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Professional fileIFRS 7L4 · Expert

File on the financial instrument disclosures: classes, credit risk, liquidity, sensitivity and transfers of assets (IFRS 7)

7 documents18 tasks≈ 300 min
0 / 22 items completed
Standards
IFRS 7 — Financial Instruments: Disclosures
Assistance levelFree workspace · autonomous situation
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn

Case brief

Situation

Dornel SA (fictitious entity) closes its accounts on 31 December 20X6. The preparer builds the file of the notes on financial instruments, submitted to a review check: classes of the line item of receivables and investments, credit risk of the trade receivables, maturities and sensitivity of the debt, transfer of receivables with limited recourse. Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.

Your assignment

Draw up the plan of the file; compute the gross carrying amount of the receivables by rating grade, reconcile the loss allowance, record the charge and the write-off; group the line item into reconciled classes using the net amount of the receivables; analyse the maturities of the debt and the payables, the difference from the carrying amount and the sensitivity; deal with the transfer of receivables with limited recourse; present the effect on the financial statements, deal with the review points and conclude. One document is not useful.

You prepare a complete file: documents, work, entries and conclusion, then compare your work with the solution and the review points of the file.

Autonomous professional situation

As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.

  • Organise the work
  • Document each point
  • Argue the conclusion

Documents

File documents

7 documents: open each one to read it.

Document 1Memo

Company profile and case conventions

Dornel SA (fictitious entity) closes its accounts on 31 December 20X6; its functional currency is the euro. Case conventions: amounts in EUR; the flows of the maturity table are those of the contracts, without discounting; case convention (pedagogical assumption, not attributed to IFRS 7): the floating rate of the closing date applies to all the future interest; the reconciliation of the loss allowance contains no recovery and no transfer; the effect on equity equals the effect on profit or loss before tax; the entries are illustrative.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Line item of receivables and investments€3,865,000.00
Low risk grade€1,500,000.00
Medium risk grade€800,000.00
High risk grade€200,000.00
Gross amount of the receivables per the ledger€2,500,000.00
Loss allowance at the opening date€90,000.00
Charge€60,000.00
Write-off€15,000.00
Closing loss allowance reported€135,000.00
Loans to associates€900,000.00
Term deposits€600,000.00
Loan flows, first bucket€810,000.00
Loan flows, second bucket€780,000.00
Trade payables€600,000.00
Carrying amount of the financial liabilities€2,100,000.00
Total of the flows according to the contracts€2,190,000.00
Floating-rate exposure at the closing date€1,500,000.00
Reasonably possible change in the rate1%
Fair value of the receivables transferred€350,000.00
Fair value of the associated liability€330,000.00
Cleaning invoice€3,100.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort7

  • Company profile and case conventions

  • Receivables and investments, ratings and loss allowance

  • Bank loan and trade payables

  • Change in rates retained by management

  • Amortisation schedule of the bank loan

  • Transfer of receivables with limited recourse

  • Cleaning invoice

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

      Organise your work freely: deal with each point, then argue your conclusion.

      1. Task 1Analysis

        Draw up the plan of the file: which notes to prepare and which documents are useful?

      2. Task 2Calculation

        Compute the total gross carrying amount of the receivables.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the total gross carrying amount of the receivables.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      3. Task 3Calculation

        Reconcile the loss allowance from the opening to the closing date.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Reconcile the loss allowance from the opening to the closing date.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Journal entries

        Record the charge to the loss allowance.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      5. Task 5Journal entries

        Record the write-off of the receivables.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      6. Task 6Effects on the financial statements

        What is the effect of the two entries on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      7. Task 7Analysis

        Compute the net amount of the trade receivables.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the net amount of the trade receivables.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      8. Task 8Professional judgement

        Group the line item « Receivables and investments » into classes reconciled to the line item.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Group the line item « Receivables and investments » into classes reconciled to the line item.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      9. Task 9Calculation

        Compute the total of the flows of the first maturity bucket.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the total of the flows of the first maturity bucket.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      10. Task 10Calculation

        Compute the total of the flows of the second maturity bucket.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the total of the flows of the second maturity bucket.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      11. Task 11Calculation

        Compute the total of the undiscounted contractual cash flows.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the total of the undiscounted contractual cash flows.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      12. Task 12Calculation

        Compute the difference between the total of the flows and the carrying amount.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the difference between the total of the flows and the carrying amount.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      13. Task 13Professional judgement

        Is the change in rates retained reasonably possible, in view of the documents?

      14. Task 14Calculation

        Compute the effect on profit or loss of the increase retained.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the effect on profit or loss of the increase retained.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      15. Task 15Professional judgement

        Is the transfer of receivables a continuing involvement in derecognised assets?

      16. Task 16Calculation

        Compute the net position of the fair values of the transfer.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the net position of the fair values of the transfer.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      17. Task 17Analysis

        Which qualitative information is to be provided for each type of risk?

      18. Task 18Conclusion

        Write the conclusion of the file and deal with the review points.

      File review

      Points raised during the review of this file: read them as the preparer would.

      Review notes

      • BlockingResolvedReview point (blocking): attach the amortisation schedule of the loan that supports the contractual flows
      • Non-blockingOpenReview point: attach the history of rates that supports the change retained

      Information requests

      • ObtainedRequest to the bank: amortisation schedule of the loan
      • Assumption documentedDocumented assumption: change of 1 point retained by management

      Completion checklist

      • Gross amount of the receivables reconciled to the ledgerDone
      • Reconciliation of the loss allowance and balanced entriesDone
      • Classes reconciled to the line item on the net amountDone
      • Maturity table reconciled to the total of the contractsDone
      • Transfer treated as assets not derecognisedDone
      • History of rates to be attached to the fileTo review

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 22).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IFRS 7 §6
      • IFRS 7 §33
      • IFRS 7 §35M
      • IFRS 7 §39