Sbr (int/UK) Strategic Business Reporting

(1 mark) 

Revenue should not be recognised over time but at the point in time when control of 

the asset passes to the customer - i.e. when the report is delivered to the customer. 

  

(1 mark) 

As such, no revenue should have been recognised in relation to this contract in the 

current financial year.  

(1 mark) 

The $50,000 received should be shown as a contract liability on the statement of 

financial position. 

(1 mark) 

 

(Part (a): 6 marks max) 

(b) Sand 

IFRS 3 Business Combinations states that the acquisition method is applied when one 

entity obtains control over another entity that constitutes a business. 

(1 mark) 

A business consists of inputs and processes that, when applied to acquired inputs, 

have the ability to contribute to the creation of outputs. 

 (1 mark) 

There is an optional concentration test that preparers of financial statements can use 

to assess whether an acquired set of assets is not a business. The concentration test 

is met if substantially all of the fair value of the total assets acquired is concentrated 

in a single identifiable asset or group of similar identifiable assets. 

(1 mark) 

The fair value of the total assets acquired is concentrated in plots of land (a group of 

similar assets). This means that the purchase of Sand’s ordinary shares does not 

constitute a business combination.  

(1 mark) 

If the optional concentration test is not applied, the same conclusion would be 

reached. This is because Sand has inputs (plots of land) but no processes that can be 

applied to those inputs to contribute to the production of outputs. 

(1 mark) 

The gain of $0.2 million that has been recognised should be removed from the 

statement of profit or loss  

(1 mark) 

 

 

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MO CK A  ANSWER S 

K APLAN P UBLISH IN G