ICMA Pakistan Financial Accounting & Corporate Reporting Syllabus

Under IAS 7, define cash equivalents.

Short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value — generally with a maturity of three months or less from the date of acquisition.

Under the INDIRECT method (IAS 7), how do you derive cash generated from operations from profit before tax?

Start with profit before tax; add back non-cash items (depreciation, amortisation, impairments) and non-operating items (interest expense, loss on disposal); deduct non-operating income (interest/dividend income, profit on disposal); then adjust for working capital changes (increase in inventory/receivables = deduct; increase in payables = add).

Under IAS 7, how may interest paid, interest received and dividends received be classified?

There is a policy choice: interest and dividends paid may be classified as operating or financing; interest and dividends received may be classified as operating or investing. Each must be classified consistently period to period.

Define Property, Plant and Equipment per IAS 16.

Tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and are expected to be used during more than one period.

What is the recognition rule for PPE under IAS 16?

PPE is recognised as an asset only if it is probable that future economic benefits associated with the item will flow to the entity, and the cost of the item can be measured reliably.

What components make up the initial COST of an item of PPE under IAS 16?

Purchase price (including import duties and non-refundable taxes, net of trade discounts/rebates), directly attributable costs of bringing the asset to its location and condition for intended use, and the initial estimate of dismantling, removal and site restoration costs (decommissioning).

What are the two measurement models for PPE after initial recognition under IAS 16?

The Cost model (cost less accumulated depreciation and accumulated impairment losses) and the Revaluation model (fair value at revaluation date less subsequent accumulated depreciation and impairment).

Under IAS 16's revaluation model, how is a revaluation INCREASE and a revaluation DECREASE accounted for?

An increase is recognised in OCI and accumulated in a revaluation surplus, unless it reverses a previous decrease of the same asset charged to P/L (then recognise in P/L to that extent). A decrease is recognised in P/L, except to the extent it reverses a surplus in the revaluation surplus for that asset (then debited to OCI).

Define depreciation and the three common depreciation methods under IAS 16.

Depreciation is the systematic allocation of the depreciable amount (cost less residual value) of an asset over its useful life. Methods: straight-line, diminishing/reducing balance, and units of production.

Define an Intangible Asset under IAS 38, including the three key criteria.

An identifiable non-monetary asset without physical substance. Key criteria: identifiability (separable or arising from contractual/legal rights), control (power to obtain benefits and restrict others' access), and future economic benefits.

Under IAS 38, what are the six criteria for capitalising DEVELOPMENT costs (PIRATE)?

Probable future economic benefits; Intention to complete and use/sell; Resources (technical, financial) available to complete; Ability to use or sell the asset; Technical feasibility of completion; and Expenditure can be measured reliably. Research costs must always be expensed.

How are intangible assets with INDEFINITE vs FINITE useful lives treated under IAS 38?

Finite life: amortised over useful life and tested for impairment when indicators exist. Indefinite life: not amortised, but tested for impairment annually and whenever there is an indication of impairment; the indefinite-life assessment is reviewed each period.

Under IAS 38, may internally generated goodwill, brands, mastheads and customer lists be recognised?

No. Internally generated goodwill, brands, mastheads, publishing titles, customer lists and similar items are not recognised as intangible assets because their cost cannot be reliably distinguished from the cost of developing the business as a whole.

Under IAS 36, what is the RECOVERABLE AMOUNT of an asset?

The higher of an asset's (or cash-generating unit's) fair value less costs of disposal and its value in use.

Under IAS 36, define VALUE IN USE.

The present value of the future cash flows expected to be derived from an asset or cash-generating unit (its continuing use plus ultimate disposal).

When is an asset impaired and how is the impairment loss measured under IAS 36?

An asset is impaired when its carrying amount exceeds its recoverable amount. The impairment loss = carrying amount - recoverable amount, recognised in P/L (or against any revaluation surplus first for a revalued asset).

Under IAS 36, in what order is an impairment loss for a cash-generating unit (CGU) allocated?

First to any goodwill allocated to the CGU; then to the other assets of the unit pro rata on the basis of their carrying amounts — but no individual asset is reduced below the highest of its fair value less costs of disposal, its value in use, or zero.

Under IAS 36, can an impairment loss be reversed?

Yes for most assets/CGUs if the recoverable amount increases (capped so carrying amount does not exceed what it would have been net of depreciation had no impairment occurred). However, an impairment loss recognised for GOODWILL must NEVER be reversed.

Define Investment Property under IAS 40.

Property (land or a building, or part of a building, or both) held by the owner or lessee to earn rentals or for capital appreciation or both, rather than for use in production/supply of goods/services or for administration, or sale in the ordinary course of business.

What are the two measurement models for investment property under IAS 40, and how is a gain/loss treated under each?

Cost model (as in IAS 16) or Fair value model. Under the fair value model the property is not depreciated and changes in fair value are recognised in profit or loss in the period they arise. The chosen model is applied to all investment property.

Under IFRS 15, what are the five steps of the revenue recognition model?

1) Identify the contract(s) with a customer; 2) Identify the performance obligations; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations; 5) Recognise revenue when (or as) each performance obligation is satisfied.

Under IFRS 15, when is revenue recognised OVER TIME rather than at a point in time?

Over time if any one criterion is met: the customer simultaneously receives and consumes the benefits as the entity performs; the entity's performance creates/enhances an asset the customer controls; or the asset has no alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. Otherwise, at a point in time when control transfers.

Under IFRS 15, what is the difference between a contract asset and a contract liability?

A contract asset arises when the entity has performed (recognised revenue) but the right to consideration is conditional on something other than the passage of time. A contract liability (deferred income) arises when the entity has received consideration (or it is due) before performance is satisfied.

Under IAS 37, what three conditions must be met to recognise a PROVISION?

A present obligation (legal or constructive) arising from a past event; it is probable (more likely than not) that an outflow of resources embodying economic benefits will be required; and a reliable estimate can be made of the amount.

Under IAS 37, distinguish a contingent liability from a contingent asset and state their accounting treatment.

Contingent liability: a possible obligation, or a present obligation not recognised because outflow is not probable or cannot be reliably measured — disclosed (not recognised) unless remote. Contingent asset: a possible asset from past events confirmed by future events — disclosed only when an inflow is probable; recognised only when virtually certain.

Under IAS 37, how is a provision measured?

At the best estimate of the expenditure required to settle the present obligation at the reporting date (expected value for large populations; most likely outcome for a single obligation). Where the time value of money is material, the provision is discounted to present value.

Under IFRS 16, how does a lessee initially recognise a lease (the general model)?

The lessee recognises a right-of-use asset and a lease liability. The lease liability is measured at the present value of lease payments not yet paid; the right-of-use asset is measured at the liability amount plus initial direct costs, prepayments, and estimated dismantling/restoration costs, less lease incentives received.

Under IFRS 16, what two exemptions allow a lessee to NOT recognise a right-of-use asset and lease liability?

Short-term leases (term of 12 months or less with no purchase option) and leases of low-value underlying assets. For these, lease payments are recognised as an expense on a straight-line (or other systematic) basis.

Under IFRS 16, how does a LESSOR classify leases and account for each type?

A lessor classifies each lease as a finance lease (transfers substantially all the risks and rewards of ownership — derecognise the asset and recognise a net investment/receivable) or an operating lease (does not transfer them — keep the asset on the balance sheet and recognise lease income on a straight-line basis).

Under IFRS 9, what are the three measurement classifications for financial ASSETS?

Amortised cost; Fair value through other comprehensive income (FVOCI); and Fair value through profit or loss (FVTPL).

Under IFRS 9, which two tests determine whether a financial asset is measured at amortised cost?

The business model test (the asset is held within a business model whose objective is to hold assets to collect contractual cash flows) and the SPPI / contractual cash flow characteristics test (cash flows are solely payments of principal and interest on the principal outstanding). Both must be met.

Under IFRS 9, how are equity investments and financial liabilities generally classified/measured?

Equity investments are measured at FVTPL by default, with an irrevocable option to designate non-held-for-trading equities as FVOCI (no recycling). Financial liabilities are generally measured at amortised cost, unless held for trading or designated at FVTPL.

Under IFRS 9, what impairment model applies to financial assets and what are its stages?

The Expected Credit Loss (ECL) model. Stage 1: 12-month ECL (no significant increase in credit risk). Stage 2: lifetime ECL (significant increase in credit risk but not credit-impaired). Stage 3: lifetime ECL with interest on net carrying amount (credit-impaired).

Under IFRS 9, when is a financial asset DERECOGNISED?

When the contractual rights to the cash flows from the asset expire, OR the entity transfers the asset and transfers substantially all the risks and rewards of ownership (or, if it neither transfers nor retains substantially all risks and rewards, it transfers control).

Under IFRS 3, how is a business combination accounted for and what method is used?

Using the acquisition method: identify the acquirer; determine the acquisition date; recognise and measure the identifiable assets acquired, liabilities assumed and any non-controlling interest (NCI); and recognise and measure goodwill or a gain from a bargain purchase.

Under IFRS 3, state the formula for goodwill arising in a business combination.

Goodwill = (Consideration transferred + Non-controlling interest + Fair value of any previously held interest) - Fair value of identifiable net assets acquired. If this is negative, it is a bargain purchase gain recognised in profit or loss.

Under IFRS 3, what are the two methods of measuring non-controlling interest (NCI), and how does each affect goodwill?

(1) Fair value method (full goodwill) — NCI at fair value, so goodwill includes the NCI's share of goodwill. (2) Proportionate method (partial goodwill) — NCI at its proportionate share of identifiable net assets, so goodwill reflects only the parent's share.

How is goodwill subsequently treated after a business combination under IFRS?

Goodwill is not amortised. It is carried at cost less accumulated impairment losses and tested for impairment at least annually (and whenever there is an indication of impairment) under IAS 36.

When preparing a consolidated statement of financial position, how is the parent's investment in the subsidiary and the subsidiary's share capital treated?

The parent's 'investment in subsidiary' is cancelled (eliminated) against the parent's share of the subsidiary's equity (share capital and pre-acquisition reserves) at acquisition; any excess gives rise to goodwill, and the subsidiary's share capital does not appear in the consolidated SOFP.

In a consolidated SOFP, how is NON-CONTROLLING INTEREST calculated at the reporting date (proportionate goodwill / net assets method)?

NCI = NCI at acquisition (its share of the subsidiary's net assets at acquisition, or fair value) + NCI's share of the subsidiary's post-acquisition change in net assets (reserves). It is presented within equity, separate from the parent owners' equity.