEMENTS A
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ELABORATION AND INTERPRETATION OF T
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MULTIPLE-CHOICE QUESTIONS Chapter 3
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FOREWORD TO THE FIRST EDITION by th
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PREFACE Achieving consistency in fi
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ABOUT THE AUTHORS Abbas Ali Mirza i
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ecognition and use of IFRS. A major
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SIC 12, Consolidation—Special-Pur
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The IFRS Advisory Council shall com
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Chapter 2 IASB FRAMEWORK INTRODUCTI
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ELEMENTS OF FINANCIAL STATEMENTS Th
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Chapter 3 PRESENTATION OF FINANCIAL
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XYZ Inc. is a manufacturer of telev
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Statement of Comprehensive Income I
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Available-for-sale financial assets
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Notes The notes should disclose the
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equired by the counterparty to sett
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The costs of purchase constitute al
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Based on the FIFO cost flow assumpt
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• Accounting policies adopted for
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f. Choices a and c. g. Choices a, b
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1. They should be “short term”
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2. Proceeds from disposal of debt i
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1. Cash collections from customers
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3. Placements and withdrawals of de
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Additional Information Retained ear
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c. Indirect Method Cash paid to sup
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Notes to the Consolidated Cash Flow
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Chapter 6 ACCOUNTING POLICIES, CHAN
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een applied. The impact of the new
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• For current and each prior peri
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An entity should disclose amounts a
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Notes to the Financial Statements (
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d. The entity would find the determ
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Given these facts, what is the “a
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existed at the end of the reporting
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Chapter 8 CONSTRUCTION CONTRACTS (I
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2. Costs that are attributable to c
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4. Revenue, costs, and profits to b
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Facts 34 Construction contracts Mil
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ecognized as revenue. Therefore, $7
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The Standard Applies to the Account
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ACCOUNTING FOR DEFERRED TAX To acco
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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
Page 160 and 161: Facts An entity purchases equipment
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Page 166 and 167: Difference 7 Total 89.5 (say 90m) T
Page 168 and 169: ate on December 31, 20X9 is $1 =
Page 170 and 171: On December 1, 2009, Compassionate
Page 172 and 173: 1. In order to capitalize the borro
Page 174 and 175: Chapter 17 RELATED-PARTY DISCLOSURE
Page 176 and 177: Solution Yes, under IAS 24 (revised
Page 178 and 179: warrant disclosure because it may n
Page 180 and 181: Facts Zeeba Inc. is part of a major
Page 182 and 183: The Used Equipment Co (Pty) Limited
Page 184 and 185: Key management personnel are define
Page 186 and 187: Chapter 18 ACCOUNTING AND REPORTING
Page 188 and 189: Total accounts payable 41,000 Accru
Page 190 and 191: Employee contributions 50,000 Total
Page 192 and 193: Chapter 19 CONSOLIDATED AND SEPARAT
Page 194 and 195: 2. Noncontrolling interests in the
Page 196 and 197: When an entity loses control of a s
Page 198 and 199: Initially, the fair value of the as
Page 200 and 201: c. The ultimate parent entity produ
Page 202 and 203: EQUITY METHOD Under the equity meth
Page 204 and 205: What is the relationship between Co
Page 206 and 207: What amount should be shown in A’
Page 208 and 209: (f) (g) (h) December 31 60 73 Assoc
Page 212 and 213: PRACTICAL INSIGHT Turkiye Petrol Ra
Page 214 and 215: Cash 5,150 Share capital (300/100
Page 216 and 217: Chapter 22 INTERESTS IN JOINT VENTU
Page 218 and 219: 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
Page 224 and 225: 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
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Page 246 and 247: • Sales that are so close to matu
Page 248 and 249: eceived nothing on entering into th
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Page 252 and 253: CASE STUDY 4 This case illustrates
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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,
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of the cash flows. 2. Entity A purc
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PRACTICAL INSIGHT IAS 39 does not p
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This case illustrates how to accoun
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This case illustrates how to accoun
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This case illustrates when to separ
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change in fair value of the derivat
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A cash flow hedge is a hedge of the
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This case illustrates the accountin
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PRACTICAL INSIGHT It is often possi
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Derivatives are measured on the bal
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15. Which of the following is not o
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• As amounts attributable to the
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The theoretical ex-rights fair valu
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Diluted earnings per share Adjusted
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Earnings: diluted earnings per shar
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• Basic and diluted earnings per
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The numbers of shares included in t
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Chapter 26 INTERIM FINANCIAL REPORT
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should be applied and previously re
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Consolidated balance sheet at June
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1. Under IAS 34, interim financial
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was $5 million. It was planned at t
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development costs. An impairment lo
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The fair value less cost to sell of
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can be reasonably allocated. 3. Thi
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PRACTICAL INSIGHT Austrian Airlines
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Impairments charge in the year Ther
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. Loss on goodwill. c. Loss on a bu
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Recognition of Provisions Those lia
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An onerous contract is an agreement
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In order to recognize a provision (
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A Singapore-based shipping company
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c. Because Amazon Inc. can avoid th
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In order to meet the definition of
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Examples of activities that may fai
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• These costs can be measured rel
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Entities are to apply the provision
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Future changes in expected cash flo
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Chapter 30 INVESTMENT PROPERTY (IAS
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If, on acquisition, it is not possi
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pool in which the fair value model
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Chapter 31 AGRICULTURE (IAS 41) BAC
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Required Value of biological asset
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2-year-old animal at November 1, 20
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Notes to Group Financial Statements
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d. There is no requirement in the S
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Financial statements presented by a
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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
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IFRS 1 discusses exemptions under t
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Solution In valuing the shares of V
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• Unilever was an early adopter (
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Chapter 33 SHARE-BASED PAYMENTS (IF
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date of the cancelation is deducted
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party, to satisfy its obligations t
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Playful has ordered an amount of in
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May 31, 20X8 August 1, 20X8 5,000
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Should the plans be valued at fair
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4. An entity issues fully paid shar
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Chapter 34 BUSINESS COMBINATIONS (I
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Future losses or other costs that a
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93 Interest (13) Profit before tax
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This choice of method of accounting
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The error in 20X9, regarding the om
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This makes a total NCI of $554m. c)
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$m J retained earnings 360 Share of
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Intercompany transactions and the r
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11. The “excess of the acquirer
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Chapter 35 INSURANCE CONTRACTS (IFR
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Required Discuss how the reinsuranc
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Guaranteed residual values Guarante
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Chapter 36 NONCURRENT ASSETS HELD F
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SUNDRY POINTS Exchanges of noncurre
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Before classification of the item a
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Noncurrent assets Current assets No
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c. At carrying value. d. In accorda
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IAS 8 specifies a hierarchy of crit
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fuel used, rig costs, delay rentals
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Chapter 38 FINANCIAL INSTRUMENTS: D
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other than credit risk (i.e., chang
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2. Whether fair values are determin
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d. Transfers into or out of Level 3
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equires that any derivative that do
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The amount recognized in the income
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a. To provide presentation and disc
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amongst the top management personne
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Recreational clubs $ 50 million vs
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Chapter 40 FINANCIAL INSTRUMENTS (I
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Discussion The entity’s objective
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The following are indicators of whe
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However as IFRS 9 eliminates the av
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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
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2. The subsidiary’s business acti
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All grants are measured at the fair
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The present value of the fine will
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3. If SMEs choose to follow the Sta
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1. b 2. a 3. a 4. c 5. a 1. a 2. c*
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1. b 2. a 3. b 1. d 2. b 3. c 4. c
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2. b 3. b 4. a 5. a 6. b 7. b 8. b
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18. d* 19. b 20. b 21. a 22. b 23.
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INDEX Abandonment Accounting compou
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Control business combinations conso
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interests. See IAS 32, Financial In
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events after the reporting period G
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gross basis versus net basis indire
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IAS 18, Revenue amendment to backgr
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net assets available for benefits n
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fair value per share financial stat
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initial measurement interest income
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scope of share-based payment transa
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credit risk effective date fair val
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property, plant, and equipment Impa
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Market risk Materiality Measurement
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Recoverable amount, impairment loss
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usiness combinations financial inst
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