Mixed Deck — All IFRS for SMEs) Topics Flashcards

Under IFRS for SMEs Section 19, the cost of a business combination includes directly attributable acquisition costs (e.g., legal fees). How does this differ from full IFRS (IFRS 3)?

Answer: IFRS for SMEs capitalizes acquisition costs; full IFRS expenses them

IFRS for SMEs includes directly attributable acquisition costs in the cost of the combination, whereas full IFRS 3 requires these costs to be expensed as incurred.

How should a non-controlling interest be presented in consolidated financial statements?

Answer: Within equity, separately from the parent's equity

Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from the equity of the parent, showing the portion of net assets attributable to minority shareholders.

What are the criteria for determining control of a subsidiary under IFRS for SMEs?

Answer: Power to govern the financial and operating policies of an entity to obtain benefits from its activities

Control exists when the parent has power to govern the financial and operating policies of an entity to obtain benefits, which is presumed when the parent owns more than half the voting power but can exist through other means.

An SME has unused tax losses. Under IFRS for SMEs, a deferred tax asset for those losses is recognized when:

Answer: It is probable that future taxable profits will be available against which the losses can be utilized

A deferred tax asset for unused tax losses is recognized only when it is probable that sufficient future taxable profit will be available to absorb the losses.

How should employee benefits such as short-term compensated absences be recognized?

Answer: As a liability when the employee has rendered service in exchange for the benefit

Short-term compensated absences (vacation, sick leave) should be recognized as a liability and expense when employees render service that increases their entitlement, not when they actually take the time off.

What is the purpose of the statement of financial position?

Answer: To provide a snapshot of financial condition

The statement of financial position, also known as the balance sheet, presents an entity's financial health at a specific point in time. It details the assets owned, liabilities owed, and the equity attributable to the owners. This snapshot allows users to assess the entity's solvency, liquidity, and capital structure.

Under IFRS for SMEs, what discount rate is used to measure the defined benefit obligation?

Answer: Market yield on high-quality corporate bonds or government bonds at the reporting date

IFRS for SMEs requires the use of the market yield on high-quality corporate bonds (or government bonds where there is no deep market) to discount the defined benefit obligation.

Which of the following is an indicator of a finance lease under IFRS for SMEs?

Answer: The lease term is for the major part of the economic life of the asset

A lease term covering the major part of an asset's economic life is one of the indicators that a lease is a finance lease under IFRS for SMEs.

Why does IFRS for SMEs require financial statement notes?

Answer: To provide details and explanations of financial data

Notes to the financial statements are an integral part of a complete set of financial statements under IFRS for SMEs. They provide qualitative and quantitative information that supplements the primary statements, offering further details, explanations, and breakdowns of amounts presented. This enhances the clarity and understandability of the financial reports, making them more useful to users.

If a share option plan has a three-year vesting period, IFRS for SMEs requires the share-based payment expense to be recognized:

Answer: Evenly over the three-year vesting period

The expense for equity-settled share-based payments with vesting conditions is recognized over the vesting period as employees render service.

What is the purpose of impairment testing in IFRS for SMEs?

Answer: To ensure assets are not carried above their recoverable amount

The purpose of impairment testing in IFRS for SMEs is to ensure that assets are not carried on the balance sheet at an amount higher than their recoverable amount. If an asset's carrying amount exceeds its recoverable amount (the higher of its fair value less costs to sell and its value in use), the asset is considered impaired, and its carrying amount is reduced. This prevents assets from being overstated and ensures financial statements reflect their true economic value.

Under IFRS for SMEs, how must all business combinations be accounted for?

Answer: Using the purchase (acquisition) method

IFRS for SMEs Section 19 requires all business combinations to be accounted for using the purchase (acquisition) method without exception.

How are financial liabilities measured under IFRS for SMEs?

Answer: Usually at amortized cost, unless held for trading

IFRS for SMEs generally requires financial liabilities to be measured at amortized cost subsequent to initial recognition. This method reflects the effective interest rate over the life of the liability. However, financial liabilities held for trading are an exception, as they are measured at fair value through profit or loss to reflect their short-term, market-driven nature.

Can impairment losses be reversed under IFRS for SMEs?

Answer: Yes, for assets other than goodwill, if the reasons for impairment no longer exist

IFRS for SMEs allows reversal of impairment losses for assets other than goodwill when the circumstances that caused the impairment have changed, but the reversal cannot exceed the carrying amount that would have existed without impairment.

Under IFRS for SMEs, a defined contribution plan is one where:

Answer: The entity pays fixed contributions and has no further obligation

In a defined contribution plan, the entity's legal or constructive obligation is limited to the amount it agrees to contribute, with no guarantee of future benefits.

Under IFRS for SMEs, deferred tax assets and liabilities may be offset when:

Answer: The entity has a legally enforceable right to set off current tax assets and liabilities and they relate to taxes levied by the same authority

Offsetting of deferred tax assets and liabilities is only permitted when there is a legally enforceable right and they relate to income taxes levied by the same taxation authority.

Under IFRS for SMEs, when the useful life of goodwill cannot be estimated reliably, it is presumed to be amortized over a maximum of:

Answer: 10 years

IFRS for SMEs Section 19.23 presumes goodwill has a useful life of 10 years when a reliable estimate cannot be made.

Under IFRS for SMEs, when property is revalued and the gain is taxable only on disposal, the deferred tax liability is calculated using:

Answer: The tax rate that would apply to the gain on disposal of the asset

The measurement of deferred tax should reflect the tax consequences that would follow from the manner in which the entity expects to recover the carrying amount, which for a revalued asset is typically through disposal.

Under IFRS for SMEs, short-term paid absences such as vacation leave are recognized:

Answer: As a liability and expense when employees render service that increases their entitlement

Accumulating short-term paid absences are recognized as the employees provide the service that creates the entitlement, not when the leave is taken.

An SME uses the retail method to measure inventory. Under IFRS for SMEs, this is acceptable when:

Answer: The results approximate cost

The retail method is an acceptable cost approximation technique under IFRS for SMEs provided it produces results that approximate cost.