Discuss CIMA CIMAPRA19-F01-1 Exam Topic 5 Question 105

On 31 March 20X1 OP decided to sell a property. On that date this property was correctly classified as held for sale in accordance with IFRS 5 Non-Current Assets Held For Sale And Discontinued Operations.

In the draft financial statements of OP for the year ended 31 October 20X1 this property has been included at its fair value, which was $520,000 lower than its carrying value. This has resulted in a charge to profit or loss, the result of which is that the draft financial statements show a loss of $450,000 for the year to 31 October 20X1. When the management board of OP reviewed the draft financial statements it was unhappy about the loss and decided that the property should be reclassified as a non-current asset and reinstated to its original value, despite the fact that its plans for the property had not changed.

In accordance with the ethical principle of professional competence and due care, which THREE of the following statements explain how this property should be accounted for in the financial statements of OP for the year ended 31 October 20X1?

AThe property should be treated as a non-current asset held for sale from 31 March 20X1.

BThe property should be treated as a non-current asset held for sale from 1 November 20X1.

CThe property should not be depreciated after 31 March 20X1.

DThe impairment of $520,000 should be shown as an expense in the statement of profit or loss.

EThe property should be depreciated until 31 October 20X1.

FThe property impairment should not be recorded until the sale has completed.

Suggested Answer: A

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34 comments · newest first

Vicente 11 months ago

So, is it true they can just ignore the loss until the sale? That sounds risky!

Rory 11 months ago

Impairment of $520,000 should absolutely be shown as an expense.

Roxane 11 months ago

Wait, can they really just reinstate the value like that? Seems off.

Bette 12 months ago

I agree, treating it as a non-current asset held for sale is key!

Richelle 12 months ago

The property should definitely not be depreciated after 31 March 20X1.

Stephane 12 months ago

I feel like option E might be wrong since it contradicts what I learned about non-current assets held for sale not being depreciated.

Stefania 1 year ago

I practiced a similar question where the impairment had to be recognized immediately, so I think option D is definitely correct.

Brigette 1 year ago

I'm a bit unsure about the timing here. I thought the property should still be treated as held for sale until it's actually sold, which might point to option A.

Rhea 1 year ago

I remember that once an asset is classified as held for sale, it shouldn't be depreciated anymore, so I think option C makes sense.

Onita 1 year ago

I think the key here is that the property was correctly classified as held for sale initially. The impairment should be recognized in the profit or loss, regardless of the reclassification decision.

Johnna 1 year ago

I'm a bit confused about the reclassification. If the plans for the property haven't changed, why would they do that? I'll need to review the IFRS 5 requirements carefully.

Lovetta 1 year ago

You're right, the impairment should be recorded. But I'm not sure about the depreciation - should it continue or stop after the reclassification?

Wilson 1 year ago

This question seems straightforward, but I want to make sure I understand the key details before answering.

Nickolas 1 year ago

Apparently, OP's management is so good at creative accounting, they should start their own magic show. 'Watch as we make a $520,000 loss disappear before your very eyes!'

Carin 1 year ago

This is a tricky one, but the ethical thing to do is to follow the rules and record the impairment as an expense. I'm sure the management board would prefer to have a pretty picture, but that's not what accounting is about. Maybe they should try their hand at interior decorating instead.

Patti 1 year ago

I can't believe OP is trying to hide the loss by reclassifying the property. That's a clear breach of ethical principles. Option D is the way to go, no matter how unhappy the management board might be. Maybe they should focus on improving the company's performance instead of fudging the numbers.

Benton 1 year ago

↳ replying to Patti

Management should focus on transparency and improving performance rather than trying to hide losses.

Jacquelyne 1 year ago

↳ replying to Patti

I agree, it's important to accurately reflect the financial position of the company.

Lindsey 1 year ago

↳ replying to Patti

Option D is the correct choice. The impairment should be shown as an expense in the statement of profit or loss.

Tyisha 1 year ago

↳ replying to Patti

Definitely, professional competence and due care are important. The property should be accounted for correctly, regardless of the management's unhappiness.

Monroe 1 year ago

↳ replying to Patti

I agree, hiding the loss by reclassifying the property is not ethical. The management board should focus on improving performance.

Emmett 1 year ago

↳ replying to Patti

Option D is the correct choice. The impairment should be shown as an expense in the statement of profit or loss.

Marguerita 2 years ago

Option B is incorrect, as the property was already classified as held for sale on 31 March 20X1. Options C and E are also wrong, as the property should not be depreciated after the reclassification. The correct answers are A, D, and F.

Noelia 1 year ago

↳ replying to Marguerita

F) The property impairment should not be recorded until the sale has completed.

Adolph 1 year ago

↳ replying to Marguerita

D) The impairment of $520,000 should be shown as an expense in the statement of profit or loss.

Ashleigh 1 year ago

↳ replying to Marguerita

A) The property should be treated as a non-current asset held for sale from 31 March 20X1.

Alberto 2 years ago

Clearly, the property should be treated as a non-current asset held for sale from 31 March 20X1, as stated in option A. The impairment should also be shown as an expense in the statement of profit or loss, as per option D. I'm surprised OP is even considering reclassifying the property after already classifying it correctly.

Teri 1 year ago

↳ replying to Alberto

Absolutely, it's crucial for the financial statements to accurately reflect the true financial position of the company.

Lourdes 1 year ago

↳ replying to Alberto

It's important to follow the correct accounting treatment for assets held for sale.

Dalene 1 year ago

↳ replying to Alberto

Yes, and the impairment of $520,000 should be shown as an expense in the statement of profit or loss.

Florencia 1 year ago

↳ replying to Alberto

I agree, the property should definitely be treated as a non-current asset held for sale from 31 March 20X1.

Matthew 2 years ago

But shouldn't the impairment of $520,000 be shown as an expense in the statement of profit or loss? That seems like a significant loss to ignore.

Lorean 2 years ago

I agree with Ivory. It makes sense to account for it that way to reflect the correct status of the property.

Ivory 2 years ago

I think the property should be treated as a non-current asset held for sale from 31 March 20X1.

CIMAPRA19-F01-1 Exam - Topic 5 Question 105 Discussion