PIPFA Financial Reporting Syllabus

What is a joint venture and how is it accounted for under IFRS 11?

A joint venture is a joint arrangement whereby the parties that have joint control have rights to the net assets of the arrangement. It is accounted for using the equity method (like an associate).

What is joint control under IFRS 11?

The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

What is the core principle of IFRS 15 Revenue from Contracts with Customers?

An entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

List the five steps of the IFRS 15 revenue recognition model.

(1) Identify the contract with the 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.

What is a performance obligation under IFRS 15?

A promise in a contract to transfer to the customer either a distinct good or service (or bundle), or a series of distinct goods or services that are substantially the same and have the same pattern of transfer.

When is a good or service considered distinct under IFRS 15?

When (1) the customer can benefit from it on its own or with readily available resources, and (2) the promise to transfer it is separately identifiable from other promises in the contract.

Under IFRS 15, when is revenue recognised over time versus at a point in time?

Revenue is recognised over time if the customer simultaneously receives and consumes the benefits, the entity creates/enhances an asset the customer controls, or the asset has no alternative use and there is an enforceable right to payment for work done. Otherwise revenue is recognised at the point in time control transfers.

How is the transaction price allocated to performance obligations under IFRS 15?

In proportion to the relative stand-alone selling prices of each distinct performance obligation.

What is the scope and core requirement of IFRS 16 for lessees?

IFRS 16 requires lessees to recognise almost all leases on the balance sheet as a right-of-use asset and a corresponding lease liability, eliminating the operating/finance lease distinction for lessees.

What two exemptions allow a lessee to keep a lease off-balance-sheet under IFRS 16?

Short-term leases (12 months or less with no purchase option) and leases of low-value assets. Payments are then expensed on a straight-line basis.

How is the lease liability initially measured under IFRS 16?

At the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease (or the lessee's incremental borrowing rate if that rate cannot be readily determined).

What is included in the initial cost of a right-of-use asset under IFRS 16?

The initial amount of the lease liability, plus lease payments made at or before commencement (less incentives received), plus initial direct costs, plus an estimate of dismantling/restoration costs.

How is the right-of-use asset subsequently measured and depreciated under IFRS 16?

At cost less accumulated depreciation and impairment. It is depreciated over the shorter of the lease term and the asset's useful life (or over the useful life if ownership transfers or a purchase option is reasonably certain).

How is the lease liability subsequently measured under IFRS 16?

Using the amortised cost (effective interest) method: increased by interest accrued on the outstanding balance and reduced by lease payments made.

What is the definition of a provision under IAS 37?

A liability of uncertain timing or amount.

What three conditions must be met to recognise a provision under IAS 37?

(1) A present obligation (legal or constructive) exists as a result of a past event, (2) it is probable that an outflow of economic benefits will be required, and (3) a reliable estimate of the amount can be made.

How is a provision measured under IAS 37?

At the best estimate of the expenditure required to settle the present obligation at the reporting date; where the time value of money is material, the provision is discounted to present value.

What is a contingent liability under IAS 37 and how is it treated?

A possible obligation depending on uncertain future events, or a present obligation that is not probable or cannot be reliably measured. It is not recognised but is disclosed in the notes (unless the outflow is remote).

How is a contingent asset treated under IAS 37?

A contingent asset is not recognised; it is disclosed only where an inflow of economic benefits is probable. When realisation becomes virtually certain, it is recognised as an asset.

What are events after the reporting period under IAS 10?

Events, both favourable and unfavourable, occurring between the end of the reporting period and the date the financial statements are authorised for issue.

Distinguish adjusting and non-adjusting events under IAS 10.

Adjusting events provide evidence of conditions that existed at the reporting date — the financial statements are adjusted. Non-adjusting events are indicative of conditions arising after the reporting date — no adjustment is made, but material ones are disclosed.

How does IAS 10 treat dividends declared after the reporting period?

Dividends declared after the reporting period are not recognised as a liability at the reporting date (non-adjusting event); they are disclosed in the notes.

What is a temporary difference under IAS 12?

A difference between the carrying amount of an asset or liability in the statement of financial position and its tax base. It may be taxable (giving deferred tax liabilities) or deductible (giving deferred tax assets).

What is the tax base of an asset under IAS 12?

The amount that will be deductible for tax purposes against any taxable economic benefits that will flow to the entity when it recovers the carrying amount of the asset.

What is a deferred tax liability and what gives rise to it?

The amount of income tax payable in future periods in respect of taxable temporary differences (e.g., when an asset's carrying amount exceeds its tax base, often due to accelerated tax depreciation).

What is a deferred tax asset and when is it recognised?

The income tax recoverable in future periods from deductible temporary differences, unused tax losses and unused tax credits. It is recognised only to the extent that future taxable profit will probably be available to utilise it.

At what tax rate are deferred tax balances measured under IAS 12?

At the tax rates expected to apply when the asset is realised or the liability settled, based on rates (and laws) enacted or substantively enacted by the end of the reporting period. Deferred tax is not discounted.

How are intangible assets defined under IAS 38?

An identifiable non-monetary asset without physical substance. 'Identifiable' means it is separable (capable of being separated/sold) or arises from contractual or other legal rights.

What are the recognition criteria for an intangible asset under IAS 38?

It must be identifiable, the entity must control the resource, and it must give rise to future economic benefits; additionally it is probable that future economic benefits will flow and the cost can be measured reliably.

How are research and development costs treated under IAS 38?

Research costs are expensed as incurred. Development costs are capitalised only when all six PIRATE criteria are met (probable future benefits, intention to complete, resources available, ability to use/sell, technical feasibility, expenditure reliably measurable).

How are intangible assets with indefinite useful lives treated under IAS 38?

They are not amortised but are tested for impairment annually (and whenever there is an indication of impairment), and the indefinite-life assessment is reviewed each period.

What is the objective of IAS 36 Impairment of Assets?

To ensure that assets are carried at no more than their recoverable amount; an asset is impaired when its carrying amount exceeds its recoverable amount, and the difference is recognised as an impairment loss.

How is the recoverable amount of an asset defined under IAS 36?

The higher of an asset's fair value less costs of disposal and its value in use (the present value of the future cash flows expected from the asset).

What is a cash-generating unit (CGU) under IAS 36?

The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

In what order is an impairment loss allocated to assets within a CGU under IAS 36?

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

Can an impairment loss on goodwill be reversed under IAS 36?

No. Impairment losses on goodwill are never reversed. Impairment losses on other assets may be reversed if the recoverable amount increases, but not above the carrying amount that would have existed had no impairment been recognised.

What is the formula for the current ratio and what does it measure?

Current ratio = Current assets ÷ Current liabilities. It measures short-term liquidity — the ability to meet current obligations from current assets.

What is the quick (acid-test) ratio formula?

Quick ratio = (Current assets − Inventory) ÷ Current liabilities. It measures liquidity excluding inventory, the least liquid current asset.

What is the gross profit margin formula and what does it indicate?

Gross profit margin = (Gross profit ÷ Revenue) × 100. It indicates profitability after direct costs of sales and pricing/cost control efficiency.

What is the formula for Return on Capital Employed (ROCE)?

ROCE = (Profit before interest and tax ÷ Capital employed) × 100, where capital employed = total assets − current liabilities (or equity + non-current liabilities). It measures how efficiently capital generates operating profit.

What is the gearing ratio and what does it assess?

Gearing (debt-to-equity) = (Debt ÷ Equity) × 100, or Debt ÷ (Debt + Equity). It assesses financial risk by measuring the proportion of financing from debt relative to equity.

What is the inventory turnover (days) formula and what does it show?

Inventory days = (Average inventory ÷ Cost of sales) × 365. It shows the average number of days inventory is held before being sold; lower days generally indicate more efficient inventory management.