Blackmoore Health System, a taxpaying entity, is considering a new orthopedic center. The building and equipment for the new center will cost $7,000,000. The equipment and building will be depreciated on a straight-line basis over its five-year life to a $2,000,000 salvage value. The new orthopedic center’s projected net revenue and expenses are listed below. The project will be financed partially by debt capital. Interest […]

Substance over form – retention of title On Dec 31, 01, wholesaler W delivers merchandise under retention of title to retailer R. On that date, the significant risks and rewards of ownership are transferred. W retains neither effective control nor continuing managerial involvement to the degree usually associated with ownership. The carrying amount of the merchandise in W”s statement of financial position is CU 4. […]

Nature of expense method vs. function of expense method Entity E operates in retail sales, i.e. E purchases merchandise from wholesalers and resells to customers. The following table presents the expenses from the year 01 according to their nature and function: Cost of sales Administrative expenses Distribution costs Total Raw materials and consumables used 18 1 1 20 Employee benefits expense 5 2 2 9 […]

Current vs. non-current liabilities On Dec 31, 01, the remaining time to maturity of a loan taken up by entity E is 18 months. E”s normal operating cycle is 12 months. Required Assess for each of the following versions, whether the liability has to be classified as current or as non-current in E”s statement of financial position as at Dec 31, 01: (a) No further […]

Overriding principle – continuation of Example 2(d) The situation is the same as in Example 2(d). However, E believes that the application of IAS 1.74 and the resulting classification of the liability as current would not lead to a fair presentation of its financial statements and would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual […]

Going concern (a) On Dec 31, 01, it is intended to liquidate entity in A in 18 months. Nevertheless, A intends to prepare its financial statements on a going concern basis because IAS 1.26 mentions a period of 12 months from the end of the reporting period as a reference point. (b) With regard to entity B”s financial statements as at Dec 31, 01, there […]

Presentation of a deferred tax liability in the statement of financial position On Dec 31, 01, entity E recognizes a provision relating to a lawsuit. The carrying amount of the provision is CU 26 according to IFRS and CU 34 for tax purposes. According to IAS 12, E also recognizes a deferred tax liability in the amount of CU 2 relating to the provision (= […]

Statement of comprehensive income and statement of changes in equity – equity instruments measured at fair value through other comprehensive income according to IFRS 9 On Jan 01, 01, entity E acquires shares for CU 10 and elects irrevocably to present changes in their fair value in other comprehensive income (IFRS 9.5.7.1b and 9.5.7.5). On Dec 31, 01, fair value of these shares is CU […]

Statement of comprehensive income and statement of changes in equity – revaluation of property, plant, and equipment On Jan 01, 01, entity E acquires land for CU 10 which is held as property, plant, and equipment. On Dec 31, 01, the fair value of the land is CU 14. E sells the land on Aug 10, 02 for CU 14. Required Complete the same exercises […]

Costs of purchase – financing element Entity E purchases merchandise on Nov 01, 01. Delivery takes place on the same day. In the case of (normal) deferred settlement terms of one month, the purchase price would be CU 200. However, E and its supplier stipulate that payment has to be made on Nov 30, 02, but at an amount of CU 212 (CU 200 plus […]