試題回顧，ACCA考試《公司報告P2》知識輔導4

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　　RELEVANT TO ACCA QUALIFICATION PAPER P2

　　Provisions

　　The Paper P2 examiner often features one question per exam that focuses on a single International Financial Reporting Standard （IFRS）。 But be warned – while these questions take their lead from a single IFRS, the examiner also brings in other issues from other IFRS.

　　The December 2010 exam included a share-based payment question called Margie. Before that, in the December 2009 exam, there was a question on impairment and, in June 2009, another on financial instruments.In the last exam, the Margie question was not just about share-based payment.It also included financial instruments, fair value and simple share issues. Also,the question was highly analytical. There were few marks for regurgitation of knowledge. The bulk of the marks were reserved for analysis.So to give you an idea of how these questions work, and to revisit a subject that has not been the subject of focus for a while, I am going to resurrect an old Paper P2 question called Satellite. It is a focus question that looks at provisions, but also has plenty of other accounting issues to consider. Of course, I have had to change the question slightly to bring it up to date.The purpose of this article is to give you a feel as to how to tackle such questions.

　　Satellite

　　Satellite, a public limited company, has produced draft consolidated financial

　　statements as at 30 November. The group accountant has asked your advice

　　on several matters. These issues are set out below and have not been dealt

　　with in the draft group financial statements:

　　1 Satellite has buildings under an operating lease. A requirement of the

　　operating lease for the corporate offices is that the asset is returned in

　　good condition. The operating lease was signed in the current year and

　　lasts for six years. Satellite intends to refurbish the building in six years’

　　time at a cost of $6m in order to meet the requirements of the lease.

　　This amount includes the cost of renovating the exterior of the building

　　and is based on current price levels. Currently, there is evidence that due

　　to severe and exceptional weather damage the company will have to

　　spend $1.2m in the next year on having the exterior of the building

　　renovated. The company feels that this expenditure will reduce the

　　refurbishment cost at the end of the lease by an equivalent amount.

　　There is no provision for the above expenditure in the financial

　　statements. （3 marks）

　　2PROVISIONS

　　APRIL 2011

　　2 An 80% owned subsidiary company, Universe, has a leasehold property

　?。╤istorical cost $8m, acquired at the year start）。 It has been modified to

　　include a sports facility for the employees. Under the terms of the lease,

　　the warehouse must be restored to its original state when the lease

　　expires in 10 years’ time or earlier termination. The present value of the

　　costs of reinstatement are likely to be $2m measured at the year start

　　and the directors wish to provide for $200,000 per annum for 10 years.

　　The lease was signed and operated from the current year start and the

　　modifications occurred immediately after. The directors estimate that

　　the lease has a recoverable value of $9.5m at 30 November year-end and

　　have not provided for any of the above amounts. （9 marks）　3 Additionally, Satellite owns buildings at a carrying value of $20m, which

　　will require repair expenditure of approximately $6m over the next five

　　years. No provision has been made for this amount in the financial

　　statements and depreciation is charged on leasehold buildings at 10%

　　per annum and on owned buildings at 5% per annum, on the straightline

　　basis. （3 marks）

　　4 Universe has developed a database during the year to 30 November and

　　it is included in intangible non-current assets at a cost of $3m. The asset

　　comprises the internal and external costs of developing the database.

　　The cost of such intangible assets is amortised over five years and one

　　year’s amortisation has been charged. The database is used to produce

　　a technical accounting manual, which is used by the whole group and

　　sold to other parties. Net revenue of $2m is expected from sales of the

　　manual over its four-year life. It has quickly become a market leader in

　　this field. Any costs of maintaining the database and the technical

　　manual are written off as incurred. The technical manual requires

　　substantial revision every four years. Therefore, Universe is considering

　　providing for the cost of revision. （2 marks）

　　5 Satellite purchased a wholly owned subsidiary company, Globe, on 1

　　December, at the prior year start. The vendors commenced a legal action

　　on 31 March during the current year over the amount of the purchase

　　consideration, which was based on the performance of the subsidiary. An

　　amount had been paid to the vendors and included in the calculation of

　　goodwill but the vendors disputed the amount of this payment. The court

　　made a decision on 30 November at the current year-end that requires

　　Satellite to pay an additional $8m to the vendors within three months.

　　The directors do not know how to treat the additional purchase

　　consideration and have not accounted for the item. （3 marks）

　　3PROVISIONS

　　APRIL 2011

　　Required

　?。╝） Discuss the recognition criteria for the recognition of a provision （IAS

　　37）。 （5 marks）

　　（b） Discuss how the above five issues should be dealt with in the group

　　financial statements of Satellite. （20 marks）

　?。═otal: 25 marks）

　　Possible answer

　　The marking guide was based on the usual one mark per idea well expressed.

　　So the following would look good on a marker’s screen.

　?。╝）

　　Three

　　There are three recognition criteria.

　　Reasonably reliable estimate

　　It must be possible to make a reasonably reliable estimate of the outflow that

　　will result from the obligation before a provision is permitted.

　　Obligation

　　There must be a present legal or constructive obligation at the year-end before

　　a provision is permitted.

　　Transfer

　　There must be an expectation that economic benefit will flow out in the future

　　as a result of the obligation.

　　Comment

　　Frankly, the IAS argues it is always possible to estimate the outflow and it is

　　very rare for a transfer out to be avoidable. So, in practice, the accountant can

　　focus purely on the obligation criteria.

　　Framework

　　Perhaps it should be noted how the above closely follows the focus of the

　　framework on assets and liabilities. The framework also defines a liability in

　　terms of present obligations.4PROVISIONS

　　APRIL 2011

　　1 Operating lease

　　Actually, it is irrelevant whether the above is operating or finance lease in the

　　context of analysing related provisions. Either type of lease creates an

　　obligation.

　　Present obligation

　　But the trick here is to spot the present obligation. Satellite does have a

　　present obligation for the damage done during the tenure （$1.2m） but not for

　　the damage that might be done in the future （maybe $4.8m）。

　　Conclusion

　　So Satellite should provide $1.2m and should probably recognise the charge to

　　the p/l as super-exceptional on the face of the income statement given its

　　unusual nature.

　　2 Universe

　　First we must eye this problem form the perspective of the subsidiary. It is the

　　subsidiary that will be putting through the double entry. Then we can look at

　　the effect on the group.

　　Modification

　　The key term in this paragraph is ‘modify’。 We can see that Universe already

　　has made the modifications and therefore has a present obligation as a result

　　of this past obliging event.

　　Provision

　　So a provision is required for the cost of restoration. The provision is required

　　at the point of modification. The modification occurred at the year start.

　　Measurement

　　However, the restoration will not take place until the end of the lease; so the

　　time value of money must be considered. But we need to be careful here, as

　　the $2m is already discounted.

　　Double entry

　　So the year start double entry is:

　　Dr Non-current asset $2m

　　Cr Provision $2m

　　5

　　PROVISIONS

　　APRIL 2011

　　? 2011 ACCA

　　Non-current asset

　　In fact, the above non-current asset entry goes on top of the initial premium:

　　Premium $8m

　　Restoration $2m

　　_____

　　Initial cost $10m

　　Depreciation

　　Then, of course, the above is depreciated over its life, which is 10 years.

　　Depreciation double entry

　　This is the same every year:　Dr i/s $1m

　　Cr NCA $1m

　　Unwinding

　　And, of course, quite separately the liability unwinds. The scenario does not tell

　　us the discount rate, so I have assumed 10%.

　　Unwinding double entry

　　This snowballs every year （grows exponentially）， but the first year journal would

　　be as follows:

　　Dr i/s $0.2m

　　Cr Prov （$2m）（10%） $0.2m

　　Impairment test

　　There is even data for an impairment test. However, there is no impairment as

　　the carrying value of the asset at the year-end （$9m） is less than the

　　recoverable value （$9.5m）。

　　Group effect

　　The above double entry will be accommodated by the sub. However, because

　　this is a partially owned sub, the group/non-controlling interest effect will be

　　80%/20%.

　　3 Repairs

　　There appears to be no obligation for the repairs. Just an intent to repair

　　sometime in the future.

　　Conclusion

　　So I suggest there can be no provision for the repairs.

　　6

　　PROVISIONS

　　APRIL 2011

　　? 2011 ACCA

　　Depreciation

　　Buildings should be depreciated over their useful lives regardless of being

　　owned or otherwise.

　　4 Intangible

　　An intangible is recognised if it is purchased. Also, development is recognised

　　if it is recoverable. It sounds like the external costs are the former and the

　　internal costs are the latter.

　　Conclusion

　　So it appears to be reasonable to capitalise and depreciate the asset.

　　However, I would advise Satellite to adjust the life down to four years, as that

　　appears to be more realistic. Also, there is no obligation to revise. So no

　　provision is possible.

　　5 Goodwill

　　Clearly, if Satellite had predicted the extra $8m, it would have put it in the

　　consideration and the acquisition goodwill would have been higher.

　　Prior period adjustment （PPA）

　　But the only way to adjust last year’s goodwill is via a PPA （restatement）。 This

　　is only permissible if the $8m is a material error. But to me it sounds like a

　　change in an estimate. So the $8m will simply have to be costed to the i/s.

　　IFRS 3

　　IFRS 3 supports this view, by giving a 12 months’ limit on playing with goodwill

　　after acquisition.

　　Conclusion

　　I hope the above gave you a feel for how you can think about addressing a

　　focus question and how to address wider issues so that you can broaden your

　　analysis.

　　Martin Jones is a lecturer at the London School of Business and Finance

　　小編寄語：成功的人是跟別人學習經(jīng)驗，失敗的人只跟自己學習經(jīng)驗。