IFRS Interpretations 3 — Questions and Answers
Question 1: SIC-15 relates to operating leases. Which incentive given by a lessor to a lessee must be recognized on a straight-line basis over the lease term?
- All lease incentives, including rent-free periods and cash payments to the lessee (Correct answer)
- Only cash payments made at lease commencement
- Only incentives with a fair value exceeding 10% of total lease payments
- Incentives given in the first year of the lease only
Correct answer: All lease incentives, including rent-free periods and cash payments to the lessee
SIC-15 requires all forms of lease incentives to be recognized as a reduction of rental income (or expense) on a straight-line basis over the full lease term.
Question 2: Under IFRIC 13, how should an entity account for award credits granted under a customer loyalty program?
- Allocate a portion of the transaction price to the award credits and defer revenue until redeemed or expired (Correct answer)
- Recognize a provision for the cost of fulfilling the awards at the point of sale
- Disclose the awards in the notes but recognize revenue in full at the point of sale
- Recognize the full transaction price as revenue and expense award costs when incurred
Correct answer: Allocate a portion of the transaction price to the award credits and defer revenue until redeemed or expired
IFRIC 13 requires award credits to be treated as a separately identifiable component, with revenue deferred until obligations are fulfilled.
Question 3: IFRIC 21 addresses levies imposed by governments. When is the liability for a levy recognized?
- When the activity that triggers the levy, as specified in the legislation, occurs (Correct answer)
- Ratably over the financial year to which the levy relates
- At the beginning of the financial year in which the levy is assessed
- Only when the levy is paid to the government authority
Correct answer: When the activity that triggers the levy, as specified in the legislation, occurs
IFRIC 21 specifies that the obligating event triggering recognition is the activity identified by legislation, not the passage of time or the payment date.
Question 4: SIC-32 addresses the recognition of website development costs under IAS 38. During which phase are costs most likely to qualify for capitalization?
- Application and infrastructure development phase (Correct answer)
- Planning phase
- Content population phase for advertising content
- Operating and maintenance phase
Correct answer: Application and infrastructure development phase
SIC-32 allows capitalization during the application and infrastructure development phase when technical feasibility and other IAS 38 criteria are met.
Question 5: Under IFRIC 23, how should an entity account for uncertain tax positions where it is not probable that the tax authority will accept the treatment?
- Reflect the uncertainty by using the most likely amount or expected value method (Correct answer)
- Recognize the full tax liability as if the uncertain position were disallowed
- Disclose the uncertainty but make no adjustment to current tax balances
- Recognize a contingent liability only if the amount exceeds a materiality threshold
Correct answer: Reflect the uncertainty by using the most likely amount or expected value method
IFRIC 23 requires the entity to reflect the effect of the uncertainty using either the most likely amount or the expected value, whichever better predicts the resolution.
Question 6: IFRIC 6 addresses liabilities arising from participating in a specific market—waste electrical and electronic equipment (WEEE). When does the obligating event arise for historical waste under the EU Directive?
- When the manufacturer participates in the market during the measurement period (Correct answer)
- When the consumer disposes of the equipment
- When the original equipment was first sold to the consumer
- When the government issues the waste collection invoice
Correct answer: When the manufacturer participates in the market during the measurement period
IFRIC 6 concluded that market participation during the measurement period is the obligating event for historical household WEEE under the EU Directive.
Question 7: IFRIC 17 addresses distributions of non-cash assets to owners. At what amount should the dividend payable liability be measured on declaration?
- At the fair value of the non-cash assets to be distributed (Correct answer)
- At the carrying amount of the non-cash assets in the entity's books
- At the lower of fair value and carrying amount
- At the historical cost of the assets originally acquired
Correct answer: At the fair value of the non-cash assets to be distributed
IFRIC 17 requires the dividend liability to be recognized at the fair value of the assets to be distributed, with any difference from carrying amount recognized in profit or loss on settlement.
IFRS Interpretations 3
SIC-15 relates to operating leases.
Which incentive given by a lessor to a lessee must be recognized on a straight-line basis over the lease term?