Cross-IFRS · Case studies (Step 3 of 5)
Practical case
Version of this content
IAS 12 Income Taxes — wording before IFRS 18Applicable today
Applies to annual periods beginning before January 1, 2027.
Calvorine Emballages SA, a fictitious company that produces food packaging films and trays (140 employees, one extrusion plant), IFRS financial statements presenting one comparative year, year end 31 December, amounts in euros; its shares are not traded on a market.
L1 · Guided · Year N — closing at 31 December N
You follow Calvorine Emballages over three years. In N, the depreciation of the Pivane extrusion line and the amortisation of the Quentavel patent are revised; in N+1, internal audit discovers two capitalisation errors and management changes the cost formula for its pellets; in N+2, a new technical study and a new tax rate call the line into question again. At each step, the central question is the same: estimate, error or policy? The answer decides the treatment (prospective or retrospective) and where deferred tax goes (profit or loss or equity). All figures and all tax rules are case data (fictitious legislation); Calvorine’s choices for its property, plant and equipment (method, useful life, residual value, cost model) are case data: this case teaches no IAS 16 rule and classifies those choices only under IAS 8. Teaching assumptions and professional judgements are flagged as such, and no method chosen by Calvorine is presented as required by the standards. Teaching assumption: no other item creates deferred tax.
Standards involved: IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (classification, prospective treatment, disclosures), IAS 38 Intangible Assets (amortisation method and its review) and IAS 12 Income Taxes (tax base, deferred tax). Classify the changes made at the start of N, calculate the depreciation, amortisation and deferred taxes, record the entries and draft the note.
Fundamental level: the method, help and references are shown.
Method
File checklist
2 / 6 stages reached
Context · Dated fact of the file
Calvorine Emballages SA, a fictitious company that produces food packaging films and trays (140 employees, one extrusion plant), IFRS financial statements presenting one comparative year, year end 31 December, amounts in euros; its shares are not traded on a market.
Initial event · L1·Year N — closing at 31 December N · Current stage
Standards involved: IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (classification, prospective treatment, disclosures), IAS 38 Intangible Assets (amortisation method and its review) and IAS 12 Income Taxes (tax base, deferred tax). Classify the changes made at the start of N, calculate the depreciation, amortisation and deferred taxes, record the entries and draft the note.
Pieces added
New period · L2·Year N+1 — N+1 financial statements, N comparative · Upcoming: unlocks after the current stage
New period · L3·Year N+1 — changes in policies at 1 January N+1 · Upcoming: unlocks after the current stage
New period · L4·Year N+2 — closing at 31 December N+2 · Upcoming: unlocks after the current stage
Conclusion · Upcoming: unlocks after the current stage
2 documents to work from at this level.
Document 1Supporting document
| Asset | Position at 1 January N | Conclusion of the review |
|---|---|---|
| Pivane extrusion line (property, plant and equipment, cost model) | acquired on 1 January N−2 for 2,400,000; depreciated on a straight-line basis over 12 years, nil residual value (200,000 per year); carrying amount 2,000,000 | wear on the extrusion screws, measured in December N−1, reduces the remaining useful life to 8 years (N to N+7); a market for used lines that emerged in N−1 allows the residual value to be estimated at 80,000 |
| Quentavel process patent (acquired intangible asset) | acquired on 1 January N−1 for 600,000; amortised on a straight-line basis over 10 years (60,000 per year); carrying amount 540,000 | the benefits of the patent are consumed in line with the volumes produced: expected remaining production under the patent 4,500 thousand units, of which 900 thousand in N |
Calvorine applies the new estimates from 1 January N (case data). The choices of method, useful life and residual value for the line are case data.
First level: all the data is in the brief and the pieces of this level.
6 parts to answer, marked when you submit the level.
Find the useful facts in the pieces before concluding.
Part 1 · Classification · Recognition
Classify each point in documents 1 and 2: change in accounting estimate, change in accounting policy or prior period error.
Remaining useful life of the Pivane line reduced to 8 years
Residual value of the line raised from 0 to 80,000
Quentavel patent: change from the straight-line method to the units of production method
Update of the scrap rate used to estimate future production
Pellets: change from first-in, first-out to weighted average cost
N−1 maintenance invoice received before issue but not recorded
5 more questions will appear once the current question is complete.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Answer every part to submit the level and see the conclusion.
Normative references