Ch 2: Other areas of IFRSs
(IAS 10 & IAS 37)
1. IAS 10: Events after the reporting period
1-1 Objective, Scope and Definitions [O]
1-2 Recognition and Measurement [R]
Query: At 26:47 (example 4) the NRV was valued lower than cost on 30th June. Was it not a clear indication of the Adjusting Event?
Response: The writing down of inventory at year end is indication that there was some issue relating to inventory. It may be damage, it may be obsolescence, it may be competitive market situation, etc. However, further damage caused by water spoilage clearly occurred after year end (on 15th August). And because here event is damage from water spoilage and conditions of water spoilage did not exist at year end.
1-3 Q&A Tibet Limited (ICAP Spring 2021) [I]
1-4 Q&A Attock Technologies Limited [O]
1-5 Going Concern [R]
1-6 Disclosure [R]
1-7 Q&A Earley Inc. [O]
2. IAS 37: Definitions and Recognition
2-1 Introduction [O]
2-2 Recognition [R]
Query: In case a Provision does not satisfy the recognition criteria it will not be recognised in the Financial Statements. But can we still call it as a Provision? Similar if the chances of outflow of economic benefit in case of a Continent Liability is remote so it will not be disclosed. But can we still call it as a Contingent Liability.
Response:
1. It might not be appropriate to call it a provision if it does not meet all recognition criteria. If it is not present obligation it is not a liability and would be out of scope of definition (IAS 37 para 10). If it does not meet criteria of of 'probable outflow' and/or 'reliable estimate', it would be contingent liability. According to IAS 37 para 12 "In a general sense, all provisions are contingent because they are uncertain in timing or amount. However, within this Standard the term ‘contingent’ is used for liabilities and assets that are not recognised...."
2. The term contingent liability would still be appropriate. The "remote" criteria is for deciding whether or not to disclose a contingent liability (IAS 37 Para 16, 23, 28 and 86) and it is not part of definition of contingent liability (IAS 37 Para 10).
2-3 Q&A 11 Independent Scenarios [R]
Query: sir scenario 1 mey jo obligation hey wo shayed constructive obligation hy ku k ye unn ki policy hy k wo warranty dety hy our ye un ki past practices bhi hy but ap ney legal obligation kahan hy so kindly confirm ker dey
Response: It is legal obligation as this obligation derived from contract of sale as clearly mentioned in the facts of scenario. According to IAS 37 Para 10, a legal obligation is an obligation that derives from: (a) a contract (through its explicit or implicit terms); (b) legislation; or (c) other operation of law.
3. IAS 37: Measurement, Reimbursement and Changes
3-1 Measurement [O]
3-2 Reimbursement [R]
3-3 Provision Changes and Use [O]
3-4 Q&A Quality Garments Limited (ICAP Autumn 2014) [I]
Query: In question part iii, why no provisions is made to the loss to assets and inventories
Response: Loss on fixed asset is impairment loss (IAS 36 applies). Loss on inventory is write down of inventory (IAS 2 applies). There is no obligation so no provision.
Query: sir in some questios if there is a claim against the entity then we just make provisons of the amount which the lawyer is estimating that is most likely out come just like this question here the best estimate of which we have made the privsin is 30 .... But the remaing amount 65 of which we have disclosed the contigent lianility iam not understanding tjis that in some quesyions we just make provison of best estimate snd the remaing amount is not disclosed as cintigent liability but now in this case you have mafe contigent liability of 65 .. So what is the point how should we can judhe thar here we have to make provison of best estimate i.e most probable amount and here we should just make provisin and do nothing with remaing amount hope now i jave cleared my question. Kindly answer this that when should we disclose the remaing amount as contigent liability and when making provison of the most likely amount told by lawer is enough and we should not make contigent liability of remaining amount thnks it wil be a great favour
Response: If there is claim, we need to focus on three perspectives:
1. Obligation is probable (Provision)
2. Obligation is not-probable but also not-remote (disclose contingent liability)
3. Obligation is remote (do nothing).
In most question, disclosures are not required, so step 2 is ignored. However, it is better to cover all perspectives in the answer.
4. IAS 37: Specific Application
4-1 Specific Application [I]
Query: No. Obligation involves third party. Obligation to plant and machinery would be absurd.
Response: Sir if an entity as practice of repair and maintenance of its assets after every 5 years then won't it be a constructive obligation?
4-2 Q&A Badar [X]
4-3 Q&A Karim Limited (ICAP Spring 2017) [R]
4-4 Turqoise Limited (ICAP Autumn 2019) [I]
4-5 Naba Power Limited (ICAP Autumn 2017) [I]
5. IAS 37: Disclosure
5-1 Disclosure [R]
5-2 Q&A Industrial Chemicals Limited (ICAP Autumn 2015) [I]
5-3 Q&A Multan Petroleum Limited [R]
5-4 Q&A Sahiwal Transformers Limited [O]
6. IFRIC 1: Changes in Existing decommissioning, restoration and similar liabilities
6-1 The IFRIC 1 [I]
Query: Sir, in example 02 - Revaluation Model (Continue to Year 2022), depreciation decrease of 625 was computed by dividing balance in Revaluation PL by useful life of PPE. Which paragraph of IAS 16 guides for such treatment ? I would really be thankful if you gave me the exact reference for such treatment!
As para 41 suggests transfer of surplus to retained earning as asset is used by the entity.is permitted. But, I could not find reference for transfer of surplus in Profit and Loss as depreciation to Profit and Loss account.
Response:
Surplus is never transferred to PL.
No journal entry is processed for depreciation decrease as it would be absurd to transfer loss in profit or loss to profit or loss.
3. We calculate depreciation decrease with depreciation charge as it makes it easier to determine the amount of reversal of loss (if any) in future.
4. The "loss net of depreciation decrease" equals "the maximum loss that can be reversed in PL" in accordance with IAS 36 para 117 to 120.
6-2 Q&A Violet Power Limited [O]
Query: Sir why was the provision increase in violet limited debited to asset but the provision increase in gladiator limited was charged to oci and p&L
Reference: Q&A Violet Power Limited , Q&A Gladiator Limited
Response: The treatment is different for cost model and revaluation model under IFRIC 1.
Q&A Violet Power Limited: Cost Model (clearly mentioned in the video)
Q&A Gladiator Limited: Revaluation model (clearly mentioned in the video)
6-3 Q&A Gladiator Limited [O]
Query: Sir why was the provision increase in violet limited debited to asset but the provision increase in gladiator limited was charged to oci and p&L
Reference: Q&A Violet Power Limited , Q&A Gladiator Limited
Response: The treatment is different for cost model and revaluation model under IFRIC 1.
Q&A Violet Power Limited: Cost Model (clearly mentioned in the video)
Q&A Gladiator Limited: Revaluation model (clearly mentioned in the video)
7. Comprehensive Examples
7-1 Q&A J Mart [O]
7-2 Q&A Wonderland Limited (ICAP Spring 2020) [I]
Query: In zamil limited Separate asset was made for lodge claim and accepted by the vendor after year end in part a. The same type of question is wonderland limited part a where it was agreed by supplier after year end and no separate asset were recognized. I am confused
Response:
In Zamil Limited, claim with vendor was made on 20 December 2014 (i.e. claim existed at year end)
In Wonderland Limited, the issue was raised with supplier on 20 January 2020 (i.e. claim did not exist at year end)
7-3 Q&A Akber Chemicals Ltd [O]
7-4 Q&A Zamil Limited (ICAP Spring 2015) [I]
Query: In zamil limited Separate asset was made for lodge claim and accepted by the vendor after year end in part a. The same type of question is wonderland limited part a where it was agreed by supplier after year end and no separate asset were recognized. I am confused
Response:
In Zamil Limited, claim with vendor was made on 20 December 2014 (i.e. claim existed at year end)
In Wonderland Limited, the issue was raised with supplier on 20 January 2020 (i.e. claim did not exist at year end)
7-5 Q&A Neptune Limited (ICAP Autumn 2016) [I]
7-6 Q&A Sukoon Airlines Limited (ICAP Autumn 2020) [R]
7-7 Q&A Rowsley [O]
7-8 Q&A Melon Limited (ICAP Autumn 2018) [R]
Query: Sir in melon limited part 2 the 1.5 million amount is dependent upon production test as an obligatng event. Since thie obligatory event takes place after year end shouldn't we recognise a contingent asset instead of receivable?
Response: The scenario (ii) is not about obligation so discussion about obligating event is irrelevant. It is about determining amount of sale proceeds on disposal of machinery. Machinery was sold (control transfer) before year end, and production tests just confirmed the condition (that it works) of machine at year end. Apply IAS 10 (IAS 37 is not relevant).
7-9 Q&A Skyline Limited [O]
7-10 Q&A Georgina [O]
Query: Sir in this video by mistake you missed 3rd adjustment.
Response: The third scenario contained error. ICAP removed it from study text and therefore we removed it from this video.
7-11 Q&A 5 Independent Scenarios [O]
7-12 Q&A Walnut Limited [R]
Query: Sir yhan case 1 main koi evidance to nae clearly given k investment ki the us ny year end py agr hum ote lkh dn k if us ny announce wgera kya tha to adjusting na kya ho to non adjusting ho ga
Response: It seems appropriate to assume that conditions existed before year end due to availability of new technology DVDs in market on 15th January (just 15 days after year end).
7-13 Q&A Holwah Automobile Limited (ICAP Autumn 2021) [R]
Query: Sir 1st point main additonal penalty k bhe to conditon exist krte hy na kiun k jb penalty lge ho ge kuch btya ho ga kb tk pay kr skty year end py b to penalty unpaid py yo conditon to exist krte hy na .. Kis basis oy non afjusting hy ki dly bta en yh bht confusing hy
Response: No. It does not. Read question properly. Additional penalty was imposed because first penalty imposed on 10 June was not paid within 40 days. So additional penalty did not exist before 20th July (i.e. 40 days from 10th June).
7-14 Qallat Industries Limited [R]
7-15 Oval Limited (ICAP Spring 2019) [I]
Query: Sir yh 50 percent kiun kren gy recoginze dkhn ol b to liable hy na ahr suuplier fefault krta hy to hmn sub ki krne chye aur 2sry ki to sare mil jte hy to us ki ful kiun kren gy
Response: Because:
1. Question information (i) clearly states that SL will recover 50% of the cost from OL.
2. Liability, if SL defaults, is possible obligation and not present obligation and therefore it does not lead to recognition of provision.
7-16 Bravo Limited [R]
7-17 Waste Management Limited [R]
7-18 Q&A Grateful Industries Limited (ICAP Spring 2022) [R]
7-19 Q&A Cone Motors Limited (ICAP Autumn 2022) [0]
Query: Sir do we also consider IAS 21 in above question and record gain or loss bcs of fluctuation of currency?
Response: In this part of the question there is no data for which gain or loss due to fluctuation of currency may be calcualted. The other part where exchange gain (loss) of foreign currency transactions shall be considered has been covered in separate video: https://www.youtube.com/watch?v=ei4NUnYZrTQ
8. Objective Based Q&A