Financial Accounting and Reporting: IFRS Measurement and Presentation
Financial Accounting and Reporting tests whether you can apply the IASB Conceptual Framework and IFRS Standards to prepare, present and interpret general-purpose financial statements. Most marks come from a measurement computation, a journal entry, or a defensible judgement on recognition and disclosure - not from definitions.
Core recognition and measurement rules
- An element is recognised when a future economic benefit is probable and can be measured reliably; IAS 1 adds fair presentation, going concern, accrual, materiality, consistency and comparatives.
- IAS 16: property, plant and equipment at cost less accumulated depreciation and impairment; the depreciation method must reflect the consumption pattern, and residual value and useful life are reviewed at least annually.
- IAS 36: recoverable amount is the higher of fair value less costs of disposal and value in use. A goodwill impairment is never reversed; other reversals are capped at the carrying amount that would have existed without the prior impairment.
- IFRS 15 five steps: identify the contract, identify performance obligations, determine the transaction price (constraining variable consideration), allocate to obligations, recognise when control transfers (over time or at a point).
- IFRS 16 lessee: a single model - right-of-use asset and lease liability at the present value of lease payments, then depreciation plus interest.
Worked example
A three-year lease requires 10,000 at the end of each year; the incremental borrowing rate is 8% (annuity factor 2.5771). Initial liability and right-of-use asset = 10,000 × 2.5771 = 25,771. Year 1 depreciation = 25,771 ÷ 3 = 8,590. Year 1 interest = 25,771 × 8% = 2,062. Closing liability = 25,771 + 2,062 − 10,000 = 17,833. Total year-1 expense of 10,652 exceeds the 10,000 cash paid: the expense is front-loaded by the interest method.
Traps that cost marks
- Applying the old IAS 17 operating/finance lease split to a lessee; the short-term (12 months or less) and low-value exemptions are elections, not defaults.
- Reporting revenue gross when the entity is an agent; the principal controls the good or service before transfer.
- Reversing goodwill impairment, or measuring impairment before checking the asset group for internal indicators.