Summary Class notes - IFRS 1

- IFRS 1
- nvt
- 2016 - 2017
- Universiteit van Amsterdam
- Accountancy and Control
201 Flashcards & Notes
3 Students
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Summary - Class notes - IFRS 1

  • 1473372000 Lecture 1: Introduction to standard setting

  • Waarom zouden we internationale reporting standards willen introduceren?
    - Globalization
    * Je kan bedrijven makkelijker vergelijken
    * Regionale verschillen verdwijnen
    * Cross listings worden makkelijker voor bedrijven. 1 Jaarverslag ipv bv 1 voor AEX, 1 voor DAX en 1 voor DownJones

    - Efficiency
    * Kostenbesparend (1 jaarverslag ipv meerdere)
    * De beste (meest efficiente) bedrijven ontvangen de meeste fundings
    * Lager risico van misleidende informatie, dus lagere cost of capital
  • Welke 2 mogelijkheden zijn er om internationale reorting standards in te voeren?
    - Leave it to the market
    - Leave it to standard setting authorities
  • Wat zal er gebeuren als we de implementatie van de internationale reporting standards aan te markt overlaten?
    - Geen bindende accounting regels
    - Elk bedrijf produceert een informatiebestand dat precies aan zijn reporting standards voldoet.
    - Analysten en gebruikers zullen data kopen (volledige informatie is immers niet publiekelijk beschikbaar)
    - Stakeholders bepalen of een audit nodig is.
  • Wat zijn de tekortkomingen als we het reguleren van IFRS aan de markt overlaten?
    - Accounting information is a public good once disclosed
    - There is a monopoly on firm specific information
    - Asymmetric information bias
    * Bad information not released
    * Good information not always released
    * Underproduction of information

    - Market failure might occur
    - No standardization of financial reporting
  • Welke politieke spelers zijn betrokken bij IFRS? Wat zijn hun belangen?
    Prepares (CFO's)
    - Less volatile income figures
    - More discretion,
    - Less transparency (mainly stems from the compensation system)

    * Financial analysts
    - Uniformity, increased disclosure level (mainly for firm valuation)
    * General Public
    - Increased disclosures
    - Increased auditing
    - Additional information on social and environmental issues (intensity of demands can vary strongly)

    Standard setters
    - Restrictions (less discretion), increased disclosure, comparability
  • Hoe ziet het proces (6) van nieuwe regelgeving bij de IASB eruit?
    1. Setting the agenda 
    IASB considers the issue that should be added to its agenda, new issues might arise

    2. Planning the project
    IASB decides whether to conduct the project alone or together with another standard-setter and sets up a project team

    3. Discussion paper (DP)
    Discussion papers provides a comprehensive overview of the issue, possible approaches in addressing it, preliminary views and an invitation to comment.

    4. Exposure Draft (ED)
    Used as the main vehicle for consulting the public, the exposure draft (ED) ssets out a specific proposal already in the form of a proposed / amended standard. Its development builds on comments received in step (3) and suggestions by several groups. The draft is balloted by the IASB and (again) published for public comments. Potentially, comments can lead to publication of a revised exposure draft.

    5. Standard
    When the IASB is satisfied that it has reaced a conclusion on the issue arising from the exposure draft, it instructs the staff to draft an IFRS.

    6. Post-adoption measures
    IASB members hold regular meetings with interested parties, including other standard-setting bodies, to help understand unanticipated issues related to the practical implementation and potential impact of its proposals
  •  Welke elementen van de financial statements over de Financial Position (balans) worden onderscheiden?
    - Assets
    Resources controlled by the entity as a result of past events and from which future economic benefits are expected

    - Liabilities
    Present obligations of the entity arose from past events; their settlement will lead to an outflow of resources embodying economic benefits

    - Equity      
    The residual interest in the assets of the entity after deducting all its liabilites
  • Welke elementen van de financial statements over de profitability (P&L) worden onderscheiden?
    Represents an increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in liabilities that result in increases in equity

    Represents a decrease in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity.
  • Wat is fair value?
    Marktprijs (mark-to-market)
    Accounting Outputs (mark-to-model) 

    Eigenlijk gewoon de prijs die je ervoor betaald
  • Wat is het conceptueel framework en wat is de doelstelling ervan?
    Het conceptueel framework geeft richting aan de implementatie van IFRS. Het zal IFRS nooit overrulen en aankomen met het argument  "maar ik doe het volgens het conceptueel framework" zal niet helpen.
  • Wat zijn de voor- en nadelen van Rules based en Principle based framework?
    Zie afbeelding
  • Wat zijn de 2 criteria voor recognizen in de Financial Statements?
    Two criteria:

    - Future Benefit: Recognize elements once it is probable that any associated future benefit will flow to or from the entity.

    - Reliability: Recognize element only if cost or any other value can be measured with reliability.
  • Welke manieren van measurement zijn er voor de Financial Statements?
    Zie afbeeldig
  • Wat zijn de Fundamental Qualitative Characteristics van het conceptual framework? (6)
  • Wat is Going Concern?
    Assume that an entity will continue in operation for the foreseeable future when preparing accounts
  • Summing up, Why is the Conceptual Framework important? Welke vragen tracht het te beantwoorden?
    Framework tries to answer the following important questions
    - Who are the users?
    - Which are the users' information needs?
    - What are the objectives of financial reporting?
    - How is the reporting entity defined?
    - How should be measured?
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Afschrijving (lessee)
Depreciation expense 45454
@ accumulated depreciation 4544
Lease payment tweede jaar (lessee)
Lease libility     17558
Interest expense 4442
Executory costs   1900
@ Cash                  23900
Lease payment eerste jaar (lessee

Lease liability     22000
Executory cost    1900
@ Cash                 23900
Start financial lease (lessee)
Leased vehicle  85457
@leased liability 85457
RealDeal sets up a joint arrangement with Technoplan BV. The joint arrangement will be incorporated as a Plc and will be named Techdeal Plc. Techdeal will develop a manufacturing facility for an important component that both RealDeal and Technoplan use in their products. Technoplan and RealDeal will each own 50% and will each take 50% of the output of the facility based on a cost+ pricing arrangement.A.Is Techdeal a joint venture or a joint operation? Explain your answer. (3 marks)B. Explain the differences between the accounting for a joint venture and a joint operation
A.Techdeal is a joint operation since the shareholders have an interest in the underlying facility given that they each take 50% of the output. Also the fact that pricing is cost+ indicates that they do not have an interest in the net profit and net assets but made the investment because of their interest in the underlying output from the facility. 
B.An entity that has an interest in a joint venture recognizes its share in the net equity of the JV and its share in the net profit of the JV on a single line in the balance sheet and single line in the income statement. An entity that has an interest in a joint operation recognizes it share in each of the underlying assets and liabilities, income and expenses.
RealDeal furthermore owns a 100% interest in Moneymaker BV. In order to free up cash, Realdeal disposes a 40% interest but retains control. The book value of the net assets (including goodwill) of Moneymaker amounts to EUR 180 million. Realdeal disposes the 40% interest for a consideration of EUR 100 million.A.Give the journal entry that RealDeal NV should make for this transaction. Explain your answer. (3 marks)
Cash 100
@NCI 72
@Shareholders Equity 28

According to IFRS, when control is not lost the transaction is accounted for as a transaction with shareholders.
RealDeal has a 100% subsidiary named Slowgrow BV. The book value of Slowgrow’s net assets amounts to EUR 150 million and goodwill related to Slowgrow amounts to EUR 50 million. RealDeal decides to dispose a 60% interest in Slowgrow. RealDeal will continue to provide its expertise and will continue to have a board seat in the board of management of Slowgrow. BePatient BV acquires a 60% in Slowgrow and pays EUR 180 million.A.Give the journal entry that RealDeal NV should make for this transaction. Explain your answer.
Cash 180
Associate: 120 (40/60 *180)
@Net assets 160 
@Goodwill 50
@Gain (P/L) 100
According to IFRS, when control is lost, any retained interest (in the associate) is recognized at fair value, in this case 120.
RealDeal also acquires a 33% interest in JointEffort BV. The other two shareholders also each own 33% and are ValueCreation BV and ExecuteNow BV. All relevant decisions are made in the shareholders meeting by simple majority (i.e. more than 50% of the votes are required to make a decision) and a shareholders meeting can be arranged by every shareholder upon a six weeks’ notice. RealDeal furthermore enters into a call option arrangement with ExecuteNow BV. Key terms of the option arrangement are:- The option can be exercised four weeks after a notice has been send to ExecuteNow BV- When the option is exercised, RealDeal can acquire ExecuteNow’s interest in JointEffort BV- The exercise price amounts to the fair value of the 33% interest plus a 5% premium for synergies that RealDeal can achieveQuestion: Is JointEffort a subsidiary, joint venture, associate or a financial instrument under IAS 39 for RealDeal? How should RealDeal account for this interest in JointEffort BV?
RealDeal has substantive potential voting rights. It is exercisable timely enough before decisions are made and the price appears to be such that RealDeal will benefit from exercising. Therefore, JointEffort BV is a subsidiary that must be consolidated by RealDeal.
Most of the acquisitions were paid in cash, but in one transaction RealDeal and the seller agreed on a different structure. Early January, RealDeal started negotiations with JOB BV and on 1 July, RealDeal acquired control over JOB BV. The consideration amounted to:- Amount of EUR 75mln in cash to be paid upfront- 1mln RealDeal shares; and- an amount payable mid-2016 amounting to 50% of RealDeal's average EBITDA in the period  2013-2015.FV of RealDeal share developed through the year as follows:1/1 EUR101/7 EUR1431/12 EUR12   Based on the business plans available at acquisition date, the expected average EBITDA for the period 2013-2015 is EUR 10 million. Given the risk profile, an appropriate discount rate is 10%. A purchase price allocation was performed and the identifiable assets and liabilities were valued at EUR 60 million (net assets).   Question: What is the amount of goodwill that RealDeal should recognize on this transaction? Give your detailed calculation. (5 marks)Question 2:How would the accounting change if the amount based on 2013-2015 EBITDA would be payable to the selling shareholders who stay as management of JOB BV and when their entitlement forfeits when they leave the company before mid-2016? Give the journal entry that is made in 2013 in that case. (3 marks)
Total consideration amounts to:
Cash consideration: 75
Realdeal Shares 1mln*14: 14
Contingent consideration (50%*10/(1,1^3): 3,75
Total consideration: 92,75

FV of identifiable net assets: 60   

Goodwill: 32,75  

Question 2:
In that case, the EBITDA based payment would be considered a payment for employee services which should not be treated as part of the consideration for the business. RealDeal should build up a payable of EUR 5 million (based on the current best estimate) ratably over the 3-year period. Journal entry 2013:

Employee expenses (5/3)/2 0,83
@Liability / accrual 0,83  

(1/2 year entitlement built up in 2013, i.e. 1/6 of the total entitlement)
RealDeal NV is going through a strategic re-orientation. As part of this process it has re-assessed its strategic priorities and made decisions about the acquisition of businesses in areas in which it wants to expand and the disposal of businesses in areas where it believes that growth opportunities are low.RealDeal acted quickly and acquired various subsidiaries in 2013. Due to its limited capacity it made use of various external parties to support the company during the acquisition processes such as legal advisors and M&A advisors who did due diligence for RealDeal.A.How should RealDeal account for these expenditures in the 2013 financial statements?
According to IFRS, transaction costs in relation to a business combination must be recognized in the financial statement.