CIMA F2 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Control under IFRS 10

Investor controls investee when it has power over relevant activities, exposure to variable returns, and ability to use power to affect returns. All three elements must be present.

Goodwill formula

Consideration transferred plus NCI plus previously held interest, less fair value of identifiable net assets acquired. NCI may be measured at fair value or proportionate share.

Full goodwill method

NCI measured at fair value, so goodwill includes the NCI share. Results in higher goodwill and higher NCI than the proportionate method at acquisition.

Partial goodwill method

NCI measured at proportionate share of identifiable net assets, so goodwill reflects only the parent's share. Permitted under IFRS but not US GAAP.

Unrealised profit elimination

Intra-group profit on inventory still held is removed from consolidated profit. If the subsidiary is the seller, the NCI share of the adjustment is allocated to NCI.

Significant influence

Power to participate in financial and operating policy decisions without control or joint control. Presumed at 20% or more voting rights unless rebutted.

Equity method

Investment carried at cost plus share of post-acquisition profit and OCI less dividends and impairment. Used for associates and joint ventures under IAS 28.

Joint control

Contractually agreed sharing of control, requiring unanimous consent of the parties sharing control for decisions about relevant activities. Leads to joint venture or joint operation classification.

Closing rate translation

Assets and liabilities of a foreign operation are translated at the closing rate; income and expenses at transaction-date rates, with an average rate permitted if rates do not fluctuate significantly.

Foreign exchange reserve

Exchange differences on translating a foreign operation are recognised in OCI and accumulated in equity. On disposal, the cumulative amount is reclassified to profit or loss.

SPPI test

Contractual cash flows must be solely payments of principal and interest on the principal outstanding. Failure means the asset is measured at fair value through profit or loss.

Expected credit losses

IFRS 9 requires loss allowances based on expected rather than incurred losses. A 12-month allowance applies initially, moving to lifetime for significant credit deterioration.

Effective interest method

Amortised cost is calculated using the rate that discounts estimated future cash flows to the instrument's carrying amount. It allocates interest, fees and transaction costs over the instrument's life.

Compound financial instrument

A convertible bond is split into a liability component (present value of cash flows at market rate) and an equity component (residual). The equity component is not remeasured.

Five-step revenue model

Identify the contract, identify performance obligations, determine transaction price, allocate to obligations by standalone selling price, and recognise revenue when each obligation is satisfied.

Performance obligation

A promise to transfer a distinct good or service to a customer. Distinct means the customer can benefit from it and it is separately identifiable within the contract.

Variable consideration constraint

Variable consideration is included in the transaction price only to the extent it is highly probable that a significant reversal will not occur when uncertainty is resolved.

Over-time revenue recognition

Revenue is recognised over time if the customer receives and consumes benefits, the entity creates an asset the customer controls, or the asset has no alternative use and right to payment exists.

Contract asset and liability

A contract asset arises when revenue recognised exceeds amounts billed; a contract liability when amounts billed exceed revenue recognised. They are presented separately from receivables.

Right-of-use asset

Recognised by lessees at the lease liability amount plus initial direct costs, prepayments and estimated restoration costs, less lease incentives received.

Lease liability measurement

Present value of lease payments not paid at commencement, discounted at the rate implicit in the lease or, if not readily determinable, the lessee's incremental borrowing rate.

Finance lease classification

A lease transferring substantially all risks and rewards of ownership. Indicators include ownership transfer, bargain purchase option, lease term of major part of economic life, or present value close to fair value.

Sale and leaseback

Seller-lessee recognises a right-of-use asset and a gain only to the extent of rights transferred to the buyer-lessor. The retained right is not recognised as a gain.

Deferred tax liability

Recognised on taxable temporary differences, being amounts that will be taxable in future periods when the carrying amount of an asset or liability is recovered or settled.

Deferred tax asset

Recognised on deductible temporary differences and unused tax losses only to the extent it is probable that taxable profit will be available against which they can be used.

Temporary difference

The difference between the carrying amount of an asset or liability and its tax base. It may be taxable or deductible and gives rise to deferred tax.

IAS 37 provisions

A provision is recognised when there is a present obligation from a past event, probable outflow and a reliable estimate. Measured at best estimate, discounted if the effect is material.

Contingent liability

A possible obligation whose existence depends on uncertain future events, or a present obligation that cannot be reliably measured or is not probable. It is disclosed, not recognised.

Impairment of goodwill

Goodwill is not amortised but tested annually for impairment. Impairment is allocated first to goodwill of the cash-generating unit, then pro rata to other assets.

Recoverable amount

The higher of fair value less costs of disposal and value in use. An asset is impaired when its carrying amount exceeds its recoverable amount.

Events after reporting period

Adjusting events provide evidence of conditions at the reporting date and require adjustment. Non-adjusting events are disclosed if material, such as a major business combination after year-end.

Earnings per share

Basic EPS is profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares. Diluted EPS adjusts for potential ordinary shares and their earnings effect.