SEGI BAC Adv. Financial Accounting & Reporting 2
Coursework Questions.
1. You are the financial controller of DD which currently prepares financial statements in accordance with local GAAP. Your finance director has been in discussions with your corporate reporting advisors about whether to move to reporting under IFRS and has forwarded to you the following note received from them:
There are a number of differences between the local GAAP and the IFRS recognition and measurement rules. Using information on our files, we have conducted a preliminary review of how your most recent financial statements might change if you had reported under IFRS. Below we show our estimates of the effect on equity at the end of the last year, together with brief notes on the different rules.
$000 $000
Equity as reported under local GAAP 6,688
Adjustments:
Amortisation of goodwill acquired in business combination 250
Valuation of property measured under revaluation model 1,200
Depreciation thereof (350)
850
Development expenditure 180
Amortisation thereof (40)
140
Equity as reported under IFRS 7,928
Recognition and Local GAAP IFRS
measurement rules
Goodwill You, like most local companies, Goodwill amortisation is
Amortise goodwill over 20 years prohibited
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Property revaluation Existing use value, that is taking Fair value, that is the open
model basis of into account what you use it for market value taking into
valuation account all possible uses.
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Development You, like most local companies, Recognition as an asset is
Expenditure choose to write off development compulsory when certain
Expenditure as incurred conditions are met.
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Your finance director is aware that those making economic decisions use financial information for various purposes, including for the assessment of financial performance. He is pleased that the introduction of IFRS increases equity, remarking: íf equity increases, then profit must increase both in the year of change and in future years. This will improve our performance. Shouldnt we move to IFRS as soon as possible?
Requirement:
In advance of a meeting with your finance director to discuss his remark, prepare an essay about the likely effect on performance if DD adopts IFRS.
