ACCA

Strategic Business
Reporting
(International)
Mock Examination 1
Questions

Time allowed 3 hours 15 minutes

This exam is divided into two sections

Section A BOTH questions are compulsory and MUST be attempted

Section B BOTH questions are compulsory and MUST be attempted

DO NOT OPEN THIS EXAM UNTIL YOU ARE READY TO START

UNDER EXAMINATION CONDITIONS

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Section A - BOTH questions are compulsory and MUST
be attempted
1 Joey
Joey, a public limited company, operates in the media sector. Joey has two subsidiaries: Margy
and Hulty.
The following exhibits provide information relevant to the question.
Exhibit 1 - Draft statements of financial position
The draft statements of financial position at 30 November 20X 4- are as follows:
Joey Margy Hulty
$m $m $m
Assets
Non -current assets
Property, plant and equipment 3,295 2,000 1,200
Investments in subsidiaries
Margy 1,675
Hulty 700
5,670 2,000 1,200

Current assets 985 861 150

Total assets 6,655 2,861 1,350
Equity and liabilities
Share capital 850 1,020 600
Retained earnings 3,340 980 350
Other components of equity 250 80 40
Total equity 4M0 2 080
, 990

Total liabilities 2,215 781 360

Total equity and liabilities 6,655 2,861 1,350

Exhibit 2 - Acquisition of Margy

On 1 December 20X1, Joey acquired 30% of the ordinary shares of Margy for a cash
consideration of $600 million when the fair value of Margy ’s identifiable net assets was $1,840
million. Joey has equity accounted for Margy up to 30 November 20X3. Joey ’s share of Margy ’s
undistributed profit amounted to $90 million and its share of a revaluation gain amounted to $10
million for the period 1 December 20 X1 to 30 November 20X 3.
On 1 December 20X 3, Joey acquired a further 40% of the ordinary shares of Margy for a cash
consideration of $975 million and gained control of the company. The cash consideration paid
has been added to the equity accounted balance for Margy at 1 December 20X3 to give the
carrying amount at 30 November 20 X 4.
At 1 December 20X 3, the fair value of Margy’s identifiable net assets was $2,250 million. The
excess of the fair value of the net assets over their carrying amount at that date is due to an
increase in the value of non-depreciable land and a contingent liability. At 1 December 20X 3,
the fair value of the equity interest in Margy held by Joey before the business combination was
$705 million and the fair value of the non-controlling interest of 30% was assessed as $620
million. The retained earnings and other components of equity of Margy at 1 December 20 X 3 were
$900 million and $70 million respectively. It is group policy to measure the non-controlling interest
at fair value. The goodwill that arises the acquisition of Margy has been tested for impairment
and is not considered impaired.

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Mock exam 1: Questions 281
Contingent liability
On 1 December 20X 3, Joey included in the fair value of Margy ’s identifiable net assets, an
unrecognised contingent liability with a fair value of $6 million in respect of a warranty claim in
progress against Margy, considered to have been measured reliably. In March 20 X 4, there was a
revision of the estimate of the liability to $ 5 million. The amount has met the criteria to be
recognised as a provision in current liabilities in the financial statements of Margy and the
revision of the estimate is deemed to be a measurement period adjustment.
Fair value of buildings
Buildings with a carrying amount of $200 million had been included in the fair value of Margy 's
identifiable net assets at 1 December 20X 3. The buildings have a remaining useful life of 20 years
at 1 December 20 X3 and are depreciated on the straight -line basis. However, Joey had
commissioned an independent valuation of the buildings of Margy which was not complete at 1
December 20X 3 and therefore not considered in the fair value of the identifiable net assets at the
acquisition date. The valuations were received on 1 April 20 X 4- and resulted in a decrease of
$ 40 million in the fair value of property, plant and equipment at the date of acquisition. This
decrease does not affect the fair value of the non-controlling interest at acquisition and has not
been entered into the financial statements of Margy.
Exhibit 3 - Acquisition of Hulty
On 1 December 20X 3, Joey acquired 80% of the equity interests of Hulty, a private entity, in
exchange for cash of $700 million, gaining control of Hulty from that date. Because the former
owners of Hulty needed to dispose of the investment quickly, they did not have sufficient time to
market the investment to many potential buyers. The fair value of the identifiable net assets was
$960 million. Joey determined that the fair value of the 20% non-controlling interest in Hulty at
that date was $250 million. Joey reviewed the procedures used to identify and measure the
assets acquired and liabilities assumed and to measure the fair value of both the non-controlling
interest and the consideration transferred. After that review, Hulty determined that the
procedures and resulting measures were appropriate. The retained earnings and other
components of equity of Hulty at 1 December 20X 3 were $300 million and $ 40 million
respectively. The excess in fair value is due to an unrecognised franchise right, which Joey had
granted to Hulty on 1 December 20 X 2 for five years. At the time of the acquisition, the franchise
right could be sold for its market price. It is group policy to measure the non-controlling interest at
fair value.
Goodwill arising on the acquisition of Hulty has been tested for impairment and is not considered
impaired.
Exhibit 4 - Property for sale
From 30 November 20X3, Joey carried a property in its statement of financial position at its
revalued amount of $14 million in accordance with IAS 16 Property , Plant and Equipment.
Depreciation is charged at $300,000 per year on the straight - line basis. In March 20X 4, the
management decided to sell the property and it was advertised for sale. On 31 March 20 X4, the
sale was considered to be highly probable and the criteria for IFRS 5 Non -current Assets Held for
Sale and Discontinued Operations were met. At that date, the property 's fair value was
$15.4 million and its value in use was $15.8 million. Costs to sell the property were estimated at
$300,000. On 30 November 20 X 4, the property was sold for $15.6 million. The transactions
regarding the property are deemed to be material and no entries have been made in the financial
statements regarding this property since 30 November 20 X3 as the cash receipts from the sale
were not received until December 20 X 4.

Exhibit 5 - Share options

The Joey Group has granted to the employees of Margy and Hulty, some of whom are considered
key management personnel, options over its own shares as at 7 December 20 X 4. The options vest
immediately. Joey is not proposing to make a charge to the subsidiaries for these options.
Joey does not know how to account for this transaction.

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Exhibit 6 - Foreign currency loan
Joey took out a foreign currency loan of 5 million dinars at a fixed interest rate of 8% on
1 December 20X3. The interest is paid at the end of each year. The loan will be repaid after two
years on 30 November 20X 5. The interest rate is the current market rate for similar two- year fixed
interest loans.
Joey is unsure how to account for the loan and related interest.
The average currency exchange rate for the year is not materially different from the actual rate.
Exchange rates: $1 = dinars
1 December 20X3 5.0
30 November 20X4 6.0
Average exchange rate for year ended 30 November 20X 4 5.6
Required
(a) (i) Explain, showing relevant calculations and with reference to IFRS 3 Business
Combinations, how the goodwill balance in Joey ' s consolidated financial statements
at 30 November 20X 4 should be calculated. (10 marks)
00 Explain how the transaction described in Exhibit 4 should be accounted for in Joey ' s
consolidated financial statements at 30 November 20 XLf . (6 marks)
(iii) Prepare, showing required calculations, an extract from Joey ' s consolidated
statement of financial position showing the group retained earnings at 30 November
20 X4. (4 marks)
(b) Explain to Joey how the share options should be dealt with in the subsidiaries' financial
statements and Joey 's consolidated financial statements, and advise on any disclosures
that may be required to ensure external stakeholders are aware of the transaction.
(5 marks)
(c) Explain to Joey how to account for the foreign currency loan and related interest in its
individual financial statements for the year ended 30 November 20 X 4. (5 marks)
(Total = 30 marks)

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Mock exam 1: Questions 283
2 Ramsbury 39 mins
The directors of Ramsbury, a public limited company which manufactures industrial cleaning
products, are preparing the consolidated financial statements for the year ended 30 June 20 X7.
In your capacity as advisor to the company, you become aware of the issues described in the
following exhibits.
Exhibit 1 - Loan to director
In the draft consolidated statement of financial position, the directors have included in cash and
cash equivalents a loan provided to a director of $1 million. The loan has no specific repayment
date on it but is repayable on demand. The directors feel that there is no problem with this
presentation as IFRS Standards allow companies to make accounting policy choices, and that
showing the loan as a cash equivalent is their choice of accounting policy.
Exhibit 2 - Pension scheme amendment
On 1 July 20X6, there was an amendment to Ramsbury ’s defined benefit pension scheme
whereby the promised pension entitlement was increased from 10% of final salary to 15%. A bonus
is paid to the directors each year which is based upon the operating profit margin of Ramsbury.
The directors of Ramsbury are unhappy that there is inconsistency on the presentation of gains
and losses in relation to pension scheme within the consolidated financial statements.
Additionally, they believe that as the pension scheme is not an integral part of the operating
activities of Ramsbury, it is misleading to include the gains and losses in profit or loss. They
therefore propose to change their accounting policy so that all gains and losses on the pension
scheme are recognised in other comprehensive income. They believe that this will make the
financial statements more consistent, more understandable and can be justified on the grounds
of fair presentation. Ramsbury 's pension scheme is currently in deficit.
Required
Discuss the ethical and accounting implications arising from the scenario, with reference to IFRS
Standards. (18 marks)
Professional marks will be awarded in this question for the application of ethical principles.
(2 marks)
(Total = 20 marks)

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Section B - BOTH questions are compulsory and MUST
be attempted

3 Klancet
Klancet is a public limited company operating in the pharmaceuticals sector, The company is
seeking advice on several financial reporting issues.
The following exhibits provide information relevant to the question.
Exhibit 1 - Segment reporting
Klancet produces and sells its range of drugs through three separate divisions, In addition, it has
two laboratories which carry out research and development activities,
In the first laboratory, the research and development activity is funded internally and centrally
for each of the three divisions. It does not carry out research and development activities for other
entities, Each of the three divisions is given a budget allocation which it uses to purchase research
and development activities from the laboratory. The laboratory is directly accountable to the
division heads for this expenditure.
The second laboratory performs contract investigation activities for other laboratories and
pharmaceutical companies. This laboratory earns 75% of its revenues from external customers
and these external revenues represent 18% of the organisation' s total revenues.
The performance of the second laboratory ' s activities and of the three separate divisions is
regularly reviewed by the chief operating decision maker (CGDM), In addition to the heads of
divisions, there is a head of the second laboratory. The head of the second laboratory is directly
accountable to the CODM and they discuss the operating activities, allocation of resources and
financial results of the laboratory,
The managing director does not think IFRS 8 provides information that is useful to investors. He
feels it just adds more pages to financial statements that are already very lengthy. The finance
director partially agrees with the managing director and believes that the lASB's practice
statement on materiality confirms his opinion that not all the disclosure requirements in IFRS 8 are
necessary.
Exhibit 2 - Drug development
Klancet is collaborating with Retto, a third party, to develop two existing drugs owned by Klancet,
Project 1
In the case of the first drug, Retto is simply developing the drug for Klancet without taking any
risks during the development phase and will have no further involvement if regulatory approval is
given. Regulatory approvalI has been refused for this drug in the past, Klancet will retain
ownership of patent rights attached to the drug. Retto is not involved in the marketing and
production of the drug, Klancet has agreed to make two non -refundable payments to Retto of
$ 4 million on the signing of the agreement and $6 million on successful completion of the
development.
Project 2
Klancet and Retto have entered into a second collaboration agreement in which Klancet will pay
Retto for developing and manufacturing an existing drug. The existing drug already has
.
regulatory approval The new drug being developed by Retto for Klancet will not differ
substantially from the existing drug, Klancet will have exclusive marketing rights to the drug if the
regulatory authorities oipprove it. Historically, in this jurisdiction, new drugs receive approval if
they do not differ substantially from an existing approved drug.
The contract terms require Klancet to pay an upfront payment on signing of the contract, a
payment on securing final regulatory approval, and a unit payment of $10 per unit, which equals
the estimated cost plus a profit margin, once commercial production begins. The
cost - plus profit margin is consistent with Klancet's other recently negotiated supply
arrangements for similar drugs.

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Mock exam 1: Questions 285
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Required
(a) (0 Advise the managing director, with reference to IFRS 8 Operating Segments, whether
the research and development laboratories should be reported as two separate
operating segments. (6 marks)
(ii) Discuss the managing director ' s view that IFRS 8 does not provide useful information
to investors. (5 marks)
Oii) Discuss whether the finance director is correct in his opinion about IFRS 8. You
should briefly refer to Practice Statement 2 Making Materiality Judgements in your
answer. marks)
Professional marks will be awarded in Part (a) for clarity and quality of presentation.
(2 marks)
(b) Prepare notes for a presentation to the managing director of Klancet as to how to account
for the contracts with Retto in accordance with IFRS Standards. (8 marks)
(Total = 25 marks)

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4 Jayach
Jayach is a public limited company with a reporting date of 30 November 20 X 2.
The following exhibits provide information relevant to the question.
Exhibit 1 - Fair values
Asset traded in different markets
Jayach carries an asset that is traded in different markets. The asset has to be valued at fair
value under IFRS Standards. Jayach currently only buys and sells the asset in the Australasian
market. The data relating to the asset are set out below.
Year to 30 November 20 X2 Asian market European market Australasian market
Volume of market - units 4 million 2 million 1 million
Price $19 $16 $22
Costs of entering the $2 $2 $3
market
Transaction costs $1 $2 $2
Decommissioning liability
Additionally, Jayach had acquired an entity on 30 November 20X 2 and is required to fair value a
decommissioning liability. The entity has to decommission a mine at the end of its useful life,
which is in three years’ time. Jayach has determined that it will use a valuation technique to
measure the fair value of the liability. If Jayach were allowed to transfer the liability to another
market participant, then the following data would be used.
Input Amount
Labour and material cost $2 million
Overhead 30% of labour and material cost
Third party mark -up - industry average 20%
Annual inflation rate 5%
Risk adjustment - uncertainty relating to cash flows 6%
Risk -free rate of government bonds 4%
Entity 's non- performance risk 2%
Exhibit 2 - Investment in iCoin
Jayach has recently employed a new managing director. The managing director has convinced
the board that an investment in a new cryptocurrency, iCoin, would generate excellent capital
gains. Consequently, Jayach purchased 50 units of iCoin for $250,000 on 20 December 20 X1.
The finance director has expressed concern about how to report this investment in Jayach' s 31
December 20X1 financial statements. Given the lack of an accounting standard for such
investments, he sees no alternative but to include it as a cash equivalent. As the amount invested
is less than the quantitative threshold Jayach has used to assess materiality, he is not planning to
provide any further information about the investment in the financial statements.
Exhibit 3 - Email from shareholder
The directors of Jayach have received an email from its majority shareholder.

To: Directors of Jayach

From: A Shareholder
Re: Measurement
I have recently seen an article in the financial press discussing the 'mixed measurement
approach' that is used by lots of companies. I hope this isn't the case at Jayach because 'mixed'
seems to imply 'inconsistent '? Surely it would be better to measure everything in the same way?
I would appreciate it if you could you provide further information at the next annual general
meeting on measurement bases, covering what approach is taken at Jayach and why, and the
potential effect on investors trying to analyse the financial statements.

Required

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Mock exam 1: Questions 287
(a) Discuss, with relevant computations, how Jayach should measure the fair value of the
asset traded in different markets and the decommissioning liability in accordance with IFRS
13 Fair Value Measurement . (11 marks)
(b) (i) In the absence of a specific accounting standard on cryptocurrencies, discuss how
Jayach should determine how to account for the investment in iCoin under IFRS
Standards. (4 marks)
(ii) Discuss the finance director 's decision not to provide any further disclosures about
the investment in the financial statements, making reference to IFRS Practice
Statement 2 Making Materiality Judgements. (4 marks)
(c) Prepare notes for the directors of Jayach which discuss the issues raised in the
shareholder's email in Exhibit 3. You should refer to the Conceptual Framework where
appropriate in your answer. (6 marks)
(Total = 25 marks)

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Answers

DO NOT TURN THIS PAGE UNTIL YOU HAVE

COMPLETED THE MOCK EXAM
Section A
1 Joey

.
Workbook references Basic groups and the principles of IFRS 3 are covered in Chapter 11. Step
acquisitions are covered in Chapter 12. IFRS 5 is covered in Chapter 14. Share-based payment is
covered in Chapter 10. IAS 21 is covered in Chapter 16.
Top tips. For step acquisitions, it is important to understand the transaction - here you have an
associate becoming a subsidiary, so the goodwill calculation for Margy needs to include the fair
value of the previously held investments. Remember to discuss the principles rather than just
working through the calculations. The examiner has stated that a candidate will not be able to
pass the SBR exam on numerical elements alone. The other goodwill calculation is very
straightforward, the only unusual aspect being that it is a gain on a bargain purchase.
Don't skimp on parts (b) and (c) - there are five marks available.
.
Easy marks There are some easy marks available in Part (a) for the standard parts of
calculations of goodwill and retained earnings. The calculations in part (c) should also be
relatively easy.

Marking scheme
Marks
(a) (i) Goodwill
Calculation 4
Discussion - 1 mark per point up to maximum 6
00 Asset held for sale
Calculation 3
Discussion - 1 mark per point up to maximum 3
(iii) Retained earnings 4
20
(b) Subjective assessment of discussion - 1 mark per point up to
maximum 5

(c) Calculation 3
Discussion 2
10
30

(a) (i) Goodwill

IFRS 3 Business Combinations requires goodwill to be recognised in a business
combination. A business combination takes place when one entity, the acquirer,
obtains control of another entity, the acquiree. IFRS 3 requires goodwill to be
calculated and recorded at the acquisition date. Goodwill is the difference between
the consideration transferred by the acquirer, the amount of any non-controlling
interest and the fair value of the net assets of the acquiree at the acquisition date.
When the business combination is achieved in stages, as is the case for Margy , the
previously held interest in the now subsidiary must be remeasured to its fair value.

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Mock exam 1: Answers 291
 Applying these principles, the goodwill on the acquisition of Hulty and Margy should
be calculated as follows:
Hulty 80% Margy Further 40%
$m $m $m $m
Consideration transferred 700 975
Non -controlling interest (at fair value) 250 620
Fair value of previously held equity 705
interest (Note (1))

Less fair value of net assets at acquisition

Share capital 600 1,020
Retained earnings 300 900
Other components of equity 40 70
Fair value adjustments:
Land (Note (2) and W1) 266 Asset increase your net asset
Contingent liability (Note (3)) (6) (Liability reduce your net
Franchise right (W1) 20 assets
(960) (2,250)
Gain on bargain purchase (Note (4-)) :
io) 50
Measurement period adjustments:
Decrease in Net asset means Dcrease in net asset due to FV downward
increase in goodwill vice versa Add decrease in FV of buildings (Note (5)) valuation so increase Goodwill 40
Contingent liability: $6m - $5m (Note (3)) 0)
Goodwill Liability decrease so net asset increase then 89
goodwill decrease
Notes
(D Margy is a business combination achieved in stages, here moving from a 30%
owned associate to a 70% owned subsidiary on 1 December 20X 3. Substance
over form dictates the accounting treatment as, in substance, an associate
has been disposed of and a subsidiary has been purchased. From 1 December
20 X 3, Margy is accounted for as a subsidiary of Joey and goodwill on
acquisition is calculated at this date. IFRS 3 requires that the previously held
investment is remeasured to fair value and included in the goodwill calculation
as shown above. Any gain or loss on remeasurement to fair value is reported in
consolidated profit or loss.
(2) IFRS 3 requires the net assets acquired to be measured at their fair value at
the acquisition date. The increase in the fair value of Margy ’ s net assets (that
are not the result of specific factors covered in Notes (3) and (5) below) is
attributed to non-depreciable land.
(3) In accordance with IFRS 3, contingent liabilities should be recognised on
acquisition of a subsidiary where they are a present obligation arising as the
result of a past event and their fair value can be measured reliably (as is the
case for the warranty claims) even if their settlement is not probable.
Contingent liabilities after initial recognition must be measured at the higher
of the amount that would be recognised under IAS 37 Provisions, Contingent
Liabilities and Contingent Assets and the amount initially recognised under
IFRS 3.
N As the goodwill calculation for the acquisition of Hulty results in a negative
value, this is a gain on a bargain purchase and should be recorded in profit or
loss for the year attributable to the parent. Before doing so, Joey must review
the goodwill calculation to ensure that it has correctly identified all of the
assets acquired and all of the liabilities assumed, along with verifying that its
measurement of the consideration transferred and the non-controlling interest
.
is appropriate Joey has completed this exercise and thus it is appropriate to
record the negative goodwill and related profit.

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 (5) As a result of the independent property valuation becoming available during
the measurement period, the carrying amount of property, plant and
equipment as at 30 November 20 X 4 is decreased by $ 40 million less excess
depreciation charged of $2 million ($40m/20 years), ie $38 million. This will
increase the carrying amount of goodwill by $ 40 million as IFRS 3 allows the
retrospective adjustment of a provisional figure used in the calculation of
goodwill at the acquisition date where new information has become available
about the circumstances that existed at the acquisition date. Depreciation
expense for 20X4 is decreased by $2 million.
Workings
1 Hulty : Fair value adjustments
At acq' n Movement At year end
1 Dec 20 X 3 (over 4 30 Nov 20X 4
years )
$m $m $m
Franchise: 960 - (600 + 300 + 40) 20 (5) 15

2 Margy : Fair value adjustments

Movement At year end
At acq’ n ( reduced 30 Nov 20X 4
1 Dec 20 X 3 dep' n )
$m $m $m
Land: 2,250 - (1,020 + 900
+ 70) + 6* 266 266
Property , plant and equipment 0 0) 2 (38)
^Contingent liability * Depriciation 40/20 yr remaining =
2 dep/yr
00 Asset held for sale
At 31 March 20 X4, the criteria in IFRS 5 Non -current Assets Held for Sale and
Impairment testing must Discontinued Operations have been met, and the property should be classified as
before recognising the held for held for sale. In accordance with IFRS 5, an asset held for sale should be measured
Sale at the lower of its carrying amount and fair value less costs to sell. Immediately
before classification of the asset as held for sale, the entity must recognise any
impairment in accordance with the applicable IFRS. Any impairment loss is generally
recognised in profit or loss. The steps are as follows:
Step 1 Calculate carrying amount under applicable IFRS, here IAS 16 Property,
Plant and Equipment:
At 31 March 20 X 4, the date of classification as held for sale,
depreciation to date is calculated as $300,000 x 4/12 = $100,000. The
carrying amount of the property is therefore $13.9 million ($14.0 -
$0.1m). The journal entries are:
Debit Profit or loss $0.1m
Depriciation entry Credit Property, plant and equipment (PPE) $0.1m
The difference between the carrying amount and the fair value at
31 March 20 X 4 is material, so the property is revalued to its fair value of
$15.4 million under IAS 16's revaluation model:
Upward fair valuation recognistion Debit PPE ($15.4m - $13.9m) $1.5m
Credit Other comprehensive income $1.5m
Step 2 Consider whether the property is impaired by comparing its carrying
amount, the fair value of $15.4 million, with its recoverable amount. The
recoverable amount is the higher of value in use (given as $15.8 million)
Impairment testing for asset held for sale and fair value less costs to sell ($15.4 m - $3m = $15.1m.) The property is
not impaired because the recoverable amount (value in use) is higher
than the carrying amount (fair value). No impairment loss is recognised.

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Mock exam 1: Answers 293
 Step 3 Classify as held for sale and cease depreciation under IFRS 5. Compare
the carrying amount ($15.4 million) with fair value less costs to sell
Record asst as current asset and stop ($15.1 million). Measure at the lower of carrying amount and fair value
depriciation and it is recorded at lower of less costs to sell, here $15.1 million, qivinq an initial write-down of
CV and fv-cts $300,000.

Write down of asset Debit Profit or loss $0.3m

Credit PPE $0.3m
Step 4 On 30 November 20X4-, the property is sold for $15.6 million, which,
after deducting costs to sell of $0.3 million gives a profit or $0.2 million.
Property sold after deducting cost to sale
Debit Receivables $15.3m
Now decrognise asset and books profit Credit PPE $15.1m
even if payment not received book as
receivable Credit Profit or loss $0.2m
(iii) Retained earnings
JOEY GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20 X4
(EXTRACT)
$m
Retained earnings (W1) 3,451.7
Workings
1 Group retained earnings
Joey Hulty Margy
$m $m $m
Things included in RE At year end 3,340.0 350 980
FV adjustment: dep’n reduction (part (a)(i) 2
Impairment W 2)
Depriciation FV adjustment: franchise amortisation (part (a)(i) W1) (5)
Amortization
Gain on bargain purchase Liability adjustment (6 - 1) * (part (a)(i)) 5
of goodiwll Gain on bargain purchase (part (a)(i)) 10.0
Gain on disposal of associate Profit on derecognition of associate (W 2) 5.0
Gain on diposal of asset
held for sale
Asset held for sale: (0.2 - 0.1 - 0.3) (part (a)(ii)) (0.2)
At acquisition (300) (900)
45 87
Group share:
Hulty: 80% x 45 36.0
Margy: 70% x 87 60.9
3,451.7

* The warranty claim provision of $5 million in Margy ' s financial statements must be
reversed on consolidation to avoid double counting. This is because the contingent
liability for this warranty claim was recognised in the consolidated financial
statements on acquisition of Margy.

2 Profit on derecognition of 30% associate

$m
COI 600 Fair value of previously held equity interest at date control
Add: Post profit 90 obtained 705
Add: Revlaution gain 10 (per question/((a) (i))
CV of investment in associate 700 Carrying amount of associate: 600 cost + 90 (post -acq'n RE) + 10
(post acq'n OCE) (700)
5
Profit

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 (b) Share- based payment
This arrangement will be governed by IFRS 2 Share- based Payment, which includes within
its scope transfers of equity instruments of an entity ' s parent in return for goods or
services. Clear guidance is given in the Standard as to when to treat group share- based
payment transactions as equity settled and when to treat them as cash settled.
To determine the accounting treatment, the group entity receiving the goods and services
must consider its own rights and obligations as well as the awards granted. The
amount recognised by the group entity receiving the goods and services will not
necessarily be consistent with the amount recognised in the consolidated financial
statements.

Group share- based payment transactions must be treated as equity settled if either of
the following apply:
0) The entity grants rights to its own equity instruments.
00 The entity has no obligation to settle the share-based payment transactions.
Treatment in consolidated financial statements
Because the group receives all of the services in consideration for the group's equity
instruments, the transaction is treated as equity settled. The fair value of the share-based
payment at the grant date is charged to profit or loss over the vesting period with a
corresponding credit to equity . In this case, the options vest immediately on the grant
date, the employees not being required to complete a specified period of service and the
services therefore being presumed to have been received. The fair value will be taken by
reference to the market value of the shares because it is deemed not normally possible to
measure directly the fair value of the employee services received .
Treatment in subsidiaries' financial statements
The subsidiaries do not have an obligation to settle the awards, so the grant is treated as
an equity settled transaction. The fair value of the share- based payment at the grant date
Dr P&L is charged to profit or loss over the vesting period with a corresponding credit to
Cr Share base payment equity . The parent, Joey, is compensating the employees of the subsidiaries, Margy and
to employee(Equity)Hulty, with no expense to the subsidiaries, and therefore the credit in equity is treated as
a capital contribution . Because the shares vest immediately, the expense recognised in
Margy and Hulty 's statement of profit or loss will be the full cost of the fair value at grant
date.
IAS 2 h disclosures
Some of the employees are considered key management personnel and therefore IAS 2L+
Related Party Disclosures should be applied. IAS 2M- requires disclosure of the related party
relationship, the transaction and any outstanding balances at the year end date. Such
disclosures are required in order to provide sufficient information to the users of the
financial statements about the potential impact of related party transactions on an entity's
profit or loss and financial position.
IAS 2S\ requires that an entity discloses key management personnel compensation in total
and for several categories, of which share- based payments is one. IFRS Practice Statement
2 Making Materiality Judgements confirms that disclosures required in IFRSs need only be
made if the information provided by the disclosure is material. Some related party
transactions may be assessed as immaterial and therefore not disclosed. That said, the
remuneration of key management personnel is of great interest to investors and it would be
difficult to see how it could be considered immaterial.
(c) Foreign currency loan
On 1 December 20X3
On initial recognition (at 1 December 20X 3), the loan is measured at the transaction price
translated into the functional currency (the dollar), because the interest is at a market rate
for a similar two- year loan. The loan is translated at the rate ruling on 1 December 20 X3.

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 Transalted to dollar at opening rate

Initial recognition after Debit Cash 5m + 5 $1m

currenry transaltion Credit Financial liability (loan payable) $1m
Being recognition of loon
Year ended 30 November 20 X 4 Interest expense (P&l Item) translated at avg rate
Because there are no transaction costs, the effective interest rate is 8%. Interest on the loan
is translated at the average rate because this is an approximation for the actual rate

Interest expense entry Debit Profit or loss (finance cost): 5m x 8% ^ 5.6 $71,429
and increase loan liability Credit Financial liability (loan payable) $71,429
Being recognition of finance costs for the year ended 30 November 20X4
On 30 November 20X 4
The interest is paid and the following entry is made, using the rate on the date of payment
of $1 = 6 dinars
Debit Financial liability (loan payable) 5m * 8% + 6 $66,667
Interest paid so Credit Cash $66,667
decrease loan liability
Being recognition of interest payable for the year ended 30 November 20X4
In addition, as a monetary item, the loan balance at the year -end is translated at the spot
Gain and loss at rate at the year -end: 5m dinars 6 = $833,333. This gives rise to an exchange gain of
difference between
*
£1,000,000 - $833,333 = $166,667.
Opening and closing
balance transalction The exchange gain on the interest paid of $71,429 - $66,667 = $ 4,762 is added to the
exchange gain on retranslation of the loan of $166,667. This gives a total exchange gain of
$ 4,762 + $166,667 = $171,429.

2 Pamsbury
Workbook references. The Conceptual Framework is covered in Chapter 1 and ethics is covered
in Chapter 2. Employee benefits are covered in Chapter 5.
Top tips. As with all questions, ensure that you apply your knowledge to the scenario provided
and that your answer is in context. It is not enough to simply discuss the accounting
requirements. You must draw out the ethical issues. Where relevant, you should identify any
threats to the fundamental principles in ACCA 's Code of Ethics and Conduct .

Marking scheme
Marks

Accounting issues 1 mark per point to a maximum 9

Ethical issues 1 mark per point to a maximum 9
Professional marks 2
20

Treatment of loan to director

The directors have included the loan made to the director as part of the cash and cash
equivalents balance. It may be that the directors have misunderstood the definition of cash and
cash equivalents, believing the loan to be a cash equivalent. IAS 7 Statement of Cash Flows
defines cash equivalents as short-term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value.
However, the loan is not in place to enable Ramsbury to manage its short- term cash

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commitments, it has no fixed repayment date and the likelihood of the director defaulting is not
known. The classification as a cash equivalent is therefore inappropriate.
It is likely that the loan should be treated as a financial asset under IFRS 9 Finonciol Instruments.
Further information would be needed, for example, is the $1 million the fair value? A case could
even be made that, since the loan may never be repaid, it is in fact a part of the director’s
remuneration, and if so should be treated as an expense and disclosed accordingly. In addition,
since the director is likely to fall into the category of key management personnel, related party
disclosures under IAS 2 h Related Party Disclosures are likely to be necessary.
The treatment of the loan as a cash equivalent is in breach of the two fundamental qualitative
characteristics prescribed in the lASB's Conceptual Framework for Financial Reporting , namely:
(0 Relevance. The information should be disclosed separately as it is relevant to users.
(ii) Faithful representation. Information must be complete, neutral and free from error .
Clearly this is not the case if a loan to a director is shown in cash.
The treatment is also in breach of the Conceptual Framework ' s key enhancing qualitative
characteristics:
(0 Understandability . If the loan is shown in cash, it hides the true nature of the practices of
the company , making the financial statements less understandable to users.
(ii) Verifiability . Verifiability helps assure users that information faithfully represents the
economic phenomena it purports to represent. It means that different knowledgeable and
independent observers could reach consensus that a particular depiction is a faithful
representation. The treatment does not meet this benchmark as it reflects the subjective
bias of the directors.
(iii) Comparability . For financial statements to be comparable year -on- year and with other
companies, transactions must be correctly classified, which is not the case here. If the cash
balance one year includes a loan to a director and the next year it does not, then you are
not comparing like with like.

In some countries, loans to directors are illegal , with directors being personally liable. Even if this
is not the case, there is a potential conflict of interest between that of the director and that of
the company, which is why separate disclosure is required as a minimum. Directors are
responsible for the financial statements required by statute, and thus it is their responsibility to
put right any errors that mean that the financial statements do not comply with IFRS. There is
generally a legal requirement to maintain proper accounting records, and recording a loan as
cash conflicts with this requirement.
In obscuring the nature of the transaction, it is possible that the directors are motivated by
personal interest , and are thus failing in their duty to act honestly and ethically. There is
potentially a self -interest threat to the fundamental principles of the ACCA Code of Ethics and
Conduct . If one transaction is misleading, it casts doubt on the credibility of the financial
statements as a whole.
In conclusion, the treatment is problematic and should be rectified.
Ethical implications of change of accounting policy
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors only permits a change in
accounting policy if the change is: (i) required by an IFRS or (ii) results in the financial statements
providing reliable and more relevant information about the effects of transactions, other events or
.
conditions on the entity 's financial position, financial performance or cash flows A retrospective
adjustment is required unless the change arises from a new accounting policy with transitional
arrangements to account for the change. It is possible to depart from the requirements of IFRS
but only in the extremely rare circumstances where compliance would be so misleading that it
would conflict with the overall objectives of the financial statements. Practically this override is
rarely, if ever, invoked .

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IAS 19 Employee Benefits requires all gains and losses on a defined benefit pension scheme to be
recognised in profit or loss except for the remeasurement component relating to the assets and
liabilities of the plan, which must be recognised in other comprehensive income. So, current
service cost, past service cost and the net interest cost on the net defined benefit liability must all
be recognised in profit or loss. There is no alternative treatment available to the directors, which,
under IAS 8, a change in accounting policy might be applied to move Ramsbury to. The directors'
proposals cannot be justified on the grounds of fair presentation. The directors have an ethical
responsibility to prepare financial statements which are a true representation of the entity ' s
performance and comply with all accounting standards.
There is a clear self -interest threat arising from the bonus scheme. The directors’ change in policy
appears to be motivated by an intention to overstate operating profit to maximise their bonus
potential. The amendment to the pension scheme is a past service cost which must be expensed
to profit or loss during the period the plan amendment has occurred, ie immediately. This would
therefore be detrimental to the operating profits of Ramsbury and depress any potential bonus.
Additionally, it appears that the directors wish to manipulate other aspects of the pension scheme
such as the current service cost and, since the scheme is in deficit, the net finance cost. The
directors are deliberately manipulating the presentation of these items by recording them in
equity rather than in profit or loss. The financial statements would not be compliant with IFRS,
would not give a reliable picture of the true costs to the company of operating a pension scheme
and this treatment would make the financial statements less comparable with other entities
correctly applying IAS 19. Such treatment is against ACCA ' s Code of Ethics and Conduct
fundamental principles of objectivity, integrity and professional behaviour. The directors should
be reminded of their ethical responsibilities and must be dissuaded from implementing the
proposed change in policy.
The directors should be encouraged to utilise other tools within the financial statements to explain
the company ’s results such as drawing users attention towards the cash flow where the cash
generated from operations measure will exclude the non-cash pension expense and if necessary
alternative performance measures such as EBITDA could be disclosed where non-cash items may
be consistently stripped out for comparison purposes.

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Section B
3 Klancet
Workbook references. Segment reporting is covered in Chapter 18. Intangible assets are covered
in Chapter Financial instruments are covered in Chapter 8. IFRS Practice Statement 2 Making
Materiality Judgements is covered in Chapter 20.
Top tips. In Part (a)(i), on segment reporting, the key was to argue that the second laboratory
met the definition of an operating segment, while the first one did not. In Part (a)(ii) you should
consider why segmental information is useful to investors - why would they want this
information? What makes this information particularly useful to investors? Part (a)(iii) requires an
awareness of current issues in financial reporting, in this case IFRS Practice Statement 2 Making
Materiality Judgements. It is crucial that you read widely while studying SBR as questions on
current issues will definitely feature in your exam.
In Part (b) the key issue was whether the costs could be capitalised as development expenditure,
which was the case for the latter, but not the former.
Easy marks. These are available for discussing the principles and quantitative thresholds of IFRS
8 in Part (a).

Marking scheme
Marks
(a) (0 Requirements of IFRS 8 - 1 mark per point up to maximum 6
(ii) Usefulness of IFRS 8 - 1 mark per point up to maximum 5
(iii) Materiality - 1 mark per point up to maximum 4

(b) Notes for presentation - 1 mark per point up to maximum 8

Professional marks (Part (a)) 2
25

(a) (i) Segment reporting

IFRS 8 Operating Segments states that an operating segment is a component of an
entity which engages in business activities from which it may earn revenues and
incur costs. In addition, discrete financial information should be available for the
segment and these results should be regularly reviewed by the entity ’s chief
operating decision maker (CODM) when making decisions about resource allocation
to the segment and assessing its performance.
Other factors should be taken into account, including the nature of the business
activities of each component, the existence of managers responsible for them, and
information presented to the board of directors.
According to IFRS 8, an operating segment is one which meets any of the following
quantitative thresholds:
(i) Its reported revenue is 10% or more of the combined revenue of all operating
segments.
(ii) The absolute amount of its reported profit or loss is 10% or more of the greater,
in absolute amount, of (1) the combined reported profit of all operating
segments which did not report a loss and (2) the combined reported loss of all
operating segments which reported a loss .
(iii) Its assets are 10% or more of the combined assets of all operating segments.

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 As a result of the application of the above criteria, the first laboratory will not be
reported as a separate operating segment. The divisions have heads directly
accountable to, and maintaining regular contact with, the CODM to discuss all
aspects of their division's performance. The divisions seem to be consistent with the
core principle of IFRS 8 and should be reported as separate segments. The
laboratory does not have a separate segment manager and the existence of a
segment manager is normally an important factor in determining operating
segments. Instead, the laboratory is responsible to the divisions themselves, which
would seem to indicate that it is simply supporting the existing divisions and not a
separate segment. Additionally, there does not seem to be any discrete performance
information for the segment, which is reviewed by the CODM.
The second laboratory should be reported as a separate segment. It meets the
quantitative threshold for percentage of total revenues and it meets other criteria for
an operating segment. It engages in activities which earn revenues and incurs costs,
its operating results are reviewed by the CODM and discrete information is available
for the laboratory ' s activities. Finally , it has a separate segment manager.
(ii) Contrary to the managing director 's views, IFRS 8 provides information that makes
the financial statements more relevant and more useful to investors. IFRS financial
statements are highly aggregated and may prevent investors from understanding
the many different business areas and activities that an entity is engaged in. IFRS 8
requires information to be disclosed that is not readily available elsewhere in the
financial statements, therefore it provides additional information which aids an
investor ' s understanding of how the business operates and is managed.
IFRS 8 uses a 'management approach' to report information on an entity 's segments
and results from the point of view of the decision makers of the entity. This allows
investors to examine an entity 'though the eyes of management ' - to see the
business in the way in which the managers who run the business on their behalf see
it. This provides investors with more discrete information on the business segments
allowing them to better assess the return being earned from those business
segments, the risks that are associated with those segments and how those risks are
managed. The more detailed information provides investors with more insight into an
entity 's longer term performance.
The requirement to disclose information that is actually used by internal decision
makers is an important feature of IFRS 8, but is also one of its main criticisms. The
fact that the reporting does not need to be based on IFRS makes it difficult to make
comparisons with information that was reported in prior periods and with other
companies in the sector. The flexibility in reporting can make it easier to manipulate
what is reported. IFRS 8 disclosures are often most useful if used in conjunction with
narrative disclosures prepared by the directors of the company, such as the
Strategic Review in the UK.
(iii) The finance director 's opinion that 'not all the disclosure in IFRS 8 is necessary ' could
be interpreted to mean that he believes he can pick and choose which disclosure
requirements he feels are necessary and which he believes are not.
This is not correct. IAS 1 Presentation of Financial Statements requires all standards
to be applied if fair presentation is to be achieved. Directors cannot choose which
parts of standards they do or do not apply.

However, as confirmed by Practice Statement 2, if the information provided by a

disclosure is immaterial and it therefore cannot reasonably be expected to influence
the decisions of primary users of the financial statements, then that disclosure does
not need to be made.

If the finance director is suggesting that the information provided about Klancet by
some of the disclosures required by IFRS 8 are not material, then assuming that the
information is indeed immaterial, he would be correct in stating that those
disclosures are not necessary.

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 The directors should apply the principles given in Practice Statement 2 to review how
they have made materiality judgements in their financial reporting. It may be that
their current financial report is very lengthy because they include information that is
not material.

Tutorial note. Consideration of the ethical issues was not part of the question
requirement, however, it is clear both directors appear reluctant to give the
disclosures required by IFRS 8 which raises concern. If the finance director is not
aware that he cannot pick and choose requirements from IFRS Standards, then his
professional competence may be called into question. If he is aware of this, and an
assessment of whether the disclosures are material has not been done, or has been
done inappropriately, then it may be that the directors are trying to hide an issue
which should be considered in more detail.

(b) Development of drugs

Notes for presentation to the managing director
1 Criteria for recognising as an asset
IAS 38 Intangible Assets requires an entity to recognise an intangible asset, whether
purchased or self -created (at cost) if, and only if, it is probable that the future
economic benefits which are attributable to the asset will flow to the entity and the
cost of the asset can be measured reliably .

2 Internally generated intangible assets

The recognition requirements of IAS 38 apply whether an intangible asset is acquired
externally or generated internally . IAS 38 includes additional recognition criteria for
internally generated intangible assets.
Development costs are capitalised only after technical and commercial feasibility of
the asset for sale or use have been established. This means that the entity must
intend and be able to complete the intangible asset and either use it or sell it and be
able to demonstrate how the asset will generate future economic benefits, in keeping
with the recognition criteria.
If an entity cannot distinguish the research phase from the development phase of an
internal project to create an intangible asset, the entity treats the expenditure for
.
that project as if it were incurred in the research phase only
The price which an entity pays to acquire an intangible asset reflects its expectations
about the probability that the expected future economic benefits in the asset will
flow to the entity.
3 Project 1
Klancet owns the potential new drug, and Retto is carrying out the development of
the drug on its behalf . The risks and rewards of ownership remain with Klancet.
By paying the initial fee and the subsequent payment to Retto, Klancet does not
acquire a separate intangible asset. The payments represent research and
development by a third party, which need to be expensed over the development
period provided that the recognition criteria for internally generated intangible
assets are not met.

Development costs are capitalised only after technical and commercial feasibility of
the asset for sale or use have been established. This means that the entity must
intend and be able to complete the intangible asset and either use it or sell it and be
able to demonstrate how the asset will generate future economic benefits. At
present, this criterion does not appear to have been met as regulatory authority for
the use of the drug has not been given and, in fact, approval has been refused in the
past.

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 Project 2
In the case of the second project, the drug has already been discovered and
therefore the costs are for the development and manufacture of the drug and its
slight modification. There is no indication that the agreed prices for the various
elements are not at fair value. In particular , the terms for product supply at cost plus
profit are consistent with Klancet ' s other supply arrangements.
Therefore, Klancet should capitalise the upfront purchase of the drug and
subsequent payments as incurred, and consider impairment at each financial
reporting date. Regulatory approval has already been attained for the existing drug
and therefore there is no reason to expect that this will not be given for the new drug.
Amortisation should begin once regulatory approval has been obtained. Costs for
the products have to be accounted for as inventory using IAS 2 Inventories and then
expensed as costs of goods sold as incurred.

4 Jayach
.
Workbook references Fair value measurement under IFRS 13 is covered in Chapter 4. The
Conceptual Framework is covered in Chapter 1, IAS 8 in Chapter 2 and Practice Statement 2 in
Chapter 20.
Top tips. Fair value measurement affects many aspects of financial reporting. Part (a) requires
application of IFRS 13 to the valuation of assets and liabilities. Ensure that you provide
explanations to support your workings. Part (b) looks at an investment in cryptocurrency for
which there is no specific accounting standard. Don’t panic if you see such a question in your
exam. Sensible points which apply the principles of IAS 8 and the Conceptual Framework will gain
marks. Part (c) considers the topic of measurement from a wider perspective. Make sure you
relate your answer to the email given in the question. Remember that the examiner has
recommended that you read widely, including technical articles and real financial reports, to
support your learning.
Easy marks. Credit will be given for textbook knowledge in Part (a).

Marking scheme
Marks
(a) 1 mark per point up to maximum of 6
Calculations 5
11
(b) (i) 1 mark per point up to maximum of
(ii) 1 mark per point up to maximum of 4
8
(c) 1 mark per point up to maximum of 6
25

(a) Fair value of asset

YEAR TO 30 NOVEMBER 20X 2 European Australasian
Asian market market market
Volume of market - units 4m 2m 1m

$ $ s
Price 19 16 22
Costs of entering the market (2) (2)
Potential fair value 17 14 22
Transaction costs 0) (2) (2)
Net profit 16 12 20

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 Notes
1 Because Jayach currently buys and sells the asset in the Australasian market, the
costs of entering that market are not incurred and therefore not relevant.
2 Fair value is not adjusted for transaction costs. Under IFRS 13, these are not a
feature of the asset or liability, but may be taken into account when determining the
most advantageous market.
3 The Asian market is the principal market for the asset because it is the market with
the greatest volume and level of activity for the asset. If information about the Asian
market is available and Jayach can access the market, then Jayach should base its
fair value on this market. Based on the Asian market, the fair value of the asset
would be $17, measured as the price that would be received in that market ($19) less
costs of entering the market ($2) and ignoring transaction costs.
If information about the Asian market is not available, or if Jayach cannot access
the market , Jayach must measure the fair value of the asset using the price in the
most advantageous market . The most advantageous market is the market that
maximises the amount that would be received to sell the asset, after taking into
account both transaction costs and usually also costs of entry, which is the net
amount that would be received in the respective markets. The most advantageous
market here is therefore the Australasian market . As explained above, costs of entry
are not relevant here, and so, based on this market, the fair value would be $22.
It is assumed that market participants are independent of each other and
knowledgeable, and able and willing to enter into transactions.
Fair value of decommissioning liability
Because this is a business combination, Jayach must measure the liability at fair value in
accordance with IFRS 13, rather than using the best estimate measurement required by IAS
37 Provisions, Contingent Liabilities and Contingent Assets. In most cases there will be no
observable market to provide pricing information. If this is the case here, Jayach will use
the expected present value technique to measure the fair value of the decommissioning
liability. If Jayach were contractually committed to transfer its decommissioning liability to
a market participant, it would conclude that a market participant would use the inputs as
follows, arriving at a fair value of $3, 215 ,000.
Input Amount
$ '000
Labour and material cost 2,000
Overhead: 30% x 2,000 600
Third party mark -up - industry average: 2,600 x 20% 520
3,120

Inflation adjusted total (5% compounded over three years):

3,612
3,120 x 1.05 ^ 217
Risk adjustment - uncertainty relating to cash flows: 3,612 x 6%
3,829

Discount at risk - free rate plus entity 's non- performance risk
(4% + 2% = 6%): 3,829/1.063 3,215
(b) (i) It isn't appropriate for Jayach to classify the investment as a cash equivalent purely
because it is unsure of how else to account for it. In the absence of an IFRS covering
investments in cryptocurrencies, the directors of Jayach should use judgement to
develop an appropriate accounting policy.
In developing the policy, IAS 8 Accounting Policies, Accounting Estimates and Errors
requires that the directors consider:

d) IFRSs dealing with similar issues. For example, the specific facts and
circumstances could lead Jayach to conclude that the investment is an
intangible asset accounted for under IAS 38 Intangible Assets .

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 (2) The Conceptual Framework . The investment appears to meet the definition of
an asset: a present economic resource controlled by the entity as a result of
past events. Consideration should be given to the recognition criteria and to
other issues such as the measurement basis to apply and how measurement
uncertainty may affect that choice given the volatility of cryptocurrencies.
(3) The most recent pronouncements of other national GAAPs based on a similar
conceptual framework and accepted industry practice. This is sparse. The
Australian Accounting Standards Board have concluded that standard setting
activity on cryptocurrencies should be undertaken by the IASB.
Fundamentally, the directors need to account for the investment in a way which
provides useful information to the primary users of its financial statements. This
means the information provided by the accounting treatment should be relevant
and should faithfully represent the investment.

00 The finance director's decision to not provide any further disclosure about the
investment in iCoin is questionable.
The objective of Jayach's financial report is to provide financial information which is
useful to its primary users in making decisions about providing resources to Jayach.
Practice Statement 2 re -affirms the principle in IFRS that information that is not
material does not need to be disclosed in the financial statements. However, whether
this information is material should be properly assessed.
Practice Statement 2 recommends that assessment of materiality should be
performed with reference to both quantitative factors and qualitative factors. So far,
the finance director has only considered quantitative factors, but qualitative factors
should be considered. For example, the fact that this investment not the usual type
of investment made by Jayach is a qualitative factor. The presence of a qualitative
factor lowers the quantitative threshold below what would otherwise be used - so in
this case, the investment could be material.
Furthermore, the investment is risky because cryptocurrencies are highly volatile. If it
is Jayach' s plan to invest in more cryptocurrencies in the future, or even to accept
cryptocurrencies as payment, then this investors are likely to consider this important.
Depending on their risk appetite, investors may consider the investment too risky and
therefore inappropriate, and may be concerned about the potential future impact
should Jayach decide to invest more in such currencies.
Part of the decision-making that primary users make on the basis of financial
statements involves assessing management 's stewardship of Jayach's resources.
Some investors may consider this not to be good stewardship, given the risk involved.
(c) A 'mixed measurement’ approach means that a company selects a different measurement
basis (eg historical cost or current value) for its various assets and liabilities, rather than
using a single measurement basis for all items. The measurement basis selected should
reflect the type of entity and sector in which it operates and the business model that the
entity adopts.
Some investors have criticised the mixed measurement approach because they think that if
different measurement bases are used for assets and liabilities, the resulting totals can
have little meaning or lack relevance.
However, a single measurement basis may not provide the most relevant information to
users. A particular measurement basis may be easier to understand, more verifiable and
less costly to implement. Therefore, a mixed measurement approach is not 'inconsistent '
but can actually provide more relevant information for stakeholders.
The Conceptual Framework confirms that the IASB uses a mixed measurement approach in
developing standards. The measurement methods included in standards are those which
the IASB believes provide the most relevant information and which most faithfully represent
the underlying transaction or event. It seems that most investors feel that this approach is
consistent with how they analyse financial statements. The problems of mixed
measurement appear to be outweighed by the greater relevance achieved.

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 Jayach prepares its financial statements under IFRSs, and therefore applies the
.
measurement bases permitted in IFRSs IFRSs adopt a mixed measurement basis, which
includes current value (fair value, value in use, fulfilment value and current cost) and
historical cost.
When an IFRS allows a choice of measurement basis, the directors of Jayach must exercise
judgement as to which basis will provide the most useful information for its primary users.
Furthermore, when selecting a measurement basis, the directors should consider
measurement uncertainty. The Conceptual Framework states that for some estimates, a
high level of measurement uncertainty may outweigh other factors to such an extent that
the resulting information may have little use.

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