Fair Value Measurement – NBC Institute

CR – Nov 2023 – L3 – SB – Q3 – Segment Reporting (IFRS 8)

Guidance on segment reporting and accounting for a conditional building asset transfer and related costs.

Question

Puppsy PLC had identified the following segments in its annual financial statements for the year ended September 30, 2020:

i. Segment A
ii. Segment B
iii. Segment C

The company disclosed two reportable segments. Segments A and B were aggregated into a single reportable operating segment. Operating segments A and B have been aggregated on the basis of their similar basic features and the nature of their goods and services. In the local train market, it is the local transport authority which awards the contract and pays Puppsy PLC for its services. In the local train market, contracts are awarded following a competitive tender process, and the ticket prices paid by passengers are set by and paid to the transport authority. In the inter-city train market, ticket prices are set by Puppsy PLC, and the passengers pay Puppsy PLC for the service provided.

Required:
Advise Puppsy PLC on how the above issues should be dealt with in its financial statements for the year ended September 30, 2020.
(10 Marks)

b. Puppsy PLC was given a building by a private person in August 2018. The benefactor of the building included a condition that the building must be brought into use as a train museum in the interests of the local community or the asset (or a sum equivalent to the fair value of the asset) must be returned. The fair value of the asset was N7.5 million in August 2019. Puppsy PLC took over the building in November 2018.

However, the company could not utilize the building in accordance with the condition until August 2019 as the building needed some renovation and adaptation and in order to abide with the condition attached to it. Puppsy PLC spent N2.5 million on renovation and adaptation.

Required:
Advise Puppsy PLC on the appropriate accounting treatment for the building and the costs incurred in preparing it for use in its financial statements for the year ended September 30, 2020.
(5 Marks)

Answer

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Tags: Conditional Asset Transfer, Contractual Obligations, Fair Value Measurement, Operating segments, Public Sector Contracts, Renovation Costs, Segment Reporting
Level: Level 3

Topic: Segment Reporting (IFRS 8)
Series: NOV 2023

CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement

Advise Mariam Plc on the correct accounting treatment for share appreciation rights (SARs) in compliance with IFRS 2 and IFRS 13.

Question

On 1 April 2018, Mariam Plc granted 500 share appreciation rights (SARs) to its 300 employees. All of the rights vested on 31 March 2020 and can be exercised from 1 April 2020 up to 31 March 2022. At the grant date, the value of each SAR was GH¢10, and it was estimated that 5% of the employees would leave during the vesting period. The fair value of the SARs is as follows:

Date	Fair Value of SAR (GH¢)
31 March 2019	9
31 March 2020	11
31 March 2021	12

All the employees who were expected to leave the employment did leave the company as expected before 31 March 2020. On 31 March 2021, 60 employees exercised their options when the intrinsic value of the right was GH¢10.50 and were paid in cash. Mariam Plc is, however, confused as to whether to account for the SARs under IFRS 2: Share-based Payment or IFRS 13: Fair Value Measurement and would like to be advised as to how the SARs should have been accounted for from the grant date to 31 March 2021.

Required:

Advise Mariam Plc on how the above transactions should be accounted for in its financial statements with reference to relevant International Financial Reporting Standards (IFRS).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Employee Benefits, Fair Value Measurement, IFRS 13, IFRS 2, Share Appreciation Rights (SAR), Share-Based Payments
Level: Level 3

Topic: IFRS 13 Fair value measurement, IFRS 2: Share-Based Payments
Series: NOV 2021

CR – July 2024 – L3 – Q4a – Business Valuation

Determine a range of values for Alomo's equity in Bediako Metals Ltd using three valuation bases: Net assets, Earnings, and Dividend yield.

Question

Question:

Alomo Investments and Financial Services (Alomo) is a locally based investment portfolio firm which holds several financial assets across different industries in Ghana. Alomo holds some equity assets in Bediako Metals Ltd (Bediako). Currently, Alomo is preparing its financial statements and would like to know the fair value of its current year-end 20% equity holdings in Bediako based on the latter’s recently available financial data (for the year ended 31 December 2021) provided below:

Items	GH¢ million
Tangible assets	895
Non-current financial assets	150
Current assets	485
Total liabilities (including all redeemable preference share capital)	750
Irredeemable preference share capital	100
Draft profit after tax	170

Additional information:

At year-end, the entity had to make a downward revision of decommissioning provision relating to one of its plants as both the expected cash outflows and the current-market rate discount rate were reassessed. Reduction of GH¢40 million (appropriately discounted) has been used to revise the liability and same credited to profit or loss.
Bediako holds some 3-year bonds which are measured at fair value through other comprehensive income. Coupon and effective interest rates, which are the same, have been correctly dealt with. The carrying value of these bonds is GH¢92 million, and the bonds are yet to be revised to reflect their year-end fair value. For the purpose of obtaining the appropriate fair value in line with IFRS 13: Fair value measurement, the following information has been obtained:

Reference to most advantageous market	GH¢ million
Quoted market prices	120
Quoted market prices (with minor adjustment)	85
Based on own model	140

The directors of Bediako Ltd have refused to agree with their external auditors to a reduction in the year-end inventory value for the firm’s main product. As a result, the auditors have issued a qualified opinion on the financial statements. The items in question are being included in current assets at the cost of GH¢200 million. The auditors noted during their subsequent event procedures that 90% of these items had been sold for 95% of their cost.
The directors also failed to cooperate with the Finance Director (FD) over how the issued 5-year bonds should be accounted for. The FD’s position is that, though the firm has clear intention to pay all interests and principal on the bonds to the bondholders, such treatment would result in a very huge measurement mismatch. Hence, the fair value option should be taken. Taking that option would have created a fair value gain on the bond by GH¢12 million (including a credit-worthiness element of GH¢5 million).
On 30 June 2021, Bediako Ltd made an issue of 30 million new ordinary shares to a venture capital firm to raise GH¢120 million. Later, on 1 November 2021, the entity also made a capitalisation issue on the basis of one new share for every four shares held at that time. Bediako has correctly accounted for these issues in its financial statements. Its total number of ordinary shares outstanding as at 31 December 2021 was 200 million.
Ordinary dividends for the current period, when compared to the draft profit attributable to ordinary shareholders, translate into a dividend cover of 5:1. The following details relate to preference dividends paid by Bediako during the current year:

Class of shares	Type of dividend	GH¢ million
Irredeemable preference shares (non-cumulative)	Final	10
Redeemable preference shares (non-cumulative)	Final	15

Bediako has correctly accounted for these dividends.

A comparable listed firm provides a price/earnings ratio of 12 and dividend yield of 4%. A risk factor of 20% should be assumed.

Required:
Determine a range of values for Alomo’s equity investment in Bediako using the following bases:
i) Net assets basis
ii) Earnings basis
iii) Dividend yield basis

Answer

Find Related Questions by Tags, levels, etc.

Tags: Dividend Yield, Earnings, Equity Investment, Fair Value Measurement, Net Asset Value, Valuation
Level: Level 3

Topic: Business valuations
Series: JULY 2023

CR – Nov 2023 – L3 – SB – Q3 – Segment Reporting (IFRS 8)

Guidance on segment reporting and accounting for a conditional building asset transfer and related costs.

Question

Puppsy PLC had identified the following segments in its annual financial statements for the year ended September 30, 2020:

i. Segment A
ii. Segment B
iii. Segment C

Required:
Advise Puppsy PLC on how the above issues should be dealt with in its financial statements for the year ended September 30, 2020.
(10 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Conditional Asset Transfer, Contractual Obligations, Fair Value Measurement, Operating segments, Public Sector Contracts, Renovation Costs, Segment Reporting
Level: Level 3

Topic: Segment Reporting (IFRS 8)
Series: NOV 2023

CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement

Advise Mariam Plc on the correct accounting treatment for share appreciation rights (SARs) in compliance with IFRS 2 and IFRS 13.

Question

Date	Fair Value of SAR (GH¢)
31 March 2019	9
31 March 2020	11
31 March 2021	12

Required:

Advise Mariam Plc on how the above transactions should be accounted for in its financial statements with reference to relevant International Financial Reporting Standards (IFRS).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Employee Benefits, Fair Value Measurement, IFRS 13, IFRS 2, Share Appreciation Rights (SAR), Share-Based Payments
Level: Level 3

Topic: IFRS 13 Fair value measurement, IFRS 2: Share-Based Payments
Series: NOV 2021

CR – July 2024 – L3 – Q4a – Business Valuation

Determine a range of values for Alomo's equity in Bediako Metals Ltd using three valuation bases: Net assets, Earnings, and Dividend yield.

Question

Question:

Items	GH¢ million
Tangible assets	895
Non-current financial assets	150
Current assets	485
Total liabilities (including all redeemable preference share capital)	750
Irredeemable preference share capital	100
Draft profit after tax	170

Additional information:

At year-end, the entity had to make a downward revision of decommissioning provision relating to one of its plants as both the expected cash outflows and the current-market rate discount rate were reassessed. Reduction of GH¢40 million (appropriately discounted) has been used to revise the liability and same credited to profit or loss.
Bediako holds some 3-year bonds which are measured at fair value through other comprehensive income. Coupon and effective interest rates, which are the same, have been correctly dealt with. The carrying value of these bonds is GH¢92 million, and the bonds are yet to be revised to reflect their year-end fair value. For the purpose of obtaining the appropriate fair value in line with IFRS 13: Fair value measurement, the following information has been obtained:

Reference to most advantageous market	GH¢ million
Quoted market prices	120
Quoted market prices (with minor adjustment)	85
Based on own model	140

The directors of Bediako Ltd have refused to agree with their external auditors to a reduction in the year-end inventory value for the firm’s main product. As a result, the auditors have issued a qualified opinion on the financial statements. The items in question are being included in current assets at the cost of GH¢200 million. The auditors noted during their subsequent event procedures that 90% of these items had been sold for 95% of their cost.
The directors also failed to cooperate with the Finance Director (FD) over how the issued 5-year bonds should be accounted for. The FD’s position is that, though the firm has clear intention to pay all interests and principal on the bonds to the bondholders, such treatment would result in a very huge measurement mismatch. Hence, the fair value option should be taken. Taking that option would have created a fair value gain on the bond by GH¢12 million (including a credit-worthiness element of GH¢5 million).
On 30 June 2021, Bediako Ltd made an issue of 30 million new ordinary shares to a venture capital firm to raise GH¢120 million. Later, on 1 November 2021, the entity also made a capitalisation issue on the basis of one new share for every four shares held at that time. Bediako has correctly accounted for these issues in its financial statements. Its total number of ordinary shares outstanding as at 31 December 2021 was 200 million.
Ordinary dividends for the current period, when compared to the draft profit attributable to ordinary shareholders, translate into a dividend cover of 5:1. The following details relate to preference dividends paid by Bediako during the current year:

Class of shares	Type of dividend	GH¢ million
Irredeemable preference shares (non-cumulative)	Final	10
Redeemable preference shares (non-cumulative)	Final	15

Bediako has correctly accounted for these dividends.

A comparable listed firm provides a price/earnings ratio of 12 and dividend yield of 4%. A risk factor of 20% should be assumed.

Required:
Determine a range of values for Alomo’s equity investment in Bediako using the following bases:
i) Net assets basis
ii) Earnings basis
iii) Dividend yield basis

Answer

Find Related Questions by Tags, levels, etc.

Tags: Dividend Yield, Earnings, Equity Investment, Fair Value Measurement, Net Asset Value, Valuation
Level: Level 3

Topic: Business valuations
Series: JULY 2023

Question Tag: Fair Value Measurement

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CR – Nov 2023 – L3 – SB – Q3 – Segment Reporting (IFRS 8)

Guidance on segment reporting and accounting for a conditional building asset transfer and related costs.

CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement

Advise Mariam Plc on the correct accounting treatment for share appreciation rights (SARs) in compliance with IFRS 2 and IFRS 13.

CR – July 2024 – L3 – Q4a – Business Valuation

Determine a range of values for Alomo's equity in Bediako Metals Ltd using three valuation bases: Net assets, Earnings, and Dividend yield.

CR – Nov 2023 – L3 – SB – Q3 – Segment Reporting (IFRS 8)

Guidance on segment reporting and accounting for a conditional building asset transfer and related costs.

CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement

Advise Mariam Plc on the correct accounting treatment for share appreciation rights (SARs) in compliance with IFRS 2 and IFRS 13.

CR – July 2024 – L3 – Q4a – Business Valuation

Determine a range of values for Alomo's equity in Bediako Metals Ltd using three valuation bases: Net assets, Earnings, and Dividend yield.

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CR – Nov 2023 – L3 – SB – Q3 – Segment Reporting (IFRS 8)

Guidance on segment reporting and accounting for a conditional building asset transfer and related costs.

You're reporting an error for "CR – Nov 2023 – L3 – SB – Q3 – Segment Reporting (IFRS 8)"

CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement

Advise Mariam Plc on the correct accounting treatment for share appreciation rights (SARs) in compliance with IFRS 2 and IFRS 13.

You're reporting an error for "CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement"

CR – July 2024 – L3 – Q4a – Business Valuation

Determine a range of values for Alomo's equity in Bediako Metals Ltd using three valuation bases: Net assets, Earnings, and Dividend yield.

You're reporting an error for "CR – July 2024 – L3 – Q4a – Business Valuation"

CR – Nov 2023 – L3 – SB – Q3 – Segment Reporting (IFRS 8)

Guidance on segment reporting and accounting for a conditional building asset transfer and related costs.

You're reporting an error for "CR – Nov 2023 – L3 – SB – Q3 – Segment Reporting (IFRS 8)"

CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement

Advise Mariam Plc on the correct accounting treatment for share appreciation rights (SARs) in compliance with IFRS 2 and IFRS 13.

You're reporting an error for "CR – Nov 2021 – L3 – Q2a – IFRS 2: Share-based Payments | IFRS 13: Fair Value Measurement"

CR – July 2024 – L3 – Q4a – Business Valuation

Determine a range of values for Alomo's equity in Bediako Metals Ltd using three valuation bases: Net assets, Earnings, and Dividend yield.

You're reporting an error for "CR – July 2024 – L3 – Q4a – Business Valuation"

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