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Questions and Answers
Which of the following assets must be accounted for when adjusting fair values during consolidation?
Which of the following assets must be accounted for when adjusting fair values during consolidation?
- Retained earnings
- Monetary liabilities (correct)
- Current liabilities
- Intangible assets
Goodwill impairment refers to a decrease in the fair value of a subsidiary's identifiable net assets.
Goodwill impairment refers to a decrease in the fair value of a subsidiary's identifiable net assets.
False (B)
What must be accounted for when the fair value of purchase consideration is less than that of the identifiable net assets?
What must be accounted for when the fair value of purchase consideration is less than that of the identifiable net assets?
Bargain purchase
Goodwill adjustments can affect consolidated __________ when considering fair value.
Goodwill adjustments can affect consolidated __________ when considering fair value.
Match the following concepts with their correct descriptions:
Match the following concepts with their correct descriptions:
Which type of asset is NOT included in fair value adjustments?
Which type of asset is NOT included in fair value adjustments?
The disposal of a parent’s investment in a subsidiary is treated as a discontinued operation if it involves the entire investment.
The disposal of a parent’s investment in a subsidiary is treated as a discontinued operation if it involves the entire investment.
In financial statements, what is the effect of goodwill impairment on the consolidated balance sheet?
In financial statements, what is the effect of goodwill impairment on the consolidated balance sheet?
What is the net realizable value of the damaged goods initially costing $15,000?
What is the net realizable value of the damaged goods initially costing $15,000?
Income tax of $165,000 is to be provided for the year ended 31 March 20X7.
Income tax of $165,000 is to be provided for the year ended 31 March 20X7.
What is the financial aim of not-for-profit entities?
What is the financial aim of not-for-profit entities?
Depreciation for plant and machinery is calculated using the ______ method.
Depreciation for plant and machinery is calculated using the ______ method.
Match the following terms with their definitions:
Match the following terms with their definitions:
What percentage is used for the straight line depreciation of buildings?
What percentage is used for the straight line depreciation of buildings?
Land is to be revalued upwards by ______.
Land is to be revalued upwards by ______.
External finance for not-for-profit entities is typically available in the form of loans and share capital.
External finance for not-for-profit entities is typically available in the form of loans and share capital.
What is an impairment loss?
What is an impairment loss?
Goodwill is capitalized indefinitely and is never subject to impairment testing.
Goodwill is capitalized indefinitely and is never subject to impairment testing.
What is a cash generating unit (CGU)?
What is a cash generating unit (CGU)?
Impairment losses should be allocated based on the __________ of the assets of a cash generating unit.
Impairment losses should be allocated based on the __________ of the assets of a cash generating unit.
Match the following categories of financial instruments with their measurement methods:
Match the following categories of financial instruments with their measurement methods:
Which standard dictates how to account for biological assets and agricultural produce?
Which standard dictates how to account for biological assets and agricultural produce?
Financial liabilities and financial assets are defined as types of financial instruments.
Financial liabilities and financial assets are defined as types of financial instruments.
What is the primary need for an accounting standard on financial instruments?
What is the primary need for an accounting standard on financial instruments?
Which of the following is a key focus for not-for-profit and public sector organizations?
Which of the following is a key focus for not-for-profit and public sector organizations?
Not-for-profit organizations are required to produce financial statements for public scrutiny.
Not-for-profit organizations are required to produce financial statements for public scrutiny.
What is the estimated tax charge for the year mentioned in the trial balance?
What is the estimated tax charge for the year mentioned in the trial balance?
The retained earnings at 31 March 20X0 were ________.
The retained earnings at 31 March 20X0 were ________.
Match the following accounts with their corresponding values from the trial balance:
Match the following accounts with their corresponding values from the trial balance:
What is the total balance of Trade payables?
What is the total balance of Trade payables?
Interest paid is considered an expense for the organization.
Interest paid is considered an expense for the organization.
What is the total amount of cash and cash equivalents reported?
What is the total amount of cash and cash equivalents reported?
The share capital listed in the trial balance is ________.
The share capital listed in the trial balance is ________.
Which item would typically not be relevant for a not-for-profit organization's reporting?
Which item would typically not be relevant for a not-for-profit organization's reporting?
What is reported after the 'Profit before tax' in a statement of profit or loss?
What is reported after the 'Profit before tax' in a statement of profit or loss?
What is the depreciation rate for buildings?
What is the depreciation rate for buildings?
The statement of other comprehensive income includes distribution costs.
The statement of other comprehensive income includes distribution costs.
There were purchases of non-current assets during the year to 31 March 20X9.
There were purchases of non-current assets during the year to 31 March 20X9.
What is the purpose of the 'statement of profit or loss'?
What is the purpose of the 'statement of profit or loss'?
The final element reported on the statement of profit or loss is the _____ for the year.
The final element reported on the statement of profit or loss is the _____ for the year.
What is the estimated income tax for the year to 31 March 20X9?
What is the estimated income tax for the year to 31 March 20X9?
The profit from operations is $______.
The profit from operations is $______.
Match the sections of the statement with their respective content:
Match the sections of the statement with their respective content:
Match the following expenses with their respective apportionment:
Match the following expenses with their respective apportionment:
Which of the following is included under 'Other comprehensive income'?
Which of the following is included under 'Other comprehensive income'?
Profit from operations includes finance costs.
Profit from operations includes finance costs.
What was the total revenue reported?
What was the total revenue reported?
The retained earnings carry forward was $616,000.
The retained earnings carry forward was $616,000.
Name one item that can affect 'Total comprehensive income'.
Name one item that can affect 'Total comprehensive income'.
What is the total amount of current assets listed?
What is the total amount of current assets listed?
The _____ shows the revenue earned by a company over a period of time.
The _____ shows the revenue earned by a company over a period of time.
The current liabilities include a tax liability of $______.
The current liabilities include a tax liability of $______.
Match the following financial components with their definitions:
Match the following financial components with their definitions:
What is calculated before the income tax expense in the profit structure?
What is calculated before the income tax expense in the profit structure?
What was the profit for the year?
What was the profit for the year?
The loan note has a repayment period of six years.
The loan note has a repayment period of six years.
The statement of profit or loss only includes operational income.
The statement of profit or loss only includes operational income.
What does the term 'distribution costs' represent?
What does the term 'distribution costs' represent?
What was the provision for warranty claims estimated at?
What was the provision for warranty claims estimated at?
A _____ is used to evaluate an entity's financial performance over a specific period.
A _____ is used to evaluate an entity's financial performance over a specific period.
The finance costs for the year total $______.
The finance costs for the year total $______.
Which component is not part of the 'statement of other comprehensive income'?
Which component is not part of the 'statement of other comprehensive income'?
How much was the accumulated depreciation for plant and machinery before the charge?
How much was the accumulated depreciation for plant and machinery before the charge?
State the carrying amount of buildings as per the statement.
State the carrying amount of buildings as per the statement.
Flashcards
Fair Value Adjustments
Fair Value Adjustments
Adjustments to reflect the current market value of assets and liabilities. This includes changes in value for depreciating non-current assets, inventory, monetary liabilities, and assets/liabilities not on the subsidiary's statement. It also affects consolidated goodwill.
Bargain Purchase
Bargain Purchase
The difference between the fair value of the purchase consideration (what the buyer paid) and the fair value of the identifiable net assets acquired. It may occur when the acquired company is undervalued in the market.
Consolidated Goodwill
Consolidated Goodwill
A non-cash asset resulting from an acquisition, reflecting the excess of the purchase price over the fair value of identifiable net assets acquired. It represents the value of intangible factors like brand recognition, customer relationships, or strong management.
Goodwill Impairment
Goodwill Impairment
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Goodwill Accounting
Goodwill Accounting
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Disposal of a Subsidiary
Disposal of a Subsidiary
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Discontinued Operations
Discontinued Operations
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Employability and Technology Skills
Employability and Technology Skills
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Statement of Profit or Loss and Other Comprehensive Income
Statement of Profit or Loss and Other Comprehensive Income
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Gross Profit
Gross Profit
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Distribution Costs
Distribution Costs
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Administrative Expenses
Administrative Expenses
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Profit from Operations
Profit from Operations
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Finance Costs
Finance Costs
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Investment Income
Investment Income
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Profit Before Tax
Profit Before Tax
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Income Tax Expense
Income Tax Expense
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Profit for the Year
Profit for the Year
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Other Comprehensive Income
Other Comprehensive Income
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Total Comprehensive Income for the Year
Total Comprehensive Income for the Year
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Statement of Profit or Loss plus Statement of Comprehensive Income
Statement of Profit or Loss plus Statement of Comprehensive Income
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Statement of Other Comprehensive Income
Statement of Other Comprehensive Income
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IAS 16
IAS 16
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IFRS 9
IFRS 9
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Loss on Damaged Goods
Loss on Damaged Goods
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Depreciation
Depreciation
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Reducing Balance Depreciation
Reducing Balance Depreciation
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Revaluation
Revaluation
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Income Tax Provision
Income Tax Provision
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Statement of Profit or Loss
Statement of Profit or Loss
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Statement of Changes in Equity
Statement of Changes in Equity
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Statement of Financial Position
Statement of Financial Position
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Straight-line depreciation
Straight-line depreciation
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Building depreciation rate
Building depreciation rate
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Plant and machinery depreciation rate
Plant and machinery depreciation rate
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Cost of sales
Cost of sales
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Provision for warranties
Provision for warranties
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Non-current assets
Non-current assets
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Current assets
Current assets
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Retained earnings
Retained earnings
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Not-for-profit and Public Sector Organizations
Not-for-profit and Public Sector Organizations
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Balance Sheet
Balance Sheet
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Income Statement
Income Statement
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Effectiveness, Economy, and Efficiency
Effectiveness, Economy, and Efficiency
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Published Accounts
Published Accounts
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Revenue
Revenue
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Impairment Loss
Impairment Loss
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Impairment Test
Impairment Test
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Recoverable Amount
Recoverable Amount
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Cash Generating Unit (CGU)
Cash Generating Unit (CGU)
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Impairment Loss Allocation
Impairment Loss Allocation
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Reversal of Impairment Loss
Reversal of Impairment Loss
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Inventory
Inventory
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Biological Assets
Biological Assets
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Study Notes
Impairment of Assets
- Impairment Loss Definition: A loss recognized when the carrying amount of an asset exceeds its recoverable amount.
- Impairment Loss Calculation: Determined by comparing the asset's carrying amount to its recoverable amount (the higher of its fair value less costs to sell and value-in-use).
- Impairment Accounting: Impairment loss is recorded by reducing the asset's carrying amount to its recoverable amount.
- Goodwill Impairment Test: Goodwill is tested for impairment annually, or more frequently if indicators of impairment exist.
- Reversal of Impairment Loss: An impairment loss can be reversed if the asset's recoverable amount subsequently increases. The reversal increases the asset's carrying amount to the new recoverable amount.
- Impairment Indicators: Indicators that may suggest impairment include significant changes in the asset's market conditions, technological advances, or economic downturns.
- Cash Generating Unit (CGU): A group of assets that are expected to be used together to generate revenue.
- Impairment Loss Allocation: The impairment loss is allocated across the assets of the CGU in proportion to each asset's carrying amount.
Inventory and Biological Assets
- Inventory Valuation Principles: Inventory is valued at the lower of cost and net realizable value. Cost includes all costs involved in acquiring and bringing the inventory to its current location.
- Biological Asset Requirements (IFRS): Specific accounting standards apply to biological assets (livestock) and agricultural produce.
Financial Instruments
- Need for Accounting Standard: A standard is needed to ensure the consistent and accurate accounting for various financial instruments.
- Financial Instruments Definition: Financial instruments include financial assets and financial liabilities.
- Factoring Receivables: Factoring is accounting for transferring receivables to another entity for a fee.
- Financial Instrument Measurement: Different types of financial instruments are measured differently. Measurement approaches include amortized cost, fair value through other comprehensive income, and fair value through profit or loss.
- Debt vs. Equity: Debt capital represents borrowing, and equity represents ownership.
- Fair Value Adjustments: Adjustments to asset/liability values (e.g., due to market changes) impacted by the valuation.
- Goodwill Impairment: Goodwill is checked for impairments, following the overall asset impairment procedures. This incorporates both acquisition and depreciation.
- Consolidated Goodwill Treatment: Goodwill is consolidated and reported on the parent's financials as an intangible asset.
- Bargain Purchase: When the purchase price is less than the fair value of the acquired net assets, the difference is recorded as a bargain purchase.
- Disposal of Subsidiary Investment: Parent companies account for the disposal of their investment in a subsidiary, showing relevant details appropriately. This may involve handling it as a discontinued operation if the entire investment is sold.
Employability and Technology Skills
- Computer Technology Utilization: Use technology for efficient data access and manipulation.
- Relevant Response Options: Use available tools and technologies for relevant work responses.
- Windows Navigation: Efficient use of windows and computer screens for creating, amending exam content.
- Data Presentation: Presentation of data/information with suitable tools.
Statement of Profit or Loss and Other Comprehensive Income:
- Format Example: Format for XYZ company statement for the year ended Dec 31, 20X8, includes revenues, costs, gross profit, operating expenses, profit from operations, finance costs, investment income, pre-tax profit, tax, and net profit. Also, it shows other comprehensive income (OCI).
- Example OCI: Elements include gains/losses from revaluation of assets and fair value changes in certain financial instruments.
Statement of Financial Position
- Format for a Statement of Financial Position: This shows non-current assets such as property, plant & equipment and current assets (inventory, receivables, cash). It also shows liabilities and equity.
- Example Structure Format for XYZ, Dec 31 20X8, includes non-current assets, current assets, non-current liabilities, current liabilities, equity.
Introduction to Published Accounts
- Straight-Line Depreciation: Buildings (5%) and plant and machinery (20%) are depreciated using straight-line depreciation (no residual value).
- Depreciation Allocation: Depreciation charges are divided among cost of sales, distribution costs, and administrative expenses based on percentages.
- Income Tax: Income tax is estimated at $135,000 for the year to March 31, 20X9.
- Loan Notes: A 10% loan note exists and is repaid in five years from its issue date.
Other Notes:
- Warranty Provision: A warranty provision of $75,000 for warranty claims is created, expensed in administrative expenses.
- Trial Balances for Arran (20X7): A trial balance for Arran company is provided, including details for various accounts.
- Inventory at Arran: Inventory, valued at $95,000 (includes damaged goods ($15,000, sellable at $5,500 less $500 commission).
- Additional Information Details about depreciation, land revaluation and tax are provided.
- Not-for-Profit Entities: Not-for-profit entities have different aims than profit-oriented entities; their financial aims are different and their external stakeholders are different groups.
- Comparison to Profit-Oriented Entities: This compares their aims, responsibilities, funding and reporting.
- Accounting Standards for Not-For-Profit: Accounting standards are designed for accuracy, consistency, and resources' management. Not-for-profit organizations also account for effectiveness, economy and efficiency.
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Description
This quiz covers the critical aspects of asset impairment, including definitions, calculations, and accounting procedures related to impairment losses. Additionally, it explores goodwill impairment tests and indicators for potential asset impairment. Test your knowledge on when and how impairment losses can be recognized and reversed.
