© 2011 ifrs foundation 1 the ifrs for smes topic 3.4 quiz and discussion liabilities sections 20,...

© 2011 IFRS Foundation

1The IFRS for SMEs

Topic 3.4

Quiz and Discussion

Liabilities

Sections 20, 21 & 28


2

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3Section 20 – Discussion questions

Question 1: 10-year non‑cancellable operating lease over a building. Lease rentals for years 1–5 = 0 & CU5,000 for each of years 6–10.

In Y1 the lessee must recognise expense of:

a. CU0?b. CU2,000?c. CU2,500?d. CU5,000?


4Section 20 – Discussion questionsQuestion 2: On 1/1/20X1 A sold a machine to a bank & leased it back for 3 yrs. Facts about the machine & the leaseback: SP = CU200,000; CA = CU70,000; FV = CU200,000; remaining economic life = 3 yrs; residual value = 0; lease payments = CU77,606 per year (payable in arrears); interest rate implicit in the lease = 8% per year.

What would A recognise in profit or loss for the year ended 31/12/20X1?


5Section 20 – Discussion questionsQuestion 2 continued:a. CU130,000 gain on sale of PP&E &

CU77,606 lease rental expense.b. CU23,333 depreciation expense &

CU16,000 finance cost (no income). c. CU43,333 income (amortised deferred

gain on sale of PP&E); CU23,333 depreciation expense; & CU16,000 finance cost.

d. CU43,333 income (amortised deferred gain on sale of PP&E); CU66,667 depreciation expense; & CU16,000 finance cost.



Question 3: Same as question 2, except the remaining economic life of the machine = 30 years & the lease rental = CU23,000 per year of the three‑year lease term.

What would A recognise in profit or loss for the year ended 31/12/20X1?


7Section 20 – Discussion questionsQuestion 3 continued:a. CU130,000 gain on sale of PP&E &

CU23,000 lease rental expense.b. CU23,333 depreciation expense &

CU16,000 finance cost (no income). c. CU43,333 income (amortised deferred

gain on sale of PP&E); CU23,333 depreciation expense; & CU16,000 finance cost.

d. CU43,333 income (amortised deferred gain on sale of PP&E); CU66,667 depreciation expense; & CU16,000 finance cost.


8Section 21 – Discussion questionsQuestion 3*: Provisions are measured at the best estimate of the amount required to settle the obligation at the reporting date. When the provision involves a large population of items, the estimate of the amount:

a. reflects the weighting of all possible outcomes by their associated probabilities?

b. is determined to be the individual most likely outcome?

c. is the individual most likely outcome adjusted to consider the other possible outcomes?

* see question 3 in Module 21 of the IFRS Foundation training material


9Section 21 – Discussion questionsQuestion 4*: Provisions are measured at the best estimate of the amount required to settle the obligation at the reporting date. When the provision arises from a single obligation, the estimate of the amount:

a. reflects the weighting of all possible outcomes by their associated probabilities?

b. is determined to be the individual most likely outcome?

c. is the individual most likely outcome adjusted to consider the other possible outcomes?



10Section 21 – Discussion questionsQuestion 6*: A is defending a patent infringement lawsuit. Court is expected to rule in 12/20X2. 30% chance court will dismiss the case. If not, 20% chance A pays CU200,000 & 80% chance pay CU100,000.

A 7% risk adjustment factor to the probability-weighted expected cash flows to reflect the uncertainties in the cash flow estimates.



11Section 21 – Discussion questionsQuestion 6 continued:

An appropriate discount rate is 10% per year.

At 31/12/20X1 A recognise a provision of?

a. 0?b. CU100,000?c. CU84,000?d. CU89,880? e. CU81,709?



Question 7*: Same as question 6 except, disclosure of some of the information about the case can be expected to prejudice seriously A’s position in the dispute over the alleged breach of patent.

At 31 December 20X1, A would:



13Section 21 – Discussion questionsQuestion 7 continued:a. not recognise a provision. Disclose the

general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed?

b. recognise a provision measured at the best estimate & disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed.

c. recognise a provision measured at the best estimate & disclose the information required by paragraphs 21.14–21.16.


14Section 28 – Discussion questionsQuestion 2*: A’s employees are each entitled to 20 days of paid holiday leave per calendar year. Unused holiday leave cannot be carried forward and does not vest. The entity has a 31 December annual reporting date. The holiday leave is:

a. a short‑term employee benefit?b. a post‑employment benefit?c. an other long‑term employee benefit? d. a termination benefit?* see question 2 in Module 28 of the IFRS Foundation training material


15Section 28 – Discussion questionsQuestion 3*: Same as question 2, except unused holiday leave is paid out on 31 December of each year (ie it vests at the end of each calendar year but does not accumulate). The holiday leave is:



16Section 28 – Discussion questionsQuestion 4*: Same as question 2, except unused holiday leave may be carried forward for one calendar year (ie it accumulates but does not vest).

The holiday leave is:



17Section 28 – Discussion questionsQuestion 5*: Same as question 2, except unused holiday leave may be carried forward for two calendar years (ie it accumulates but does not vest).

The holiday leave is:

a. a short‑term employee benefit?b. a post‑employment benefit?c. an other long‑term employee benefit? d. a termination benefit?



18Section 28 – Discussion questionsQuestion 7*: A publicly announces its commitment to a voluntary redundancy plan. It has an obligation to pay a lumpsum to employees that elect redundancy.

The obligation is:




Question 8*: A reimburses 50% of past employees’ post-employment medical costs if the employee provides +25 years of service.

The obligation is:



20Section 28 – Discussion questionsQuestion 9*: A profit sharing plan requires A pay a specified portion of its cumulative profit for a 5-year period to employees who serve throughout the 5-year period.

The obligation is:

a. a short‑term employee benefit?b. a post‑employment benefit?c. an other long‑term employee benefit? d. a termination benefit?


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