Important Before Exam

Question 1

Unrealised Profit Adjustments
in Consolidated Statements

Answer 1

Remove profits from Retained Earnings and Inventories

Remove entire transaction amount from Current Liabilities and Trade Receivables.

DO THESE WORKINGS FIRST, nicely laid out

Question 2

Goodwill working

Answer 2

Fair value of purchase consideration: value of the shares
NCI at acquisition:
Fair value of subsidiary at acquisition:

Less identifiable net assets:
In identifiable net assets, write out each aspect as you get marks from this. So EVERY ASPECT FROM SUBSIDIARY’S EQUITY SECTION OF SoFP. e.g. Share capital, share premium, retained earnings, fair value adjustments, impairments

All will be the same as the SFP given other than Retained Earnings, which you put down as the value of the Retained Earnings at acquisition you are given in question.
Fair value adjustments

Goodwill arising at acquisition
less any goodwill impairment

Question 3

Consolidated retained earnings working

Answer 3

Parents contribution: RE From statement
Less goodwill impairment, less any fair value adjustments.

Subsidiary’s contribution:
Subsidiary RE from SoFP given:
Less RE at acquisition given in Q:
= Subsidiary’s post acqusition reserves:
Fair value adjustments:
Any expenses post acqusition e.g. depreciation expenses
SUBTRACT INVENTORIES COST OF SALES - This is the amount that has been sold e.g. inventories £10000 higher than carrying value, but 50% sold by reporting date, subtract £5000 (£10,000 x 0.5)
If there’s another note on additional inventories, add this on as well
Subsidiary’s adjusted post acqusition reserves:
Group Share: e.g. 80%

Question 4

NCI at reporting date working:

Answer 4

Two columns:
First is Investment Date, second reporting date
Investment date, net assets per statements should be RE from question + share premium + share capital, Put starting adjustments before all depreciation adjustments in this column.
Do al same calculations in both columns.
Bottom figure should be the NCI you’re given in Question, which then will give you the balancing figure to add to your Reporting date column, giving you the correct final NCI figure.

Subsidiary’s net assets from SoFP (equity):
Fair value adjustments:
Subsidiary’s adjusted net assets:
NCI share: e.g. 20%

Question 5

What counts under IA38, thus could e part of an intangible asset

Answer 5

Development expenditure.
Remember this for section A

Question 6

Revaluations -
How you show them as working
Where they go in the statements

Answer 6

Opening valuation:
Revaluation amount (balancing figure)
Fair value:

The revaluation would be recorded as a gain within Other Comprehensive Income in the Statement of Comprehensive
Income, and would give rise to a Revaluation Reserve of £7,110
within the equity section of the Statement of Financial Position.

If the next year, it is revalued to have LOST value, the reversal of the first revaluation is recognised as AN IMPAIRMENT LOSS in the SoCI, and eliminates the revaluation reserve in SoFP
The remaining amount goes as an expense in the Income Statement

Question 7

Calculating Investment in Associate
(When firm buys a minority stake)

Answer 7

Same as Non controlling interest calculation, but you use the group’s ownership stake rather than the NCI share

Subsidiary’s net assets per financial statement:
Fair value adjustments (remember to depreciate additional PP&E by one year)
Group Share e.g. 20%:
Investment in associate

Question 8

What to do with interest if it was only half the year?

Answer 8

Loan of £100,000 taken out in June 30th at 10% per year interest.
Interest charge for the year: £100,000 x 8% x 6/12 = £5,000

Remember DONT INCLUDE apportioned overheads or foregone rental opportunities in PP&E cost, they are trying to catch you out

Question 9

Calculate consolidated revenue, Cost of sales and gross profit for the group when there’s been a URP transaction. Section A question

Answer 9

Subtract entire transaction value from Revenue & Cost of Sales
Add back the % of URP profit to Cost of Sales and SUBTRACT it from gross profit

e.g. £90,000 sold to cmopany in same group, bought for £80,000. 50% of this inventory is sold by reporting date.
URP = £5,000 to be added to CoS and removed from Gross Profit

£90,000 subtracted from Revenue and CoS

Question 10

What adjustment needs to be made to goodwill if it there is a transaction after the acquisition?

Answer 10

None - goodwill measures the amount at acquisition, so it isn’t adjusted for subsequent transactions

Question 11

Value to the business model for assets and liabilities is:

Answer 11

Assets:
Lower of Replacement cost and Recoverable amount
Recoverable amount = higher of NPV and Net Realisable Value

Liabilities:
Higher of consideration and Settlement amount
Settlement amount = lower of Cost of Performance and Cost of release

Question 12

Valuing grant in SoFP

Answer 12

Deferred credit, but subtract one year’s income release from the total grant amount to put in the SoFP at year end

Question 13

What to do with expenses attributable to a PPE item

Answer 13

If expenses attrituable to a PPE item have been included in the Draft Operating expenses, remove them from the draft OpEx to avoid double counting
Then add them to the PPE value. Remember to use capitalised interest as well e.g. half years interest payment

Question 14

Income Statement Layout

Answer 14

Revenue
Operating Expenses
Operating Profit
Other expenses
Profit for the Year