Analysis of IFRS Standards Compliance for Financial Statements

This assignment provides a detailed analysis of financial statements based on International Financial Reporting Standards (IFRS). It addresses several key issues, including the application of IFRS 10 in the disposal of a subsidiary, focusing on the accounting treatment required when a parent company disposes of a subsidiary and retains control. It also discusses the capitalization of innovation costs under IFRS, emphasizing that only actual costs incurred can be capitalized, and it critiques a company's attempt to inflate these costs based on competitor analysis. Furthermore, the report examines revenue recognition under IFRS 15, highlighting the importance of recognizing revenue only when the transaction is complete and ownership has been transferred. It specifically addresses a scenario where revenue was prematurely recognized for a product launch, deeming it unjustifiable and recommending it be treated as sales made in advance.

Question 1
i) IFRS 10 in the event of disposal of subsidiary by a parent company where at the first hand it
must be determined whether the parent retain any control over the subsidiary post disposal or
not. All the accounting treatment then took place within the consolidated statement of financial
position. First of all, all the assets and liabilities of the subsidiary must be removed from the
statement of financial position.
The proceeds from disposal will be treated as follows:
As the net assets of Tokyo at acquisition was 4000 while at the time of disposal it was 5000, then
there will be revaluation profit and gets shared among parent and subsidiary in their respective
proportion.
Carrying value of Tokyo assets = 5000
Goodwill recognized at acquisition = 3000
Carrying on the date of disposal = 8000
Less: impaired goodwill = 900
Net carrying value = 7100
Proceeds from disposal = 9000
Share of NCI in net carrying value = 7100 * 25% = 1775
Amount to be credit to parents’ equity = 9000 – 1775 = 7225
( ii )
IFRS state that company should capitalise all such costs that require bringing the asset to its
current position where it is usable. In the current scenario Osaka has invested 80000 on its
innovation. The cost that should be capitalised is only 80000 as it is invested. Company ash
capitalised this cost earlier but after that the company has increased this cost to 120000 after
comparing it with other competitor. IFRS do not support such a treatment to capitalise the cost
more than the cost has actually incurred over the innovation. Henceforth, company is only
authorising to capitalise the cost of 80000 and the rest of value is completely prohibited for the

company to capitalise the same just on the ground of revenue reserve. The actual cost incurred is
only 80000 which is permissible for the company to capitalise the same. The earlier treatment of
company was fairly executed by company.
( iii )
According to the IFRS 15 revenue must be recognised if the transaction has been
completed. In the current scenario the Oska has recognised the revenue of 20% of 3 million sales
which is disclosing as a commission of company and the rest is recognise as a cost of sale which
is 2.4 million. The treatment is fir for the company. IFRS direct to the seller to make revenue one
the transaction has been completed, ownership has been transferred and such related treatment is
done properly. On the basis of the transaction price revenue is recognised in the company books.
In the current scenario performance obligation is also satisfied by the stakeholder which also
allow the Oska to recognise the revenue in the books of accounts of the company. The revenue of
.6 million is recognised which is actually an income of commission for the company. The
company has further made a revenue hat is of 1 million to a product received that will be
launched in February 2022. The sales related to such a transaction are not made in the current
scenario. The revenue is recognised on the basis of the agreement is made which make this value
non refundable by nature. As the money is not refundable hence the sale will take place but the
ownership of the product is still not transferred. Hence, the revenue recognise against the product
to be launched in February 2022 is not justifiable. This should be recognise as sales made in
advance. The revenue belong to a sale that will take place in February should be recognise as
sales in advance. It should not be a part of current income of a company.