11 Groups Foreign operation

12 Groups Hill
13 Groups Sugar
14 Groups Auto Co
15 Groups Columbia Co

16 Groups Banana Co
17 Groups Carbise
18
19 Ethics Renshu Co

20 Ethics Agency Co
21 Ethics Bismuth Co

22 Ethics Calibra Co

23 Ethics Gustoso
24 Ethics Fiskerton
25 Ethics Hudson
26 Analysis Wing Co
27 Analysis Symbal Co
28 Analysis Colat Co
29 Analysis Handfood Co
30 Analysis Ecoma Co
31 Analysis Skizer
32 Analysis Toobasco
33 Analysis Holls
34 Analysis Kiki
35 Analysis Amster

36 Analysis Op Segments

37 FR Issue Bohai Co
38 FR Issue Stem Co

39 FR Issue Sikta Co
40 FR Issue Leira Co
41 FR Issue Corbel Co

42 FR Issue Fill Co

43 FR Issue Zedtech

44 FR Issue Calendar Co
45 FR Issue Digiwire
46 FR Issue Egin
47 FR Issue Alexandra
48 FR Issue Janne

49 FR Issue Yanong
50 FR Issue Pensions
51 FR Issue Lupin
52 FR Issue Emcee

53 FR Issue Evolve
54 FR Issue Gasnature
55 FR Issue Cadnam
56 FR Issue Carsoon
57 FR Issue Leigh
58 FR Issue Mehran

59 FR Issue Ethan
60 FR Issue Whitebrik
61 FR Issue Revenue recognitio

62 FR Issue Della Co
Convertible Bonds, DTA, Group Cash flows
Goodwill, group cash flow
Goodwill impairment, Asset held for sale
Determination of acquirer, goodwill, Defined benefit plan and contribution
Goodwill deferred cash probablity, Loss of SI on Associate (Accounted as FA), Business combination criteria,
Derecognition of FA
Currency and Exchange difference treament and when disposal translation reserve recycling to P&L

Ethical dilemma and Intagible Assets IAS 38 Recognition and De Recognition criteria
Foreign translation treatment, Sale of License and Operation (Separate Obligation IFRS 15), Development
cost capitalization criteria
Impairment calculation when liability provision is held as a liability, Implementation of new tech
IFRS 15 Revenue contracts (When advance is paid which consists of signficant financing), Ethical behaviour
when lack of knowledge
Typical Ethical implication answer, Executionary Derivative doesn’t fall under IFRS 9, IAS 37 restructing
provision
classifying the transaction as finance lease, revenur reco at point time vs over time, ethical implication
Defined benefit plan and curtailment which effect P&L and worsens profits
Onerous contracts, FV measurement, Going concern
Crypto Disclosure, whethere crypto benefits equity or employee benefits
ISSB, Cashflow hedge and Government grants
IFRS for SME and Integrated reporting for SME
ISSB Climated related disclosure and Onerous contract
Conceptual Framework Asset and intangible assets
APM (Alternate Performance Measure), Free Cash flow and Cash flow adjustment
IFRS Pratice statement : Management Commentaries, Fundamental Characteristics
Investment property measurement and its impact of FS if measured under cost or FV model.
Classes of Capital and Integrated Reporting
How are Op Seg identified and common costs allocated, and how is beneficial for Investors. *Outward in
Inward Out Sustanbility aspect.
Impairment conditions, Deferred tax and Liability if it needs to be clubbed, When is an entity acting as a
principal vs agent
Lease accounting, accounting for Joint Ventures (Equity Method).

Revenue from Contracts, when performance obligation are beneficial on it own, when Investment is
subsidiary becomes investment without influence (Account as IFRS 9 Equity Investment), FV Measurement
Held for sale (If its sold more than 12 months), Sale and leaseback accounting (Proportion of ROU )
Intagible Assets, Brands amortization, it needs to allocated to CGU just like good will
Inventory Valuation/Conceptual Framework measurement , If Replacement cost added to asset capitalized,
No control even if its 52% share holding

Revenue recognition when Collection assesment is 80%, Division held for sale, Sale and Leaseback condition
When Sale of PPE is treated as revenue, Lease contract even if there certain conditions that can subsittute -
the specification is very strict and solely for the lessee, Materiality of Disclosure
Revenue recognition if non cash consideration received at FV at contract inception, Revenue as per
Conceptual Framework, JV (Equity Method), Cyrptocurrency as Intangible Asset, Debt Factoring.
Objective of ISSB report and Double Materiality, Related party disclosure
Defaulted Loan classification, Loan classification, related party disclosure
Adjusted NAV Per share (APM), Annual report disclosures, Investment property
FV in principal market (TC not considered) , market prices are unavailable, fair value is estimated using
discounted cash flows, FV uses highest and best use of the asset, Share based payment
Defined Benefit plan and contribution and Curtailment
Deferred taxes detailed, Conceptual issues with Deferred Taxes
Borrowing cost, Players reco as Intagible asset and asset held for sale, FV when there is alternate use
Financial liability for Share buy back, Assets held for sale, Business combination and tax on asset not
capitalized.
Joint Operation, Contract for Non Financial items, Overhual cost to be capitalized
Inatangible assets and Business combination, Financial Liability, Hedge accounting Criteria
Operating Lease, Debt Instruments at FVOCI, Contract costs
Share or cash consideration for Director, PPE and Employee and Associate equity accounting
FV Highest and Best use, FV Principal market, Valuation of Unquoted shares
FV of Property (3 Level Hierarchy) and deferred tax assets, Liability measured at FV if accounting mismatch,
Equity as Liability
SME IFRS
Warranty recognition, Consignment sale, Non Refundable fee and Right to return
Consignemnt sale, Repurchase agreement, Hedge accounting, If Joint arrangment has no joint control (then
equity method as associate)
DONE 1 Groups
DONE 2 Groups
DONE 3 Ethics
DONE 4 Ethics
DONE 5 Analysis and Stk Perspective
6
DONE 7 Analysis and Stk Perspective

DONE 8 Financial Reporting Issue

DONE 9 Financial Reporting Issue
DONE 10 Financial Reporting Issue
DONE 11 Financial Reporting Issue

12
13

14

15
16
17
18
19
20

9.00 Days Left untill D Day

Sl Syllabus Topic

1 Accounting policies

2 Additional performance measures (APM)

 3 Associate
4 Business combinations (IFRS 3)
5 Conceptual framework
6 Consolidated statement of cash flows

7 Current issue
8 Deferred tax assets
9 Disposal of investments
10 Ethics

11 Events after the reporting period (IFRS 10)

12 Employee benefits (including pensions)
13 Fair value measurement (IFRS 13)
14 Financial instruments (IFRS 9)
15 Foreign transactions and entities (IFRS 21)
16 IFRS vs. US GAAP Accounting Standards

17 IFRS Practice Statement 1: Management Commentary

18 IFRS Practice Statement 2: Making Materiality Judgments
19 Impairment (IFRS 36)

20 Integrated reporting
21 Investment property (IFRS 13)
22 Joint arrangements
23 Lease (IFRS 16)
24 Non current assets held for sale and discontinued operation
25 Provisions, contingent liabilities and contingent assets
26 Related party transactions (IFRS 24)
27 Revenue recognition (IFRS 15)
28 Segment reporting
29 Share based payments
30 Step acquistion
31 Sustainbility
 14 Saturday ###
15 16 17 18 Sunday ###
19 20 21 22 Monday ###
23 24 25 Tuesday ###
26 27 28 29 30 Wednesday ###
Thursday ###
31 32 33 34 35 36 Friday ###

37 38 39 40 41 42 43 Saturday ###
44 45 46 47 48 49 Sunday ###
50 51 52 53 54 55 56 57 58 Monday ###
59 60 61 62 Tuesday ###

Make Consolidated Notes Wednesday ###

Make Consolidated Notes Thursday ###

Swift Friday ###

Technical articles Saturday ###

Swift Sunday ###
Swift Monday ###
Swift Tuesday ###
Swift Wednesday ###
D Day Thursday ###

Question Numbers

31 34

32 34 48
6 12 13 17 32 38
11 - 18
11 31 35 42 45 48 51
10 12 13

26 27 28 30 36 45 46
12 25 33 37 51 59
7 12 15 17 18
19 - 25

26 53 54
3 4 16 25 27 29 30 50
39 45 48 49 52 56 58
12 13 14 21 23 27 35 45 47 53 54 55 56 58 59
9 14 18 20
29 60

44 46 47 48 51
21 28 37 41 42
20 27 31 39 40 41 44 52

29 31 46
24 48 53 59
11 38 45 54
24 30 37 39 40 43 44 45 51 56
15 40 41 52 53
23 25 27 30 50
46 47 52
22 24 34 37 39 43 44 45
36
35 49 51 57
8 13
28 30 36 46
Repurchase Agreement (IFRS 15 & IFRS 16)

Della Co. has entered into a repurchase agreement with Cromer Co., meaning it retains the right to cancel the sa
IFRS 15 states that Cromer Co. does not obtain control of the product because it is limited in its ability to direct its
As a result, Della Co. cannot recognize revenue on the sale date.

Accounting Treatment Based on Repurchase Price:

1. If repurchase price < original selling price → Treat as a lease under IFRS 16.
2. If repurchase price ≥ original selling price → Treat as a financing arrangement.

📌 In this case:

Repurchase price = $500 higher than original selling price.

Therefore, it is a financing arrangement.

Accounting Entries for Della Co.:

📌 On the date of the sale (financing arrangement):

Dr Cash/Bank: $242,000 (amount received from Cromer Co.)

Cr Financial liability: $242,000 (recognizing obligation to repurchase)

📌 Recognition of interest expense over two months:

Dr Interest expense: $500

Cr Financial liability: $500

📌 If the contract is not canceled on 31 Jan 20X1:

Dr Financial liability: $242,500 (removing liability)

Cr Revenue: $242,500 (recognizing revenue at final transaction date)

Key Takeaways:

No revenue is recognized initially due to the repurchase right.

A financial liability is recorded instead of sales revenue.
Interest expense accrues until the repurchase period ends.
Revenue is only recognized if Della Co. does not cancel the agreement.

(b) Consignment Arrangement (IFRS 15)

📌 Key indicators of a consignment arrangement:

 1. Control remains with Della Co. until a sale to the end customer.
2. Della Co. can require the return of the product or transfer it elsewhere.
3. Acra Co. has no unconditional obligation to pay (only a deposit, if any).

📌 Implications for revenue recognition:

Della Co. cannot recognize revenue when the product is delivered to Acra Co. because control has not transferre
Revenue is only recognized when the end customer purchases the product.
Any refundable deposits must be recorded as a liability.

📌 Accounting treatment:

1. On delivery of Product X to Acra Co. (no revenue recognized yet):

Dr Inventory on consignment (Product X)

Cr Inventory (Moving from regular inventory to consignment stock)

2. On sale to end customer:

Dr Cash / Accounts receivable (Customer’s payment)

Cr Revenue (Recognizing revenue)
Dr Cost of sales (Carrying value of Product X)
Cr Inventory on consignment (Removing Product X from books)

3. If any goods remain unsold at the end of the trial period:

Dr Current liability (For refundable deposit)

Cr Cash / Bank (Refunding Acra Co.)

(c) Hedge Accounting (IFRS 9)

📌 Initial recognition (31 Dec 20X0, before hedge is arranged):

The bond has increased in fair value by $500,000, recorded in Other Comprehensive Income (OCI).
Finance income of $120,000 is recorded in profit or loss.

🔹 Journal Entries at 31 Dec 20X0:

Dr Financial asset (bond) $500,000

Cr Other Comprehensive Income (OCI) $500,000
Dr Bank / Cash $120,000
Cr Finance income (P&L) $120,000
📌 After hedge arrangement (1 Jan 20X1):

Della Co enters into a fair value hedge using an interest rate swap.
IFRS 9 Hedge Accounting Conditions:
1. Hedged item & hedging instrument must be eligible.
2. Formal documentation must exist.
3. Hedge must be effective (i.e., values move opposite due to the same risk).

📌 At 31 Dec 20X1:

Interest rate swap gains $550,000, recognized in profit or loss.

Fair value loss of $600,000 on the bond is also recognized in profit or loss instead of OCI.
Interest income of $120,000 is still recorded as finance income.

🔹 Journal Entries at 31 Dec 20X1:

1. Recognize swap gain ($550,000) in P&L:

Dr Financial asset (swap) $550,000

Cr Profit or loss $550,000

2. Recognize fair value loss ($600,000) in P&L (instead of OCI):

Dr Profit or loss $600,000

Cr Financial asset (bond) $600,000

3. Recognize finance income ($120,000) in P&L:

Dr Bank / Cash $120,000

Cr Finance income (P&L) $120,000

The text discusses the assessment of control over Kurran Co by Della Co under IFRS 10 and IFRS 11. Key points:

1. Control Assessment (IFRS 10):

Della Co does not control Kurran Co as it lacks the power to direct relevant activities and only has the ability to

2. Joint Control Assessment (IFRS 11):

Joint control exists if unanimous consent is required for decisions.

 Since multiple combinations of parties can reach a majority decision, Della Co does not have joint control.

3. Conclusion (IAS 28 - Associate Accounting):

Kurran Co is classified as an associate of Della Co.

The equity method under IAS 28 should be applied.
ains the right to cancel the sale and require the return of the product.
imited in its ability to direct its use and obtain benefits from it.
ause control has not transferred.

e Income (OCI).
0 and IFRS 11. Key points:

ties and only has the ability to block decisions.

s not have joint control.
What I learnt :
1. On SOFP : Other components of equity Translation reserve = Exchange difference (balancing figure) on SOFP + Ex
2. On SOI : Exchnage difference on translation of foreign operation in OCI = opening Net Assets (@OR) + CY profits (

Step 1 : Translate SOI with Average Rate

Kr Avg Rate $
Revenue 5,200 8.4 619
COS - 2,300 8.4 - 274
GP 2,900 8.4 345
Other Expenses - 910 8.4 - 108
Dividend from Odense - 8.4 -
PBT 1,990 8.4 237
Tax - 640 8.4 - 76
PAT 1,350 8.4 161

Step 2:
Convert SOFP using closing Rate
Share captial and RE on acq using Historical Rate
2015 Dividend using 2015 Closing rate
2015 Profit using avg 2015 rate
2016 dividend using 2016 closing rate
the balancing figure is 2016 Profits after dividend

PPE 4400 8.1 543

CA 2000 8.1 247
6400 790

Share 1000 9.4 106

RE
RE at acq 2500 9.4 266
Dividend 2015 -345 8.8 -39
Profit 2015 1200 9.1 132
Dividend 2016 -405 8.1 -50
Profit 2016 1350 8.4 161
Translation Gain/Loss 79

Loans 300 8.1 37

CL 800 8.1 99

791
0
 ifference (balancing figure) on SOFP + Exchange difference on Goodwill (Opening + Closing differrence).
= opening Net Assets (@OR) + CY profits (@AR) - Closing Net Assets (@CR) + Exchange difference on Goodwill (Closing differrence).

Step 3: Goodwill calculation

Goodwill calculation

Consideration 4888 9.4 520

NCI at acq 700 9.4 74.46809

Less
SC -1000 9.4 -106.383
RE -2500 9.4 -265.9574 222.1277 15
2088 8.8 237
Impairment -148 8.1 -18
Closing 1940 8.1 240
Gain on goodwill Fx 21

Step 4: Fx Gain/loss of Translation

Opening NA 1000
RE 3355
4355 8.8 495

Add Profits 1350 8.4 161

Dividend -405 8.1 -50 606

Closing NA 5300 8.1 654

Gain on NA 49

Good will translation 21

Total Translation Gain 69

Step 5 : Consolidated PL

Standard Odense $
Revenue 1125 619 1,744
COS -410 - 274 - 684
GP 715 345 1,060
Other Expenses -180 - 108 - 288
Impairment -18 - - 18
PBT 517 237 754
Tax -180 - 76 - 256
PAT 336.7284 161 497

OCI
Less Translation Gain 69

Total Comphrensive Income 567

Profits attritbutable to NCI 32

Profits attritbutable to Share holders 465

Total Comp Income att to NCI 42

Total Comp Income att to Share holders 525

Step 6 : SOFP Standard Odense $

PPE 1285 543 1828

GW 240 240
CA 410 247 657

2725

Share 500 500

RE 1115
RE at acq
Dividend 2015 -31
Profit 2015 105
Dividend 2016 -40
Profit 2016 129
Impairment -18
Translation Gain/Loss 99 1358

NCI 131 131

Loans 200 37 237

CL 400 99 499

2725 0
osing differrence).
 Convertible Bonds

Year 1 800,000 0.909 727,200

Year 2 800,000 0.826 660,800
Year 2 20,000,000 0.826 16,520,000
Liability Portion 17,908,000
Equity Portion 2,092,000
20,000,000

Year 1 17,908,000 1,790,800.00 800,000.00 18,898,800.00

Year 2 18,898,800.00 1,901,200.00 800,000.00 20,000,000.00 - 1,101,200.00
-

What you have learnt

Discount rate of similar bond should be used a implict rate to calculate finance income.

Deferred Taxes

1 IAS 12 Income Taxes, an entity should recognized deferred taxes in respect of c/f unused tax losses to extent that is
2 IAS 12 stresses that existence of unused tax losses evidence that future profits may not exist.
3 Convincing evidence must exist for future taxable profits may occur to utilise taxable losses.
4 In this case breach of loan contract places doubt on likelihood of future profits.
5 Considering above points DTA should not be recognized.

Group Cash flow

1. Calculate Profit/loss disposal of Subsidiary and add/less back to Profit before tax
2. Reduce cash balance of subsidiary from proceeds of subsidiary.
3. add current assets liabilities to movement of working capital,
4. Do NOT forget to less profits from Investment and associates.
5. While calculating investment from associates, profit during the year of investment should be multiplied with own
 20,000,000.00

nused tax losses to extent that is probable that future taxable profits will available against which losses can be utilised.

nt should be multiplied with ownership percentage.

 Goodwill

Consideration 9,000,000.00 10000000

FV of investment 15,200,000.00 4800000
NCI 11,400,000.00
Cash consideration (Balancing figure) 3,000,000.00

Less:
NA - 35,741,000.00
FV Land - 600,000.00
2,259,000.00

2,259,000.00
-

Remember 3 main things in consolidated cash flow

Net cash acq/Disposal of subsidiary,

deduct subsidiary cash while
1 presenting acquisition or disposal
2 Dividend from associates
Working capital movement in
operating activites, should include
3 subsidiary
Gain on FV investment
- 400,000.00

Opn 52,818.00 Open 23,194.00

Add 18,076.00 Dis - 14,800.00
Add 600.00 Dividend - 2,253.00
Dep - 10,000.00 Loss on disposal Profit 15,187.00

Disposal - 6,370.00 2000 - 4,370.00 Dividend

actual cash received 21,328.00 -

Closing 55,124.00 21,328.00

55,124.00 6,141.00
- 15,187.00

462963
13888.89
 Calculate Goodwill

Consideration 45,000,000.00
Share 6,000,000.00

NCI 8,000,000.00
Less
NA - 40,000,000.00
FV If any
Contingent if any

Goodwill 19,000,000.00

Goodwill impairment

1 Goodwill is not amortizied, however it is impaired.

2 An annual impairment review must be conducted when goodwill exists.
3 Impairment is when carrying amount is more than the recoverable amount, the recoverable amount is h
4 Goodwill cannot be sold separately and has no FV. It doesn’t generate cashflow separately from other as
5 Therefore it must be allocated to to CGU, this smallest group of assets which generate independent cash
6 Impairment will then be take place by comparing carrying amount of the CGU with recoverable amounts

Assets held for sale

1 For Assets to be considered held for sale it must be actively marketed at a reasonable price and the sale
2 Many conditions exist which is contrary, these conditions are:
a. No obvious buyers and timeline is uncertain how long it might take.
b. Assets sold indiviudally or abandoned.

Impairment for Assets held for Sale

Before Classifying
1 Assets before classifiying needs to be tested for impairment and recognized as per respective IFRS
2 Impairment is recognised to P&L unless the assets is revalued under PPE or intangible assets, in this case

After classifying
1 Impairment conducted by difference between adjusted amount recoverable.
2 Recognised to PL even if previously revalued.

Impairment of CGU *NOTE* If goodwill is Prorata NCI, impairment of goodwill needs to be grossed up

Net Assets 57.6

Goodwill 10
67.6
Recoverable amount 50.5
Impairment 17.1
7.1 66.4
PPE 51.8 5.5 46.3
IA 14.6 1.6 13.0
In 7.1 7.1
TR 3.3 3.3
Cash 1.6 1.6
LT -18.5 -18.5
TP -2.3 -2.3
57.6 50.5
 unt, the recoverable amount is higher of FVLCD or VIU(Discounted cashflows expected from use of assets in business)
ashflow separately from other assets of the business.
which generate independent cash flows.
e CGU with recoverable amounts.

t a reasonable price and the sale must be probable.

ized as per respective IFRS

E or intangible assets, in this case it need to in Revaluation reserve.

goodwill needs to be grossed up.

 Determination of Acquirer

1 An acquirer is an entity is which assumes control over another entity.

2 Control exists when :
a. Power over investee
b. Exposure or rights to variable returns from its invovlement with its entity
c. The ability to use its power over its investee to affect the amount of investor's return.

Significant Influence
1 Associate is where an entity has significant influence in.
2 SI is power to participate in financial and operating decisions.
3 SI is presumed when holding percentage is 20% to 50%.
4 SI other conditions : Rep on the board, participation in policy making, material transaction, exchange of p

Calculations goodwill

Consideration 20000
1250
NCI 20000

Less FV
NA -32000
FV of bonds -2160
FV of Brand -1000
FV Contract liability -590
1700000
5500 2210000
590000
2800000
2210000

Defined Benefit Plan

Employee benefits requires surplus to be measure as lower of:

1 Surplus of the plan

2 The PV of economic benefits in form refunds from the plan or reduction in future contribution (Asset cei

*NOTE* When there is asset ceilng , the interest should only be calculated on Asset ceiling

Defined contribution plan

1 Its employee who undertakes all the risks of pension plan not performing.
2 Entity will obligation only to the extent of contribution to the scheme.
3 Contributions are recognized in the P&L
nt of investor's return.

erial transaction, exchange of personnel and info.

6000000 0 240000 6240000

FV 8400000 2160000

future contribution (Asset ceiling).

on Asset ceiling
1 Goodwill

Shares 68000
Cash 4000
NCI 17000

Less
NA -70000
FV -5000

14000

2 The Finance directors erroneously omitted considereing Deferred cash consideration, if there is a probablity then

3 Sale of Associate

Consideration XXX
FV of exisiting share XXX

Less:
Carrying amount of associate (XXX)

Gain/Loss on disposal XXX

4 After the partial sale of associate, If the SI is lost, then it needs to accounted as regular financial asset, financial as
However an irrevocable election can be made to recognize Financial asset through OCI.
Any change in FV there after is done through OCI.

5 IFRS 3 Business combinations

An entity should to treat a transaction as business combindation if following exist;

1 Input
2 Substantive process (To substantive ability to convert acquired input into output)
3 Ability to create output

An entity if it mearly holds an asset and does nothing with it, it should be considered as an asset (PPE) rather than a

6 Derecognition of Financial Assets

A financial asset is derecognized when:

1. Contractual rights for cash flow expires
2. Asset is transferred and substantially all risk and rewards of the ownership are all transferred.
f there is a probablity then it needs to be multiplied with PV of cash outflow.

r financial asset, financial asset is measured at FVTPL by default.

nput into output)

an asset (PPE) rather than a business, this is refered as "Concentration Test"

Presentation and Functional Currency and how FC is determined

Presentation Currency
1 Presentation currency is the currency in which FS are presented.
2 Directors can choose any currency to be presented, factors include currency used by major stakeholders

Functional Currency
1 FC is the currency of the primary economic environment of the entity in which operates.
Factors that determine FC
a Currency that dominates saled price
b Currency that most influences operating cost
c Currency in which most entity's finances are denominated.

Treament of exchange difference in goodwill

1 CY exchange difference would be recorded within other comprehensive income.

2 CY + PY cumulated difference would be recorded within the equity.

How exchange difference of Net Assets and profits are treated in Consolidation

1 on SOFP : Translation reserve as part of equity = SOPF difference + Goodwill opening + Closing exchange
2 On SOI: Net asset translation reserve + Closing goodwill exchange difference.

3 When the Subsidiary is sold the translation reserves are recycled to P&L.
cy used by major stakeholders.

hich operates.

ll opening + Closing exchange difference

 Ethical Dilemma

1 Accountant should act with Integrity.

2 He should be straightforward and honest in all business and professional relationship.
3 He must ensure that he complies to applicable laws and regulation.
4 If there is any breach that he notices, it is the duty of the accountant to highlight and seek advice to course correct.
5 ACCA code of conduct not only applies for members but also students.
6 He should avoid having any self interest and personal bias.
7 In case of dillemma he should revisit his position and follow ethical guidelines.
8 He can also contact ACCA for advice which may include disassociating himself from the entity which is Non complia

Recognition criteria for Intagible assets

1 Separately identifiable from the entity

2 Controlled by the entity
3 Probable economic benefits should flow to the entity
4 Cost can be reliably measured.

If there is a development of Intagible assets, cost can be capitalized if

1 Product can be sold

2 Commercially viable
3 Technically feasible
4 Have resouces to complete
5 Probable inflow of benfits
6 Cost can be realiably measured.

De Recognition Criteria
1 Entity has disposed off
2 No longer provide eco benefits and or lost control of the assets.
 seek advice to course correct.

he entity which is Non compliant to applicable laws.

Foreign Exchange translation Treament

When there is a foreign subsidiary, a group exchange difference will arise on the retranslation of the net assets and
On Disposal cumulated translation reserve will be recycled back to the P&L.

Sale of License

According to IFRS 15, revenue should be recognized where the performance obligation has been satifisfied, the sale
Upfront payment for License can be reccognized since the performance obligation is met, that is the entity transfer
Variable consideration will be recognized when performance obligation is met.

Recognition criteria for Intagible assets

1 Separately identifiable from the entity

2 Controlled by the entity
3 Probable economic benefits should flow to the entity
4 Cost can be reliably measured.

If there is a development of Intagible assets, cost can be capitalized if

1 Product can be sold/Usefull

2 Commercially viable
3 Technically feasible
4 Have resouces to complete
5 Probable inflow of benfits
6 Cost can be realiably measured.
anslation of the net assets and good will which needs to recognized under OCI and forms part of Other components of equity

n has been satifisfied, the sale of the license is not combined with other obligation. License and Manufacturing services are separately ide
met, that is the entity transfer the licence to the company and they can benefit out of it.
onents of equity

ing services are separately identifiable obligation .

 Impairment when is laibility provision related to asset

1 When there is Liability provision created that related to asset, it cannot be separated.
2 The amount of liability recognized should be deducted from carrying value of the asset and VIU.
3 Then Net off Liability Carrying value should be compared with Net VIU and impairment loss is arrived at.

Financial Asset Or Financial Liability - Cryptocurrency

Since Cryptocurrency are readily converted into cash in entity's jursidiction its should be treat same way as a legal t
Share redemption option of Shares A is highly likely there for it should be presented a liability.
Financial instrument is a liability if it provides that, on settlement the enity will deliver either cash or financial asset

Ethical issues on implementation of blockchain technology

1 Oppurtuniteds challenges presented by technology and new business models requires professional accountant to d
2 This competencies is just limited financial matters and valuation but other areas like Environmental impact, Social im
3 A professional accoutant should not mislead with inaccurate level of expertise and experience.
nt loss is arrived at.

be treat same way as a legal tender (Fiat Money).

r either cash or financial asset or its own share whose value is determined to exceed substantialy the value of cash or other FA.

s professional accountant to develop new set of competencies

Environmental impact, Social impact and Non capital valuation technique.
of cash or other FA.
1 IFRS 15 Revenue from Contracts

Revenue should be redcognized upon completion of performance obligation, which title possession and control of t
Payment in advance represent significant financing component

The advance need to be discounted to PV and provision for contract liability needs to be created.

Each year end the unwound interest on the liability needs to be capitalized to the qulaifying asset as part of IAS 23

9.55 Cost
6% Interest
8.5 Cash advance equal to PV
0.943396
0.889996 8.499466

8.5 Cash
8.5 Liability

Year 1 0.51 Inventory Dr

0.51 Liability Cr

Year 2 0.5406 Inventory Dr

0.5406 Liability Cr

9.5506 Total Revenue can be recognized when asset is transferred.

2 Ethical Behaviour when there is lack of knowledge

Professionals should act with integrity and be honest about level of knowledge that me posses
Professionals should exercise independence of mind and should not be subjected to any pressure from the leaders.
Professionals should avoid self interest
tle possession and control of the apartment block.

be created.

aifying asset as part of IAS 23 Borrowing cost

any pressure from the leaders.

 IAS 37 Provisions, Contigent Assets and Contigent Liabilities

Provision should be only recognized if:

There is present obligation due to past events

and obligation can be measured reliably

Restructuring provision can only be made if theres is a detailed plan and communicated

Restructuring provision should only include direct exp arising from restructing and not associated with ongoing acti

Financial Instruments IFRS 9

1 IFRS 9 applies to apply Contracts to buy/sell non financial items which can be settled in cash.
2 Wheat contracts in the question is for Own use and takes the delivery of the wheat so it falls outside IFRS 9 scope.

3 Executionary contracts, are not intially recognized in the FS, unless they are onerous in which provision is required
4 Therefore no derivative liability should be recognised for executionary contract unless onerous.

Ethical Implications

Users of the FS trust accounts for Faithuful representation of the company's transaction, by applying IFRS this will b
Directors should avoid Self Interest which is threat to Objectivity.
Accountant has ethical responsibility to question the directors if there is any Deviation from standards
Accountatn should discuss and seek advice from other directors and ACCA
Resignation should be considered if matters cannot be resolved satisfactorily
t associated with ongoing activities.

o it falls outside IFRS 9 scope.

n which provision is required

on, by applying IFRS this will be obtained.

n from standards
1 Lease
Transaction should be condsidered as Finance lease if:
1. lease term represents Major part of the asset life.
2. The Risk and rewards of ownership is transferred to the lessee

Lessor should derecognise the asset and book a recceivables.

Receivable need to be booked = PV lease payments +unguaranted residual value.

The bond covenant is breached since, the revaluation is not justified because the FV property depend on

If there is a threat to going concern, non current assets and liabilities should be reclassed to current and

2 Performance obligation satisfied over time

If entity agrees at start of the contract that performance obligation will be met over time rather than at p
then the revenue can be booked at stage of completion either using input method or work completed m
If its agreed to construct the asset and transferred at point in time then no revenue recognition before th

3 Ethical Implication

Accountant have ethical duty to be professionally competant and act with due care and attention
Its fundamental duty to comply with IFRS during the preparation of the FS on which the user relay and tr

By revaluing the investment using arbitary info director acted in self interest and lost his objectivity feari
He did act with integrity, he is expected to conduct business straightforward.
It is unethical to defraud the bank bank by mistating the numbers on the financial statements.
looks there is governance issue, no one individual should power and dominate over the opreation of the
Accountant must not be influenced by the director and produce the accounts faithfully free from bias
he should seek professional advice with other directors and ACCA if the director refuce to course correct
use the FV property depend on locality and type.

d be reclassed to current and recorded at their realisable values.

met over time rather than at point in time

method or work completed method.
revenue recognition before the asset is transferred to customer.

due care and attention

on which the user relay and trust

st and lost his objectivity fearing loss of his position if the company stop being a going concern.

nancial statements.
nate over the opreation of the entity.
nts faithfully free from bias
ector refuce to course correct.
Remeasurement of Define Benefit plans

Remeasurment component is taken to OCI and comprises :

1. Actuarial gains/loss, such as return on plan assets differ from expected returns
2. Changes in asset ceiling.

Proforma for Defined Benefit Plan Asset & Liability

Plan
Particulars
Asset (₹)
Opening Balance (Beginning of the Year) XXXX
Movements During the Period
Add: Current Service Cost (P&L) -
Add: Past Service Cost (P&L) -
Add: Curtailment Gain/Loss (P&L) -
Add: Settlement Gain/Loss (P&L) -
Add: Interest Income on Plan Assets (P&L) XXXX
Less: Interest Cost on Defined Benefit Obligation (P&L) -
Remeasurements (OCI)
- Actuarial Gain/Loss on DBO -
- Return on Plan Assets (excluding interest income) XXXX
- Changes in Asset Ceiling (OCI) (XXXX)
Contributions & Benefits Paid
Add: Employer Contributions XXXX
Add: Employee Contributions (if applicable) XXXX
Less: Benefits Paid to Employees (XXXX)
Closing Balance (End of the Year) XXXX

Current service cost PV benefits earned by employ

Past service cost Cost of changes in plan due to
Settlement gain/loss When obligations are reduced
Curtailment Occurs when there is significan
 Plan Liability (₹)
XXXX

XXXX
XXXX
(XXXX) (if a gain) /
XXXX (if a loss)
XXXX
-
XXXX

XXXX
-
-

-
-
(XXXX)
XXXX

PV benefits earned by employees for the service during the year

Cost of changes in plan due to amendments to the plan
When obligations are reduced due to actlions like bulkpayout
Occurs when there is significant reduction of employees (Layoff/closing operation)
Onerous Contracts

is a contract where unavoidable cost of meeting obligations exceeds the economic benefits from the contracts
Present obligation is measured as provision Lower of cost to complete or penatly if breached.

Going Concerns
IAS 1 requires management to assess whether the going concern assumption is valid, based on available informatio

Fair value measurements

Fair value aims at establishing a price between market participants under normal conditions.
Pandemic introduces uncertainities in FV due low transaction volumes, however recent trade should give data to th
enefits from the contracts

based on available information, including at least 12 months from the reporting date.

nt trade should give data to the FV measurement.

Cyrpto Disclosure
1 Growing interest in crypto by both new and traditional investors calls for need for clear accounting and d
2 Information disclosed should be specific to the entity
3 Should be simple and clear without unnecessary details
4 It should be connected to other financial data for better understanding
5 Commodity traders should report crypto assets as inventory
6 FV measurements

Whether equity share based payment or Employee benefit

Equity is the residual interest in assets after reducing all liabilities, Crypto doesn’t meet the equity definition so it sh
benefits settled within 12 months should be considered as short term employee benefits liability
eed for clear accounting and disclosure guidelines.

et the equity definition so it should be considered as employee benefits.

efits liability
1

3
Why sustainability has become an important aspect and recent development to improve sustanibility disclosure

1. Risk and Opportunity Assessment:

Sustainability-related issues create risks and opportunities for companies.
These factors impact financial performance, including cash flows and capital costs.
Investors use this information to make informed decisions about buying, holding, or selling shares.
2. Investor Interest in Social Responsibility:
Investors seek knowledge about companies' environmental and social impacts.
There is a growing focus on how actions align with goals for sustainable development (e.g., UN's sustainable
development goals).
3. Disclosure Necessity:
Traditional financial statements often lack sustainability-related information.
Companies are increasingly including this data in their narrative reports.
4. Regulatory Frameworks:
Various voluntary reporting frameworks have existed, but a global baseline was recognized as necessary.
The International Sustainability Standards Board (ISSB) was formed in 2021 to create and oversee these
standards.
5. IFRS Disclosure Standards:
In 2023, two IFRS Sustainability Disclosure Standards were issued:
IFRS S1: Sets general requirements for sustainability-related disclosures.
IFRS S2: Focuses on climate-related disclosures.
Companies are advised to follow these standards for detailed and accurate sustainability reporting.

Hedge Accounting is only relevant if gain/loss of the hedge instrument and hedged item are recognized in different period
Cash flow hedge
1. Gain/loss on effective portion of the instrument is recognized through OCI.
2. Gain/loss on ineffective portion of the instrument is recognized through P&L.
3. The effective portion is reclassified to the P&L when the hedged item is recognized.
Fair value hedge
1. Both gain/loss on the item and instrument is recognized through P&L.

Government Grant
GG is recognised only when there is a resonable assurance that company will comply to all conditions and the grant will be rec
it should be recognized in the period in which its receivable.
nibility disclosure

recognized in different periods or different financial statement.

itions and the grant will be received.

i) IFRS for SMEs Accounting Standard

The main objective is to provide SMEs with a simplified yet high-quality accounting framework.
The SMEs Standard is self-contained and based on IFRS but omits certain standards like share and segment reporting.
Key simplifications:
Intangible assets: Amortized over useful life; if unknown, assumed to be 10 years.
Investments in associates: Can use the cost model unless a market price exists (then fair value is required).
Reduced disclosure requirements compared to full IFRS, making reporting more practical for SMEs.
The standard enables a smooth transition to full IFRS if the SME goes public.

(ii) Impact on Information Asymmetry

The SMEs Standard reduces information asymmetry by ensuring consistent recognition, measurement, and disclosure.
However, some critical information (e.g., credit risk, project risk) remains undisclosed, which affects investor decision-makin
Investors, particularly financial institutions, may increase lending rates due to this uncertainty.
Transparency in financial statements is crucial to reducing perceived risk and ensuring informed investment decisions.

(iii) Integrated Reporting and Its Benefits for SMEs

What is Integrated Reporting?

Integrated Reporting (IR) is a holistic approach to corporate reporting that goes beyond financials.
It focuses on how an SME creates, delivers, and sustains value over time by considering multiple forms of capital (financia

Why is Integrated Reporting Important for SMEs?

Helps SMEs understand and communicate their business model and value creation process.
Enhances strategic decision-making by considering multiple capitals beyond financials.
Provides a holistic view of the business, addressing both financial and non-financial aspects.

How Integrated Reporting Benefits SMEs:

Covers non-financial aspects like:
Employee expertise
Customer satisfaction
Innovation
Stakeholder relationships
Improves transparency and long-term sustainability.
Helps SMEs gain deeper insights into their business mechanics and future growth potential.
i) IFRS for SMEs Accounting Standard

The main objective is to provide SMEs with a simplified yet high-quality accounting framework.
The SMEs Standard is self-contained and based on IFRS but omits certain standards like share and segment reporting.
Key simplifications:
Intangible assets: Amortized over useful life; if unknown, assumed to be 10 years.
Investments in associates: Can use the cost model unless a market price exists (then fair value is required).
Reduced disclosure requirements compared to full IFRS, making reporting more practical for SMEs.
The standard enables a smooth transition to full IFRS if the SME goes public.

(ii) Impact on Information Asymmetry

The SMEs Standard reduces information asymmetry by ensuring consistent recognition, measurement, and disclosure.
However, some critical information (e.g., credit risk, project risk) remains undisclosed, which affects investor decision-making.
Investors, particularly financial institutions, may increase lending rates due to this uncertainty.
Transparency in financial statements is crucial to reducing perceived risk and ensuring informed investment decisions.

(iii) Integrated Reporting and Its Benefits for SMEs

What is Integrated Reporting?

Integrated Reporting (IR) is a holistic approach to corporate reporting that goes beyond financials.
It focuses on how an SME creates, delivers, and sustains value over time by considering multiple forms of capital (financial, human, in

Why is Integrated Reporting Important for SMEs?

Helps SMEs understand and communicate their business model and value creation process.
Enhances strategic decision-making by considering multiple capitals beyond financials.
Provides a holistic view of the business, addressing both financial and non-financial aspects.

How Integrated Reporting Benefits SMEs:

Covers non-financial aspects like:
Employee expertise
Customer satisfaction
Innovation
Stakeholder relationships
Improves transparency and long-term sustainability.
Helps SMEs gain deeper insights into their business mechanics and future growth potential.
ellectual, social, and environmental).
1 ISSB Sustanbility reporting - Climate related reporting

Objective of IFRS S2

Requires entities to disclose information about climate-related risks and opportunities to help primary users mak
Applies to both:
Physical climate risks (e.g., extreme weather events).
Transition risks (e.g., regulatory changes, shifts in consumer preferences).
Climate-related opportunities that could affect the entity's future prospects.

Core Disclosure Areas in IFRS S2

Entities must disclose climate-related information in four key areas:

1. Governance – Users should understand the processes and controls in place for managing climate-related risks
2. Strategy – Users should understand the entity’s approach to managing climate-related risks and opportunities.
3. Risk Management – Users should understand the processes for identifying, assessing, and monitoring climate
4. Metrics & Targets – Users should understand the entity’s performance, goals, and progress regarding climate-

Usefulness of IFRS S2 Disclosures

Aims to provide useful information to primary users (investors, lenders, and other capital providers) by helping th
The entity’s future cash flows.
Its access to finance.
Its cost of capital over short, medium, and long term.
Based on the Conceptual Framework for Financial Reporting, ensuring that information is relevant and faithfully

Challenges in Applying IFRS S2

Materiality Judgements – Determining what information is material can be challenging for preparers.
Uncertainty in Climate Predictions – Future climate scenarios are difficult to predict with accuracy.
Scenario Analysis Complexity – Significant judgements are involved, which could impact the usefulness of the dis

Comparability & Adoption Issues

Widespread application of IFRS S2 will enhance comparability across companies.

However, since IFRS S2 is not yet mandatory in most jurisdictions, consistent reporting is still evolving.

Limitations for Wider Stakeholders

IFRS S2 is designed for investors rather than the general public, customers, or suppliers.
It focuses on risks and opportunities affecting the entity’s financial future, not its impact on society or the enviro
Stakeholders interested in corporate social responsibility (CSR) or environmental impact may find IFRS S2 disclos
2 Onerous Contracts

is a contract where unavoidable cost of meeting obligations exceeds the economic benefits from the contracts
Present obligation is measured as provision Lower of cost to complete or penatly if breached.
 ties to help primary users make informed decisions about providing resources.

managing climate-related risks and opportunities.

elated risks and opportunities.
ssing, and monitoring climate-related risks and opportunities.
d progress regarding climate-related risks and opportunities.

capital providers) by helping them evaluate:

ation is relevant and faithfully represented.

ging for preparers.

t with accuracy.
mpact the usefulness of the disclosed information.

ting is still evolving.

mpact on society or the environment.

mpact may find IFRS S2 disclosures insufficient.
enefits from the contracts
i) Conceptual Framework vs. IAS 38 - Recognition of Intangible Assets

Conceptual Framework Definition: An asset is a present economic resource controlled by an entity due to past ev
Recognition Criteria: Assets should be recognized if they provide useful information (relevant and faithfully repre
IAS 38 Definition: An intangible asset is an identifiable, non-monetary asset without physical substance.
IAS 38 Recognition Criteria:
Probable future economic benefits.
Cost can be measured reliably.
Difference Between Conceptual Framework & IAS 38:
Conceptual Framework does not require a probability criterion, whereas IAS 38 does.
IAS 38 provides specific guidelines for recognizing intangible assets, ensuring relevance and faithful representati

(ii) Skizer’s Accounting Treatment of Intangible Assets

Skizer should have assessed if the IAS 38 recognition criteria were met before capitalizing intangible assets.
Derecognition of Intangible Assets: Allowed only when the asset is disposed of or no longer provides economic b
If recoverability is doubtful, Skizer should assess whether the carrying amount exceeds the recoverable amount.
Reclassification to R&D Costs:
Not considered a change in accounting estimate under IAS 8.
If criteria were not met initially, correction should be treated as an accounting error per IAS 8.

(iii) Gains from Derecognition of Intangible Assets

IAS 38 prohibits recognizing gains from derecognition unless the asset is sold.
Skizer’s business model involves joint product development, recognizing income only when the product is sold or
Gains from derecognition can only arise from an actual sale of the intangible asset.

(i) Recognition and Measurement of Intangible Assets in Business Combinations

IFRS 3 Requirement: Acquired intangible assets must be recognized at fair value if they are separable or arise from
IAS 38 Treatment:
Intangible assets with finite lives → amortized over useful lives.
Intangible assets with indefinite lives → subject to annual impairment review (IAS 36).
Investor Concerns:
Some intangible assets (e.g., patents) have a clear revenue stream, making amortization logical.
Others (e.g., customer lists) are replaced over time and may be absorbed into goodwill, making amortization les
IFRS does not allow different accounting treatment based on these distinctions.

(ii) Subsequent Measurement of Intangible Assets

IAS 38 Measurement Models:

Cost Model: Carried at cost less amortization and impairment.
Revaluation Model: Carried at fair value (if active market exists), less amortization and impairment.
Challenges in Revaluation Model:
Active markets for intangible assets are rare, leading to potential understatement of value under the cost mode
 Some intangible assets should be amortized, while others should only be subject to impairment review.

(iii) Treatment of Research & Development Costs

IAS 38 Requirements:
Research costs → Expensed.
Development costs → Capitalized only after technical and commercial feasibility is established.
Challenges:
Entities may struggle to distinguish between research and development expenditures.
Disclosures on capitalization policies are often inadequate or inconsistently applied.

(iv) Importance of Intangible Asset Disclosures

Helps analysts assess a company’s innovation capacity.

Assists investors in identifying companies with strong intangible asset development potential.
Can bridge the gap between carrying amount, market value, and equity value of intangible assets.

(v) Role of Integrated Reporting

Integrated reporting can help explain the value contribution of intangible assets.
Entities may disclose assessments of brand value increases as part of integrated reporting efforts.
 led by an entity due to past events, with the potential to generate economic benefits.
n (relevant and faithfully represented) and the benefits outweigh the costs.
t physical substance.

ance and faithful representation.

alizing intangible assets.

o longer provides economic benefits.
eds the recoverable amount.

or per IAS 8.

ly when the product is sold or produced.

hey are separable or arise from contractual rights, regardless of prior recognition by the acquiree.

zation logical.
dwill, making amortization less relevant.

n and impairment.

of value under the cost model.

o impairment review.

s established.

angible assets.

orting efforts.
1 Definition & Use of APMs

APMs are not defined by IFRS, making comparability across companies difficult.
Recurrent items (e.g., restructuring costs, impairment losses) should be included in underlying profit if they occu
IFRS prohibits the use of "extraordinary items", so such terms may mislead users.
Charges or gains should only be labeled as non-recurring if they truly are.

2 Free Cash Flow (FCF) Adjustments

No standard definition of FCF, so entities must provide clear descriptions and reconciliations.
The deduction of capital expenditures, share buybacks, and intangible asset purchases from IAS 7 operating cash
FCF should not be misleadingly compared to earnings per share (EPS).

3 Prominence & Presentation of APMs

APMs should be presented with equal or greater prominence alongside IFRS-compliant measures.
Omitting IFRS-compliant figures while emphasizing APMs (e.g., calling it "record performance") is misleading.
EBITDAR (EBITDA before rent) should be reconciled to IFRS profit.
Changes in APM calculations (e.g., tax treatment) must be explained, justified, and restated for comparability.

4 Income Tax Effects on APMs

APMs should reflect current and deferred tax effects where applicable.
Taxes should be shown separately, not netted off, with proper explanations.

(i) Adjustment of Net Cash Generated from Operating Activities

(iii) Purchase and Sale of Cars

1. Correction of misclassification:

when the lessor is accounting is operating lease and asset is transferred, it should be held as inventory and when
Sale of cars classified under investing activities but should be under operating activities as per IAS 16 & IFRS 15
Adjustment: +30m to operating activities.

2. Associate Purchase Adjustments:

Investment in associate: $20m

Dividend received: $1m
Elimination of incorrect associate profit: -12m
Final net impact: +9m adjustment to net cash generated from operating activities.
 3. Foreign Exchange Error:

Cash flow misstatement due to exchange rate differences: +28m (should be taken to equity).
Correct classification: Adjustment of $6m & $27m.

Key Takeaways

Major errors corrected: Incorrect classification of car sales, exchange rate impacts, and associate adjustments.
Final impact: Increased net cash from operating activities & proper classification of free cash flow components.
 underlying profit if they occur consistently.

ases from IAS 7 operating cash flows is acceptable.

iant measures.
formance") is misleading.

restated for comparability.

e held as inventory and when sold recognize as Revenue under IFRS 15

tivities as per IAS 16 & IFRS 15.
and associate adjustments.
free cash flow components.
(i) IFRS Practice Statement 1: Management Commentary

Non-Mandatory Nature: It provides a broad, non-binding framework and is not an IFRS Accounting Standard, mea
Consistency & Comparability: A mandatory standard would enhance consistency, but its flexibility allows compan
Challenges of a Mandatory Standard:
Difficult to cover all business models.
Local regulators may not accept a fully integrated IFRS standard for management commentary.
Benefits of the Current Approach:
Allows meaningful disclosures about risks, resources, and strategies.
Helps management provide context to financial statements without strict IFRS constraints.

(ii) Qualitative Characteristics of Management Commentary

Understandability:
Should be written in plain language suitable for users.
Content varies based on the business model, strategy, and regulatory environment.
Relevance:
Should help users make economic decisions and evaluate past and future events.
Information must have predictive or confirmatory value.
Too much irrelevant detail (boilerplate disclosures) can obscure important information.
Comparability:
Allows users to compare different entities and periods.
Management's subjective approach to MC may lead to differences in disclosures, impacting alignment with IFRS
Link Between Financial Statements & MC:
Some suggest linking MC more closely with financial statements.
However, this could blur the distinction between the two, reducing clarity.
FRS Accounting Standard, meaning compliance is not required unless mandated by a jurisdiction.
ut its flexibility allows companies to tailor information to their business.

commentary.

mpacting alignment with IFRS.

1. Initial Measurement

Investment property must be initially measured at cost.

Cost includes purchase price, transaction costs, and directly attributable expenditure.

2. Subsequent Measurement Options

Cost Model:
Recognized at cost less accumulated depreciation and impairment.
Depreciation reduces carrying value over time.
Impairment losses are recognized when necessary.
Fair Value Model:
Revalued to fair value at each reporting date.
No depreciation is charged.
Gains/losses on remeasurement go to profit or loss.

3. Impact on Financial Statements

Statement of Financial Position

Fair value model:

Increases reported assets if property prices rise.
May make the company appear asset-rich, but could lower asset turnover ratios (perceived inefficien
Higher asset values lead to higher equity, improving gearing ratio (lower financial risk perception).
Cost model:
Depreciation reduces asset value over time.
More conservative, with predictable asset values.

Statement of Profit or Loss

Fair value model:

Gains in rising markets → higher profits & EPS.
Losses in declining markets → profit volatility (higher perceived risk).
Cost model:
Stable & predictable depreciation.
Profits are more consistent, allowing for better forecasting.

Alternative Performance Measures (APMs)

Many companies use EBITDA or underlying profit to adjust for fair value changes.
Helps investors focus on core business performance instead of accounting volatility.
Statement of Cash Flows

No direct impact on cash flows.

Changes in measurement policy do not affect operating, investing, or financing activities.

Disclosure Requirements

Companies using the cost model must disclose fair value to improve comparability across companies u
e expenditure.

ver ratios (perceived inefficiency).

er financial risk perception).
 ancing activities.

mparability across companies using different models.

1. Classes of Capital

Capital is generally classified into two categories:

Debt: Borrowed funds that must be repaid, often with interest.

Equity: Ownership interest in the company, with residual claims after liabilities are settled.

Debt and equity instruments can vary in rights, risks, and benefits, making capital structure disclosures essential for

2. Investor Considerations

Investors analyze capital differently based on their investment approach:

Income-based investors: Focus on dividend-paying potential; a capital shortage may reduce future dividends.
Performance-based investors (e.g., using ROCE): Need information on historical capital employed to assess efficie
Long-term investors: Evaluate historical invested capital trends.

Disclosures help in assessing financial flexibility, future investment potential, and the entity’s ability to handle finan

3. Capital Disclosures (IAS 1 & Other Standards)

Capital disclosures are mandated under IAS 1 – Presentation of Financial Statements, rather than IFRS 7, since cap

IAS 1 requires disclosure of:

Qualitative Information:
What the entity defines as capital.
External capital requirements and compliance.
Policies for managing capital.
Quantitative Information:
Capital structure and composition.
Financial ratios impacted by capital.

Failure to comply with external capital requirements must be disclosed, along with any potential consequences.

Additional Disclosures:

IFRS Practice Statement suggests providing forward-looking capital information related to trends, uncertainties,
Securities regulators may require capital disclosures in documents related to bond or equity issuances.
4. Integrated Reporting & Capital

The Integrated Reporting Framework expands capital classification beyond financial terms:

Financial Capital: Debt and equity funding.

Manufactured Capital: Physical assets (e.g., buildings, machinery).
Intellectual Capital: Knowledge, patents, and processes.
Human Capital: Employees’ skills and expertise.
Social & Relationship Capital: Stakeholder relationships and brand reputation.
Natural Capital: Environmental resources.

Financial capital remains the primary focus for accounting, as it represents funds available for operations and inves

5. Financial Liability vs. Equity Classification (IAS 32 & IFRS 2)

Proper classification of instruments affects financial reporting:

Liability Classification (IAS 32):

An obligation to deliver cash or another asset.
Interest payments reduce earnings, affecting profitability and dividend capacity.
Can impact gearing ratios and debt covenants.
Equity Classification (IAS 32 & IFRS 2):
Represents residual interest in assets after liabilities.
No mandatory payments (unlike debt), providing financial flexibility.
No negative impact on earnings or gearing ratios.

Misclassification can lead to incorrect financial assessments, affecting investor decisions.

ucture disclosures essential for evaluating an entity’s financial standing.

y reduce future dividends.

pital employed to assess efficiency.

e entity’s ability to handle financial obligations.

, rather than IFRS 7, since capital is broader than just financial instruments.

ny potential consequences.

ated to trends, uncertainties, or risks.

or equity issuances.
ilable for operations and investments.
(a) Accell – Allocation of Common Costs under IFRS 8

Cost Allocation Impact: Allocation of centrally incurred costs can significantly affect financial statements.
No Prescribed Basis in IFRS 8: The standard requires a reasonable allocation but does not mandate a specific basi
Examples of Reasonable Allocation:
Head office management costs – based on revenue or net assets.
Pension expense – based on number of employees or salary expense.
Property management costs – based on value, type, or age of properties.
Interest-bearing assets – allocated to assets and liabilities asymmetrically.
Differences in Reporting: Segment-reported amounts may differ from consolidated financial statements due to di
Disclosure Requirement: Entities must reconcile segment-reported figures with consolidated financial statements

(b) Velocity – Operating Segments Under IFRS 8

(i) Identification of Operating Segments

IFRS 8 requires separate reporting of segments meeting quantitative thresholds.

Segments can be aggregated if they have similar economic characteristics and meet all the following criteria:
1. Similar products/services.
2. Similar production processes.
3. Similar customer type.
4. Similar distribution methods.
5. Similar regulatory environment.
Case Analysis:
Velocity’s two segments differ in customer base:
Local train market: Contracts awarded via tenders, no passenger revenue risk.
Inter-city train market: Revenue depends on passenger choices, exposed to passenger revenue risk.
The difference in economic characteristics prevents aggregation, so they should be reported separately.

(ii) Relevance to Investor Analysis

IFRS 8 aims to provide useful financial information to investors, not just internal management.
Investors need segment details for risk and performance evaluation.
Aggregation reduces transparency and could mislead investors.
Sharp decline in segment profits should be disclosed, as it may indicate underlying issues.
Concealing segment differences may raise concerns about financial transparency.

Summary of Sustainability Information

1. Two Aspects of Sustainability

Outward-In: Focuses on a company's dependence on natural resources and relationships with stakeholders, socie
Example: Reliance on water, natural gas, soil, and skilled labor.
These dependencies create risks and opportunities that affect business prospects.
Inward-Out: Considers how a company's actions impact stakeholders, society, and the environment.
 Example: Deforestation, greenhouse gas emissions, or poor labor practices.
These impacts can result in reputational and regulatory risks or opportunities.

2. Reasons for Increased Sustainability Disclosures

Investor Demand:
Investors require sustainability-related information to assess risks and opportunities affecting business prospect
Companies respond by including such disclosures in annual reports.
Stakeholder Expectations:
Customers, employees, governments, and the public influence a company’s performance.
Companies disclose sustainability efforts to build a positive reputation.
Impact on Shareholder Value:
Sustainable practices (e.g., environmental protection, fair labor) enhance shareholder value.
Poor sustainability practices can lead to risks that negatively affect investments.

3. Recent Developments in Sustainability Reporting

Establishment of ISSB:
The International Sustainability Standards Board (ISSB) was created by the IFRS Foundation.
Released the first two IFRS Sustainability Disclosure Standards (ISSB Standards) in 2023.
Objective of ISSB Standards:
Require disclosure of sustainability-related risks and opportunities relevant to investors.
Built on the same principles-based approach as IFRS Accounting Standards.
Adoption by Jurisdictions:
Countries like the UK, Japan, and Canada plan to make ISSB reporting mandatory for certain companies.
 financial statements.
es not mandate a specific basis.

financial statements due to different bases (cash vs. accrual).

solidated financial statements and disclose any differences.

t all the following criteria:

senger revenue risk.

e reported separately.

anagement.

nships with stakeholders, society, and the environment.

he environment.
es affecting business prospects.

Foundation.

for certain companies.

(a) IAS 36 - Impairment of Assets

Assessment of Impairment: Bohai Co must assess impairment indicators for its ships as of December 31, 20X8.
Key Indicators Identified:
Market conditions: Overcapacity in the cruise industry, leading to idle ships.
Financial losses: Some ships incurred losses as high as 40% of their carrying amount.
Drop in market value: Estimated 2% decline in December 20X8.
Fuel prices increase: Affected operational costs, reducing future cash flow estimates.
No price increase in cruises for two years: Indicating revenue stagnation.
Conclusion: Given the evidence, an impairment test is required.

(b) IAS 12 - Income Taxes

Deferred Tax Recognition: Bohai Co must reassess deferred tax assets/liabilities at each reporting date.
Key Considerations:
Deferred tax should be recognized in profit or loss, other comprehensive income, or equity, depending on the n
Offsetting tax assets and liabilities is only allowed when a legally enforceable right exists and when entities sett
Bohai Co cannot offset deferred tax liabilities of Yuan Co unless they are part of a tax group filing consolidated r

Detailed Breakdown of Point (c) - IFRS 16 & IFRS 15

Lease Accounting for Cruise Ships (IFRS 16)

Identifying Lease vs. Non-Lease Components:

When a contract contains both lease and non-lease components, IFRS 16 requires separating them.
Bohai Co must evaluate whether operating services for the cruise ship are separate from the lease of the cruis
If separate, IFRS 16 applies to the lease, and IFRS 15 applies to non-lease components.

Recognition of Lease Payments:

If IFRS 16 applies, Bohai Co should recognize the underlying asset (cruise ship) on the statement of financial pos
Operating expenses related to non-lease components must be accounted for separately based on stand-alone p

Revenue Recognition - Principal vs. Agent Consideration (IFRS 15)

Determining Whether Bohai Co Acts as a Principal or Agent:

A principal controls the goods/services before transferring them to the customer.

An agent arranges for goods/services to be provided by another party.

Implications for Revenue Recognition:

 If Bohai Co acts as a principal (i.e., controls and provides services), it should recognize revenue at the gross amo
If Bohai Co acts as an agent (i.e., only arranges services like port facilities), it should recognize only the commiss

Example – Port Facilities Arrangement:

Bohai Co arranges port facilities but does not control them.

This suggests it is acting as an agent, so the revenue should be recognized based on commission, not the total a
s as of December 31, 20X8.

each reporting date.

or equity, depending on the nature of the transaction.

t exists and when entities settle taxes on a net basis.
tax group filing consolidated returns.

separating them.
ate from the lease of the cruise ship itself.

the statement of financial position, subject to lease accounting rules.

arately based on stand-alone pricing.
nize revenue at the gross amount billed to customers.
ld recognize only the commission earned as revenue.

on commission, not the total amount billed.

Lease Accounting (IFRS 16):

Option 1: Lease for four years – Recognizes a right-of-use asset and lease liability, with annual lease payments an
Option 2: Purchase on loan – Recognizes depreciation and interest expenses, impacting profit differently from lea
Option 3: Short-term lease (12 months) – No asset or liability is recognized; expenses are recorded directly in pro

Key Impacts:

EBITDA is highest under a 12-month lease since no lease liability is recorded.

A purchase leads to higher asset bases and financial leverage.
Lease liabilities decrease more rapidly than depreciation under IFRS 16.

Equity Method of Accounting:

Equity method vs. Cost/Fair Value – Used when there is "significant influence" over an associate.
Joint Ventures – Requires unanimous consent of venturers, and accounted for using the equity method.
Bargain Purchases in Joint Ventures – When the acquisition cost is less than net assets, IFRS 3 requires assessing
with annual lease payments and interest expenses.
cting profit differently from leasing.
es are recorded directly in profit or loss.

r an associate.
g the equity method.
sets, IFRS 3 requires assessing whether assets/liabilities are correctly identified before recognizing a gain.
a) IFRS 15 - Revenue from Contracts with Customers

A good/service is distinct if:

1. The customer benefits from it on its own or with other resources.
2. The promise to transfer it is separately identifiable.
In this case, software updates are crucial to Cent Co’s operations, making the license and updates a single perform
Revenue of $3 million should be recognized over four years instead of splitting it into license and updates.
Since Cent Co does not control the software, it cannot be classified as an intangible asset under IAS 38.
The contract is not a lease under IFRS 16 as Cent Co does not have decision-making rights over its use.

(b) IAS 27 - Accounting for Investments in Separate Financial Statements

Separate financial statements allow subsidiaries, joint ventures, and associates to be accounted for at:
1. Cost
2. Fair value under IFRS 9
3. Equity method under IAS 28
If a subsidiary (Maribelt Co) is partially disposed of and no longer qualifies as a subsidiary, joint venture, or associa
The retained interest is accounted for under IFRS 9 as an investment in an equity instrument.
The entity can elect to present changes in fair value in OCI, provided it is not held for trading.
Sitka Co should recognize a gain of $3 million ($10m fair value + $5m proceeds - $12m carrying amount).

(c) IFRS 13 - Fair Value Measurement

Fair value is the price an asset would fetch in an orderly transaction between market participants.
It is based on the highest and best use of the asset.
If an entity holds shares individually, their value should reflect market participants’ pricing rather than internal va
Qbooks, valued at $50 million internally, should be reported at $30 million, the fair value determined by the larg
e and updates a single performance obligation.
to license and updates.
e asset under IAS 38.
rights over its use.

e accounted for at:

idiary, joint venture, or associate:

instrument.
for trading.
12m carrying amount).

ket participants.

pricing rather than internal valuation.

value determined by the larger market.
(a) IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations

1. Classification as Held for Sale:

An asset is classified as held for sale if its carrying amount will be recovered through a sale rather than continue
The sale must be highly probable and expected within 12 months.
Leria Co's stadium does not meet these criteria since it will be sold after the 12-month threshold and involves a

2. Barrier Improvements & Impairment:

The $2 million spent on stadium barriers does not meet impairment criteria because the asset is still in use.
However, it must still be written off as an expense if it provides no probable future benefits.

3. Sale and Leaseback Accounting:

IFRS 16 requires assessing whether the transaction qualifies as a sale before applying leaseback accounting.
If classified as a sale, Leria Co must:
Derecognize the stadium.
Recognize a lease liability for payments.
Recognize a right-of-use (ROU) asset at a proportion of the stadium’s carrying amount.
Present value of lease: $26m / $30m = 86.67%.
Right-of-use asset: 86.67% × $18.92m = $16.4m.
Gain on disposal is recognized only on the portion not retained.

(b) IAS 38 - Amortization of Intangible Assets

Leria Co amortizes its broadcasting rights based on revenue generation, but IAS 38 requires amortization reflecti
Straight-line amortization is not appropriate if the benefits are linked to the timing of revenue.
The industry practice approach of aligning amortization with program revenue is acceptable if benefits correlate
If usage or benefit patterns change, amortization must be reassessed prospectively.

(c) IFRS 3 & IAS 37 - Player Contract Costs & Contingent Consideration

Recognition of Player Costs:

Player contracts are intangible assets.

The cost includes signing fees and acquisition-related payments.
 Contingent Consideration:

Amounts dependent on future performance should be recognized as part of the player’s contract cost.
If the conditions change, reassessment and adjustments should be made.

Contract Extensions & Value-in-Use:

Extensions should be accounted for separately if they are new agreements.

Valuing an individual player’s contribution is challenging and should be based on broader squad value.

Final Accounting Entries

Debit Credit
Account
(Dr.) (Cr.)

Cash (Sale
$30m
Proceeds)
Cash proceed
Right-of-
Use
$16.4m
(ROU)
Asset Proportion of the assets retaind = FV of lease / FV
Stadium
(Derecog $18.92m
nition) carrying amount
Lease
$26m
Liability Lease Liability
Gain on
Disposal $1.48m
(Balance) Gain on Proportion of assets given up

Proceeds 30
Carrying va 18.92
 gh a sale rather than continued use.

month threshold and involves a sale-leaseback.

use the asset is still in use.

ing leaseback accounting.

requires amortization reflecting the pattern of economic benefits.

of revenue.
ceptable if benefits correlate with cash inflows.
player’s contract cost.

broader squad value.

Carring am 18.92

sets retaind = FV of lease / FV Asset = 26/30 = 86.67% 0.866667 16.4

of assets given up 0

0.133333 4
0.133333 2.522667
1.477333
Key Points:

1. Challenges in Measuring Intangibles (IAS 38):

Many intangible assets, like brands, lack an acti

Brands acquired for defensive reasons create v
Intangibles are often omitted from financial sta

2. Accounting for Brands & Impairment (IAS 36)

Brands generating economic benefits should be

They are tested for impairment and allocated t
Brands typically don’t form a standalone CGU b

3. Indefinite vs. Finite Useful Life of Brands:

An indefinite life brand should not be amortize

Factors like market trends and company suppo
Clara Perfume’s brand value depends on an act

4. IFRS 5 - Non-Current Assets Held for Sale & Di

Classification as "held for sale" requires measur

The closure of six stores is classified as a dispos
Provisions may be needed for redundancy cost

5. Impairment Indicators & Assessment:

Assets must be reviewed for impairment annua

Lack of formal announcements for store closure
If primary stores show reduced performance, im
easuring Intangibles (IAS 38):

assets, like brands, lack an active market, making valuation subjective.

for defensive reasons create valuation complexity.
ften omitted from financial statements due to difficulty in estimating cost and future revenue.

Brands & Impairment (IAS 36):

g economic benefits should be recognized separately from goodwill.

or impairment and allocated to CGUs (Cash Generating Units).
don’t form a standalone CGU but are allocated to relevant groups.

nite Useful Life of Brands:

brand should not be amortized but must be reviewed annually for impairment.
et trends and company support influence useful life assessment.
brand value depends on an actor’s popularity, making an indefinite life assessment difficult.

rent Assets Held for Sale & Discontinued Operations:

held for sale" requires measuring assets at the lower of carrying amount and fair value less costs to sell.
stores is classified as a disposal group and may indicate impairment.
e needed for redundancy costs (IAS 37).

cators & Assessment:

eviewed for impairment annually or when an indication of impairment arises.

nouncements for store closures means no impairment provision is required yet.
show reduced performance, impairment may be needed.
(a) Inventory Valuation under IAS 2

Inventories should be valued at the lower of cost and net realizable value (NRV).
The Conceptual Framework acknowledges different measurement bases like historical cost, current cost, value-in
Value-in-use is not relevant because it focuses on entity-specific future cash flows.
Fair value is a market-based measurement, not specific to the entity.
Since the Conceptual Framework is not a Standard, companies must refer to IAS 2 - Inventories when determinin
IAS 2 defines NRV as:
The estimated selling price in the ordinary course of business less costs to complete and sell the product.
It is based on conditions at the reporting date and not future price changes.
Future market price fluctuations may lead to changes in NRV, and these changes must be recognized as gains o
How to calculate NRV of coal in this case?
Use the forecast market price at the time of sale.
Adjust for time value of money if a delay exists between production and sale.
Processing and selling costs must also be deducted.
If a forward contract exists, its price may be used if it is an executory contract (binding agreement).
Otherwise, if the contract is a financial instrument (IFRS 9) or an onerous contract (IAS 37), the forward price c

(b) Property, Plant, and Equipment (PPE) & Impairment

IAS 16 - Property, Plant, and Equipment (PPE):

When a part of PPE is replaced, its cost is added to the asset, and the old part’s carrying amount is derecognize
Major inspections are capitalized if they provide future economic benefits. Example:
$3M spent on reconditioning labor and materials is capitalized.
Costs unrelated to reconditioning (like maintenance) must be expensed.
Reconditioning costs cannot be expensed as a provision unless they are part of legal obligations.

IAS 36 - Impairment of Assets:

At each reporting period, entities must check if an asset is impaired.

Indicators of impairment include:
Reduction in selling prices (lower future benefits).
Decline in forward prices over a long period.
If expected prices fall below the carrying amount, the asset is impaired.
If short-term price changes occur but are expected to recover, no impairment is required.
In this case, if the mine's output price declines for a long period, impairment is likely.

(c) Business Combination & Control Analysis

Conceptual Framework on Economic Resources:

An economic resource allows control over its benefits.

An entity controls a resource if it:
Has the ability to use it.
Restricts others from using it.
Legal rights typically establish control, but control can arise without ownership in some cases.

Does Fill Co control the mine?

IFRS 10 - Consolidated Financial Statements: Control exists if an investor has:

Power over an investee.
Exposure to variable returns.
Ability to influence returns.
IFRS 15 - Revenue from Contracts with Customers:
Buying assets does not always mean control over a business.
IFRS 3 - Business Combinations defines a business as an integrated set of activities.
A business must have inputs, processes, and outputs.

Why is this not a business combination?

Fill owns only 52% of the mine.

It cannot prevent other shareholders from directing activities.
Decisions still require 72% shareholder approval, so Fill lacks full control.
 cal cost, current cost, value-in-use, and fair value. However:

- Inventories when determining NRV.

te and sell the product.

must be recognized as gains or losses in the period they arise (IAS 8).

nding agreement).
t (IAS 37), the forward price cannot be used for NRV calculation.

arrying amount is derecognized.

egal obligations.
some cases.
a) Revenue Recognition (IFRS 15)

IFRS 15 requires entities to assess if consideration for goods/services is collectible.

Omniverse contracts involve distinct hardware and hosting services.
The hardware is not distinct as it is integral to software delivery.
Price concession applied due to contract terms.
Entity assesses entitlement as $2.2M instead of $3M.

(b) Disposal of Division (IFRS 5)

A division classified as held for sale must be measured at the lower of carrying amount or fair value less costs to
Impairment assessment required before classification.
Steps:
1. Initial carrying amount: $60M.
2. Fair value less costs to sell: $38.5M.
3. Impairment loss of $21.5M recognized.

(c) Sale and Leaseback (IFRS 16)

Sale criteria met under IFRS 15, transaction classified as sale and leaseback.
Right-of-use asset recognized as proportion of carrying amount.
Lease liability recognized based on present value of lease payments.
Accounting entries:
Right-of-use asset: $3.23M
Cash received: $5M
Lease liability: $8.23M
Gain on rights transferred: $1.2M
Finance cost arises due to leaseback liability.

For a sale and leaseback to be considered a sale under IFRS 16, the following conditions must be met:

1. Transfer of Control – The buyer must gain control of the asset (as per IFRS 15).
2. No Repurchase Agreement – The seller cannot have a right/obligation to repurchase, unless at fair value.
3. Buyer’s Right to Resell – The buyer must have the ability to resell or modify the asset.
4. Fair Value Transaction – The sale price must be at fair value; any excess or shortfall is adjusted.
ount or fair value less costs to sell.

ons must be met:

ase, unless at fair value.

all is adjusted.
(a) Sale of Intangible Asset

IFRS 15 applies to revenue from ordinary business activities, but Calendar Co does not sell development projects.
IAS 38 applies if the asset qualifies as an intangible asset, but reclassification errors must be corrected under IAS 8
Incorrect classification of the development project as an intangible asset suggests it should have been classified a

(b) Lease Contract

IFRS 16 requires assessment of whether a contract grants the right to control an asset for a period of time.
Calendar Co has the right to substitute aircraft, but contractual restrictions limit usage.
The contract qualifies as a lease, and a lease liability should have been recognized at inception.
Lease liability = Present value of payments due over the lease term.

(c) Materiality

Financial statements must include all material information that influences users' decisions.
Materiality is not purely quantitative but also considers qualitative aspects.

(d) Property, Plant, and Equipment (PPE)

IAS 16 requires capitalization of PPE at cost and depreciation over useful life.
Writing off PPE directly to profit or loss is not allowed unless immaterial.
Errors in PPE treatment must be corrected in line with IAS 8.

(e) Disclosure Notes

IFRS requires transparent disclosures to ensure fair presentation.

Calendar Co should use checklists to verify completeness of disclosures.
Materiality judgments should guide which additional disclosures are necessary.
ot sell development projects.
must be corrected under IAS 8 retrospectively.
should have been classified as inventory (IAS 2).

set for a period of time.

at inception.
(a) Revenue Recognition: Climatic Co Shares

IFRS 15: Non-cash consideration should be measured at fair value at contract inception.
If fair value is uncertain, reference the stand-alone selling price.
In this case, fair value was determined using a market approach, with a range of $290,000 to $350,000.
Revenue recognized = Mid-point of $315,000 over the license period (not at a point in time).
IFRS 9: Equity investments must be measured at fair value, with changes recognized in profit or loss unless classifi

(b) Revenue from Royalties

IFRS 15: Revenue is recognized over time if the entity significantly affects the license.
In this case, revenue is recognized over the 3-year license term due to ongoing obligations.
Future royalties are uncertain, so they should not be recognized until measurable.

Conceptual Framework Support

Income definition: Increase in assets or decrease in liabilities, leading to higher equity.

Recognition criteria:
Revenue should only be recognized if it provides useful information (relevance & faithful representation).
If uncertainty exists, recognition should be delayed until certain.

1. Joint Arrangement & Cryptocurrency

Digitex Co and TechEdge Co have a joint venture where they share control.
Under IFRS 11, Digitex accounts for its share using the equity method, while TechEdge accounts for its share of
Digitex contributes cryptocurrency as an asset, but it is considered an intangible asset with no carrying amount
If classified as a financial asset, it must meet the definition, which it does not, since it lacks contractual rights to
Accounting for cryptocurrency at fair value would be useful, but IFRS standards do not permit it currently.

2. Debt Factoring (Sale of Receivables)

Under IFRS 9, trade receivables can be removed (derecognized) from financial statements if:
1. Digitex has no further rights to receive cash.
2. All risks and rewards have been transferred.
3. Digitex has no control over the receivables.
In one case, Digitex retains some risks and rewards (e.g., refund obligations), so the receivables remain on the b
In another case, substantial risks and rewards pass to the factor, so receivables are derecognized, and a liability
90,000 to $350,000.

d in profit or loss unless classified under OCI.

faithful representation).

Edge accounts for its share of net assets.

sset with no carrying amount.
e it lacks contractual rights to cash flows.
o not permit it currently.

he receivables remain on the books, with only part recorded as a bad debt expense.
re derecognized, and a liability is recorded instead.
(a) Default on Loan

1. Classification of Liability (IAS 1 - Presentation of Financial Statements)

Long-term financial liability must be classified as current if it is due within 12 months or payable on demand due
Even if a lender agrees after the reporting date to waive the default, the liability remains current at the reporting
If the lender waives the breach before the reporting date and allows at least 12 months for repayment, it can be c
In Alexandria’s case, the waiver was granted after the reporting date but only for a few weeks, so the bond shoul

2. Impact on Investors' Analysis

Misclassifying the loan as non-current misleads investors, as it hides financial difficulties.

If the company faces uncertainty over renewing its loans, IAS 1 requires disclosure of going concern risks.
Incorrect classification could lead to false financial decisions, including potential break-up basis financial stateme

(b) Financial Asset Accounting (IFRS 9 - Financial Instruments)

The loan is classified as a financial asset at amortized cost under IFRS 9.

Conditions for amortized cost classification:
1. Held within a business model whose objective is to collect contractual cash flows.
2. The contractual terms give rise to cash flows that are solely payments of principal and interest.
3. All other financial assets are measured at fair value.
Since Alexandria’s objective is to hold the loan for cash flows, it must be measured at amortized cost.

Credit Impairment under IFRS 9

Alexandria must recognize expected credit losses (ECL) due to increased credit risk.
Since credit risk has significantly worsened, the loan moves to Stage 2 (lifetime ECL calculation).
The credit loss allowance should be increased from $7.5m to $8m to reflect revised risks.
Interest revenue should be calculated on the gross carrying amount, not net of credit losses.

(c) Directors' Remuneration (IAS 24 - Related Party Disclosures)

IAS 24 requires disclosure of key management personnel compensation in categories:

Short-term benefits (e.g., salaries, bonuses).
Post-employment benefits (e.g., pensions).
Other long-term benefits.
Termination benefits.
Share-based payments.
Alexandria must separately disclose short-term benefits and share-based payments.

Disclosure of Non-Executive Directors’ Pay

 Non-executive directors (NEDs) influence decisions, so they are considered key management personnel under IA
Their compensation must be disclosed, despite arguments that NEDs are independent.

Materiality in Related Party Disclosures

If compensation details are immaterial, they may be excluded, but:

Even small amounts could be material for governance concerns.
Alexandria’s financial distress means investors need transparency on directors' pay.
If payments to directors relate to a defaulting company, users need full disclosure for governance and accountab

Final Takeaways

1. Loan Classification (IAS 1): Since Alexandria defaulted and waiver came after the reporting date, it must be cla
2. Financial Asset (IFRS 9): Loan must be measured at amortized cost, with credit impairment provisions increase
3. Director Compensation (IAS 24): NED payments must be fully disclosed, as investors need transparency on cor
hs or payable on demand due to a covenant breach.
mains current at the reporting date because the entity did not have the right to defer settlement for at least 12 months.
nths for repayment, it can be classified as non-current.
few weeks, so the bond should be classified as a current liability.

of going concern risks.

eak-up basis financial statements if liquidation is likely.

pal and interest.

at amortized cost.

calculation).
nagement personnel under IAS 24.

for governance and accountability.

reporting date, it must be classified as current liability.

mpairment provisions increased to $8m.
tors need transparency on corporate governance and financial distress decisions.
t 12 months.
1. Adjusted Net Asset Value Per Share (Adjusted NAV per Share)

An additional performance measure (APM) but cannot replace EPS (IAS 33).
Helps investors understand performance but lacks a standard definition, leading to potential bias.
Should be reconciled with IFRS figures and applied consistently year over year.
ESMA guidelines require clear calculation methods and prohibit giving APMs more prominence than IFRS disclosu

2. Annual Report Disclosures

Excessive disclosures can obscure key financial information.

Materiality (Practice Statement 2) should guide which disclosures are necessary.
Related party transactions require judgment—qualitative factors can make small transactions material.
Only significant accounting policies need to be disclosed (IAS 1).

3. Investment Properties (IAS 40 & IFRS 13)

Can be measured using fair value (IFRS 13) or cost model.

Fair value hierarchy:
Level 1: Quoted market prices.
Level 2: Observable inputs other than quoted prices.
Level 3: Unobservable inputs requiring estimation.
"Now-build value loss obsolescence" method may not comply with IFRS 13.
The Conceptual Framework suggests choosing a measurement basis that ensures relevance and faithful represen
Since investment property is 60% of Janne’s assets, fair value may be more useful unless high measurement unce
potential bias.

prominence than IFRS disclosures.

ansactions material.

elevance and faithful representation.

nless high measurement uncertainty exists.
Summary of IFRS S1 (Objective & Materiality Concepts)

(i) Objective of IFRS S1:

Requires entities to disclose sustainability-related risks and opportunities to help primary users (investors, capit
Information must be faithfully represented, relevant, comparable, verifiable, timely, and understandable.
Sustainability disclosures should align with the entity’s financial statements to ensure consistency and connectivi

(ii) Materiality & Double Materiality:

Materiality in IFRS S1: Focuses on financial materiality, meaning disclosures should influence investor decisions.
Double Materiality: Considers both financial materiality (impact on company value) and impact materiality (com
ISSB vs. Double Materiality Approach:
ISSB (IFRS S1) discloses sustainability risks only if they affect the company’s financial prospects.
Double Materiality (used in GRI Standards) requires disclosure of sustainability impacts even if they don’t affec
Usefulness of Information:
ISSB standards prioritize investors rather than broader stakeholders like customers or communities.
Investors today are also interested in environmental and social responsibility but such details may not always b

Summary: Importance of Disclosing Related Party Transactions (IAS 24)

(i) Importance of Disclosure

Related party transactions (RPTs) are common in business, but they can impact financial performance (e.g., sellin
Users assume transactions are arm’s length, so disclosure is crucial for transparency.
Knowing RPTs helps users assess risks, opportunities, and ethical behavior of an entity.
Proper disclosure reduces the risk of fraud and unethical practices.

(ii) Materiality Judgment

Disclosures follow materiality principles (IFRS Practice Statement 2).

Even small transactions may be material if they involve related parties.
Entities must disclose RPTs if they could influence investors' decisions.

(iii) Nature of Related Party Relationships

Within Egin Group:

Briars, Doye, and Eye are related parties as subsidiaries and an associate.
Tang (previous subsidiary) was related before its sale, so disclosure is required.
Blue’s relationship with Egin depends on whether its director is key management personnel.

Between Spade & Egin Group:

Spade is related to Doye due to significant influence.
Egin is related to Spade only if it influences Doye.
Arm’s length pricing statement must be clarified since related party transactions are not truly market-based.
primary users (investors, capital providers) make informed decisions.
y, and understandable.
ure consistency and connectivity.

influence investor decisions.

) and impact materiality (company’s effects on people & planet).

cial prospects.
pacts even if they don’t affect financial performance.

rs or communities.
such details may not always be covered under IFRS S1.

ncial performance (e.g., selling goods at artificial prices).

are not truly market-based.
(a) Fair Value of Agricultural Vehicles

IFRS 13 defines fair value as an exit price in the principal market, which has the greatest volume of activity.
The most advantageous market maximizes the net price after transport and transaction costs.
In Yanong's case, Asia is the principal market, setting the fair value of 150 vehicles at $5,595,000.
The most advantageous market is Europe, but IFRS 13 mandates that transaction costs should not be deducted w

(b) Accounting Treatment of Maize (Agriculture - IAS 41)

If market prices are unavailable, fair value is estimated using discounted cash flows.
Net cash flows are adjusted for:
Operating costs (e.g., $8m cash outflow)
Notional land rental ($1m)
Fair value movements:
At Oct 31, 20X4, maize fields = $8.8m ($20m + $4.8m gain).
At Jan 31, 20X5, new valuation = $54m (updated cash flow estimates).
Fair value gain: $6.06m in profit or loss.

(c) Farmland - Highest and Best Use

Fair value should reflect the highest and best use of the asset.
Legally permissible? Residential use is possible, but regulatory approval is uncertain.
Evidence required: IFRS 13 assumes current use is the highest and best use unless strong market evidence sugges
Transformation costs (e.g., planning approval) should be factored into valuation.

(d) Share-Based Payment (IFRS 2)

IFRS 13 excludes share-based payments, which are governed by IFRS 2.

Cash-settled SARs (Stock Appreciation Rights):
Valued using option pricing models at each reporting date.
Liability changes over time; any adjustments go to profit or loss.
Example calculation:
Total liability = 285 SARs × $11 = $1,567,500.
Expense for the period = Difference in liability between April 20X4 & 20X5.
Cash paid: $315,000.
Final expense: $97,500.
atest volume of activity.

at $5,595,000.
osts should not be deducted when measuring fair value.

trong market evidence suggests otherwise.

A. Defined Contribution Plans vs. Defined Benefit Plans
1. Defined Contribution Plans:

Employer makes regular contributions; liability limited to these contributions.

Contributions are invested, and benefits depend on investment performance.
Employee bears the risk associated with investment outcomes.
2. Defined Benefit Plans:

Benefits are predetermined, and the employer guarantees them.

Employer responsible for ensuring sufficient funds to meet obligations.
If investments underperform, the employer may need to contribute more to meet liabilities.
3. Key Difference:

Risk allocation: Employees bear risk in defined contribution plans; employers bear risk in defined benefit plans.

B. Relocation Costs and Net Pension Liability

1. Provision for Restructuring:

Recognised as per IAS 37 for the year ending 31 May 20X3.

$35 million provision made for relocation; formal planning required beforehand.
2. Reduction in Net Pension Liability:

Employee redundancies viewed as a curtailment under IAS 19.

Past service costs recorded earlier of restructuring or curtailment occurrence.
3. Recognition Timing:

Restructuring costs recognised within the financial year ending 31 May 20X3.
Curtailment impacts seen after this year.
4. Disclosure Requirements:

Relocation costs and pension liability reductions need separate disclosures in financial statements.
(a) Deferred Tax Accounting for Specific Items

1. Share Options:

Under IFRS 2, a deferred tax asset arises due to the timing difference between when employee services are reco
Initially, a deferred tax asset of $2.4 million is recognized, but since the total tax benefit is $13.8 million, the ass

2. Leased Equipment:

Under IFRS 16, a right-of-use asset and lease liability are recognized.
The lease liability is initially $12 million, with tax relief granted as lease payments are made.
At 31 October 20X5, a deductible temporary difference of $9.96 million arises, leading to a deferred tax asset.
The right-of-use asset creates a taxable temporary difference of $9.6 million, resulting in a deferred tax liabilit
The net deferred tax asset recognized is $108,000 after offsetting.

3. Intra-group Sale:

A $2 million profit made by Dahlia on sales to Lupin is taxed at the entity level, but the profit is eliminated at the
Since the tax is paid before the group realizes the profit, a temporary difference of $600,000 arises.

4. Impairment Loss:

Impairment reduces the carrying amount of goodwill and equipment under IAS 36, but tax law does not recogn
This creates a temporary difference, requiring deferred tax adjustments.

(b) Conceptual and Practical Issues in Deferred Tax

1. Conceptual Issues with Deferred Tax:

Deferred tax is statement of financial position-focused, aligning with the Conceptual Framework.
However, deferred tax assets and liabilities may not strictly meet the definition of assets (future economic bene
IAS 12 assumes all transactions have tax consequences, even when tax law and IFRS recognition differ.
The timing difference between financial and tax reporting creates inconsistencies in liability recognition.

2. Tax Reconciliation Disclosure:

The reconciliation of tax charge to expected tax (profit before tax × tax rate) is a required disclosure under IAS
Though complex, excluding it would make financial statements misleading.
 If shareholders struggle to understand it, Lupin can provide an explanatory note under IAS 1 to improve clarity.
The finance director’s difficulty in preparing it raises ethical concerns about competency in IFRS.
The reconciliation is material because Lupin's tax affairs appear complex.

In conclusion, while the conceptual basis of deferred tax is debatable, IAS 12 must be followed.
en employee services are recognized as an expense and when the tax deduction occurs (upon exercise of options).
enefit is $13.8 million, the asset is no longer required.

ading to a deferred tax asset.

ulting in a deferred tax liability of $2.88 million.

t the profit is eliminated at the group level.

f $600,000 arises.

6, but tax law does not recognize impairment losses.

ual Framework.
assets (future economic benefits) or liabilities (present obligations).
RS recognition differ.
in liability recognition.

required disclosure under IAS 12.

under IAS 1 to improve clarity.
etency in IFRS.
(a) Borrowing Costs
IAS 23 Borrowing Costs

Borrowing costs related to acquiring or constructing an asset must be capitalized if the asset takes a substantial p
These costs include general borrowings that would have been avoided if the expenditure had not occurred.
Capitalization is calculated using the weighted average borrowing rate applied to the weighted average carrying

Calculation of Borrowing Costs

1. Weighted average carrying amount of the stadium:

$20 million + $70 million + $120 million + $170 million = $95 million
2. Capitalization rate = 9% per annum.
3. Total borrowing cost to be capitalized:
$95 million × 9% × (12/12) = $2.85 million.

(b) Players’ Registrations

1. Acquisition of Players' Registrations

IAS 38 Intangible Assets requires entities to recognize an intangible asset when:

1. Future economic benefits are probable.
2. Cost can be measured reliably.
Costs included in capitalization:
Transfer fees, league fees, agents’ fees, and other directly attributable costs.
Fair value of contingent consideration (e.g., additional payments based on the player’s performance).
Reassessment of contingent consideration is required if conditions are met.

2. Contract Extension of Players

When a player's contract is extended, any associated costs are added to the unamortized carrying amount.
The remaining revised contract life is used for amortization.

3. Sale of Players' Registrations

IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations applies if:
The sale is highly probable.
The registration is actively marketed by the club.
The asset is expected to be sold within one year.
Classification as “held for sale”:
If conditions are met, the player's registration is reclassified as held for sale.
If there are unconditional offers, classification happens earlier.
 Gains/losses on disposal:
The difference between consideration received and carrying amount is recognized in profit or loss.
If the fee depends on the player's performance, it is recognized in profit/loss when conditions are met.
Example: A player was disposed of, but after the year-end, a contingent amount of $7 million was received.

4. Impairment Review of Players' Registrations

IAS 36 Impairment of Assets applies:

Annual assessment of players' registrations for impairment.
Impairment occurs when carrying amount exceeds recoverable amount.
The higher of fair value less costs of disposal and value in use is taken as the recoverable amount.
Challenges in valuation:
Individual players do not generate cash flows independently unless they are sold.
Players are part of a cash-generating unit (CGU), such as a club.
If a player is injured or not playing, their registration value may be impaired.
In such cases, the carrying amount of the player should be adjusted to the best estimate of fair value.
Impairment charge is recognized in profit or loss.

(c) Valuation of Stadiums

1. Fair Value Measurement under IFRS 13

IFRS 13 Fair Value Measurement requires stadiums to be valued at:

The price at which the asset would be sold in an orderly transaction between market participants.
Maximizing the asset’s value is a key consideration.

2. Alternative Uses and Market Conditions

The best use principle applies:

A stadium's value could be higher as development land than as a stadium.
Market conditions impact valuation – e.g., land may be more valuable for commercial or residential purposes.

3. Related Party Disclosures under IAS 24

IAS 24 Related Party Disclosures requires disclosure when transactions involve:

Major shareholders, directors, or entities under common control.
If the stadium is sold to a related party, it must be disclosed as a Related Party Transaction (RPT).
Regulatory Requirements:
If the sale is an RPT, regulatory authorities may scrutinize the transaction.
The club must demonstrate that the sale price reflects market value and is not influenced by the related party.
the asset takes a substantial period to be ready for use or sale.
diture had not occurred.
he weighted average carrying amount of the asset.

ayer’s performance).

ortized carrying amount.

d in profit or loss.
n conditions are met.
f $7 million was received.

overable amount.

timate of fair value.

rket participants.

ercial or residential purposes.

ansaction (RPT).

fluenced by the related party.

(a) Financial Liability for the Share Buyback Obligation

As of 31 August 20X6, Evolve had an obligation to repurchase its own shares at a fixed price. This obligation was s
IFRS 32 Financial Instruments: Presentation states that a financial instrument should be classified as either:
A financial liability, or
An equity instrument, depending on its substance rather than its legal form.
IAS 32 requirements for financial liabilities:
If a company has a contractual obligation to repurchase its own equity instruments, it should recognize a financ
Even if the obligation exists before the shareholder exercises the redemption right, a liability must still be recog
Accounting treatment in Evolve’s financial statements:
Since Evolve had already set up the conditions for a share capital increase in August 20X6, it should have recogn
The liability should have been measured at the present value of the maximum payable amount to shareholder
This is considered a adjusting event under IAS 10 Events After the Reporting Period, as the event confirms cond
However, an argument could be made that the allocation of rights back to Evolve is a triggering event, providing

(b) Classification of Non-Current Assets Held for Sale

The non-current assets of Resource should have been classified as held for sale in Evolve’s financial statements.
IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations states that an asset must be classified as h
1. Management is committed to a plan to sell the asset.
2. The asset is available for immediate sale in its present condition.
3. The sale is highly probable within 12 months.
Evolve’s commitment to selling Resource:
The company had publicly announced the sale in August 20X6 and planned to complete the transaction within
 On 20 September 20X6, an offer to purchase was received, confirming that the sale was still highly probable as o
Since IFRS 5 does not require a binding sales agreement, the commitment to sell and the high probability of the
Measurement and Disclosure:
IAS 36 Impairment of Assets requires an impairment review when an asset is classified as held for sale.
The carrying amount of the asset should be measured at the lower of:
The carrying amount before classification, or
The fair value less costs to sell.
Since the sale was still likely at the year-end, Evolve should have disclosed this classification separately in the fi

(c) Business Combination and Tax Payments

IFRS 3 Business Combinations applies when a business is acquired, but in this case, Evolve only acquired an asset
Since the acquisition did not include business operations, IFRS 3 was not applicable.
IAS 40 Investment Property applies when an investment property is acquired:
The purchase price and directly attributable costs (e.g., legal and professional fees) should be included in the as
However, IAS 16 Property, Plant and Equipment (PPE) states that:
Costs incurred to bring an asset to its intended operating condition should be capitalized.
Tax payments related to the acquisition do not qualify as directly attributable costs under IAS 16 or IAS 40.
Accounting treatment of tax payments:
The tax Evolve paid was not necessary to bring the asset into operational use.
Since the tax was linked to Evolve’s activities, it should be recognized as an expense in the profit or loss statem
Therefore, the tax should not be included in the cost of the asset.
xed price. This obligation was similar to a written put option because it gave shareholders the right to sell their shares back to the compan
ld be classified as either:

ts, it should recognize a financial liability for the present value of the maximum amount payable.
t, a liability must still be recognized.

ust 20X6, it should have recognized a financial liability in its statement of financial position as of 31 August 20X6.
yable amount to shareholders.
od, as the event confirms conditions that already existed at the end of the reporting period.
is a triggering event, providing evidence of conditions that only existed after the end of the reporting period.

volve’s financial statements.

n asset must be classified as held for sale when:

mplete the transaction within the next 12 months.

 le was still highly probable as of 31 August 20X6.
and the high probability of the sale were enough to classify Resource as held for sale.

sified as held for sale.

ssification separately in the financial statements.

Evolve only acquired an asset, not a business.

s) should be included in the asset’s cost.

osts under IAS 16 or IAS 40.

nse in the profit or loss statement under IAS 12 Income Taxes.

eir shares back to the company.
(a) Classification of Joint Arrangements and Accounting for Irrecoverable Gas

IFRS 11 Joint Arrangements determines whether a joint arrangement is classified as a joint operation or a joint v
A joint arrangement exists when two or more parties share joint control and must unanimously agree on decision
Classification of Joint Arrangements:
If the arrangement does not involve a separate vehicle, it is a joint operation where parties recognize their sha
In contrast, a joint venture involves a separate entity, and parties recognize their interest using the equity meth
Case of Gasnature and Gogas:
The arrangement between Gasnature and Gogas is a joint operation since no separate entity is involved.
Gasnature should recognize its share of the storage facility as property, plant, and equipment (PPE).
Accounting for Decommissioning Obligations:
IAS 16 Property, Plant, and Equipment requires inclusion of the present value of dismantling and removing the
IAS 37 Provisions, Contingent Liabilities, and Contingent Assets states that a provision for restoration should be
Gasnature must recognize its share (45%) of the decommissioning obligation as a liability.
A contingent liability should also be disclosed for Gogas's 55% share in case Gogas fails to meet its decommissio
Accounting for Irrecoverable Gas:
The irrecoverable gas is essential for the storage facility to function, so it qualifies as PPE.
Depreciation treatment:
If the gas is fully recoverable at decommissioning, depreciation should be recorded against the estimated res
If the gas loses value over time, it should be depreciated over the facility’s useful life.
If sold upon decommissioning, the sale should be recognized as income in profit or loss.

(b) Financial Instruments and Contracts for Non-Financial Items (IFRS 9)

IFRS 9 Financial Instruments applies to contracts for buying/selling non-financial items that can be settled in cash
Recognition as a Financial Instrument:
A contract to buy/sell a non-financial item is within IFRS 9's scope if it allows cash settlement and does not qual
The contract can be measured at fair value through profit or loss (FVTPL) if this designation eliminates an accou
Scenarios where Contracts Qualify as Financial Instruments:
1. If the contract explicitly allows either party to settle in cash.
2. If cash settlement is not explicit but is a common business practice for similar contracts.
3. If the contract is held for trading purposes, meaning frequent buying/selling to generate a profit.
4. If the non-financial item in the contract is the underlying for another financial contract.
Exemptions from IFRS 9:
If a contract is entered into for the physical delivery of the item in accordance with expected usage, it is exemp
Instead, it is accounted for under IAS 2 Inventories or IAS 16 PPE.
However, contracts initially classified as "own-use" can later be reclassified as derivatives if the company no lon

(c) Overhaul Costs and Accounting Treatment

Overhaul costs refer to major maintenance expenses required to ensure that an asset continues to function prop
 IFRS treatment for overhaul costs:
IAS 16 Property, Plant, and Equipment requires that overhaul costs be capitalized if they meet asset recognitio
Costs that restore an asset's functionality should be capitalized as a new component and depreciated separatel
Costs related to inspection and routine repairs should be expensed instead of capitalized.
Depreciation and Component Accounting:
The new overhaul component should be depreciated over its useful life (i.e., until the next expected overhaul).
The carrying amount of any previously capitalized overhaul should be derecognized when the new overhaul is r
Disclosure Requirements:
If the overhaul costs were incurred after the reporting date but were committed to before year-end, they may
The total amount should be disclosed, along with the nature of the costs and their expected impact on financial

Final Summary

(a) The Gasnature-Gogas joint arrangement is a joint operation, requiring recognition of Gasnature’s share of PPE
(b) Contracts for non-financial items that can be settled in cash fall under IFRS 9 Financial Instruments, unless the
(c) Overhaul costs should be capitalized if they restore an asset’s function and should be depreciated separately.
s a joint operation or a joint venture based on the rights and obligations of the parties.
unanimously agree on decisions about relevant activities.

ere parties recognize their share of assets, liabilities, revenues, and expenses.
interest using the equity method.

arate entity is involved.

d equipment (PPE).

dismantling and removing the item as part of the initial asset cost.
vision for restoration should be recognized at the present value of expected expenditure.

s fails to meet its decommissioning obligation.

ded against the estimated residual value.

ems that can be settled in cash unless they are for the purpose of receiving or delivering the item in line with the company’s expected usa

settlement and does not qualify for the own-use exemption.

esignation eliminates an accounting mismatch.

generate a profit.

h expected usage, it is exempt from IFRS 9.

vatives if the company no longer intends to take physical delivery.

set continues to function properly.

d if they meet asset recognition criteria.
ent and depreciated separately.

the next expected overhaul).

ed when the new overhaul is recognized.

to before year-end, they may need to be disclosed under IAS 10 Events After the Reporting Period.
r expected impact on financial statements.

on of Gasnature’s share of PPE and decommissioning liabilities. The irrecoverable gas should be capitalized as PPE and depreciated accor
ancial Instruments, unless they qualify for the own-use exemption.
ld be depreciated separately. Routine repairs should be expensed.
h the company’s expected usage.
as PPE and depreciated accordingly.
(a) Intangible Assets and Business Combinations

1. Indefinite vs. Finite Useful Life of Intangible Assets (IAS 38):

An intangible asset has an indefinite useful life when there is no foreseeable limit to the period over which it w
In this case, Cadnam Co wants to classify two brands as having indefinite useful lives, but certain factors need t
The first brand has strong long-term potential and can be classified as indefinite.
The second brand is linked to a celebrity and may not remain popular indefinitely, so it should be classified as
If an asset has a finite life, it should be amortized over its useful life and tested for impairment as per IAS 36 Im
If the useful life is reassessed from indefinite to finite, the change is considered an accounting estimate under IA

2. Business Combination vs. Asset Acquisition (IFRS 3):

IFRS 3 Business Combinations defines a business as a set of activities and assets that are capable of creating an
In this case, Cadnam Co purchased two retail units from two limited liability companies, but the companies had
Since no organized workforce or substantive process was acquired, the transaction does not meet the definitio
Instead, it is an asset acquisition, meaning different accounting treatment applies.

(b) Financial Instruments - Amortized Cost vs. Fair Value (IFRS 9)

Loan Measurement Options:

IFRS 9 Financial Instruments allows companies to measure loans at amortized cost or fair value through profit
The selection impacts the initial and subsequent carrying amounts.

1. Amortized Cost Method:

The initial and new loans both have a single repayment structure.
Using amortized cost, the carrying amounts at different dates are:
Initial loan: $47m × 1.05⁵ = $59.08m (after 5 years)
New loan: $45m × 1.07⁴ = $59.08m (after 4 years)
Carrying amounts at 30 November 20X5:
Initial loan: $47m + ($47m × 0.05) = $49.35m
New loan: $45m

2. Fair Value Method:

If both loans are carried at fair value, they would have the same carrying amount at $45m on 30 November 20X
The profit impact would be:
Interest expense: $47m × 5% = $2.35m
Unrealized gain: $49.35m - $45m = $4.35m
 Total profit: $2m.

(c) Hedge Accounting (IFRS 9)

Hedge Accounting Criteria:

IFRS 9 allows hedge accounting only if all conditions are met:

The hedge relationship must consist of eligible hedged items and hedging instruments.
Formal documentation must be maintained, including:
The hedged item.
The hedging instrument.
The nature of the risk being hedged.
The method for assessing hedge effectiveness.
The hedging relationship must meet IFRS 9 effectiveness criteria.

Hedge Effectiveness Conditions:

Economic relationship: The hedged item and hedging instrument must have opposite movements due to the sa
Effect of credit risk: Changes in credit risk should not distort the relationship between the hedged item and the
Hedge ratio alignment: The hedge ratio must match the actual risk exposure.
 to the period over which it will generate net cash flows.
ves, but certain factors need to be considered:

y, so it should be classified as having a finite life.

r impairment as per IAS 36 Impairment of Assets.
n accounting estimate under IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

hat are capable of creating an output through a minimum input and a substantive process.
panies, but the companies had no employees or operational activities.
on does not meet the definition of a business combination.

st or fair value through profit or loss (FVTPL).

at $45m on 30 November 20X5.

site movements due to the same risk.
een the hedged item and the hedging instrument.
a) Leases (IFRS 16)

Operating vs. Finance Lease:

A lease is classified as a finance lease if it transfers substantially all risks and rewards of ownership.
Carson Co’s leases are operating leases because:
The lease does not transfer ownership.
The purchase option price is higher than fair value at the end.
Lease payments are not substantially all of the asset's fair value.
Carson retains risks and responsibilities (e.g., mileage cap, maintenance).
Accounting Treatment:
Leased vehicles = Property, Plant, and Equipment (PPE).
Depreciate based on expected useful life and residual value.
If a leased asset is to be sold, reclassify it as inventory (IFRS 15).

Cash Flow Presentation (IAS 7):

Proceeds from the sale of leased vehicles should be classified as operating cash flows, not investing.

(b) Financial Instruments (IFRS 9 & IFRS 13)

Debt Instruments Measured at FVOCI:

Measured at fair value; interest income is recorded in profit or loss.

Changes in fair value → recorded in OCI.
Expected Credit Losses (ECLs):
Reduce profit/loss, but not the carrying amount.
Any changes are reclassified from OCI to profit/loss upon disposal.

Fair Value Measurement (IFRS 13):

Level 1 inputs (quoted prices in active markets) should be used.

If no active market exists, alternative methods (Level 2 or Level 3) may be required.

Accounting for Bonds:

Initial Measurement:
Bonds recorded at $6 million; interest of $0.2 million recognized in profit/loss.
Subsequent Measurement (28 Feb 20X7):
 Bonds valued at $5.3 million.
$0.7 million impairment loss (profit/loss).
$0.3 million loss in OCI.
Bond sold for $5.3 million in March 20X7, so loss in OCI is reclassified to profit/loss.

(c) Contract Costs (IFRS 15)

Cost Categorization:

Costs fulfilling a contract are divided into:

1. Directly attributable costs (recoverable, included in contract cost).
2. General costs (not specific to the contract, expensed immediately).

Incremental Costs of Obtaining a Contract:

Expected to be recoverable → capitalized.

Example: Carson Co should capitalize sales commission costs.

Amortization & Impairment:

Contract costs amortized over contract duration.

Costs should be tested for impairment if recoverability is uncertain.

Contract Modifications:

If contract changes affect pricing, a new contract may need to be recognized under IFRS 15.
rds of ownership.

ows, not investing.

(a) Shares Issued to Directors (IFRS 3 & IFRS 2)

Business Combination (IFRS 3):

3 million $1 shares issued as part of purchase consideration for Hash.
Total fair value: $6 million ($3 million share capital, $3 million share premium).
Share-Based Payment (IFRS 2):
5,000 shares per director are linked to continuing employment, making it a compensation arrangement under I
Market value = $2 per share, total compensation = $50,000 (5 × 5,000 × $2).
This amount is charged to profit or loss with a corresponding increase in equity.

(b) Shares Issued to Employees (IFRS 2)

Shares issued as remuneration at a fair value of $3 per share.

Since they vest immediately, they are charged to profit or loss and included in equity.

(c) Purchase of Property, Plant, and Equipment (IFRS 2 & IAS 32)

Asset Acquisition with Share-Based Payment:

Considered a compound financial instrument with a debt and equity element.
Fair value of property = $4 million.
Share price at issuance = $3.50, with a present value of liability $3.9 million.
Journal entries:
Debit: PPE $4m
Credit: Liability $3.9m
Credit: Equity $0.1m
After three months, liability is remeasured to $4.55m, requiring an adjustment:
Debit: Expense $0.65m
Credit: Liability $0.65m

(d) Share-Based Payment – Choice of Share or Cash Settlement (IFRS 2)

New director given option of equity or cash.

Fair value of equity alternative = $125,000.
Cash alternative = $120,000.
The difference ($5,000) is recorded as an equity component.
Journal entries at 31 May 20X7:
Debit: Directors’ remuneration expense $125,000
 Credit: Liability $120,000
Credit: Equity $5,000
If director chooses cash, they forfeit $5,000 equity in exchange for $120,000 cash.

(e) Investment in Associate (IAS 28)

Investment in Handy treated as an associate (20%-50% ownership, significant influence).

Cost method used:
Purchase cost = 1m × $2.50 = $2.5m.
Negative goodwill ($0.2m) added back.
Post-acquisition retained earnings: Share of profits (30% × ($11m - $9m)) = $0.3m.
Carrying amount at 31 May 20X7: $3 million.
Since negative goodwill exists, impairment testing is required.
ensation arrangement under IFRS 2.
(a) Land and Brand Name (IFRS 13 - Fair Value Measurement)

Fair value should reflect highest and best use from a market participant's perspective.
Agricultural land has an alternative use as residential property, so valuation should consider this potential.
If land is used for residential purposes, valuation includes costs for land use approval and reflects demand.
Brand valuation should also reflect highest and best use, independent of the company's decision to discontinue it
Fair value conclusion:
Land: $5 million (adjusted for residential potential).
Brand: $17 million.

(b) Fair Value of Inventory (IFRS 13 - Principal & Most Advantageous Market)

The principal market is where the entity mainly transacts unless evidence suggests otherwise.
If no principal market, the most advantageous market is chosen (maximizing net value).
Market comparison:
Domestic market (direct to retailers): Data insufficient.
Domestic market (direct to manufacturers): Price per tonne = $950.
Export market: Price per tonne = $1,094.
Due to lack of sufficient data on retail transactions, the most advantageous market is the export market.
Final fair value: $1,094 per tonne.

(c) Investment in Erham (IFRS 9 & IFRS 13 - Financial Instruments)

Fair value of unquoted equity instruments in a private company must be based on observable data and market-b
Valuation techniques include:
Transaction price of recent share sales (adjusted for preference shares vs. ordinary shares).
Adjusted net asset method for illiquid shares.
Key adjustments:
Preference shares have higher liquidation preference than ordinary shares.
Market price adjustments for liquidity, dividends, and Erham’s performance.
Final valuation should incorporate these adjustments and consider all available information.

Summary of Key Takeaways

1. Land should be valued based on potential highest use (residential) and brand based on market demand.
2. Inventory fair value should be based on the export market price due to insufficient domestic data.
3. Investment valuation should use a market-based approach, adjusting for liquidity, share type, and recent tran
 consider this potential.
val and reflects demand.
any's decision to discontinue it.

t is the export market.

observable data and market-based measurement.

ased on market demand.

ent domestic data.
ty, share type, and recent transactions.
(a) Fair Value of Investment Properties (IFRS 13)

Fair value is the price received to sell an asset in an orderly transaction at the measurement date.
IFRS 13 requires valuation techniques that maximize observable inputs and minimize unobservable inputs using a
Level 1: Quoted prices in active markets.
Level 2: Observable inputs (e.g., similar assets in non-active markets).
Level 3: Unobservable inputs (e.g., discounted cash flow models).
Ethan incorrectly uses the discounted cash flow (DCF) approach, despite the existence of an active market, violati

Goodwill and Deferred Tax Implications

Incorrect fair value measurement of investment properties may lead to misstatement of goodwill.
If goodwill is based on incorrect net asset fair values, it could lead to financial misrepresentation.
Impairment testing:
If carrying amount > recoverable amount, impairment loss must be recognized and deducted from profit or loss
Recoverable amount is determined as the higher of:
1. Fair value less costs to sell
2. Value in use (present value of expected future cash flows).
Deferred tax assets should only be recognized if there is sufficient taxable profit to recover them.
Due to a substantial loss announcement, Ethan should not recognize a deferred tax asset, as future taxable profi

(b) IFRS 9 Fair Value Measurement Option

Accounting mismatch:
Investment properties are measured at fair value, but the debt financing them is at amortized cost, creating an
IFRS 9 allows the fair value option for a liability if it eliminates or reduces this mismatch.
Ethan’s argument: The fair value option is justified since debt and property valuation are linked to interest rates.
IFRS 9 requirement:
If a liability is designated at fair value, changes due to credit risk must be recognized in Other Comprehensive I
No reclassification of these changes to P&L in later periods.
If credit risk reverses, it may create another mismatch in P&L.

(c) Shares of Subsidiary (IAS 32 - Financial Instruments: Presentation)

IAS 32 definition of financial liability:

A contractual obligation to deliver cash or another financial asset to another entity.
B Shares classification:
Since the B shares have a fixed dividend obligation, they are classified as a financial liability, not equity.
The subsidiary must pay dividends, even without legally distributable profits.
Consolidation impact:
In consolidated financial statements, the parent’s (Ethan’s) investment in B shares cancels out against the sub
Remaining 30% (held by external parties) remains a financial liability, not a non-controlling interest (NCI), sinc
 surement date.
ze unobservable inputs using a three-level hierarchy:

nce of an active market, violating IFRS 13's preference for Level 1 inputs.

ent of goodwill.
presentation.

nd deducted from profit or loss.

recover them.
x asset, as future taxable profits may not be sufficient.

at amortized cost, creating an inconsistency.

on are linked to interest rates.

zed in Other Comprehensive Income (OCI), not Profit or Loss (P&L).

ial liability, not equity.

es cancels out against the subsidiary’s liability (70%).

controlling interest (NCI), since it does not qualify as equity.
Key Accounting Differences in SMEs Standard

(1) Business Combination (IFRS 3 vs. SMEs Standard)

Non-controlling interest (NCI):

IFRS 3: Can measure NCI at fair value or proportionate share.
SMEs Standard: Only proportionate share is allowed to avoid fair value complexity.
Goodwill:
IFRS 3: Tested annually for impairment.
SMEs Standard: Amortized (max 10 years if uncertain).
Example: Goodwill of $0.3M amortized over 10 years ($30,000 per year).

(2) Research & Development (IAS 38 vs. SMEs Standard)

IFRS (IAS 38): Development costs capitalized if criteria met.

SMEs Standard: All R&D expensed immediately.
Example: $1.5M charged to P&L ($0.5M research + $1M development).

(3) Investment Property (IAS 40 vs. SMEs Standard)

IFRS (IAS 40): Requires annual impairment testing for certain assets.
SMEs Standard: Allows cost-based valuation if external valuation is available.
Example: Expense of $0.2M recognized in P&L ($1M - $0.7M).

(4) Intangible Assets & Amortization (IAS 38 vs. SMEs Standard)

IFRS (IAS 38):

Intangibles may be revalued if active market exists.
Amortization only if finite life; if indefinite, tested for impairment annually.
SMEs Standard:
No revaluation model (must be carried at cost).
All intangible assets are amortized over their useful life.
If useful life cannot be estimated, max 10 years amortization is applied.
No indefinite life intangibles → simplifies accounting for SMEs.
No annual impairment test, reducing complexity and cost.
a) Warranties (IAS 37 & IFRS 15)

Standard Warranty (IAS 37)

A standard warranty ensures that the machine meets specifications and operates as expected for one year.
It is not separately priced and is therefore treated as a provision under IAS 37.
Recognition criteria:
Present obligation: Exists due to warranty commitment at the time of sale.
Probable outflow: Individually, warranty claims may be low, but when considered collectively, payout is more li
Reliable estimate: A provision should be recorded based on historical experience.

Additional Warranty (IFRS 15)

If a customer can buy the warranty separately, it is a distinct performance obligation under IFRS 15.
The additional warranty in this case was given as an incentive, but normally, customers would pay $4,000 for it.
Revenue allocation:
Since there are two performance obligations (machine & warranty), the transaction price ($196,000) must be s

Performa Stand-
Allocated
nce alone
% of Total Transacti
Obligatio Selling
on Price
n Price
Machine $196,000 98% $192,080
Extended
$4,000 2% $3,920
Warranty
Total $200,000 100% $196,000

(b) Consignment Arrangement (IFRS 15)

Definition & Indicators

Under IFRS 15, a consignment arrangement occurs when goods are delivered to a dealer but control remains wit
Key indicators of a consignment arrangement:
1. Supplier retains control until the product is sold.
2. Supplier can recall the product at any time.
3. Dealer has no unconditional payment obligation (e.g., they may pay a deposit but can return the goods).

Application to Radia Co. & Jae Co.

Radia Co. (Supplier) ships jewellery to Jae Co. (Dealer) for three months.
Key facts:
Jewellery must be returned if unsold.
Radia Co. retains control until sold.
Jae Co. does not bear full risk since it can return the jewellery and offset deposits.
 Radia Co. retains inventory risk (as items remain unsold).

Accounting Treatment

Jewellery remains as inventory in Radia Co.’s books.

Revenue recognition only occurs when Jae Co. sells the jewellery to the end customer.
Until sale, Jae Co. does not recognize the jewellery as inventory. Instead, they may record a deposit (if applicable

Non-Refundable Fee (IFRS 15)

IFRS 15 requires assessing whether a non-refundable upfront fee represents the transfer of a distinct good or ser
Katta Co.'s membership fee:
Includes account setup and membership card issuance.
These are administrative tasks and not separate performance obligations under IFRS 15.

Accounting Treatment

The fee is an advance payment for access to the food store over 12 months.
On receipt, recognize a contract liability.
Revenue is recognized over time (likely on a straight-line basis) as access is provided to the customer.

Right of Return (IFRS 15)

IFRS 15 states that when customers have a right to return products, revenue recognition must reflect the variabl
Revenue should be recognized only to the extent that a significant reversal is not expected when the uncertainty

Accounting Treatment for Kracker Co.:

Total sales value: $200,000

Expected returns (4%): $8,000 ($200,000 × 4%)
Recognized revenue: $192,000 ($200,000 – $8,000)
Refund liability: $8,000 (current liability)
Right of return asset: $6,400 (4% × $160,000)
Cost of sales: $153,600

Journal Entries at Date of Sale:

📌 Recognition of revenue and refund liability

Dr Trade receivable: $200,000

Cr Revenue: $192,000
Cr Refund liability: $8,000

📌 Recognition of cost of sales and right of return asset

 Dr Cost of sales: $153,600
Dr Right of return asset: $6,400
Cr Inventory: $160,000

Subsequent Reporting Considerations:

The refund liability should be reassessed at each reporting date.

The right of return asset must be reviewed for recoverability to ensure its value is not impaired.
 s expected for one year.

collectively, payout is more likely than not.

on under IFRS 15.

mers would pay $4,000 for it.

on price ($196,000) must be split proportionally to their standalone prices.

dealer but control remains with the supplier until a specified event occurs (e.g., sale to the end customer).

but can return the goods).

 record a deposit (if applicable).

ansfer of a distinct good or service.

d to the customer.

nition must reflect the variable consideration.

xpected when the uncertainty is resolved (i.e., when the return period expires).
not impaired.