CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions
CITN Exams Questions on IAS 40 & IASB: How to tackle the Questions – These are questions and answers on IASB Conceptual Framework for Financial Reporting and Investment Property’ according to IAS 40. But these are accounting concepts, what has it to do with taxation? Then, find out in this post. Just read on.
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CITN Exams Questions on IAS 40 & IASB: How to tackle the Questions:
When preparing for CITN exams that cover topics such as IAS 40 and IASB, it is essential to have a solid strategy in place for tackling the questions effectively. These international accounting standards are crucial for understanding the recognition, measurement, and disclosure requirements for property, plant, and equipment, as well as investment property. To excel in answering CITN exam questions on IAS 40 and IASB, it is crucial to develop a comprehensive approach that involves understanding the standards’ key principles, studying practical examples, and practicing with past exam questions. This guide will provide you with valuable tips and techniques to enhance your preparation and improve your chances of success in your upcoming CITN exams.
The Comprehensive Approaches to Answering IAS 40 and IASB CITN Questions:
When approaching CITN exam questions on IAS 40 and IASB, it’s essential to adopt a comprehensive approach that covers the key aspects of these accounting standards. Here are some approaches you can take to effectively tackle the questions:
- Understand the Standards: Begin by thoroughly studying IAS 40 (Investment Property) and IASB (International Accounting Standards Board). Familiarize yourself with the definitions, concepts, and principles outlined in these standards. Pay close attention to the criteria for recognition, measurement, and disclosure of property, plant, and equipment, as well as investment property.
- Break Down the Questions: Carefully read each question and identify the key components. Identify any keywords or phrases that indicate which specific aspects of IAS 40 or IASB the question is testing. Understanding the requirements of the question is crucial for providing a relevant and accurate response. Read more about CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions.
- Analyze Relevant Case Studies: Many CITN exam questions involve scenarios or case studies that require the application of IAS 40 and IASB principles. Practice analyzing and interpreting these case studies to gain a practical understanding of how the standards are applied in real-world situations. This will help you develop the ability to identify and address accounting issues effectively.
- Apply Critical Thinking: CITN exams often test your ability to analyze complex situations and apply your knowledge to solve problems. Develop your critical thinking skills by practicing with various scenarios and questions. Consider alternative solutions, evaluate the potential impact of different accounting treatments, and justify your reasoning regarding the applicable standards.
- Use Past Exam Questions: To familiarize yourself with the format and style of CITN exam questions on IAS 40 and IASB, review past exam papers. Solve these questions under timed conditions to simulate the exam environment and improve your time management skills. Pay attention to the examiner’s comments and feedback provided with the answers to understand the expected level of detail and the common mistakes to avoid.
- Seek Additional Resources: Supplement your preparation with additional study materials, textbooks, and resources that provide in-depth explanations of IAS 40 and IASB. Consider attending review classes, workshops, or online courses that specifically focus on these topics. Collaborate with fellow students or form study groups to discuss and clarify any areas of confusion. Bookmark CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions for future reference.
- Practice, Practice, Practice: The more you practice answering CITN exam questions on IAS 40 and IASB, the more comfortable and confident you will become. Regularly attempt mock exams and quizzes to assess your progress and identify areas that require further improvement. Review your answers, understand your mistakes, and learn from them to enhance your performance.
Remember to manage your time effectively during the exam, allocate sufficient time for each question, and avoid spending too much time on any single question. By adopting a comprehensive approach that combines understanding the standards, practicing with case studies, and applying critical thinking, you can tackle CITN exam questions on IAS 40 and IASB with confidence and achieve successful outcomes. Check out for more on CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions.
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CITN Exams Questions on IAS 40 & IASB: How to tackle the Questions
Now, let’s consider the first questions and answers in this series. This question has “a” and ‘b’ sections.
(a) The IASB Conceptual Framework for Financial Reporting states that, “an entity’s choice of measurement basis and capital measurement concept determine the accounting model to be used in the preparation of financial statements”.
Required:
Explain the capital maintenance concepts identified in the Conceptual Framework.
(6 Marks)
(b) The two fundamental characteristics identified in the IASB’s Conceptual Framework for Financial Reporting are relevance and faithful representation. In order for financial transactions to be presented faithfully in the financial statements, the principle of substance over form should be applied.
Required:
(i) Why is it considered important that the economic substance of a transaction be reflected in the financial statements rather than its legal form? (5 Marks)
(ii) Describe in general terms, two features of a transaction that suggest that the economic substance may differ from its legal form. (4 Marks) (Total 15 Marks)
CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions
SOLUTION TO QUESTIONS
(a) Two concepts of capital are discussed under the standard; the financial concept of capital and the physical concept of capital.
Under the financial concept of capital maintenance, profit is earned if the net assets at the end of the period exceed the net assets at the beginning of the period, excluding any distribution to and contributions from owners during the period. Another form of the financial concept of financial maintenance concept is real financial capital maintenance in which constant purchasing power is taken into consideration.
Under the physical capital maintenance concept, profit is earned if the physical productive capacity of the entity or the resources to achieve that capacity at the end of the period exceeds the physical productive capacity at the beginning of the period.
Neither the IASB conceptual framework nor accounting standards require the use of the physical concept of capital maintenance. Almost all entities use the financial maintenance concept but both concepts can provide useful information.
CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions
(b) (i) Substance over form is the concept that the financial statements and accompanying disclosures of a business should reflect the underlying realities of accounting transactions rather than their legal form. Usually, the legal form of a transaction and its economic reality are the same but in some cases, the two may differ and give different results if a transaction is structured in such a way that the economic reality differs from the legal form, the accounting must reflect the economic substance. Substance over a form ensures that the true intent of a transaction is not hidden. Substance over form may also arise because a transaction is complex which makes it difficult to ascertain the substance of the transaction. It is believed that financial statements prepared in using the principle-based IFRS reflect the substance of transactions.
(ii) Features indicating that the substance of a transaction may differ from its legal form.
- Transactions may be structured to manipulate the reported results, by reporting assets as expenses or liabilities as revenue.
- Unusual terms in the contract of sales of goods and services might affect the assessment of the timing of revenue and costs.
- Arrangements that serve to divert risk and returns from where they might otherwise be.
- If two or more transactions re executed together and the combined effect differs from each individual effect e.g. in a sale and leaseback transaction.
- Business arrangements entered into that give a disproportionate advantage to one party over another.
CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions
EXAMINER’S FINDINGS:
The examiner explains that Part (a) of the question tests the concepts of capital maintenance as identified in the conceptual framework while Part (b) tests candidates’ practical application of the principles of substance over form as it relates to financial transactions.
His findings are that few of the candidates attempted the question. But even at that, their performance was below average.
He noted that the common mistake was the candidates’ were unable to apply the substance over form principles to relevant financial transactions.
Finally, the advice is that you have to get familiar with all aspects of the Institute’s syllabus for better performance in future examinations.
The Next Questions:
‘Our second question is on Investment Property’ according to IAS 40, and owner-occupied property under IAS 16.
Qt: Rejuvenator Plc. owns a building that it has been using as its head office in Abuja. To reduce costs, the company’s management on December 31, 2019, decided to move the head office to the branch office and has now let out its head office building.
The head office building had an original cost on July 1, 2010, of N375.5 million and was being depreciated over 50 years. As of December 31, 2019, an independent valuer assessed the fair value of the head office to be N525.5 million.
The entity’s policy is to charge depreciation from the date of acquisition to the date of disposal.
Required:
(a) Explain the meaning of ‘Investment Property’ according to IAS 40 and explain why its accounting treatment is different from that of owner-occupied property. (4 Marks)
(b) Discuss the key differences between the accounting treatments of investment properties under IAS 40 and owner-occupied properties under IAS 16. (5 Marks)
(c) With relevant figures, explain how Rejuvenators Plc’s building should be accounted for in the financial statements during the reporting period ending December 31, 2019.
(6 Marks)
(Total 15 Marks)
CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions
SOLUTION TO QUESTION
These are the suggested answers as projected by CITN to the second question.
(a) An investment property is land or buildings (or part thereof) held by the owner to generate rental income or for capital appreciation (or both) rather than for production or administrative purpose. It may also include property held under a lease if used for the same purpose as other investment properties.
The accounting treatment for investment property is different from the owner-occupied property as a result of the use the property is put to, when a property e.g. building is held for rental income generation or capital appreciation or both, it is treated as an investment property. Where the same building is used for administrative purposes largely for the production of goods and services, it is treated as owner-occupied that re largely independent of other assets held by an entity.
CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions
(b) The revaluation model and fair value model apply to both properties, which is usually a market-based assessment.
Any gain (or loss) over a previous valuation is taken to profit or loss if it relates to an investment property whereas for an owner. occupied property, any gain is taken to revaluation reserve through other comprehensive income, the results are accumulated as a component of equity in the statement of changes in equity.
A loss on revaluation of an owner-occupied property is charged to profit or loss. Unless it has a previous surplus in the revaluation reserve, which can be used to offset the loss.
A further difference is that owner-occupied property re usually depreciated after revaluation, whereas investment properties are not depreciated but are revalued at regular intervals.
(c) According to IAS 40. when an owner-occupied property is being transferred to investment property. IAS 16 would apply up to the date of transfer. The property revalued on December 31, 2019, at N525.5m would be deemed to be the fair value of the investment property at the transfer date. Meanwhile, the revaluation would be credited to the revaluation gain of N221.345m and presented through other comprehensive income for the year ended December 31, 2019. The revaluation reserve is presented as a component of equity in the statement of financial position.
CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions
| Working: | |
| July 1, 2010 cost of property | 375,500 |
| Accumulated depreciation 1/7/2010 – 31/12/2019 (9.5/50 x | (71,345) |
| Carrying amount at 31/12/2019 | 304,155 |
| Fair value at 31/12/2019 | 525,500 |
| Revaluation surplus | 221,345 |
CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions
The Examiners Findings:
The Examiner finds out that the question tests candidates’ understanding of IAS 40. Investment Property and IAS 16 – Property Plant and Equipment. It also tests how to account for each type of property in the financial statement.
He then observed that few candidates attempted the questions. Notwithstanding, their performance was below average. too. He also observed that the common error was the candidates’ inability to differentiate between investment property and owner-occupied properties.
The advice is that you must read and understand all accounting standards in the syllabus and their practical applications. Insisting that it will help you perform better in future examinations.
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CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions
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Summing Up on CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions
Finally, CITN Exams Questions on IAS 40 & IASB: How to tackle the Questions, You must have been wondering about the relationship between the accounting concept and taxation. The simple fact is that taxes are based on revenue/turnover. The next factor is the taxable income from where you generate the tax due or tax liability due. So, you see, the taxman must be careful about how these accounting concepts affect the taxable income realizable. Do you catch the fund here? You have been talking with an Economist who is a member of both ICAN and CITN and a practitioner too. CITN Exams Questions on IAS 40 & IASB: How to Tackle the Questions is good for you.
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