Explain the circumstances under which an entity should recognise a biological asset or agricultural produce in the context of International Accounting Standard (IAS) 41, Agriculture.
- An entity controls the asset as a result of past events.
- It is probable that future economic benefits associated with the asset will flow to the entity.
- The fair value or cost of the asset can be measured reliably.
Explain the following terms
In accordance with IFRS 4, an insurance contract is a risk, other than financial risk which is transferred from the holder of a contract to the issuer.
Commission ceded is the commission received from other insurance or reinsurance company for acting as their agents and generating business for them. This commission is usually a percentage of reinsurance premium paid.
Surrender value is the amount payable to a policy holder on cancellation of the policy before the-date of maturity that is when the policy holder surrenders all future benefits accruing from the Insurance Company.
Endowment policy is a life assurance policy that matures after a specified period of time of death whichever is earlier.
Explain the meaning of the following terms as used in insurance business
Bonus in reduction of premium.
Instead of paying bonus in cash, the corporation may deduct the bonus from the premiums due from the insured. This is known as bonus in reduction of premium. It is shown both on the debit side (as an expense) and credit side (by adding to the premium) of revenue account.
is the amount that a policyholder can get immediately in cash back from the life assurance company if he stops paying premiums. It is the present cash value of the policy. The other option to the policyholder is to get the policy.
Briefly explain the following terms as used in the accounts of professional practitioners:
is an account that records the professional’s receipts and expenditure
is an account that records the amounts that a professional owes or is owed by the client
Costs charged to clients
are professional fees charged to clients on services rendered.
value of incomplete work not yet charged to a client.
INDEPENDENT LOCAL AND FOREIGN BRANCHES
In the context of non-autonomous branches, describe the accounting treatment in the books of the head office of the following items.
Goods stolen in transit
Goods stolen on transit is an abnormal loss of stock and therefore the cost of the goods should be charged to the profit and loss-account of the branch maintained at the head office. The profit loading on these goods should be debited to the branch adjustment account with selling price of the goods stolen being credited to the branch stock account.
Mark-ups and mark-downs in prices.
Where the head office increases the selling prices at the branch, the amount of the mark-up should be debited to the branch stocks account with a corresponding credit entry to the-branch mark-up account. However, if it reduces the selling prices to boost sales at the branch level, the amount of mark-down in prices should be charged to the branch mark-up with a credit entry to the branch stock account.
In the context of International Accounting Standard (IAS) 21, The Effects of Changes in Foreign Exchange Rates:
Define monetary items.
Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
Explain how foreign currency monetary and non-monetary items are translated at the end of each reporting period.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of transaction.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Briefly explain four purposes of the branch accounts to an organisation which sells goods through various outlets.
To ensure cash and stock of goods in custody of the branch are safeguarded.
To determine the profit/ loss of the branch and compare that profitability with profitability of other branches
To help in calculating commission to be paid by branch managers if the commission is calculated based on profitability.
To ensure proper control of branches
It’s a statutory requirement to keep proper books of accounts for branches for audit purposes.
With reference to International Accounting Standards(IAS)21 The effects of changes in foreign Exchange rates:
Define the term “exchange difference”
an exchange difference is a difference that arises on the transaction of are currency into another currency at different exchange rates.
Briefly explain the exchanging differences that should be recognised in the profit and loss and exchange differences that should be recognised initially as a separate component of equity.
to be charged in the P&L a/c is that exchange difference for a foreign entity which is considered to be non- autonomous.
-The exchange difference to be considered as a component of equity in the balance sheet is for that foreign that is considered to be an independent or autonomous entity.
PENSION PLAN /RETIREMENT BENEFIT PLANS
Outline four categories of expenses that should be recognized in the income statement in accordance with International Accounting standard (IAS) 19 “Employee benefits”
- Current service cost.
- Interest cost.
- The expected return on any plan asset and on any reimbursement rights.
- Actual gains and losses.
- Part service costs.
- The effects of any curtailment or settlement.
In the context of International Accounting Standard (IAS) 19, explain the term “multiemployer plans”.
- Pool the assets contributed by various entities that are not under common control; and
- Use those assets to provide benefits to employees of more than one entity on the basis that contribution and benefit levels are determined without regard to the identity of the entity that employs the employees concerned.
Briefly explain the meaning of the term “abatement”
When assets are insufficient to pay any class of legacies, all legacies in that category or class shall be reduced to a fraction of the original amount. This is known as abatement – it enables all legacies to be partially satisfied with the few assets available.
If assets are insufficient to pay specific legacies, these will abate rateably and no general or residuary bequests shall be paid.
If assets are sufficient to pay specific legacies but insufficient to pay general legacies, the general legacies shall abate rateably and no residuary bequest shall be fulfilled.
Identify and explain the four classifications of legacies.
- Specific legacy is a testamentary gift of a particular part or the property of the testator, which identifies the part of a sufficient description whether in specific or in general terms and manifests an intention that that part shall be in enjoyed or taken in the state and condition indicated by that description.
- General legacy is a testamentary gift, whether specific or general, of property described in general terms to be provided out of the general estate of the testator, whether or not also charged on any specific part of his estate.
- Demonstrative legacy is a testamentary gift which is in its nature general but which manifests an intention that the gift shall be primarily satisfied out of a special fund or a specified part of the property described in general terms to be provided out of the general estate of the testator, whether or not also changed or any specific part of his estate.
- Residual legacy is a gift of the remainder of the estate of the deceased after all their legacies have been paid.
What meetings of creditors must be held and for what purpose in the course of a creditors’ voluntary winding up?
The first meeting of creditors’ voluntary winding up should be held on the same day when the members have passed a resolution to wind up the company or on the day after. In this meeting the creditors shall:
- Appoint amongst them a chairman
- Join the members to appoint a liquidator
- Join the members to appoint a committee of inspection of up to 5 people.
The directors must present to the members the statement of affairs and the list of creditors. The creditor may also terminate the liquidator earlier appointed by the members
- When the liquidation commenced the creditors shall meet one year after commencement to review the progress and attend to any pending matters. Such meetings are called by the liquidator.
- If the liquidation is not complete after one year the creditors shall meet after lapse of one year for all years in which the liquidation is incomplete.
- When the liquidation is complete the liquidator must call a final meeting and lay before the company and creditors the accounts of winding up.