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of impairment exists, the carrying amount of the investment is compared with its recoverable amount, being the higher of its fair value less costs to sell and value in use. Where the carrying amount exceeds the recoverable amount, the investment is written down to its recoverable amount. The group ceases to use the equity method of accounting on the date from which it no longer has joint control or significant influence over the joint venture, or when the interest becomes held for sale. Certain of the group’s activities, particularly in the Exploration and Production segment, are conducted through joint ventures where the venturers have a direct ownership interest in, and jointly control, the assets of the venture. BP recognizes, on a line-by-line basis in the consolidated financial statements, its share of the assets, liabilities, and expenses of these jointly controlled assets, along with the group’s income from the sale of its share of the output and any liabilities and expenses incurred in relation to the venture. MULTIPLE-CHOICE QUESTIONS 1. A joint venture is exempt from using the equity method or proportionate consolidation in certain circumstances. Which of the following circumstances is not a legitimate reason for not using the equity method or proportionate consolidation? a. Where the interest is held for sale under IFRS 5. b. Where the exception in IAS 27 applies regarding an entity not being required to present consolidated financial statements. c. Where the venturer is wholly owned, is not a publicly traded entity and does not intend to be, the ultimate parent produces consolidated accounts, and the owners do not object to the nonusage of the accounting methods. d. Where the joint venture’s activities are dissimilar from those of the parent. 2. In the case of a jointly controlled operation, a venturer should account for its interest by a. Using the equity method or proportionate consolidation. b. Recognizing the assets and liabilities, expenses and income that relate to its interest in the joint venture. c. Showing its share of the assets that it jointly controls, any liabilities incurred jointly or severally, and any income or expense relating to its interest in the joint venture. d. Using the purchase method of accounting. 3. In the case of jointly controlled assets, a venturer should account for its interest by a. Using the equity method or proportionate consolidation. b. Recognizing the assets and liabilities, expenses and income that relate to its interest in the joint venture. c. Showing its share of the assets that it jointly controls, any liabilities incurred jointly or severally, and any income or expense relating to its interest in the joint venture. d. Using the purchase method of accounting. 4. In the case of jointly controlled entities, a venturer should account for its interest by a. Using the equity method or proportionate consolidation. b. Recognizing the assets and liabilities, expenses and income that relate to its interest in the joint venture. c. Showing its share of the assets that it jointly controls, any liabilities incurred jointly or severally, and any income or expense relating to its interest in the joint venture. d. Using the purchase method of accounting. 5. The exemption from applying the equity method or proportionate consolidation is available in the following circumstances a. Where severe long-term restrictions impair the ability to transfer funds to the investor. b. Where the interest is acquired with a view to resale within 12 months. c. Where the activities of the venturer and joint venture are dissimilar. d. Where the venturer does not exert significant influence. 6. Under proportionate consolidation, the noncontrolling interest in the venture is a. Shown as a deduction from the net assets. b. Shown in the equity of the venturer. c. Shown as part of long-term liabilities of the venturer. d. Not included in the financial statements of the venturer. 7. A company has a 40% share in a joint venture and loans the venture $2 million. What figure will be shown for the loan in the statement of financial position of the venturer? a. $2 million. b. $800,000 c. $1.2 million. d. Zero. 8. A is an entity jointly controlled by B and C. B owns 52% and C owns 48% of A. Both entities use proportionate consolidation. On December 31, 20X9, B sells PPE for $12 million to A. The PPE has a carrying value of $8 million in B’s books. What gain would be shown in the financial records of B? a. $1.92 million. b. $2.08 million. c. $3.84 million. d. $4 million. 9. Entity A holds a 60% interest in entity B and exercises joint control over B. A uses proportionate consolidation to account for its interest in B. A has loaned B $15 million and both entities recognize the loan at its amortized cost of $12 million. How should A recognize the loan to B in its financial statements? a. The loan to B should be eliminated from A’s accounts to the extent of $9 million. b. The loan to B should be eliminated from A’s accounts to the extent of $7.2 million. c. The loan to B should be eliminated from A’s accounts to the extent of $6 million. d. The loan to B should be eliminated from A’s accounts to the extent of $4.8 million. 10. On the loss of joint control, the investor must measure at fair value any investment retained in the former jointly controlled entity. The investor must recognize in
profit or loss any difference between a. The net realizable value of any retained investment plus any proceeds from disposing of the part interest in the jointly controlled entity and the carrying amount of the investment at the date when joint control is lost. b. The fair value of any retained investment plus any proceeds from disposing of the part interest in the jointly controlled entity and the carrying amount of the investment at the date when joint control is lost. c. The original cost of any retained investment plus any proceeds from disposing of the part interest in the jointly controlled entity and the carrying amount of the investment at the date when joint control is lost. d. The fair value of any retained investment plus any proceeds from disposing of the part interest in the jointly controlled entity and the fair value of the investment at the date when joint control is lost.
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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
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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
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 210 and 211: . The carrying value of the associa
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 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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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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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
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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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