Saifullah Sajid ;03094171030

1 IAS 21

Deduct from cost

2 Relation Period
Related to depreciable asset Over the life of depreciable asset

Related to non depreciable asset Associated activity---> Building (Life)

Related to income Over the condition period

1 IAS 8 (Change in accounting estimates)

Change in accounting estimates Change in accounting policy

Applied prospectively Applied retrospectively

(Current year and onwards)

**Commulative effect of change in accounting policy or material prior period error that
earlier than compartive year should be adjusted in opening balance of comparative yea
retained earnings in SOCE

1 IAS 40 (Investment Property)

for:

Cost Model
- Depreciate
- Impairment
- In case of land (No depreciation)
 2
Revaluation Model
(IAS 16/ IAS 38)
Application PPE
At start of the year
At end of the year
FV Update At any time during the year
FV Update at each year May be
Depreciation Yes
Impairement test Yes
FV Gain/loss P and L or OCI
Revaluation surplus Yes exists

IAS 41 (Biological Asset)

Initially and at each year end BA Cost model

should be updated at FV less CTS (Exception)

Only P and L IAS 16

Depreciate Impairment test

IAS 23 (Borrowing Cost)

Borrowing cost related to qualifying asset

Yes

After construciton Till construction period

P and L expense Capitalized

Redo last 5 minutes

 Basic Rivision
IAS 20 Government Grant

Related to asset

Depreciable Non-Depreciable

Deferred grant income Deferred grant income

Pattern proportion
Depreciation expense
Associated activity Related Expense
(Depreciation expense)
Related expense proportion

Prior period errors

Material prior period errors shall be

rectified through retrospective
restatement.
in accounting policy or material prior period error that belongs to
uld be adjusted in opening balance of comparative year of in

Land or Building or Both

Capital appreciation or Rental Purposes

Fair value Model

- No Depreciate
- No Impairment
After each year end mandatory FV update
FV GAIN LOSS
 P and L record

Fairvalue model
(IAS 40)
Only land and Building

At end of the year

Yes
NO
NO
P and L record
No

qualifying asset

no

P and L expense
Related to income

Conditions to be satisfied in future

Yes No

Deferred grant income Immediately income

P and L
 Individual asset Cash generating unit

Scope PPE Cost model

PPE Revaluation model
Intangibe asset cost model
Intangibe asset revaluation model
Investment property cost model
Bioogical asset cost model

At each balance sheeet date: Exception: Following assets will be

Business should assess indicators for impairement 1
2
3

Internal indicators External Indicators

Exist
Yes No

Conduct impairement test by :

Recoverable amount vs NBV

Impairement loss

Yes No
NBV exceeds recoverable amount NBV does not exceed recoverable amount

2 Recoverable amount

is asset held for sale under IFRS 5

yes
 Fair value less cost to sell

FV=Market Value
Less: CTS
CTS=Incremental Selling Cost
Example:
- Legal cost
Documentation cost
Comission/fee
- Transportation/ delivery cost (If this fee is not deducted from MV as per IFRS 13)
- Dismantling cost (If separate provision is not recorded)

Other Exam Points

1 If the asset is tested for impairement then useful life and residual value of asset should be reassessed.
2 By default asset is not classified as held for sale. [higher of VIU or FV less CTS).
3 If any one component of recoverable amount exceeds NBV then there is no need to calculate the other component
since asset is not impaired.
4 If the fairvalue of the asset is not reliably measurable then VIU shall be its recoverable amount.
5 Recoverable amount should be computed on the date on which asset is tested for impairement.
for e.g
Test date 31-Dec-23 XXX
FV less CTS 31-Dec-23 XXX
VIU 31-Dec-23 XXX
* Donot include tax related, fianancial expense, or improvement cashflows

Cost model
Impairement loss

Only P and L

dr. Impairement loss (P and L) xx

cr. Accumulates loss xx
 Ias 36
Scope

Reversal of
Subsidiary
Corporate asset Impairement
as CGU
loss
(Will be covered in consolidation)

Following assets will be tested mandatory each year whether conditions exist or not and are not amortized
Purchased good will.
Intangible asset having indefinite life.
Intangible asset that is in the process of deveolpment.

ld for sale under IFRS 5

no*

Higher of:
 Fv less CTS Value in use

It is PV of future net cashflows through the remaining

life of asset discounted using pre tax discount rate

Operational cashflows
1 Revenue that will be earned by the asset
2 Expenses that will be incurred to earn future revenue

3 Net disposal cashflows

at end of life of the asset

Net disposal proceeds at end of life of the asset

Pre-Tax Discount Rate

1 Given---> Use
2 Pre tax discount Rate= Post tax discount rate / 100%-tax given%
3 Data is given to calculate
Pre tax discount Rate= Risk free return required by investor + Additional return required by
investor due to inherent risk in the asset

te the other component

ditional return required by
 Detailed Discussion Related to calculation of Value in Use
1 Value in use of asset should be computed in current condition of asset
2 Maintenance cost/ general / Routine overhauling/ Minor part replacement day to day to servicing cost shall be inclu
3 Any cost that will be incurred to increase the economic benefit of the asset should not be included in VIU calculatio
4 Additional benefits due to improvement of asset should not be included in VIU calculation
5 Cashflows related to income taxation should not be included in VIU calculation
6 Cashflows related to financing activity should not be included in VIU calculation (e.g. Principal payments, finance co
7 VIU is calculated only for cash items, it is not calculated for non-cash items for e.g. depreciation
8 Cashflows from receivables that already have been earned and recored but amount will be received in future, shou
for e.g. 31-12-23 test date
NBV vs recoverable amount
Remaining life 3 years
24-Dec-23 Credit sale 200
31-Mar-24 Receive 200 (This 200 should not be included in 2024 as it is already included in Cashflows o

2024 2025 2026

Revenue 1000 1200 1100
Expense 400 450 500
9 Cashflows from payables and dismantling cost that has been recorded in the current year but wil be paid in future,
for e.g. 31-12-23 test date
NBV vs recoverable amount
Remaining life 3 years
24-Dec-23 Plant repair 50
30-Apr-24 Payment 50 (This 50 should not be included in 2024 as it is already included in Cashflows of

2024 2025 2026

Revenue 1000 1200 1100
Expense 400 450 500
10 If provision for dismantling cost is not recorded then it will included for value in use calculation.
Normally business prepare budget for 5 years for asset and if assert has a life of more than 5 years then, in such cas
11 beyond 5 years shall be estimated through extrapolation using constant or declining trend.
12 Increasing trend can be followed but it has to be justified

Exam Points
If probabilities are given along with estimated net cashflows then present value shall be calculated using expected v
 calculation of Value in Use

servicing cost shall be included while calculating value in use

e included in VIU calculation

ncipal payments, finance cost payments)

be received in future, should not be included in VIU calculation

dy included in Cashflows of 2023)

r but wil be paid in future, should not be included in VIU calculation

y included in Cashflows of 2023)

an 5 years then, in such case cashflows of asset

nd.

calculated using expected value approach.

 Example of probabilities of net casflow in class was solved

Cash Generating Unit

1 If value of use of an asset cannot be measured reliably independently then such asset shall be tested for impairmen
- Group of assets
- Combined assets
- Segment basis

Rules
1 All rules as discussed in case of individual assets apply here
CGU NBV vs CGU recoverable amount
higher of
- FV less CTS
- VIU
2 A business may have multiple CGU's
3 These multiple assets generate cashflows on collective basis and these assets are depndent upon each other
4 If business has purchased good will then such good will can also be allocated to CGU
5 For practical reasons if an asset is included in CGU but not in the scope of IAS 36 then while comparing recoverable
6 Impairement loss shall not be allocated to such asset
7 By default recovery value of such asset is included in recoverable amount
8 Incase of revaluation model for PPE or intangible asset impairemtn loss shall first be charged to revaluation surplus
revaluation surplus or insufficeint then excess amount shall be recorded in P and L.

Steps
CGU NBV vs CGU recoverable amount
1 Impairement loss if NBV > Recoverable amount
2 Allocation
i Specific impaired asset
ii Goodwill (reduce to zero)
iii Remaining loss shall be allocated among remaining assets (IAS 36 Scope) on pro rata basis

3 After allocation of impairement loss on pro-rata basis, the revised NBV should not be lowered than limiting value
Limiting value is higher of
- Zero
- VIU
- FV Less CTS
- If Limiting Value >= NBV (Given in Question)

Yes No
(Such asset cannot be impaired) (NBV > Limiting Value)
S#3 Rules of limiting shall be applied

4 If unallocated loss arise then such loss shall be allocated on remaining assers on pro-rata basis
Q3 Moeed Limited
asset shall be tested for impairment along with that CGU to which it belong, these are

depndent upon each other

then while comparing recoverable amount of CGU with the NBV, such asset will remain included in NBV of CGU for comparison purpose

be charged to revaluation surplus and if there is no balance of

L.

t be lowered than limiting value

pro-rata basis
CGU for comparison purpose
Q14 Zahid Limited (With Limiting value)
S#1 NBV
Recoverable amount
Loss
S#2
Specific impaired
Goodwill
Remaning loss (bal)
Total
NBV Original
Land 17,500.00
Building 35,000.00
P&M 52,500.00
Eqip 28,000.00
Furniture 14,000.00
Goodwill 1,750.00
148,750.00

(W-1 for limiting value)

Round 1
NBV
Land 17500
Building 35000
P&M 52500
Eqip 28000
Furniture 14000
147000

Round 2 NBV original

Building (35,000.00)
P&M (52,500.00)
Eqip (28,000.00)
Furniture (14,000.00)
(129,500.00)

Q15 Zahid Limited redesigned (With Limiting value)

S#1 NBV
Recoverable amount
Loss
S#2
Specific impaired
Goodwill
Remaning loss (bal)
 Total
NBV Original
Land 17,500.00
Building 35,000.00
P&M 52,500.00
Eqip 28,000.00
Furniture 14,000.00
Goodwill 1,750.00
148,750.00

(W-1 for limiting value)

Round 1
NBV
Land 17500
Building 35000
P&M 52500
Eqip 28000
Furniture 14000
147000

Q16 Redesigned Q15

Zahid Limited redesigned (With Limiting value)

S#1 NBV
Recoverable amount
Loss
S#2
Specific impaired
Goodwill
Remaning loss (bal)
Total
NBV Original
Land 17,500.00
Building 35,000.00
P&M 52,500.00
Eqip 28,000.00
Furniture 14,000.00
Goodwill 1,750.00
148,750.00

(W-1 for limiting value)

Round 1
NBV

Building 35000
 P&M 52500
Eqip 28000
Furniture 14000
129500
time
Q17 19:51

Q18
S#1 NBV
Recoverable amount
Loss
S#2
Specific impaired p&m (7800-2800)
Goodwill
Remaning loss (bal)
Total

NBV Original
Land and Building 54,000.00
P&M 59,500.00
Software 7,500.00
Eqip 28,000.00
Goodwill 2,900.00
Inventory 2,100.00
154,000.00

Round 1
NBV

Land and Building 54,000.00

P&M 51,700.00
Software 7,500.00
Eqip 28,000.00
141,200.00
*Land FV-CTS is 16,450
148,750.00
129,500.00
19,250.00

O
1750
17,500.00
19,250.00
Impairement loss round 1 Round 2 Revised NBV
(1,050.00) - 16,450.00
(4,166.67) (279.28) 30,554.05
(6,250.00) (418.92) 45,831.08
(3,333.33) (223.42) 24,443.24
(1,666.67) (111.71) 12,221.62
(1,750.00) - -
(18,216.67) (1,033.33) 129,500.00

Loss allocate Revised NBV Limit Value

2,083.33 15,416.67 16450
4,166.67 30,833.33
6,250.00 46,250.00
3,333.33 24,666.67
1,666.67 12,333.33
17,500.00 129,500.00

Loss allocate
279
419
223
112
1,033

*Land FV-CTS is 15,525

148,750.00
129,500.00
19,250.00

O
1750
17,500.00
 19,250.00
Impairement loss round 1 Round 2 Revised NBV
(2,083.33) - 15,416.67
(4,166.67) - 30,833.33
(6,250.00) - 46,250.00
(3,333.33) - 24,666.67
(1,666.67) - 12,333.33
(1,750.00) - -
(19,250.00) - 129,500.00

Loss allocate Revised NBV Limit Value

2,083.33 15,416.67 15,525.00
4,166.67 30,833.33
6,250.00 46,250.00
3,333.33 24,666.67
1,666.67 12,333.33
17,500.00 129,500.00

*Land FV-CTS is 18500

148,750.00
129,500.00
19,250.00

O
1750
17,500.00
19,250.00
Impairement loss round 1 Round 2 Revised NBV
- - 17,500.00
(4,729.73) - 30,270.27
(7,094.59) - 45,405.41
(3,783.78) - 24,216.22
(1,891.89) - 12,108.11
(1,750.00) - -
(19,250.00) - 129,500.00

Loss allocate Revised NBV Limit Value

- - NA
4,729.73 30,270.27
 7,094.59 45,405.41
3,783.78 24,216.22
1,891.89 12,108.11
17,500.00 112,000.00

154000
132000
22,000.00 *FV-CTS of land and building is 46000

5000
2900
14,100.00
22,000.00

Impairement loss round 1 Round 2 Revised NBV

(5,392.35) - 48,608
(10,162.68) - 49,337
(748.94) - 6,751
(2,796.03) - 25,204
(2,900.00) - -
- - 2,100
(22,000.00) - 132,000.00

Loss allocate Revised NBV Limit Value

- - NA
5,392.35 48,607.65 46,000.00
5,162.68 46,537.32
748.94 6,751.06
2,796.03 25,203.97
14,100.00 127,100.00
Allocated Unallocated way i
1050 1,033.33
No further proceedings as Revised NBV does not exceed the limit value
Unallocated way ii
1,033.33
Q19
Limiting Value
Q20 Equiptment 80,000.00
S#1 P and M 57,500.00
NBV 379,750.00 IP cost model 45,000.00
Recoverable amount 312,500.00
Impairement loss 67,250.00

S#2
Specific -
Goodwill 6,250
Remaining (bal) 61,000.00
Total 67,250.00

Impairement Loss
NBV Round 1 Round 2 Round 3 Revised NBV
Equiptment 81,250 (1,250.00) 80,000.00
P and M 88,750 (18,398) (10,493.66) 59,857.87
IP cost model 52,500 (7,500.00) 45,000.00
IP Fair Value model 72,500 - 72,500.00
Software 16,250 (3,369) (1,921.37) 10,959.89
Land and Building 55,500 (11,506) (6,562.23) 37,432.24
Goodwill 6,250 (6,250) -
Inventory 6,750 - 6,750.00
379,750 (48,273) (18,977) 312,500

R#1 Revised NBV Limiting Value Allocated Unallocated

Equiptment 81,250 (16,844) 64,406 80,000.00 1,250.00 15,593.67
P and M 88,750 (18,398) 70,352 57,500.00
IP cost model 52,500 (10,884) 41,616 45,000.00 7,500.00 3,383.60
Software 16,250 (3,369) 12,881
Land and Building 55,500 (11,506) 43,994
294,250.00 (61,000.00) 233,250.00 18,977.27

R#2
P and M 88,750 (10,493.66) 59,857.87 57500

Software 16,250 (1,921.37) 14,328.63

Land and Building 55,500 (6,562.23) 48,937.77
160,500 18,977.27 123,124.26

Points:
1 There are two components of SOCI,
2 One is profitgain/loss/
Revaluation and loss impairement loss or reversal of impairemt loss if recorded in revaluation surplus then it must be re
3 Revaluation surplus balance of every asset should be maintained separately
4 Revaluation gain/loss/ impairement loss or reversal of impairemt loss of one asset should not be adjusted with revaluatio
n surplus then it must be recorded in OCI
be adjusted with revaluation surplus of another asset
Q22 Qual LiMITED
Summer 2022

Solution:
S#1 NBV 702
R.A 568
Impairement loss 134

S#2
Specifically Impaired 0
Good will 66
Remaining (bal) 68
total 134

Carrying Value Imp loss r r2 total

Building 144 -4 0 140
Equiptment 96 -12.08889 -11.62195448 72.2891566
Machinery 230 -23 0 207
Liscene 70 -8.814815 -8.474341812 52.7108434
Goodwill 66 -66 0 0
Inventory 96 0 0 96
702 -113.9037 -20.0962963 568
 Round 1 Revised NBV Limit value allocated
Building 144 -18.13333 125.86666667 140 4
Equiptment 96 -12.08889 83.911111111 68 -12.08889
Machinery 230 -28.96296 201.03703704 207 23
Liscene 70 -8.814815 61.185185185
540 68

Round 2
Equiptment 96 -11.62195 84.378045515 68
Liscene 70 -8.474342 61.525658188
166 20.0963

Q23 Home Work

Q11 Khyber Limited H.W

If in the question it is mentioned that there is decline in budgeted net cashflows of CGU or
individual asset then it means business has intentions to use that asset and there is no
intention to sell the asset, thereby recoverable amount will be higher of VIU and FV-CTS.

Impairement of asset under revaluation model

1 PPE Revaluation model and Intangible

2 It is possible that revaluation and impairement test both may be conducted on the same date
3 If both revalution and impairement test are conducted on the same date then first revaluation accoun
4 In revaluation accounting only fair value is updated but while calculation FV-CTS, CTS is deducted from
5 The difference between fair value that is used in revaluation and FV-CTS that is used in determining re
6 If CTS is 0 then NBV after updating revaluation will be equal to or lower than the recoverable amount,
NBV before revaluation 100
Fair value 120
NBV after revaluation 120
CTS 0
Assume Revaluation Value in use 1) 124 2) 108
and impairement test
are done on the same Solution
date for point 6 and 7 NBV after revaluation 120 120
FV-CTS 120 120
VIU 124 108
Recoverable amount 124 120
Loss (if NBV exceeds R.A) 0 0
7 If CTS is not 0 then NBV after revaluation may or may not be equal to recoverable amount,
thereby in this situation impairement loss may arise. In this sitaution impairement loss cannot
be more than CTS

NBV before revaluation 200

Fair value 230
NBV after revaluation 230
 CTS 5
Value in use 1) 240 2) 220 3)
Solution
NBV after revaluation 230 230
FV-CTS 225.00 225.00
VIU 240.00 220.00
Recoverable amount 240.00 225.00
Loss (if NBV exceeds R.A) 0 5.00
8 If fV of an asset is not reliably measurable then in such case asset cannot be revalued and FV-
CTS cannot be measured. In such situations VIU shall be the recoverable amount of the asset
and asset shall be impaired if value in use is less than the NBV.

9 Accounting entry
Rev. surplus (OCI) (1) XX
Imp. Loss XX
Acc. Impairement loss XX
 unallocated
14.1333333

5.96296296

cashflows of CGU or
t and there is no
of VIU and FV-CTS.

ucted on the same date

ate then first revaluation accounting shall be done and then after that impairement test shall be conducted
on FV-CTS, CTS is deducted from that same Fair Value.
TS that is used in determining recoverable amount is incremental selling cost.
r than the recoverable amount, then in such situation asset cannot be impaired

ecoverable amount,
mpairement loss cannot
 227

230
225.00
227.00
227.00
3.00
ot be revalued and FV-
le amount of the asset
 Revaluation
Basic Rules/notes
1 If the asset is revalued for the first time and there is revaluation gain then in such case such gain shall always be
2 If the asset is revalued for the first time and there is revaluation loss then in such case such revaluation loss shal
3 Whenever an asset is revalued then subsequent depreciation/amortization would change, and shall be calculate
Latest FV - RV
Remaining life on
latest FV
4 Transfer on incremental depreciation from revaluation surplus to retained earning shall be presented on the fac
5 Whenever an asset is revalued and revaluaiton gain/loss is recorded in revaluation surplus then it must be prese
6 Whenever an asset is revalued then FV=NBV at that time, and at that time accumulated depreciation becomes z
7 Whenever asset is tested for impairement then its useful life and residual value would be reviewed as well
Transfer of incremental depreciation/amortization to retained earning from revaluation surplus is a matter of ch
depreciation is transferred on annual basis.
8
9 First revaluation loss is recorded in p and L and subsequently rev gain arise, then rev loss in p and l shall be recov
10 Revaluation Surplus Exist at
Any balance sheet date

NBV Revaluation model > NBV under cost model Depreciation under revaluation>
Depreciation under cost model
11 Revaluation loss p&l Exist at
Any balance sheet date

NBV Revaluation model > NBV under cost model

Depreciation under revaluation<
Depreciation under cost model
Equation

NBV under revaluation model = NBV under cost model

 12 Depreciation shall be recalculated if following events occur:
i Change in estimate of useful life
ii Change in estimate of residual value
iii Change in method of depreciaiton
iv Major part replacement
v Major inspection cost
vi Subsequent expenditure capitalization
vii Revaluation
viii Impairement loss
ix Reversal of impairement loss
x Change in estimate of Dismantling cost (cost model)
xi Repayment of government grant (Deduct from cost method)

Q3 Top limited
-----------------Format-------------
Accumulated
imp loss/
Date Particulars Cost/latest FV Acc dep NBV Rev.surplus Rev loss p&L

OR

Date Particulars NBV Rev.surplus Rev loss p&L

1-Jul-11 buy 20 - -
30-Jun-12 amortization (2) - -
30-Jun-12 bal 18 - -
30-Jun-12 rev. gain 9 9
30-Jun-12 year end 27 9 -
30-Jun-13 amortization (3.00) (1.00) -
30-Jun-13 year end 24.00 8.00 -
30-Jun-14 amortization (3.00) (1.00) -
30-Jun-14 balance 21.00 7.00 -
30-Jun-14 rev loss (3.50) (3.50) -
30-Jun-14 17.50 3.50 -
30-Jun-14 year end 17.50 3.50 -
30-Jun-15 amortization (2.50) (0.50) -
30-Jun-15 year end 15.00 3.00 -
30-Jun-16 amortization (2.50) (0.50) -
30-Jun-16 balance 12.50 2.50 -
30-Jun-16 imp loss (4.00) (2.50) (1.50)
30-Jun-16 year end 8.50 - (1.50)
30-Jun-17 amortization (1.70) - 0.30
30-Jun-17 year end 6.80 - (1.20)

1-Jul-11 Brand 20
Bank 20
 30-Jun-12 Amortization 2
Accumulated dep
2
30-Jun-12 Acc. Amortization 2
Brand 2

30-Jun-12
Brand 9
Rev. surplus 9

30-Jun-13 amort 3
acc. Amort 3

30-Jun-13 Rev. surplus 1

R.E 1

30-Jun-14 amort 3
acc. Amort 3

30-Jun-14 Rev. surplus 1

R.E 1
30-Jun-14 acc amort 6.00
brand 6.00
30-Jun-14 rev. surplus (oci) 3.50
brand 3.50
30-Jun-15 rev. surplus 0.50
RE 0.50
30-Jun-16 amortization 2.50
acc. Amort 2.50
30-Jun-16 rev. surplus 0.50
RE 0.50
30-Jun-16 rev. surplus(OCI) 2.50
imp loss (p&l bal) 1.50
acc. Imp loss 4.00

30-Jun-17 amort 1.70

acc. Amort 1.70

30-Jun-14 30-Jun-16
NBV 17.50 12.50
FV-CTS 17.50 NA
VIU 22 8.5
RA 22 8.5
Imp loss 0 4.00
 uch gain shall always be recorded in revaluation surplus
uch revaluation loss shall be recorded in p and L
ge, and shall be calculated as per following formula

be presented on the face of SOCE (it shall not presneted in OCI)

us then it must be presented in OCI
depreciation becomes zero (due to revaluation)
e reviewed as well
surplus is a matter of choice of the company. By default incremental

s in p and l shall be recovered net of depreciaitoon saving

Revaluation surplus = NBV Under revaluation model less NBV under cost model

- Revaluation loss
P&L column = NBV Under revaluation model less NBV under cost model

+ Revaluation Surplus Balance

OR
- Rev loss p&l column balance
Rev loss p&L
r cost model

r cost model
y
 Reversal of impairement loss

Situation
Asset was impaired earlier and now asset is tested again for impairement and recoverable amount exceed NBV o

Exam Point
1 if asset is tested for impairement for the first time and recoverable amount exceeds NBV then this is not reversal
2 While calcualting NBV without impairement all activities or events from the date of purchase till the reversal of im
except impairement loss.
3 When asset is revalued then both accumulated depreciation and accumulated impairement loss both on revaluati

Rule:
Reversal shall be made upto lower of:
- Recoverable amount
- NBV today without impairement
(NBV that would have been had asset not impaired earlier)

Calculation of NBV without impairement loss under revaluation model

While calculating this value our starting date should be latest FV date and starting value should be latest fairvalue

31-Dec-24
Existing NBV 100

Test
31-Dec-24 Recoverable amount
31-Dec-24 NBV without Imprmnt
120
112 ] Lower 112

Reversal 12

Q24.
Date Particulars NBV NBV without impairement
1-Jan-21 Buy 500 500
31-Dec-21 dep -50 -50
31-Dec-21 year end 450 450
31-Dec-22 dep -50 -50
31-Dec-22 year end 400 400
31-Dec-22 Imp. Loss -80 0
31-Dec-22 year end 320 400
31-Dec-23 dep (320/8) -40 -50
31-Dec-23 Balance 280 350
31-Dec-23 reversal imp 70
31-Dec-23 year end 350
 31-Dec-22 Test
NBV 400
Recoverable amount 320
Loss 80

Accounting Entries
31-Dec-22 Impairement loss 80
Acc. Impairement loss 80

31-Dec-23 Test
NBV 280
Recoverable amount 430 A
Loss
NBV without impairement 350 B
Lower of A or B 350

Reversal Amount 70

Cost Model Accounting Entries

31-Dec-23 Acc. Impairement loss 70
Impairement loss (p&l) 70

Q25.
Date Particulars NBV NBV wo Impairement
1-Jan-21 Buy 500 500
31-Dec-21 Dep (500/8) -62.5 -62.5
31-Dec-21 year end 437.5 437.5
31-Dec-22 Dep (437.50/5) -87.5 -87.5
31-Dec-22 bal 350 350
31-Dec-22 impairement -10 -
31-Dec-22 year end 340 350
31-Dec-23 dep (340/4) -85 -87.5
31-Dec-23 year end 255 262.5
31-Dec-24 dep -85 -87.5
31-Dec-24 balance 170 175
31-Dec-24 reversal 5
31-Dec-24 year end 175

31-Dec-22 Test
NBV 350
Recoverable amount 340
Loss 10
 31-Dec-24 Test
NBV 170
Recoverable amount 310 A
NBV without impairement 175 B
Lower of A or B 175
Reversal of impairement 5

Q26. IAS 36 revaluation model

Imp loss (p&L)
Date Particulars NBV Rev. surplus Rev loss (p&L)
1-Jan-21 Buy 100 0 0
31-Dec-21 Dep (100/10) (10.00) 0 0
31-Dec-21 balance 90 0 0
31-Dec-21 Rev. gain (121.50-90) 31.5 31.5
31-Dec-21 year end 121.5 31.5
31-Dec-22 Dep (121.50/9) -13.5 (3.50)
31-Dec-22 year end 108 28
31-Dec-23 dep -13.5 (3.50)
31-Dec-23 balance 94.5 24.5
31-Dec-23 Imp loss -29.4 -24.5 (4.90)
31-Dec-23 year end 65.1 - (4.90)
31-Dec-24 dep -9.3 - 0.7
31-Dec-24 year end 55.8 - (4.20)
31-Dec-25 dep -9.3 - 0.7
31-Dec-25 balance 46.5 - -3.5
31-Dec-25 reversal 8.5 5.00 3.5
31-Dec-25 year end 55 5 -
31-Dec-26 dep (55/5) -11 -1

31-Dec-23 Test
NBV 94.5
Recoverable amount 65.1
Loss 29.4

31-Dec-25 Test
NBV 46.5
Recoverable amount 55 A
NBV without impairement 67.5
Lower of A or B 55
Reversal of impairement 8.5

Q27.
Q28.
 coverable amount exceed NBV on this impairement date.

eds NBV then this is not reversal of impairement loss situation.

e of purchase till the reversal of impairement loss date or situation shall be accounted for

mpairement loss both on revaluation date are eliminated

ng value should be latest fairvalue.

Accounting Entry
Imp. Loss 10
acc. Imp loss 10
Accounting Entry
acc. Imp loss 5
Imp loss (p andL) 5

NBV without impairement

100
(10.00)
90
31.5
121.5
-13.5
108
-13.5
94.5
0
94.5
-13.5
81
-13.5
67.5

Accounting Entry
Rev. Surplus OCI 24.5
Imp. Loss 4.9
acc. Imp loss 29.4

Accounting Entry
Acc. Imp loss 8.5
Imp/loss (p&L) 3.5 1
Rev. Surplus (OCI) 52
 Points:
Impairement loss reversal is not applicable on goodwill
Reversal shall be made on pro-rata basis

Reversal of impairement CGU

Q29.
Test-1 31-Dec-21 Test-2 31-Dec-23

NBV 14700 10070.625

Recoverable amount 12300 11550 A
Loss 2400 -
NBV without impairement 11,790 B
Lower of A and B 11,550
Reversal amount 1,479

NBV Imp loss Revised NBV

Goodwill 300 (300) -
Land 3000 (438) 2,563
Building 3600 (525) 3,075
P&M 5400 (788) 4,613
Equiptment 1500 (219) 1,281
Software 900 (131) 769
14700 (2,400) 12,300

Loss allocation:
NBV
Land 3000 437.5
Building 3600 525
P&M 5400 787.5
Equiptment 1500 218.75
Software 900 131.25
14400 2100

NBV at 31-Dec-2023 Reversal Revised NBV

Land 2,563 376.4313 2,939
Building 2,665 391.48855 3,056
P&M 3,690 542.06107 4,232
Equiptment 768.75 112.92939 882
Software 384.38 56.464695 441
10070.625 1,479 11,550

Test-2 31-Dec-23

NBV without impairement loss Revised NBV

 Land 3,000 2,939
Building 3,120 3,056
P&M 4,320 4,232
Equiptment 900.00 882
Software 450.00 441
11,790 11,550

Corporate Asset
Corporate Assets are assets other than goodwill that contribute to the future cashflows of CGU under review an
Examples:
- Head office building
- Research center
- Electronic Data Processing Equipment

Exam Points
1 A business can have multiple CGU's
1.1 Alpha Limited

CGU C

CGU B
CGU A

All are supported by a Corporate asset e.g. Head Office so impairement test should be conducted by allocating N

2 By default NBV of corporate assets can be allocated to CGU's on reasonable basis

3 Reasonable basis means weighted NBV based upon remaining useful life
4 If in the question weightage of each CGU is given then that should be used to compute weighted NBV (it means
5 By default remaining life of corporate asset is equal to or greater than the remaining life of CGU
6 It is possibe that corporate asset does not contribute towards cashflow generation of a CGU, then in such case a
7 If remaining life CA is less than the remaining life of CGU's then simple NBV proportion may be used instead wei
8 if a corporate asset does not contribute contribute towards future cash generation of all CGUs and allocation is n
i All CGUs shall be tested for impairement respectively without allocation of corporate assets
ii Impairement test shall be conducted for smallest group (khi,lhr and pdc) and if loss arise then shall be allocated
iii Conduct impairement test at company level
9 Due to limiting value of CA imapirement loss cannot be allocated seprately to green CGU and yellow CGU we wil

Allocation of NBV of Corporate

asset is possible on reasonable
Yes basis
S#1 CA NBV shall be allocated on
reasonable basis among CGU's
 CA NBV shall be allocated on
reasonable basis among CGU's

S#2 CGU A CGU B CGU C

NBV XX XX XX
Allocated value of corporate
assets XX XX XX
XX XX XX
Recoverable amount XX XX XX
Loss (NBV > RA)

S#3 Loss of respective CGU shall be allocated

- Goodwill
- Remaining assets (including portion of C.A on prorata basis)
of CGU under review and other CGU's

onducted by allocating NBV of corporate asset on a reasonable basis.

weighted NBV (it means we should not be using remaining life of CGU's)

CGU, then in such case allocation of NBV of corporate asset shall not be made to that CGU
may be used instead weighted average proportion
CGUs and allocation is not possible, in this situation impairement test shall be conducted in the following manner

then shall be allocated among them on prorata basis

U and yellow CGU we will be allocation impairement loss on combined basis

No
S#1 Impairement test of respective CGU shall be conducted without allocating C.A
[If loss arise then record as per rules]
S#2 Test on company level
CGU A CGU B CGU C CA Total NBV
NBV XX XX XX XX XXX Compare with recoverable amount
If loss arise then allocate as per rules i.e
with recoverable amount
e then allocate as per rules i.e. pro rata basis
Q21 Allocation can be made on reasonable basis

Kohat Larkana Sahiwal Total

NBV A 484 300 380 1164
Remaining life B 10 8 6
Weightage C 1 0.8 0.6
Weighted average D 484 240 228 952
H.O allocation E 129 64 61 254
Resarch center F 53 27 - 80
NBV G = A+E+F 667 391 441 1498
Recoverable amount 464 346 505 1315
Impairement loss 203 45 0 247

Kohat Loss
RC 53 16
HO 129 39
Other Assets 484 147
667 203

Larkana Loss
RC 27 3
HO 64 7
Other Assets 300 34
391 45

Kohat Larkana Sahiwal HO RC

NBV 484 300 380 254 80
Imp loss 147 34 - 47 19
Revised NBV 337 266 380 207 61
Q12 Korona LimA(i) H.W
A(ii) Allocation cannot be made on reasoanable basis
Karachi Lahore Peshawar
NBV 160 100 125
Recoverable amount 155 115 169
Impairement loss 5 x x
Revised NBV 155 100 125

*First identify the smallest group and allocate the impairement loss
If in this question it would have mentioned that product development center supports every CGU, then identification

Karachi Lahore Product Dev. Centre Total

NBV 155 100 26 281
Recoverable amount 6 4 1 270
Loss 149 96 25 11

Karachi Lahore Peshawar PDC HO TOTAL

NBV 149 96 125 25 84 479 vs
Loss (12) (8) (10) (2) (7) 40
136 88 115 23 77

Goodwill
1 Goodwill shall be allocated among CGUs in the same manner as discussed in Corporate assers
2 If allocation is not possible then same rules as discussed in Corporate asset shall be applied
3 Reversal of impairement loss is not applicable in case of goodwill

Q11 GML W-16

Green Yellow Orange TOTAL W1
FV-CTS
Buses 225 150 95 VIU w1.1
Other assets 400 350 100 Recoverable amount
Total A 625 500 195
Useful life 20 15 10
Weight B 2 1.5 1
Weighted C 1250 750 195 2195
Goodwill D 5.69 3.42 0.89 10
Corporate E 114 68 18 200
Total A+D+E 745 572 214
Recoverable amount 523 450 283
Loss 222 122 x 343

Limiting Value
Corporate N/A
HO buildin 46
Computer 60
Buses Gree 197.6
Yellow 123.5
Orange 98.8

*Due to limiting value of CA imapirement loss cannot be allocated seprately to green CGU and yellow CGU we will b
every CGU, then identification and allocation of impairment loss would not be made

439

Green Yellow Orange

500 450 250
522.86 408.65 282.51
Recoverable amount 522.8611 450 282.5112

PV = $522.86 $408.65 $282.51

CGU and yellow CGU we will be allocation impairement loss on combined basis
 IAS-19
Employee Benefits

Accounting in employer financial statement

Short term benefits Termination benefits

- Salaries - Expense in the year

- Bonus in which termination
takes place
Allowance
-
- Paid leaves

Expense in the
year to which it
belong
Exam points
1 For interest cost and interest income calculation discount rate at start of the relevant year shall be used. Such rate
2 The discount rate which is used for DBO, the same must be used for fair value of plan assets
3 The increase in the DBO due to performance and completion of cuurent year service is called Current Service cost
4 Settlement
When a company sells its division and employees opt to transfer pension/gratuity balance and related asset to the
5 By default closing balance given in the question related to asset or liability is the final balance. The given balance is
6 PSC: If plan is amended in a manner that obligation is increased or decreased related to services provided by the em
7 If plan is amended at start of the year or during the year and date is mentioned then interest expense on liability co
8 In movement of Fair value plan asset contribution actually paid shall be presented
9 If contribution is paid by the employer on the basis of acturuial report and contribution is actually paid but amount
Contribution= CSC+-PSC+-Net interest (income)or expense
14
10 If actual return on plan assets is given in the question then re-measurement gain or loss on plan asset shall be calcu
[ Remeasurement gain/(loss) on plan asset = Actual return on plan asset
11 FORMAT: MOVEMENT OF NET DBO/PLAN ASSET
(when Net balance is given)
Rs.
Opening net (asset)/liability (x)/x
+/- net interest (income)/expesnse (x)/x
+ CSC X
+/- PSC X/(x)
- Contribution made (X)
 +/- Settlement (differential) X/(x)
(Liability>asset) -ve
(Liability<asset) +ve
+/e \ (X)/x
Closing net asset/liability

DCP
Obligation to contribute
e.g. Provident fund -

Accounting
1 Employer contribution for the year ---> Expense
2 Contribution made < Contribution due IAS 26

Deficit= contribution payable

3 Contribution paid > Contribution due
Bank
Shares
Excess amount=prepaid contribution Debt instruments
Mutual Fund
Entry Asset---->Fairvalue--> Plan asset

Contribution due
Salaries expense xx
PF payable xx

Payment

PF payable xx
bank xx
 Extract SOFP 2024 2023 2022 2021
Non-Current assets
Defined Benefit Plan 50 0

Non-Current Liability
Defined Benefit Plan 90 198 0

Extract SOCI 2024 2023 2022

P and L
Salaries Expense 209.8 143 140
OCI
Remeasurement (gain)/loss -197.8 225 (80)
12 368 60

Notes to FS 2024 2023 2022

1 Defined benefit plan
1.1 Movement of FV of plan assets
+ Opening Balance 1402 1250 1000
+ Interest income 140.2 125 100
+ Contributions made 120 120 110
- benefits paid (150) (140) (120)
- settlement - -48 -
+/- Remeasurement gain/(loss)(bal.) 97.8 95 160
+ Closing balance 1610 1402 1250

1.2 Movement of PV of D.B.O 2024 2023 2022

+ Opening balance 1600 1200 1000
+ Interest cost 160 120 100
+ Current service cost (CSC) 150 150 140
+/- Past service cost (PSC) 40 - -
- Benefits paid -150 -140 -120
- Settlement -50 -
+/- remeasurement (gain)/loss(bal.) -100 320 80
+ Closing balance 1700 1600 1200

1.3 Amount to be recorded in p&l 2024 2023 2022

(expense--> + and income --> -)
+ CSC 150 150 140
+/- PSC 40
Net interest 20 (5.00) -
(gain)/loss on settlemet - (2.00) -
209.80 143 140

1.4 Amount to be recorded in OCI 2024 2023 2022

Remeasurement gain/loss on FV of plan assets -97.8 -95 -160

Remeasurement gain/loss on PV of DBO -100 320 80

-197.8 225 -80

1.5 Discount rate for the year is 10%

1.6 Contribution of next year will be Rs. Xxx

1.7 gain/loss on settlement
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
2024 2023 2022
FV of assets transferred 0 48 0
+ Cash paid if any 0 0 0
- PV of DBO Transferred 0 -50 0
(gain)/loss - (2.00) -

1.8 Composition of FV of plan assets

% Rs
Bank
Equity instrument
Debt instrument
Mutual funds
100% xxxx

1.9 Average remaining life of employees is ------ years.

 Post employement Benefits Other long term benefits

Defined Contribution Plan Defined Benefit Plan

DCP DBP

ant year shall be used. Such rate shall be multiplied with respective opening balance

ce is called Current Service cost

balance and related asset to the new employer plan. This situation is called settlement
nal balance. The given balance is subject to all changes occurred during the year.
ed to services provided by the emoloyees in prior years. (increase or decrease effect will be recorded in current year)
en interest expense on liability component shall be computed after adjusting past service cost in opening balance

ution is actually paid but amount is not given then amount shall be calculated as per following formula

r loss on plan asset shall be calculated as per following

- Opening balance of FV of plan assets x discount rate ]
 DBP
Obligation to benefit
Pension or Gratuity

IAS 19- Apply employer FS Alpha Limited

company
Fund [Contribute]

Invest

Debt instruments
Mutual Fund xxx
Asset---->Fairvalue--> Plan assets
Employees Obligation xxx
[Pension, PV]
(This is calculated by actuary)
DBO----> Defined benefit obligation

Employer FS

SOFP
Asset Net asset xx [surplus]

Liabilty Net liability xx [Defecit]

SOCI
P AND L Expense xx

oci
Remeasurement gain/loss xx
 2022 (EFFECT FOR EMPLOYER FS FOR THE YEAR)
Entry at year end
P&L 140
DBP 50
OCI 80
Bank 110

2023 (EFFECT FOR EMPLOYER FS FOR THE YEAR)

Entry at year end
P&L 143
OCI 225
DBP asset 50
Bank 120

DBP liability 198

2024 (EFFECT FOR EMPLOYER FS FOR THE YEAR)

Entry at year end
P&L 209.8
DBP 108
OCI 197.8
Bank 120
g term benefits
Q:4 Mehran Industries Limited

Extract SOFP 2015 2014 2013

Non-Current assets
Defined Benefit Plan 9 11

Non-Current Liability
Defined Benefit Plan - - 29

Extract SOCI 2015 2014

P and L
Salaries Expense 50.71 15.32
OCI
Remeasurement (gain)/loss -11.71 -34.32

Notes to FS 2015 2014

1 Defined benefit plan
1.1 Movement of FV of plan assets
+ Opening Balance 449 351
+ Interest income 40.41 28.08
+ Contributions made 37 21
- benefits paid (23) (16)
- settlement - -19
+/- Remeasurement gain/(loss)(bal.) -12.41 83.92
+ Closing balance 491 449

1.2 Movement of PV of D.B.O 2015 2014

+ Opening balance 438 380
+ Interest cost 42.12 30.4
+ Current service cost (CSC) 19 15
+/- Past service cost (PSC) 30 -
- Benefits paid -23 -16
- Settlement -21
+/- remeasurement (gain)/loss(bal.) -24.12 49.6
+ Closing balance 482 438

1.3 Amount to be recorded in p&l 2015 2014

(expense--> + and income --> -)
+ CSC 19 15
+/- PSC 30 0
Net interest 1.71 2.32
(gain)/loss on settlemet - (2.00)
 50.71 15.32

1.4 Amount to be recorded in OCI 2015 2014

Remeasurement gain/loss on FV of
plan assets 12.41 -83.92
Remeasurement gain/loss on PV of
DBO -24.12 49.6
-11.71 -34.32

1.5 Discount rate for the year 9% (2014: 8%)

1.6 Contribution for next year 2016 will be Rs. 23 m

1.7 gain/loss on settlement

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
2015 2014
FV of assets transferred 0 19
+ Cash paid if any 0 0
- PV of DBO Transferred 0 -21
(gain)/loss - (2.00)

1.8 Composition of FV of plan assets

2015 2014
% Rs % Rs
Bank 10% 49.1 10% 44.9
Equity instrument 10% 49.1 14% 62.86
Debt instrument 65% 319.15 66% 296.34
Mutual funds 15% 73.65 10% 44.9
100% 491 100% 449

1.9 Average remaining life of employees is 10 years.

FORMAT: MOVEMENT OF NET DBO/PLAN ASSET

(when Net balance is given)
Rs.
Opening net (asset)/liability (x)/x
+/- net interest (income)/expesnse (x)/x
+ CSC X
+/- PSC X/(x)
- Contribution made (X)
+/- Settlement (differential) X/(x)
(Liability>asset) -ve
(Liability<asset) +ve
+/e Net remeasurement (gain)/loss (X)/x
Closing net asset/liability
 2014 (EFFECT FOR EMPLOYER FS FOR THE YEAR)
Entry at year end
P&L 15.32
DBP (L) 29
DBP (A) 11
OCI 34.32
Bank 21

2015 (EFFECT FOR EMPLOYER FS FOR THE YEAR)

Entry at year end
P&L 50.71
OCI -11.71
DBP asset 2
Bank 37
 Asset Ceiling
1 it is applied when there is a balance of surplus
2 At balance sheet date of employer, asset shall be recoreded at lower of
i Surplus (already recorded)
ii PV of refunds available or PV of reduction in future contribution
3 Loss arise---> Pv of refund<Surplus

Asset Ceiling Recorded in OCI

Adjustment applies

4 Asset ceiling adjustment shall be recorded in movement of plan assets

5 Interest income shall be recorded on net balance
6 For the purpose of presentation asset celling adjustment shall be reversed at start of next year
7 First remeasurement gain/loss on plan asset shall be recorded, then asset ceiling concept shall apply

Q2 Employee benefits IAS 19 Asset ceiling file.pdf

Extracts SOFP
N.C.A 2016 2015
DBP
N.C.L
DBP 18 15
Extracts SOCI
P and L
Salary expense 43.2305 24.208
OCI
Remeasurement gain/loss 18.7695 20.792

1 Movement of PV Plan assets

Opening 540 520
Reversal of asset ceiling 16 10
+ Interest income 46.17 41.184
+ Contribution 65 50
- Benefits paid -10 -18
- Settlement 0
+/- Remasurement Gain/(loss) -67.17 -47.184
Asset ceiling adjustment 0 -16
Closing balance 590 540
590 -67.17 556 -47.184
2 Movement of PV of DBO
Opening balance 525 510
Interest cost 45.4005 40.392
CSC 32 25
PSC 12 0
Settlement
Benefits paid -10 (18)
 Remeasurement (Gain)/loss -32.4005 (32.39)
Closing balance 572 525

3 Amount to be recognized in p and l

2016 2015
CSC 32 25
PSC 12 0
Net interest -0.7695 -0.792
(gain)/loss on settlment
43.2305 24.208

4 Amount to be recognised in OCI 2016 2015

Remasurement (gain)/loss on plan assets 67.17 47.184
Remasurement (gain)/loss on PV of DBO (32.40) (32.39)
Reversal of asset ceiling -16 -10
Asset ceiling adjustment 16
(Gain)/loss 18.7695 20.792

Q12
Extracts SOFP
N.C.A 2021 2020
DBP 45
N.C.L
DBP
Extracts SOCI
P and L
Salary expense 57.6 -35.4
OCI
Remeasurement gain/loss -8.6 -29.6

Net (Asset) Liability 2021 2020

Opening net (asset)/liability -45 80
Reversal of asset celing -17 0
+/- net interest (income)/expesnse -5.4 9.6
+ CSC 63 75
+/- PSC 0 -120
- Contribution made -29 -60
+/- Settlement (differential)
(Liability>asset) -ve
(Liability<asset) +ve
+/e Net remeasurement (gain)/loss 3.4 -46.6
+ Asset Ceiling 5 17
Closing net (asset)/liability -25 -45
-30
2 Amount to be recognized in p and l
2016 2015
CSC 63 75
 PSC 0 -120
Net interest -5.4 9.6
(gain)/loss on settlment
57.6 -35.4

3 Amount to be recognised in OCI 2016 2015

Remasurement (gain)/loss on net assets/liability 3.4 -46.6
Reversal of asset ceiling -17 0
Asset ceiling adjustment 5 17
(Gain)/loss -8.6 -29.6
 Scheme of entries
Asset ceiling loss record
OCI XX
Plan asset XX

Reversal
Plan asset XX
of next year OCI XX
oncept shall apply

As at
(Surplus)/Defecit PV of refunds Asset Ceiling Adjustment
End 2014 20 10 10
End 2015 31 15 16
End 2016 18 18 -
 2021 2020
Surplus 30 62
Pv of refun 25 45
Lower 25 45
Adjustmen 5 17

-62
 Check Whether contract is loss making or not

File Q10A
1 All the data is same except further cost is Rs 645
2 Total revenie 1000 (It is promise by the seller to the buyer to transfer goods o
3 total cost 1100
4 Total loss -100
5 Record Revenue

By default all promised goods or services are separate performance obligation.

Standalone price is at which goods or services can be solved seprately in the market.

Basic Example 1. pdf

Stage
1 Identify the contract with customer
Yes, the contract exists
2 Identify the performance obligation
1 Machine
2 Maintenance services
3 Determine transaction price
Contract price is 100,000
4 Allocate transaction price to identified performance obligation
S.A.P Contract price
Machine 95000 90476
Service 10,000 9524
105000 100000
Technically discount is allocated (105,000-100,000=5,000)

Machine Service
S.A.P 95000 10,000
Contract price 90476 9524
4524 476

5 Record Revenue

Service
+ goods
Constructi
on

Record revenue over time Revenue record at point of time

Over the year of 2022 1-Jan-22 90476
9524
 Stage#3
Transaction Price
3.1 Non-cash considertion
It should be measured at FV
3.2 Amount collected on behalf of others
It should not be included in transaction price e.g. Sales tax
3.3 Amount payable to customer
Against purchase of goods

Yes No

G1: Sale transaction price

Price 100Rs Price 1000

-300
700
*In this situation Amount payable to
customer should not be adjusted in *In this situation Amount
contract price payable to customer shall be
adjusted in contract price

3.4 Contingent or Variable Consideration

- There are two types of consideration one is fixed and other is contingent or variable.
- At contract date it is concluded that whether contingent consideration to be included in contract price or not,
If it is to be included then what amount to be added.
Rule:
- Contingent consideration shall be included in transaction price if it is highly probable that such revenue shall n
Past experience
Yes NO
Contingent consideration should not

Add Not add

Value
Method to be used
1 Most likely method
2 Expected value method for more than 2 probable outcomes
e buyer to transfer goods or services or both that are distinct)

file:///C:/Users/dell/Downloads/Revised%20IFRS15%20MAH(8-08-24)05.pdf
ed in contract price or not,

e that such revenue shall not be reversed [Factors pg 3]

nt consideration should not be included

 Check Whether contract is loss making or not

File Q10A 48 units 2 units

All the dataBank 48000 Bank 2000
Total revenie 1000 48000 Contract Liability 2000
total cost COS 1100 Right to recover cost 1400
Total loss -100 1100 Inventory 1400
Contract Liability 2000
A- Two units are retuned Bank 2000

30-Jan-22 No entry here Inventory 1400

Right to recover cost 1400
B- No units are returned Contract Liability 2000
Revenue 2000
No entry here COS 1400
Inventory 1400
C- 8 units are returned Contract Liability 2000
1000 6000 Bank 2000
Bank 6000 Inventory 1400
Right to re 1400
-100 4200
COS 4200
D - All units are returned Contract Liability 2000
Bank 2000
1000 48000 Inventory 1400
Bank 48000 Right to re 1400

-100 1100
COS 1100

3.5 Significant financing component

Goods or services is Amount is received

received but receipt but delivery of
is deferred goods is deferred
Receiveble concept Advance---> Contract Liability

Example-3

1-Jan-22 Receivable 8264.463

Sales 8264.463
10000*(1.1)^-2
 COS 6000
Inventory 6000
### Recevable 826.4463
Interest income 826.4463

### Receivable 909.0909

Interest income 909.0909
### Bank 10000
Receivable 10000

Example-4

1-Jan-22 Receivable 9504.132

Sales 9504.132
5000*(1.1)^-1+6000*(1.1)^-2

COS 6000
Inventory 6000
### Recevable 950.4132
Interest income 950.4132

### Bank 5000

Receivable 5000

### Receivable 545.4545

Interest income 545.4545
### Bank 6000
Receivable 6000

Example-5
1-Jan-22 Bank 100000
C.L 100000

31-Dec-22 Interest expense 12000

C.L 12000

31-Dec-23 Interest expense 13440 Conract liability

C.L 13440 Year
2022
31-Dec-23 C.L 125440 2023
Revenue 125440

31-Dec-23 COS 92000

Inventory 92000
 Example-5
1-Jan-22 Bank 100000
C.L 100000

31-Dec-22 Interest expense 12000

C.L 12000
31-Dec-22 C.L 59170 -84502.55
Revenue 59169.81
Installment = 100,000/A.F

31-Dec-23 Interest expense 6340 Conract liability

C.L 6340 Year
2022
31-Dec-23 C.L 59169.81 2023
Revenue 59169.81

31-Dec-23 COS 92000

Inventory 92000

Stage #4 Allocation of transaction Price

1 Transaction price shall be allocated to identified performance P.O on the basis of standalone price
2 Stand alone price (pg 6)
S.A.P-----> Identical market value
If identical MV is not available
(Similar item FV+/- Adjustment)
(Expected cost+ Profit)
A.B.C
S.A.P
A 500
B 400
C ?
C=Total contract price - S.A.P of all other PO's

Example#7 Simple allocation proportionately

Example#8(P#6 Para 3Observal evidence

A+b+C = 120 S.A.P
50+40+30 110 Contract price
10 Discount

Reguarly A_+B sell at R 80

A+B--> S.A.P 90
Discount 10

Solution
PO S.AP Allocated price
A 50 44.44444
b 40 35.55556
c 30 30
120 110

Example#9(P#6 Para 3)

A+b+C = 120 S.A.P

50+40+30 105.00 Contract price
15 Discount
In this situation additional discount of rs. 5 shall belongs to all P.O which is A,B and C. In this situation discount shal
10 between A and B, then additional discount of Rs 5 shall be allocated among A,B And C
Reguarly A_+B sell at R 80
A+B--> S.A.P 90
Discount 10

Solution
PO S.AP Allocated price
A 50 44.44444 42.42424
b 40 35.55556 33.93939
c 30 30 28.63636
120 110 105
 For confirm sales of 48 units, revenue will be booked on delivery

Year B/f Interest Receipt C/F

2022 8264.463 826.4463 0 9090.909
2023 9090.909 909.0909 10000 0
 Year B/f Interest Receipt C/F
2022 9504.132 950.4132 5000 5454.545
2023 5454.545 545.4545 6000 0

Conract liability
B/f Interest Payment Closing
100000 12000 0 112000
112000 13440 125440 0
125440
 Conract liability
B/f Interest Payment Closing
100000 12000 59170 52830.19
52830.19 6339.623 59170 0.00

dalone price

ce - S.A.P of all other PO's

Simple
In this situation discount shall be allocated in 2 layers
 Check WhetherRecord
c Revenue

File Q10A Record Revenue pg 8 file.pdf

All the data is same except further cost is Rs 645 When
Total revenie 1000 PO is satisfied
total cost 1100
Total loss -100 Overtime

Control of asset is Control of asset is

transferred at point of transferred at over
time time
*Asset could be goods or service

Revenue is recorded at point of time Revenue is recorded at o

Normally goods Normally services and construction

Rule/Check
Any 1 of 3 situations is met Is PO is satisfied overtime
1

Yes N0
PO is satisfied at point of

Is PO is satisfied overtime
Record revenue overtime
Measure progress of contract
[Percentage of contract compelete]
Input method
pg 8

Cost to obtain contract

 Incremental cost (will be incurred if contract is obtained)
Cost incurred irrespective contract is obtained
or not Comission
e,g Bid fee
proporsal preparation cost [Recoverable from customer]

These are not recoverable from customer Contract cost xx

Thereby these are immediately expensed out Bank xx

Amortization xx
Contract cost xx
[Revenue pattern/proportion]

IFRS example 39
Receivable: When undconditional righ to receive payment is established and only passage of time is left
Contract asset: When right to receive consideration is conditional other than passage of time
(receivable replacement yet a condition is to be satisfied)

10-Jan-22 Contract asset 400

Sale[A] 400
20-Jan-22 Receivable 600
Sale[B] 600
20-Jan-22 Receivable 400
Contract as 400
30-Jan-22 Bank 1000
receivable 1000

IFRS example 38

Cancellable Non Cancellable

1-Jan-19 x x
x Receivable 1000
31-Jan-19
Contract Liability 1000
1-Mar-19 Bank 1000 Bank 1000
CL 1000 Receivable 1000
31-Mar-19 C.L 1000
C.L 1000 Sale 1000
Sale 1000
COS 700
COS 700 Inventory 700
Inventory 700
 file:///C:/Users/dell/Downloads/Revised%20IFRS15%20MAH(8-08-24)05.pdf

Control of asset indicators are on pg 8 of the file

Control of asset is
transferred at over
time

Revenue is recorded at overtime

Normally services and construction contracts

PO is satisfied at point of time

Output method
pg 8

Contract Cost

Cost to fulfill contract

 Goods
Services/ Construction
Inventory xx contract
Bank xx Contract cost xx
(Buy or manufacture) Bank xx
COS XX COS XX
Inventory xx Contract cost xx
(Revenue pattern) (Revenue pattern)

sage of time is left

 Check Whether contract is loss making or not
Significant financing component &
File Q10A
All the data is same except further cost is Rs 645
Total revenie 1000
total cost 1100
Total loss -100

1-Jan-20 No revenue or receivable will be booked 1-Jan-20 Cash sale

R.T.R.C 80
Inventory 80
30-Mar-20 Receivable 100
Sale 100 31-Dec-21
30-Mar-20 COS 80
R.T.R.C 80
31-Dec-20 Receivable 8.63 Year Bf
Interest incm 8.63 2020 100
31-Dec-21 Receivable 12.50 2021 108.63
Interest incm 12.50
31-Dec-21 Bank 121.14
Receivable 121.14

Construction Contract
1 We will be discussing accounting of contractor(Seller)
2 Construction contract
Contractor will construct building at premises/land of customer as per agreed structure (Construction drawing)
3 Revenue will be recorded overtime since performance obligation is satisfied overtime
4 Normally construction contract take > more than 1 year to complete
5 Measure progress of contract ----> % of completion

Input method
Cost to cost method
i..e Cost incurred to date * 100
Total estimated cost

6 % is cumulative in nature
6.1 It (%) shall be updated at each year using revised estimates
7 Revenue for the year = Total revenue to date - revenue recorded in earlier years
[ total contract price*%age]
8

= -
Cost of sales
Cost of sales Total cost of recorded in
Expense FTY sales to date earlier years
 [ total
estimated
cost
*%age]
9 Before starting working of any year, check whether contract is loss making or not
Total cost > Total revenue
10 By default invoice is sent when uncondtional right to receive payment is established

Example 10 pg 9 file Total cost 700 Not loss

total revenue 1000 making

Percentage completed 65%

Revenue FTY 650
COS FTY 455

SOCI Year 1
SALE 650
COS -455
GP 195

SOFP Year 1 Contract cost 455

Asset
Contact cost - COS 455
Contact asset
Bank (bal.) 610
Receivable 40

Q47 pg 763 book

Ali Builders Contract cost 80

Cost to date 20%
Revenue FTY 100 COS 80
COS FTY 80
Receivable 75
Extracts SOCI 2022 Contract asset 25
Revenue 100
COS -80
GP 20

Extracts SOFP 2022

Contract cost -
Contract asset 25
Receivable 75

Q48 pg 763 book 1-Jan-22 PPE 320

 31-Dec-22 Contract cost 85

Zaeem Builders 31-Dec-22 Contract cost 16

Cost to date 101.00
Further cost 100 31-Dec-22 COS 97.46
Cash 310
Dep (16*2) 32 31-Dec-22 Receivable 120
342 Contract asset 34
Total cost 443.00
Total revenue 700
Revenue FTY 154
COS FTY 97.46

Extracts SOCI 2022

Revenue 154
COS (97.46)
GP 56.54

Extracts SOFP 2022

Assets
PPE 304
Contract cost 3.54
Contract asset 34
Receivable 120
 100 However, the receivable is recorded at 30th March 2020, so inter
30-Mar-20 100
Rate PV=Receipt value*(1+i)^-n
rate=10% Rate= 11.51%
121 31-Dec-21 121
1.76 Years

Interest income Receipt C/F

8.63 - 108.63
12.50 121.14 (0.00)

structure (Construction drawing)

Output method
Work certified method
[survey method]
% will be given
Bank 455

Contract Cost 455

Revenue 650

Bank 80

Contract Cost 80

Revenue 100

Bank 320
Bank 85

Acc. Dep 16

Contract Cost 97.46

Revenue 154
ded at 30th March 2020, so interest income shall be start recognized from 30th March
Check Whether contract is loss making or not

File Q10A
All the data is same except further cost is Rs 645
Total revenie 1000
total cost 1100
Total loss -100

Example 10 pg 9 file

Percentage completed 41%

Revenue FTY 413.6364
COS FTY 455
Already loss recorded
SOCI Year 1 -41.36364
SALE 413.6363636 Entry to be recorded
COS -513.636364 Entry amount COS 58.64
Gloss -100 -41.36364 58.64 Contract Cost

* The process which we follow that will automatically record the loss equals to total loss*percentage of completion
The differential amount of loss needs to be recorded as per above

SOFP Year 1
Asset
Contact cos -
Contact asset

IFRS EXAMPLE 20
IFRS EXAMPLE 21
IFRS EXAMPLE 22
IFRS EXAMPLE 24 READ
IFRS EXAMPLE 27 There is no SFC in retention money amount thereby no PV or compounding will be done
IFRS EXAMPLE 28
IFRS EXAMPLE 63 Bill and hold pdf pg 9

Repurchase Contracts
 Call option - Right to buy
Seller has call option
Transaction date 1-jan-2024
Sale 1000 [O.S.P]
*Control means power to gain benefit and restricting others from getting benefits throughout the life of the asset
1 If arrangement is classified as financing as per IFRS 9 then the difference between the repurchase price and original
time gap between transaction date and the repurchase date is less than or equal to one year]

2 If arrangement is classified as financing as per IFRS 9 then asset will only be derecognized on repurchase date if call
3 If arrangement is classified as financing as per IFRS 9 then amount received should be recorded as financial liability
4 If time gap between repurchase date and original selling date is greater than 1 year then finance cost shall be deter
5 If time gap between repurchase date and original selling date is greater than 1 year then for the purpose of compar
cost of equity (or discount rate given) then compare it with OSP for the purpose of determining accounting for the
6 If asset is taken back on rent then for the purpose of comparing repurchase price with OSP we shall include rental a

Transaction/sale date 1-jan-2024

Sale 1000 [O.S.P]
31-Dec-24 Repurchase price. Rs 1100
PPE NBV 700 life 5 years
Year end Jan-dec
REQ: Acc entry 2024 if A) seller excercises call option
B) Seller does not exercise call option
Solution
1-Jan-24 Bank 1000
Loan 1000
31-Dec-24 Depreciation 140
Acc.dep 140
31-Dec-24 Interest exp 100
Loan 100
(A) 31-Dec-24 Loan 1100
Bank 1100
(B) 31-Dec-24 Financial liabil 1100
PPE 560
Gain on di 540
 Total estimated\loss Difference
-100 -58.63636

58.64
- Check
uals to total loss*percentage of completion

ereby no PV or compounding will be done

 with a right of return with a right of return

g benefits throughout the life of the asset

e between the repurchase price and original selling price is treated as finance cost [ if the
or equal to one year]

be derecognized on repurchase date if call option is not exercised

ved should be recorded as financial liability
than 1 year then finance cost shall be determined using amortization schedule [use incremental borrowing rate or market rate shall be us
than 1 year then for the purpose of comparing repurchase price with original selling price we shall calculated PV of repurchase price using
purpose of determining accounting for the arrangement
ase price with OSP we shall include rental amount in repurchase price
 e or market rate shall be used]
PV of repurchase price using
 Q38 W-16 TL
A) 1-Jul-14
OSP VS Repurchase price
600 vs 610.74
RPP is greater than OSP therby it is a financing arrangement as per IFRS 09
w-1
Year cash PV @10% Ke
2015 90 0.9090909 81.81818
2016 640 0.8264463 528.9256
610.7438
FL Schedule 11.05%
1-Jul-14 Bank 600 year b/f Interest Payment
F.L 600 2015 600 66.312 90
30-Jun-15 DEP 16 2016 576.312 63.694 640
ACC.dep 16
30-Jun-15 Interest ex 66.312 Closing Deferred tax
Bank 90 2015 CV TB TTD/(DTD)
F.L (bal) 23.69 PPE 224 0 224
30-Jun-15 D.T.A 105.6936 F.L 576.312 0 -576.312
Tax expens 105.6936
30-Jun-16 DEP 16 D.TAX
ACC.dep 16 2015 0 0
30-Jun-16 Int exp 63.694002
F.L 26.305998 P AND L 105.6936
Bank 90 C/F 105.6936
2016
30-Jun-16 F.L 550 B/F 105.6936 P and L 105.6936
PPE 208
Gain on der 342 C/F 0
30-Jun-16 Tax expens 105.6936
DTA 105.6936 Closing Deferred tax
2016 CV TB TTD/(DTD)
PPE 0 0 0
F.L 0 0 0

Yes case accounting entries are same as above

No case
 Example
Accounting year Jan-dec
1-Jan-24 Machine sold for Rs. 150
1-Jan-24 Machine NBV Rs. 100 with remaing life of 5 years
Seller name alpha limited (AL)
Repurchase date 30-Jun-24 [AL has call option]
Repurchase amount Rs 130
Required : Accounting entries for the year 2024 in the books of Al if
a AL exercises call option
b AL does not exercise call option

1-Jan-24 Bank 150

Advance rent income 150
30-Jun-24 Advance rent income 15
Rent income 15
30-Jun-24 Dep. Exp 10
Acc. Dep 10

(a) If exercise call option

30-Jun-24 A.R.I 135

Rent income (bal) 5
Bank 130
31-Dec-24 Dep 10
Acc. Dep 10

(B) If exercise does excercise not call option

30-Jun-24 A.R.I 135
PPE 90
Gain on de-recognitio 45
 IAS 12 Point 53
Repurchase Contract
Tax Rule
As per tax rules asset has been sold
Current year tax
Accounting depreciation +
Tax depreciation -
Gain on sale as per tax +
Loss on sale
Finance costas
onper tax
financial -
liability +
Installment paid -
CF Gain on derecognition (AC) -
576.312 Loss on derecognition +
0
Closing D.TAX
CV TB TTD/(DTD)
Rate DTL/(DTA)
30% 67.2 PPE XX Zero X
30% -172.8936 FL XX Zero (x)
-105.6936

Rate DTL/(DTA)
30% -
30% -
-

same as above
 Repurchase Contract (File pg#16)

Put Option
- Put Option-->Right to sell
- Transaction date--->Sale date-->Accounting seller?
- Buyer has put option (right to sell) on specific date at specific amount
- Control may be transferred to the buyer on the date of Original sale

No Case----> Controls is transferred so book revenue on transaction date

Siginificant economic inceentive

Economic incentive of buyer to exercise put option
(Repurchase price> Expected MV of asset on repurchase date)
All the treatments and points for Yes case [i.e. IFRS 9 and IFRS 16] are same as call option
IFRS Example 62

Contract Modification

Yes

Additional consideration Reflect Market

price on Modification date

No (case-2) Yes (Case-1)

Modification is accounted
prospectively

For the purpose of Fiannci

Blended accounting and financial
price = Additional Consideration+unrecognized revenue from existing contract reporting such modificatio
per PO accounted for as New/sep
contract
 For the purpose of Fiannci
Blended accounting and financial
price = reporting such modificatio
per PO Additional PO+ Remaining PO under existing contract accounted for as New/sep
contract
After Modification
Revenue of every unit equals to blended price per unit

Example 11 pg 10 file
Yes (Case-1)
1-Feb-20 Bank 3500
Sales 3500
1-Feb-20 COS 2450
Inventory 2450
1-Apr-20 Bank 5800
Sales 5800
1-Apr-20 COS 4200
Inventory 4200
1-May-20 Bank 2700
Sales 2700
1-May-20 COS 1050
Inventory 1050

Example 12 pg 10 file
No (case-2)
1-Feb-20 Bank 3500
Sales 3500 Blended price= Additional Consideration+unrecogniz
1-Feb-20 COS 2100 Additional PO+ Remaining PO under
Inventory 2100
1-Apr-20 Bank 5400 @ 1st March 3500 +
Sales 5000 50 +
Contract L 400
1-Apr-20 COS 3600 Blended price= 83.33333
Inventory 3600
1-May-20 Bank 2100
Contract L 400
Sales 2500
1-May-20 COS 2100
Inventory 2100

IFRS EXAMPLE 5
CASE A
CASE B
 Contract Modification

Agreement or contract is subsequently modified

Additonal goods or services are distinct (Seprate PO)

No
[E.g construction contract]

Q44 HL

Yes (Case-1)

For the purpose of Fianncial

accounting and financial
reporting such modification is
accounted for as New/separate
contract
 For the purpose of Fianncial
accounting and financial
reporting such modification is
accounted for as New/separate
contract

l Consideration+unrecognized revenue from existing contract

l PO+ Remaining PO under existing contract

4000
40
 IFRS Example 8
Additional goods/services are not distinct
Cumulative catch up adjustment to revenue
1 This adjustment shall be made to the revenue on modification date
2 This adjustment shall be equal to the difference between the recorded revenue to date and cumulative revenue tha
original contract since inception.

Initial contract term

60% = Percentage completion
Revenue 600000
Cost 420000
Revised term assuming retrospectively
51% = Percentage completion
Revenue 691463.4
Cost 420000
Cumulative catch up adjustment to revenue 91463.41
Revenue to be recorded at start of year 2 91463.41

Asset

Right to recover cost Contract asset

(Receivable replacement)

Contract cost

Incremental cost Construction contract/services

Contract asset

Revenue is recorded as per rules Revenue is recorded and

But receivable cannot be recorded receivable is also recorded
as per rules but receivable amount is less
than revenue

Contract Liability
Bank is debited or receivable is Bank is debited or receivable is
debited and revenue is not debited and revenue is recorded
recorded but amount is less than bank or
receivable
Revenue record Receivable record

When Performance Unconditional right to receive

Obligation is satisfied payment is established
[contract mention]

PO is satisfied

Overtime If not over time then

[3 factors] at point of time

Q41 FL

Should have been done Error Rectify

Bank 15 Bank 15 Revenue
CL 15 Revenue 15

Q44 HL

75%
112.5
-67.5
45

Compeltion percentage 75%

Revenue FTY 112.5
COS FTY 67.5

After amendment
Compeltion percentage 52%
Cumulative revenue 106.9615
Cumulative Cost 67.5
Cumulative catchup adjustment -5.54 decrease
 Non-refundable deposit
1 If seller has received non-refundable deposit from customer then it should be recorded as revenue when PO is satis
2 If contract is terminated by the customer then such non-refundable deposit shall be recorded as revenue immediat
3 If customer cannot terminate the contract unless seller fails then it means seller has enforceable right to payment f

Q46 WL

Should have been done Actually done

Bank 60 Bank 60
C.L 60 C.L 60
P&L 15 Contract co 35
Contract co 20 Bank 35
Bank 35 Receivable 180
Inventory 120 Sales 180
Bank 120 Invetory 120
Bank 120
COS 120
Inventory 120
te and cumulative revenue that would have been till modification date as if modification were part of
Rectify
15
CL 15
ed as revenue when PO is satisfied (Consistent with revenue)
ecorded as revenue immediately at the time of termination
enforceable right to payment for work completed till date

Rectification Journal entry

No R.J.E
P&L 15 Deduct from RE
Contract cost 15 Deduct from other current asset
Sales 180 Deduct from RE
Receivable 180 Deduct from receivable
Inventory 120 Add in inventory
COS 120 Add in RE
 Q39 iii
OSP 100
RPP 105.6327
105.6327
RPP 105.6327 >OSP which is 100
Under call option if RPP>OSP, irrespective if the asset is taken back on rent or not
It will be treated under IFRS 9 i.e. financing component Reference -

Should have been done Error Rectifyig

1-Jan-17 Bank 100 Bank 100 PPE
FL 100 PPE 80 Gain
Gain 20
30-Jun-17 Dep 4 Dep
ACC.DEP 4 No entry posted
30-Jun-17 Finance cost 5.5 Finance cost
F.L 5.5 No entry posted

Liability
PV= Future payment * (1+i)^-2
Find i for incremental borrowing rate
i= 11%

Discount Vouchers/ Royalty Points

1 As per IFRS 15 it is material right to the customer
2 It is separate PO
3 Stand alone price shall be estimated on contract date Example IFRS 49 (DISCOUNT VOCHER)
Estimated discount amount Example IFRS 52 (LOYALTY POINTS
Discount Rs. xxx * probability of visit
Discount % * Estimated purchase amount * Probability of visit
4 Discount voucher issue

Liability will be recorded related to allocated value of discount voucher

5 Revenue
Earlier of: Discount voucher is redeemed
OR
Discount voucher is expired
6 Revenue separately--> Record since it is a separate Performance obligation
7 As per IFRS 15 when revenue is recorded on estimate basis then any subsequent change in the revenue will be adju

IFRS Example 49
1-Jan-24 Bank 100
Revenue Product A 89
Contract Liability 11
30-Jan-24 On this date customer purchased 90 Rs, goods
Bank 63
 C.L 11
Revenue (bal) 74

IFRS Example 52
1-Jan-24 Bank 100,000.00
Revenue Products 91324
Contract Liability 8676
30-Jan-24 On this date customer purchased 90 Rs, goods
Bank 63
C.L 8676
Revenue (bal) 8739

Redemption
1 In this situation initial value of CL based upon SAP should not change and change in estimated
points will effect percenatge of completion and eventually will effect revenue of year 2

Option 1
 S.A.P Price
Alpha 10 8.87
Support service 2.4 2.13
12.4 11

Discuss
Alpha revenue to be recorded on delivery at 8.87
Support service over time at 2.13

Siginificant financing component will be invloved for support service and company should consider SFC

Option 2
Lease
Lease receivable (PV of LP+UGRV which is 0)
COS
Sales PV of LP
Inventory
Rental PV= 2.20+2.20 * A.F using higher rate i.e. 12%)
At implicit rate = 8.9
PV of GIL = FV of asset
R+ r * A.f = 10
R= 2.2

Lease Schedule
Bf income receipt cf
1 8.90 1.07 4.40 5.57
2 5.57 0.67 2.20 4.04
3 4.04 0.48 2.20 2.32
4 2.32 0.28 2.20 0.40

Option 3 SAP Contract price

Alpha 10 9.09
Voucher 1 0.91
11 10

Alpha revenue 9.1

CL 0.91

Option 4
Revenue will be recorded over time as 3 shartain poori horahi hen
Use input cost method etc.

If total amount is received in advance then it means enforceable right to payment to date exists

Q42 Lira and Co. Winter 19

 i
Discuss 3 conditions for overtime recognition of revenue
- Simultaneuous consumption
- Customers asset enhances as seller provides serives
-Asset is specialized in nature and enforcebale right to payement to date exists
Hence, revenue will be recorded at point
In other cases, Overtime recognition will be made using cost to cost methods, input methods, milestone basis

ii
Hence, revenue will be recorded overtime
Resources consumed, milestone

iii Local client Network Firms

LCCA is agent LCCA is principal ..

Net revenue will be recorded Revenue gross 10
Revenue (10-9) = 1 Salary expense (X)

Principal and agent

 Rectifyig Journal entry
80 Add in PPE
20 Less in PBT
FL 100 Add in liability
4 Less in PBT
ACC.DEP 4 Less in PPE
Finance cost 5.5 Less in PBT
F.L 5.5 Add in liability

SCOUNT VOCHER) pg 630 old book

YALTY POINTS pg 631 old book

in the revenue will be adjusted in revenue in the period of change

S.A.P Price
Product A 100 89
Voucher 12 11
112 100
 S.A.P Price
Product A 100,000.00 91324
Voucher 9500 8676
109500 100,000.00

CL
8676
Year 1 Revenue (4,110)
Year1 end bal 4566
Year 2 Revenue 3,492.92 (L68*8500/9700)+L69
Year 2 end 1,073.29
d consider SFC
hods, milestone basis
 Q40 HL
Summer-2018
i)
P.O S.A.P 0 Contract cost
Advertisement 32.5 30.06
Broadcast 54 49.94
Revenue service Total 86.5 80
Cost of sales - Building NCL
Cost of sales - ServRevenue per: CL- Service
(Other than bonus)
Advertisement 6.01
Broadcast 9.99 CL
CL- Service
31-Dec-17 CL- Building
Advertsiement Broadcast
Revenue 22.03 26.97
Total revenue 49.00

Cost of sales
Advertisment Broadcast
2015
15.1 23.93
Total cost 39.03
Balance sheet
Contract cost/ Inventory
Advertisment Broadcast

2016 11.67
Total cost 2027.67
TOTAL PAYMENT 2066.7
Should have been done Error
31-Dec-17 Bank 40 Bank 40
Receviable/ Cont 9.00
Revenue 49.00 Liability

31-Dec-17 COS 39.03 P and L 2066.7

Contract cost 2027.67 Bank
Bank 2066.7

Question 52: -
Question 53:
31-Dec-23
Revenue
2.3
 Delivered 115
CL
1-Oct-23 72
Receivable 80
CL 20
Contract asset 15
Revenue 115

Bonus 21 Asset (bal)

7.88
Expense
13.13

Retrospective Price Reduction

1 Revenue shall be recorded on estimated basis
2 Subsequent change in revenue due to estimate shall be adjusted in revenue in the period of change
3 Corresponding effect on revenue adjustment (2) shall be adjusted in receivable or contract liability
4 Customer shall make payment and we shall receive as per actual category
example:
Price per unit
Upto 1000 units 500
>1000 and Upto 1500 400
> 1500 units 350

Question 43 Happy enterprise

Units Price
upto 5000 250
> 5000 215

Solution
Double Entries
10-Aug-18
xxx
28-Aug-18 Contract asset 750
Revenue 750
4-Sep-18 Receivable 750
Contract asset 750
12-Sep-18 Bank 750
Receivable 750
25-Dec-18 Revenue 105.00
Contract liability 105.00
Adjustment of first order 105,000.00
(250-215)=35*3000
25-Dec-18 Receivable 755
 Contract liability 755
(4000*215)-(35*3000) 755000
10-Jan-19 Bank 755
Receivable 755
15-Jan-19 CL (BAL.) 860
Revenue 860

IFRS 15 file pg 2

Q10 ECL
PG 2 Combination of contract
 Broadcast

-3.9

3.9 0
0

rror Rectifyig Journal entry

Liability 40 Deduct from Liability
Receviable/ Contract as 9.00 Add in asset
40 Revenue 49.00 Add in Revenue / profit

Contract cost 2027.67 Add in asset

2066.7 P and L 2027.67 Add in profit
period of change
contract liability
 Q37: BnD
Extracts SOCI Extracts SOFP
2016 2015 Assets 2016 2015
Interst expense (11.58) (21.24) Contract cost - 129.07

Revenue building 268.82 -

Revenue service 3.9 -
Cost of sales - Building (168.6) - NCL
Cost of sales - Service (3.00) - CL- Service 27.30 35.1

w1 SAP Allcoated
Building (bal.) 236 236 CL
Service 39 39 CL- Service 7.80 3.9
275 275 CL- Building - 257.24
w2 Liability for Building Service
2015
Cash 236 39
Interest exp 21.24
257.24 39
-3.9
31-Dec-16 35.1
2016
Interest exp 11.5758
Transfer to Revenue 268.82
w3 Contract Cost
2015
Land 50
DM 53.47
DL 21.73
Other 3.87
2015 yr end 129.07

2016
DM 26.73
DL 10.87
Other 1.93
Tranfer to COS 168.60

Example pg 18
39 35.1
 Financial Instruments IFRS 09
Investment in shares
i ownership < 20%
ii Fairvalue [only]

FV- p&L
In examination on sale date FV must be updated if given and specifically mentioned in the question

Objective is trading
Objective is not trading
i initial measurement
ii TC on purchase e,g comission brokerage
iii Dividend income
iv FV update at each reporting date
v Gain/(loss) on disposal (if any)
vi Gain/(loss) on disposal (calculate)
vii Net sale proceed
viii Impairement loss [ECL]
ix Re-classification
x Fair value reserve Exist
xi FVR transfer to RE when shares are sold
Entries

1 Purchase of shares

2 T.C on purchase

3 When dividend is declared

4 When dividend is received

5 FV gain

6 FV loss

7 Sale of shares

8 Transfer of FVR To R.E on sale

By default investment in shares shall be measured at FV - P and L

 If objective is not trading and the company wants to follow FV - OCI method then company must elect an irreveroca
recognition.

Example
Acc year jan-dec
1-Dec-22 Bought 100 shares at Rs 20 each
Total Transcation cost of rs 500 was paid at time of purchase
Date FV per share
31-Dec-22 14
31-Dec-23 29
In october 2023, company earned and received dividend of Rs. 2 per share
Required
Accounting entries and extracts of SOCI AND SOFP FTY 2022 AND 2023
Under following independednt situations
a FV - P AND L
b FV - OCI
 FV- OCI
if given and specifically mentioned in the question
FV - P & L FV - OCI
P O
P P If objective is not trading and com
Fair value (pay) Fair value (pay) + TC on purchase
Immediately expense in P and L It is added in initial amount of investment
income in P and L Income in p and l
Yes & FV gain/(loss) in p and l Yes & FV gain/(loss) in OCI
in P and L in P and L
Net sale proceed - *nbv at time of sale Net sale proceed - *nbv at time of sale As per requirement of IFRS fair va
Gross sale proceed - TC on sale Gross sale proceed - TC on sale
Not applicable Not applicable
Technically permitted (From FV-P&L to FV-OCI) Not permitted
No Yes When FV gain/loss for the year is
Not applicable Yes [directly on the sale of SOCE]

FV - P & L FV - OCI
Investment xx Investment xx
Bank xx Bank xx same
P&L xx Investment xx
Bank xx Bank xx
Dividend receivable xx Dividend receivable xx
Dividend income xx Dividend income xx same
Bank xx Bank xx
Dividend receivable xx Dividend receivable xx same
FV gain for the year (FV>NBV)
Investment xx Investment xx
FV gain ( P & L) xx FVR ( OCI) xx
FV loss for the year (FV<NBV)
FV loss ( P & L) xx FVR ( OCI) xx
Investment xx Investment xx
Bank (net sale proceed) xx Bank (net sale proceed) xx
P and L (loss) Bal. P and L (loss) Bal.
Investment xx Investment xx
or P and L (gain) Bal. or P and L (gain) Bal. same
Balance of fair value reserve on sale date
Credit (+ve) Debit (-ve)
No entry FVR xx R.E xx
R.E xx

d at FV - P and L
s to follow FV - OCI method then company must elect an irreverocable option to measure such investment at FV - OCI at the time of initial

of purchase

dividend of Rs. 2 per share

P FTY 2022 AND 2023

If objective is not trading and company wants to follow fair value through OCI method then at the time of initial recognition company mu

As per requirement of IFRS fair value should be updated on sale date. Normally, shares are sold at market value or fair value

When FV gain/loss for the year is routed through OCI then eventually it is presented in SOCE in FVR column

Debit (-ve)

FVR xx
nt at FV - OCI at the time of initial
nitial recognition company must elect an irrevocable option to measure such investment at FV - OCI

alue or fair value

 Example
Acc year jan-dec
1-Dec-22 Bought 1000 shares at Rs 20 each
Total Transcation cost of rs 500 was paid at time of purchase
Date FV per share
31-Dec-22 14
31-Dec-23 29
In october 2023, company earned and received dividend of Rs. 2 per share
Required
Accounting entries and extracts of SOCI AND SOFP FTY 2022 AND 2023
Under following independednt situations
FV - P AND L
FV - OCI
Exam Point
FV gain or loss fort he year shall be computed on total basis

a Solution FV - P AND L

1-Dec-22 Investmenet 20000

P and L (t.c) 500
Bank 20500

31-Dec-22 FV Loss (P and L) 6000

Investment 6000
1000*14-20000

1-Oct-23 Bank 2000

Dividend income 2000

31-Dec-23 Investment 15000

FV gain (p and L) 15000

Extracts SOCI
P and L 2023 2022
Dividend income 2,000
FV Gain/(loss) 15,000 (6,000)
T.C on purchase - (500)

Extracts SOFP 2023 2022

Assets
Investments 29000 14000

b Solution FV - FV OCI
 1-Dec-22 Investment 20500
('20*1000+500) Bank 20500

31-Dec-22 FVR (OCI) 6500

Investment 6500
1000*14-20500

1-Oct-23 Bank 2000

Dividend income 2000

31-Dec-23 Investment 15000

(29*1000)-14000 FVR (OCI) 15000

Extracts SOCI
P and L 2023 2022
Dividend income 2,000

OCI
FV gain / (loss) 15000 (6,500)

Extracts SOFP 2023 2022

Assets
Investments 29000 14000

Equity
FVR 8,500.00 (6,500)

FVR (Credit Nature)

31-Dec-22 FV loss (6,500.00)

31-Dec-22 Balance (6,500.00)
31-Dec-23 FV gain 15000
31-Dec-23 Balance 8,500.00

Reclassification of financial asset

Investment in equity instrument Investment in debt instrume

FV P and L FV OCI Six Cases

To OCI To p and L

Not permissable
 From P and L to OCI
1 Objective is not trading
2 Irrevocable option elect

Step#1
Until transfer date, investment shall be measured at FV - P AND L (Transfer date FV shall be updated)
Step#2
Record Transfer entry at FV on transfer date
Investment FV OCI XX
Investment FV P and L XX
Step#3
Subsequently such investment shall be measured at FV OCI

Q24 Rashid Industries Limited Summer -17

Investment in KL
Rs in million

FV P & L FV - OCI
15-Oct-16 19.96 initial value 15-Oct-16 20
Comission 0.04

Year end
Year end Year end FV 12.400
12.400 (80*155000)
Fv loss for the year (p&L) 7.560 FV gain/(loss) for the year
Loss 7.600
No impairement loss can be recorded on investment in shares

Investment in BL
Rs in million

FV P & L FV - OCI
15-Oct-16 64.87 initial value xxxxxx
Comission 0.13 P and L expense

30-Nov-16 Company may decide to hold the investment and not trade and my elect irrevorcable option i.e. FV O
Step 1 83.84
64.87
 FV gain p&l 18.96
Step 2 Transfer
Year end value 81
FV gain P and L 16.13 Step 3 Year end
SOFP Value 81
83.84
FV loss OCI -2.83

Q28 ii KANGROO LIMITED

Exam Point: When transaction cost is given at the time of sale in percentage but basis of percentage is not mentio
Next year 2018
A B
Dividend 4 7
FV at 31-dec-18 90 59

Sep-18
40% shares of investment B were sold for Rs. 57 at fair value
Extract SOCI
P and L 2018 2017
Transaction cost (2)
Dividend income 11 21
FV - Gain/(loss) -15 25
Gain/(loss) on disposal 5.64

OCI
FV gain/(loss) for the ye -14 22.9

Extract SOFP 2018 2017

Assets
Investment 149 235

Equity
Fair value reserve -5.26 22.9

W-1 Investment A - FV P&L dr + Gain/(loss)

cr -
Buy 100 Net proceed 22.54
Disposal -20 NBV -20
Balance 80 Gain A 2.54
FV GAIN (Bal) 25
Year end 105
Balance 105
 FV GAIN (Bal) -15
Year end 90

W-2 Investment B - FV OCI dr + Gain/(loss)

cr -
Buy 153 Net proceed 49
Disposal -45.9 NBV -45.9
Balance 107.1 Gain b 3.1
FV GAIN (Bal) 22.9
Year end 130
18-Sep FV GAIN (Bal) 5
Disposal (nbv) -57
78
FV loss bal -19
31-Dec-18 year end 59
estment in debt instrument
date FV shall be updated)

evorcable option i.e. FV OCI

 83.84 FV OCI Transfer

percentage is not mentioned then such percentage shall be applied to the gross sale proceed.
Fair value reserve Disposal
31-Dec-17 22.9 Proceed 57
fv gain 5 NBV -57
FVR transfe -14.16 -
Balance 13.74
FV LOSS -19
YEAR END -5.26
 Investment in debt instrument 20;00 mins
1 Purchase of bonds, debentures, TFC, Loan stock, loan notes
2 It is a loan asset
Debt instruments

Buy Issue
Financial asset Financial liability

Investment in debt instrument

ACM FV-OCI FV - P and L

Method A + CCF test pass B + CCF test pass No need of CCF test

Business model objective [BMO]

First---> BMO test

Then---> Contractual Cashflow Test [CCF test]

i It is applied on individual investment
ii Contractual cashflows are solely interest and prinicpal
Time value of money and Credit Risk decides interest rates
iii Currecny should be same

Examples of debt instruments that normally pass CCF test

A Fixed rate instrument
B Variable rate instrument
C Zero coupon bond (These are purchased or issued at extreme discount and interest is earned on maturity on cumul

Examples of debt instruments that does not pass CCF test;

due to Time value of money and Credit Risk and conversion option

Purchase of convertible instruments shall be measured under FV P and L

CCF test Pass CCF test fail CCF test no need

BMO
A ACM FV P&L N/A
B FV OCI FV P&L N/A
C N/A N/A Pass >FV P&L
 BMO test C - Trading (short ter --------> No need of CCF tes
1 It is applied on portfolio level A - Hold till maturity and collect CCF i.e. interest
2 A company may have multiple portfolios B - Hold the investment to collect CCF and then
3 Portfolios are made on the basis of;
A RISK
B RATING
C RETURN
4 How manager is managing portfolio
arned on maturity on cumulative basis)
 --------> No need of CCF test
and collect CCF i.e. interest and and principal (Sales are not frequent)
ent to collect CCF and then selling the financial asset i.e. enjoy capital gain (Sales are frequent if oppurtuinity arise)
 A.C.M
1 Initial value At Fairvalue (payment) + TC on purchase
2 TC on purchase It is added in initial value of investment
3 Interest income In P&L using effective rate of interest
4 Amortization schedule Yes
5 Effective Interest rate method Yes apply
6 Gain/(loss) on sale Yes P&L
6.1 Calculation Net sale proceed - NBV at sale time
6.2 Net sale proceed Gross sale proceed - TC on sale
7 ECL Yes apply
8 Re-classification Yes Permitted
9 FV update at year end N/A
10 FV Gain/(loss) fty N/A
11 FVR exist N/A
12 FVR trasnfer to P&L at time of sale of investment N/A

Effective interest rate (it is IRR project, implicit rate of transaction)

Carrying value of investment shall be increased by interest income calculated at effective rate of
interest and carrying value of investment shall be decreased by receipt of actual interest or
redemption amount.

Under ACM method the balance of investment equals to present value of future remaining
contractual cashflows discounted at effective rate of interest.
FV-OCI =ACM+ FV Update FV-P&L
Same ACM At fair value
Same ACM It is expensed out immediately in PL
Same ACM In p&l using coupon rate
Same ACM Not prepare
Same ACM not apply
Yes P&L Yes P&L
Net sale proceed - NBV at sale time* Net sale proceed - NBV at sale time* *On sale date FV should be updated but conditio
Same ACM Gross sale proceed - TC on sale
Same ACM Not apply
Yes permitted Yes permitted
Yes Yes
Yes in OCI Yes in P and L
Yes Don't exist
Yes N/A

Question:6 XYZ limited

Rs in million

Year BF
2017 106.5
2018 105.31
2019 104.07
2020 102.77
2021 101.42

Purchase of bonds
1-Jul-16 Investment

Interest income column

30-Jun-17 Investment

Receipt
30-Jun-17 Bank

Extracts SOCI
P and L
Interest income

Extracts SOFP
NCA
Investment (bal.)

CA
Investment

Question:43 Ali limited

1-Jan-21 Ali limited purchased 1800 TFC'S for 18,900
PAR
Coupon rate 6%
redeemed at premium of 10%

A
Year BF
2021 19300
2022 19220.13
2023 7256.11

Extracts SOCI
P and L
Interest income

Extracts SOFP
NCA
Investment (bal.)

CA
Investment
*On sale date FV should be updated but condition is that FV should be given and mentioned on sale date

Amortized cost schedule

B=A*4.5186% C A+B-C Current / Non-current calculation

Interest income Receipt C/F Step 1 Place total balance of schedule in SOFP total ba
4.81 6 105.31 Step 2 If the next year balance is decreasing then the d
4.76 6 104.07 Step 3 The balancing amount will constitute the non-c
4.70 6 102.77
4.64 6 101.42
4.58 106 0.00

106.5
Bank 106.5 30-Jun-17
Bank 6
4.81 Income
Income 4.81 Compound entry Investment

6
Investment 6

2021 2020 2019 2018 2017

4.58 4.64 4.70 4.76 4.81
 2021 2020 2019 2018 2017
- 101.42 102.77 104.07

101.42 1.36 1.30 1.24

- 101.42 102.77 104.07 105.31

Ali limited purchased 1800 TFC'S for 18,900

Rs 10
Coupon rate 6%
edeemed at premium of 10%

B=A*5.182% C A+B-C
Interest income Receipt C/F
1000.13 1080 19220.13
995.99 12960 7256.11
376.01 7632 0

2023 2022 2021

376.01 995.99 1000.13

2023 2022 2021

- - 7256.11

- 7256.11 11964.01
0 7256.11 19220.13
 e of schedule in SOFP total balance
alance is decreasing then the differential will be placed in current assets
ount will constitute the non-current assets

4.81
1.19
Lecture 5 Prepared by MAH
Example 43A
1/1/2021 1000 TFC buy at premium of 5% Effective Rate /IRR
Par Value Rs 10
Transaction cost of Rs.1 per TFC is paid
Coupon Rate is 10% p.a
interest shall be received every year on december 31st
12/31/2022 80% TFC shall be redeemed at discount of 2%
12/31/2023 20% TFC shall be redeemed at premium of 14%
Method ACM
Effective rate of interest is 3.3090% p.a
Required
Amortised Cost Schedule

3.3090%
Year B/F Interest Receipt C/F
2021 11,500.00 380.53 1,000.00 10,880.53
2022 10,880.53 360.03 8,840.00 2,400.57
2023 2,400.57 79.43 2,480.00 -

Example-1 1/1/2023 1000 TFC Par Value Rs 10

Buy at par
Coupon Rate 15%
interest shall be received every year on december 31st
Principal shall be redeemed at par after 3 years on 31st dec 2025
Transaction cost of Rs. 0.1 per TFC is paid 100
SOLUTION
IRR outflows
0 (10,100) Y0 (10,100.00)
1 1,500 inflows
2 1,500 Y1 1,500.00
3 11,500 Y2 1,500.00
Y3 11,500.00
 14.5652%
14.5652%
Year B/F Interest Receipt C/F
2023 10,100.00 1,471.08 1,500.00 10,071.08
2024 10,071.08 1,466.87 1,500.00 10,037.95
2025 10,037.95 1,462.05 11,500.00 -

Example-1A 1/1/2023 1000 TFC Par Value Rs 10

Buy at par
Coupon Rate 15%
interest shall be received every year on december 31st
Principal shall be redeemed at par after 3 years on 31st dec 2025
SOLUTION
IRR
0 (10,000.00) (10x1000)
1 1,500
2 1,500
3 11,500
15.0000%
[1A] 15.0000% Difference
Year B/F Interest Receipt C/F
2023 10,000.00 1,500.00 1,500.00 10,000.00 28.92
2024 10,000.00 1,500.00 1,500.00 10,000.00 33.13
2025 10,000.00 1,500.00 11,500.00 - 37.95
[1] 100
Year B/F Interest Receipt C/F
2023 10,100.00 1,471.08 1,500.00 10,071.08
2024 10,071.08 1,466.87 1,500.00 10,037.95
2025 10,037.95 1,462.05 11,500.00 -

Example-2 1/1/2023 1500 TFC Par Value Rs 10

Buy at discount of Rs 1
Coupon Rate 12%
interest shall be received every year on december 31st
Principal shall be redeemed at par after 3 years on 31st dec 2025
SOLUTION
IRR
0 (13,500) 9*1500
1 1,800 (12%x10x1500)
2 1,800 (12%x10x1500)
3 16,800 (12%x10x1500)+(10x1500)
16.4883%
16.4883%
Year B/F Interest Receipt C/F
2023 13,500 2,226 1,800 13,926
2024 13,926 2,296 1,800 14,422
2025 14,422 2,378 16,800 -
 Example-3 1/1/2023 1200 TFC Par Value Rs 10
Buy at Premium of Rs 1.3
Coupon Rate 14%
interest shall be received every year on december 31st
Principal shall be redeemed at par after 3 years on 31st dec 2025

Solution
IRR
0 (13,560)
1 1,680
2 1,680
3 13,680
8.8757%
8.8757%
Year B/F Interest Receipt C/F Difference
2023 13,560 1,204 1,680 13,084 (476) Y1
2024 13,084 1,161 1,680 12,565 (519) Y2
2025 12,565 1,115 13,680 - (565) Y3
(1,560)

Example-4
1/1/2023 1000 TFC Par Value Rs 10
Buy at Par
Coupon Rate 10%
interest shall be received every year on december 31st
Principal shall be redeemed at discount of 1% after 3 years on 31st dec 2025
Solution
IRR
0 (10,000)
1 1,000
2 1,000
3 10,900
9.6970%
9.6970%
Year B/F Interest Receipt C/F Difference
2023 10,000 970 1,000 9,970 (30)
2024 9,970 967 1,000 9,936 (33)
2025 9,936 964 10,900 0 (36)
(100)
Example-5 1/1/2023 1000 TFC Par Value Rs 10
Buy at Par
Coupon Rate 16%
interest shall be received every year on december 31st
Principal shall be redeemed at premium of 5% after 3 years on 31st dec 2025
Solution
IRR
0 (10,000)
1 1,600
2 1,600
3 12,100
17.4074%
17.4074%
Year B/F Interest Receipt C/F Difference
2023 10,000 1,741 1,600 10,141 141
2024 10,141 1,765 1,600 10,306 165
2025 10,306 1,794 12,100 - 194

500

Example-6 1/1/2023 1000 TFC Par Value Rs 10 Buy at Par

interest shall be received every year on december 31st
Principal shall be redeemed at par after 3 years on 31st dec 2025
Year Coupon Rate
2023 12%
2024 15%
2025 16%
Solution
IRR
0 (10,000)
1 1,200
2 1,500
3 11,600
14.1554%

Example-7 1/1/2023 1000 TFC Par Value Rs 10 Buy at Par

interest shall be received every year on december 31st
Principal shall be redeemed at par after 3 years on 31st dec 2025
Year Coupon Rate
2023 10%
2024 0%
2025 10%
solution
IRR
0 (10,000)
1 1,000
2 -
3 11,000
 6.6713%

Calculate Effective rate [ACM&FV-OCI]

Q43 B Alpha Limited Year end December 31st each year

1/1/2023 1000 TFC buy @ discount of 5%
Par value is Rs 10 Coupon rate is 12%
Interest shall be received every year on december 31st
Principal shall be redeemed after 3 years on december 31st 2025 at premium of 3 %
Transaction cost on purchase is Rs 200
Required Calculate Effective rate of instrument
Step 1 Determine cashflows of the project
0 (9,700.00) 10*95%*1000+200
1 1200 10*1000*0.12
2 1200 10*1000*0.12
3 11500 10*1000*0.12+(10*1.03*1000)
14.17%
$33.48
Step 2 Use two random discount rate and calculate two NPV's
i > coupon rate 14.00% 33.48
ii < coupon rate 10.00% 929.79

Step 3 Use the normal formula for IRR

LR+ NPV @ LR x (HR-LR) irr=14.15%

NPV @ LR - NPV@HR

Q43C Instrument life is 3 years

1/1/2021 1000 TFCs buy @ premium of Rs. 2
PAR value is Rs. 10 & TC on purchase is Rs. 1 per TFC
Coupon rate is 10% per annum
Interest shall be received at the end of every year
TFCs shall be redeemed @ premium of Rs.5 on Jan 1, 2024
Investment is classified @ FV-OCI
Effective rate 12.2410%
DATE Fair Value Rupees
12/31/2021 14,000
12/31/2022 13,000
12/31/2023 15,000
Requirement : Accounting entries, extract of SOCI & SOFP for all years

> FairValue gain/loss for the year shall be computed by comparing FV with the balance of investm
> FV gain/loss entry shall not be updated or recorded in amortized cost schedule
> On redemption date redemption amount equals to Fair value
> On redemption date the balance of FVR would be zero
> At any balance sheet date the balance of FVR would be equal to the difference between (Balanc
FVR= FV - Amort schedule bal.
> Calculation of FV gain/loss for the year and closing balance of FV reserve without preparing inve
Example on debt instruments issuance Year
0 9,900.00
1/1/2023 1000 TFC Par Value Rs 10 1 (1,500.00)
Issue at par 2 (1,500.00)
Coupon Rate 15% 3 (11,500.00)
interest shall be paid every year on december 31st
Principal shall be redeemed at par after 3 years on 31st dec 2025 15.4412%
Transaction cost of Rs. 0.1 per TFC is paid at the time of issuance
 0 (11,500) (1000*11.5)
1 1,000 (1000x10x10%)
2 8,840 (1000x10x10%)+(1000x80%x10x98%)
3 2,480 (200x10x10%) +(200x10x1.14)

3.3090%

(10.1x1000)

(10x1000x15%)
(10x1000x15%)
(10x1000x15%)+(10x1000)
 Check
(0.00)

0)+(10x1500)

Difference
426 Y1
496 Y2
578 Y3
1,500
Difference
Y1
Y2
Y3
Y1
Y2
Y3
emium of 3 %

th the balance of investment as per ledger

fference between (Balance of investment at year end )fairvalue and balance as per Amortized schedule

ve without preparing investment and FVR ledger

(1000x10)-(0.1x1000)
(1000x10x15%)
(1000x10x15%)
(1000x10x15%)+(1000x10)
Prepared by MAH -0.4348%
Why Effective Rate is different from Coupon Rate
(i) Transaction Cost on purchase
(ii) Premium @ time of purchase
(iii) Discount @ time of purchase
(iv) Premium @ time of redemption
(v) Discount @ time of redemption
(vi) Coupon rate of every year is different

Situation Effective Rate Subsequent Treatment

Transaction Cost on purchase Lower than Coupon Rate Recorded as expense over life of in
Premium @ time of purchase Lower than Coupon Rate Recorded as expense over life of in
Discount @ time of purchase higher from coupn rate Recorded as income over life of ins
Premium @ time of redemption higher from coupn rate Recorded as income over life of ins
Discount @ time of redemption Lower than Coupon Rate Recorded as expense over life of in
 Investment in debt instruments

Subsequent Treatment
Recorded as expense over life of instrument in form of reduced interest income
Recorded as expense over life of instrument in form of reduced interest income
Recorded as income over life of instrument in form of increased interest income
Recorded as income over life of instrument in form of increased interest income
Recorded as expense over life of instrument in form of reduced interest income
 Investment in debt instruments

r life of instrument in form of reduced interest income

r life of instrument in form of reduced interest income
life of instrument in form of increased interest income
life of instrument in form of increased interest income
r life of instrument in form of reduced interest income
Q43C Instrument life is 3 years
1/1/2021 1000 TFCs buy @ premium of Rs. 2
PAR value is Rs. 10 & TC on purchase is Rs. 1 per TFC
Coupon rate is 10% per annum
Interest shall be received at the end of every year
TFCs shall be redeemed @ premium of Rs.5 on Jan 1, 2024
Investment is classified @ FV-OCI
Effective rate 12.2410%
DATE Fair Value Rupees
12/31/2021 14,000
12/31/2022 13,000
12/31/2023 15,000
Requirement : Accounting entries, extract of SOCI & SOFP for all years

Extract of SOCI
Profit and loss 2023 2022
Interest income 1745 1664

OCI
FV Gain/(loss) FTY 1,255.04 (1,663.71)

Extract of SOFP 2023 2022

Assets 15,000 13,000
Investment

Equity (0.00) (1,255.04)

Fairvalue reserve

Accounting Entries
1-Jan-21 Investment 13000
Bank 13000
31-Dec-21 Bank 1000
Investment (bal.) 591
Income 1591
31-Dec-21 Investment 408.67
FVR (OCI) 408.67
31-Dec-22 Bank 1000
Investment (bal.) 664
Income 1664
31-Dec-22 FVR (OCI) 1,663.71
Investment 1,663.71
31-Dec-23 Bank 1000
Investment (bal.) 745
Income 1745
31-Dec-23 Investment 1,255.04
FVR (OCI) 1,255.04
 1-Jan-24 Bank 15000
Investment (bal.) 15000
Income -

Calculation of FV gain/loss for the year and closing balance of FV reserve without preparing investment and FVR l
2021 2022
Closing FVR 409 (1,255.04)
(14000-13591)
FV Gain/(loss) for the year
2021 2022
CF FVR 409 (1,255.04)
- BF FVR 0 409
Gain/(loss) 409 (1,663.71)
408.67 (1,663.71)
Check - -

Q43D Same example 43C

on 2nd January 2022
All TFC were sold for Rs. 14100
Required: Entries 2022 and Extracts 2022

Extract of SOCI
Profit and loss 2022
Gain on sale 100
Fv gain re-classifed from OCI 409

OCI
FV Gain reclassified to P&l (409)

Extract of SOFP 2022

Assets -
Investment

Equity -

Accounting entries
2-Jan-22 Bank 14100
Investment 14000
Gain on sale (bal. p&L) 100

2-Jan-22 FVR (OCI) 409

P&L 409

Investment in debt instruments (FV-OCI)

On the date of sale the balance of FVR should be reclassified to P&L from OCI
On sale date FVR Balance
 Balance
+ Cr -Dr
FVR (OCI) XX P&L XX
P&L XX FVR (OCI)

Q9 Gypsum Limited

Accounting entries
1-Jul-18 investment 500000
t.c p&l 24000
Bank 524000
30-Jun-19 investment 55000
Income 55000
30-Jun-19 Bank 55000
Investment 55000
30-Jun-19 FV loss p and l 20000
Investment 20000
(96*5000)-500000
 Amortized cost schedule Investment ledger (BF+)
2021 Year BF Interest receipt cf 1-Jan-21 13000
1591 2021 13000 1591 1000 13591 2021 Adj. 591
2022 13591.33 1664 1000 14255 Bal. 13591.33
2023 14255 1745 1000 15000 FV gain(bal.) 408.67
408.67 2024 15000 0 15000 0 2021 yr end 14000
2022 Adj. 664
2021 Bal. 14663.7147
14000 FV loss(bal.) (1,663.71)
2022 yr end 13,000
2023 Adj. 744.96
408.67 Bal. 13,744.96
FV gain(bal.) 1,255.04
2023 yr end 15,000
1-Jan-24 rece -15000
-
paring investment and FVR ledger
2023
0.00

2023
0.00
(1,255.04)
1,255
1,255.04
(0.01)
XX
 F.V.R (CR+)
31-Dec-21 F.V gain 408.67
2021 year end 408.67
31-Dec-22 FV loss (1,663.71)
2022 year end (1,255.04)
31-Dec-23 FV gain 1,255.04
2023 year end (0.00)
Plan as at 13-Apr-25

Lecture
Financial instruments 22
Consolidation 51
Separate FS 1
IAS 12 14
Group D.TAX 3
IFRS 05 3
Specialized FS 2
IFRS 02 9
IFRS 13, IFRIC 17 1
LEASE 14
120.00
80
9,600.00
160.00 15-Apr-25 31-May-25 46
3.48 Hrs per day
2.61 LECTURES PER DAY
 Schedule value = SOFP value

Financial Liability
Issuance of debt instruments

ACM

*No reclassifcation is permitted in Financial Liability

A.C.M
1 Initial measurement At Fairvalue (receive) - TC on purchase
It is deducted in initial value of investment
TC on purchase
2 (Capitalized)
3 Interest expense In P&L using effective rate of interest
4 Amortization schedule Yes preapre
5 Effective Interest rate method Yes apply
6 Re-classification Not permitted

FV update at year end N/A

7

Question 4 Sony Limited

Extracts SOCI 2021
Profit and loss 15115.2618353731
Interest expense

Extracts SOFP 2021

NCL
Loan notes (FL) 0

CL
Loan notes (FL)
0

Accounting entries
 1-Jan-18 Bank 196000
F.L
31-Dec-18 Finance cost 14892.08
Bank
F.L
31-Dec-19 Finance cost 14959.8602384
Bank
F.L
31-Dec-20 Finance cost 15032.7904193136
Bank
F.L
31-Dec-21 Finance cost 15115.2618353731
F.L 198884.738164627
Bank

*Carrying value of financial liability shall be increased by interest expense calculated at effective rate and carrying

Question 44 Moiz Limited

1-Jan-21 ML issued 1000 bonds at 10500
PAR value Rs.10
Coupon rate 8%
T.C 100
Bonds are classified as Amortized cost method
Interest payable annually
30% bonds redeemed at 10% premium on 31-dec-2022
70% on 5% premium 31-dec-23
Effective rate 8.55%

Extracts SOFP 2023

NCL
Loan notes (FL) 0

CL
Loan notes (FL)
0

Calculation of effective rate (Issuance of Instrument - A.C.M)

Q5. Thor Limited

Step 1 Determine the cashflows of project year wise
Step 2 Determine two NPVs using two discount rates
I Greater than coupon rate
ll Less than coupon rate
Use NPV formula:

Timeline
0 94000
1 -11200
2 -11200
3 -100800
10.51%
T.C on Financial liability will increase the effective rate
 Investment in debt instrument
(Summary for balance sheet value and classification)

ACM

Investment in SOFP
always in NCA except in
Last year

or
FV-P&L
(Specific Situation)

FV-P&L
At fair value (receive)
It is expensed out immediately in PL
In p&l using coupon rate
Not prepare
not apply
Not permitted
Yes at each yr end and FV gain/(Loss)
to extent of credit risk OCI and
remaining (other fv gain/loss in p&l)

Effective rate 7.598%

2020 2019 2018 Amortization Schedule
15032.7904193136 14959.86 14892.08 Year BF Finance cost
2018 196000 14892.08
2019 196892.1 14959.86024
2020 197851.9 15032.79042
2020 2019 2018 2021 198884.7 15115.26184

0 197851.94 196892.1 -959.8602

198884.730657714 - -
198884.730657714 197851.94 196892.1
 196000

14000
892.08

14000
959.860238400001

14000
1032.79041931363

214000

t effective rate and carrying value of financial liability shall be decreased by payment of actual interest and redemption amount

cost method

mium on 31-dec-2022

2022 2021 Effective rate 8.553%

0 7,286.68 Amortization Schedule

Year BF Finance coPayment
2021 10400 889.512 800
2022 10489.51 897.168 4100
7286.67996136 3,202.83 2023 7286.68 623.2297 7910
7286.67996136 10489.512
heet value and classification)

FV-OCI FV - P&L

FV = SOFP value Same FV = SOFP value Always in CA due to trading

Payment C/f
14000 196892.1
14000 197851.9
14000 198884.7
214000 0
demption amount

C/f
10489.51
7286.68
0
 Compound Financial Instrument (CFI) - IAS 32
1 It is also called hybrid instrument.
2 Convertible loan or convertible debt instrument is an example of CFI.
3 We will discuss issuer accounting.
4 Under this arrangement the issuer of instrument gives option to instrument holder to either receive redemption am
(Interest will be received annually)
5 CFI has two components, one is debt and other is equity.
6
The amount received by issuer of CFI represent two components one portion of amount belong to debt and other
7 Convertible debt instruments
Convertible TFC
Convertible Bond
Convertible Debenture
Convertible Loan notes
Convertible Loan stock
8 Coupon rate < market rate of interest without conversion option
(As we are offering an additional benefit i..e conversion option)
9 Under this situation market rate of interest without conversion option on issuance date shall be treated as effectiv
10 If market rate of interest of similar debt without conversion option equals to coupon rate of convertible loan then
11 Just to verify initial value of E.R can be calculated at PV of differential interest using market rate of interest without

Initial accounting
Bank XX (FV OCI)
Debt xx (FV/ PV of debt)
Equity reserves xx (Bal.)

FV of CFI
(amount receive due to issuance of CFI)

Debt
PV of all interest payments +
PV of redemption amounts
@ market rate of interest of similar
debt without conversion option
(On issuance date)

PV of interest payment
interest payment*A.F

PV of redemption amount
redemption amount*D.F

Subsequent accounting
Equity reserve
 No subsequent accounting

Debt/Financial Liability
Amortized cost method rules shall be applied

Settlement date/ Maturity date accounting

If shares are opted or If cash is opted
F.L xx F.L

E.R

Q45 Shayan Limited

1-Jan-19 SL issued 2000 convertible bonds at PAR value of 1000
coupon rate of 6%
Similar bond at market interest rate without conversion option
interest payable at end of each year
principal will be redeemed at end of 3 years i.e. 31-dec-21 at PAR
Bonds will be converted into ordinary shares at option of the instrument holder
each bond will be converted into 250 ordinary shares and PAR of 1 Rs
Requirement
Accounting entries in the books of SL for 31-dec-19, 31-dec-20, 31-dec-21
A) Bonds redeemed
B) Conversion

Accounting entries Working-1

1-Jan-19 Bank 2,000,000
F.L 1,848,122
E.R 151,878 Debt
31-Dec-19 Interest exp 166,331 2000*1000*6%
Bank 120000 120000
F.L 46,331 303,755.36 a
31-Dec-20 Interest exp 170,501 2000*1000*1.09^-3
Bank 120000 1,544,366.96 b
F.L 50,501 1,848,122.32 a+b
31-Dec-21 Interest exp 175,046
Bank 120000
F.L (bal.) 55,046 Working-2
Year B/f
If instrument is Redeemed (cash opted) 2019 1,848,122.32
31-Dec-21 F.L 2000000 2020 1,894,453.33
Bank 2000000 2021 1,944,954.13
31-Dec-21 E.R 151,878
R.E 151,878
(directly on the face of SOCE)

If shares are opted

31-Dec-21 F.L 2000000
E.R 151,878
S.C 500000
S.P (Bal.) 1651878
If the balancing amount arise on the debit side then S.P
will be debited or If S.P does not exist or balance is insufficient retained earning shall be debited.
der to either receive redemption amount in cash or receive agreed number of shares on maturity

amount belong to debt and other portion of amount belongs to equity because the instrument issuer has given conversion option.

ce date shall be treated as effective rate

upon rate of convertible loan then PV of F.L = FV of CFI thereby, equity portion would be zero.
ing market rate of interest without conversion option

Equity
Balancing
 xx
Bank xx (redemption value)

xx
R.E xx

9%

ument holder

FV of CFI
2,000,000
E.R (balancing)
151,877.68

9%
interest payment c/f
166,331.01 120000 1,894,453.33
170,500.80 120000 1,944,954.13
175,045.87 2120000 -
en conversion option.
 Issuance of CFI with Transaction Cost
1 In this situation transaction cost shall be allocated between debt component and equity component on Pro-rata ba
Coupon rate 6%
Market rate of interest without conversion option 9% (Original effective rate)
Effective rate after adjustment of T.C > 9%
- Change in initial accounting only
Q11:
quity component on Pro-rata basis