Financial statement preparation and exam tips

Question 1

Statement of Financial Position (SoFP)

Answer 1

• Give the statement an appropriate heading
• Note order of sections – non-current before current
• Don’t forget to reference your workings W1, W2, W3 etc.

Question 2

SoFP workings 1

Answer 2

• For SOFP you will always need a reconciliation of non-current assets whether tangible or intangible, so this is a good starting point for your workings.

Question 3

SoFP workings 2

Answer 3

• Work through additional information in turn and read carefully what you are being asked for.
• You will need to work out profit after tax for retained earnings

Question 4

Statement of Changes in Equity (SoCiE)

Answer 4

• Statement of Changes in Equity requires you to think about which adjustments affect reserves
• You will need to work out your profit for the period for retained earnings, this can be a rough working like the SOFP example
• Key areas for SoCiE are financial instruments and revaluation: make sure you are clear on where the adjustments will sit within reserves for these areas
• Directors may have done a transfer of excess depreciation

Question 5

Statement of Comprehensive Income (SOCI) - full

Answer 5

Question 6

Statement of Comprehensive Income (SOCI) - Steps

Answer 6

• Work through TB/ nominal ledger and additional information in turn and tick off numbers as you use them
• Think about what would affect profit not position (movement from one year to the next)

Question 7

Cost Analysis

Answer 7

Question 8

What should go where?

Answer 8

Question 9

The Statement of Cash Flows

Answer 9

• watch out for the working capital
• wrong figure in the sales proceeds
• forgetting dividends paid

Calculate differences in SOFP and decide on classification using additional info:

1. Operating? Investing? Financing?
2. Identify relevant items in P&L after operating profit (PBIT) and classify
3. Identify any acquisitions, disposals and depreciation charges affecting cash flows

Set out your workings in either T account or equation style

Question 10

Interpretation technique

Answer 10

• Every question is different both in terms of the requirement and the company’s performance
• If you are asked to use specific information – use it!
• Marks are more weighted towards interpretation than calculations, so do not neglect the commentary
• What has changed in your calculations? How does this compare to any other info e.g. competitor figures provided or the prior year? How can you link different aspects together?
• Look at number of marks and use this as a guide (0.5-1 mark for each well-explained point)

Question 11

Consolidation question approach

Answer 11

• Very methodical approach with set workings
• Take your time over calculation of % ownership to make sure you apply the correct
• for subsidiary
• This is a technically challenging area and will require question practice as part of revision to become more familiar with adjustments

Question 12

Consolidated SOPL

Answer 12

• Similar format to single entity SOPL
• Additional line items (highlighted in yellow)
• Think about goodwill impairment impact on profit, not position

Question 13

Consolidated SoFP

Answer 13

• Similar format to single entity SoFP
• Will include potential additional line items highlighted yellow
• Goodwill is the closing position after any cumulative impairment
• Ensure you remove intercompany from investments
• Check for adjustments to receivables / payables for intercompany transactions