Recognition and Measurement under IFRS

Introduction

Recognition determines whether an economic item appears in the primary financial statements; measurement determines the monetary amount assigned to it. These decisions affect reported profitability, financial position, performance ratios and contractual outcomes. They also require disciplined judgment because IFRS standards combine principles with transaction-specific requirements.

This chapter examines major requirements governing revenue, inventories, property, equipment, intangible assets, impairment, leases, provisions, employee benefits, fair value and financial instruments. The standards must be applied together with the definitions and recognition concepts in the IFRS Conceptual Framework.

Learning Objectives

After studying this chapter, students should be able to:

1. Explain recognition, derecognition and measurement under IFRS.
2. Apply IFRS 15 to identify and measure revenue.
3. Measure inventories, property, equipment and intangible assets.
4. conduct an impairment review under IAS 36.
5. account for lessee obligations under IFRS 16, including reassessments and modifications.
6. distinguish provisions from contingent liabilities.
7. explain recognition and measurement of employee benefits.
8. apply the IFRS 13 fair-value framework.
9. classify and measure financial instruments under IFRS 9.
10. evaluate the judgments, controls and ethical risks involved in IFRS measurement.

1. Recognition and Measurement Foundations

1.1 Recognition and derecognition

Recognition is the inclusion of an asset, liability, equity item, income or expense in the statement of financial position or statement of financial performance. Under the Conceptual Framework, recognition is appropriate when it provides relevant information, faithfully represents the underlying economic phenomenon, and produces benefits that justify its costs.

An asset is a present economic resource controlled by an entity because of past events. A liability is a present obligation to transfer an economic resource because of past events. Recognition does not depend solely on legal ownership. Control, enforceable rights, substantive obligations and economic substance are central.

Derecognition removes all or part of a previously recognized asset or liability when the item no longer satisfies the relevant recognition requirements. Examples include disposal of equipment, expiry of an obligation and transfer of a financial asset that qualifies for derecognition.

1.2 Measurement bases

Measurement uncertainty does not automatically prevent recognition. Instead, entities should use reasonable, supportable estimates and disclose significant judgments and estimation uncertainty.

Figure: A disciplined IFRS recognition and measurement process.

2. Revenue from Contracts with Customers—IFRS 15

IFRS 15 applies a control-based model to revenue arising from contracts with customers. Its core principle is to recognize revenue in a manner depicting the transfer of promised goods or services for the consideration to which the entity expects to be entitled.

2.1 The five-step model

Step 1: Identify the contract. The parties must have approved the arrangement, their rights and payment terms must be identifiable, the contract must have commercial substance, and collection must be probable.

Step 2: Identify performance obligations. A promised good or service is distinct if the customer can benefit from it and the promise is separately identifiable within the contract. A series of substantially similar services may constitute one performance obligation.

Step 3: Determine the transaction price. This includes fixed consideration and estimated variable consideration, adjusted where relevant for significant financing components, non-cash consideration and consideration payable to the customer. Variable consideration is included only to the extent that a significant revenue reversal is highly probable not to occur when uncertainty is resolved.

Step 4: Allocate the transaction price. Allocation is generally based on relative stand-alone selling prices:

Here, SSP_i is the stand-alone selling price of performance obligation i, expressed in the same currency as the transaction price.

Step 5: Recognize revenue. Revenue is recognized when—or as—the entity satisfies a performance obligation by transferring control.

2.2 Point-in-time and over-time recognition

A performance obligation is satisfied over time if any one of the following alternative criteria is met:

1. the customer simultaneously receives and consumes the benefits as the entity performs;
2. the entity creates or enhances an asset that the customer controls as it is created or enhanced; or
3. the asset has no alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

If none is met, revenue is recognized at a point in time. Indicators include present rights to payment, transfer of legal title or physical possession, transfer of significant risks and rewards, and customer acceptance. No single indicator is always decisive.

For over-time obligations, progress is measured using an output method, such as units delivered, or an input method, such as costs incurred relative to expected total costs. The method must faithfully depict performance.

2.3 Worked example: allocation and recognition

A supplier sells equipment and two years of support for CU108,000. Their stand-alone selling prices are CU100,000 and CU20,000 respectively. The relative values total CU120,000.

CU90,000 is recognized when control of the equipment transfers. Assuming support is provided evenly, CU9,000 is recognized in each of the two years. Depending on billing and performance, the difference between recognized revenue and consideration received is presented as a contract asset, receivable or contract liability.

3. Inventories—IAS 2

Inventories are measured at the lower of cost and net realizable value (NRV). Cost includes purchase costs, conversion costs and other costs incurred in bringing inventories to their present location and condition. Abnormal waste, most storage costs, unrelated administration and selling costs are expensed.

All amounts are measured in the same currency and relate to the expected ordinary-course transaction. Specific identification is used for non-interchangeable items. FIFO or weighted-average cost is used for ordinarily interchangeable items; LIFO is prohibited.

Example. An entity has 160 interchangeable units: 100 acquired at CU10 and 60 at CU12. Weighted-average unit cost is:

If 120 units are sold, cost of sales is CU1,290 and the remaining cost is CU430. If the remaining inventory has NRV of CU400, a CU30 write-down is recognized. A previous write-down is reversed if NRV subsequently recovers, but only up to the amount of the original write-down.

4. Property, Plant and Equipment—IAS 16

An item of property, plant and equipment (PPE) is recognized when future economic benefits are probable and cost can be measured reliably. Initial cost includes:

• purchase price net of discounts;
• directly attributable costs of bringing the asset to working condition;
• the initial estimate of dismantling, removal and site-restoration obligations.

General administration, start-up losses and costs incurred after an asset is capable of operating as intended are generally excluded.

After recognition, an entity chooses the cost model or revaluation model for an entire class of PPE. Under the cost model, carrying amount equals cost less accumulated depreciation and impairment. Under the revaluation model, fair-value changes are generally recognized in other comprehensive income (OCI), subject to rules concerning reversals of previous decreases.

4.1 Depreciation and components

For straight-line depreciation:

Cost and residual value use the same currency; useful life is expressed in years. The formula assumes a constant consumption pattern. Another method is required if benefits are consumed differently.

Suppose a machine costs CU520,000, has an estimated residual value of CU40,000 and an eight-year useful life. Annual depreciation is CU60,000. Significant components with different useful lives—for example, an aircraft engine and airframe—must be depreciated separately. Useful lives, residual values and methods are reviewed at least annually; revisions are changes in accounting estimates and are applied prospectively under IAS 8.

Major inspections are capitalized when recognition requirements are met, while the carrying amount of the previous inspection component is derecognized. Ordinary repairs are expensed.

5. Intangible Assets—IAS 38

An intangible asset is an identifiable non-monetary asset without physical substance. Identifiability arises from separability or contractual and legal rights. Recognition requires control, probable future economic benefits and reliably measurable cost.

Separately acquired intangibles are initially measured at cost. Internally generated expenditure requires careful classification:

• Research expenditure is expensed when incurred.
• Development expenditure is capitalized only when the entity demonstrates technical feasibility, intention and ability to complete and use or sell the asset, probable future benefits, adequate resources, and reliable measurement of attributable expenditure.

Internally generated brands, mastheads, publishing titles, customer lists and similar items are not recognized because their cost cannot be distinguished adequately from developing the business as a whole.

Finite-life intangibles are amortized over their useful lives and tested for impairment when indicators exist. Indefinite-life intangibles are not amortized but are tested annually for impairment and whenever indicators arise. “Indefinite” does not mean infinite; it means no foreseeable limit to the period of net cash inflows.

6. Impairment of Non-Financial Assets—IAS 36

At each reporting date, an entity considers whether an asset may be impaired. Goodwill, indefinite-life intangibles and intangibles not yet available for use require annual testing regardless of indicators.

Recoverable amount is the higher of fair value less costs of disposal (FVLCD) and value in use (VIU):

VIU is the present value of future cash flows from continuing use and ultimate disposal. Cash-flow and discount-rate assumptions must be internally consistent: nominal cash flows require a nominal discount rate, while real cash flows require a real rate. Pre-tax rates are used, reflecting the time value of money and asset-specific risks not already included in cash flows.

Example. An asset has a carrying amount of CU900,000, FVLCD of CU720,000 and VIU of CU760,000. Recoverable amount is CU760,000, so the impairment loss is CU140,000.

If an asset does not generate largely independent cash inflows, it is tested within a cash-generating unit (CGU). A CGU impairment is allocated first to goodwill and then pro rata to other assets, but no asset is reduced below the highest of its individual FVLCD, VIU where determinable, and zero. Impairments other than goodwill may be reversed when estimates improve. Goodwill impairment is never reversed.

7. Leases—IFRS 16

A contract contains a lease when it conveys the right to control the use of an identified asset for a period in exchange for consideration. Control requires both the right to obtain substantially all economic benefits and the right to direct use.

7.1 Initial lessee measurement

Except for elected exemptions for short-term leases and leases of low-value assets, a lessee recognizes a right-of-use (ROU) asset and lease liability.

Here, Payment_t is a payment included in the lease liability at time t, r is the periodic discount rate, and n is the number of payment periods. The rate is the interest rate implicit in the lease if readily determinable; otherwise, the lessee uses its incremental borrowing rate.

The liability includes fixed payments, in-substance fixed payments, index- or rate-based variable payments measured using the commencement-date index or rate, expected residual-value guarantee payments, and purchase-option or termination payments when relevant assumptions make them reasonably certain.

7.2 Subsequent measurement

The liability increases for interest, decreases for payments and is adjusted for reassessments or modifications:

Interest is calculated using the effective-interest method. The ROU asset is normally depreciated under IAS 16 and tested for impairment under IAS 36. If ownership transfers or a purchase option is reasonably certain to be exercised, depreciation extends over the asset’s useful life; otherwise it generally extends over the shorter of the ROU asset’s useful life and lease term.

Worked example. A four-year lease requires annual payments of CU30,000 in arrears. The annual discount rate is 6%, and initial direct costs are CU2,000. There are no incentives or restoration obligations.

The initial ROU asset is CU105,953.17. Assuming straight-line depreciation over four years, annual depreciation is CU26,488.29. First-year interest is CU6,237.19, giving a liability immediately after the first payment of:

The first-year lease-related expenses are CU6,237.19 interest and CU26,488.29 depreciation.

7.3 Reassessment

A lessee remeasures the liability when specified assumptions or cash flows change. The corresponding adjustment is normally made to the ROU asset; if that asset has already been reduced to zero, a further decrease may be recognized in profit or loss.

Important reassessments include:

• lease term or purchase option: remeasure using a revised discount rate when the assessment changes because of a significant event within the lessee’s control;
• residual-value guarantee: remeasure for changes in the amount expected to be payable, generally using the unchanged discount rate;
• index or rate: remeasure when payments change, using revised contractual cash flows and generally the unchanged discount rate, except that a changed floating interest rate requires a revised rate.

For example, after the second payment in the preceding lease, the liability is CU55,001.78. If the index then changes the remaining two payments from CU30,000 to CU34,000, their present value at 6% is approximately CU62,335.35. The CU7,333.57 increase is added to both the liability and, normally, the ROU asset.

7.4 Variable payments and modifications

Variable payments based on an index or rate are included in initial measurement using the commencement-date index or rate. Other variable payments—such as 3% of store sales—are excluded from the liability and recognized in profit or loss when the triggering event occurs, unless included in the carrying amount of another asset under another standard.

A lease modification is accounted for as a separate lease only when it adds the right to use one or more underlying assets and consideration increases by an amount commensurate with the stand-alone price, adjusted for the contract’s circumstances.

Other modifications are accounted for at the effective date by reallocating consideration, reassessing classification where relevant, and remeasuring the liability using a revised discount rate. A modification that decreases the scope of a lease requires a proportionate reduction of the ROU asset, with any difference recognized as a gain or loss. Other modifications generally adjust the ROU asset.

Lessor accounting retains operating-lease and finance-lease classification. A finance lease transfers substantially all risks and rewards incidental to ownership; an operating lease does not.

8. Provisions and Contingencies—IAS 37

A provision is recognized when an entity has:

1. a present legal or constructive obligation from a past event;
2. a probable outflow of resources; and
3. a reliable estimate of the obligation.

A contingent liability is generally disclosed, rather than recognized, unless the possibility of outflow is remote. A contingent asset is disclosed when inflow is probable and recognized only when realization is virtually certain.

The provision is the best estimate of expenditure required to settle or transfer the obligation. Large populations normally use expected value:

Probabilities p_i must sum to 1, and all cash outflows must use the same currency and valuation date. Discounting is required where the time value of money is material.

Warranty example. For 1,000 products, management estimates an 80% probability of no repair, 15% probability of a CU100 repair and 5% probability of a CU500 repair. Expected cost per product is CU40, so a CU40,000 provision is recognized.

Future operating losses are not provided for. Restructuring provisions require a detailed formal plan and a valid expectation created in affected parties. Reimbursements are recognized separately only when receipt is virtually certain.

9. Employee Benefits—IAS 19

IAS 19 distinguishes short-term benefits, post-employment benefits, other long-term benefits and termination benefits. Short-term benefits, such as wages and paid leave, are generally measured undiscounted as employees render service.

Under a defined contribution plan, the employer recognizes contributions payable and ordinarily bears no actuarial risk. Under a defined benefit plan, the employer recognizes the net defined-benefit position:

The defined benefit obligation (DBO) is measured using the projected unit credit method. Profit or loss includes service cost and net interest. Remeasurements—including actuarial gains and losses and the return on plan assets excluding amounts in net interest—are recognized in OCI and are not reclassified to profit or loss. A recognized net asset is limited by the asset ceiling.

Key assumptions include discount rates based on high-quality corporate bonds where a deep market exists, salary growth, employee turnover, mortality and retirement ages. Biasing assumptions to reduce liabilities breaches faithful representation and may mislead employees and investors.

10. Fair Value Measurement—IFRS 13

Fair value is an exit price: the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is market-based rather than entity-specific.

Measurement assumes the principal market or, in its absence, the most advantageous market to which the entity has access. For non-financial assets, fair value reflects the market participant’s highest and best use when relevant.

Valuation techniques include:

• market approach: comparable market transactions;
• income approach: discounted cash flows or option pricing;
• cost approach: current replacement cost adjusted for obsolescence.

The fair-value hierarchy prioritizes inputs:

The entire measurement is classified at the level of its lowest significant input. Level 3 measurements require robust governance, sensitivity analysis and disclosures because management assumptions strongly influence outcomes.

11. Financial Instruments—IFRS 9

11.1 Financial assets

Classification of financial assets depends on the entity’s business model and whether contractual cash flows are solely payments of principal and interest (SPPI).

For qualifying equity investments not held for trading, an irrevocable election at initial recognition may present fair-value changes in OCI. Gains and losses are not recycled to profit or loss on disposal, although dividends are generally recognized in profit or loss when appropriate.

Amortized cost uses the effective interest rate (EIR), which exactly discounts expected contractual cash flows over the instrument’s expected life to its initial carrying amount:

11.2 Expected credit losses

The expected credit loss (ECL) model recognizes forward-looking credit losses before an actual default occurs.

• Stage 1: 12-month ECL where credit risk has not increased significantly.
• Stage 2: lifetime ECL after a significant increase in credit risk.
• Stage 3: lifetime ECL for credit-impaired assets; interest is generally calculated on the net carrying amount.

A simplified approximation for one scenario is:

Here, PD is probability of default, LGD is the proportion of exposure lost after recoveries, and EAD is exposure at default. A full IFRS 9 estimate must be probability-weighted, reflect reasonable forward-looking information and discount cash shortfalls using the effective interest rate.

If PD is 2%, LGD is 40% and EAD is CU98,000, the simplified ECL is CU784.

11.3 Financial liabilities, derivatives and hedging

Most financial liabilities are subsequently measured at amortized cost. Derivatives are generally measured at FVTPL unless designated in a qualifying hedge relationship. Hedge accounting aligns accounting effects with risk-management activities but requires formal designation, documentation and an economic relationship between hedged item and hedging instrument.

Derecognition of a financial asset depends on expiry or transfer of contractual rights and an analysis of transferred risks, rewards and control. A financial liability is derecognized when extinguished—when the obligation is discharged, cancelled or expires.

12. Illustrative Integrated Case: Meridian Manufacturing Ltd

Background

Meridian Manufacturing Ltd is a fictional reporting entity preparing annual IFRS financial statements. During the year it entered a bundled sales contract, held slow-moving inventory, leased warehouse equipment and experienced customer-credit deterioration.

Problem and analysis

Revenue: Meridian received CU216,000 for machinery and two years of maintenance. Stand-alone prices were CU200,000 and CU40,000. Applying relative stand-alone prices, CU180,000 is allocated to machinery and CU36,000 to maintenance. Machinery revenue is recognized when control transfers; maintenance revenue is CU18,000 annually if service is provided evenly.

Inventory: Components cost CU75,000 but have an NRV of CU68,000. Meridian recognizes a CU7,000 write-down.

Impairment: A production CGU has a carrying amount of CU600,000. Its FVLCD is CU510,000 and VIU is CU540,000. Recoverable amount is CU540,000, producing a CU60,000 impairment loss.

Lease: A lease liability opens at CU100,000. At a 5% annual rate, interest is CU5,000. After a year-end payment of CU30,000, the liability is CU75,000. The ROU asset is depreciated separately and assessed for impairment.

Credit losses: A CU250,000 receivable has a probability-weighted lifetime loss rate of 4%. Meridian recognizes an ECL allowance of CU10,000.

Approach and outcome

Meridian’s controller prepares standard-specific calculations, reconciles contract data to invoices, obtains operational evidence for asset estimates and submits significant assumptions to the audit committee. The resulting entries reduce the risk of premature revenue, overstated inventory, hidden lease obligations and delayed credit-loss recognition.

Learning points

The case demonstrates that IFRS reporting is integrated. Contract terms affect both revenue and financial assets; asset forecasts influence impairment; lease changes can alter both assets and liabilities; and each estimate requires evidence, consistency and review.

13. Judgment, Governance and Contemporary Practice

Recognition and measurement are vulnerable to optimism and earnings management. Common risks include aggressive revenue cut-off, unsupported useful lives, delayed impairment, understated provisions and biased ECL scenarios. Effective practice includes:

• documented accounting policies and contract reviews;
• independent approval of valuation assumptions;
• reconciliation of subledgers to the general ledger;
• back-testing forecasts against actual outcomes;
• sensitivity analysis for material estimates;
• specialist involvement where valuation or actuarial expertise is required;
• transparent disclosure of judgments and estimation uncertainty.

Data analytics can identify unusual revenue entries, inventory obsolescence and credit migration. AI may assist contract extraction or scenario analysis, but management remains responsible for completeness, model validation, explainability and protection of confidential data.

Contemporary developments increasingly emphasize transparent estimation, climate-related effects on useful lives and impairment forecasts, interest-rate effects on valuations, and consistent reporting of complex contractual arrangements. Amendments to IFRS 16 concerning lease liabilities in sale-and-leaseback transactions reinforce that sellers-lessees must not recognize gains relating to retained rights of use. Entities must monitor effective dates and endorsement requirements in their jurisdictions.

Chapter Summary

Recognition determines whether economic phenomena enter the financial statements, while measurement determines their monetary amounts. IFRS 15 uses a five-step revenue model and permits over-time recognition when any one of three specified criteria is met. IAS 2 applies the lower of cost and NRV; IAS 16 and IAS 38 govern capitalization and systematic allocation of tangible and intangible assets. IAS 36 prevents assets from being carried above recoverable amount.

IFRS 16 generally requires lessees to recognize ROU assets and lease liabilities, subsequently accounting for interest, depreciation, reassessments, variable payments and modifications. IAS 37 addresses uncertain obligations, while IAS 19 governs employee benefits. IFRS 13 provides a market-based fair-value framework, and IFRS 9 classifies financial instruments and requires forward-looking credit-loss recognition. Across all areas, reliable reporting depends on evidence, consistent assumptions, ethical judgment and strong governance.

Key Terms

Recognition: Inclusion of an economic item in the primary financial statements.

Derecognition: Removal of all or part of a recognized asset or liability.

Measurement basis: The identified feature used to determine an item’s monetary amount.

Performance obligation: A promise to transfer a distinct good or service to a customer.

Transaction price: Consideration an entity expects to receive for transferring promised goods or services.

Net realizable value: Estimated selling price less completion and selling costs.

Component depreciation: Separate depreciation of significant PPE components with different useful lives.

Development expenditure: Expenditure on applying knowledge to a plan or design before commercial use.

Cash-generating unit: The smallest asset group generating largely independent cash inflows.

Recoverable amount: The higher of value in use and fair value less costs of disposal.

Right-of-use asset: A lessee’s right to use an underlying asset during a lease term.

Lease modification: A change in lease scope or consideration not included in original terms.

Provision: A liability of uncertain timing or amount.

Constructive obligation: An obligation created by established practice or a sufficiently specific statement.

Defined benefit obligation: Present value of benefits attributable to employee service.

Fair value: Market-based exit price at the measurement date.

Amortized cost: Initial measurement adjusted for repayments, effective interest and impairment.

SPPI: Contractual cash flows consisting solely of principal and interest payments.

Expected credit loss: Probability-weighted present value of expected credit shortfalls.

Review Questions

Short Answer Questions

1. Distinguish recognition from measurement.
2. State the three alternative IFRS 15 criteria for over-time revenue recognition.
3. Define net realizable value under IAS 2.
4. Explain why research expenditure is expensed under IAS 38.
5. Distinguish a provision from a contingent liability.

Long Answer Questions

1. Explain and illustrate the five-step IFRS 15 revenue model.
2. Discuss initial and subsequent measurement of PPE under IAS 16.
3. Explain how IAS 36 impairment testing applies to individual assets and CGUs.
4. Evaluate initial measurement, subsequent measurement, reassessment and modification of a lease under IFRS 16.
5. Compare amortized cost, FVOCI and FVTPL classifications under IFRS 9.

Analytical / Application Questions

1. A company sells equipment with three years of support for CU150,000. Stand-alone prices are CU144,000 and CU36,000. Allocate the transaction price and explain the timing of revenue recognition.
2. A CGU has a carrying amount of CU1,200,000, VIU of CU980,000 and FVLCD of CU1,010,000. Calculate and interpret any impairment loss.
3. Analyze how a change in an index-based lease payment differs from a sales-based variable lease payment and from a modification that adds an additional underlying asset.

Multiple Choice Questions with Answers

Question 1

A contract price of CU90,000 covers two distinct products with stand-alone selling prices of CU80,000 and CU40,000. How much is allocated to the first product under IFRS 15?

A. CU45,000

B. CU60,000

C. CU72,000

D. CU80,000

Correct Answer: B. CU60,000

Question 2

Which circumstance independently satisfies an IFRS 15 criterion for recognizing revenue over time?

A. The customer pays a refundable deposit before production begins.

B. The seller expects the contract to be profitable.

C. The asset has no alternative use to the seller and the seller has an enforceable right to payment for performance completed to date.

D. Legal title transfers only after the final delivery.

Correct Answer: C. The asset has no alternative use to the seller and the seller has an enforceable right to payment for performance completed to date.

Question 3

Inventory has a cost of CU52,000 and net realizable value of CU47,000. At what amount should it be measured under IAS 2?

A. CU5,000

B. CU47,000

C. CU52,000

D. CU99,000

Correct Answer: B. CU47,000

Question 4

Which expenditure is normally included in the initial cost of property, plant and equipment under IAS 16?

A. Abnormal material wastage during installation

B. Annual advertising expenditure

C. Directly attributable equipment installation costs

D. General staff training after the asset is operational

Correct Answer: C. Directly attributable equipment installation costs

Question 5

An asset has a carrying amount of CU700,000, value in use of CU610,000 and fair value less costs of disposal of CU630,000. What impairment loss is recognized?

A. CU70,000

B. CU90,000

C. CU610,000

D. CU630,000

Correct Answer: A. CU70,000

Question 6

A lease liability opens at CU100,000. The annual discount rate is 5%, and a CU30,000 payment is made at year-end. Ignoring remeasurement, what is the closing liability?

A. CU65,000

B. CU70,000

C. CU75,000

D. CU105,000

Correct Answer: C. CU75,000

Question 7

Under IFRS 16, when is a lessee’s lease modification accounted for as a separate lease?

A. Whenever contractual payments increase

B. When it adds a right to use one or more assets and the added consideration is commensurate with the stand-alone price

C. Whenever the lease term becomes shorter

D. Only when the original lease liability has been fully paid

Correct Answer: B. When it adds a right to use one or more assets and the added consideration is commensurate with the stand-alone price

Question 8

Which combination is required for recognition of a provision under IAS 37?

A. A possible future obligation and any measurable amount

B. A management intention and a remote outflow

C. A present obligation, probable outflow and reliable estimate

D. A future operating loss approved by the board

Correct Answer: C. A present obligation, probable outflow and reliable estimate

Question 9

Which item is most likely a Level 1 input under IFRS 13?

A. An internally forecast growth rate

B. An unadjusted quoted price for an identical listed share in an active market

C. A valuation based on unobservable cash flows

D. A private-company liquidity discount

Correct Answer: B. An unadjusted quoted price for an identical listed share in an active market

Question 10

A debt investment is held to collect contractual cash flows, and those cash flows pass the SPPI test. In the absence of a fair-value designation, how is it subsequently measured under IFRS 9?

A. Amortized cost

B. FVOCI for equity instruments

C. FVTPL in every case

D. Historical cost without impairment

Correct Answer: A. Amortized cost