Ques. 1.

Peterlee

(a). Purpose and authoritative status of the Framework

The conceptual framework is a statement of generally accepted theoretical principles which form the
frame of reference for financial reporting. These principles provide the basis for the development of
new accounting standards and the evaluation of those already in existence.

o Assist the preparers of financial statements in applying IASs and in dealing with topics that
have yet to form the subject of an IAS
o Assist the auditors in forming an opinion as to whether the financial statements conform to
IASs.
o Assist users of the financial statements in interpreting the formation contained in financial
statements prepared in agreement with IASs.

The conceptual framework is not an IAS and does not overrule any individual IAS. In some cases
of conflict between an IAS and the framework, the IAS will triumph. These cases will diminish
over time as the Framework will be used as a guide in the production of future of IASs. The
framework itself will be revised occasionally depending on the experiences of the IASB in using
it.

(b)

Assets are resources controlled by an entity as a result of past events and from which future economic benefits
are expected to flow into the entity.
Controlled means that the entity may not own the asset but has the right to the future economic benefits gained
from it. (e.g.: machines used to manufacture toys are leased and controlled by the entity, the entity receives all
the economic benefits but is not the owner of the machines.

Liabilities are obligations due to past events which is likely to result in the outflow of economic benefits from
the entity.
Obligations are legally enforced as a consequence of a binding contract or statutory requirements; it arrives
from normal business practice, custom and a desire to maintain business relations. (e.g.: entity’s monthly
obligations to repay loan to creditor)
Ques. 15 Broadoak

a)
I. Initial measurement

The initial cost of property, plant and equipment are recognised as assets when it is:

1. Probable that the future economic benefits associated with the asset will flow into the entity
2. The cost of the asset can be measured reliably, once an item of property, plant and equipment
qualifies for recognition as an asset, it will be measured at cost
- Purchase price, less any trade discount or rebate.
- Import duties and non-refundable purchase taxes
- Directly attributable costs of bringing the asset to working condition for its
intended use, eg:
o The cost if preparing the site
o Initial delivery and handling costs
o Installation costs
o Testing
o Professional fees such as architects and engineers
- Initial estimate of the unavoidable costs of dismantling and removing the asset
and restoring the site on which it is located

II. Subsequent expenditure

Subsequent to initial measurement, IAS 16 offers two possible treatments:

a. Carry the asset at its cost less depreciation and any accumulated impairment loss.
b. Carry the asset at a revalued amount, being its fair value at the date of the revaluation less
any subsequent accumulated depreciation and subsequent accumulated impairment losses.

b) All the items within a class should be revalued at the same time, so as to prevent
selective revaluation of certain assets and o avoid disclosing a mixture of costs and values
from different dates in the financial statements. A rolling basis of revaluations is kept up to
date and the revaluation of the whole class is completed in a short period of time.

When there is a surplus on revaluation, the increase is to be credited to the revaluation surplus
and revaluation decreases are charged first against the revaluation surplus in equity related to
the specific asset, and any excess goes against the profit and loss.

Gains and losses are the difference between the estimated net disposal proceeds and the
carrying amount of the asset. They should be recognized as income or expense in the profit
and loss. The revaluation surplus In equity remains in equity and is not reclassified to profit
and loss.
c)
Ques. 18 Flightline
Ques. 22 Wilderness

a) Impairment loss
1) An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable
amount. An impairment loss is recognized when the carrying amount of an asset exceeds its
recoverable amount and is recognized in the profit and loss for assets carried at cost; and treated as a
revaluation decrease for assets carried at the revalued amount.

Fair Value Less Costs to Sell

 If there is a binding sale agreement, use the price under that agreement less costs of disposal.
 If there is an active market for that type of asset, use market price less costs of disposal.
Market price means current bid price if available, otherwise the price in the most recent
transaction.
 If there is no active market, use the best estimate of the asset's selling price less costs of
disposal.
 Costs of disposal are the direct added costs only (not existing costs or overhead).

Value in Use

The calculation of value in use should reflect the following elements:

 an estimate of the future cash flows the entity expects to derive from the asset
 expectations about possible variations in the amount or timing of those future cash flows
 the time value of money, represented by the current market risk-free rate of interest
 the price for bearing the uncertainty inherent in the asset
 other factors, such as illiquidity, that market participants would reflect in pricing the future
cash flows the entity expects to derive from the asset

Testing for impairments

At each balance sheet date, review all assets to look for any indication that an asset may be impaired
(its carrying amount may be in excess of the greater of its net selling price and its value in use). IAS
36 has a list of external and internal indicators of impairment. If there is an indication that an asset
may be impaired, then you must calculate the asset's recoverable amount. [IAS 36.9]

The recoverable amounts of the following types of intangible assets should be measured annually
whether or not there is any indication that it may be impaired. In some cases, the most recent detailed
calculation of recoverable amount made in a preceding period may be used in the impairment test for
that asset in the current period: [IAS 36.10]

 an intangible asset with an indefinite useful life

 an intangible asset not yet available for use
 goodwill acquired in a business combination
2) Accounting treatment for Impairment loss
If the recoverable amount of an asset is less than its carrying amount in the statement of final
position, an Impairment loss has occurred and should be recognized immediately. The assets carrying
amount should be reduced to its recoverable amount in the statement of financial position and the
impairment loss should be recognized in the profit and loss. After reducing an asset to its recoverable
amount, the depreciation charge on the asset should then be based on its new carrying amount, its
estimated residual value and its estimated remaining useful life.

An impairment loss should be recognized for a cash generated unit if the recoverable amount for the
cash generating unit is less than the carrying amount in the statement of financial position for all the
assets in the unit. When the impairment loss is recognized in the following order: to any assets that
are obviously damaged or destroyed, then to the goodwill allocated to the cash generating unit and
then to all other assets in the cash generating unit on a pro rata basis.
 Ques. 61 Fino

a) Faithful representation

To be useful in financial reporting, information must be a faithful representation of the economic

transactions that it purports to represent. Faithful representation is attained when the image of an
economic event is complete, neutral, and free from material error and bias, but due to inherent
difficulties in identifying the transactions or finding the appropriate method of representation or
measurements. Where measurement of the financials effects of an item is so uncertain, entities should
not recognize such an item, such as internally generated goodwill.

Information has the quality of reliability when it is free from material error and bias and can be
depended upon by users to present faithfully that which it either purports to represent or could
reasonably be expected to represent.

b)