St atemen t of(DecFin an cia l Po sit ion

’11 Q1)
Te st Yo urse lf !
W1 Group Structure
ID Parent %, dates, consideration, PURPS
W2 Equity Table
Share Capital & Reserves
Fair Value Adjustments (Extra Dep’n) June 2012 Q1
W3 Goodwill Statement of Financial Position
Check for impairment & share it out (W4 & W5)
W4 NCI
Share of net assets at year-end
W5 Reser ves
Start with Parent then Post-Acq share of Sub
Most adjustments here
SFP Add across assets & liabilities - Parent shares only

In come St atemen t (Dec 09 Q1) Q ue st io n Ti me!

Step 1: Set out Group Structure
Is goodwill working required? Calculate consideration.
Step 2: Do workings for goodwill if required
Net assets & goodwill computation.
Step 3: Go through rest of question note by note June 2011 Q1: Group I/S
Set up a working (Particularly COS).
Step 4: NCI share of Profit & Other Comp. Income
NCI% Profit given in Question X
NCI % depreciation on FV adjustments (X)
NCI% goodwill impairment (X)
NCI % PURP if sub is seller (X)
NCI% Any other affecting sub profit (X)
X
 Te st Yo urse lf ! SFP & I/S To ge th er (Dec 10 Q1)
Step 1: Set out Group Structure
Dates, Consideration. PURPS.
Step 2: Do workings for SFP
All 5 workings needed
Dec 2009 Q1
Income Statement Step 3: Go through rest of question note by note
Adjustments for I/S e.g. COS?
Step 4: NCI share of Profit & Other Comp. Income
NCI% Profit given in Question X
NCI % depreciation on FV adjustments (X)
NCI% goodwill impairment (X)
NCI % PURP if sub is seller (X)
NCI% Any other affecting sub profit (X)
X

Fi na nc ia l In st rumen ts Fin an cia l Ins tr umen ts Cla ss ific at ion

Company A Company B T Hold not Sell Fi n a Jus t D
Needs to raise Capital Has extra capital to invest E Business Model Test Sell For Profit nci a e b t
S l As
Just principle & Interest se t
T Contractual Cashflows s!
Choices: Choices: S
Not just principle & Interest

Issue Equity (Shares) Buy Equity of A (Shares) Financial Assets Financial Liabilities
Receive Dividends on these & Capital Appreciation
Pay Dividends on these each year

Equity Instrument to Financial Asset to Debt Equity All

AC
Effective Interest
Interest Paid/Rec’d
T
Hold Not Sell
Company A Company B
O’Bal Cl’Bal E
(Increase O’Bal) (Decrease O’Bal)
S Never All Others
Amortised Cost X X (X) X T
S
Just P & I
Held For
Issue Debt (Bonds) Buy Debt of A (Bonds) FVPL
Revalue to Fair Value each
year - Gain or Loss to I/S All Others Trading
Held For
Trading
Pay interest each year and capital back at the end Receive Interest each year and capital back at the end

Revalue to Fair Value each Not Held For

Financial Liability to Financial Asset to FVOCI year - Gain or Loss to OCI
Never
Trading
Never

Company A Company B
1. No change bet ween FVPL & FVOCI
A Financial Instrument creates a FINANCIAL ASSET in one entity and a Rules: 2. Only change bet ween AC & FVPL to avoid mismatch or if business changes
FINANCIAL LIABILITY (or Equity Instrument) in the other.
 IAS 12 - In come Ta x FS Prep Te ch nique (June 11 Q2)
Tax charge on I/S includes
Movement on Deferred Tax (SFP) Step 1: Set out Pro-Forma for I/S and SFP
Movement on Income Tax (SFP)
Leave lines to insert items & info
Deferred tax reflects timing differences Eg.
Current Bal. on Income Tax Liability is $340
Current Bal on Def. Tax Liabiity is $200
Insert figures from TB in question
Deferred Tax Balance (SFP) =
Difference bet ween Carrying
Tax Rate is 30%
! Step 2: Do workings for notes given
The provision for Income Tax required for this year is $900.
x Tax Rate %
Value Assets and Tax Base The carrying Value of the Non Current Assets is $3000
with a tax base of $2000. Easiest first or...
Financial
Either...
Deferred Tax
Solution
Income Tax provision needs to increase from $340 to $900 In order given
Statements Show DR Tax Charge (I/S) $560
CR Income Tax Provision $560
More Asset
Def. Tax Liability
CR
!
Def Tax
Step 3: Adjust Pro-forma for adjustments in notes
Carrying Value of NCA $3000
Less Asset
Def. Tax Asset
DR
Tax Base $2000
Fiancial Statements show MORE ASSETS so...Def. Tax Liability
Make sure there’s a DR and a CR
required:
Movement to increase/decrease from last year to I/S (3000 - 2000) x 30% = $300
Current Liability $200
Step 4: Balance off and complete
DR/CR Income Statement Tax Charge Movement to I/S
DR/CR Def. Tax (SFP) DR Tax Charge (I/S) $100
CR Def. Tax Liability $100
You must leave this question when time is up!!!!*
If movement on Def. Tax created by Revaluation then...
DR Revaluation Reserve *You will fail if you don’t
CR Deferred Tax

Set out Pro-Forma leaving lines to fill in

Ca sh -F lo w St atemen ts Ca sh -F lo w St atemen ts
Profit Before Tax X
Add Back Non Cash Expenses in I/S X
Do Cash Flow from Operating Activities Subract Non Cash Gains in I/S (X)
PPE $m Intangible Assets $m
Working Capital Movements X/(X) Long Term Borrowings $m
Opening Balance + Opening Balance + Share Capital $m
Cash Flows From Operating Activities X Opening Balance +
Closing Balance - Opening Balance +
Closing Balance - Closing Balance -
Cash From Investment Activities Disposals -
New Expenditure + Closing Balance -
Repayments in Year -
Amortisation - Issue Shares +
New Loans +
Set out Pro-Forma leaving lines to fill in Cash From Financing Activities Additions + Total 0 Total 0
Total 0
Depreciation -

Reconciliation to Cash on SFP Impairment -

Revaluation (SOCIE) +
Tax $m
Working $ Total 0
Opening Balance on Tax due +
Opening Balance + Opening Balance on Deferred Tax +
Closing Balance - Investment Property $m Financial Assets $m Closing Balance on Tax due -
Items increasing opening Balance + Opening Balance + Opening Balance + Closing Balance on Deferred Tax -
Do working for each SFP balance Items decreasing opening Balance -
Positive Negative Closing Balance - Closing Balance - Tax Charge in IS
Total
+
0
Total 0 Additions + Additions +
Disposals - Disposals -
INFLOW OUTFLOW
ASSET Gain on Fair Value + Gains on Financial Assets +
Loss on Fair Value - Impairment of Financial Assets -

If Result of Working is a cash-flow... LIABILITY OUTFLOW INFLOW Total 0 Total 0

Q ue st io n Ti me! Pe rf or m an ce Ana lysi s
Current Assets
Margins
Gross/Net/Operating Profit Current Current Liabilities
Revenue Current Assets - Inv
PBIT Quick
Current Liabilities
Profitability ROCE Capital Employed Liquidity & Inventory
Efficiency Inv. Days x 365
Calculate PAT COS
ROE Receivables
Ratios First Ord. Shares + Reser ves Rec. Days
Credit Sales
x 365

Check how many Payables

Divs Per Share Pay. Days x 365
December 2011 Q3 a) marks available.
1.8 minutes per mark
Then move on to
Div Yield
Share Price
PAT
COS

discussion Capital Long Term Debt

Shareholders Div Cover
Div Paid Gearing Equity
Share Price
Gearing PBIT
P/E Ratio Int. Cover
EPS Interest

Compare to Ind. Ave or previous years

Discuss each ratio calculated Good or bad movement & impact on performance
Keep within time constraints

Q ue st io n Ti me! IF RS Summ ar ie s
FS Prep Question
Small adjustments to TB

Could be any standard So....

June 2011 Q3 Focus on computations
!

Learn Summaries
Single Question !
Discuss requirements of standard
Learn Computations
Short scenario with computations

Focus on marks awarded

IAS 8 - Ac co un ting Po lic ies /Est im
ates Q ue st io n Ti me!
Accounting Policies
Rules & conventions set by IFRS
Change in IFRS
Very rare to change...only if...
More relevant to users
Change comparatives
December 2010 Q4
Changes are RETROSPECTIVE
Restate reserves

Accounting Estimates
Judgements made by accountant
Change in UEL of an asset
May change with new info...
Change in estimate of a provision
Don’t change comparatives
Changes are PROSPECTIVE
Just changed in current year

IAS 16 - Non Cu rren t As se ts Q ue st io n Ti me!

Reliable Measure
If: Probable Flow of Benefit

R Recognise
What?
Direct Costs
Dismantling (Discounted amount)
Separate Components
December 2008 Q5
Cost or revaluation less Dep’n C os t
: te d

M Measure?
Revalue
UP
In equity to reserve (SOCI)
To I
Unless reversing impairment H i s t o
r
p to e cia
/S u ic De p r

DOWN Against Previous Increase First

Then to I/S

T
Transfer in Reserves?
Transfer Revaluation Reserve to Retained Earnings
Dep’n on revalued amount less dep’n on historic cost
IAS 36 - Im pa ir men t Q ue st io n Ti me!
Restructuring
I nterest Rate Rise
I Indicators F all in Share Price
L osses or loss of key staff
E nvironmental
D amaged Asset

Carrying Value CGU

(CGU) Cash Generating Unit
=
June 2012 Q4
TO
C Compare Higher of
Recoverable Amount CGU
Value in Use
Smallest group of assets
generating cash

Fair Value Less Cost to Sell

DR Income Statement (or revaluation reserve)

C Charge 1. Damaged Asset
CR* 2. Goodwill
3. Other Assets Pro-Rata
*Down to higher of Value in Use or Fair Value

IAS 23 - Bo rrow ing Co sts Q ue st io n Ti me!

Building an asset

W When For Sale or use

Capitalise interest cost

June 2010 Q5
Interest cost
A Amount
Less...
Temporary investment income
Activities begin

S Start on later of... Borrowing costs incurred

Expenditure begins
Suspend if work stops
IAS 38 - In ta ng ible As se ts Q ue st io n Ti me!

Identifiable & Controlled

R Recognise? Future Economic Benefit
Reliable Measure

Never Research
December 2007 Q5
C Capitalise?
Development if:
Feasible
Future Economic Benefit

Future Economic Benefit

Future Costs if: above previously achievable

Straight line over UEL

A Amortise?
Indefinite life
No Amortisation
Assess for impairment each year

IAS 17 - Le as es IAS 37 - Prov is io ns

Most of UEL
F Finance Lease? O wnership Transfer
P resent Value of Payments > F. Value
N Present Constructive/legal obligation from past event
E
E
Probable Outflow
P urchase = Bargain
D Reliable Measure
Virtually
PV minimum lease payments DR Asset Probable Possible Remote
Record Asset Lower of
Fair Value CR Lease Liability
Certain

R Recording DR Income Statement

Liability Create
Provision
Create
Provision
Disclose
Contingent
Liability
Nothing

Record Liability Adjust for Effective Interest

CR Lease Liability Disclose
Then Asset Create Asset Contingent
Asset
Nothing Nothing
DR Lease Liability
Adjust for Cash Paid
CR Cash
Depreciate Asset
Many Items - Expected Values

O Operating Lease Charge to I/S straight line over lease term

Measure One Item - Best estimate
Time value material? - Discount & Unwind

S Sale & Lease Back Profit deferred over lease term

Q ue st io n Ti me! IAS 33 - Ea rn ings Pe r Sh are
PAT - Pref. Divs
Calculation
W. Ave Number Ord. Shares

B Basic Weighted Ave.

Date Total Shares Proportion of Year

X X X
Bonus/Rights
Fraction
ONLY HERE
Total

X
X X X NEVER HERE X

December 2011 Q4 Weighted Ave No. Shares X

F Fraction Bonus Issue

Rights Issue
Have/Had...e.g. 1 for 2 = 3/2
Market Value / THERP
Compare to LY LY EPS x Inverted Fraction
Diluted Earnings
Diluted Shares
Basic Earnings X
Basic No. Shares X
Convertible Debt Loan Interest Saved X
Converted Shares X

D Diluted EPS Tax Benefit Lost

Diluted Earnings
(X)
X

Total No. Options in Question

Diluted Shares X

X
Less Non Dilutive Shares

Share Options (No. Options x Exercise Price) / Market Value Shares
(X)

Dilutive Shares (Add to Basic Shares) X

Q ue st io n Ti me! IAS 32 - Co nverti ble De bt

Entity Issues Convertible Debt May be converted to shares later

C Concept Is it Debt or Equity? Rather it was Equity (Improve gearing)

IAS 32 Says it’s both We need to split it

December 2009 Q5 Split bet ween debt/equity

Debt = PV future cashflow on bond
Equity = Rest of bond value
June 2011 Q4 O On Issue Date PV Calculation
Year Item
Amount
$10m x 8%
Discount Rate
10%
PV

1 Interest 800,000 0.909 727200

Discount Using Effective
rate on comparable bond 2 Interest 800,000 0.826 660800
with no conversion option 3 Interest 800,000 0.751 600800

Eg. $10m 3Yr 8% bond 3 Capital 10,000,000 0.751 7510000

Effective Interest rate 10% Debt Value 9498800
Equity Value (Bal) 501200
Total Value 10,000,000

N Now Treat Debt At Amortised Cost

Equity Unchanged
O’Bal

9,498,800
Effective Interest
10%
949,880
Interest Paid

800,000
Cl’Bal

9,648,680
Q ue st io n Ti me! IAS 11 - Co ns tr uc tio n Co nt ract s
Step 1: Calculate Total Profit Expected
Total Expected Revenue - Total Expected Costs
Loss Expected?....Recognise in full NOW
Step 2: Calculate % Completion of Contract
December 2011 Q5 Costs to Date Work Certified
x 100% or... x 100%
Total Costs Contract Price

Step 3: Profit Expected x % Completion = Total to I/S

Subtract previous year charges
Step 4: Do Balance Sheet Working
Costs Incurred to Date X
Add: Recognised Profit X
Less: Recognised Losses (X)
Less: Progress Billings (X)
Total Amount Due From/To Customers X/(X)

Q ue st io n Ti me! IAS 10 - Subs eq ue nt Even ts

Events after balance sheet date but before accounts are
authorised are either...
Existed before year end...we didn’t know until after
June 2011 Q5 Adjusting We need to adjust financial statements to fix it
E.g. Overvaluation of Inventory / Fraud or error
Non-Adjusting event that affects going concern

Happened after year-end

Non-Adjusting No adjustment...just disclose in a Note
E.g. Inventory damaged after Y/E / litigation post Y/E

Be very careful with dates in question!

Q ue st io n Ti me! IFRS 5 - As se ts He ld Fo r Sa le & Dis
. Op.

P lan to sell
A vailable Immediately
A Available? L ocating a buyer
M arketed - reasonable price
12 Months of SFP date

June 2009 Q4
Revalue to Fair Value
F Fair Value Any impairment to I/S
Not Depreciated

Major Line of Business

S Sub Discontinued? Geographical Area
Plan to sell
Disclosures Required

Q ue st io n Ti me! IAS 40 - In ve st men t Prop erty

Capital Appreciation
I If Held For Rental
Land where unsure of Use
June 2013 Q4 a & b
Not if rented to employees!
Put revaluation through I/S with no Dep’n...or
P Hold at Cost less Dep’n

S Split if some own use

 Q ue st io n Ti me! IAS 18 - Re ve nue Re co gn it io n
Transfer of Risks & Rewards
Goods No Management Control
Reliable Measure

June 2013 Q5 Service Stage of Completion of

Contract

Both Reliable Measure

Probable Flow of Benefit
Same contract
Separable Part Goods & Part Ser vices
Separate out if possible

IAS 20 - Go ve rnmen t Gran ts IF RS 13 - Fa ir Va lue

Grant may relate to... Levels of Inputs to determine...

E 1
Set off against expense or... Quoted Active Market
Expense Best
Treat as other income Identical Items

2
Quoted price...similar items
Reduce NBV asset or... Ok
A Asset
Hold as deferred income
Inactive market...identical items

Obser ve similar items

3 Not Great Replacement cost

Discounted cash flows
Mul ti ple Ch oice Te ch nique Se ct io n A Ques ti on s
Step 1: Use reading time to start these questions
No need to read the rest of the paper
Note the answers on the question paper
Step 2: Read the requirement VERY CAREFULLY
Look for double negatives Specimen Paper Q1 to Q11
Note dates as you read
Step 3: Consider whether you know the answer
Look for this answer first
Step 4: Try to eliminate those you know are incorrect
Step 5: Go with your first instinct if you can’t decide

Se ct io n A Ques ti on s

Specimen Paper Q11 to Q20