Financial Reporting Flashcards

Under IFRS 16, how does a lessee account for variable lease payments that depend on an index or rate?

Answer: They are included in the initial measurement of the lease liability using the index or rate at the commencement date

Variable lease payments that depend on an index or rate are included in the initial measurement of the lease liability using the index or rate at the commencement date. The liability is subsequently remeasured when there is a change in future lease payments due to a change in the index or rate.

What is the unit of account for goodwill impairment testing under IAS 36?

Answer: Cash-generating unit or group of cash-generating units

Goodwill is tested for impairment at the cash-generating unit (CGU) or group of CGUs level to which it has been allocated, which represents the lowest level at which goodwill is monitored for internal management purposes.

Under IAS 24 Related Party Disclosures, which of the following must be disclosed?

Answer: The nature of related party relationships and information about transactions and outstanding balances

IAS 24 requires disclosure of the nature of related party relationships, transactions conducted, outstanding balances, commitments, and terms and conditions. This includes key management personnel compensation but extends well beyond it.

A construction company has a long-term contract. Under IFRS 15, when should revenue be recognized over time?

Answer: When one of three criteria for over-time recognition is met, such as the customer receiving and consuming benefits simultaneously

IFRS 15 permits over-time revenue recognition when one of three criteria is met: the customer simultaneously receives and consumes benefits, the entity's performance creates or enhances an asset the customer controls, or the entity's performance does not create an asset with alternative use and there is an enforceable right to payment for performance completed to date.

Under IAS 28, how should an investment in an associate be accounted for in the investor's consolidated financial statements?

Answer: Using the equity method

IAS 28 requires investments in associates (entities over which the investor has significant influence, typically 20-50% ownership) to be accounted for using the equity method in consolidated financial statements.

Under IFRS, when a parent loses control of a subsidiary but retains a non-controlling investment, how is the retained interest measured?

Answer: At fair value on the date control is lost

When a parent loses control of a subsidiary, any retained interest is remeasured to fair value at the date control is lost. The difference between proceeds received plus fair value of retained interest and the carrying amount of the former subsidiary's net assets (including goodwill) is recognized in profit or loss.