International Financial Reporting
All Learning outcomes to be assessed:
Knowledge:
1. Critical appreciation of the current key issues in international financial reporting
2. Critical understanding of the conceptual framework as a paradigm for accounting
3. Critical understanding of the uses and limits of financial information
4. Critical understanding of financial reports for strategic decision making Skills
5. An ability to demonstrate cognitive skills of critical thinking and analysis.
Question 1: IASB’s Conceptual Framework
(a) The International Accounting Standards Board (IASB) devises and publishes
International Financial Reporting Standards (IFRS Standards) while it revised versions of International Accounting Standards (IAS Standards) originally published by the International Accounting Standards Committee (IASC). The IASB has also published the Conceptual Framework for Financial Reporting reflecting some of the attributes that make financial information useful to the various users of financial statements.
You are required to:
(a) Explain the main purposes of the IASB’s Conceptual Framework document? (6
marks)
(b) Discuss the assumption which (according to the IASB’s Conceptual Framework)
underlies the preparation of financial statements. (5 marks)
(c) Explain the main concepts of capital maintenance, making references to the IASB’s Conceptual Framework. (6 marks)
(d) Identify and explain the meanings of five qualitative characteristics and attributes
of financial statements including how they respectively make financial information useful as entrenched in the IASB’s Conceptual Framework.
(10 marks)
(e) Critically discuss how concept of materiality is fundamental to financial reporting.
(5 marks)
Question 2:IFRS1 –
First-time Adoption of International Financial Reporting Standard Prisca Plc adopts international standards for the first time in its financial statements for the year to 31 December 2019. These financial statements provide comparative figures for the previous five years. According to the IFRS 1 – First-time Adoption of International Financial Reporting Standard, you are required to:
(a) explain the terms “first IFRS reporting period” and “date of transition” as defined
by IFRS1. (3 marks)
(b) what are the requirements of IFRS1 which must be satisfied by Prisca Plc when
preparing these financial statements? (5 marks)
Total Marks for Part 1 Questions: (40 marks)
PART B Question 3: IAS2 – Inventories
(a) In accordance with IAS 2, explain how the cost of inventories should be determined. (10 marks)
(b) The main activity of Portville Plc is to buy old vehicles, which are sold after
converting them into a saleable condition. At 30 June 2020, the end of the company’s
financial year, Portville Plc Ltd had the following vehicles that were at various stages
in the process of being converted to be ready for sale.
Vehicle Purchase rice
p
Costs incurred
on bringing to
present
location
Conversion
costs
incurred to
date
Expected
further
costs before
sale
Expected
selling price
£ £
1,080
940
750
460
£
880
1,540
1,260
–
£
–
150
600
2,000
£
14,000
19,300
6,000
11,800
W 9,470
3,550
7,680
X
Y
Z
Notes:
1. Expected selling expenses for each vehicle are 6% of the expected selling price.
2. A quarter of the conversion costs relate to materials, but 20% of the cost of materials used in the conversions are considered to be abnormal wastage, due to a poor quality type of material that has been used.
To ensure the correct valuation of the company’s inventories is reflected in the final
accounts, the company follows the guidance provided in IAS 2 Inventories.
Required:
Compute, in accordance with IAS 2 Inventories, the value at which the inventory of
vehicles as at 30 June 2020 should be shown in the final accounts of Portville Plc; and
also determine the total cost of abnormal wastage of materials that has been incurred
on the conversion of the four
vehicles. (20 marks)
Question 4: IFRS9 – Financial Instruments
(a) State whether the following financial assets would be measured at amortised
cost, fair value through comprehensive income, or fair value through profit or
loss, in accordance with IFRS 9:
i. Surples Ltd holds investments to collect their contractual cash flows of principal and interest, but would sell an investment in isolated circumstances.
