Financial Accounting And Reporting 19th Edition Barry Elliott, Jamie Elliott - Solutions

‘The approach taken in IAS 19 before its 1998 revision was to match an even pension cost against the period the employees provided service. This follows the accruals principle and is therefore fundamentally correct.’ Discuss.
Under the revised IAS 19 (2011) what amount of actuarial gains and losses should be recognised in profit or loss?
In a dissenting view on the issue of IAS 19 (2011), Mr Yamada states that ‘the return on high quality corporate bonds would be arbitrary and would not be a faithful representation of the return that investors require or expect from each type of asset’. Discuss.
What is the required accounting treatment for a past service cost in a defined benefit pension scheme?
The termination of a defined benefit pension scheme results in the release of a company liabilities, which provides income statement gains to the detriment of current and past employees. Discuss.
What distinguishes a termination benefit from the other benefits considered in IAS 19 (2011)?
‘The issue of shares by companies, even to employees, should not result in a charge against profits. The contribution in terms of service that employees give to earn their rewards are contributions as owners and not as employees and when owners buy shares for cash there is no charge to profit.’
Briefly summarise the required accounting if a company gives its staff a cash bonus directly linked to the share price.
Explain what distinguishes the different types of share-based payment: equity-settled, cash-settled and equity with a cash alternative.
Why does the charge to taxation in a company’s accounts not equal the profit multiplied by the current rate of corporation tax?
Deferred tax accounting may be seen as an income-smoothing device which distorts the true and fair view. Explain the impact of deferred tax on reported income and justify its continued use.
Distinguish between (a) the deferral and (b) the liability methods of company deferred tax.
‘If a deferred liability or asset is not expected to crystallise they should at least be discounted.’ Discuss.
‘The effective tax rate of all companies should be published and any with a rate below the average for the sector should be subjected to consumer or government commercial pressure to make additional payments.’ Discuss.
Discuss the problems in distinguishing tax evasion from tax avoidance.
Discuss whether there is a socially responsible right amount of tax for a company to pay and who is to determine what is socially responsible.
‘A tax adviser has a duty of care to a client to legally minimise a company’s tax bill and would be professionally negligent not to do so.’ Discuss.
‘A company justified paying little tax on the grounds that it invested funds more effectively than government by creating employment. It further argued that this view was supported when it appears that governments lack the technical skills to control expenditure effectively.’ Discuss.
The Financial Reporting Review Panel (FRRP) in its 2012 Annual Report stated that: ‘Several companies had to be reminded that current and deferred tax liabilities and assets are to be measured using the tax rates that have been enacted or substantively enacted by the end of the reporting
Reconciliation of effective tax chargeTesco plc reported a tax rate on its accounting profit of 20.1% and an effective tax rate of 33.2% in its 2016 Annual Report. Discuss three possible reasons for this difference.
A judge ruled in 1929 that ‘No man in this country is under the smallest obligation, moral or other, so as to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores’. Discuss the extent to which this
Define PPE and explain how materiality affects the concept of PPE.
Define depreciation. Explain what assets need not be depreciated and list the main methods of calculating depreciation.
What is meant by the phrases ‘useful life’ and ‘residual value’?
Define ‘cost’ in connection with PPE.
What effect does revaluing assets have on gearing (or leverage)?
How should grants received towards expenditure on PPE be treated?
Define an investment property and explain its treatment in financial statements.
‘Depreciation should mean that a company has sufficient resources to replace assets at the end of their economic lives.’ Discuss.
‘Can the legal position on leases be ignored now that substance over form is used for financial reporting?’ Discuss.
State the factors that indicate that a lease is a finance lease under IFRS 16 and the extent to which this distinction is still relevant.
It could be argued that a lease is a long-term contract and that as soon as the lessee exercises control some consideration has passed and hence the contract is binding on both parties. Then accounting for leases is not substance over form but rather a recognition of the true legal position.
The favourite off-balance sheet financing trick used to be leasing. Use any illustrative numerical examples you may wish t(a) Define the term ‘off-balance sheet financing’ and state why it is popular with companies.(b) Suggest two other off-balance sheet financing techniques and discuss the
Given that the details of operating lease commitments were required to be disclosed in the notes to the accounts under IAS 17, discuss why it was necessary to issue a new standard which incorporates these into the statement of financial position when sophisticated investors already do such
Companies sometimes get special prices from suppliers if they undertake to purchase specified commodities from the supplier over a designated future period. These supply arrangements do not have to be recorded as assets and liabilities. However, in future leases will give rise to recording of
Explain in your own words why in a finance lease the lessor shows in the statement of financial position a receivable rather than the unamortised amount of the initial investment in the physical asset being leased out.
Discuss the effect on the operating profit and EBITDA when the current operating lease expense is required to be replaced by depreciation of the lease asset and an interest expense on the lease liability.
Discuss the suggestion that enterprise value will rise as a result of the IFRS 16 accounting treatment of operating leases.
Explain why it has been suggested that the new rules in IFRS 16 could ‘bring the biggest shake-up to retailers’ financial statements for decades’.
State with your reason(a) The three industries whose financial statements will be most affected by the implementation of IFRS 16,(b) The effect that will be seen on each of their primary financial standards.
Why do standard setters consider it necessary to distinguish between research and development expenditure, and how does this distinction affect the accounting treatment?
Discuss the suggestion that the requirement for companies to write off research investment rather than showing it as an asset encourages short term perspectives from management who feel under pressure to be seen to perform. Are such actions contrary to the interests of the company, the majority of
Discuss why the market value of a business may increase to reflect the analysts’ assessment of future growth but the asset(s) responsible for the growth may not appear in the statement of financial position.
Discuss the advantages and disadvantages of the proposal that there should be a separate category of asset in the statement of financial position clearly identified as ‘research investment – outcome uncertain’.
IFRS 3 has introduced a new concept into accounting for purchased goodwill – annual impairment testing, rather than amortisation. Consider the effect of a change from amortisation of goodwill (in IAS 22) to impairment testing and no amortisation in IFRS 3, and in particular:● The effect on the
Discuss reasons for the undervaluing of intangibles and subsuming them within goodwill.
One goodwill impairment indicator is the loss of key personnel. Discuss two further possible indicators.
There has been a requirement for companies to disaggregate the amount paid for goodwill into other intangible assets. This has led to the valuation of certain of the relational intellectual capital items such as customer lists. Research indicates that there is a variety of structural, human and
Critically evaluate the basis of the following assertion: ‘I am sceptical that the impairment test will work reliably in practice, given the complexity and subjectivity that lie within the calculations.
Access the annual report of a company (such as BlackBerry Group) in which there is a large amount of goodwill and discuss the effect on earnings if goodwill is required to be amortised over a period of between 5 and 10 years. Discuss how this would affect headline profit.
Prior to IFRS 3 some countries permitted goodwill to be written off to equity. Discuss the reason why this was a permitted option and consider whether it is preferable to the estimated amortisation approach.
Discuss, after considering the approach taken by Infosys in valuing, whether investors would benefit from having human capital included as an asset in the statement of financial position.
Identify a listed Block Technology company and identify the recording of goodwill and intangible assets and their book values. Then ascertain the market value and the amount of goodwill and intangibles implied by that figures. What implications can you draw from the comparison of book and market
Identify a listed company which has failed and identify the difference between book values of good-will and intangibles, and either the actual or anticipated recovery in relation to those items.
Discuss the extent to which individual judgements might affect inventory valuation, e.g. changing the basis of overhead absorption.
Explain the criteria to be applied when selecting the method to be used for allocating administrative costs.
Discuss the effect on work in progress and finished goods valuation if the net realisable value of the raw material is lower than cost at the statement of financial position date.
Discuss why the accurate valuation of inventory is so crucial if the financial statements are to show a true and fair view.
It has been suggested that ‘Given national characteristics it will be impossible to ensure that financial statements that comply with IFRSs will ever be comparable.’ Discuss whether auditors can make this change.
The following is an extract from the 2013 Annual Report of SIPEF NV:Because of the inherent uncertainty associated with the valuation at fair value of the biological assets due to the volatility of the prices of the agricultural produce and the absence of a liquid market, their carrying value may
Discuss if there are any ethical issues with the EU Common Agricultural Policy (CAP).See http://www.europarl.europa.eu/RegData/etudes/STUD/2018/603862/EXPO_STU(2018)603862 _EN.pdf
Discuss the relative merits of recognising revenue under the percentage of completion method and the passing of control as major thresholds are met.
‘Profit on a contract is not realised until completion of the contract.’ Discuss.
‘The use of the passing of control criteria for recognition of revenue will result in less comparability as companies can then manage their earnings.’ Discuss.
Concordia is a construction company. On 1 October 2015, Concordia entered a three-year fixed price contract to build a bridge for $30 million.Further details of the contract are shown below: Concordia’s performance obligations are deemed to be satisfied over time in accordance with IFRS 15
‘Profit on a contract that is not complete should be treated as an unrealised holding gain.’ Discuss.
Discuss what information should be disclosed in the annual report in relation to construction costs in order for it to be useful to report users.
The Treasury states that ‘Talk of PFI liabilities with a present value of £110 million is wrong. Adding up PFI unitary payments and pretending they present a threat to the public finances is like adding up electricity, gas, cleaning and food bills for the next 30 years.’ Discuss.
‘The operator of an asset in a PFI contract should recognise the tangible assets on its balance sheet.’ Discuss.
‘If the current financial reporting of transactions is well understood by users it is confusing to require a change when none is sought by the users.’ Discuss.
Explain how negative goodwill (bargain purchase) may arise and its accounting treatment.
Explain how the fair value is calculated for:● Tangible non-current assets● Inventories● Monetary assets.
Explain why only the net assets of the subsidiary and not those of the parent are adjusted to fair value at the date of acquisition for the purpose of consolidated accounts.
The 2013 Annual Report of Bayer AG states:Subsidiaries that do not have a material impact on the Group’s net worth, financial position or earnings, either individually or in aggregate, are accounted for at cost of acquisition less any impairment losses.Discuss what criteria might have applied in
Parent plc acquired Son plc at the beginning of the year. At the end of the year there were intangible assets reported in the consolidated accounts for the value of a domain name and customer lists. These assets did not appear in either Parent or Son’s statements of financial position.Discuss why
Explain why the non-controlling interest is not affected by the pre-and post-acquisition division.
Explain why pre-acquisition profits of a subsidiary are treated differently from post-acquisition prof-its when consolidating.
Explain the effect of a provision for unrealised profit on a non-controlling interest:(a) Where the sale was made by the parent to the subsidiary; (b) Where the sale was made by the subsidiary to the parent.
A consolidated journal adjustment set off the dividend receivable reported in the parent’s statement of financial position against the dividend declared by the subsidiary. Explain why this may not fully eliminate the dividend that is reported in the group statement of financial position.
Explain reasons why the current accounts in the parent and subsidiary may not agree. If not, how could the two accounts be set off?
Explain why the dividends deducted from the group in the statement of changes in equity are only those of the parent company.
Explain why it is necessary to apportion a subsidiary’s profit or loss if acquired part-way through a financial year.
Explain why dividends paid by a subsidiary to a parent company are eliminated on consolidation.
A shareholder was concerned that following an acquisition the profit from operations of the parent and subsidiary were less than the aggregate of the individual profit from operations figures. She was concerned that the acquisition, which the directors had supported as improving earnings per share,
Explain how a management charge made by a parent company would be dealt with on consolidation.
Explain how the impairment of goodwill is dealt with on consolidation.
Explain why unrealised profits on inventory purchased from another member of the group is added to the cost of sales when it is not a cost.
Explain why differences between the opening and closing statements of financial position are adjusted when preparing a consolidated statement of cash flows when a subsidiary is acquired.
Why are associated companies accounted for under the equity method rather than consolidated?
How does the treatment of inter-company unrealised profit differ between subsidiaries and associated companies?
Where an associate has made losses, IAS 28, paragraph 30, states:After the investor’s interest is reduced to zero, additional losses are provided for, and a liability is recognised, only to the extent that the investor has incurred legal or constructive obligations or made payments on behalf of
The following is an extract from the notes to the 2013 consolidated financial statements of the Chugoku Electric Power Company, Incorporated:For the year ended March 31, 2013, 10 affiliated companies were stated at cost without applying the equity method.Discuss:(a) Why these affiliated companies
Explain the difference between a joint operation and a joint venture.
Explain the approach to determining whether an arrangement is a joint operation or a joint venture.
Discuss the desirability or otherwise of isolating profits or losses caused by exchange differences from other profit or losses in financial statements.
Explain the term functional currency and describe the factors an entity should take into account when determining which is the functional currency.
Explain why exchange differences are treated differently in financial statements prepared in a functional currency and those prepared in a presentation currency.
Discuss why a company that is not part of a group might decide to translate its financial statements into a presentation currency.
The following note appeared in the 2013 Annual Report of Mercer International Inc.:Net income (loss) per share attributable to common shareholders:The calculation of diluted net income (loss) per share attributable to common shareholders does not assume the exercise of any instruments that would
Explain why exchange differences might appear in other comprehensive income.

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Financial Accounting And Reporting 19th Edition Barry Elliott, Jamie Elliott - Solutions

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