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a. To provide presentation and disclosure requirements for financial instruments. b. To require disclosures about the significance of financial instruments for an entity’s financial position and financial performance and qualitative and quantitative information about exposure to risks arising from financial instruments. c. To set out specified balance sheet and income statement formats for financial entities. d. To require disclosures about an entity’s exposure to off – balance sheet instruments and other complex transactions. 2. Which of the following types of information does IFRS 7 not require to be disclosed about the significance of financial instruments? a. Carrying amounts of categories of financial instruments. b. Fair values of financial instruments. c. Information about the use of hedge accounting. d. Information about financial instruments, contracts, and obligations under share-based payment transactions. 3. Which of the following types of information does IFRS 7 not require to be disclosed about exposure to risks arising from financial instruments? a. Qualitative and quantitative information about market risk. b. Qualitative and quantitative information about credit risk. c. Qualitative and quantitative information about operational risk. d. Qualitative and quantitative information about liquidity risk. 4. How does IFRS 7 define “liquidity risk”? a. The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. b. The risk that an entity will encounter difficulty in disposing a financial asset due to lack of market liquidity. c. The risk that an entity will encounter difficulty in meeting cash flow needs due to cash flow problems. d. The risk that an entity’s cash inflows will not be sufficient to meet the entity’s cash outflows. 5. When is an entity required to apply IFRS 7 for the first time? a. For annual periods beginning on or after January 1, 2005. b. For annual periods beginning on or after January 1, 2006. c. For annual periods beginning on or after January 1, 2007. d. For annual periods beginning on or after January 1, 2010.
Chapter 39 OPERATING SEGMENTS (IFRS 8) INTRODUCTION The IASB issued IFRS 8, Operating Segments, in November 2006, effective for annual periods beginning on or after January 1, 2009. IAS 14, Segment Reporting, was the previous standard on segment reporting that was issued by the International Accounting Standards Committee (IASC), the IASB’s predecessor. Since its issuance in 2006, IFRS 8 has already been amended by the following three IFRS: • IAS 1 (as revised in 2007), effective date January 1, 2009. • IASB’s annual improvements standard, “Improvements to IFRS 2009,” effective date January 1, 2010. • IAS 24, (as revised in 2009), effective date January 1, 2011 (with earlier application permitted). As a result of the IASB’s joint short-term convergence project with the US Financial Accounting Standards Board (FASB), which project was launched with the primary objective of reducing differences between IFRS and US GAAP, and based on research carried on by both standard setters, the IASB adopted the approach of the US Standard on segmental reporting, namely, SFAS 131, Disclosures about Segments of an Enterprise and Related Information, and revised its previous Standard on segment reporting. The IASB believes that requiring entities to report segmental information using the approach prescribed by IFRS 8 (i.e., a “management approach”) allows the financial statement user to review segmental information from the “eyes of the management” as opposed to a “risks and rewards” approach under its erstwhile standard on segment reporting. Furthermore, with the issuance of this standard on segment reporting, the emphasis has shifted to disclosing segmental information for external reporting purposes based on internal reporting within the entity to its “chief operating decision maker.” Therefore the cost and time needed to produce such segmental information is greatly reduced since most if not all of this information is already available with the entity, which in the case of public companies that are required to report on a quarterly basis is a distinct advantage. SCOPE IFRS 8 applies to both the separate or individual financial statements of an entity and to consolidated financial statements of a group within which the entity is the parent: • Whose debt or equity instruments are publicly listed. • That files, or is in the process of filing, its financial statements with a securities commission or other regulatory authority for the purpose of issuing any class of instruments in a public market. The Standard clarifies that when both the parent’s separate (stand-alone) financial statements and its consolidated financial statements are presented in the same financial report, segment information as required by IFRS 8 needs to be presented only for the consolidated financial statements. Upon first adoption of IFRS 8, “comparatives,” as reported under IAS 14, are required to be restated. DEFINITIONS OF KEY TERMS Operating segment. It is a component of the entity that engages in business activities from which it may or may not earn revenues and incur expenses and whose results are regularly reviewed by the chief operating decision maker to make decisions about resource allocations to segments and assess their performance and for which discrete financial information is available. Reportable segment. Under IFRS 8 a publicly listed entity is required to report segmental information for an operating segment that has been identified by IFRS 8 and which has exceeded the quantitative thresholds (such as 10% of its reported revenue). Chief operating decision maker (CODM). The term “CODM” identifies a function as opposed to a person and that function is allocating the entity’s resources and assessing the performance of the entity. CORE PRINCIPLE According to the “core principle” of IFRS 8, an entity should disclose information to enable users of its financial statements to evaluate the nature and financial effects of the types of business activities in which it engages and the economic environments in which it operates. CHIEF OPERATING DECISION MAKER In some cases, the highest ranking individual in any organization may qualify as the Chief Operating Decision Maker (CODM). However, since the term CODM does not always refer to an individual, but to a function, in the case of a complex organizational and reporting setup (where decision-making responsibilities are split
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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
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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
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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
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current period (IFRIC 1.5). Thus in
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Methods of valuation techniques use
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of impairment exists, the carrying
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Chapter 23 FINANCIAL INSTRUMENTS: P
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Contracts for contingent considerat
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has the unconditional right to refu
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principal and interest cash flows)
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On January 15, 20X5, Entity A issue
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instruments. A financial instrument
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The major components of market risk
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Credit risk is the risk that a cust
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1. Are there any circumstances when
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• A purchased put option to sell
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• Sales that are so close to matu
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eceived nothing on entering into th
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price plus interest. In this case,
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CASE STUDY 4 This case illustrates
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financial liabilities measured at f
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Example If Entity A receives a cash
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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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Page 392 and 393: This makes a total NCI of $554m. c)
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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
Page 412 and 413: 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
Page 426 and 427: d. Transfers into or out of Level 3
Page 428 and 429: equires that any derivative that do
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Page 436 and 437: Recreational clubs $ 50 million vs
Page 438 and 439: Chapter 40 FINANCIAL INSTRUMENTS (I
Page 440 and 441: 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
Page 448 and 449: Chapter 41 IFRS FOR SMEs INTRODUCTI
Page 450 and 451: 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
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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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