IFRS & IAS Insights for Accountants

A Quick Refresher - Government Grants under IAS 20

Government grants often look simple in substance but require careful judgment in accounting under IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance.

Key Concepts

1. A government grant is recognized only when there is reasonable assurance that conditions will be met and the grant will be received.

2. Grants related to income are recognized in profit or loss over the periods in which the related costs are incurred.

3. Grants related to assets are accounted for either by deferring the grant and recognizing it over the asset’s useful life, or by deducting it from the asset’s carrying amount.

4. Non-monetary grants (such as land or equipment) are measured at fair value or nominal value.

5. Repayments of grants are treated as a change in accounting estimate, impacting profit or loss or the asset prospectively.

6. Government assistance that cannot be reliably measured is disclosed, not recognized.

Dear Accountants,

Today let us revist recognition and measurement of employee benefits under IAS 19.

1. The objective of IAS 19 is to prescribe:
A. How to calculate employee salaries
B. When and how employee benefits should be recognized and measured
C. Only disclosure requirements for employee benefits
D. Accounting for share-based payments
✅B

2. IAS 19 applies to:
A. Only permanent employees
B. Only post-employment benefits
C. All employee benefits except share-based payments
D. Payments to independent contractors
✅C

3. Which of the following is NOT an employee benefit under IAS 19?
A. Wages and salaries
B. Paid annual leave
C. Share-based payment to employees
D. Gratuity
✅C

4. Short-term employee benefits are those expected to be settled:
A. Within 6 months
B. Within 12 months after the reporting period
C. Within 24 months
D. At retirement
✅B

5. Short-term employee benefits are measured at:
A. Discounted present value
B. Fair value
C. Undiscounted amount expected to be paid
D. Market value
✅C

6. Which of the following is a post-employment benefit?
A. Annual bonus
B. Sick leave
C. Pension
D. Termination compensation
✅C

7. Under a defined contribution plan, the employer’s obligation is:
A. To pay a defined benefit
B. Limited to fixed contributions
C. Based on actuarial valuation
D. Subject to investment risk
✅B

8. In a defined contribution plan, actuarial risk is borne by:
A. Employer
B. Employee
C. Actuary
D. Government
✅B

9. Which method is used to measure defined benefit obligations?
A. Straight-line method
B. Net present value method
C. Projected Unit Credit Method
D. Historical cost method
✅C

10. The discount rate used for defined benefit obligations is based on:
A. Bank lending rates
B. Expected rate of return on plan assets
C. High-quality corporate bond yields
D. Inflation rate
✅C

11. Which of the following is recognized in OCI under IAS 19?
A. Service cost
B. Net interest on net defined benefit liability
C. Actuarial gains and losses
D. Employer contributions
✅C

12. Remeasurements of the net defined benefit liability are:
A. Recognized in P&L and recycled
B. Recognized in OCI and recycled
C. Recognized in OCI and not recycled
D. Deferred and amortized
✅C

13. Which cost component is included in profit or loss?
A. Actuarial gains
B. Past service cost
C. Remeasurement component
D. Fair value changes in plan assets (excluding interest)
✅B

14. Other long-term employee benefits differ from post-employment benefits because:
A. They are undiscounted
B. They are settled within 12 months
C. Actuarial gains/losses go to P&L
D. They do not require actuarial valuation
✅C

15. Which of the following is other long-term employee benefit?
A. Gratuity
B. Pension
C. Long-service leave
D. Annual leave
✅C

16. Termination benefits are recognized when:
A. Employee resigns
B. Benefits are paid
C. Entity cannot withdraw the offer
D. Employment contract ends
✅C

17. Termination benefits payable after 12 months are:
A. Not recognized
B. Recognized at undiscounted value
C. Discounted
D. Recognized in OCI
✅C

18. The net defined benefit liability presented in the balance sheet equals:
A. Present value of obligation
B. Fair value of plan assets
C. Present value of obligation minus fair value of plan assets
D. Contributions paid during the year
✅C

19. IAS 19 requires disclosure of:
A. Only total employee cost
B. Actuarial assumptions used
C. Only defined contribution plans
D. Only current year expense
✅B

20. Sensitivity analysis under IAS 19 relates to:
A. Changes in employee numbers
B. Changes in actuarial assumptions
C. Changes in accounting policies
D. Changes in tax rates
✅B

IAS 12 INCOME TAX ON INVENTORIES

Carrying amount
This is the amount recognised in the financial statement. It is usually the lower of cost or Net Realizable Value. Eg Cost 10,000 and NRV 7,000. The entity will recognise in FS inventory at 7,000.

Tax base
This is the amount deductible for tax purposes. For inventories usually the cost incurred to purchase the inventory. Eg 10,000

Temporary difference
This is the difference between carrying amount and tax base. In this illustration NRV(7,000) is less than Tax Base(10,000). Hence, the entity expects less future economic benefits to flow in through sale resulting into a 3,000 deductible temporary difference.

Deferred tax asset 3000 x30% = 900/=

Inventory write down of 3,000 is not tax deductible until sale. When sale occurs;

Sales at NRV 7,000
Less COGS (Tax base) (10,000)
Taxable Loss (3,000)
Tax Asset @30% 900(tax saving)

Dear Accountants,

Today let us revisit IAS 12 Income Taxes. The standard requires reporting entities to account for current tax and deferred tax. Where current tax is computed on taxable profit/loss for the year while deferred tax is a result of future tax consequences on recovery of assets or settlement of liabilities.

Below MCQs will help you grasp the key concepts under the standard.

1. The main objective of IAS 12 is to
A. Ensure current tax is calculated correctly
B. Match tax payments with accounting profits
C. Account for the current and future tax consequences of transactions
D. Eliminate differences between accounting and taxable profits
✅ C
IAS 12 focuses on current tax and deferred tax arising from transactions already recognised in the financial statements.

2. The tax base of an asset is best described as:
A. The carrying amount of the asset less accumulated depreciation
B. The amount deductible for tax purposes against future taxable benefits
C. The market value of the asset for tax purposes
D. The original cost of the asset for tax purposes

✅ B
Tax base = future tax deductions related to the asset.

3. Which of the following gives rise to a taxable temporary difference?
A. Provision for warranty costs
B. Accrued expenses deductible when paid
C. Revaluation surplus on PPE not taxed until disposal
D. Tax losses carried forward

✅C
Revaluation increases carrying amount but not tax base → future taxable amount.

4. Which item typically creates a deductible temporary difference?
A. Fair value gain on investment property
B. Capitalised development costs not tax deductible
C. Provision for doubtful debts deductible on write-off
D. Revaluation of land

✅ C
Provision recognised now, tax deduction later - Deferred Tax Asset (DTA).

5. A deferred tax asset should be recognised when:
A. Temporary differences exist
B. The entity has made a loss
C. It is probable that future taxable profit will be available
D. The tax authority confirms acceptability

✅C
Probability of future taxable profits is the key recognition criterion.

6. Which statement about goodwill under IAS 12 is correct?
A. Deferred tax is recognised on all goodwill
B. Deferred tax is recognised only if goodwill is tax deductible
C. Deferred tax is not recognised on initial recognition of goodwill
D. Deferred tax is recognised on impairment of goodwill

✅C
IAS 12 prohibits deferred tax on initial recognition of goodwill.

7. Under IFRS 16, a lessee usually recognises both a deferred tax asset and a deferred tax liability because:
A. Lease payments are deductible immediately
B. Depreciation and interest differ from tax deductions
C. Leases are treated as PPE for tax purposes
D. Lease liabilities are not recognised for tax

✅ B
Tax follows cash payments, accounting follows depreciation + interest.

8. Deferred tax on temporary differences relating to investments in associates is:
A. Always recognised
B. Never recognised
C. Recognised only if reversal is unavoidable
D. Recognised only on disposal

✅ C
Recognised only when the investor can not control the timing of reversal.

9. Deferred tax assets and liabilities are measured using:
A. Current tax rates
B. Expected future tax rates announced by management
C. Tax rates enacted or substantively enacted
D. Average historical tax rates

✅ C
IAS 12 requires enacted or substantively enacted rates.

10. Deferred tax is NOT recognised on initial recognition of an asset or liability when:
A. The transaction affects accounting profit
B. The transaction affects taxable profit
C. The transaction affects neither accounting nor taxable profit
D. The transaction involves PPE

✅ C
This avoids recognising deferred tax on transactions with no immediate profit impact.

Dear Accountants,

Today lets revisit IAS 10 Events after reporting period. IAS 10 deals specifically with events between reporting date and the date when financial statements are authorised for issue.

Lets grasp the key concepts through the following MCQs:

1. IAS 10 deals with events occurring
A. After authorization of financial statements
B. During the reporting period only
C. Between reporting date and authorization date
D. After approval by shareholders

✅ C
IAS 10 applies to events occurring between the reporting date and the date of authorization.

2. Which of the following is an adjusting event?
A. Fire destroying factory after reporting date
B. Issue of shares after reporting date
C. Bankruptcy of a customer confirming year-end receivable impairment
D. Decline in market value due to market conditions after reporting date
✅C

3. Non-adjusting events are those which:
A. Require adjustment in financial statements
B. Provide evidence of conditions at reporting date
C. Indicate conditions arising after reporting date
D. Are always immaterial

✅ C

4. How should adjusting events be accounted for?
A. Disclose only
B. Ignore
C. Adjust the amounts in financial statements
D. Transfer to reserves

✅ C

5. Dividends declared after the reporting period are:
A. Recognized as liability
B. Adjusting events
C. Non-adjusting events
D. Recognized in OCI

✅ C

6. Dividend declared after reporting date should be:
A. Recognized as liability
B. Adjusted in retained earnings
C. Disclosed in notes
D. Ignored

✅ C

7. Which event affects the going concern assumption?
A. Issue of shares after reporting date
B. Decision to liquidate after reporting date
C. Change in market prices
D. Bonus issue declared

✅ B

8. If going concern assumption is no longer appropriate:
A. Only disclosure is required
B. Financial statements should be adjusted
C. Financial statements should not be prepared on going-concern basis
D. No action required

✅ C

9. Financial statements are authorized for issue by:
A. Shareholders
B. Management or Board of Directors
C. Auditors
D. Government

✅ B

10. Which of the following must be disclosed under IAS 10?
A. Only adjusting events
B. Only non-adjusting events
C. Date of authorization and authorizing authority
D. All events after reporting date

✅ C

11. For a non-adjusting event, disclosure includes:
A. Journal entry
B. Nature of event only
C. Nature of event and estimated financial effect
D. Transfer to reserves

✅C

12. Fraud discovered after reporting date relating to prior period is:
A. Non-adjusting event
B. Adjusting event
C. Contingent liability
D. Change in accounting policy
✅ B

13. Decline in fair value of investments after reporting date due to market conditions is:
A. Adjusting event
B. Non-adjusting event
C. Error
D. Provision

✅ B

Dear Accountants,

Lets dive into IAS 40 Investment Properties. Investment properties refers to land and/or buildings for earning rentals or for capital appreciation or both.

How well do you know the standard? Here are some MCQs to help grasp key concepts.

1. Investment property is property held for:
A. Sale in ordinary course of business
B. Use in production or administration
C. Earning rentals or capital appreciation
D. Use by employees

✅ C
IAS 40 defines investment property as property held to earn rentals and/or for capital appreciation.

2. Which of the following is NOT investment property?
A. Land held for long-term capital appreciation
B. Building leased under operating lease
C. Property used as company’s head office
D. Vacant building held to earn rentals

✅ C
Owner-occupied property is covered under IAS 16, not IAS 40.

3. Investment property is initially measured at:
A. Fair value
B. Cost
C. Lower of cost and NRV
D. Revalued amount

✅B
IAS 40 requires initial recognition at cost.

4. Under the fair value model, changes in fair value are recognized in:
A. OCI
B. Revaluation reserve
C. Profit or Loss
D. Capital reserve

✅ C
Fair value gains or losses are recognized directly in P&L.

5. Depreciation under the fair value model is:
A. Mandatory
B. Optional
C. Not charged
D. Charged only on buildings

✅ C
No depreciation is charged when the fair value model is used.

6. If an entity uses the cost model for investment property, it must:
A. Not disclose fair value
B. Disclose fair value in notes
C. Revalue annually
D. Recognize gains in OCI

✅ B
Fair value disclosure is mandatory even under the cost model.

7. Property partly used as office and partly rented out is treated as:
A. Entirely IAS 16
B. Entirely IAS 40
C. Separated if portions can be sold or leased separately
D. Inventory

✅C
Mixed-use property is separated if possible.

8. Transfer to investment property is permitted when:
A. Management decides
B. Fair value increases
C. There is a change in use
D. Property is fully depreciated

✅C
Transfers are allowed only when there is evidence of change in use.

9. Gain or loss on disposal of investment property is recognized in:
A. OCI
B. Revaluation reserve
C. Profit or Loss
D. Capital reserve

✅ C

10. Investment property under construction for future use as investment property is covered by:
A. IAS 16
B. IAS 2
C. IAS 40
D. IFRS 15

✅ C
After amendment, IAS 40 applies to investment property under construction.

11. Which of the following is TRUE?
A. Fair value model requires depreciation
B. Cost model prohibits fair value disclosure
C. Fair value gains go to OCI
D. Fair value model applies to all investment properties

✅ D

12. Rental income from investment property is recognized in:
A. OCI
B. Profit or Loss
C. Revaluation reserve
D. Capital reserve

✅ B

13. Investment property is derecognized when:
A. Fair value falls
B. Fully depreciated
C. Disposed of or withdrawn from use
D. Rented for one year

✅ C

14. Which standard governs owner-occupied property?
A. IAS 2
B. IAS 16
C. IAS 40
D. IAS 38

✅ B

15. Which valuation is preferred for fair value measurement?
A. Historical cost
B. Replacement cost
C. Active market price
D. Written down value

✅ C

Dear Accountants

Let's revisit IAS 8 Changes in Accounting Policies, Estimates and Errors

Key Concepts
1. A change in accounting policy is to be applied retrospectively
2. A change in estimate is to be applied prospectively
3. An error is to be corrected retrospectively

Retrospectively means applying a policy as if it had been in effect in prior periods.

Let's master IAS with some MCQs
1. The primary objective of IAS 8 is to ensure:
A. Uniform accounting policies across all entities
B. Consistency and comparability of financial statements
C. Prevention of accounting fraud
D. Elimination of management judgment
✅ B

2. Which of the following is an accounting policy?
A. Estimating useful life of machinery
B. Provision for doubtful debts
C. Method of inventory valuation (FIFO vs WAC)
D. Estimating warranty liability
✅ C

3. A change in accounting policy is permitted only when
A. Management prefers a new method
B. It improves reported profits
C. Required by an IFRS or provides more reliable and relevant information
D. Auditors recommend it
✅C

4. A voluntary change in accounting policy should generally be applied
A. Prospectively
B. Retrospectively
C. Through OCI
D. Only in the current year
✅ B

5. Retrospective application requires
A. Adjustment only in current year profit
B. Restatement of prior period figures as if the policy was always applied
C. Disclosure without restatement
D. Adjustment through OCI
✅B

6. Which of the following is a change in accounting estimate?
A. Change from FIFO to WAC
B. Correction of mathematical error
C. Revision of useful life of an asset
D. Adoption of a new IFRS
✅ C

7. Changes in accounting estimates are accounted for:
A. Retrospectively
B. Prospectively
C. Through retained earnings
D. By restating comparatives
✅ B

8. Which of the following qualifies as a prior period error?
A. Change in depreciation method
B. Change in residual value
C. Arithmetic mistake in prior year depreciation
D. Change in expected credit losses
✅ C

9. Material prior period errors are corrected by:
A. Adjusting current year profit
B. Prospective adjustment
C. Retrospective restatement
D. Disclosure only
✅ C

10. Correction of a prior period error usually involves:
A. Dr Expense / Cr Cash
B. Dr Retained Earnings / Cr Asset or Liability
C. Dr OCI / Cr Retained Earnings
D. Dr Profit or Loss / Cr Retained Earnings
✅ B

11. If retrospective application is impracticable, the entity should
A. Ignore the change
B. Apply prospectively from current year
C. Apply from earliest practicable date and disclose
D. Apply only to future transactions
✅ C

12. Which disclosure is required for a change in accounting estimate?
A. Restated comparatives
B. Nature and amount of the change
C. Adjustment to retained earnings
D. Auditor’s justification
✅ B

13. A change in depreciation method is treated as:
A. Change in accounting policy
B. Prior period error
C. Change in accounting estimate
D. Change in presentation
✅ C

Dear Accountants,

Welcome to another edition of IFRS Bite. Today we willl go through IFRS 8 - operating segments. We will learn how to report business lines, product groups and geographical areas.

1. The primary objective of IFRS 8 is to require disclosure of information that enables users to evaluate:
A. The risk and return profile of each business segment
B. The nature and financial effects of business activities and economic environments
C. The fair value of each operating segment
D. The profitability of each subsidiary

✅B
IFRS 8 focuses on helping users understand the nature and financial effects of activities and economic environments, using the management approach.

2. IFRS 8 applies to:
A. All entities preparing IFRS financial statements
B. Only listed entities preparing consolidated financial statements
C. Entities whose debt or equity instruments are publicly traded or in the process of being issued
D. Only entities with more than one operating segment

✅C
IFRS 8 applies to publicly accountable entities, including those in the process of issuing instruments.

3. Which of the following best describes the CODM?
A. The board of directors only
B. The CEO only
C. A function that allocates resources and assesses segment performance
D. The external auditor

✅C
CODM is a function, not necessarily a person or title.

4. Which of the following is NOT a requirement for a component to be an operating segment?
A. It earns revenues and incurs expenses
B. Its results are reviewed by the CODM
C. It prepares IFRS-compliant financial statements
D. Discrete financial information is available

✅C
Segment information need not be IFRS-compliant; it is based on internal reporting.

5. A segment is reportable if its revenue is at least:
A. 5% of total entity revenue
B. 10% of total segment revenue
C. 10% of entity profit
D. 75% of entity revenue

✅B
One of the 10% tests is segment revenue ≥ 10% of total segment revenue.

6. Por the profit or loss test, the 10% threshold is calculated using:
A. Total segment profit only
B. Total segment loss only
C. The greater of total segment profit or total segment loss
D. Net profit of the entity

✅C
IFRS 8 uses the greater of total profits or total losses of segments.

7. If reportable segments account for less than 75% of external revenue, the entity must:
A. Disclose only entity-wide information
B. Aggregate remaining segments
C. Identify additional segments as reportable
D. Restate prior to financial statements

✅C
Additional segments must be reported until 75% of external revenue is covered.

8. Operating segments may be aggregated if they have:
A. Similar size
B. Similar accounting policies
C. Similar economic characteristics and nature of operations
D. The same profit margin

✅C
Aggregation is allowed only when economic characteristics and operations are similar.

9. Segment information disclosed under IFRS 8 should be measured using:
A. IFRS accounting policies
B. Fair value principles
C. Accounting policies used in internal reports to CODM
D. Historical cost only

✅C
IFRS 8 follows the management approach, not IFRS measurement rules.

8. Which of the following reconciliations is required under IFRS 8?
A. Segment cash flows to entity cash flows
B. Segment revenue to entity revenue
C. Segment tax expense to entity tax expense
D. Segment equity to entity equity

✅B
Reconciliations are required for revenue, profit/loss, assets, and liabilities(if disclosed).

11.Entity-wide disclosures are required:
A. Only when there are multiple operating segments
B. Only for listed entities
C. Even if the entity has only one operating segment
D. Only when segments are geographically different

✅C
Explanation:
Entity-wide disclosures apply even with a single operating segment.

12. A customer accounts for 12% of total revenue. What must be disclosed?
A. Customer name and revenue amount
B. Customer name only
C. Revenue amount and segment involved
D. No disclosure is required

✅C
IFRS 8 requires disclosure of existence and segment, not the customer’s name.

13. Which of the following is required as part of entity-wide disclosures?
A. Profit by country
B. Revenue by country of domicile and foreign countries
C. Segment assets by customer
D. Cash flows by geographic segment

✅B

14. If an entity changes its internal segment structure, prior period information:
A. Must not be restated
B. Must always be restated
C. Must be restated unless impracticable
D. Is restated only if profits change

✅C

15. Which statement best describes IFRS 8?
A. It is based on a risk-return approach
B. It enhances comparability across entities
C. It uses the management approach
D. It requires uniform segment measures

✅C

Dear Accountants,

Lets have a bite of IFRS 8 - Operating Segments. By going through this bite, you will grasp how to report business lines, geographical areas and product groups.

1. The primary objective of IFRS 8 is to require disclosure of information that enables users to evaluate:
A. The risk and return profile of each business segment
B. The nature and financial effects of business activities and economic environments
C. The fair value of each operating segment
D. The profitability of each subsidiary

✅B
IFRS 8 focuses on helping users understand the nature and financial effects of activities and economic environments, using the management approach.

2. IFRS 8 applies to:
A. All entities preparing IFRS financial statements
B. Only listed entities preparing consolidated financial statements
C. Entities whose debt or equity instruments are publicly traded or in the process of being issued
D. Only entities with more than one operating segment

✅C
IFRS 8 applies to publicly accountable entities, including those in the process of issuing instruments.

3. Which of the following best describes the CODM?
A. The board of directors only
B. The CEO only
C. A function that allocates resources and assesses segment performance
D. The external auditor

✅C
CODM is a function, not necessarily a person or title.

4. Which of the following is NOT a requirement for a component to be an operating segment?
A. It earns revenues and incurs expenses
B. Its results are reviewed by the CODM
C. It prepares IFRS-compliant financial statements
D. Discrete financial information is available

✅C
Segment information need not be IFRS-compliant; it is based on internal reporting.

5. A segment is reportable if its revenue is at least:
A. 5% of total entity revenue
B. 10% of total segment revenue
C. 10% of entity profit
D. 75% of entity revenue

✅B
One of the 10% tests is segment revenue ≥ 10% of total segment revenue.

6. Por the profit or loss test, the 10% threshold is calculated using:
A. Total segment profit only
B. Total segment loss only
C. The greater of total segment profit or total segment loss
D. Net profit of the entity

✅C
IFRS 8 uses the greater of total profits or total losses of segments.

7. If reportable segments account for less than 75% of external revenue, the entity must:
A. Disclose only entity-wide information
B. Aggregate remaining segments
C. Identify additional segments as reportable
D. Restate prior to financial statements

✅C
Additional segments must be reported until 75% of external revenue is covered.

8. Operating segments may be aggregated if they have:
A. Similar size
B. Similar accounting policies
C. Similar economic characteristics and nature of operations
D. The same profit margin

✅C
Aggregation is allowed only when economic characteristics and operations are similar.

9. Segment information disclosed under IFRS 8 should be measured using:
A. IFRS accounting policies
B. Fair value principles
C. Accounting policies used in internal reports to CODM
D. Historical cost only

✅C
IFRS 8 follows the management approach, not IFRS measurement rules.

8. Which of the following reconciliations is required under IFRS 8?
A. Segment cash flows to entity cash flows
B. Segment revenue to entity revenue
C. Segment tax expense to entity tax expense
D. Segment equity to entity equity

✅B
Reconciliations are required for revenue, profit/loss, assets, and liabilities(if disclosed).

11.Entity-wide disclosures are required:
A. Only when there are multiple operating segments
B. Only for listed entities
C. Even if the entity has only one operating segment
D. Only when segments are geographically different

✅C
Explanation:
Entity-wide disclosures apply even with a single operating segment.

12. A customer accounts for 12% of total revenue. What must be disclosed?
A. Customer name and revenue amount
B. Customer name only
C. Revenue amount and segment involved
D. No disclosure is required

✅C
IFRS 8 requires disclosure of existence and segment, not the customer’s name.

13. Which of the following is required as part of entity-wide disclosures?
A. Profit by country
B. Revenue by country of domicile and foreign countries
C. Segment assets by customer
D. Cash flows by geographic segment

✅B

14. If an entity changes its internal segment structure, prior period information:
A. Must not be restated
B. Must always be restated
C. Must be restated unless impracticable
D. Is restated only if profits change

✅C

15. Which statement best describes IFRS 8?
A. It is based on a risk-return approach
B. It enhances comparability across entities
C. It uses the management approach
D. It requires uniform segment measures

✅C