1. finance
2. accounting and auditing

 IFRS Seminar
Karachi,
Pakistan
November
2014
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Tutor biography
Various courses designed and delivered by
Mike Turner
Abu Dhabi Accountability Authority: -  IFRS / IPSAS – intermediate to advanced.
Allied Command Operations (ACO) Europe: -  IPSAS – intermediate and advanced.
Allied Command Transformation (ACT) United
States: -  IPSAS – intermediate and advanced.
African Development Bank: -  IPSAS and IFRS – intermediate to advanced.
Auditor General of Myanmar: -  IPSAS – introduction to intermediate – focus on
implementation issues.
Association of Certified Chartered
Accountants: -  IFRS – basic to final level exam preparation.
Asian Development Bank:
-  IFRS, US GAAP and COSO Internal Control
Program – intermediate to advanced and
advanced course banking specific. BA Aerospace: -  US GAAP – intermediate
BPP Professional Education: -  IFRS in house and exam based training
courses.
Chartered Accountants Ireland IFRS:
-  Intermediate to advanced and US GAAP
Intermediate to advanced
General Motors Acceptance Corporation
(GMAC):
-  US GAAP – advanced.
Hewlet Packard:
-  US GAAP – advanced.
Institute of Chartered Accountants of England
and Wales (ICAEW) :
-  IFRS Diploma in IFRS – advanced.
ING Bank:
-  IFRS – advanced.
Institute of Chartered Accounts of Nigeria:
-  Train-the-trainer program.
KICPAA ( Cambodian Chartered Accountants):
-  IFRS and IPSAS – intermediate.
Meteor Telecoms Ireland:
-  IFRS – advanced update Telecom specific.
Myanmar Institute of Certified Public
Accountants:
-  IFRS – intermediate to advanced.
NATO School Oberammergau Germany:
-  IPSAS – intermediate and advanced.
River State Government Nigeria:
-  IPSAS – intermediate.
Securities Exchange Nigeria:
-  IFRS – intermediate to advanced.
Samba (Saudi Arabia – previously Citibank):
-  IFRS – update course – advanced issues.
MIKE TURNER, ACA (UK),
CPA (USA), CFA (USA)
comprehensively cover US GAAP
standards and pronouncements.
Mike is a UK Chartered
Accountant, US Certified
Public Accountant and
Certified Financial Analyst
(CFA) and an expert facilitator
specialising in IFRS, US-GAAP
and IPSAS.
Over the past four years, he has
delivered more than 300 training
days training for ICAEW in
Bangladesh (IFRS), Cambodia
(IFRS & IPSAS), Ghana (IFRS),
Nigeria (IFRS), Myanmar (IFRS &
IPSAS), Philippines (US GAAP,
IFRS and COSO control
framework), Sri Lanka (IFRS), and
Tanzania (IFRS & IPSAS).
He has a long track record of
delivering tailor-made training
solutions around the world with
more than 20 years of
experience spanning the Big 4
accounting firms as well as
private and public entities.
Mike is responsible for the
design and development of
various IFRS, IPSAS and US
GAAP training courses around
the world from fundamental to
advanced stages and has
delivered workshops in most
continents and across a wide
range of cultures.
In addition to delivery of training,
he has developed a 6 week IFRS
training program in IFRS under a
World Bank funded project for
ICAEW for the Nigerian SEC in
2013. Each delegate received 30
days training over a 12 month
period, and Mike personally
developed the materials and
questions for his training
experience.
Mike was the co-founder,
course designer, examiner and
facilitator for the US-GAAP
He will provide a blend of technical
knowledge and practical
experience as he himself offers
such a skill set combination that
will be invaluable to the overall
success of the program.
Diploma for Chartered
Accountants Ireland from 2008
to 2010.
He brings not only unparalleled
technical expertise but also a
He also co-authored a
complete set of training
materials in US GAAP.
Delegates on this programme
were experience qualified
accountants that attended 20
days of training to
unique ability to integrate technical
financial accounting and
management issues into the
training environment through
tailored, real-life exercises that
underscore the practicalities of
achieving agreed-upon learning
objectives.
Institute of Chartered Accountants of
Pakistan IFRS Seminar Course Contents
1. IFRS 15 Revenue from Contracts with Customers
2. IFRS 13 Fair Value Measurement and Valuation Techniques
3. IAS 36 Impairment
4. IAS 9 Financial Instruments
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IFRS 15 Revenue from Contracts with
Customers
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1 Institute of Chartered Accountants of
Pakistan IFRS Seminar IFRS 15 Revenue from Contracts with Customers
•  New revenue recognition standard was issued:
IFRS 15 Revenue from Contracts with
Customers and it should fill the gap between
IFRS and US GAAP.
•  You’ll need to apply IFRS 15 for reporting periods
beginning on or after 1 January 2017 (early
application permitted)
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IFRS 15 Revenue from Contracts with Customers
IFRS 15 will replace the following standards and interpretations:
•  IAS 18 Revenue,
•  IAS 11 Construction Contracts
•  SIC 31 Revenue – Barter Transaction Involving Advertising
Services
•  IFRIC 13 Customer Loyalty Programs
•  IFRS 15 Agreements for the Construction of Real Estate and
•  IFRIC 18 Transfer of Assets from Customers
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2 Institute of Chartered Accountants of
Pakistan IFRS Seminar IFRS 15 Revenue from Contracts with Customers
Objective: single, principle-based revenue standard
§  Improve accounting for contracts with customers
-  More robust framework for recognizing revenue
-  Increased comparability across industries & capital
markets
-  Better disclosures
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Scope
Excluded
Included
Lease contracts
All other contracts with
customers
Insurance contracts
including unbundled services
from lease & insurance
contracts
Financial instruments
including financial services fees
that are integral part of effective
interest rate
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3 Institute of Chartered Accountants of
Pakistan IFRS Seminar Core Principle
Core Principle
Recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those
goods or services
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Five-Step Model Framework
Steps to Apply the Core Principle
1. Identify contract(s)
with the customer
2. Identify
performance
obligations
4. Allocate
transaction price
5. Recognize revenue
when performance
obligation is satisfied
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3. Determine
transaction price
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4 Institute of Chartered Accountants of
Pakistan IFRS Seminar Step 1: Identify the Contract(s)
Objective: To identify the bundle of contractual rights and obligations to
which an entity would apply the revenue model
§  Contract Existence—model applies if both parties are committed to perform their
obligations and enforce their rights under the contract
§  Contract combinations—contracts entered into at/near the same time with the
same customer (or related parties) should be combined if one or more of the
following criteria are met
§  The contracts are negotiated as a package with a single commercial objective
§  The amount of consideration to be paid in one contract depends on the price or
performance of the other contract
§  The goods or services promised in the contracts (or some goods or services
promised in the contracts) are a single performance obligation
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Step 1 (cont’d): Identify the Contract(s) Objective: To identify the bundle of contractual rights and obligations to
which an entity would apply the revenue model
§  Contract modifications
§  Account for as a separate contract if distinct goods or services are
added at their standalone selling price
§  Otherwise, reevaluate remaining goods or services in the modified
contract
•  If distinct, account for prospectively
•  If not distinct, account for using cumulative catch-up adjustment
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5 Institute of Chartered Accountants of
Pakistan IFRS Seminar Step 2: Identify Performance Obligation(s) Objective: To identify the promised goods or services that are distinct &
should be accounted for separately
A promise to transfer a good or service (or a bundle of goods or
services) is a performance obligation only if the promised good or
service is distinct
-  The customer can benefit from the good or service on its own or
together with other readily available resources
-  The entity’s promise to transfer goods and services are
separable from other promised goods or services in the contract
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Step 2 (cont’d): ID Separate P.O.’s Indicators that a good or service is distinct within
context of the contract
Organization does
not provide a
significant service
of integrating the
good or service
into a combined
item
(inputs to produce
an output)
The good or
service does not
significantly
modify or
customize other
promised goods
or services
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Purchasing (or not
purchasing) the
good or service
would not
significantly affect
the remainder of
the contract
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6 Institute of Chartered Accountants of
Pakistan IFRS Seminar Step 3: Determine Transaction Price
Objective: To determine amount of consideration that an entity expects to be
entitled in exchange for promised goods or services
§  Variable consideration – estimate using method the entity expects to
better predict the amount of consideration, either:
•  Expected value or most likely amount
§  Time value of money – adjust only if there is a significant financing
component
§  Collectibility – revenue should be measured at the amount of consideration
to which the entity is entitled (i.e. an amount that is not adjusted for
customer credit risk)
•  However, at inception of contract, the expectation of significant credit risk
may indicate the entity is willing to provide a price concession
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Step 3 (cont’d): Constraint on Revenue Objective: Recognize revenue at an amount that would not be subject to
significant revenue reversals that might arise from subsequent changes in the
estimate of the amount of variable consideration to which the entity is entitled
§  Variable consideration: discounts, rebates, refunds, credits, incentives,
bonuses, penalties, contingencies, concessions, etc.
§  Include in the transaction price the minimum amount of variable
consideration the entity determines would not be subject to a significant
revenue reversal
§  Indicators provided to assist an entity in making this determination
§  No circumstances specified for which the minimum amount could be zero
(that is, no exception provided for sales-based royalties and/or other amounts
that are difficult to measure)
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7 Institute of Chartered Accountants of
Pakistan IFRS Seminar Step 4: Allocate Transaction Price
Objective: To allocate to each separate performance obligation the
amount to which the entity expects to be entitled
§  Allocate the transaction price to the separate performance obligations using
the relative standalone selling price method
§  Discounts & contingent consideration should be allocated entirely to one or
more, but not all, performance obligation(s) if
-  The entity regularly sells the goods and services associated with the
performance obligation(s) on a standalone basis at a discount; and
-  The amount of total discount in the contract equals the amount of discount
at which the goods and services in those p.o.’s are sold
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Step 5: Recognize Revenue
Objective: To recognize revenue when (or as) the entity satisfies a
performance obligation by transferring a promised good or service
Performance obligations
satisfied over time
•  A performance obligation is
satisfied over time if one or more
criteria are met (see accompanying
list)
•  Revenue is recognized by
measuring progress towards
complete satisfaction of
performance obligation
•  Identify the appropriate measure of
progress (input or output)
•  Only recognize revenue if can
reasonably measure progress
Criteria
•  Customer receives & consumes the
benefits of entity’s performance as the
entity performs (e.g. cleaning service)
•  Entity’s performance creates or enhances
an asset that the customer controls as the
asset is created or enhanced (e.g. a home
addition)
•  Entity’s performance does not create an
asset with an alternative use to the entity
and the entity has a right to payment for
performance completed to date & it
expects to fulfill the contract as promised
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8 Institute of Chartered Accountants of
Pakistan IFRS Seminar Step 5 (cont’d): Recognize Revenue Objective: To recognize revenue when (or as) the entity satisfies a
performance obligation by transferring a promised good or service
Performance obligations
satisfied at a point in time
•  All other performance obligations
are satisfied at a point in time
•  Revenue is recognized at point in
time when the customer obtains
control of promised asset.
Indicators of control include:
•  a present right to payment
•  legal title
•  physical possession
•  risks and rewards of
ownership
•  customer acceptance
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Onerous Performance Obligations
§  The revenue standard will not include an onerous test
§  Instead, an entity will apply the onerous tests in existing
IFRS or US GAAP
IFRS
Requirements in IAS 37 for onerous contracts
would apply to all contracts with customers
US
GAAP
Existing guidance for recognition of losses will be
retained, including guidance in Subtopic 605-35 for
losses on construction and production contracts
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9 Institute of Chartered Accountants of
Pakistan IFRS Seminar Any questions?
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IFRS 13 Fair Value Measurement
and Valuation Techniques
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10 Institute of Chartered Accountants of
Pakistan IFRS Seminar Key Concept – IFRS 13
•  A fair value measurement assumes that the asset
or liability is exchanged in an orderly transaction
between market participants to sell the asset or
transfer the liability at the measurement date
under current market conditions.
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The Fair Value Hierarchy – IFRS 13
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11 Institute of Chartered Accountants of
Pakistan IFRS Seminar The steps to determine Fair Value under IFRS 13 are
defined below:
•  Step 1:
Determine Unit of Account
•  Step 2:
Determine Potential Markets Based on the
Valuation Premise
»  -Identification of optimal asset group for valuation
•  Step 3:
Determine Markets for Basis of Valuation
-Selection of optimal asset usage for valuation
•  Step 4:
Apply the Appropriate Valuation Technique(s) to
determine Fair Value
-Orderly / Not-orderly
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Financial Financial Repor7ng Repor7ng Determine Unit of account
Step 1 Financial assets and liabili;es Non – financial assets and liabili;es Determine highest and best use (valua7on premise): Standalone Or In combina7on with other assets/liabili7es Valua7on Premise: Standalone Markets
Consider elec7on to value based on net posi7on (group)* Step 2 Access to any poten7al market(s)?
Incorporate perspec7ve of market par7cipants
No Yes Is there a principal market
No Step 3 What is the most advantageous market (value all poten7al markets)
Develop a hypothe7cal (most likely) market
Yes Evaluate valua7on technique(s)
Market approach Step 4 Allocate fair value to unit of account Income approach Cash approach Market par7cipants inputs
Fair
Value
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12 Institute of Chartered Accountants of
Pakistan IFRS Seminar Valuation techniques
Maximise the use of relevant observable inputs and minimising the use
of unobservable inputs
Market approach
uses prices and other relevant information
generated by market transactions involving
identical or similar assets, liabilities or a group of
assets and liabilities
Cost approach
reflects the amount that would be required
currently to replace the service capacity of an
asset i.e. current replacement cost
Income approach
converts future amounts (e.g., cash flows or
income and expenses) to a single current amount
reflecting current market expectations about
those future amounts.
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Any questions?
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13 Institute of Chartered Accountants of
Pakistan IFRS Seminar IAS 36 – Impairment
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Definition
• 
Impairment loss – excess of carrying amount over
recoverable amount
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14 Institute of Chartered Accountants of
Pakistan IFRS Seminar Key stages in the impairment process
Assess whether
there is an indication
that an asset may be
impaired
•  STAGE 1
If there is an
indication of
impairment, then
measure the asset’s
recoverable amount.
•  STAGE 2
Reduce the asset’s
carrying amount to
its recoverable
amount
•  STAGE 3
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Stage 1: Indicators of impairment
There are two sources of impairment indicators:
External Indicators
Internal Indicators
• 
Evidence of obsolescence or
physical damage
• 
Market value has declined
significantly more than expected
• 
Significant adverse changes in
the extent or manner of use of
an asset
• 
Significant adverse changes, in the
technological, market, economic or
legal environment
• 
Evidence of deterioration in
economic performance of an
asset
• 
Increases in market interest rates
during the period
• 
The carrying amount of the net
assets of the reporting entity is
more than its market capitalisation.
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15 Institute of Chartered Accountants of
Pakistan IFRS Seminar Stage 2: Measuring recoverable amount
Recoverable amount =
Higher of
Fair value less
costs to sell
Value in use
The amount obtainable from sale in an
arm’s length transaction less disposal
costs
Present value of cash flows
expected from continuing use
and ultimate disposal.
•  Best evidence is binding sale
agreement
•  Use bid price (where a spread)
•  Less costs to sell
•  Management approved budgets/
forecasts
•  Discount at pre-tax rate
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Calculating the value in use of the asset
Step 2:
Step 1:
Two steps
involved in
calculating the
value in use of an
asset
Estimate the
future cash
inflows and
outflows that are
expected to arise
in relation to the
asset
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Discount the
scheduled cash
flows to arrive at
a present value.
The discount
rate to be used
should be the
risk-free rate of
interest adjusted
to reflect the
risk associated
with the
particular asset
and entity
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16 Institute of Chartered Accountants of
Pakistan IFRS Seminar Stage 3 - Recognising an impairment loss
If the recoverable amount of an asset is less than its
carrying amount, the asset should be reduced to its
recoverable amount.
The difference is an impairment loss.
Where an item has been revalued - impair by reducing
the revaluation reserve
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Recognition of losses
Assets carried at
historical cost
Revalued
assets
Debit
entry
IAS 16
•  First use up B/S
•  then I/S
•  Expense in I/S
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17 Institute of Chartered Accountants of
Pakistan IFRS Seminar Cash generating units
Definition
A cash-generating unit is smallest identifiable group of
assets that generates cash inflows that are largely
independent of the cash inflows of other assets or
groups of assets.
•  The recoverable amount (RA) should be determined on an individual
asset basis as far as possible.
•  If, however, the individual asset does not generate cash flows largely
independent from other
•  assets, then the asset is grouped with other assets to form what is
referred to in IAS 36 as a ‘cash-generating unit’
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Allocation of impairment loss (CGU)
The impairment loss should be allocated in the following
order:
(a)  first, to any goodwill allocated
(b)  to other assets pro-rata
Credit
entry
No asset should be reduced below its recoverable amount
(or 0)
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18 Institute of Chartered Accountants of
Pakistan IFRS Seminar Goodwill
Goodwill will often contribute towards a number of cash-generating units
rather than a single unit.
Goodwill will also be allocated to a group of units for the purpose of
determining carrying amounts.
impairment loss should in the first instance be allocated against the carrying
amount of the goodwill of the group of cash-generating units
If the impairment loss is greater than the carrying amount of the relevant
goodwill, the excess should be allocated to the other non-current assets of
the group of cash-generating units on a pro-rata basis
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After the impairment review
•  Depreciation/amortisation charge is adjusted to allocate
asset’s revised depreciable amount over remaining Useful
Life
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19 Institute of Chartered Accountants of
Pakistan IFRS Seminar Reversals - individual assets
• 
A reversal of an impairment loss is recognised as income
immediately unless the asset is carried at revalued
amount
• 
For a revalued asset any reversal of an impairment loss is
treated as a revaluation increase.
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3 Situations where the recoverable amount
of the asset should be assessed for
impairment annually
Where the entity has intangible assets that have been
identified as having indefinite lives
Where the entity has an intangible asset that is not
yet ready for use
Where goodwill has been recorded as a result of a
business combination
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20 Institute of Chartered Accountants of
Pakistan IFRS Seminar Any questions?
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IFRS 9 – Financial Instruments
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21 Institute of Chartered Accountants of
Pakistan IFRS Seminar IFRS 9 – Financial Instruments
• 
IASB Published the final version of IFRS 9 Financial Instruments in July 2014.
• 
IFRS 9 addresses the so-called ‘own credit’ issue, whereby banks and others
book gains through profit or loss.
• 
The standard also includes an improved hedge accounting model.
• 
IFRS 9 is now complete!
• 
IASB has an active project on accounting for dynamic risk management.
• 
IFRS 9 is effective for annual periods beginning on or after 1 January 2018.
• 
The standard is available for early application.
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IAS 39
Financial assets
Initial measurement
Subsequent
measurement
Loans & receivables
Fixed or determinable payments
Not quoted in an active market
Held to maturity
Fair value
Amortised cost
Long-term
Fixed maturity
Positive intent & ability
Available for sale
Medium to long-term
Sell as and when
At FV through P/L
Short-term
Held for trading
Include transaction
costs
Fair value with gains
& losses to OCI
Fair value
Exclude transaction
costs
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Fair value with gains
& losses to profit or
loss
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22 Institute of Chartered Accountants of
Pakistan IFRS Seminar BUSINESS WITH CONFIDENCE
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Financial Instruments: Expected Credit Losses (July 2014)
•  Simplified approach that uses an 'expected loss' model
•  Applies to all financial assets not measured at fair value
through profit or loss (including lease receivables).
•  Credit losses would be recognised in three stages
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23 Institute of Chartered Accountants of
Pakistan IFRS Seminar BUSINESS WITH CONFIDENCE
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Differences in the FASB/IASB Models
FASB Model
Measurement
approach
IASB Model
A single measurement approach –
measure the loss allowance as the
estimate of all contractual cash flows
not expected to be collected
Initial recognition,
deterioration that is
not significant, or
low credit risk
(stage 1)
Loss allowance as the lifetime
expected credit losses
Significant
deterioration in
credit quality (stage
2) or objective
evidence of
impairment (stage 3)
Accounting for
interest revenue on
non-performing
assets
Dual measurement approach-distinguish
between instruments that have not (stage 1)
and have (stage 2) deteriorated significantly
Loss allowance measured as 12-month
expected credit losses
Loss allowance measured as lifetime
expected credit loss
Interest revenue accrual ceases if it is
not probable that entity would receive
substantially all the principle or
substantially all of interest
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Interest revenue calculated by applying
effective interest rate to the gross carrying
amount (stages 1 & 2) and to the net carrying
amount (stage 3) of the instruments
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48
24 Institute of Chartered Accountants of
Pakistan IFRS Seminar Differences in the FASB/IASB Models (con’t.) FASB - Model
IASB - Model
On Day 1, recognize an estimate of full
expected credit loss
On Day 1, recognize an estimate of a
portion of expected credit loss
No threshold, so no need for a “significant
deterioration” criterion
Remainder of expected credit loss
recognized when threshold reached:
§ 
Estimates updated each period
§ 
Changes flow through current period provision
Threshold is ―significant deteriorationǁ‖
(e.g., deteriorates from Investment Grade to
Non- Investment Grade)
Applicable “stages” and resulting
estimates updated each period
§ 
Changes flow through current period provision
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49
Impairment IAS 39 vs. IFRS 9
IAS 39
IFRS 9
•  Fair Value to P&L
Not required
Not required
•  Amortised Cost
Required
Required
•  Fair Value to OCI
Required
Not required
Recycle losses
No recycling
when impaired
Deemed realized
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25 Institute of Chartered Accountants of
Pakistan IFRS Seminar Questions?
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51
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26 Institute of Chartered Accountants of Pakistan IFRS Seminar Participants Exercises Fair Value Participants’ Exercise 1 Greek Bonds – an investment that went south a few years ago, Greece was facing the possibility of default on their sovereign debt. Prior to their debt restructuring, their bonds were being purchased by hedge fund and opportunistic investors between 20 to 30% of par value. As the German prime minister, Angel Merkel, had made a number of statements that Europe will stand together and Greece will not default to calm the capital markets, this was a key consideration in the potential upside of the bonds being repaid at full. At December 31, prior to the Greek debt restructuring, an entity has a holding of Greek bonds requiring a valuation. Required: Based on general knowledge of the markets (the course tutor may provide more details), consider and discuss if the Greek bonds would be classified based on the hierarchy in IFRS 13 as level one, two or three, with supporting arguments for the level selected. Participants’+Exercise+2+
!
An asset can be sold in two markets. Expected selling price Market specific transaction costs Transportation costs to the market Net amount expected to be received London 120 20 25 75 Scotland 100 10 10 80 Required: a) Discuss the fair value of the asset that can be sold in either London or Scotland. b) Consider if your answer would differ if the product was primarily sold in Scotland. 27 Institute of Chartered Accountants of Pakistan IFRS Seminar Participants’+Exercise+3+
!
Research-­‐it Inc. acquires a research and development (R&D) project in a business combination. The entity does not intend to complete the project. If completed, the project would compete with one of its own projects (to provide the next generation of the entity’s commercialised technology). Instead, the entity intends to hold or lock up the project to prevent its competitors from obtaining access to the technology. Required: Discuss and consider how Research-­‐it Inc. should calculate the fair value of the R&D would be determined in a business combination and any other issues identified. Participants’+Exercise+4+
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Beverage Co acquires land where a factory is located in a business combination. The land is currently being used to for the factory site. The land is in a central city centre that has highly appreciated, and a number of nearby sites have been developed for residential high rise apartments. The fair value of the land as a factory site is $10 million. The fair value of the land and factory is $20 million. If the factory is demolished, it will have a net cost of $2 million net of any scrap proceeds. It is not practical to relocate the factory. The fair value of the land if vacant for residential development is $15 million, excluding rezoning costs. If the land is developed into apartments, the residual land-­‐value (value of the land less the development costs is $25 million, and the value of the land if deducting a normal profit margin for a developer is $17 million (excluding rezoning costs). In order for the land to be converted to residential land, there would be rezoning and legal fees of $1 million. Required: Discuss and consider how the fair value of the land would be determined and any other issues identified. 28 Institute of Chartered Accountants of Pakistan IFRS Seminar Participants Exercises Impairment of Non Current Assets Participants’+Exercise+1+
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Deft Touch Inc. produces generators for use in UPS electrical systems. The generators are manufactured in three production facilities located in Bangalore, Lagos and Johannesburg. The Bangalore facility produces the component “B” and then the final generators are assembled in either the Lagos or Johannesburg facilities – in aggregate, the capacities of the Lagos and Johannesburg facilities are not fully utilized. Deft’s products are sold worldwide from either Lagos or Johannesburg. No restrictions exist for which location can meet an order and is often determined by which facility has the necessary stock on hand. Required: For each of the following cases, what are the cash generating units for Bangalore, Logos and Johannesburg? 1 There is an active market for Bangalore’s product. 2 There is no active market for Bangalore’s product. (© Mike Turner) Participants’+Exercise+2+
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FMCG Co is a manufacturer and has a number of factories around the globe and units of operation. a) The factory in New Mexico produces all shampoos for the US market. There is a dedicated assembly line for the Dandruff Love Me Not Shampoo. b) The factory in New York is equipped with solar panels. The factory uses the power. Consider both scenarios I.
Under US legislation, all surplus renewable energy generated is required by law to be purchased by the local utility company. II.
The solar panels are located in a country where the electric company is not obligated to purchase surplus power, and it is not legal for an entity to sell power to another entity except for the national power company. 29 Institute of Chartered Accountants of Pakistan IFRS Seminar c) In their plant in Africa, they have an independent power plant. Under the laws of the country, it is not allowed to sell power from independent power plants in the country where this power plant is domiciled. d) The corporate offices in Central London have a separate stand-­‐alone building that is a seven story parking lot. With the significant shortage of parking in central London, FMCG would have no problem to rent them out on an individual basis. e) FMCG has recently acquired a major competitor that manufactures detergents. Prior to the end of the reporting period, FMCG has begun a process of integrating this recent acquisition with their existing detergent division. Required: Discuss and suggest the cash generating unit for each of the above scenarios. (© Mike Turner) Participants’+Exercise+3+
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Glen Oaks Chemist Ltd. is located in a small industrial town with two main employers. One of the employers in the shipbuilding industry, has recently significantly reduced its workforce, this being an impairment indicator under IAS 36. The impairment event occurred on 30 June 20X1. The business in its entirety is considered one cash-­‐generating unit. After an impairment review, the value in use of the business was estimated at €12,000, and the net selling prices (after selling costs) are listed below: Carrying value As at 30 June 20X1 Net selling price Inventory 5,000 3,000 Delivery vehicle 7,000 5,000 Computers 3,000 2,500 Leasehold improvements 10,000 0 25,000 10,500 Notes: 1. The selling price of the inventory is how much Mr. Murphy would purchase the inventory for his chemist in a neighbouring town. If Glen Oaks continue in business, 30 Institute of Chartered Accountants of Pakistan IFRS Seminar these products would be sold to retail customers at €6,000, and the selling costs are approximately €2,000. 2. If the assets are sold, the leasehold improvements would have a value of nil and it is unlikely that a buyer of the business can be found to purchase it as a going concern. Required: a) Calculate the amount that the assets of Glen Oaks Chemist ltd should be recorded in the statement of position at 30 June 20X1 if the value in use was $11,000. b) Calculate the amount that the assets of Glen Oaks Chemist ltd should be recorded in the statement of position at 30 June 20X1. (© Mike Turner) 31 Institute of Chartered Accountants of Pakistan IFRS Seminar 32