Question Tag: Reclassification

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  • 15 Marks

CR – May 2019 – L3 – Q6 – Presentation of Financial Statements (IAS 1)

Discuss reclassification adjustments and integrated reporting objectives and challenges.

Dangogo Plc. has adopted IFRS in the preparation and presentation of its financial statements in line with Financial Reporting Council of Nigeria requirements. During deliberations on their financial statements for the year ended 31 March, 2019 the directors of Dangogo Plc. found the distinction between profit or loss and other comprehensive income confusing. This is the case with many other preparers or users of financial statements in Nigeria who seem to be unclear about the relationship between profit or loss and other comprehensive income (OCI). They blame the conceptual framework for Financial Reporting and IAS 1 regarding the confusing nature of re classification. The emergence of integrated reporting holds promises for better reporting, but preparers are equally uncertain about whether the International Integrated Reporting Councils (IIRC) or Integrated Reporting (IR) Framework constitutes suitable criteria for report preparation.

a. Discuss the nature of a re-classification adjustment and the arguments for and against allowing re-classification of items to profit or loss. (6 Marks)

bi. Discuss the objectives of integrated reporting and key components (content elements) of integrated reports. (6 Marks)

ii. Comment on any concerns which could limit the Framework’s suitability for assessing the performance and prospects of an entity. (3 Marks)

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  • 12 Marks

FR – Nov 2023 – L2 – Q3b – Property, Plant, and Equipment (IAS 16)

Discuss financial implications of reclassifying investment property under cost and fair value models.

Young Shall Grow Limited with year-end December 31 purchased an office building, with a useful life of 50 years, for N55 million on January 1, 2013. The amount attributable to land was negligible. The company used the building as its head office until December 31, 2017, when the entity moved to a larger premises.

The building was reclassified as an investment property and leased out under a five-year lease. However, owing to a change in circumstances, Young Shall Grow Limited took possession of the building five years later, on December 31, 2022, to use it as its head office once more. At that date, the remaining useful life of the building was confirmed as 40 years.

The fair value of the building was as follows:

  • At December 31, 2017: N60 million
  • At December 31, 2022: N75 million

Required:

Discuss how the changes of use should be reflected in the financial statements of Young Shall Grow Limited:

  1. If the company uses the cost model for its investment properties.
  2. If the company uses the fair value model for its investment properties.

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  • 8 Marks

FR – Nov 2023 – L2 – Q3a – Property, Plant, and Equipment (IAS 16)

Explain reclassification criteria for transferring investment property to PPE.

a. If a property is transferred into or out of the category of property, plant and equipment (PPE), it might be reclassified as investment property or as no longer an investment property.

A transfer of investment property can only be made where there is a change of use of such property.

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  • 5 Marks

CR – Dec 2022 – L3 – Q2c -IFRS 5: Non-current assets held for sale and discontinued operations

Provide accounting treatment for Ayew Plc's plant reclassification under IFRS 5.

Ayew Plc (Ayew) decided to dispose of one of its major production plants, which had become surplus to requirement. At 31 January 2021, all criteria were met for the plant to be classified as held for sale. On 31 July 2022, there was material evidence that the original sale plan would change and hence, it was considered not appropriate to retain the plant as held-for-sale. The plant is carried under the cost model.

Details of the plant are as follows:

GH¢’million
Cost (acquired on 1 August 2019) 20
Depreciation rate (straight line to nil residual value) 10%
At 31 January 2022:
Fair value 14
Costs to sell 0.4
At 31 July 2022:
Recoverable amount 15.2

Required:
In line with IFRS 5: Non-Current Assets Held for Sale and Discontinued Operations, recommend how the above would be accounted for within the financial statements of Ayew for the year ended 31 July 2022.
(Total: 5 marks)

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  • 15 Marks

CR – May 2019 – L3 – Q6 – Presentation of Financial Statements (IAS 1)

Discuss reclassification adjustments and integrated reporting objectives and challenges.

Dangogo Plc. has adopted IFRS in the preparation and presentation of its financial statements in line with Financial Reporting Council of Nigeria requirements. During deliberations on their financial statements for the year ended 31 March, 2019 the directors of Dangogo Plc. found the distinction between profit or loss and other comprehensive income confusing. This is the case with many other preparers or users of financial statements in Nigeria who seem to be unclear about the relationship between profit or loss and other comprehensive income (OCI). They blame the conceptual framework for Financial Reporting and IAS 1 regarding the confusing nature of re classification. The emergence of integrated reporting holds promises for better reporting, but preparers are equally uncertain about whether the International Integrated Reporting Councils (IIRC) or Integrated Reporting (IR) Framework constitutes suitable criteria for report preparation.

a. Discuss the nature of a re-classification adjustment and the arguments for and against allowing re-classification of items to profit or loss. (6 Marks)

bi. Discuss the objectives of integrated reporting and key components (content elements) of integrated reports. (6 Marks)

ii. Comment on any concerns which could limit the Framework’s suitability for assessing the performance and prospects of an entity. (3 Marks)

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  • 12 Marks

FR – Nov 2023 – L2 – Q3b – Property, Plant, and Equipment (IAS 16)

Discuss financial implications of reclassifying investment property under cost and fair value models.

Young Shall Grow Limited with year-end December 31 purchased an office building, with a useful life of 50 years, for N55 million on January 1, 2013. The amount attributable to land was negligible. The company used the building as its head office until December 31, 2017, when the entity moved to a larger premises.

The building was reclassified as an investment property and leased out under a five-year lease. However, owing to a change in circumstances, Young Shall Grow Limited took possession of the building five years later, on December 31, 2022, to use it as its head office once more. At that date, the remaining useful life of the building was confirmed as 40 years.

The fair value of the building was as follows:

  • At December 31, 2017: N60 million
  • At December 31, 2022: N75 million

Required:

Discuss how the changes of use should be reflected in the financial statements of Young Shall Grow Limited:

  1. If the company uses the cost model for its investment properties.
  2. If the company uses the fair value model for its investment properties.

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  • 8 Marks

FR – Nov 2023 – L2 – Q3a – Property, Plant, and Equipment (IAS 16)

Explain reclassification criteria for transferring investment property to PPE.

a. If a property is transferred into or out of the category of property, plant and equipment (PPE), it might be reclassified as investment property or as no longer an investment property.

A transfer of investment property can only be made where there is a change of use of such property.

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  • 5 Marks

CR – Dec 2022 – L3 – Q2c -IFRS 5: Non-current assets held for sale and discontinued operations

Provide accounting treatment for Ayew Plc's plant reclassification under IFRS 5.

Ayew Plc (Ayew) decided to dispose of one of its major production plants, which had become surplus to requirement. At 31 January 2021, all criteria were met for the plant to be classified as held for sale. On 31 July 2022, there was material evidence that the original sale plan would change and hence, it was considered not appropriate to retain the plant as held-for-sale. The plant is carried under the cost model.

Details of the plant are as follows:

GH¢’million
Cost (acquired on 1 August 2019) 20
Depreciation rate (straight line to nil residual value) 10%
At 31 January 2022:
Fair value 14
Costs to sell 0.4
At 31 July 2022:
Recoverable amount 15.2

Required:
In line with IFRS 5: Non-Current Assets Held for Sale and Discontinued Operations, recommend how the above would be accounted for within the financial statements of Ayew for the year ended 31 July 2022.
(Total: 5 marks)

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