【正确答案】 Contingent consideration should be valued at fair value and will have to take into account the various milestones set underthe agreement. The expected value is (20% x 5 million shares) 1 million shares x $2, i.e. $2 million. There will be noremeasurement of the fair value in subsequent periods. If this were a liability, there would be remeasurement. The contingentconsideration will be shown in OCE. The fair value of the consideration is therefore 20 million shares at $2 plus $2 million(above), i.e. $42 million. The purchase should be accounted for as follows: Dr Investment in House $42 million Cr Ordinary share capital $20 million Cr Other components of equity $22 million The fair value of the NCI is 30% x 13 million x $4·20 =$16·38 million The fair value adjustment for land is $(48 –Share capital 13 –Retained earnings 18 –OCE 3)m, i.e. $14 million. Working 2 Mach Net profit of Mach for the year to 31 March 2014 is $3·6 million. The P/E ratio (adjusted) is 19. Therefore the fair value ofMach is 19 x $3·6 million, i.e. $68·4 million. The NCI has a 20% holding; therefore the fair value of the NCI is $13·68 million. The land transferred as part of the purchase consideration should be valued at its acquisition date fair value of $5 million.Therefore the increase of $2 million over the carrying amount should be shown in retained earnings. The fair value adjustment for land is $13m (55 –Share capital 26 –Retained earnings 12 –OCE 4), i.e. $13 million. Total goodwill is therefore $(15·68 + 10·38) million, i.e. $26·06 million. Working 7 Finance lease Kutchen should have shown the lease receivable at the lower of the fair value of the asset and the present value of theminimum lease payments, i.e. $47 million. Therefore an adjustment of $3 million will have to be made to profit or loss andthe lease receivable. Similarly, the cost of transaction should have been $(40 –2·8) million, i.e. $37·2 million as the assetreverts back to Kutchen at the end of the lease. Therefore an adjustment should be made to profit or loss and lease receivableof $2·8 million. Dr Profit or loss $3 million Cr Lease receivable $3 million Dr Lease receivable $2·8 million Cr Profit or loss $2·8 million (The net amount of $0·2 million could be adjusted in this case.) The finance lease receivable figure in the financial statements will be $(50 –3 + 2·8 + 14 + 8)m, i.e. $71·8 million Pensions After restructuring, the present value of the pension liability in location 1 is reduced to $8 million. Thus there will be anegative past service cost in this location of $(10 –8) million, i.e. $2 million. As regards location 2, there is a settlementand a curtailment as all liability will be extinguished by the payment of $4 million. Therefore there is a loss of $(2·4 – 4) million, i.e. $1·6 million. The changes to the pension scheme in locations 1 and 2 will both affect profit or lossas follows: Location 1 Dr Pension obligation $2m Cr Retained earnings $2m Location 2 Dr Pension obligation $2·4m Dr Retained earnings $1·6m Cr Current liabilities $4m Even though there has been no formal announcement of the restructuring, Kutchen has started implementing it and therefore it must be accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets A provision of $6 million should also be made at the year end. Deferred taxation and impairment Carrying amount of building at 31 March 2015 $(25 –1 depreciation) million, i.e. 24 million dinars/2 = $12 million. Recoverable amount of building at 31 March 2015 17·5 million dinars/2·5 = $7 million. Impairment loss to profit or loss = $5 million. The tax base and carrying amount of the non-current assets are the same before the impairment charge. After the impairmentcharge, there will be a difference of $5 million. This will create a deferred tax asset of $5 million x 25%, i.e. $1·25 million.As Kutchen expects to make profits for the foreseeable future, this can be recognised in the financial statements.

【正确答案】The Framework defines a liability as a present obligation, arising from past events and there is an expected outflow ofeconomic benefits. IAS 32 Financial Instruments: Presentationestablishes principles for presenting financial instruments asliabilities or equity. IAS 32 does not classify a financial instrument as equity or financial liability on the basis of its legal formbut the substance of the transaction. The key feature of a financial liability is that the issuer is obliged to deliver either cashor another financial asset to the holder. An obligation may arise from a requirement to repay principal or interest or dividends.In contrast, equity has a residual interest in the entity’s assets after deducting all of its liabilities. An equity instrument includesno obligation to deliver cash or another financial asset to another entity. A contract which will be settled by the entity receivingor delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial assetis an equity instrument. However, if there is any variability in the amount of cash or own equity instruments which will bedelivered or received, then such a contract is a financial asset or liability as applicable. The contingent payments should not be treated as contingent liabilities but they should be recognised as financial liabilitiesand measured at fair value at initial recognition. IAS 37 Provisions, Contingent Liabilities and Contingent Assets, excludesfrom its scope contracts which are executory in nature, and therefore prevents the recognition of a liability. Additionally, thereis no onerous contract in this scenario. Contingent consideration for a business must be recognised at the time of acquisition, in accordance with IFRS 3 BusinessCombinations. However, IFRS do not contain any guidance when accounting for contingent consideration for the acquisitionof a NCI in a subsidiary. The contract for contingent payments does meet the definition of a financial liability under IAS 32.Kutchen has an obligation to pay cash to the vendor of the NCI under the terms of a contract. It is not within Kutchen’s controlto be able to avoid that obligation. The amount of the contingent payments depends on the profitability of Mach, which itselfdepends on a number of factors which are uncontrollable. IAS 32 states that a contingent obligation to pay cash which isoutside the control of both parties to a contract meets the definition of a financial liability which shall be initially measuredat fair value. Since the contingent payments relate to the acquisition of the NCI, the offsetting entry would be recogniseddirectly in equity.

【正确答案】The IASB emphasises the fundamental importance of standards which focus on principles, drawn clearly from the IASB’sConceptual Framework, rather than on detailed rules. This approach requires both companies and their auditors to exerciseprofessional judgement in the public interest, by requiring preparers to develop financial statements which provide a faithfulrepresentation of all transactions and requiring auditors to resist client pressures. The US financial reporting model is basedlargely on principles, but supplemented by extensive rules and regulations. Companies want detailed guidance because thosedetails eliminate uncertainties about how transactions should be structured, and auditors want specificity because thosespecific requirements limit the number of difficult disputes with clients and may provide defence in litigation. The IASB has indicated that a body of detailed guidance encourages a rulebook mentality and it often helps those who are intent on finding ways around standards. The detailed guidance may obscure, rather than highlight, the underlying principles,since the emphasis is often on compliance with the ‘letter’ of the rule rather than on the ‘spirit’ of the accounting standard. Moving from a rules-based system of accounting standards to a principles-based system could create ethical challenges foraccountants. More professional judgement would be needed, which could be perceived as creating potential ethical greyareas. However, whilst IFRS tend to use more of a principles-based approach, this, in turn, requires accountants to have acomplete understanding of ACCA’s ethical principles and possess an ability to apply those principles effectively using apersonal decision-making process. Accountants are required to appreciate the critical role ethics serves in the accountingprofession and work continually in improving their process for recognising and thinking through ethical issues. The ethicalconduct of an accountant should not be influenced by the nature of the accounting principles and practices, which are beingcomplied with. Convergence of accounting principles is an important part of the IASB’s work plan and road map for adoption of a single setof high quality globally accepted accounting standards. It follows therefore that there should be global convergence on thesubject of an independent accountant’s ethical responsibility for assuring that financial statements do in fact fairly presenteconomic reality. There is no doubt that where a rules-based system has been in operation, there is likely to be an expansion of ethicalchallenges for both accountants and auditors involved with the financial statements of public companies if a principles-basedapproach was adopted. For example, the litigious atmosphere which businesses face in the US could lead to poor applicationof IFRS because of pressures relating to potential litigation. However, it is up to the accounting profession to ensure that ethicalpractices ensure high quality financial statements. Initially, accountants may face ethical pressures from management todevelop and follow a rationale for seeing the financial results of their organisation in absolutely the most favourable light,because of the apparent elimination of accounting rules. However, IFRS are a robust set of accounting standards and it isunrealistic to assume that these standards could not replace those based around rules.