1

International Financial Reporting Standards

IFRS for SMEs

IFRS Foundation-World
Bank
18–20 October 2011
Sarajevo,
Bosnia and HerzegovinaCopyright © 2010 IFRS Foundation.

All rights reserved.

The IFRS for SMEs 2

Topic 2.5
Quiz and Discussion
Assets
Sections 13–18 & 27

Michael Wells

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

Section 13 – Discussion questions 3

Question 9*: To avoid obsolescence a perishable produce

retailer arranges produce in such a way that customer are
most likely to purchase the oldest inventory first. The
cost formula which is most appropriate for the entity is:

a. first-in-first out FIFO?

b. last-in-first-out LIFO?
c. weighted average?
d. specific identification?
* see question 9 in Module 13 of the IFRS Foundation training material
© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
 Section 13 – Discussion questions 4

Question 10*: A property developer classify properties

held for sale in the ordinary course of business as:

a. inventories?
b. property, plant and equipment?
c. financial asset?
d. investment property?

* see question 10 in Module 13 of the IFRS Foundation training material

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
Section 14 – Discussion questions 5

Question 9*: Which of the following provide evidence to support the

existence of significant influence by an investor?

a. representation on board of directors?

b. material transactions between the
investor and the investee?
c. interchange of managerial personnel?
d. provision of essential technical info?
e. all of the above?
* see question 9 in Module 14 of the IFRS Foundation training material
© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
 Section 14 – Discussion questions 6

Question 10*: Which statement is false?

a. Significant influence (SI) can be lost
without a change in ownership levels.
b. In determining whether SI exists,
consider the effects of potential voting
rights that are currently exercisable.
c. In determining whether an entity has SI
over another entity, only present
ownership interests are considered. The
possible exercise or conversion of
potential voting rights are not
considered.
* see question 10 in Module 14 of the IFRS Foundation training material
© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
 Section 15 – Discussion questions 7

Question 7*: On 31/12/X1 A acquired 30% of Z

for 100 + 1 transactions costs. Z is a JV & A
is a venturer. A uses cost model for JVs.
No published price quotation for Z. On
5/1/X2 Z declared & paid a dividend of 20.
At 31/12/X1, X2 & X3, for impairment testing
purposes management assessed the fair
values of investment in Z as 102, 110 & 90
respectively. Costs to sell = 4 throughout.
A must measure its investment in Z on
31/12/X1, X2 & X3 respectively at:
* see question 7 in Module 15 of the IFRS Foundation training material
© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
Section 15 – Discussion questions 8

Question 7 continued:
a. 100, 100, 100?
b. 95, 95, 86?
c. 98, 106, 86?
d. 98, 101, 86?
e. 102, 110, 90?
f. 101, 101, 101?.

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

Section 15 – Discussion questions 9

Question 9*: An investor in a joint venture

that does not have joint control accounts for
that investment in accordance with:
a. Section 11 Basic Financial
Instruments?
b. Section 14 Investments in Associates?
c. Section 11 Basic Financial Instruments
or, if it has significant influence in the
joint venture, in accordance with
Section 14 Investments in Associates.
* see question 9 in Module 15 of the IFRS Foundation training material
© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
 Section 16 – Discussion questions 10

Question 3*: A operates a bed & breakfast from a building it owns.

It also provides its guests with other services including
housekeeping, satellite television and broadband internet access.
The daily room rental is inclusive of these services. Furthermore,
upon request, A conducts tours of the surrounding area for its
guests. Tour services are charged for separately.

* see question 3 in Module 16 of the IFRS Foundation training material

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
Section 16 – Discussion questions 11

Question 3 continued:
A should account for the building as:
a. inventory?
b. investment property?
c. property, plant & equipment?
d. intangible asset?

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

Section 16 – Discussion questions 12

Question 6*: A building is owned by a

subsidiary (lessor) to earn rentals under an
operating lease from its parent (lessee). The
parent manufactures its products in the
rented building. The fair value of the building
can be measured reliably without undue cost
or effort on an ongoing basis.
The building is:
* see question 6 in Module 16 of the IFRS Foundation training material
© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
Section 16 – Discussion questions 13

Question 6 continued:
a. accounted for as property, plant &
equipment by the subsidiary &
investment property by the group?
b. accounted for as investment property
by the subsidiary & as property, plant
and equipment by the group?
c. accounted for as investment property
by both the subsidiary and the group?
d. accounted for as property, plant and
equipment by both the subsidiary and
the group?
© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
Section 17 – Discussion questions 14

Question 8: On 1/1/20X1 A buys a building for 100 and occupies

it. Useful life = 40 yrs. Residual value = 20. A expects to
consume the building’s benefits evenly over 40 yrs.
The building’s fair value at 31/12/20X1 = 130. What is its carrying
amount at 31/12/20X1?

a. 100. b. 98 c. 130 d. 127

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

Section 17 – Discussion questions 15

Question 10: On 1/1/20X1 A buys land for an undetermined

purpose. On 1/1/20X4 A begins constructing its head office
building on the land. On 1/1/20X8 A’s staff moved out & the
building is rented out under an operating lease. On 31/12/20X9 A
accepts an unsolicited offer from the tenant to purchase the
building from A immediately.
The fair value of the building can be determined reliably without
undue cost or effort on an ongoing basis.
A accounts for the building as:

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

Section 17 – Discussion questions 16

Question 10 continued:
a. investment property from 1/1/20X1 to
31/12/20X9?
b. investment property during 20X1–20X3
& PP&E during 20X4–20X10?
c. investment property during 20X1–20X3
& 20X8–20X9 and PP&E during 20X4–
20X7?
d. PP&E during 20X1–20X7 & investment
property during 20X8–20X9?
© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
Section 18 – Discussion questions 17

Question 1: The cost of an intangible asset

at initial recognition is measured at its fair
value when:

a. it is internally generated?
b. it is separately acquired?
c. it is acquired in a business
combination?

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

 Section 18 – Discussion questions 18

Question 2: A purchased a trademark. Remaining legal life

= 5 yrs. However, is renewable every 10 yrs at little cost. A
intends to renew the trademark continuously & evidence
supports its ability to do so. An analysis of (i) product life
cycle studies, (ii) market, competitive and environmental
trends, & (iii) brand extension opportunities provides
evidence that the trademarked product will generate net
cash inflows for A for an indefinite period. The useful life
of the intangible asset is:

a. 5 yrs b. 10 yrs c. 15 yrs d. 100 yrs

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
Section 18 – Discussion questions 19

Question 3: On 1/1/20X1 A received (for free)

an unconditional transferable 9‑year taxi
licence from a government (fair value = 120).
On 1/1/20X1 A must recognise:
a. 120 intangible asset & 120 income?
b. 120 intangible asset & 120 liability?
c. 0 as intangible asset & 0 income & 0
liability?

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

Section 18 – Discussion questions 20

Question 4: On 1/1/20X1 A received (for free)

a non‑transferable 9‑year taxi licence from a
government (fair value = 90). The licence will
be revoked immediately A does not operate
at least 10 taxis in a deprived area of the city.
On 1/1/20X1 A must recognise:
a. 90 intangible asset & 90 income?
b. 90 intangible asset & 90 liability?
c. 0 as intangible asset & 0 income & 0
liability?
© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
Section 27 – Discussion questions 21

Question 1: At reporting date the carrying

amount (cost) of raw materials = 200;
replacement cost = 130; est. selling price of
finished good = 300; est. costs to convert the
raw material into finished good = 100; est.
costs to sell the finished good = 50.
A must recognise an impairment expense of

a. nil. b. 70 c. 50 d. 170

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

Section 27 – Discussion questions 22

Question 2: At 31/12/20X1 CA of a CGU’s

assets = 500 (ie 200 boat, 200 fishing licence
& 100 goodwill)
Impairment indicated & RA estimated = 350.
Fair value of boat = 180.
How much of the 150 impairment loss is
allocated to the fishing licence?

a. 25. b. 30 c. 60 d. 150

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

Section 27 – Discussion questions 23

Question 3: Same as question 2.

At 31/12/20X2 CA of a CGU’s assets = 175 (ie
90 boat & 85 fishing licence)
Impairment reversal indicated & RA
estimated = 375.
How much of income is recognised on the
reversal of the CGU’s impairment loss?
a. 25. b. 50 c. 150 d. 200

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

Questions or comments? 24

Expressions of individual views by

members of the IASB and its staff
are encouraged.

The views expressed in this

presentation are those of the
presenter.

Official positions of the IASB on

accounting matters are determined
only after extensive due process
and deliberation.

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

 25

This presentation may be modified from time to time. The

latest version may be downloaded from:
http://www.ifrs.org/IFRS+for+SMEs/SME+Workshops.htm
The accounting requirements applicable to small and
medium‑sized entities (SMEs) are set out in the
International Financial Reporting Standard (IFRS) for SMEs,
which was issued by the IASB in July 2009.
The IFRS Foundation, the authors, the presenters and the
publishers do not accept responsibility for loss caused to
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loss is caused by negligence or otherwise.
© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org