ICAN Strategic Business Reporting 2022 past questions and answers

1. Kestrel cannot control Lumen because it owns less than half of the voting shares.
2. Kestrel controls Lumen only if every other shareholder separately delegates its voting rights to Kestrel.
3. Kestrel controls Lumen because it has power over relevant activities, exposure to variable returns, and the ability to use that power to affect those returns.
4. Kestrel and Lumen's other shareholders automatically have joint control because Kestrel owns a significant minority interest.

Answer: C. Kestrel controls Lumen because it has power over relevant activities, exposure to variable returns, and the ability to use that power to affect those returns.

IFRS 10 requires power, exposure or rights to variable returns, and the ability to use power to affect those returns; Kestrel has all three. A 50% ownership threshold is not required, so A is wrong.

1. As a joint operation, recognizing its rights to assets and obligations for liabilities, and its share of related revenue and expenses.
2. As a joint venture, recognizing only a single investment balance under the equity method in every circumstance.
3. As a subsidiary, consolidating all assets and liabilities because unanimous consent establishes control by each venturer.
4. As a financial asset at fair value through profit or loss because the arrangement uses a separate vehicle.

Answer: A. As a joint operation, recognizing its rights to assets and obligations for liabilities, and its share of related revenue and expenses.

Classification follows the parties' rights and obligations: direct rights to assets and obligations for liabilities indicate a joint operation. Rights only to net assets would point to a joint venture, so B does not fit these facts.

1. A N5 million exchange gain in other comprehensive income.
2. No exchange difference, because the inventory was initially recorded at the transaction-date rate.
3. Increase inventory cost by N5 million, with no remeasurement of the payable.
4. A N5 million exchange loss in profit or loss.

Answer: D. A N5 million exchange loss in profit or loss.

The monetary payable is retranslated at the closing rate: US$100,000 x (N1,500 - N1,450) = N5 million additional liability, an exchange loss in profit or loss. The non-monetary inventory is not retranslated merely because the payable changes.

1. A net monetary loss in other comprehensive income, because liabilities rise with the general price index.
2. A net monetary gain in profit or loss, because inflation reduces the real burden of net monetary liabilities.
3. No gain or loss, because monetary items are never affected by inflation.
4. A net monetary gain directly in equity, because it is a revaluation reserve.

Answer: B. A net monetary gain in profit or loss, because inflation reduces the real burden of net monetary liabilities.

A net monetary liability position generally produces a gain during inflation as the real value of monetary liabilities falls; IAS 29 recognizes the net monetary gain or loss in profit or loss. A net monetary asset position generally produces a loss, not the result described in A.

1. Amortized cost.
2. Fair value through other comprehensive income, because every bond meeting the SPPI test must use that category.
3. Fair value through profit or loss, because all financial assets are remeasured through profit or loss.
4. Historical cost with no impairment allowance.

Answer: A. Amortized cost.

A hold-to-collect business model and SPPI cash flows meet the amortized-cost conditions, subject to no FVTPL designation. FVOCI debt measurement generally requires a hold-to-collect-and-sell business model, so B is wrong.