International Financial Reporting Standards 1 IFRS for SMEs

International Financial Reporting Standards 1 IFRS for SMEs Joint DUBAI SME-ASCA-IFRS Foundation Workshop 27– 29 September 2011 Dubai, UAE Copyright © 2011 IFRS Foundation. All rights reserved. The Arab Society of Certified Accountants (ASCA)

2 This presentation may be modified from time to time. The latest version may be downloaded from: http: //www. ifrs. org/IFRS+for+SMEs/SME+Workshops. htm The accounting requirements applicable to small and medium‑sized entities (SMEs) are set out in the International Financial Reporting Standard (IFRS) for SMEs, which was issued by the IASB in July 2009. The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this Power. Point presentation, whether such loss is caused by negligence or otherwise. The Arab Society of Certified Accountants (ASCA)

The IFRS for SMEs Topic 3. 4 Quiz and Discussion Liabilities Sections 20, 21 & 28 Michael Wells The Arab Society of Certified Accountants (ASCA)

Section 20 – Discussion questions Question 1: 10 -year non‑cancellable operating lease over a building. Lease rentals for years 1– 5 = 0 & CU 5, 000 for each of years 6– 10. In Y 1 the lessee must recognise expense of: a. b. c. d. CU 0? CU 2, 000? CU 2, 500? CU 5, 000? The Arab Society of Certified Accountants (ASCA)

Section 20 – Discussion questions Question 1: 10 -year non‑cancellable operating lease over a building. Lease rentals for years 1– 5 = 0 & CU 5, 000 for each of years 6– 10. In Y 1 the lessee must recognise expense of: a. CU 0? b. CU 2, 000? c. CU 2, 500? d. CU 5, 000? The Arab Society of Certified Accountants (ASCA)

Section 20 – Discussion questions Question 2: On 1/1/20 X 1 A sold a machine to a bank & leased it back for 3 yrs. Facts about the machine & the leaseback: SP = CU 200, 000; CA = CU 70, 000; FV = CU 200, 000; remaining economic life = 3 yrs; residual value = 0; lease payments = CU 77, 606 per year (payable in arrears); interest rate implicit in the lease = 8% per year. What would A recognise in profit or loss for the year ended 31/12/20 X 1? The Arab Society of Certified Accountants (ASCA)

Section 20 – Discussion questions Question 2 continued: a. CU 130, 000 gain on sale of PP&E & CU 77, 606 lease rental expense. b. CU 23, 333 depreciation expense & CU 16, 000 finance cost (no income). c. CU 43, 333 income (amortised deferred gain on sale of PP&E); CU 23, 333 depreciation expense; & CU 16, 000 finance cost. d. CU 43, 333 income (amortised deferred gain on sale of PP&E); CU 66, 667 depreciation expense; & CU 16, 000 finance cost. The Arab Society of Certified Accountants (ASCA)

Section 20 – Discussion questions Question 2 continued: a. CU 130, 000 gain on sale of PP&E & CU 77, 606 lease rental expense. b. CU 23, 333 depreciation expense & CU 16, 000 finance cost (no income). c. CU 43, 333 income (amortised deferred gain on sale of PP&E); CU 23, 333 depreciation expense; & CU 16, 000 finance cost. d. CU 43, 333 income (amortised deferred gain on sale of PP&E); CU 66, 667 depreciation expense; & CU 16, 000 finance cost. The Arab Society of Certified Accountants (ASCA)

Section 20 – Discussion questions Question 3: Same as question 2, except the remaining economic life of the machine = 30 years & the lease rental = CU 23, 000 per year of the three‑year lease term. What would A recognise in profit or loss for the year ended 31/12/20 X 1? The Arab Society of Certified Accountants (ASCA)

Section 20 – Discussion questions Question 3 continued: a. CU 130, 000 gain on sale of PP&E & CU 23, 000 lease rental expense. b. CU 23, 333 depreciation expense & CU 16, 000 finance cost (no income). c. CU 43, 333 income (amortised deferred gain on sale of PP&E); CU 23, 333 depreciation expense; & CU 16, 000 finance cost. d. CU 43, 333 income (amortised deferred gain on sale of PP&E); CU 66, 667 depreciation expense; & CU 16, 000 finance cost. The Arab Society of Certified Accountants (ASCA)

Section 20 – Discussion questions Question 3 continued: a. CU 130, 000 gain on sale of PP&E & CU 23, 000 lease rental expense. b. CU 23, 333 depreciation expense & CU 16, 000 finance cost (no income). c. CU 43, 333 income (amortised deferred gain on sale of PP&E); CU 23, 333 depreciation expense; & CU 16, 000 finance cost. d. CU 43, 333 income (amortised deferred gain on sale of PP&E); CU 66, 667 depreciation expense; & CU 16, 000 finance cost. The Arab Society of Certified Accountants (ASCA)

Section 21 – Discussion questions Question 3*: Provisions are measured at the best estimate of the amount required to settle the obligation at the reporting date. When the provision involves a large population of items, the estimate of the amount: a. reflects the weighting of all possible outcomes by their associated probabilities? b. is determined to be the individual most likely outcome? c. is the individual most likely outcome adjusted to consider the other possible outcomes? * see question 3 in Module 21 of the IFRS Foundation training material The Arab Society of Certified Accountants (ASCA)

Section 21 – Discussion questions Question 3: Provisions are measured at the best estimate of the amount required to settle the obligation at the reporting date. When the provision involves a large population of items, the estimate of the amount: a. reflects the weighting of all possible outcomes by their associated probabilities? b. is determined to be the individual most likely outcome? c. is the individual most likely outcome adjusted to consider the other possible outcomes? The Arab Society of Certified Accountants (ASCA)

Section 21 – Discussion questions Question 4*: Provisions are measured at the best estimate of the amount required to settle the obligation at the reporting date. When the provision arises from a single obligation, the estimate of the amount: a. reflects the weighting of all possible outcomes by their associated probabilities? b. is determined to be the individual most likely outcome? c. is the individual most likely outcome adjusted to consider the other possible outcomes? * see question 4 in Module 21 of the IFRS Foundation training material The Arab Society of Certified Accountants (ASCA)

Section 21 – Discussion questions Question 4: Provisions are measured at the best estimate of the amount required to settle the obligation at the reporting date. When the provision arises from a single obligation, the estimate of the amount: a. reflects the weighting of all possible outcomes by their associated probabilities? b. is determined to be the individual most likely outcome? c. is the individual most likely outcome adjusted to consider the other possible outcomes? The Arab Society of Certified Accountants (ASCA)

Section 21 – Discussion questions Question 6*: A is defending a patent infringement lawsuit. Court is expected to rule in 12/20 X 2. 30% chance court will dismiss the case. If not, 20% chance A pays CU 200, 000 & 80% chance pay CU 100, 000. A 7% risk adjustment factor to the probability-weighted expected cash flows to reflect the uncertainties in the cash flow estimates. * see question 6 in Module 21 of the IFRS Foundation training material The Arab Society of Certified Accountants (ASCA)

Section 21 – Discussion questions Question 6 continued: An appropriate discount rate is 10% per year. At 31/12/20 X 1 A recognise a provision of? a. b. c. d. e. 0? CU 100, 000? CU 84, 000? CU 89, 880? CU 81, 709? The Arab Society of Certified Accountants (ASCA)

Section 21 – Discussion questions Question 6 continued: An appropriate discount rate is 10% per year. At 31/12/20 X 1 A recognise a provision of? a. b. c. d. e. 0? CU 100, 000? CU 84, 000? CU 89, 880? CU 81, 709? The Arab Society of Certified Accountants (ASCA)

Section 21 – Discussion questions Question 7*: Same as question 6 except, disclosure of some of the information about the case can be expected to prejudice seriously A’s position in the dispute over the alleged breach of patent. At 31 December 20 X 1, A would: * see question 7 in Module 21 of the IFRS Foundation training material The Arab Society of Certified Accountants (ASCA)

Section 21 – Discussion questions Question 7 continued: a. not recognise a provision. Disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed? b. recognise a provision measured at the best estimate & disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed. c. recognise a provision measured at the best estimate & disclose the information required by paragraphs 21. 14– 21. 16. The Arab Society of Certified Accountants (ASCA)

Section 21 – Discussion questions Question 7 continued: a. not recognise a provision. Disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed? b. recognise a provision measured at the best estimate & disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed. c. recognise a provision measured at the best estimate & disclose the information required by paragraphs 21. 14– 21. 16. The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 2*: A’s employees are each entitled to 20 days of paid holiday leave per calendar year. Unused holiday leave cannot be carried forward and does not vest. The entity has a 31 December annual reporting date. The holiday leave is: a. a short‑term employee benefit? b. a post‑employment benefit? c. an other long‑term employee benefit? d. a termination benefit? * see question 2 in Module 28 of the IFRS Foundation training material The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 2: A’s employees are each entitled to 20 days of paid holiday leave per calendar year. Unused holiday leave cannot be carried forward and does not vest. The entity has a 31 December annual reporting date. The holiday leave is: a. a short‑term employee benefit? b. a post‑employment benefit? c. an other long‑term employee benefit? d. a termination benefit? The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 3*: Same as question 2, except unused holiday leave is paid out on 31 December of each year (ie it vests at the end of each calendar year but does not accumulate). The holiday leave is: a. a short‑term employee benefit? b. a post‑employment benefit? c. an other long‑term employee benefit? d. a termination benefit? * see question 3 in Module 28 of the IFRS Foundation training material The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 3: Same as question 2, except unused holiday leave is paid out on 31 December of each year (ie it vests at the end of each calendar year but does not accumulate). The holiday leave is: a. b. c. d. a short‑term employee benefit? a post‑employment benefit? an other long‑term employee benefit? a termination benefit? The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 4*: Same as question 2, except unused holiday leave may be carried forward for one calendar year (ie it accumulates but does not vest). The holiday leave is: a. a short‑term employee benefit? b. a post‑employment benefit? c. an other long‑term employee benefit? d. a termination benefit? * see question 4 in Module 28 of the IFRS Foundation training material The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 4: Same as question 2, except unused holiday leave may be carried forward for one calendar year (ie it accumulates but does not vest). The holiday leave is: a. b. c. d. a short‑term employee benefit? a post‑employment benefit? an other long‑term employee benefit? a termination benefit? The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 5*: Same as question 2, except unused holiday leave may be carried forward for two calendar years (ie it accumulates but does not vest). The holiday leave is: a. a short‑term employee benefit? b. a post‑employment benefit? c. an other long‑term employee benefit? d. a termination benefit? * see question 5 in Module 28 of the IFRS Foundation training material The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 5: Same as question 2, except unused holiday leave may be carried forward for two calendar years (ie it accumulates but does not vest). The holiday leave is: a. b. c. d. a short‑term employee benefit? a post‑employment benefit? an other long‑term employee benefit? a termination benefit? The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 7*: A publicly announces its commitment to a voluntary redundancy plan. It has an obligation to pay a lumpsum to employees that elect redundancy. The obligation is: a. a short‑term employee benefit? b. a post‑employment benefit? c. an other long‑term employee benefit? d. a termination benefit? * see question 7 in Module 28 of the IFRS Foundation training material The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 7: A publicly announces its commitment to a voluntary redundancy plan. It has an obligation to pay a lumpsum to employees that elect redundancy. The obligation is: a. b. c. d. a short‑term employee benefit? a post‑employment benefit? an other long‑term employee benefit? a termination benefit? The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 8*: A reimburses 50% of past employees’ post-employment medical costs if the employee provides +25 years of service. The obligation is: a. a short‑term employee benefit? b. a post‑employment benefit? c. an other long‑term employee benefit? d. a termination benefit? * see question 8 in Module 28 of the IFRS Foundation training material The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 8: A reimburses 50% of past employees’ post-employment medical costs if the employee provides +25 years of service. The obligation is: a. b. c. d. a short‑term employee benefit? a post‑employment benefit? an other long‑term employee benefit? a termination benefit? The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 9*: A profit sharing plan requires A pay a specified portion of its cumulative profit for a 5 -year period to employees who serve throughout the 5 -year period. The obligation is: a. a short‑term employee benefit? b. a post‑employment benefit? c. an other long‑term employee benefit? d. a termination benefit? * see question 9 in Module 28 of the IFRS Foundation training material The Arab Society of Certified Accountants (ASCA)

Section 28 – Discussion questions Question 9: A profit sharing plan requires A pay a specified portion of its cumulative profit for a 5 -year period to employees who serve throughout the 5 -year period. The obligation is: a. b. c. d. a short‑term employee benefit? a post‑employment benefit? an other long‑term employee benefit? a termination benefit? The Arab Society of Certified Accountants (ASCA)