[accastudent001]

Hi Mr. Nothing123,

The reporting standards does not allow early recognition of revenue, so the correct treatment should be reversal of the revenue recognized.

——————————————————————

Further explanation:

The originial entries to recognize revenue would be,

Dr Trade receivables
Cr Revenue

As per your point, if we were to reverse it by moving the revenue to contingent liability, the entries would be, (which is incorrect)

Dr Revenue
Cr Contingent liability

So after this entry, only the revenue would have been cancelled out, however, trade receivables still would exist. This would be incorrect as we have not yet fulfilled our contractual obligations thus the customers are not yet liable to pay us. Further, we have not yet received any payment, as such, we cannot recognize any contingent liability either.

The correct entries would be,

Dr Revenue
Cr Trade receivables

Hope this helps.

Good luck for your exams !!!

[accastudent001]

The question asks for further work in respect of the claim made by the CEO, it doesn’t ask anything related to bank approving OD or not.

As such, a written representation would be best evidence to collect to support any claim made by the management.

Your answer does not answer the requirements of the question, so would be awarded no marks.

Hope this helps.

[accastudent001]

The amount of goodwill impairment would be the difference between recognized amount and the fair value of goodwill.

The difficulty would be in estimating the fair value of goodwill. The fair value of the goodwill could be estimated by calculating how much the company would be able to sell the unit (or subsidiary), and then identifying the excess amount over the actual net assets. The excess amount would be the current fair value of goodwill.

Eg.
Recognized goodwill in relation to subsidiary $2m
Current net assets of subsidiary $10m
Estimated sale price of subsidiary $11m
Fair value of goodwill (11-10) $1m

Amount of goodwill impairment (2-1) $1m

Hope this helps.

[accastudent001]

Knowledge of IFRS would be mainly required for questions asking for matters to be considered, typically in Section B/Question 2 (as per new exam format).

For such questions, the answers would require basic IFRS application knowledge to identify the incorrect treatment and to state the correct treatment.

This may not require such extensive application knowledge as required for SBR (Previously P2) as we may not be required to calculate or apply such treatment as required in SBR.

These questions worth 25 marks will typically subdivided into 3 parts, each approx. worth 7-9 marks. So these sub-parts worth 7-9 marks would in addition to IFRS, test IASs and in most cases test audit procedures too. As such considering marks allocated, it would not be testing extensive application of IFRS standards as required for SBR exam.

Refer Q3 in old format past papers for more understanding. As per new exam format, this would come as Question 2 in section B (Starting from Sep 2018).

Hope this helps.

[accastudent001]

Thanks for the comment on answer sir.

Regarding profile picture, I have changed it right away. Thanks for pointing it out.

[accastudent001]

Current market value is present value of future receipts

So,

1. Present value of repayment of $100 discounted @0.855 = 85.5
2. Present value of interest $6 p.a discounted @3.630 = 21.78

Total PV = 107.28

The current market value of the bond is $107.28

[Author]

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