(b) (i) Discusses the principles involved in accounting for claims made under the above warranty provision.(6 marks)(ii) Shows the accounting treatment for the above warranty provision under IAS37 ‘Provisions, ContingentLiabilities and Contingent Assets’

题目

(b) (i) Discusses the principles involved in accounting for claims made under the above warranty provision.

(6 marks)

(ii) Shows the accounting treatment for the above warranty provision under IAS37 ‘Provisions, Contingent

Liabilities and Contingent Assets’ for the year ended 31 October 2007. (3 marks)

Appropriateness of the format and presentation of the report and communication of advice. (2 marks)


相似考题
更多“(b) (i) Discusses the principles involved in accounting for claims made under the above warranty provision.(6 marks)(ii) Shows the accounting treatment for the above warranty provision under IAS37 ‘Provisions, ContingentLiabilities and Contingent Assets’ ”相关问题
  • 第1题:

    116 Which of the following is not a cost of non-conformance?

    A. maintenance and calibration

    B. warranty repairs

    C. scrap

    D. rework

    E. All of the above


    正确答案:A

  • 第2题:

    6 Warranty cost is an example of an _____ .

    A. internal failure cost

    B. appraisal cost

    C. external failure cost

    D. customer satisfaction cost

    E. All of the above


    正确答案:C

  • 第3题:

    [A] Around [B] Under [C] Above [D] Outside


    正确答案:D

    本题考查介词用法辨析。Around意为“在……周围”;Under意为“在……之下,少于,低于”;Above意为“在……上面”;Outside意为“在……外面;不在……范围内,不属于”,如You may do as you wish outside working hours.(不在上班时间,你爱干什么就干什么。)空格上文介绍了庙宇的官员,下文则介绍了与宗教无关的其他社会阶层。可见,空格处的介词应表示“在(庙宇的官员)之外”的含义,因此[D]正确。

  • 第4题:

    Additionally the directors wish to know how the provision for deferred taxation would be calculated in the following

    situations under IAS12 ‘Income Taxes’:

    (i) On 1 November 2003, the company had granted ten million share options worth $40 million subject to a two

    year vesting period. Local tax law allows a tax deduction at the exercise date of the intrinsic value of the options.

    The intrinsic value of the ten million share options at 31 October 2004 was $16 million and at 31 October 2005

    was $46 million. The increase in the share price in the year to 31 October 2005 could not be foreseen at

    31 October 2004. The options were exercised at 31 October 2005. The directors are unsure how to account

    for deferred taxation on this transaction for the years ended 31 October 2004 and 31 October 2005.

    (ii) Panel is leasing plant under a finance lease over a five year period. The asset was recorded at the present value

    of the minimum lease payments of $12 million at the inception of the lease which was 1 November 2004. The

    asset is depreciated on a straight line basis over the five years and has no residual value. The annual lease

    payments are $3 million payable in arrears on 31 October and the effective interest rate is 8% per annum. The

    directors have not leased an asset under a finance lease before and are unsure as to its treatment for deferred

    taxation. The company can claim a tax deduction for the annual rental payment as the finance lease does not

    qualify for tax relief.

    (iii) A wholly owned overseas subsidiary, Pins, a limited liability company, sold goods costing $7 million to Panel on

    1 September 2005, and these goods had not been sold by Panel before the year end. Panel had paid $9 million

    for these goods. The directors do not understand how this transaction should be dealt with in the financial

    statements of the subsidiary and the group for taxation purposes. Pins pays tax locally at 30%.

    (iv) Nails, a limited liability company, is a wholly owned subsidiary of Panel, and is a cash generating unit in its own

    right. The value of the property, plant and equipment of Nails at 31 October 2005 was $6 million and purchased

    goodwill was $1 million before any impairment loss. The company had no other assets or liabilities. An

    impairment loss of $1·8 million had occurred at 31 October 2005. The tax base of the property, plant and

    equipment of Nails was $4 million as at 31 October 2005. The directors wish to know how the impairment loss

    will affect the deferred tax provision for the year. Impairment losses are not an allowable expense for taxation

    purposes.

    Assume a tax rate of 30%.

    Required:

    (b) Discuss, with suitable computations, how the situations (i) to (iv) above will impact on the accounting for

    deferred tax under IAS12 ‘Income Taxes’ in the group financial statements of Panel. (16 marks)

    (The situations in (i) to (iv) above carry equal marks)


    正确答案:

    (b) (i) The tax deduction is based on the option’s intrinsic value which is the difference between the market price and exercise
    price of the share option. It is likely that a deferred tax asset will arise which represents the difference between the tax
    base of the employee’s service received to date and the carrying amount which will effectively normally be zero.
    The recognition of the deferred tax asset should be dealt with on the following basis:
    (a) if the estimated or actual tax deduction is less than or equal to the cumulative recognised expense then the
    associated tax benefits are recognised in the income statement
    (b) if the estimated or actual tax deduction exceeds the cumulative recognised compensation expense then the excess
    tax benefits are recognised directly in a separate component of equity.
    As regards the tax effects of the share options, in the year to 31 October 2004, the tax effect of the remuneration expensewill be in excess of the tax benefit.

    The company will have to estimate the amount of the tax benefit as it is based on the share price at 31 October 2005.
    The information available at 31 October 2004 indicates a tax benefit based on an intrinsic value of $16 million.
    As a result, the tax benefit of $2·4 million will be recognised within the deferred tax provision. At 31 October 2005,
    the options have been exercised. Tax receivable will be 30% x $46 million i.e. $13·8 million. The deferred tax asset
    of $2·4 million is no longer recognised as the tax benefit has crystallised at the date when the options were exercised.
    For a tax benefit to be recognised in the year to 31 October 2004, the provisions of IAS12 should be complied with as
    regards the recognition of a deferred tax asset.
    (ii) Plant acquired under a finance lease will be recorded as property, plant and equipment and a corresponding liability for
    the obligation to pay future rentals. Rents payable are apportioned between the finance charge and a reduction of the
    outstanding obligation. A temporary difference will effectively arise between the value of the plant for accounting
    purposes and the equivalent of the outstanding obligation as the annual rental payments qualify for tax relief. The tax
    base of the asset is the amount deductible for tax in future which is zero. The tax base of the liability is the carrying
    amount less any future tax deductible amounts which will give a tax base of zero. Thus the net temporary differencewill be:

    (iii) The subsidiary, Pins, has made a profit of $2 million on the transaction with Panel. These goods are held in inventory
    at the year end and a consolidation adjustment of an equivalent amount will be made against profit and inventory. Pins
    will have provided for the tax on this profit as part of its current tax liability. This tax will need to be eliminated at the
    group level and this will be done by recognising a deferred tax asset of $2 million x 30%, i.e. $600,000. Thus any
    consolidation adjustments that have the effect of deferring or accelerating tax when viewed from a group perspective will
    be accounted for as part of the deferred tax provision. Group profit will be different to the sum of the profits of the
    individual group companies. Tax is normally payable on the profits of the individual companies. Thus there is a need
    to account for this temporary difference. IAS12 does not specifically address the issue of which tax rate should be used
    calculate the deferred tax provision. IAS12 does generally say that regard should be had to the expected recovery or
    settlement of the tax. This would be generally consistent with using the rate applicable to the transferee company (Panel)
    rather than the transferor (Pins).

  • 第5题:

    (c) Wader is reviewing the accounting treatment of its buildings. The company uses the ‘revaluation model’ for its

    buildings. The buildings had originally cost $10 million on 1 June 2005 and had a useful economic life of

    20 years. They are being depreciated on a straight line basis to a nil residual value. The buildings were revalued

    downwards on 31 May 2006 to $8 million which was the buildings’ recoverable amount. At 31 May 2007 the

    value of the buildings had risen to $11 million which is to be included in the financial statements. The company

    is unsure how to treat the above events. (7 marks)

    Required:

    Discuss the accounting treatments of the above items in the financial statements for the year ended 31 May

    2007.

    Note: a discount rate of 5% should be used where necessary. Candidates should show suitable calculations where

    necessary.


    正确答案:

  • 第6题:

    (c) On 1 May 2007 Sirus acquired another company, Marne plc. The directors of Marne, who were the only

    shareholders, were offered an increased profit share in the enlarged business for a period of two years after the

    date of acquisition as an incentive to accept the purchase offer. After this period, normal remuneration levels will

    be resumed. Sirus estimated that this would cost them $5 million at 30 April 2008, and a further $6 million at

    30 April 2009. These amounts will be paid in cash shortly after the respective year ends. (5 marks)

    Required:

    Draft a report to the directors of Sirus which discusses the principles and nature of the accounting treatment of

    the above elements under International Financial Reporting Standards in the financial statements for the year

    ended 30 April 2008.


    正确答案:
    (c) Acquisition of Marne
    All business combinations within the scope of IFRS 3 ‘Business Combinations’ must be accounted for using the purchase
    method. (IFRS 3.14) The pooling of interests method is prohibited. Under IFRS 3, an acquirer must be identified for all
    business combinations. (IFRS 3.17) Sirus will be identified as the acquirer of Marne and must measure the cost of a business
    combination at the sum of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, in exchange
    for control of Marne; plus any costs directly attributable to the combination. (IFRS 3.24) If the cost is subject to adjustment
    contingent on future events, the acquirer includes the amount of that adjustment in the cost of the combination at the
    acquisition date if the adjustment is probable and can be measured reliably. (IFRS 3.32) However, if the contingent payment
    either is not probable or cannot be measured reliably, it is not measured as part of the initial cost of the business combination.
    If that adjustment subsequently becomes probable and can be measured reliably, the additional consideration is treated as
    an adjustment to the cost of the combination. (IAS 3.34) The issue with the increased profit share payable to the directors
    of Marne is whether the payment constitutes remuneration or consideration for the business acquired. Because the directors
    of Marne fall back to normal remuneration levels after the two year period, it appears that this additional payment will
    constitute part of the purchase consideration with the resultant increase in goodwill. It seems as though these payments can
    be measured reliably and therefore the cost of the acquisition should be increased by the net present value of $11 million at
    1 May 2007 being $5 million discounted for 1 year and $6 million for 2 years.

  • 第7题:

    5 The directors of Quapaw, a limited liability company, are reviewing the company’s draft financial statements for the

    year ended 31 December 2004.

    The following material matters are under discussion:

    (a) During the year the company has begun selling a product with a one-year warranty under which manufacturing

    defects are remedied without charge. Some claims have already arisen under the warranty. (2 marks)

    Required:

    Advise the directors on the correct treatment of these matters, stating the relevant accounting standard which

    justifies your answer in each case.

    NOTE: The mark allocation is shown against each of the three matters


    正确答案:
    (a) The correct treatment is to provide for the best estimate of the costs likely to be incurred under the warranty, as required by
    IAS37 Provisions, contingent liabilities and contingent assets.

  • 第8题:

    (ii) Comment on the figures in the statement prepared in (a)(i) above. (4 marks)


    正确答案:
    (ii) The statement of product profitability shows that CTC is forecast to achieve a profit of $2·185 million in 2008 giving a
    profit:sales ratio of 11·9%. However, the forecast profit in 2009 is only $22,000 which would give a profit:sales ratio
    of just 0·19%! Total sales volume in 2008 is 390,000 units which represent 97·5% utilisation of total annual capacity.
    In stark contrast, the total sales volume in 2009 is forecast to be 240,000 units which represents 60% utilisation of
    total annual capacity and shows the expected rapid decline in sales volumes of Bruno and Kong products. The rapid
    decline in the sales of these two products is only offset to a relatively small extent by increased sales volume from the
    Leo product. It is vital that a new product or products with healthy contribution to sales ratios are introduced.
    Management should also undertake cost/benefit analyses in order to assess the potential of extending the life of Bruno
    and Kong products.

  • 第9题:

    2 (a) Define the following terms:

    (i) Forensic Accounting;

    (ii) Forensic Investigation;

    (iii) Forensic Auditing. (6 marks)


    正确答案:
    2 Crocus Co
    (a) (i) Forensic accounting utilises accounting, auditing, and investigative skills to conduct an examination into a company’s
    financial statements. The aim of forensic accounting is to provide an accounting analysis that is potentially suitable for
    use in court. Forensic accounting is an umbrella term encompassing both forensic investigations and forensic audits. It
    includes the audit of financial information to prove or disprove a fraud, the interview process used during an
    investigation, and the act of serving as an expert witness.
    Tutorial note: Forensic accounting can be used in a very wide range of situations, e.g. settling monetary disputes in
    relation to a business closure, marriage break up, insurance claim, etc. Credit will be awarded for any reasonable
    examples provided.
    (ii) A forensic investigation is a process whereby a forensic accountant carries out procedures to gather evidence, which
    could ultimately be used in legal proceedings or to settle disputes. This could include, for example, an investigation into
    money laundering. A forensic investigation involves many stages (similar to an audit), including planning, evidence
    gathering, quality control reviews, and finally results in the production of a report.
    (iii) Forensic auditing is the specific use of audit procedures within a forensic investigation to find facts and gather evidence,
    usually focused on the quantification of a financial loss. This could include, for example, the use of analytical
    procedures, and substantive procedures to determine the amount of an insurance claim.

  • 第10题:

    The accounting equation shows the relationship among ______.

    A.assets, liabilities and investor's yield

    B.assets, liabilities and owner's equity

    C.capital, liabilities and profits

    D.capital, costs and profits


    正确答案:B
    解析:会计等式(accounting equation):资产=负债+所有者权益。investor's yield投资者的收益。assets, liabilities and owner's equity分别是指:资产、负债、所有者权益。

  • 第11题:

    A. with B. against C. above D. under


    答案:B
    解析:

  • 第12题:

    单选题
    Under what circumstance can we tell an accident is probably caused by sleepiness?
    A

    If traffic is light and vehicles are well-spaced on the road.

    B

    When there is only one car involved in the accident.

    C

    If there is no skid marks or other signs of braking on the road.

    D

    All of the above.


    正确答案: B
    解析:
    事实细节的找寻和判断。关于如何才能判断某次事故是由睡眠引起的,录音中提到“There are some strong pointers”,引出下文具体例子。讲话者提到“If an accident involves only one vehicle…especially if there are no skid marks or other signs of braking”,对应选项B与C的内容。而A项与“…especially if it occurs where traffic is light and vehicles ale consequently well-spaced on the road”表达意思相符。由此可见,前三个选项的内容在录音中都有提及,因此该题正确答案为D。

  • 第13题:

    124 Warranty cost is an example of an _____ .

    A. internal failure cost

    B. appraisal cost

    C. external failure cost

    D. customer satisfaction cost

    E. All of the above


    正确答案:C

  • 第14题:

    The following are examples of external users of accounting information except:()

    A、government

    B、customers

    C、creditors

    D、all of the above


    正确答案:D

  • 第15题:

    3 The directors of Panel, a public limited company, are reviewing the procedures for the calculation of the deferred tax

    provision for their company. They are quite surprised at the impact on the provision caused by changes in accounting

    standards such as IFRS1 ‘First time adoption of International Financial Reporting Standards’ and IFRS2 ‘Share-based

    Payment’. Panel is adopting International Financial Reporting Standards for the first time as at 31 October 2005 and

    the directors are unsure how the deferred tax provision will be calculated in its financial statements ended on that

    date including the opening provision at 1 November 2003.

    Required:

    (a) (i) Explain how changes in accounting standards are likely to have an impact on the provision for deferred

    taxation under IAS12 ‘Income Taxes’. (5 marks)


    正确答案:

    (a) (i) IAS12 ‘Income Taxes’ adopts a balance sheet approach to accounting for deferred taxation. The IAS adopts a full
    provision approach to accounting for deferred taxation. It is assumed that the recovery of all assets and the settlement
    of all liabilities have tax consequences and that these consequences can be estimated reliably and are unavoidable.
    IFRS recognition criteria are generally different from those embodied in tax law, and thus ‘temporary’ differences will
    arise which represent the difference between the carrying amount of an asset and liability and its basis for taxation
    purposes (tax base). The principle is that a company will settle its liabilities and recover its assets over time and at that
    point the tax consequences will crystallise.

    Thus a change in an accounting standard will often affect the carrying value of an asset or liability which in turn will
    affect the amount of the temporary difference between the carrying value and the tax base. This in turn will affect the
    amount of the deferred taxation provision which is the tax rate multiplied by the amount of the temporary differences(assuming a net liability for deferred tax.)

     

  • 第16题:

    (ii) Explain the accounting treatment under IAS39 of the loan to Bromwich in the financial statements of

    Ambush for the year ended 30 November 2005. (4 marks)


    正确答案:
    (ii) There is objective evidence of impairment because of the financial difficulties and reorganisation of Bromwich. The
    impairment loss on the loan will be calculated by discounting the estimated future cash flows. The future cash flows
    will be $100,000 on 30 November 2007. This will be discounted at an effective interest rate of 8% to give a present
    value of $85,733. The loan will, therefore, be impaired by ($200,000 – $85,733) i.e. $114,267.
    (Note: IAS 39 requires accrual of interest on impaired loans at the original effective interest rate. In the year to
    30 November 2006 interest of 8% of $85,733 i.e. $6,859 would be accrued.)

  • 第17题:

    (b) When a director retires, amounts become payable to the director as a form. of retirement benefit as an annuity.

    These amounts are not based on salaries paid to the director under an employment contract. Sirus has

    contractual or constructive obligations to make payments to former directors as at 30 April 2008 as follows:

    (i) certain former directors are paid a fixed annual amount for a fixed term beginning on the first anniversary of

    the director’s retirement. If the director dies, an amount representing the present value of the future payment

    is paid to the director’s estate.

    (ii) in the case of other former directors, they are paid a fixed annual amount which ceases on death.

    The rights to the annuities are determined by the length of service of the former directors and are set out in the

    former directors’ service contracts. (6 marks)

    Required:

    Draft a report to the directors of Sirus which discusses the principles and nature of the accounting treatment of

    the above elements under International Financial Reporting Standards in the financial statements for the year

    ended 30 April 2008.


    正确答案:
    (b) Directors’ retirement benefits
    The directors’ retirement benefits are unfunded plans which may fall under IAS19 ‘Employee Benefits’.
    Sirus should review its contractual or constructive obligation to make retirement benefit payments to its former directors at the
    time when they leave the firm. The payments may create a financial liability under IAS32, or may give rise to a liability of
    uncertain timing and amount which may fall within the scope of IAS37 ‘Provisions, contingent liabilities and contingent
    assets’. Certain former directors are paid a fixed annuity for a fixed term which is payable annually, and on death, the present
    value of future payments are paid to the director’s estate. An annuity meets the definition of a financial liability under IAS32,
    if there is a contractual obligation to deliver cash or a financial asset. The latter form. of annuity falls within the scope of
    IAS32/39. The present value of the annuity payments should be determined. The liability is recognised because the directors
    have a contractual right to the annuity and the firm has no discretion in terms of withholding the payment. As the rights to
    the annuities are earned over the period of the service of the directors, then the costs should have been recognised also over
    the service period.
    Where an annuity has a life contingent element and, therefore, embodies a mortality risk, it falls outside the scope of IAS39
    because the annuity will meet the definition of an insurance contract which is scoped out of IAS39, along with employers’
    rights and obligations under IAS19. Such annuities will, therefore, fall within the scope of IAS37 if a constructive obligation
    exists. Sirus should assess the probability of the future cash outflow of the present obligation. Because there are a number of
    similar obligations, IAS37 requires that the class of obligations as a whole should be considered (similar to a warranty
    provision). A provision should be made for the best estimate of the costs of the annuity and this would include any liability
    for post retirement payments to directors earned to date. The liability should be built up over the service period rather than
    just when the director leaves. In practice the liability will be calculated on an actuarial basis consistent with the principles in
    IAS19. The liability should be recalculated on an annual basis, as for any provision, to take account of changes in directors
    and other factors. The liability will be discounted where the effect is material.

  • 第18题:

    (d) Sirus raised a loan with a bank of $2 million on 1 May 2007. The market interest rate of 8% per annum is to

    be paid annually in arrears and the principal is to be repaid in 10 years time. The terms of the loan allow Sirus

    to redeem the loan after seven years by paying the full amount of the interest to be charged over the ten year

    period, plus a penalty of $200,000 and the principal of $2 million. The effective interest rate of the repayment

    option is 9·1%. The directors of Sirus are currently restructuring the funding of the company and are in initial

    discussions with the bank about the possibility of repaying the loan within the next financial year. Sirus is

    uncertain about the accounting treatment for the current loan agreement and whether the loan can be shown as

    a current liability because of the discussions with the bank. (6 marks)

    Appropriateness of the format and presentation of the report and quality of discussion (2 marks)

    Required:

    Draft a report to the directors of Sirus which discusses the principles and nature of the accounting treatment of

    the above elements under International Financial Reporting Standards in the financial statements for the year

    ended 30 April 2008.


    正确答案:
    (d) Repayment of the loan
    If at the beginning of the loan agreement, it was expected that the repayment option would not be exercised, then the effective
    interest rate would be 8% and at 30 April 2008, the loan would be stated at $2 million in the statement of financial position
    with interest of $160,000 having been paid and accounted for. If, however, at 1 May 2007, the option was expected to be
    exercised, then the effective interest rate would be 9·1% and at 30 April 2008, the cash interest paid would have been
    $160,000 and the interest charged to the income statement would have been (9·1% x $2 million) $182,000, giving a
    statement of financial position figure of $2,022,000 for the amount of the financial liability. However, IAS39 requires the
    carrying amount of the financial instrument to be adjusted to reflect actual and revised estimated cash flows. Thus, even if
    the option was not expected to be exercised at the outset but at a later date exercise became likely, then the carrying amount
    would be revised so that it represented the expected future cash flows using the effective interest rate. As regards the
    discussions with the bank over repayment in the next financial year, if the loan was shown as current, then the requirements
    of IAS1 ‘Presentation of Financial Statements’ would not be met. Sirus has an unconditional right to defer settlement for longer
    than twelve months and the liability is not due to be legally settled in 12 months. Sirus’s discussions should not be considered
    when determining the loan’s classification.
    It is hoped that the above report clarifies matters.

  • 第19题:

    (b) Using sensitivity analysis, estimate by what percentage each of the under-mentioned items, taken separately,

    would need to change before the recommendation in (a) above is varied:

    (i) Initial outlay;

    (ii) Annual contribution. (4 marks)


    正确答案:

  • 第20题:

    (iii) the warranty provision. (3 marks)


    正确答案:
    (iii) Warranty provision
    ■ Agree the principal assumptions in management’s estimate of liabilities under warranties to the terms of warranty
    as set out in contracts for sale of vehicle. For example:
    – the period for which warranties are given;
    – whether for parts replacement only or parts and labour;
    – exclusion clauses, perhaps for vehicles sold into a particular market, or used in a specified industry (e.g. filmmaking).
    ■ Agree the reasonableness of management’s assumptions in the calculation of the provision. For example, the
    proportion of vehicles for which claims are made within three months, three to six months, six to nine months, etc.
    ■ Substantiate the economic reality of the basis of management’s calculations. For example:
    – agree the number of vehicles sold each month to a summary sales report;
    – agree the calculation of average cost of a repair under warranty to job records;
    – test costs of repair on a sample basis (e.g. parts replaced to price lists and labour charges to hours worked
    (per job records) and charge-out rates).
    ■ Consider the reasonableness of management’s estimate by comparing:
    – the actual cost of after-date repairs (say for three months) against the appropriate proportion of the provision
    made;
    – current year provision per vehicle sold against prior provision per vehicle sold.
    ■ Assess management’s ability to make reliable estimates in this area by comparing last year’s provision with the
    actual repairs under warranty costs incurred during the year in respect of sales made in previous years.
    Tutorial note: The basis of management’s estimate may tend to overstate or understate the provision required
    and should be revised accordingly.
    ■ Agree the extent to which the provision takes account of (has been reduced by) any recourse to suppliers (e.g. in
    respect of faulty parts). For example:
    – by reviewing terms of purchases from major suppliers;
    – by examining records of replacement parts received free of charge.

  • 第21题:

    (d) Wader has decided to close one of its overseas branches. A board meeting was held on 30 April 2007 when a

    detailed formal plan was presented to the board. The plan was formalised and accepted at that meeting. Letters

    were sent out to customers, suppliers and workers on 15 May 2007 and meetings were held prior to the year

    end to determine the issues involved in the closure. The plan is to be implemented in June 2007. The company

    wish to provide $8 million for the restructuring but are unsure as to whether this is permissible. Additionally there

    was an issue raised at one of the meetings. The operations of the branch are to be moved to another country

    from June 2007 but the operating lease on the present buildings of the branch is non-cancellable and runs for

    another two years, until 31 May 2009. The annual rent of the buildings is $150,000 payable in arrears on

    31 May and the lessor has offered to take a single payment of $270,000 on 31 May 2008 to settle the

    outstanding amount owing and terminate the lease on that date. Wader has additionally obtained permission to

    sublet the building at a rental of $100,000 per year, payable in advance on 1 June. The company needs advice

    on how to treat the above under IAS37 ‘Provisions, Contingent Liabilities and Contingent Assets’. (7 marks)

    Required:

    Discuss the accounting treatments of the above items in the financial statements for the year ended 31 May

    2007.

    Note: a discount rate of 5% should be used where necessary. Candidates should show suitable calculations where

    necessary.


    正确答案:

    (d) A provision under IAS37 ‘Provisions, Contingent Liabilities and Contingent assets’ can only be made in relation to the entity’s
    restructuring plans where there is both a detailed formal plan in place and the plans have been announced to those affected.
    The plan should identify areas of the business affected, the impact on employees and the likely cost of the restructuring and
    the timescale for implementation. There should be a short timescale between communicating the plan and starting to
    implement it. A provision should not be recognised until a plan is formalised.
    A decision to restructure before the balance sheet date is not sufficient in itself for a provision to be recognised. A formal plan
    should be announced prior to the balance sheet date. A constructive obligation should have arisen. It arises where there has
    been a detailed formal plan and this has raised a valid expectation in the minds of those affected. The provision should only
    include direct expenditure arising from the restructuring. Such amounts do not include costs associated with ongoing business
    operations. Costs of retraining staff or relocating continuing staff or marketing or investment in new systems and distribution
    networks, are excluded. It seems as though in this case a constructive obligation has arisen as there have been detailed formal
    plans approved and communicated thus raising valid expectations. The provision can be allowed subject to the exclusion of
    the costs outlined above.
    Although executory contracts are outside IAS37, it is permissible to recognise a provision that is onerous. Onerous contracts
    can result from restructuring plans or on a stand alone basis. A provision should be made for the best estimate of the excess
    unavoidable costs under the onerous contract. This estimate should assess any likely level of future income from new sources.
    Thus in this case, the rental income from sub-letting the building should be taken into account. The provision should be

  • 第22题:

    There has been significant divergence in practice over recognition of revenue mainly because International Financial Reporting Standards (IFRS) have contained limited guidance in certain areas. The International Accounting Standards Board (IASB) as a result of the joint project with the US Financial Accounting Standards Board (FASB) has issued IFRS 15 Revenue from Contracts with Customers. IFRS 15 sets out a five-step model, which applies to revenue earned from a contract with a customer with limited exceptions, regardless of the type of revenue transaction or the industry. Step one in the five-step model requires the identification of the contract with the customer and is critical for the purpose of applying the standard. The remaining four steps in the standard’s revenue recognition model are irrelevant if the contract does not fall within the scope of IFRS 15.

    Required:

    (a) (i) Discuss the criteria which must be met for a contract with a customer to fall within the scope of IFRS 15. (5 marks)

    (ii) Discuss the four remaining steps which lead to revenue recognition after a contract has been identified as falling within the scope of IFRS 15. (8 marks)

    (b) (i) Tang enters into a contract with a customer to sell an existing printing machine such that control of the printing machine vests with the customer in two years’ time. The contract has two payment options. The customer can pay $240,000 when the contract is signed or $300,000 in two years’ time when the customer gains control of the printing machine. The interest rate implicit in the contract is 11·8% in order to adjust for the risk involved in the delay in payment. However, Tang’s incremental borrowing rate is 5%. The customer paid $240,000 on 1 December 2014 when the contract was signed. (4 marks)

    (ii) Tang enters into a contract on 1 December 2014 to construct a printing machine on a customer’s premises for a promised consideration of $1,500,000 with a bonus of $100,000 if the machine is completed within 24 months. At the inception of the contract, Tang correctly accounts for the promised bundle of goods and services as a single performance obligation in accordance with IFRS 15. At the inception of the contract, Tang expects the costs to be $800,000 and concludes that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will occur. Completion of the printing machine is highly susceptible to factors outside of Tang’s influence, mainly issues with the supply of components.

    At 30 November 2015, Tang has satisfied 65% of its performance obligation on the basis of costs incurred to date and concludes that the variable consideration is still constrained in accordance with IFRS 15. However, on 4 December 2015, the contract is modified with the result that the fixed consideration and expected costs increase by $110,000 and $60,000 respectively. The time allowable for achieving the bonus is extended by six months with the result that Tang concludes that it is highly probable that the bonus will be achieved and that the contract still remains a single performance obligation. Tang has an accounting year end of 30 November. (6 marks)

    Required:

    Discuss how the above two contracts should be accounted for under IFRS 15. (In the case of (b)(i), the discussion should include the accounting treatment up to 30 November 2016 and in the case of (b)(ii), the accounting treatment up to 4 December 2015.)

    Note: The mark allocation is shown against each of the items above.

    Professional marks will be awarded in question 4 for clarity and quality of presentation. (2 marks)


    正确答案:

    (a) (i) The definition of what constitutes a contract for the purpose of applying the standard is critical. The definition of contract is based on the definition of a contract in the USA and is similar to that in IAS 32 Financial Instruments: Presentation. A contract exists when an agreement between two or more parties creates enforceable rights and obligations between those parties. The agreement does not need to be in writing to be a contract but the decision as to whether a contractual right or obligation is enforceable is considered within the context of the relevant legal framework of a jurisdiction. Thus, whether a contract is enforceable will vary across jurisdictions. The performance obligation could include promises which result in a valid expectation that the entity will transfer goods or services to the customer even though those promises are not legally enforceable.

    The first criteria set out in IFRS 15 is that the parties should have approved the contract and are committed to perform. their respective obligations. It would be questionable whether that contract is enforceable if this were not the case. In the case of oral or implied contracts, this may be difficult but all relevant facts and circumstances should be considered in assessing the parties’ commitment. The parties need not always be committed to fulfilling all of the obligations under a contract. IFRS 15 gives the example where a customer is required to purchase a minimum quantity of goods but past experience shows that the customer does not always do this and the other party does not enforce their contract rights. However, there needs to be evidence that the parties are substantially committed to the contract.

    It is essential that each party’s rights and the payment terms can be identified regarding the goods or services to be transferred. This latter requirement is the key to determining the transaction price.

    The contract must have commercial substance before revenue can be recognised, as without this requirement, entities might artificially inflate their revenue and it would be questionable whether the transaction has economic consequences. Further, it should be probable that the entity will collect the consideration due under the contract. An assessment of a customer’s credit risk is an important element in deciding whether a contract has validity but customer credit risk does not affect the measurement or presentation of revenue. The consideration may be different to the contract price because of discounts and bonus offerings. The entity should assess the ability of the customer to pay and the customer’s intention to pay the consideration. If a contract with a customer does not meet these criteria, the entity can continually re-assess the contract to determine whether it subsequently meets the criteria.

    Two or more contracts which are entered into around the same time with the same customer may be combined and accounted for as a single contract, if they meet the specified criteria. The standard provides detailed requirements for contract modifications. A modification may be accounted for as a separate contract or a modification of the original contract, depending upon the circumstances of the case.

    (ii) Step one in the five-step model requires the identification of the contract with the customer. After a contract has been determined to fall under IFRS 15, the following steps are required before revenue can be recognised.

    Step two requires the identification of the separate performance obligations in the contract. This is often referred to as ’unbundling’, and is done at the beginning of a contract. The key factor in identifying a separate performance obligation is the distinctiveness of the good or service, or a bundle of goods or services. A good or service is distinct if the customer can benefit from the good or service on its own or together with other readily available resources and is separately identifiable from other elements of the contract. IFRS 15 requires a series of distinct goods or services which are substantially the same with the same pattern of transfer, to be regarded as a single performance obligation. A good or service, which has been delivered, may not be distinct if it cannot be used without another good or service which has not yet been delivered. Similarly, goods or services which are not distinct should be combined with other goods or services until the entity identifies a bundle of goods or services which is distinct. IFRS 15 provides indicators rather than criteria to determine when a good or service is distinct within the context of the contract. This allows management to apply judgement to determine the separate performance obligations which best reflect the economic substance of a transaction.

    Step three requires the entity to determine the transaction price, which is the amount of consideration which an entity expects to be entitled to in exchange for the promised goods or services. This amount excludes amounts collected on behalf of a third party, for example, government taxes. An entity must determine the amount of consideration to which it expects to be entitled in order to recognise revenue.

    The transaction price might include variable or contingent consideration. Variable consideration should be estimated as either the expected value or the most likely amount. Management should use the approach which it expects will best predict the amount of consideration and should be applied consistently throughout the contract. An entity can only include variable consideration in the transaction price to the extent that it is highly probable that a subsequent change in the estimated variable consideration will not result in a significant revenue reversal. If it is not appropriate to include all of the variable consideration in the transaction price, the entity should assess whether it should include part of the variable consideration. However, this latter amount still has to pass the ’revenue reversal’ test.

    Additionally, an entity should estimate the transaction price taking into account non-cash consideration, consideration payable to the customer and the time value of money if a significant financing component is present. The latter is not required if the time period between the transfer of goods or services and payment is less than one year. If an entity anticipates that it may ultimately accept an amount lower than that initially promised in the contract due to, for example, past experience of discounts given, then revenue would be estimated at the lower amount with the collectability of that lower amount being assessed. Subsequently, if revenue already recognised is not collectable, impairment losses should be taken to profit or loss.

    Step four requires the allocation of the transaction price to the separate performance obligations. The allocation is based on the relative standalone selling prices of the goods or services promised and is made at inception of the contract. It is not adjusted to reflect subsequent changes in the standalone selling prices of those goods or services. The best evidence of standalone selling price is the observable price of a good or service when the entity sells that good or service separately. If that is not available, an estimate is made by using an approach which maximises the use of observable inputs. For example, expected cost plus an appropriate margin or the assessment of market prices for similar goods or services adjusted for entity-specific costs and margins or in limited circumstances a residual approach. When a contract contains more than one distinct performance obligation, an entity allocates the transaction price to each distinct performance obligation on the basis of the standalone selling price.

    Where the transaction price includes a variable amount and discounts, consideration needs to be given as to whether these amounts relate to all or only some of the performance obligations in the contract. Discounts and variable consideration will typically be allocated proportionately to all of the performance obligations in the contract. However, if certain conditions are met, they can be allocated to one or more separate performance obligations.

    Step five requires revenue to be recognised as each performance obligation is satisfied. An entity satisfies a performance obligation by transferring control of a promised good or service to the customer, which could occur over time or at a point in time. The definition of control includes the ability to prevent others from directing the use of and obtaining the benefits from the asset. A performance obligation is satisfied at a point in time unless it meets one of three criteria set out in IFRS 15. Revenue is recognised in line with the pattern of transfer.

    If an entity does not satisfy its performance obligation over time, it satisfies it at a point in time and revenue will be recognised when control is passed at that point in time. Factors which may indicate the passing of control include the present right to payment for the asset or the customer has legal title to the asset or the entity has transferred physical possession of the asset.

    (b) (i) The contract contains a significant financing component because of the length of time between when the customer pays for the asset and when Tang transfers the asset to the customer, as well as the prevailing interest rates in the market. A contract with a customer which has a significant financing component should be separated into a revenue component (for the notional cash sales price) and a loan component. Consequently, the accounting for a sale arising from a contract which has a significant financing component should be comparable to the accounting for a loan with the same features. An entity should use the discount rate which would be reflected in a separate financing transaction between the entity and its customer at contract inception. The interest rate implicit in the transaction may be different from the rate to be used to discount the cash flows, which should be the entity’s incremental borrowing rate. IFRS 15 would therefore dictate that the rate which should be used in adjusting the promised consideration is 5%, which is the entity’s incremental borrowing rate, and not 11·8%.

    Tang would account for the significant financing component as follows:

    Recognise a contract liability for the $240,000 payment received on 1 December 2014 at the contract inception:

    Dr Cash $240,000
    Cr Contract liability $240,000

    During the two years from contract inception (1 December 2014) until the transfer of the printing machine, Tang adjusts the amount of consideration and accretes the contract liability by recognising interest on $240,000 at 5% for two years.

    Year to 30 November 2015
    Dr Interest expense $12,000
    Cr Contract liability $12,000

    Contract liability would stand at $252,000 at 30 November 2015.

    Year to 30 November 2016
    Dr Interest expense $12,600
    Cr Contract liability $12,600

    Recognition of contract revenue on transfer of printing machine at 30 November 2016 of $264,600 by debiting contract liability and crediting revenue with this amount.

    (ii) Tang accounts for the promised bundle of goods and services as a single performance obligation satisfied over time in accordance with IFRS 15. At the inception of the contract, Tang expects the following:

    Transaction price $1,500,000
    Expected costs $800,000
    Expected profit (46·7%) $700,000

    At contract inception, Tang excludes the $100,000 bonus from the transaction price because it cannot conclude that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. Completion of the printing machine is highly susceptible to factors outside the entity’s influence. By the end of the first year, the entity has satisfied 65% of its performance obligation on the basis of costs incurred to date. Costs incurred to date are therefore $520,000 and Tang reassesses the variable consideration and concludes that the amount is still constrained. Therefore at 30 November 2015, the following would be recognised:

    Revenue $975,000
    Costs $520,000
    Gross profit $455,000

    However, on 4 December 2015, the contract is modified. As a result, the fixed consideration and expected costs increase by $110,000 and $60,000, respectively. The total potential consideration after the modification is $1,710,000 which is $1,610,000 fixed consideration + $100,000 completion bonus. In addition, the allowable time for achieving the bonus is extended by six months with the result that Tang concludes that it is highly probable that including the bonus in the transaction price will not result in a significant reversal in the amount of cumulative revenue recognised in accordance with IFRS 15. Therefore the bonus of $100,000 can be included in the transaction price. Tang also concludes that the contract remains a single performance obligation. Thus,Tang accounts for the contract modification as if it were part of the original contract. Therefore, Tang updates its estimates of costs and revenue as follows:

    Tang has satisfied 60·5% of its performance obligation ($520,000 actual costs incurred compared to $860,000 total expected costs). The entity recognises additional revenue of $59,550 [(60·5% of $1,710,000) – $975,000 revenue recognised to date] at the date of the modification as a cumulative catch-up adjustment. As the contract amendment took place after the year end, the additional revenue would not be treated as an adjusting event.

  • 第23题:

    多选题
    Which three benefits do Enterprise Asset Management solutions provide?()
    A

    Reduce asset life.

    B

    Increase productivity.

    C

    Increase risk and costs.

    D

    Improve return on assets.

    E

    Reduce total cost of ownership.

    F

    Minimize collection on warranty claims.


    正确答案: D,F
    解析: 暂无解析