14/10/2024 Tài liệu ôn thi chứng chỉ IFRS

Đề thi DipIFR tháng 12/2019 có lời giải chi tiết (DipIFR Past Exam On 12/2019)

Đề thi DIPIFR tháng 12/2019 tập trung vào các khía cạnh chính của báo cáo tài chính quốc tế, chuẩn mực IFRS và các kỹ năng phân tích tài chính. Đề thi bao gồm các câu hỏi lý thuyết về quy định IFRS, cũng như bài tập thực hành yêu cầu ứng dụng các chuẩn mực này vào tình huống cụ thể. Nội dung thường xoay quanh các chủ đề như nhận diện và ghi nhận tài sản, nợ phải trả, và các khoản mục khác trong báo cáo tài chính.

Dưới đây là chi tiết về đề thi DipIFR tháng 9 năm 2019 và lời giải chi tiết!

Cấu trúc chung của đề thi DipIFR

DipIFR exam được tổ chức 2 lần trong năm: tháng 6 và tháng 12 với hình thức thi tự luận trực tiếp trên giấy. Địa điểm do ACCA chỉ định.

Thời gian thi tự luận sẽ kéo dài 3 giờ 15 phút. Đặc biệt, không giới hạn số lần thi. Bài thi yêu cầu sự kết hợp giữa các phép tính toán và các câu trả lời tự luận. Bài thi sẽ có 4 câu hỏi lớn, mỗi câu 25 điểm. Tổng bài thi là 100 điểm. Thí sinh đạt 50% số điểm để vượt qua bài thi DipIFR. Các câu hỏi có nội dung như sau:

Câu 1: Lập Báo cáo tài chính hợp nhất (trừ báo cáo lưu chuyển tiền tệ)
Câu 2,3,4: Xác định và giải thích các vấn đề liên quan tới báo cáo tài chính (dựa trên IFRS)

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ĐỀ THI DIPIFR THÁNG 9/2019 VÀ LỜI GIẢI CHI TIẾT (TIẾNG ANH)

Câu 1:

Alpha, a parent with a subsidiary Beta, is preparing the consolidated statement of financial position on 30 September 20X7. The draft statements of financial position for both entities as at 30 September 20X7 are given below:

	Alpha	Beta
	$’000	$’000
Assets
Non-current assets
Property, plant and equipment (note 1)	966,500	546,000
Development project (note 1)	0	20,000
Investment in Beta (note 1)	450,000	0
	—-	—-
	1,416,500	566,000
	—-	—-
Current assets:
Inventories (note 2)	165,00	92,000
Trade receivables	99,000	76,000
Cash and cash equivalents	18,000	16,000
	—-	—-
	282,000	184,000
	—-	—-
Total assets	1,698,500	750,000
	—-	—-
Equity and liabilities
Equity
Share capital ($1 shares)	360,000	160,000
Retained earnings	570,000	360,000
Other components of equity	102,000	0
	—-	—-
Total equity	1,032,000	520,000
	—-	—-
Non-current liabilities
Long-term borrowings (note 3)	300,000	85,000
Pension liability (note 4)	187,500	0
Deferred tax (note 1 and 2)	69,000	54,000
	—-	—-
Total non-current liabilities	556,500	139,000
	—-	—-
Current liabilities
Trade and other payables	70,000	59,000
Short-term borrowings	40,000	32,000
	—-	—–
Total current liabilities	110,000	91,000
	—-	—-
Total equity and liabilities	1,698,500	750,000
	—-	—-

Note 1 – Alpha’s investment in Beta

On 1 April 20X7, Alpha acquired 120 million shares in Beta. Alpha made a payment of $450 million in exchange for these shares. The individual interim financial statements of Beta showed a balance of $340 million on its retained earnings on 1 April 20X7.

The directors of Alpha carried out a fair value exercise to measure the identifiable assets and liabilities of Beta at 1 April 20X7. The following matters emerged:

− Plant and equipment having a carrying amount of $440 million had an estimated fair value of $480 million. The estimated remaining useful life of this plant and equipment at 1 April 20X7 was four years.

− An in-process development project of Beta’s had a carrying amount of $8 million and a fair value of $18 million.

During the six-month period from 1 April 20X7 to 30 September 20X7, Beta incurred further development costs of $12 million relating to this project. These costs were correctly capitalized in accordance with the requirements of IAS® 38 – Intangible Assets. No amortization of the capitalized costs of this project was required prior to 30 September 20X7.

− The fair value adjustments have not been reflected in the individual financial statements of Beta. In the consolidated financial statements, the fair value adjustments will be regarded as temporary differences for the purposes of computing deferred tax. The rate of deferred tax to apply to temporary differences is 20%.

On 1 April 20X7, the directors of Alpha measured the non-controlling interest in Beta at its fair value on that date. On 1 April 20X7, the fair value of an equity share in Beta was $3·80.

Note 2 – Intra-group trading

Since 1 April 20X7, Alpha has supplied a product to Beta. Alpha applies a mark-up of 25% to its cost of supplying this product. Sales of the product by Alpha to Beta in the period from 1 April 20X7 to 30 September 20X7 totalled $30 million. One-third of the products which Alpha has supplied to Beta since 1 April 20X7 were still unsold by Beta at 30 September 20X7. Any adjustment which is necessary in the consolidated financial statements as a result of these sales will be regarded as a temporary difference for the purposes of computing deferred tax. The rate of deferred tax to apply to temporary differences is 20%. No amounts were owing to Alpha by Beta in respect of these sales at 30 September 20X7.

Note 3 – Long-term borrowings

Prior to 1 October 20X6, Alpha had no long-term borrowings. On 1 October 20X6, Alpha borrowed $300 million to finance its future expansion plans. The term of the borrowings is five years and the annual rate of interest payable on the borrowings is 6%, payable in arrears. Alpha charged the interest paid on 30 September 20X7 as a finance cost in its financial statements for the year ended 30 September 20X7.

The borrowings are repayable in cash at the end of the five-year term or convertible into equity shares on that date at the option of the lender. If the borrowings had not contained a conversion option, the lender would have required an annual return of 8%, rather than 6%. Discount factors which may be relevant are as follows:

Discount factor	Present value of $1 payable at the end of year 5	Cumulative present value payable at the end of years 1–5 inclusive
6%	74·7 cents	$4·21
8%	68·1 cents	$3·99

Note 4 – Pension liability

Alpha has established a defined benefit pension plan for its eligible employees. The statement of financial position of Alpha at 30 September 20X7 currently includes the estimated net liability at 30 September 20X6. The following matters relate to the plan for the year ended 30 September 20X7:

– The estimated current service cost was advised by the actuary to be $60 million.

– On 30 September 20X7, Alpha paid contributions of $70 million into the plan and charged this amount as an operating expense.

– The annual market yield on high quality corporate bonds on 1 October 20X6 was 8%.

– The estimated net liability at 30 September 20X7 was advised by the actuary to be $205 million.

No benefits have been paid to date.

Yêu cầu:

Using the draft statements of the financial position of Alpha and its subsidiary Beta at 30 September 20X7, and the further information provided in notes 1–4, prepare the consolidated statement of financial position of Alpha at 30 September 20X7. Unless specifically told otherwise, you can ignore the deferred tax implications of any adjustments you make.

Note: You should show all workings to the nearest $’000.

Hướng dẫn giải:

Consolidated statement of financial position of Alpha at 30 September 20X7

(Note: All figures below in $’000)

	$’000
Assets
Non-current assets
Property, plant and equipment (966,500 + 546,000 + 35,000 (W1))	1,5547,500
Goodwill (W2) 62,000 3½ (W2)
Intangible assets (20,000 + 10,000 (W1))	30,000
	—-
	1,639,500
	—-
Current assets:
Inventories (165,000 + 92,000 – (30,000 x 1/3 x 25/125%)	255,000
Trade receivables (99,000 + 76,000)	175,000
Cash and cash equivalents (18,000 + 16,000)	34,000
	—-
	464,000
	—-
Total assets	2,103,500
	—-
Equity and liabilities
Equity attributable to equity holders of the parent
Share capital ($1 shares)	360,000
Retained earnings (W4)	571,310
Other components of equity (W8)	113,380
	—-
	1,044,690
Non-controlling interest (W3)	156,000
	—-
Total equity	1,200,690
	—-
Non-current liabilities
Long-term borrowings (W10)	365,210
Deferred tax (W11)	131,600
Pension liability	205,000
	—-
Total non-current liabilities	701,810
	—-
Current liabilities:
Trade and other payables (70,000 + 59,000)	129,000
Short-term borrowings (40,000 + 32,000)	72,000
	—-
Total current liabilities	201,000
	—-
Total equity and liabilities	2,103,500
	—-

WORKINGS – DO NOT DOUBLE COUNT MARKS. ALL NUMBERS IN $’000 UNLESS OTHERWISE STATED.

Working 1 – Net assets table for Beta

	1 April 20X7	30 September 20X7
	$’000	$’000
Share capital	160,000	160,000
Retained earnings:
Per financial statements of Beta	340,000	360,000
Fair value adjustments:
Plant and equipment	40,000	35,000
Development project	10,000	10,000
Deferred tax on fair value adjustments:
Date of acquisition (20% x (40,000 + 10,000))	(10,000)
Year end (20% x (35,000 + 10,000))		(9,000)
	—-	—-
Net assets for the consolidation	540,000	556,000
	—-	—-
Increase in net assets post-acquisition (556,000 – 540,000)	16,000
	—-

Working 2 – Goodwill on acquisition of Beta

	$’000
Cost of investment
Cash paid	450,000
Non-controlling interest at date of acquisition (40,000 x $3·80)	152,000
Net assets at date of acquisition (W1)	(540,000)
	—-
	62,000
	—-

Working 3 – Non-controlling interest in Beta

	$’000
At date of acquisition (W2)	152,000
25% of post-acquisition increase in net assets of 16,000 (W1)	4,000
	—-
	156,000
	—-

Working 4 – Retained earnings

	$’000
Alpha – per draft SOFP	570,000
Adjustment for unrealized profit on unsold inventory (2,000 less 20% (deferred tax))	(1,600)
Adjustment for finance cost of loan (W6)	(4,090)
Adjustment re: defined benefit retirement benefit plan (W7)	(5,000)
Beta – 75% x 16,000 (W1)	12,000
	—-
	571,310
	—-

Working 5 – Equity component of long-term loan

	$’000
Total proceeds of compound instrument	300,000
Debt component:
– Interest stream – 300,000 x 6% x $3·99	(71,820)
– Principal repayment – 300,000 x $0·681	(204,300)
	—-
So equity component equals	23,880
	—-

Working 6 – Adjustment for finance cost of loan

	$’000
Actual finance cost – 8% (300,000 – 23,880 (W5))	22,090
Incorrectly charged by Alpha (300,000 x 6%)	(18,000)
	—-
So adjustment equals	4,090
	—-

Working 7 – Adjustment re: defined benefit retirement benefit plan

	$’000
Current service cost	60,000
Interest cost (8% x 187,500)	15,000
Contributions incorrectly charged to profit or loss	(70,000)
	—-
So adjustment equals	5,000
	—-

Working 8 – Other components of equity

	$’000
Alpha – per draft financial statements	102,000
Equity element of convertible loan (W5)	23,880
Actuarial gain/(loss) on defined benefit retirement benefits plan (W9)	(12,500)
	—-
	113,380
	—-

Working 9 – Actuarial gain/(loss) on defined benefit pension plan

	$’000
Opening liability	187,500
Current service cost	60,000
Interest cost (principle mark already awarded)	15,000
Contributions paid into plan	(70,000)
	—-
	192,500
Actuarial loss on re-measurement (balancing figure)	12,500
	—-
Closing liability (principle mark already awarded)	205,000
	—-

Working 10 – Long-term borrowings

	$’000
Opening loan element (300,000 – 23,880 (W5))	276,120
Finance cost less interest paid (W6)	4,090
	—-
So closing loan element for Alpha equals	280,210
Long-term borrowings of Beta	85,000
	—-
So consolidated long-term borrowings equals	365,210
	—-

Working 11 – Deferred tax

	$’000
Alpha + Beta – per draft SOFP (69,000 + 54,000)	123,000
On closing fair value adjustments in Beta (W1)	9,000
On unrealized profits in inventory (2,000 x 20%)	(400)
	—-
	131,600
	—-

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Câu 2:

Gamma prepares its financial statements on 30 September each year. Notes 1 and 2 contain information relevant to these financial statements:

Note 1 – Purchase of equity shares in a key supplier

On 1 October 20X6, Gamma purchased 200,000 equity shares in entity A, a key supplier. Entity A’s shares are listed on the local stock exchange. This share purchase did not give Gamma control or significant influence over entity A but Gamma intends to retain the shares in entity A as a long-term strategic investment.

Gamma paid $2·40 per share for these shares. This amount represents their fair value at the date of purchase.

Additionally, brokers charge a fee of 2% of the amounts paid to buy or sell a share on the stock exchange on which entity A’s shares are quoted.

On 31 March 20X7, entity A paid a dividend of 25 cents per share. For the last few years entity A has made just one dividend payment each year, in the month of March.

On 30 September 20X7, information received from the local stock exchange regarding entity A’s share price was:

– Broker’s bid price (the price the broker will pay to buy a share) – $2·70 per share.

– Broker’s ask price (the price which the broker requires when selling a share) – $2·90 per share.

Note 2 – Jointly manufactured product

On 1 October 20X6, Gamma entered into an agreement with entity B to manufacture and sell a product.

Under the terms of the agreement, pricing decisions, manufacturing specifications and selling decisions must be agreed by both entities. Any relevant obsolescence risk or bad debt risk is jointly borne by both entities.

Entity B completes the first stage and the partially manufactured product is then transferred to Gamma who completes the manufacture and delivers the product to the customer. Gamma invoices the customer and collects payment.

Entity B receives no payment for the goods they have manufactured until they are sold and the customer has paid Gamma.

Revenue from the sale of the completed product is shared equally between Gamma and entity B. Each month Gamma pays entity B its share of any amounts received from customers in the previous month. Under the terms of the agreement, the payments to entity B must be made within two weeks of the end of each month.

Financial data relevant to the agreement for the year ended 30 September 20X7 is as follows:

Relating to the manufacture of the product:
	Entity B	Gamma
	$m	$m
	8	7
	2	3·8 (note (i))
Relating to the sale of the product
	$m
Revenue	22
Trade receivables at 30 September 20X7 (note (ii))	5
Bad debts written off (note (iii))	0.1

Notes:

(i) $2·1 million of this cost related to costs incurred by entity B and $1·7 million related to costs incurred by Gamma.

All inventory is measured using IAS 2 – Inventories.

(ii) Amounts received from customers during September 20X7 were $1·5 million.

(iii) No further bad debts are expected.

Yêu cầu:

Explain and show how the two events detailed in notes 1 and 2 would be reported in the financial statements of Gamma for the year ended 30 September 20X7. Where alternative reporting treatments are permitted in note 1, you should explain and show both alternatives. Marks will be awarded for BOTH figures AND explanations.

Note: The mark allocation is shown against the two notes above.

Hướng dẫn giải:

Note 1 – Purchase of equity shares in a key supplier

Under the principles of IFRS 9 – Financial Instruments – equity investments must be measured at fair value because the contractual terms associated with the investment do not entitle the holder to specific payment of interest and principal (sense of the point only needed).

The fair value of the investment in entity A at the date of purchase is $480,000 (200,000 x $2·40).

The amount actually paid for the shares (incorporating broker’s fee) in entity A on 1 October 20X6 was $489,600 (480,000 x 1·02).

The difference between the price paid for the shares and their fair value is $9,600 ($489,600 – $480,000).

This difference is regarded as a transaction cost by IFRS 13 – Fair Value Measurement.

IFRS 9 would normally require equity investments to be measured at fair value through profit or loss.

Where financial assets are measured at fair value through profit or loss, transaction costs are recognised in profit or loss as incurred. Therefore in this case, $9,600 would be taken to profit or loss on 1 October 20X6.

Under the principles of IFRS 13, the fair value of an asset is the amount which could be received to sell the asset in an orderly transaction. Where the asset is traded in an active market (as is the case for the investment in entity A), then fair value should be determined with reference to prices quoted in that market.

Therefore the fair value of the investment in entity A at the year end is $540,000 (200,000 x $2·70).

The year-end fair value of $540,000 is unaffected by the broker’s fees which would be incurred if the shares were to be sold – these fees are not a component of fair value measurement.

The change in fair value of $60,000 ($540,000 – $480,000) between 1 October 20X6 and 30 September 20X7 would be taken to profit or loss at the end of the reporting period.

The dividend received of $50,000 (200,000 x 25 cents) would be recognized as other income in profit or loss at 31 March 20X7.

Because the shares in entity A are not held for trading, Gamma has the option to make an irrevocable election on 1 October 20X6 to measure the shares at fair value through other comprehensive income.

Were this election to be made, then the transaction cost would be included in the initial carrying amount of the financial asset, making this $489,600.

The difference between the closing fair value of the investment and its initial carrying amount is $50,400 ($540,000 – $489,600). This is recognized in other comprehensive income.

The dividend income of $50,000 is still recognized in profit or loss regardless of how the financial asset is measured.

Note 2 – Joint manufacture of a product with entity B

Under the principles of IFRS 11 – Joint Arrangements – the agreement with entity B is a joint arrangement.

This is because key decisions, e.g. pricing and selling decisions, manufacturing specifications, require the consent of both parties and so joint control is present.

IFRS 11 would regard the type of arrangement with entity B as a joint operation. This is because the two parties have rights to specific assets and liabilities relating to the arrangement and no specific entity has been established.

Because of the type of joint arrangement, each entity will recognize specific assets and liabilities relating to the arrangement (exact wording not necessary – just sense of the point.

This means that Gamma will recognise revenues of $11 million ($22 million x 50%).

Gamma will recognise bad debt expense of $50,000 ($100,000 x 50%).

Gamma’s trade receivables at 30 September 20X7 will be $2·5 million ($5 million x 50%).

Gamma will show a payable to entity B of $750,000 ($1·5 million x 50%) 30 September 20X7.

Gamma’s inventories at 30 September 20X7 will be $1·7 million ($3·8 million – $2·1 million).

Gamma’s cost of sales will be $5·3 million ($7 million – $1·7 million).

Câu 3:

(a) IFRS 15 – Revenue from Contracts with Customers – was issued in September 2015 and applies to accounting periods beginning on or after 1 January 2018. IFRS 15 replaces IAS 11 – Construction Contracts – and IAS 18 – Revenue. IFRS 15 contains principles which underpin the timing of the recognition of revenue from contracts with customers and the measurement of that revenue.

Yêu cầu: Explain the principles underpinning the TIMING of revenue recognition and the MEASUREMENT of that revenue which are outlined in IFRS 15. You should provide examples of revenue transactions to support your explanations of these key principles.

Hướng dẫn giải:

The timing of the recognition of revenue under IFRS 15 – Revenue from Contracts with Customers – depends on the type of performance obligation the entity has under the contract with the customer.

A performance obligation is a distinct promise to transfer goods or services to the customer (sense of the point only required).

IFRS 15 requires that revenue should be recognised when (or as) a particular performance obligation is satisfied.

In many cases (e.g. the sale of goods in the ordinary course of business), performance obligations are satisfied at a point in time. In such cases, the revenue is recognised at the point control of the goods is transferred to the customer.

In some cases (e.g. a contract to construct an asset for use by a customer), performance obligations are satisfied over a period of time. In such cases, the proportion of the total revenue recognised is the proportion of the performance obligation which has been satisfied by the reporting date.

The measurement of revenue is based on the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring the promised goods and services to the customer.

In many cases, where the consideration for the transaction is fixed and payable immediately after the revenue has been recognised (e.g. most sales of goods), the transaction price is the invoiced amount less any sales taxes collected on behalf of third parties.

Where the due date for payment of the invoiced price is ‘significantly different’ (certainly more than 12 months) from the date of recognition of the revenue, then the time value of money should be taken into account when measuring the transaction price. This means that the revenue recognized on the sale of goods with deferred payment terms would be split into a ‘sale of goods’ component and a financing component.

Where the total consideration due from the customer contains variable elements (e.g. the possibility that the customer obtains a discount for bulk purchases depending on the total purchases in a period), then the transaction price should be based on the best estimate of the total amount receivable from the customer as a result of the contract.

(b) Delta prepares financial statements on 30 September each year. Notes 1 and 2 provide information on revenue transactions relevant to the year ended 30 September 20X7.

Note 1 – Sale of product with right of return

On 1 April 20X7 Delta sold a product to a customer for $121,000. This amount is payable on 30 June 20X9. The manufacturing cost of the product for Delta was $80,000. The customer had a right to return the product for a full refund at any time up to and including 30 June 20X7. On 1 April 20X7, Delta had no reliable evidence regarding the likelihood of the return of the product by the customer. The product was not returned by the customer before 30 June 20X7 and so the right of return for the customer expired. On both 1 April 20X7 and 30 June 20X7, the cash selling price of the product was $100,000. A relevant annual rate to use in any discounting calculations is 10%.

Note 2 – Sale with a volume discount incentive

On 1 January 20X6 Delta began an arrangement to sell goods to a third party – entity B. The price of the goods was set at $100 per unit for all sales in the two-year period ending 31 December 20X7. However, if sales of the product to entity B exceed 60,000 units in the two-year period ending 31 December 20X7, then the selling price of all units is retrospectively set at $90 per item.

Sales of the goods to entity B in the nine-month period ending on 30 September 20X6 totalled 20,000 units and this volume of sales per month was not expected to change before 31 December 20X7.

However, in the year ended 30 September 20X7, total sales of the goods to entity B were 35,000 and based on current orders from entity B, the estimate was revised. The directors of Delta estimated that the total sales of the goods to entity B in the two-year period ending 31 December 20X7 would be more than 60,000 units.

Yêu cầu: Explain and show how the transactions in notes 1 and 2 would be reported in the financial statements of Delta for the year ended 30 September 20X7.

Note: The mark allocation is shown against the two transactions in the separate notes above.

Hướng dẫn giải:

Note 1 – Sale of product with right of return

Under the principles of IFRS 15, revenue cannot be recognized on 1 April 20X7 because at that date the consideration is variable and the amount of the variable consideration cannot be reliably estimated.

However, on 1 April 20X7 $80,000 would be removed from inventory and included as a ‘right to recover asset’ (any reasonable description of this would be permitted).

Revenue of $100,000 (the present value of $121,000 receivable in two years) is recognized on 30 June 20X7 when the uncertainty regarding potential returns is resolved.

On the same day, the ‘right to recover asset’ will be de-recognized and transferred to cost of sales.

Delta will also recognize finance income of $2,500 ($100,000 x 10% x 3/12) in the year ended 30 September 20X7.

At 30 September 20X7, Delta will recognize a trade receivable of $102,500 ($100,000 + $2,500).

Note 2 – Sale to a customer with a volume discount incentive

The consideration payable by the customer is variable as it depends on the volume of sales in the two-year period. However, Delta can reliably estimate the outcome and that the volume discount threshold will not be exceeded (sales for 9 months: 20,000 x 24/9 = 53,333). The revenue included for the year ended 30 September 20X6 will be booked at $100 per unit and will be $2 million (20,000 x $100).

During the year ended 30 September 20X7, actual sales volumes and estimates change such that the cumulative revenue should now be booked at $90 per unit. It is now expected that the volume discount threshold will be exceeded. This means that the cumulative revenue relating to these goods at 30 September 20X7 will be $4,950,000 ((20,000 + 35,000) x $90).

The revenue which will actually be booked by Delta for the year ended 30 September 20X7 will be $2,950,000 ($4,950,000 – $2 million recognised in 20X6).

Xem thêm: Đề thi IFRS – Chuẩn mực báo cáo tài chính quốc tế các năm

Câu 4:

Epsilon, a company with a year end of 30 September 20X7, is listed on a securities exchange. A director of Epsilon has a number of questions relating to the application of IFRS in its financial statements for the year ended 30 September 20X7.

Note 1 – Inconsistencies

I have recently been appointed to the board of another company which is growing very quickly and will probably seek a securities exchange listing in the next few years. As part of my familiarization process, I’ve been reviewing their financial statements which they state comply with IFRS. I have been comparing them with the financial statements of Epsilon. There appear to be some inconsistencies between the two sets of financial statements:

– The financial statements of the other company contain no disclosure of the earnings per share figure and there is no segmental analysis despite this company having a number of divisions with different types of business. Epsilon gives both of these disclosures.

– Both Epsilon and this other company have received government grants to assist in the purchase of a non-current asset. We have deducted the grant from the cost of the non-current asset. They have recognised the grant received as deferred income.

Please explain the apparent inconsistencies to me.

Note 2 – Pending legal cases

At a recent board meeting, we discussed legal cases which customers A and B are bringing against Epsilon in respect of the supply of products which were allegedly faulty. We supplied the goods in the last three months of the financial year.

We have reliably estimated that if the actions succeed, we are likely to have to pay out $10 million in damages to customer A and $8 million in damages to customer B.

Epsilon’s legal advisers have reliably estimated that there is a 60% chance that customer A’s claim will be successful and a 25% chance that customer B’s claim will be successful.

I know we have insurance in place to cover us against claims like this. It is highly probable that any claims which were successful would be covered under our policy. Therefore I would have expected to see a provision for legal claims based on the likelihood of the claims succeeding. However, I would also have expected to see an equivalent asset in respect of amounts recoverable from the insurance company. The financial statements do contain a provision for $10 million but no equivalent asset. Disclosure of the information relating to both of the claims and the associated insurance is made in the notes to the financial statements. How can it be the correct accounting treatment to include a liability but not the corresponding asset, given the above facts?

Note 3 – Statement of profit or loss and other comprehensive income

I’ve been reviewing the statement of profit or loss and other comprehensive income and it appears to be in two sections.

The first section appears to be entitled ‘profit or loss’ and the second ‘other comprehensive income’. It appears that the tax charge is included in the ‘profit or loss’ section of the statement as there is no tax charge included in the ‘other comprehensive income’ section of the statement. I have a number of questions regarding this statement:

– How do we decide where to put a particular item of income or expenditure?

– Where does the tax relating to ‘other comprehensive income’ get shown?

– Do the above points have an impact on the computation of performance evaluation indicators which will be of interest to shareholders?

Yêu cầu: Provide answers to the questions raised by the director in notes 1–3. You should justify your answers with reference to relevant IFRS.

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

Hướng dẫn giải:

Note 1 – Inconsistencies

It is possible for two sets of financial statements to comply with IFRS and yet be inconsistent with each other. Some individual IFRS allow a choice of accounting treatment and some IFRS are only compulsory for listed entities like Epsilon.

Both IFRS 8 and IAS 33 are only compulsory for listed entities. The other company is not currently listed and is not required to give either of these disclosures but can do so on a voluntary basis. If the other company obtains a listing, then they will have to give these disclosures.

IAS 20 requires government grants to be recognized in profit or loss on a systematic basis over the period in which the entity recognizes as expenses the related cost. However, IAS 20 allows entities to choose from two alternative models for presenting the government grants. This is the approach, which Epsilon uses, which deducts the grant in arriving at the non-current asset’s carrying amount and will result in a reduced depreciation charge through profit or loss. The other company uses the allowed alternative of setting up the grant as deferred income and releasing the grant systematically to profit or loss. The net effect on profit or loss will be the same, whichever approach is used. Consistency of choice is required within entities. Therefore the other company could continue to use the deferred income approach to present its government grants even after obtaining a listing.

Note 2 – Pending legal cases

Provisions are covered by IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. IAS 37 states that for a provision to be recognised, an obligating event must have been incurred before the year end. In this case, both customer A and B were sold the product before the year end so an obligating event has occurred. IAS 37 further states that a provision is only recognised when there is a probable outflow of economic benefits. IAS 37 interprets ‘probable’ to be 50% or more. This is only the case with the supply to customer A, so it is correct to only recognise a provision for customer A’s claim. IAS 37 also states that any provision should be measured based on the best estimate of the likely outflow of economic benefits. In this case, this amount is $10 million. Any liability arising from the legal case brought by customer B would be regarded as a contingent liability because there is only a possible (rather than a probable) chance of an outflow of economic benefits. In this case, it is dealt with by disclosure, rather than provision. In addition to the recognition of a provision in the case of customer A’s claim, it is also necessary to disclose key facts relating to the case in the notes to the financial statements.

The possible recovery of funds from the insurance company would be regarded as a contingent asset. This would always be the case for possible assets unless it is virtually certain (rather than highly probable) that there will be an inflow of economic benefits. Where there is a probability of an inflow of funds relating to a contingent asset, then this is dealt with by disclosure under IAS 37.

Note 3 – Statement of profit or loss and other comprehensive income

The principles underpinning the overall presentation of financial statements are set out in IAS 1 – Presentation of Financial Statements. IAS 1 requires that all income and expenses are presented in a statement of profit or loss and other comprehensive income. IAS 1 does not allow entities to choose whether to present income and expenses in the profit or loss or the other comprehensive income section of the statement. IAS 1 states that, unless required or permitted by a specific IFRS standard, all items of income and expense should be presented in the profit or loss section of the statement. IAS 1 states that the tax relating to items of other comprehensive income is either shown as a separate line in the ‘other comprehensive income’ section of the statement or netted off against each component of other comprehensive income and disclosed in the notes to the financial statements.

The key implication of an item being presented in other comprehensive income rather than profit or loss is that the item would not be taken into account when measuring earnings per share, an important performance indicator for listed entities like Epsilon.

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