The International Accounting Standards Committee Foundation

Topics: Balance sheet, 2008, Generally Accepted Accounting Principles Pages: 230 (27917 words) Published: October 24, 2014
REVISION QUESTION BANK – FINANCIAL REPORTING (F7)
Question 1 IASCF
Historically financial reporting throughout the world has differed widely. The International Accounting Standards Committee Foundation (IASCF) is committed to developing, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements. The various pronouncements of the IASCF are sometimes collectively referred to as International Financial Reporting Standards (IFRS) GAAP.

Required:
(a)

Describe the functions of the various internal bodies of the IASCF, and how the IASCF interrelates with other national standard setters.
(10 marks)

(b)

Describe the IASCF’s standard setting process including how standards are produced, enforced and occasionally supplemented.
(10 marks)

(c)

Comment on whether you feel the move to date towards global accounting standards has been successful.
(5 marks)
(25 marks)

Question 2 SUBSTANCE OVER FORM
The overriding requirement of a company’s financial statements is that they should represent faithfully the underlying transactions and other events that have occurred. To achieve this transactions have to be accounted for in terms of their “substance” or economic reality rather than their legal form. This principle is included in the IASBs “Framework for the Preparation and Presentation of Financial Statements”, and is also used in many standards, in particular IAS 17 “Leases” and IAS 18 “Revenue”. Required:

(a)

Describe why it is important that substance rather than legal form is used to account for transactions, and describe how financial statements can be adversely affected if the substance of transactions is not recorded.

(5 marks)

(b)

Describe, using an example, how the following features may indicate that the substance of a transaction is different from its legal form:
(i)
(ii)
(iii)

(c)

separation of ownership from beneficial use;
the linking of transactions including the use of option clauses; when an asset is sold at a price that differs to its fair value.

(9 marks)

On 1 April 2008 Forest had an inventory of cut seasoning timber which had cost $12 million two years ago. Due to shortages of this quality of timber its value at 1 April 2008 had risen to $20 million. It will be a further three years before this timber is sold to a manufacturer of high-class furniture. On 1 April 2008 Forest entered into an arrangement to sell Barret Bank the timber for $15 million. Forest has an option to buy back the timber at any time within the next three years at a cost of $15 million plus accumulated interest at 2% per annum above the base rate. This will be charged from the date of the original sale. The base rate for the period of the transactions is expected to be 8%. Forest intends to buy back the timber on 31 March 2011 and sell it the same day for an expected price of $25 million. Note: Ignore any storage costs and capitalisation of interest that may relate to inventories.

1

FINANCIAL REPORTING (F7) – REVISION QUESTION BANK
Required:
Assuming the above transactions take place as expected, prepare extracts to reflect the transactions in the statement of comprehensive income for the years to 31 March 2009, 2010 and 2011 and the statement of financial position (ignore cash) at those year ends: (i)

(ii)

if Forest treated the transactions in their legal form; and
if the substance of the transactions is recorded.

Comment briefly on your answer to (c) above.

(11 marks)
(25 marks)

Question 3 PETERLEE
(a)

The IASB’s Framework for the preparation and presentation of financial statements (Framework) sets out the concepts that underlie the preparation and presentation of financial statements that external users are likely to rely on when making economic decisions about an entity.

Required:
Explain the purpose and authrioritative...
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