ICMA Pakistan Financial Accounting & Corporate Reporting Flashcards

24 sample cards from the Financial Accounting & Corporate Reporting deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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).

14. 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).

15. 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.

16. 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.

17. 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).

18. 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).

19. 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.

20. 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.

21. 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.

22. 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.

23. 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.

24. 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.

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