Mcs F2 #1

Front 1

How to account for purchase of additional premises such as Warehouse & financial implications

Back 1

1. Purchase of additional premises accounted for using ias 16 property plant and equipment

2. Requires 2 million cost of new premises capitalised and. Also include additional Direct costs incurred to acquire premises such as legal and professional fee

3. Capitalise cost depreciated over expected useful life- depreciate on straight line basis same charge to P&L each year

4. Significant cash outflow Finance using bank balance classified as investing activities in statement of cash flow

5. Raising loan finance limits initial cash outflow - incurs annual finance charge regular loan repayments over agreed period. Split current and non-current liability. receipt of loan classified as cash inflow within financing activities loan repayment also financing activities cash outflow

Front 2

Building a factory extension how to account for and finance

Back 2

1. Construction of asset for own use accounted for using ias 16 property plant and equipment.

2. Increased factory space enhanced asset lead to future economic benefit. Additional cost incurred capitalised and depreciated over the useful life of asset.

3. Contracting engaged to construct easy to confirm cost incurred I.e invoices

4. If constructing yourself capitalise Direct labour cost e.g. salary record timesheet also Direct material and other Direct cost including construction

5. 1 million construction cost capitalised and depreciated over useful life of asset.

6. Cash outflow staggered over few months as construction progresses advantage as expected to incur lower cost

Front 3

How to account for renting a Warehouse

Back 3

1. Determine if agreement contains a lease ifrs 16 leases - definition: a Lease is a contract that conveys the right to control an identified asset for a specific period of time in exchange for consideration

2. Above definition excludes low value and agreement 12 months or less

3. Control enables user how to use asset subject to condition that do not unduly hinder its unrestricted use.

4. Example Warehouse cannot be used as indoor Sports Arena as does not contain changing or showering facilities control implies able to stop or restrict others from using without knowledge or consent

5. If meets definition account by recording right of use asset and right of use obligation.

6. Application based on present value of furure payment discounted at implied rates in agreement. Subject to annual finance charge increasing the application

7. Liability reported split between current or noncurrent

8. Right of asset based on initial present value of lease application plus Direct incremental costs incurred to enter into lease such as lawyer and surveyor fees

9. Right of use asset Maynard the same value as application. Will need annual depreciation charge

10. Benefit of leasing cash outflow spread over lease periods rather than upfront. Outflow recorded under finance activities.

11. However end of lease. Controlled reverts to owner but in other possibilities ownership stays with company.

Front 4

Summarise requirements for ias 37 provisions contingent liability and contingent asset

Back 4

Define: Covers accounting for assets liabilities and uncertain timing or amount.

● Only recognise provision when 3 criteria are met

1. Present obligation exist as result of past event

2. Probable outflow of economic benefit

3. Obligation can be reliably estimated

Criteria not met?

• Liability - Classify as contingent liability & disclose in notes. If remote ignore

• Asset if probable disclose in notes otherwise ignore

Front 5

IAS 37 contingent provision contingent liability and asset application to Jord

Back 5

1. Refers to health and safety practices risk of employees suffering injury during course of work. If breach of Corvola health and safety legislation. Lead to fines and other sanctions such as revision of working practices and methods.

2. Jord take H&S seriously given nature of manufacturing construction and installation activity. Risk cannot be eliminated- Jord responsible.

3. For CSR Jord exceed minimum requirement imposed by law. This imposes constructive obligation they should also be accounted using ias 37. Can lead to claim against Jord

Front 6

How to deal with foreign exchange IAS 21 rates quoting house prices in US$ rather than C$

Back 6

1. Providing quote in US Dollars provides clarity for customer regarding house price. However introduces currency risk to Jord that it is not exposed to currently.

2. Invoice raised in US Dollars should be translated using spot rate on the date of transaction when cash subsequently received from customer need to translate at rate at the date of receipt of cash.

3. If an amount still outstanding at reporting date receivable is translated at year-end rate any exchange gain or loss taken to profit or loss as operating income or expense.