EL5363/EE136 Midterm Exam 1 (A)
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6. More measurement guidance. IFRS 2 requires the
fair value of equity instruments
granted to be based on market prices, if available, and to
take into account the terms
and conditions upon which those equity instruments were
granted. In the absence of
credit crunch, following on from an initiative built around its
sharesave scheme last year.
Maria Strid, head of reward, says: We feel it is important to
keep investment in financial education
high. The companys intranet site is also used for updating
Great Mountain Estates Limited had purchased 90% of the
ordinary share capital of this subsidiary
on 1 April 1997 for Sh.28 million when the fair value and the
carrying value of the net assets were
Sh.20 million. The
Vested employee benefits are employee benefits that
are not conditional on future
The present value of a defined benefit obligation is
the present value, without deducting any
plan assets, of expected future payments required to settle
Profit and Loss A/c
Profit and Loss A/c
3.1.5 TAX LOSSES
A loss for tax purposes which is available to relieve future
profits from tax constitutes a
The balance sheet
In the balance sheet, the amount recognised as a defined
benefit liability (which may be a
negative amount, i.e. an asset) should be the total of the
a) The present value of the defined obligation at the
Corporation tax is the tax payable by a company as a
result of generating profits from trading.
A D VA N C E D 1 4 4 FINANCIAL REPORTING
Deferred tax is the corporation tax that is likely to be
incurred on the activities of a company
during a pa
described in IAS 1 Presentation of Financial
Statements see chapter 3 of this guide), it must
apply IAS 1 in full. If an entity presents a condensed set of
financial statements for interim
reporting purposes, IAS 1.4 contains the following guidance.
accounting policy - IAS8.
iv. The tax effects, if any, related to assets that have been
revalued to amounts in excess
of historical cost or previous revaluation.
v. The following items in respect to tax losses should be
The amount of the tax s
d) The discount rate applied is 10%pa
Calculate the amounts chargeable to each of years 20 x 1 to
20 x 5 and the closing obligation
each year, assuming no change in actuarial assumptions.
Since his salary in 20 X 1 is Sh.10,000, his sala
A past service cost may be in respect of either current
employees or past employee. IAS 19
has introduced a different accounting treatment for past
service cost, according to whether they
relate to current employees or past employees.
a) For current
returns over the entire life of the obligation.
The following accounting treatment is required:
In the income statement, an expected return on fund
assets of Sh.117,500 will be
recognised, together with an actuarial gain of Sh.2,500
divided by the expect
Total assets 809.50
Ordinary share capital 400.00
Foreign exchange reserve 20.44
Retained profit 184.96
ACCOUNTING FOR GROUPS
A D VA N C E D 5 0 FINANCIAL REPORTING
is KSh 2,000,000 in each of the four years and there are no
other timing differences.
No capital expenditure takes place in 1993, 1994 or 1995.
Assuming deferred tax is to be provided in full, the
calculations are as follows.
State the required accounting for the unused holiday carried
The short-term accumulating compensated absences should
be recognised as a cost in the year
when the entitlement arises, i.e. in 20 x 9.
Profit sharing or bonus plans
v. It provides the post-tax profits that can be used to assess
a suitable dividend
3.1.3 THE BASIS OF DEFERRED TAXATION
From the accountants viewpoint there are two
quite distinct profit figures:
(a) Accounting profit - that is the profit rep
actuarial assumptions, before determining the effect of
curtailment or settlement.
Hossan Co. discontinued a business segment. Employees of
the discontinued segment will
earn no further benefits (i.e. this is a curtailment without a
are introduced or improved) or negative (where existing
benefits are reduced).
PAST PAPER ANALYSIS
Corporation tax was tested in the following examinations:
Deferred tax was tested in the following examinations:
and liabilities acquired and the effect of revaluing assets and
liabilities acquired and the effect of
revaluing assets for accounting purposes.
The full provision method is based on the view that
every transaction has a tax consequence
and it is possible
In general, the following conditions must be met for an asset
(or 'disposal group') to be classified as held for sale:
(i) management is committed to a plan to sell
(ii) the asset is available for immediate sale
(iii) an active programme to locate a buyer
assumption is made about future employee turnover, salary
rises, mortality rates, and
c) Actual returns on plan assets differ from expected
Since actuarial assumptions are rarely going to be exact,
some actuarial gains or losses are
The expected return on the plan assets, which is an
actuarial assumption, and
The actual return made by the plan assets in a financial
The expected return on the plan assets is a component
element in the income statement, not
the actual returns.
(10 options each) on 1 January 20X5. These options vest at
the end of a three-year period. The
company has determined that each option has a fair value at
the date of grant equal to 15. The
company expects that all 100 options will vest and therefore
the liability should therefore be recognised now. To estimate
these future obligations, it
is necessary to use actuarial assumptions.
b) The obligations payable in future years should be valued,
by discounting, on a present
value basis. This is because th
When the cost of employee benefits should be recognised
as a liability or an expense.
The amount of the liability or expense that should be
As a basic rule, the standard states the following:
1. A liability should be recognised when an emplo
amount. IAS 12 requires that the tax payable should be
shown as a separate item in the income
statement and referred to as income tax expense. If part of
the amount is unpaid by the year end
then it should be shown in the balance sheet as a current
o Paid maternity/Paternity leave
o Profit shares and bonuses paid within 12 months of the
o Paid jury service
o Paid military service
o Non-monetary benefits, e.g. medical care, cars, free goods.
(ii) Post employment benefits e.g. Pensions and po