Day 1 Dec 2017

Hammad Sarwar
Date 06th
December 2017
Prepare to pass
session of ACCA
Paper P2
Corporate
Reporting
FORMAT OF THE EXAM PAPER
There are four questions of which you must do three as
follows:
 Section A (Compulsory Case Study)

 (q1) The case will be based around a group scenario. There will be 35 marks of
numbers and 15 marks of narrative. (50 marks)
 Section B (Choice of 2 from 3 questions)

 (q2) Focus. Typically the second question in the exam focuses on a single
technical subject, such as pensions, financial instruments or deferred tax.Often
this question requires thorough technical knowledge. (25 marks)
 (q3) Mix. Usually there are roughly 5 mini scenarios, each valued at 5 marks and
covering a wide range of financial reporting issues. These questions require
problem solving and usually far less technical knowledge than question two. (25
marks)
 (q4) Current Issues . (25 marks)
2 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

ACCA P2 Exam Pass Rates
Average Pass rate 49%

PASS RATES CHART
 Highest 58%
 Lowest 44% 2015
 Sept 2017 50%

2014
 June 2017 47%

 March 2017 52%
2013
 March 2016 47%

 June 2016 46%
2012
 Sept 2016 50%

45% 46% 47% 48% 49% 50% 51%
Dec June

Examinable document
http://www.accaglobal.com/content/dam/acca/global/
PDF-
students/acca/f7/examinable%20documents/f7-p2-
examdocs-2017-2018.pdf

Important Technical Articles
IFRS 16
http://www.accaglobal.com/pk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-
articles/ifrs16.html
IFRS 13
http://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-
articles/ifrs13.html
IFRS 15
http://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/revenue-revisited1.html
Financial Instruments
http://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/impairment-of-financial-assets.html
http://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/hedge-accounting.html
http://www.accaglobal.com/pk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/what-financial-instrument.html
http://www.accaglobal.com/pk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/financial-instrument-part2.html
http://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/ifrs9-financialinstruments.html
Defer tax
http://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/deferred-tax.html
IFRS 2
http://www.accaglobal.com/pk/en/student/exam-support-resources/dipifr-study-resources/technical-articles/ifrs2.html
http://www.accaglobal.com/pk/en/student/exam-support-resources/dipifr-study-resources/technical-articles/shared-based-payment.html

Session Planner
Day 1 Past Papers

Day 2 Past Papers
Day 3 Past Papers
Day 4 IFRS 13 and IFRS 15
Day 5 IFRS 16
Day 6 Mock Debrief session

Past Papers
March /June 2017
http://www.accaglobal.com/content/dam/ACCA_Glob
al/Students/prof/p2/P2%20INT/mj17_hybrid_p2int_q
.pdf

(a) The following draft statements of financial position relate to Diamond, Spade and Club, all public
listed entities, as at 31 March 2017. The following information is relevant to the preparation
of the group financial statements: 1. On 1 April 2016,
Diamond Spade Club
Diamond acquired 70% of the equity interests of Spade
$m $m $m paying cash of $1,140 million. At 1 April 2016, the
Assets retained earnings and other components of equity of
Spade were $780 million and $64 million respectively.
Non-current assets
The fair value of the identifiable net assets of Spade at
Property, plant and equipment 1,062 1,210 1,265 1 April 2016 was $1,600 million. It is group policy to
Investments in subsidiaries value non-controlling interests at fair value and, at the
date of acquisition, this was $485 million. The excess in
Spade 1,140
fair value of the identifiable net assets is due to non-
Club 928 depreciable land.
Investment in Heart 68
Other financial assets 190

3,388 1,210 1,265
Current assets: 885 782 224

–––––– –––––– ––––––
Total assets 4,273 1,992 1,489
Equity and liabilities
Equity share capital ($1 each) 1,650 720 700
Retained earnings 1,180 880 364
Other components of equity 128 78 59
Total equity 2,958 1,678 1,123
Non-current liabilities 1,143 189 172
Current liabilities 172 125 194
Total liabilities 1,315 314 366
Total equity and liabilities 4,273 1,992 1,489

Diamond Club 2. On 1 April 2015, Diamond acquired 40% of the equity interests of Club
$m $m for cash consideration of $420 million. At this date the carrying amount
Assets
and fair value of the identifiable net assets of Club was $1,032 million.
Diamond treated Club as an associate and equity accounted for Club up
Non-current assets
to 31 March 2016. On 1 April 2016, Diamond took control of Club,
Property, plant and equipment 1,062 1,265 acquiring a further 45% interest for cash of $500 million and added this
Investments in subsidiaries amount to the carrying amount of its investment in Club. On 1 April 2016,
the retained earnings and other components of equity of Club were $293
Spade 1,140
million and $59 million respectively and the fair value of the identifiable
Club 928 net assets was $1,062 million. The difference between the carrying
Investment in Heart 68 amounts and the fair values was in relation to plant with a remaining
useful life of five years. The share prices of Diamond and Club were $5
Other financial assets 190
3,388 1,265 and $1·60 respectively on 1 April 2016. The fair value of the original 40%
holding and the fair value of the non-controlling interest should both be
Current assets: 885 224
–––––– –––––– estimated using the market value of the shares.
Total assets 4,273 1,489
Equity and liabilities
Equity share capital ($1 each) 1,650 700
Retained earnings 1,180 364
Other components of equity 128 59
Total equity 2,958 1,123
Non-current liabilities 1,143 172
Current liabilities 172 194
Total liabilities 1,315 366
Total equity and liabilities 4,273 1,489

3. Diamond has owned a 25% equity interest in Heart for a number of years. Heart had profits for the year ended 31 March
2017 of $20 million which can be assumed to have accrued evenly. Heart does not have any other comprehensive income.
On 30 September 2016, Diamond sold a 10% equity interest for cash of $42 million. Diamond was unsure of how to treat
the disposal and so has deducted the proceeds from the carrying amount of the investment at 1 April 2016 which was $110
million (calculated using the equity accounting method). The fair value of the remaining 15% shareholding was estimated to
be $65 million at 30 September 2016 and $67 million at 31 March 2017. Diamond no longer exercises significant influence
and has designated the remaining shareholding as fair value through other comprehensive income.
4. Goodwill has been reviewed for impairment and no impairment was deemed necessary.

5. On 1 April 2015, Diamond acquired $50 million of 6% listed bonds at their nominal value. Diamond may sell or hold
bonds to maturity and so, based on this business model, has designated the bonds as fair value through other
comprehensive income. The effective rate of interest on the bonds is also 6%. The bonds had a fair value of $42 million at
31 March 2016 and were correctly treated in the financial statements of that year. On 31 March 2017, Diamond received
the coupon interest of $3 million, which was recorded within interest received, and then sold the bonds on the same day for
$35 million. The disposal proceeds were substantially below the fair value of the bonds which was $38 million at 31 March
2017. A $7 million loss on disposal was charged against profits. Diamond has an option to repurchase the bonds at any
time up to 31 December 2018 for $36 million. The fair value is expected to increase in the future and it is highly likely that
Diamond will exercise this option.

Click here
6. Diamond operates a defined benefit pension scheme. On 31 March 2017, the company announced that it was to close
down a business division and agreed to pay each of its 150 staff a cash payment of $50,000 to compensate them for loss of
pension arising from wage inflation. It is estimated that the closure will reduce the present value of the pension obligation by
$5·8 million. Diamond is unsure of how to deal with the settlement and curtailment and has not yet recorded anything within
its financial statements.

7. On 1 April 2016, Diamond acquired a manufacturing unit under
an eight-year finance lease. The lease rentals have been
recorded correctly in the financial statements of Diamond.
However, Diamond could not operate effectively from the unit
until alterations to its structure costing $6·6 million were
completed. The manufacturing unit was ready for use on 31
March 2017. The alteration costs of $6·6 million were charged to
administration expenses. The lease requires Diamond to restore
the unit to its original condition at the end of the lease term.
Diamond estimates that this will cost a further $5 million. Market
interest rates are currently 6%.
Note: The following discount factors may

be relevant: Periods 6% 7 0·665
8 0·627

M/June 2017 Q2
Canto Co is a company which manufactures industrial machinery and has a year end of 28 February 2017. The directors of
Canto require advice on the following issues:
(a) On 1 March 2014, Canto acquired a property for $15 million, which was used as an office building. Canto measured the
property on the cost basis in property, plant and equipment. The useful life of the building was estimated at 30 years from 1
March 2014 with no residual value. Depreciation is charged on the straight-line basis over its useful life. At acquisition, the
value of the land content of the property was thought to be immaterial. During the financial year to 28 February 2017, the
planning authorities approved the land to build industrial units and retail outlets on the site. During 2017, Canto ceased
using the property as an office and converted the property to an industrial unit. Canto also built retail units on the land
during the year to 28 February 2017. At 28 February 2017, Canto wishes to transfer the property at fair value to investment
property at $20 million. This valuation was based upon other similar properties owned by Canto. However, if the whole site
were sold including the retail outlets, it is estimated that the value of the industrial units would be $25 million because of
synergies and complementary cash flows. The directors of Canto wish to know whether the fair valuation of the investment
property is in line with International Financial Reporting Standards and how to account for the change in use of the property
in the financial statements at 28 February 2017. (8 marks) Hint

M/June 2017 Q2
b) On 28 February 2017, Canto acquired all of the share capital of Binlory, a company which manufactures and supplies
industrial vehicles. At the acquisition date, Binlory has an order backlog, which relates to a contract between itself and a
customer for 10 industrial vehicles to be delivered in the next two years. In addition, Binlory requires the extensive use of
water in the manufacturing process and can take a pre-determined quantity of water from a water source for industrial use.
Binlory cannot manufacture vehicles without the use of the water rights. Binlory was the first entity to use water from this
source and acquired this legal right at no cost several years ago. Binlory has the right to continue to use the quantity of
water for manufacturing purposes but any unused water cannot be sold separately. These rights can be lost over time if
non-use of the water source is demonstrated or if the water has not been used for a certain number of years. Binlory feels
that the valuation of these rights is quite subjective and difficult to achieve. The directors of Canto wish to know how to
account for the above intangible assets on the acquisition of Binlory. (7 marks) hint

M/June 2017 Q2
(c) Canto acquired a cash-generating unit (CGU) several years ago but, at 28 February
2017, the directors of Canto were concerned that the value of the CGU had declined
because of a reduction in sales due to new competitors entering the market. At 28
February 2017, the carrying amounts of the assets in the CGU before any impairment
testing were:
($m)
Goodwill 3
Property, plant and equipment 10
Other assets 19
–––
Total 32
The fair values of the property, plant and equipment and the other assets at 28 February
2017 were $10 million and $17 million respectively and their costs to sell were $100,000
and $300,000 respectively.
The CGU’s cash flow forecasts for the next five years are as follows:
Date year ended Pre-tax cash flow Post-tax cash flow
($m) ($m)
28 February 2018 8 5
28 February 2021 3 1·5
28 February 2022 13 10
The pre-tax discount rate for the CGU is 8% and the post-tax discount rate is 6%. Canto
has no plans to expand the capacity of the CGU and believes that a reorganisation would
bring cost savings but, as yet, no plan has been approved. The directors of Canto need
advice as to whether the CGU’s value is impaired. (8 marks)

M/j 2017 Q3
3 Carsoon Co is a company which manufactures and retails
motor vehicles. It also constructs premises for third parties. It
has a year end of 28 February 2017.
(b) On 1 March 2016, Carsoon invested in a debt instrument
with a fair value of $6 million and has assessed that the
financial asset is aligned with the fair value through other
comprehensive income business model. The instrument has
an interest rate of 4% over a period of six years. The effective
interest rate is also 4%. On 1 March 2016, the debt instrument
is not impaired in any way. During the year to 28 February
2017, there was a change in interest rates and the fair value
of the instrument seemed to be affected. The instrument was
quoted in an active market at $5·3 million but the price based
upon an in-house model showed that the fair value of the
instrument was $5·5 million. This valuation was based upon
the average change in value of a range of instruments across
a number of jurisdictions. The directors of Carsoon felt that
the instrument should be valued at $5·5 million and that this
should be shown as a Level 1 measurement under IFRS 13
Fair Value Measurement. There has not been a significant
increase in credit risk since 1 March 2016, and expected
credit losses should be measured at an amount equal to 12-
month expected credit losses of $400,000. Carsoon sold the
debt instrument on 1 March 2017 for $5·3 million. The
directors of Carsoon wish to know how to account for the debt
instrument until its sale on 1 March 2017. (8 marks)

M/j 2017 Q3
(c) Carsoon constructs retail vehicle outlets and enters into
contracts with customers to construct buildings on their land. The
contracts have standard terms, which include penalties payable by
Carsoon if the contract is delayed, or payable by the customer, if
Carsoon cannot gain access to the construction site. Due to poor
weather, one of the projects was delayed. As a result, Carsoon
faced additional costs and contractual penalties. As Carsoon could
not gain access to the construction site, the directors decided to
make a counter-claim against the customer for the penalties and
additional costs which Carsoon faced. Carsoon felt that because
claims had been made against the customer, the additional costs
and penalties should not be included in contract costs but shown as
a contingent liability. Carsoon has assessed the legal basis of the
claim and feels it has enforceable rights. In the year ended 28
February 2017, Carsoon incurred general and administrative costs
of $10 million, and costs relating to wasted materials of $5 million.
Additionally, during the year, Carsoon agreed to construct a storage
facility on the same customer’s land for $7 million at a cost of $5
million. The parties agreed to modify the contract to include the
construction of the storage facility, which was completed during the
current financial year. All of the additional costs relating to the
above were capitalised as assets in the financial statements. The
directors of Carsoon wish to know how to account for the penalties,
counter claim and additional costs in accordance with IFRS 15
Revenue from Contracts with Customers. (7 marks) HINT

Consolidation Topics
 Basic Consolidation
 Complex consolidation
 Disposal
 Acquisition
 Foreign currency

Keep titles to one line where possible
Example title on a second line
 Cash flow
 Joint Venture
 Relevant standards (IAS 7,21,27,28and
IFRS 3,10,IFRS 11)

Key Definitions
 Consolidated financial statements: the financial statements

of a group presented as those of a single economic entity.
 Group: A Parent and all its subsidiaries (IFRS 10)
 Subsidiary: an entity that is controlled by another entity (IFRS
10).
 Parent: an entity that has one or more subsidiaries. (IFRS 10)
 Control: the power to direct relevant activities. (IFRS 3,IFRS
10)

Key Definitions
 Associate: an entity in which an investor has significant

influence and which is neither a subsidiary nor an interest in a
joint venture. (IAS 28)
 Significant influence: power to participate in the financial and
operating policy decisions but is not control or joint control over
those policies.(IAS 28)
 Non Controlling Interest : The equity in a subsidiary not
attributable to a parent (IFRS 3)

Key Definitions
 Joint arrangement: An arrangement of which two or more

parties have joint control (IAS 28)
 Joint control: The contractually agreed sharing of control of an
arrangement, which exists only when decisions about the
relevant activities require the unanimous consent of the parties
sharing control (IAS 28)
 Joint venture: A joint arrangement whereby the parties that
have joint control of the arrangement have rights to the net
assets of the arrangement
 Acquire: The business or businesses that the acquirer obtains
control in a business combination (IFRS 3)
 Acquirer: The entity that obtain control of the acquire (IFRS 3)

Important Points
 All Assets and liabilities of subsidiary should be measured at

Fair Value at acquisition date.
 All intangible assets should be recognised for the purpose
of consolidation
 Contingent liabilities of the acquirer are recognised if their
fair values can be measured reliably.
 Consolidation should be on the basis of control and not on
the basis of ownership
 Similar items should be merged and intercompany balances
should be cancelled

Important Points
 All Assets and liabilities of subsidiary should be measured at

Fair Value at acquisition date.
 All intangible assets should be recognised for the purpose
of consolidation
 Contingent liabilities of the acquirer are recognised if their
fair values can be measured reliably.
 Consolidation should be on the basis of control and not on
the basis of ownership
 Similar items should be merged and intercompany balances
should be cancelled

Basic Steps
 Identify the date of acquisition , Reporting date, Group

structure and area of consolidation
 Adjustments
 Prepare Net assets of subsidiaries
 Compute Goodwill, NCI and Consolidated reserves
 SOFP and SOCI

Net assets (ONLY SUBSIDIARY)
• At Acquisition At Reporting date

 Share capital X X
 Share Premium X X
 Retained Earnings X X
 Any other Reserve X X
 Fair Valuation X X

At Acquisition At Reporting date

Adjustment X/(X) X/(X)
E. Amortisation -- X/(X)
E. Depreciation -- X/(X)
X X
C D

Non controlling Interest
 NCI at acquisition ! XX
 Post acquisition share of NCI (D-C) x NCI% XX
 U.p of Stock x NCI% (only if S co. sold) (XX)

 U.p of Fixed Asset x NCI% (only if S co. sold) (XX)
 Impairment loss x NCI% (only if full goodwill) (XX)
XX
!Use Fair value of NCI at acquisition in case of full goodwill approach

Consolidated Retained earnings
 H co. retained earnings XX

 S co. (post acquisition D-C) x H% XX
 Share of investment in A co. XX
 (Post acq profit of A x A%)
 Impairment of Associate investment (XX)
 U.p of Stock x H% (only if S co. sold) (XX)

 *U.p of Fixed Asset (net of depreciation) (XX)

 Impairment loss x H% (Only if full goodwill) (XX)
 Negative Goodwill XX
 Unwinding of discount (XX)
 Changes in Contingent Consideration XX/(XX)
 Acquisition cost (XX)
XX

Associate
 Associates must be accounted for using the equity

method unless the investment is classified as held for
sale when it is accounted for under IFRS 5.
 An associate is not consolidated so none of the
associate’s income and expenses or assets and liabilities
will be included within the group accounts. There is no
non-controlling interest in an associate as it is not
consolidated.
 In Equity method of accounting by which an equity
investment is initially recorded at cost and subsequently
adjusted to reflect the investor's share of the net assets of
the associate (investee).
 Investment in Associate = Cost + Post acquisition Profit x
A%- Impairment loss

Implication if IFRS 5
 If the subsidiary was acquired and is held exclusively with a

view to its subsequent disposal. For such a subsidiary, if it is
highly probable that the sale will be completed within 12
months then the parent should account for its investment in the
subsidiary under IFRS 5 as an asset held for sale, rather than
consolidate it under IFRS 10.
 However, IFRS 10 still requires that if a subsidiary that had

previously been consolidated is now being held for sale, the
parent must continue to consolidate such a subsidiary until it is
actually disposed of.

Consolidated SOFP
 Net assets: 100% P + 100% S
 Share capital: P only
 Retained earnings: 100% P plus group share of post-

acquisition retained earnings of S ,ADD/less consolidation
adjustments
 Non-controlling interest: value of acquisition + NCI share of

post-acquisition retained reserves

FORMAT
Non Current Assets(H+S+/-Adjustments) XX

Goodwill XX
Other Investments
Investment in Associate
(Cost+Share of Post Profit - impairment loss) XX
Current Assets (H+S+/-Adjustments) XX
XX

FORMAT
 Share Capital (H only) XX

 Reserves XX
 NCI XX
 Non Current Liabilities (H+S+/-Adjustments) XX

 Current Liabilities (H+S+/-Adjustments) XX XX

Consolidated SOCI
Adjustments required
 Eliminate intra group sales and purchases
 Eliminate unrealised profit on intra group purchases still in
inventory at the year end (Added in COGS)
 Eliminate intra group dividends, i.e show only P’s dividends
 Show the NCI as a separate line after PAT

Consolidated SOCI
Procedure
 Combine all P and S results from revenue to profit after tax.
 Time apportion where the acquisition is mid-year
 Exclude intra group investment income
 Calculate NCI (NCI = % x PAT)

Format
Revenue (H+S+/-Adjustments) XX
COGS (H+S+/-Adjustments) (XX)
Gross Profit XX
Operating Expenses (H+S+ Impairment Loss) (XX)
Other Income XX
Share of profit from associate (Net of Impairment Loss) XX

Format Continued
Finance Cost (XX)

Profit Before Tax XX
Tax (XX)
Profit For the year XX
Profit Attributable to:

Parent XX
NCI XX

Adjustments in COI
 Cash
 Share exchange(adjustment is only required when not
recorded by the holding company)
 Deferred consideration(recorded at present value and
unwinding will be recognized in consolidated retained earnings)
 Contingent consideration must be measured at fair value at
the acquisition date.
 Loan or debenture( it will become as a part of cost of
investment only if issued as a part of consideration)

Adjustments
 Pre and Post Acquisition Dividend

 Fair Valuation
 Excess Depreciation/Amortisation
 Current Account
 Cost of Investment
 Acquisition-related costs must be recognised as an
expense

Non Controlling Interest
Measurement of NCI. IFRS 3 allows an accounting policy

choice, available on a transaction by transaction basis, to
measure NCI either at:
 fair value (sometimes called the full goodwill method), or
 the NCI's proportionate share of net assets of the
acquiree (option is available on a transaction by
transaction basis).
In order to be able to calculate the goodwill attributable to

the NCI either the share price of the subsidiary will be
given or the question may state that the fair value of
the NCI is a certain amount..

Complex Consolidation
Indirect holding adjustment

Accounting for a sub subsidiary requires an indirect holding
adjustment.
• Goodwill in the sub subsidiary is calculated from the perspective of the
ultimate parent company. Therefore, the cost of the investment in the
Sub subsidiary should be the parent's share of the amount paid by its
subsidiary.
– The NCI's share of the cost of the investment in the sub subsidiary
must be eliminated from the NCI calculation.

Complex Group (D shape)
All consolidation workings are the same as those

used in vertical group situations, with the exception
of goodwill.
The goodwill calculation for the sub subsidiary
differs slightly from a vertical group. The cost of the
sub subsidiary must include the following:
• the cost of the parent’s holding (the direct holding)
• the cost of the subsidiary’s holding (the indirect
holding)
• the indirect holding adjustment.
Vertical and D - shape
Consolidation method:
 Net assets: show what group controls.
 Capital and reserves: based on effective holdings eg 80% =
64% therefore NCI = 100% - 64% = 36%
Date of effective control
 SS comes under P’s control:
 Date S acquired, if S already holds shares in SS.
 If S acquired SS later, that later date.
 Adjustment is required in NCI

Vertical and D - shape
Consolidation method:
 Net assets: show what group controls.
 Capital and reserves: based on effective holdings eg 80% =
64% therefore NCI = 100% - 64% = 36%
Date of effective control
 SS comes under P’s control:
 Date S acquired, if S already holds shares in SS.
 If S acquired SS later, that later date.
 Adjustment is required in NCI

Practice
Question: ACR
Parent A buys 60% of entity C which in turn buys 60% of entity
R.
Required: Calculate the non-controlling interest in the group.
Question: PDQ
P buys 75% of entity D which buys 64% of Q.
Required:
Calculate the non-controlling interest in the group.

Complex Consolidation
Indirect holding adjustment

Accounting for a sub subsidiary requires an indirect holding
adjustment.
• Goodwill in the sub subsidiary is calculated from the perspective of the
ultimate parent company. Therefore, the cost of the investment in the
Sub subsidiary should be the parent's share of the amount paid by its
subsidiary.
– The NCI's share of the cost of the investment in the sub subsidiary
must be adjusted from the NCI calculation.

Complex Group (D shape)
All consolidation workings are the same as those

used in vertical group situations, with the exception
of goodwill.
The goodwill calculation for the sub subsidiary
differs slightly from a vertical group. The cost of the
sub subsidiary must include the following:
• the cost of the parent’s holding (the direct holding)
• the cost of the subsidiary’s holding (the indirect
holding)
• the indirect holding adjustment.
Disposal
 Under the revised IFRS 3, a disposal occurs only when one

entity loses control over another, which is generally when its
holding is decreased to less than 50%. If the shareholding is
not reduced to below 50% than the event is treated as a
transaction between owners.
 In the parent’s own accounts the gain or loss on disposal is

the difference between the fair value of consideration received
and the carrying value of the investment. The gain is usually
taxable and the question may ask for the tax to be calculated
and provided for.

Gain or loss (When Control is lost)
Group Perspective
 Proceeds X
 F.V of investment Retained X
Less: AT DISPOSAL
Net Assets of subsidiary X
Unimpaired goodwill X
Less: Carrying value of NCI (X)
(X)
Gain/Loss X

Equity Adjustment( When Control is Retained)
 Fair value of consideration received X

Less:
Increase in NCI (X)
Equity Adjustment X

At Acquisition At Disposal At Reporting date

 Share capital X X X
 Share Premium X X X
 Retained Earnings X X X
 Any other Reserve X X X

At Acquisition At Disposal At Reporting date

Fair Valuation
 Adjustment X/(X) X/(X) X/(X)
 Amortisation -- X/(X) X/(X)
 Depreciation -- X/(X) X/(X)
X X X
E F G

 H co. retained earnings XX

 S co. (post acquisition F-E) x H% before Disposal XX
 S co. (post acquisition G-F) x H% After Disposal XX
 Gain or loss on Disposal XX/(XX)
Rest are same

NCI
 NCI at acquisition XX
 S co. (post acquisition F-E) x NCI% before Disposal XX
 S co. (post acquisition G-F) x NCI% After Disposal XX
 Increase in NCI XX/(XX)

Control Lost
• Subsidiary to Associate
• Subsidiary to trade investment
• Full Disposal

For a full disposal where control is lost
In I/S
 Consolidate results to date of disposal
 Show group gain or loss separately before interest
 Compute NCI up to date of disposal in I/S
In SOFP
 No subsidiary therefore no consolidation or NCI
 R.E of subsidiary up to the date of disposal % on Post
acquisition Profit
 Profit on disposal added in R.E FROM GROUP
PERSPECTIVE

Subsidiary to subsidiary
In I/S
 NCI in I/S will be based on % before and after disposal (time
proportion)
In SOFP
 NCI based on before and after % + Increase in NCI
 R.E of subsidiary should be based on % before disposal
(Post acquisition profits up to date of disposal) And % after
disposal on profits after disposal
 GOODWILL WILL REMAIN UNCHANGED
 Equity adjustment in R.E

Practice Questions
Question: Love
At the year start, Love acquired 90% of Rat for $450m. The fair value of the identifiable
net assets of Rat at the point of acquisition was $380m. The fair value of the NCI was
$45m. The group has the policy of recognising the non-controlling interest at fair value.
Required: (a) Goodwill.
At the year end, Love disposes of 10% of the equity of Rat for $55m and so reduces its
ownership to 80%. Rat has made profits and grown by $20m over the year and
therefore the carrying value of identifiable net assets of Rat is $400m at the year end.
Required: (b) Transfer to NCI and increase in controlling interest.
Question: Rock
At the year start, Rock acquired 60% of Star for $360m. Star had identifiable net assets
with a fair value of $400m at acquisition and the fair value of the NCI was $200m. Rock
has the policy of valuing NCI at the fair value of identifiable net assets, but on this
occasion it chooses to recognise NCI at fair value. At the year end, Rock sells 15% of
Star for $150m and loses control, but retains influence through its remaining 45%
ownership. The fair value of the associate retained is measured at $420m.
At the year end Star had identifiable net assets of $430m. The growth of $30m had
been reported through the income statement.
Required: Profit on disposal to be recognised in the income statement.

Acquisition
Control acquired
Goodwill
 Cash transferred X
 Fair value of previously acquired interest X
 NCI at acquisition X
 Less: Fair value of net assets (X)
X

Acquisition
Gain or Loss on derecogination

 Fair value at the date of control obtained X
 Carrying amount at the same date (X)
 Gain X

Acquisition
Control maintain
 Fair value of consideration paid (X)

 Decrease in NCI X
Adjustment to parent equity (X)

Practice Questions
Question: Top
At the year start, Top acquired a 15% interest in Dog at a cost of $15m. At the year end
Top acquired a further 40% interest in Dog at a cost of $60m and obtained control. The
fair value of the initial 15% interest at this time was $21m and the fair value of the NCI
was $58.5m. The fair value of the identifiable net assets was $100m. The group has
recently changed the policy of recognising the non-controlling interest from valuation at
fair value of identifiable net assets (partial goodwill) to valuing at fair value as indicated
by market price at acquisition (full goodwill).
Required: Goodwill.
Question: Toy
At the year start, Toy acquired 75% of Boy for $300m. The fair value of the identifiable
net assets of Boy at the point of acquisition was $180m. The fair value of the NCI was
$80m. The group has the policy of recognising the non-controlling interest at fair value.
Required: (a) Goodwill.
At the year end, Toy acquires a further 5% of Boy for $24m. Boy has made profits and
grown by $20m over the year and therefore the carrying value of identifiable net assets
of Boy is $200m at the year end.
Required: (b) Transfer from NCI and reduction in controlling interest.

Foreign Currency (IAS 21)
 Functional currency is the currency of the primary economic

environment in which the entity operates.
 Presentation currency is the currency in which the financial
statements are presented.
 Non- monetary assets held at historic cost (non-current assets,
inventory): remain at historical rate (HR)
 Non-monetary assets held at fair value (eg investments): exchange
rate when fair value was determined
 Monetary assets and liabilities: restate at closing rate
 Exchange difference on the retranslation of monetary items are
recognised in the income statement.

Foreign Currency (IAS 21)
Procedures for Foreign currency consolidation

In SOFP
 Convert all Items at closing rate
 Convert COI at closing rate with gain or loss in R.E
 Prepare net asset schedule and Compute goodwill
In SOCI
 Convert all items at average rate
 Compute foreign currency differences on opening net
assets, Goodwill and Profit and show in other
comprehensive income

Exchange difference schedule
Calculate the total exchange difference for the year as follows.

$
 Opening net assets at closing rate X
Less opening net assets at opening rate X
X
 Profit at closing rate X
Less Profit at average rate X
X
 Goodwill at closing rate X
 Goodwill at opening rate X
X
X

Statement of cash flows
 Statements of cash flows are not affected by differing

accounting policies used for the same type of transactions
or events and are more comparable between entities.
 The statement of cash flows under ISA 7 is split into three
sections:
 Operating activities are the principle revenue-producing activities of the
entity and other activities that are not investing or financial activities.
 Investing activities are the acquisition and disposal of long-term assets and
other investments not included in cash equivalents.
 Financing activities are activities that result in changes in the size and
composition of the equity capital and borrowings of the entity.

NON-CONTROLLING INTEREST
Dividend paid X Balance b/fwd X
(Bal.fig.) New Sub X
Profit for the period X
Balance c/fwd X
X X
Dividends paid to the non-controlling interest should be

included under the heading ‘cash flow from financing’ and
disclosed separately.

Joint Venture (IFRS 11)
Jointly controlled operations

 SOFP: include all own and appropriate share of joint assets and
liabilities.
 I/S: include all own and appropriate share of joint revenue and
expenses
Joint Ventures
 equity method

Summary
Investment Criteria Required treatment in

group accounts
Subsidiary Control Full Consolidation
Associate Significant influence Equity method
Joint Venture Contractual arrangement Equity method
Trade Investment Asset held of accretion of As for single company
wealth accounts per IFRS 9

Contingent Consideration
 Post acquisition changes in the fair value of CC

 If the changes in fair value is due to additional information obtained that
affects the position at the acquisition date,Goodwill is remeasured
 IF the changes is due to events which took place after the acquistion
date then
 Use IFRS 9 if the consideration is in the form of a financial instrument
 Use IAS 37 if the consideration is in the form of cash
 An equity instrument is not remeasured

IAS 27
 When an entity prepares separate financial statements, investments in

subsidiaries, associates, and jointly controlled entities are accounted
for either: [IAS 27(2011).10]
 at cost, or
 in accordance with IFRS 9 Financial Instruments.
 The entity applies the same accounting for each category of
investments. Investments that are accounted for at cost and classified
as held for sale in accordance with IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations are accounted for in accordance
with that IFRS. Investments carried at cost should be measured at the
lower of their carrying amount and fair value less costs to sell. The
measurement of investments accounted for in accordance with IFRS
9 is not changed in such circumstances.

IFRS 3
 Measurement of NCI. IFRS 3 allows an accounting policy choice,

available on a transaction by transaction basis, to measure NCI
either at:
 the NCI's proportionate share of net assets of the acquiree (option
is available on a transaction by transaction basis).

IFRS 3 REVERSE ACQUISTION
 A reverse acquisition occurs when the entity that issues securities (the
legal acquirer) is identified as the acquiree for accounting purposes on
the basis of the guidance in paragraphs B13–B18.
 The entity whose equity interests are acquired (the legal acquiree)
must be the acquirer for accounting purposes for the transaction to be
considered a reverse acquisition.
 For example, reverse acquisitions sometimes occur when a private
operating entity wants to become a public entity but does not want to
register its equity shares. To accomplish that, the private entity will
arrange for a public entity to acquire its equity interests in exchange for
the equity interests of the public entity.

Associate
 Associates must be accounted for using the equity

method unless the investment is classified as held for
sale when it is accounted for under IFRS 5.
 An associate is not consolidated so none of the
associate’s income and expenses or assets and liabilities
will be included within the group accounts. There is no
non-controlling interest in an associate as it is not
consolidated.
 In Equity method of accounting by which an equity
investment is initially recorded at cost and subsequently
adjusted to reflect the investor's share of the net assets of
the associate (investee).
 Investment in Associate = Cost + Post acquisition Profit x
A%- Impairment loss

Implication if IFRS 5
 If the subsidiary was acquired and is held exclusively with a

view to its subsequent disposal. For such a subsidiary, if it is
highly probable that the sale will be completed within 12
months then the parent should account for its investment in the
subsidiary under IFRS 5 as an asset held for sale, rather than
consolidate it under IFRS 10.
 However, IFRS 10 still requires that if a subsidiary that had

previously been consolidated is now being held for sale, the
parent must continue to consolidate such a subsidiary until it is
actually disposed of.

FORMAT
Non Current Assets(H+S+/-Adjustments) XX

Goodwill XX
Other Investments
Investment in Associate
(Cost+Share of Post Profit - impairment loss) XX
Current Assets (H+S+/-Adjustments) XX
XX

FORMAT
 Share Capital (H only) XX

 Reserves XX
 NCI XX
 Non Current Liabilities (H+S+/-Adjustments) XX

 Current Liabilities (H+S+/-Adjustments) XX XX

Consolidated SOCI
Adjustments required
 Eliminate intra group sales and purchases
 Eliminate unrealised profit on intra group purchases still in
inventory at the year end (Added in COGS)
 Eliminate intra group dividends, i.e show only P’s dividends
 Show the NCI as a separate line after PAT

Consolidated SOCI
Procedure
 Combine all P and S results from revenue to profit after tax.
 Time apportion where the acquisition is mid-year
 Exclude intra group investment income
 Calculate NCI (NCI = % x PAT)

Format
Revenue (H+S+/-Adjustments) XX
COGS (H+S+/-Adjustments) (XX)
Gross Profit XX
Operating Expenses (H+S+ Impairment Loss) (XX)
Other Income XX
Share of profit from associate (Net of Impairment Loss) XX

Format Continued
Finance Cost (XX)

Profit Before Tax XX
Tax (XX)
Profit For the year XX
Profit Attributable to:

Parent XX
NCI XX

Adjustments in COI
 Cash
 Share exchange(adjustment is only required when not
recorded by the holding company)
 Deferred consideration(recorded at present value and
unwinding will be recognized in consolidated retained earnings)
 Contingent consideration must be measured at fair value at
the acquisition date.
 Loan or debenture( it will become as a part of cost of
investment only if issued as a part of consideration)

Adjustments
 Pre and Post Acquisition Dividend

 Fair Valuation
 Excess Depreciation/Amortisation
 Current Account
 Cost of Investment
 Acquisition-related costs must be recognised as an
expense

Measurement of NCI. IFRS 3 allows an accounting policy

choice, available on a transaction by transaction basis, to
measure NCI either at:
 the NCI's proportionate share of net assets of the
acquiree (option is available on a transaction by
transaction basis).
In order to be able to calculate the goodwill attributable to

the NCI either the share price of the subsidiary will be
given or the question may state that the fair value of
the NCI is a certain amount..

Curtailment and Settlement IAS 19
Curtailment
With Settlement Without Settlement
Over paid Under paid Dr. DBO

Cr. Gain on Curtailment
Dr. DBO Dr. DBO BACK
Dr. Loss on Settlement Cr. Plan Asset

Cr. Plan Asset Cr. Gain on Settlement

IFRS 13 and IAS 40 Relating to property and
conversion of Property
IFRS 13 says A fair value measurement of a non-financial asset takes into account a market participant’s ability to
generate economic benefits by using the asset in its highest and best use or by selling it to another market participant
who would use the asset in its highest and best use.
The highest and best use of a non-financial asset takes into account the use of the asset which is physically
possible, legally permissible and financially feasible.
Due to the lack of an active market for identical assets, it would be rare for property to be classified in Level 1 of the
fair value hierarchy.
In market conditions where property is actively purchased and sold, the fair value measurement might be classified in
Level 2. However, that determination will depend on the facts and circumstances, including the significance of
adjustments to observable data.
In this regard, IFRS 13 provides a property specific example, stating that a Level 2 input would be the price derived
from observed transactions involving similar property interests in similar locations.
Accordingly, in active and transparent markets, property valuations may be classified as Level 2, provided that no
significant adjustments have been made to the observable data.
If significant adjustments to observable data are required, the fair value measurement may fall into Level 3.
IAS 40 says
Transfers to or from investment property should only be made when there is a change in use, which is evidenced by the
end of owner-occupation, which has occurred in this case. For a transfer from owner-occupied property to investment
property carried at fair value, IAS 16 Property, Plant and Equipment (PPE) should be applied up to the date of
reclassification. Any difference arising between the carrying amount under IAS 16 at that date and the fair value is dealt
with as a revaluation under IAS 16. BACK

IFRS 3
IFRS 3 Business Combinations states that an acquirer should

recognise, separately from goodwill, the identifiable intangible assets
acquired in a business combination.
An asset is identifiable if it meets either the separability or
contractual-legal criteria in IAS 38 Intangible Assets.
Customer relationship intangible assets may be either contractual or
non-contractual. Contractual customer relationships are normally
recognised separately from goodwill as they meet the contractual-
legal criterion. However, non-contractual customer relationships are
recognised separately from goodwill only if they meet the separable
criterion.
Consequently, determining whether a relationship is contractual is
critical to identifying and measuring both separately recognised
customer relationship intangible assets and goodwill, and different
conclusions could lead to substantially different accounting
outcomes. Back

IAS 36
IAS 36 Impairment of Assets requires that assets be carried at no more than their
carrying amount. Therefore entities should test all assets within the scope of the
standard if there is potential impairment when indicators of impairment exist. If fair
value less costs of disposal or value in use is more than carrying amount, the
asset is not impaired. It further says that in measuring value in use, the discount
rate used should be the pre-tax rate which reflects current market assessments of
the time value of money and the risks specific to the asset. The discount rate
should not reflect risks for which future cash flows have been adjusted and should
equal the rate of return which investors would require if they were to choose an
investment which would generate cash flows equivalent to those expected from
the asset. Therefore pre-tax cash flows and pre-tax discount rates should be used
to calculate value in use. Discounting post-tax cash flows with a post-tax discount
rate could give the same result in an entity were it not for any temporary
differences and/or tax losses which might exist.
The impairment loss will be allocated first to the goodwill and then to other assets
of the unit pro rata on the basis of the carrying amount of each asset in the cash-
generating unit.
However, when allocating the impairment loss, the carrying amount of an asset
cannot be reduced below its fair value less costs to sell.
BACK

Financial Instruments
For financial assets which are debt instruments measured at (FVOCI),
both amortised cost and fair value information are relevant because debt instruments in
this measurement category are held for both the collection of contractual cash flows and
the realisation of fair values.
In profit or loss, interest revenue is calculated using the effective interest rate method
The fair value gains and losses on these financial assets are recognised in other
comprehensive income (OCI). As a result, the difference between the total change in fair
value and the amounts recognised in profit or loss are shown in OCI.
When these financial assets are derecognised, the cumulative gains and losses
previously recognised in OCI are reclassified from equity to profit or loss. Expected credit
losses (ECLs) do not reduce the carrying amount of the financial assets, which remains
at fair value. Instead, an amount equal to the ECL allowance which would arise if the
asset were measured at amortised cost is recognised in OCI. The fair value of the debt
instrument therefore needs to be ascertained at 28 February 2017.
IFRS 13 Fair Value Measurement states that Level 1 inputs are unadjusted quoted prices
in active markets for identical assets or liabilities which the entity can access at the
measurement date. The standard sets out that adjustment to Level 1 prices should not
be made

IFRS 15 Revenue from Contracts with Customers
IFRS 15 says how to account for costs incurred in fulfilling a contract which are not in the scope of another standard.
Costs to fulfil a contract which is accounted for under IFRS 15 are divided into those which give rise to an asset and
those which are expensed as incurred. Costs incurred to fulfil a contract are recognised as an asset if and only if all of the
following criteria are met: [IFRS 15:95]
• the costs relate directly to a contract (or a specific anticipated contract);
• the costs generate or enhance resources of the entity that will be used in satisfying performance obligations in the
future; and
• the costs are expected to be recovered.
For costs to meet the ‘expected to be recovered’ criterion, they need to be either explicitly reimbursable under the
contract or reflected through the pricing of the contract and recoverable through the margin.
The penalty and additional costs attributable to the contract should be considered when they occur and Co should have
included them in the total costs of the contract in the period in which they had been notified.
As regards the counter claim for compensation, Co accounts for the claim as a contract modification in accordance with
IFRS 15. The modification does not result in any additional goods and services being provided to the customer. In
addition, all of the remaining goods and services after the modification are not distinct and form part of a single
performance obligation.
Consequently, Co should account for the modification by updating the transaction price and the measure of progress
towards complete satisfaction of the performance obligation.
A contract modification may exist even though the parties to the contract have a dispute about the scope or price (or
both) of the modification or the parties have approved a change in the scope of the contract but have not yet determined
the corresponding change in price. In determining whether the rights and obligations which are created or changed by a
modification are enforceable, an entity should consider all relevant facts and circumstances including the terms of the
contract and other evidence. On the basis of information available, it is possible to feel that the counter claim had not
reached an advanced stage, so that claims submitted to the client could not be included in total revenues Back

Day 1 Dec 2017

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Day 1 Dec 2017

Hochgeladen von

Copyright:

Verfügbare Formate

Hammad Sarwar

 Section A (Compulsory Case Study)

 Section B (Choice of 2 from 3 questions)

2 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

Average Pass rate 49%

 Sept 2017 50%

 June 2017 47%

 March 2016 47%

 Sept 2016 50%

3 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

4 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

5 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

Day 1 Past Papers

6 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

March /June 2017

7 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

Other financial assets 190

Current assets: 885 782 224

Total assets 4,273 1,992 1,489

Equity and liabilities

Equity share capital ($1 each) 1,650 720 700

Retained earnings 1,180 880 364

Other components of equity 128 78 59

Total equity 2,958 1,678 1,123

Non-current liabilities 1,143 189 172

Current liabilities 172 125 194

Total liabilities 1,315 314 366

Total equity and liabilities 4,273 1,992 1,489

8 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

Total assets 4,273 1,489

Equity and liabilities

Equity share capital ($1 each) 1,650 700

Retained earnings 1,180 364

Other components of equity 128 59

Total equity 2,958 1,123

Non-current liabilities 1,143 172

Current liabilities 172 194

Total liabilities 1,315 366

Total equity and liabilities 4,273 1,489

9 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

10 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

11 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

12 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

Note: The following discount factors may

13 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

14 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

15 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

16 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

17 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

18 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

19 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

20 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

 Consolidated financial statements: the financial statements

21 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

 Associate: an entity in which an investor has significant

22 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

 Joint arrangement: An arrangement of which two or more

23 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

 All Assets and liabilities of subsidiary should be measured at

24 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

 All Assets and liabilities of subsidiary should be measured at

25 09/02/2020 Prepare to pass - Revision Course of ACCA P2 by HS ©ACCA

 Identify the date of acquisition , Reporting date, Group