The Arab Society of Certified Accountants (ASCA) 1 International Financial Reporting Standards IFRS for SMEs Joint DUBAI SME-ASCA-IFRS Foundation Workshop 27–29 September 2011 Dubai, UAE Copyright © 2011 IFRS Foundation. All rights reserved.

The Arab Society of Certified Accountants (ASCA) 2 This presentation may be modified from time to time. The latest version may be downloaded from: 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 The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this PowerPoint presentation, whether such loss is caused by negligence or otherwise. 2

The Arab Society of Certified Accountants (ASCA) 3 The IFRS for SMEs Topic 2.5 Quiz and Discussion Assets Sections 13–18 & 27 Michael Wells

The Arab Society of Certified Accountants (ASCA) 4 Section 13 – Discussion questions 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

The Arab Society of Certified Accountants (ASCA) 5 Section 13 – Discussion questions 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? 5

The Arab Society of Certified Accountants (ASCA) 6 Section 13 – Discussion questions 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 6

The Arab Society of Certified Accountants (ASCA) 7 Section 13 – Discussion questions 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? 7

The Arab Society of Certified Accountants (ASCA) 8 Section 14 – Discussion questions 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 8

The Arab Society of Certified Accountants (ASCA) 9 Section 14 – Discussion questions 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? 9

The Arab Society of Certified Accountants (ASCA) 10 Section 14 – Discussion questions 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 10

The Arab Society of Certified Accountants (ASCA) 11 Section 14 – Discussion questions 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. 11

The Arab Society of Certified Accountants (ASCA) 12 Section 15 – Discussion questions Question 7*: On 31/12/X1 A acquired 30% of Z for 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 12

The Arab Society of Certified Accountants (ASCA) 13 Section 15 – Discussion questions 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?. 13

The Arab Society of Certified Accountants (ASCA) 14 Section 15 – Discussion questions 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?. 14

The Arab Society of Certified Accountants (ASCA) 15 Section 15 – Discussion questions 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 15

The Arab Society of Certified Accountants (ASCA) 16 Section 15 – Discussion questions 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. 16

The Arab Society of Certified Accountants (ASCA) 17 Section 16 – Discussion questions 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 17

The Arab Society of Certified Accountants (ASCA) 18 Section 16 – Discussion questions Question 3 continued : A should account for the building as: a.inventory? b.investment property? c.property, plant & equipment? d.intangible asset? 18

The Arab Society of Certified Accountants (ASCA) 19 Section 16 – Discussion questions Question 3 continued : A should account for the building as: a.inventory? b.investment property? c.property, plant & equipment? d.intangible asset? 19

The Arab Society of Certified Accountants (ASCA) 20 Section 16 – Discussion questions 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 20

The Arab Society of Certified Accountants (ASCA) 21 Section 16 – Discussion questions 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? 21

The Arab Society of Certified Accountants (ASCA) 22 Section 16 – Discussion questions 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? 22

The Arab Society of Certified Accountants (ASCA) 23 Section 17 – Discussion questions 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

The Arab Society of Certified Accountants (ASCA) 24 Section 17 – Discussion questions 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

The Arab Society of Certified Accountants (ASCA) 25 Section 17 – Discussion questions 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: 25

The Arab Society of Certified Accountants (ASCA) 26 Section 17 – Discussion questions 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? 26

The Arab Society of Certified Accountants (ASCA) 27 Section 17 – Discussion questions 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? 27

The Arab Society of Certified Accountants (ASCA) 28 Section 18 – Discussion questions 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? 28

The Arab Society of Certified Accountants (ASCA) 29 Section 18 – Discussion questions 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? 29

The Arab Society of Certified Accountants (ASCA) 30 Section 18 – Discussion questions 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 30

The Arab Society of Certified Accountants (ASCA) 31 Section 18 – Discussion questions 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 31

The Arab Society of Certified Accountants (ASCA) 32 Section 18 – Discussion questions 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? 32

The Arab Society of Certified Accountants (ASCA) 33 Section 18 – Discussion questions 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? 33

The Arab Society of Certified Accountants (ASCA) 34 Section 18 – Discussion questions 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? 34

The Arab Society of Certified Accountants (ASCA) 35 Section 18 – Discussion questions 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? 35

The Arab Society of Certified Accountants (ASCA) 36 Section 27 – Discussion questions 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

The Arab Society of Certified Accountants (ASCA) 37 Section 27 – Discussion questions 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

The Arab Society of Certified Accountants (ASCA) 38 Section 27 – Discussion questions 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

The Arab Society of Certified Accountants (ASCA) 39 Section 27 – Discussion questions Question 2: At 31/12/20X1 CA of a CGU’s assets = 500 (ie 200 boat, 200 fishing licence & 100 goodwill). Useful life = 2 yrs. RV = 0. 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

The Arab Society of Certified Accountants (ASCA) 40 Section 27 – Discussion questions 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

The Arab Society of Certified Accountants (ASCA) 41 Section 27 – Discussion questions 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