Drafts

UNIVERSITA’ CATTOLICA DEL S.
CUORE – MILANO - SCHOOL OF BANKING, FINANCE AND INSURANCE

GRADUATE PROGRAM IN BANKING AND FINANCE/TRADING AND RISK MANAGEMENT
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI - FINAL EXAM – JANUARY 29TH 2019
NOTE: Not all the information provided is necessarily relevant: use only relevant information.
Question Nr. 1 a) Prepare the Statement of Cash Flows of Stream Network Ltd for year 2018 using the
following information (all data in CU): Purchases of fixed assets 123; Cash and cash equivalents at beginning
of the year 82; Decrease in accounts payables 71; Repayment of medium-term loans 195; Increase in
inventories 135; Total share capital increase 236, of which 140 issued as bonus shares and the remaining part
issued for cash; Issue of new convertible bonds for cash 77; Decrease in accounts receivables 112; Cash and
cash equivalents at end of the year 133; Loss before tax 33; Depreciation 184; Gains on disposal of businesses
53; Proceeds from disposal of businesses 69; Income tax paid for cash 10; Purchases of businesses 58;
Provisions charged to Statement of Income 2018 for the risk related to an important lawsuit for damages 191.
b) Explain shortly the treatment in a Statement of Cash Flows of the following possible cases: i) Conversion
into ordinary shares of outstanding convertible bonds; ii) Provisions charged to the Statement of Income of the
year for a specific risk.
Question Nr. 2 You have the following information concerning Stepping Buffalo Plc consolidated results for
year 2018. Ordinary shares: 01/Jan./2018 Total shares Nr. 1.200; 01/Jan./2018 Treasury shares Nr. 0;
01/Mar./2018 New bonus shares issued Nr. 250; 01/May/2018 Purchase of Treasury shares Nr. 70;
01/Dec./2018 Sale of Treasury shares Nr. 30.
Consolidated Net profit attributable to non-controlling interest CU 1.000; Total consolidated Net profit CU
13.000; New bank loans obtained during the year 520 CU; Convertible bonds outstanding Nr. 900; Each block
of Nr. 3 convertible bonds is convertible into Nr. 1 ordinary share; Dividend paid on ordinary shares CU 180;
Interest expense for the current year relating to the liability component of the convertible bond CU 200
(current and deferred tax relating to this interest expense CU 50).
a) Calculate consolidated Basic EPS; b) Calculate consolidated Diluted EPS; c) Is the information on
consolidated Diluted EPS relevant for potential new investors in the case of Stepping Buffalo Plc?
Question Nr. 3 Impairment of fixed assets under IAS 36: a) Definition of carrying amount; b) What kind of
costs should be considered in the cost of disposal? c) Lost & Found Inc., a multinational car and motorbike
producer, is considering its car factory in a Far-East country, showing a big loss because of a slowing down in
production due to difficulties in receiving materials from suppliers for exceptionally bad weather: should the
entity consider this situation relevant for a potential impairment? d) Inside another of its factories in Europe,
Lost & Found analyzes CGU Motorbikes. If: carrying amount = 35 CU; value in use 33 CU; fair value less
cost of disposal 30. Is there an impairment loss, and in this case what is its value and why?
Question Nr. 4 a) Under IFRS 9, explain the following problems related to classification of financial assets
in the At Amortized Cost class: i) a debt instrument issued in US Dollars receiving payments in Euros; ii) a
fixed interest bond receiving repayment at maturity linked to NASDAQ shares stock exchange index; iii) a
Government bond with interest payments indexed to inflation.
b) Cratchit Investments Plc applies IFRS 9 and purchased on 1st January 2018 a debt instrument classifying it
into the At Amortized Cost financial assets as follows: price paid 97,00 CU, overhead financial markets
research costs 0,20 CU, direct commission paid to broker 0,29 CU. The debt instrument has the following
terms: 2 years remaining to maturity; principal amount 100,00 CU; fixed interest rate paid annually 5,50%.
i) Valuate the financial asset at 31st Dec. 2018 and at 31st Dec. 2019. ii) Show the effects of the valuation of
the debt instrument in the Financial Statements as at 31st Dec. 2018 and as at 31st Dec. 2019.
Question Nr. 5
Power over the investee in order to assess control for consolidation of Financial Statements according to IFRS
10: a) definition of power over the investee; b) the problem of relevant activities; c) situations in which voting
power is relevant for control; d) situations in which voting power is less relevant and control can exist.
UNIVERSITA' CATTOLICA DEL S. CUORE - MILANO
SCHOOL OF BANKING, FINANCE AND INSURANCE
GRADUATE PROGRAM IN BANKING AND FINANCE / TRADING AND RISK MANAGEMENT
ADVANCED FINANCIAL ACCOUNTING - PROF. ALBERTO MARCHESI
FINAL EXAM - JANUARY 29th 2019 - SOLUTION DRAFT
QUESTION Nr. 1)
a) STATEMENT OF CASH FLOWS
Stream Network Ltd - Statement of Cash Flows - Year 2018 (CU)

Loss before tax (33)
Adjustment for Depreciation 184
Adjustment for Provisions 191
Adjustment for gains on disposal of businesses (53)
Income tax paid (10)
Increase in inventories (135)
Decrease in accounts receivables 112
Decrease in accounts payables (71)
Cash produced by (used in) operating activities 185
Purchases of fixed assets (123)

Purchases of businesses (58)
Proceeds from disposal of businesses 69
Net cash produced by (used in) investing activities (112)
Issue of convertible bonds 77

Share capital paid-in increase 96
Repayment of medium-term loans (195)
Cash produced by (used in) financing activities (22)
Increase in cash and cash equivalents 51
Cash and cash equivalents at beginning of the year 82
Cash and cash equivalents at end of the year 133
b) COMMENT SCHEME SUGGESTION

i) Conversion of convertible bonds is a non-cash transaction, not to be considered in the Statement of
Cash Flows. Though important, it is a change influencing the Statement of Financial Position only,
because Debt is converted to Equity.
ii) Provisions are a Non-cash expense, written in the Statement of Income (and consequently as an
increase in a specific item in the Debt section of the Statement of Financial Position) because of future but
still uncertain expected payments. Therefore Provisions have to be adjusted with a positive-sign
adjustment in the Operating Activities section of the Statement of Cash Flows.
QUESTION Nr. 2) STEPPING BUFFALO Plc
a) CONSOLIDATED BASIC EPS

Issued Treasury Outstanding
01/01/2018 1.200 0 1.200
01/01/2018 bonus issue 1.450 0 1.450
01/05/2018 1.450 70 1.380
01/12/2018 1.450 40 1.410
1.450 1/3 483

1.380 7/12 805
1.410 1/12 118
Weighted average nr. of shares 100% 1.406
Total Consolidated Net profit 13.000

Non-controlling interest (1.000)
Net profit for group shareholders CU 12.000
Weighted average Nr. of outstanding shares 1.406
Basic EPS CU 8,54
b) CONSOLIDATED DILUTED EPS

Interest expense for the current year relating to the liability component CU 200
Current and deferred tax on interest expense CU (50)
Adjusted profit attributable to ordinary equity holders of the parent entity CU 12.150
Number of convertible bonds 900

Conversion rate 1 3 0,3333
Number of ordinary shares resulting from conversion of bonds 300
Number of ordinary shares used to calculate Diluted EPS 1.706
Consolidated Diluted EPS CU 7,12
c) COMMENT
Information on Consolidated Diluted EPS is relevant, because its value is lower than that of Consolidated
Basic EPS and this means that there's a dilutive effect: in the (likely) case in which the conversion option
will be exerted, profitability for ordinary shareholders of the group will be lower.
QUESTION Nr. 3)
3.c) FAR-EAST FACTORY CASE

The big loss due to bad weather is not an immediate indication about the existence or not of
impairment conditions and a further analysis should be conducted on the overall situation and
perspectives of the factory and its logistic organization, because:
- on one hand the exceptionality of the bad weather should indicate that there's no need for
impairment, because these adverse conditions should not reasonably occur again (of course apart
from climate changes);
- on the other hand a further analysis should be conducted in order to assess the situation and
perspectives of transport and infrastructures in the region after the execptional bad weather: will
roads, bridges, railroads, airports, ports, phone lines, etc. be efficient again in a reasonably short time,
or will it be necessary a long time for all that?
3.d) EUROPE MOTORBIKES CGU

Recoverable Amount is 33 CU, coinciding with Value in Use which is higher than Fair Value Less
Cost of Disposal.
Therefore:
Recoverable Amount 33
Carrying Amount (35)
Impariment Loss (2)
Consequently:
- an Impairment Loss of 2 shall be written in the expenses of the Statement of Income;
- the Carrying Amount of the CGU written in the fixed assets of the Statement of Financial Position
shall be reduced to 33 CU.
QUESTION Nr. 4.)
a) IFRS 9 CLASSIFICATION PROBLEM

All the three problems are related to the Solely Payments of Principal and Interest condition requested for the
classification in the At Amortized Cost class of Financial Assets as follows:
i) SPPI condition is not respected, because there's a foreign exchange risk exposure of cash flows;
ii) SPPI condition is not respected, because there's a share prices risk exposure of cash flows;
iii) SPPI condition is respected, because the link to inflation is admitted by IFRS 9. Of course it must be a non-
leveraged link.
b.i) VALUATION
Price paid 97,00

Commission paid to broker 0,29
Fair value at inception 97,29
Principal 100,00
Annual interest income cashed annually 5,50% 5,50
Time to maturity 0 1 2 Total

Non-discounted cash flows (97,29) 5,50 105,50
Discounted cash flows (97,29) 5,14 92,15 (0,00)
IRR 7,000%
Amortized Amortized
Interest
cost at the cost at the
Year income Cash flows
beginning of end of the
accrued
the year year
2018 97,29 6,81 5,50 98,60
2019 98,60 6,90 105,50 0,00
b.ii) EFFECTS ON FINANCIAL STATEMENTS
Cratchit Plc - Statement of Financial Position at 31.12.2018

97,29
1,31
Amortized cost 98,60
Cratchit Plc - Statement of Income - Year 2018

Interest income cashed 5,50
1,31
Interest income accrued 6,81
Cratchit Plc - Statement of Financial Position at 31.12.2019

98,60
(98,60)
Amortized cost 0,00
Cratchit Plc - Statement of Income - Year 2019

1,40
UNIVERSITA’ CATTOLICA DEL S. CUORE – MILANO - SCHOOL OF BANKING, FINANCE AND INSURANCE
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI - FINAL EXAM – FEBRUARY 19TH 2019
NOTE: not all information provided is necessarily relevant: use only relevant information.
Question 1) a) Prepare the Statement of Changes in Shareholders’ Equity of Tooth Profile Plc for year
2018 using the annexed scheme (all data in CU): previous year Net Loss has been partly covered for
646 (detail of the covering operation: contributions paid by shareholders to cover losses 300; both
Retained Earnings and Additional Paid-in Capital reserves have been fully offset to cover the Loss);
Issue of new Savings Shares for cash 700; Issue of new ordinary shares of 1.200 through conversion of
Convertible Preference Shares at a conversion rate of 1-to-1; Total Comprehensive Loss for the year
(2) [detail of Total Comprehensive Loss: Net Loss (15); increase in Valuation Reserve for Financial
Assets valued Fair Value Through Other Comprehensive Income 13]. b) Which of the following
operations and for what amount are relevant for the Statement of Cash Flows for 2018 of Tooth Profile
Plc? i) Covering of 2017 Loss; ii) Issue of Savings Shares; iii) Issue of Ordinary Shares.
c) Schwaige Corp. is preparing its Statement of Cash Flows for 2018 using the indirect method.
Explain the treatment in the Statement of Cash Flows and the effect on Cash Flows of the following
items: i) decrease in inventories; ii) decrease in accounts payable to suppliers.
Question 2) We are preparing year 2018 financial statement of Serpentine Plc, the holding of a group
in which is included Slope Ltd, a quite profitable subsidiary. Serpentine Plc owns the majority of share
capital of Slope Ltd, and the remaining part is owned by other shareholders.
a) Calculate consolidated Basic EPS for year 2018 using the following information.
Total Consolidated Net profit CU 6.000; Net profit for non-controlling interest in Slope CU 2.800.
01.01.2018 Balance at beginning of year: Shares issued nr. 5.000; Treasury shares nr. 300.
01.03.2018 Serpentine conducted a 5-for-1 shares split, without requiring any cash to shareholders.
01.06.2018 Issue of nr. 2.600 new shares as follows: nr. 1.200 bonus shares; nr. 1.400 shares for cash.
01.11.2018 Sale of treasury shares for cash nr. 250.
b) In the Financial Statement for year 2017, year 2017 Consolidated Basic EPS of Serpentine was
calculated with these numbers: Average nr. of outstanding shares 4.785; Net profit after deducting non-
controlling interest CU 3.667; Net profit for non-controlling interest CU 675. Calculate Consolidated
Basic EPS for year 2017 to be disclosed in the Financial Statement for year 2018.
c) i) Is it correct that Serpentine doesn’t disclose its separate Basic EPS? ii) Is it relevant to consider if
part of total consolidated net profit is attributable to non-controlling interest in Slope? iii) What is the
possible reason for the shares split conducted and how does it influence EPS calculations?
Question 3) Impairment of fixed assets under IAS 36. a) Cash Generating Unit: i) definition and assets
which can be included in a CGU; ii) in impairment procedures, is it frequently considered a CGU
instead of a single fixed asset and why? b) Impairment loss reversal: i) definition and when it is
possible to account for it; ii) are there limitations in the amount of the reversal which can be
recognized? iii) where shall the reversal be written in the Financial Statement?
c) Schlern AG purchased on 01 Jan. 2016 the factory Ski Jump, composed only of machinery, which
can be considered a CGU under IAS 36. The price paid for the purchase of the CGU was 100 CU;
depreciation was accounted respectively for 15 CU (year 2016), 15 CU (year 2017) and 12 CU (year
2018); in 2017 an impairment loss of 20 CU was accounted; in 2018 an impairment loss reversal of 3
CU was accounted. Calculate the carrying amount of the CGU as at 31 Dec. 2016, 2017 and 2018.
Question 4 Under IFRS 9, explain the Business model requirement necessary to classify a security in
the “At Amortized Cost” class of financial assets.
Advanced Financial Accounting - EXAM 19th February 2019
Student: Surname ...................................................................................... Name...............................................................................
Question 1): TOOTH PROFILE Plc - Statement of Changes in Shareholders' Equity as at 31st December 2018
Allocation of
Allocation of previous year Comprehensive
Shareholders'
Balance as at previousyear profit (loss): Issue of new Income (Loss)
(CU) Equity as at
1st Jan. 2018 profit (loss): Contributions shares at 31st Dec.
31st Dec. 2018
Reserves from 2018
shareholders
Ordinary shares 4.300
Convertible Preference Shares 1.200
Saving Shares 0
Additional paid-in capital 58
Retained earnings 288
Valuation reserves: revaluation surplus 1.200
Valuation reserves: other valuation reserves 55
Net Profit (Loss) year 2017 (823)
Net Profit (Loss) year 2018 0
Total Shareholders' Equity 6.278
Page 1 of 4
QUESTION Nr. 1) TOOTH PROFILE Plc - SOLUTION DRAFT
a) STATEMENT OF CHANGES IN EQUITY

TOOTH PROFILE Plc - Statement of Changes in Shareholders' Equity as at 31st December 2018
Allocation of
Allocation of previous year
Comprehensive Shareholders'
Balance as at previousyear profit (loss): Issue of new
(CU) Income (Loss) at Equity as at
1st Jan. 2018 profit (loss): Contributions shares
31st Dec. 2018 31st Dec. 2018
Reserves from
shareholders
Ordinary shares 4.300 1.200 5.500
Convertible Preference Shares 1.200 (1.200) 0
Saving Shares 0 700 700
Additional paid-in capital 58 (58) 0
Retained earnings 288 (288) 0
Valuation reserves: revaluation surplus 1.200 1.200
Valuation reserves: other valuation reserves 55 13 68
Net Profit (Loss) year 2017 (823) 346 300 (177)
Net Profit (Loss) year 2018 0 (15) (15)
Total Shareholders' Equity 6.278 0 300 700 (2) 7.276
check 7.276
Note : Cash contributions of 300 CU paid by shareholders are a real increase in equity (new cash obtained by the entity from shareholders): therefore
they decrease the value of Loss of previous year, but must not be offset with any other line of equity components. Furthermore the Loss of previous year
of was partly covered with reserves as follows: Retained earnings for 288 CU and Additional paid-in capital for 58. Therefore: these two reserves have
been fully used and are both equal to 0 CU at the end of the year; there's a remaining 177 CU of year 2017 Loss not yet covered at the end of 2018.
b) OPERATIONS RELEVANT FOR THE STATEMENT OF CASH FLOWS FOR YEAR 2018
i) Covering of previous year loss: Cash contribution from shareholders is a cash inflow of 300; the use of the two reserves (Retained earnings and
Additional paid-in capital) doesn't generate any cash flow.
ii) The issue of savings shares for cash generates a cash inflow of 700.
iii) The issue of Ordinary shares through conversion of Convertible preference shares outstanding doesn't generate any cash flow.
Page 2 of 4
QUESTION Nr. 2) SERPENTINE SLOPE Ltd - SOLUTION DRAFT
In EPS calculation, for comparability reasons, Non-cash operations on equity must be considered as if they had occurred from the earliest period
disclosed in the Financial Statement. Therefore both share split and bonus issue:
- in EPS for year 2018 are considered as occurred at 1st Jan 2018;
- in EPS for year 2017 to be included in 2018 Financial Statement, are considered as occurred at 1st Jan 2017: of course the new adjusted 2017
EPS disclosed in 2018 F.S. will be different (lower) from the one disclosed in 2017 Financial Statement.
a) YEAR 2018
Net profit before non-controlling interest 6.000
Net profit for non-controlling interest (2.800)
Nr. of shares
Hypothesis 1 Hypothesis 2
Issued Treasury Outstanding Issued Treasury Outstanding
01.01.2018 Balance at the beginning of the year 5.000 (300) 4.700 5.000 (300) 4.700
01.01.2018 Adjustment for share split 20.000 (1.200) 23.500 20.000 24.700
01.01.2018 Adjustment for bonus shares 1.200 24.700 1.200 25.900
01.06.2018 Issue of new shares for cash 1.400 26.100 1.400 27.300
01.11.2018 Sale of treasury shares for cash 250 26.350 250 27.550
31.12.2018 Balance at year end 27.600 (1.250) 26.350 27.600 (50) 27.550
Two adjustments to the nr. of shares outstanding are necessary, due to the two different non-cash operations on share capital occurred:
I) One of nr. 1.200 shares for the bonus part of the June share capital increase. Of course the nr. 1.400 shares of the remaining part of this share
capital increase, which occurred for cash, shall be considered starting from June;
II) Another one related to the share split. Nevertheless, since textbooks don't give detailed indication on the treatment of any eventual Treasury
Share at the moment of the split operation and since the aim of adjustments is to make EPS significant and comparable with a reasonable level of
approximation, two alternative Hypotheses for an adequate adjusment could be considered for the exam:
Hypothesis 1 (more precise): The share split consists of the issue of nr. 25.000 new shares (5.000*5) in substitution of the nr. 5.000 old shares
withdrawn and cancelled (of which 300 are Treasury Shares). Therefore for the calculation of the weighted average nr. of shares outstanding is
necessary a positive adjusment of nr. 18.800 shares, calculated as follows: positive adjustment nr. 20.000 shares [(5.000*5)-5.000] for issued
shares; negative adjustment of nr. 1.200 shares [(300*5)-300] for Treasury Shares.
Hypothesis 2 (less precise but still accepted for the exam): The share split consists of the issue of nr. 25.000 new shares (5.000*5) in
substitution of the nr. 5.000 old shares withdrawn and cancelled. Therefore for the calculation of the weighted average nr. of shares outstanding
is necessary a positive adjustment nr. 20.000 shares [(5.000*5)-5.000] for issued shares.
Shares Weighted Shares Weighted

Weight Weight
outstanding shares outstanding shares
24.700 5/12 10.292 25.900 5/12 10.792
26.100 5/12 10.875 27.300 5/12 11.375
26.350 1/6 4.392 27.550 1/6 4.592
Weighted average nr. of outstanding shares 100,000% 25.558 100,000% 26.758
Basic consolidated EPS year 2018 = 3.200 = 0,125 3.200 = 0,120
25.558 CU 26.758 CU
b) YEAR 2017 ADJUSTED FOR THE FINANCIAL STATEMENT OF YEAR 2018

Two adjustments to the nr. of shares outstanding during former year are necessary:
I) An adjustment of nr. 1.200 shares for the bonus issue;
II) Another one for the share split. Alternatively one of these three hypotheses can be accepted: one of the two above explained hypotheses; a
third hypothesis of adjusting directly the nr. of shares outstanding during the year [(4.785*5)-4.785] = 19.140
Hypothesis 1 Hypothesis 2 Hypothesis 3
Average nr. of shares before adjustments 4.785 4.785 4.785
Adjustment for share split occurred during 2018 18.800 20.000 19.140
Adjustment for bonus issue occurred during 2018 1.200 1.200 1.200
Adjusted average nr. of shares 24.785 25.985 25.125
Basic consolidated EPS year 2017 adjusted for both share

3.677 0,148 3.677 0,142 3.677 0,146
split and bonus issue of 2018 =
24.785 CU 25.985 CU 25.125 CU
Page 3 of 4
QUESTION Nr. 3) SKI JUMP CGU - SOLUTION DRAFT
01.01.2016 Purchase price 100

31.12.2016 Depreciation (15)
31.12.2016 Carrying amount at the end of the year 85
31.12.2017 Impairment Loss (20)
31.12.2018 Impairment Loss Reversal 3
Page 4 of 4
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI - FINAL EXAM – JULY 8TH 2019
Question Nr. 1 a) Prepare the Statement of Cash Flows of FEKL MAPs Ltd for year 2018 using the
inventories 125; Total share capital increase 236, of which 196 issued for cash and the remaining part issued
as bonus shares; Increase in accounts receivables 102; Cash and cash equivalents at end of the year 18; Net
Profit 18; Tax expenses accrued 11; Depreciation 172; Losses on disposal of fixed assets 15; Proceeds from
disposal of fixed assets 79; Income tax paid for cash 20; Provisions charged to Statement of Income 2018 for
the risk related to an important environmental accident 151.
b) Explain shortly the following issues related to the Statement of Cash Flows: i) indirect and direct methods:
definition; choice of using one of them; ii) In the case of FEKL MAPs Ltd, explain the effect on cash flow of:
the changes in the items forming the working capital; the provisions charged to Statement of Income.
Question Nr. 2 You have the following information on Golden Medal Plc consolidated results for year 2018.
Ordinary shares: 01/JAN/2018 Total shares Nr. 1.500; 01/JAN/2018 Treasury shares Nr. 0; 01/JUL/2018 New
bonus shares issued Nr. 350; 01/OCT/2018 Purchase of Treasury shares Nr. 90; 01/DEC/2018 Sale of
Treasury shares Nr. 30.
13.500; Convertible bonds outstanding Nr. 1.000; Each block of Nr. 5 convertible bonds is convertible into
Nr. 1 ordinary share; Dividend paid on ordinary shares CU 180; Interest expense for the current year relating
to the liability component of the convertible bond CU 230 (current and deferred tax relating to this interest
expense CU 60).
a) Calculate consolidated Basic EPS; b) Calculate consolidated Diluted EPS; c) Dilutive and antidilutive
effects: definition and implications in diluted EPS disclosure; d) In the case of Golden Medal Plc, do
convertible bonds have a dilutive or antidilutive effect and why?
Question Nr. 3 Impairment of fixed assets under IAS 36: a) Definition of Value in Use; b) In the calculation
of Value in Use, what kind of discount rate should be used? c) Outside View Inc., a multinational eye-glasses
producer, is considering one of its factories in Europe, showing a big loss because of a serious decrease in
sales which will lead to a relevant reduction in future production programs and in employment levels of the
plant: should the entity consider this situation relevant for a potential impairment? d) Inside another factory in
Far East, Outside View analyzes the CGU Sunglasses, which is going to be closed, due to a reorganization of
the whole group. If: carrying amount = 25 CU; value in use 25 CU; fair value less cost of disposal 18. Is there
an impairment loss, what is its value and why?
in the At Amortized Cost class: i) a debt instrument receiving interest payments linked to the market price of
copper; ii) a Government bond with interest payments indexed 100% to inflation rate; iii) a Government bond
with interest payments indexed 300% to inflation rate.
b) Colosseum Investments Plc applies IFRS 9 and purchased on 1st January 2018 a debt instrument classifying
it into the At Amortized Cost financial assets as follows: price paid 101,67 CU, direct commission paid to
broker 0,15 CU, overhead company costs 0,20 CU. The debt instrument has the following terms: 2 years
remaining to maturity; principal amount 100,00 CU; fixed interest rate paid annually 7,50%.
i) Valuate the financial asset at 31st Dec. 2018 and at 31st Dec. 2019. ii) Show the effects of the valuation of
the debt instrument in the Financial Statements as at 31st Dec. 2018 and as at 31st Dec. 2019.
Question Nr. 5
Power over the investee in order to assess control for consolidation of Financial Statements according to IFRS
10: a) definition of power over the investee; b) the problem of relevant activities; c) situations in which voting
power is relevant for control; d) situations in which voting power is less relevant and control can exist.
FINAL EXAM - JULY 8th 2019 - SOLUTION DRAFT
QUESTION Nr. 1)
FEKL MAPs Ltd - Statement of Cash Flows - Year 2018 (CU)

Net Profit 18
Adjustment for tax expenses accrued 11
Adjustment for losses on disposal of fixed assets 15
Increase in accounts receivables (102)

Proceeds from disposal of fixed assets 79

Increase (Decrease) in cash and cash equivalents (114)
ii-first part) All the 3 components of Working Capital from operations have a negative effect on Cash
Flow produced by operating activities, that is their changes in the period considered required cash:
increase in inventories required cash for purchases and production expenses; increase in receivables
required cash, due to sales not yet cashed; decrease in payables required cash, because of payments done
to suppliers.
ii-second part) Provisions are a Non-cash expense, written as an expense in the Statement of Income and
consequently as an increase in a specific item in the Debt section of the Statement of Financial Position,
because of future (likely but still uncertain in time and amount) expected payments. Therefore Provisions
have to be adjusted with a positive-sign adjustment in the Cash Flow by Operating Activities section of
the Statement of Cash Flows.
QUESTION Nr. 2) Golden Medal Plc

01/01/2018 1.500 0 1.500
01/01/2018 bonus issue adjustment (from the earliest
period considered) 1.850 0 1.850
01/10/2018 1.850 90 1.760
01/12/2018 1.850 60 1.790
1.850 3/4 1.388

1.760 1/6 293
1.790 1/12 149

Basic EPS CU 6,28

Number of convertible bonds 1.000

d) COMMENT
They have a dilutive effect and therefore information on Consolidated Diluted EPS is relevant, because its
value is lower than that of Consolidated Basic EPS: this is due to the fact that in the (likely, since the future
conversion appears profitable for convertible-bondholders) case in which the conversion option were
exerted in the future, profitability for ordinary shareholders of the group would be lower.
QUESTION Nr. 3)
c) EUROPEAN FACTORY
Yes, because the serious decrease in sales is leading to a downsizing of the european CGU: consider
the reduction of production programs and the lay off of staff.
d) FAR EAST FACTORY

Carrying Amount 25
Fair Value less cost of disposal (18)
Impariment Loss 7
Since the CGU is going to be closed, its assets will be sold or simply not used anymore: therefore
Value in Use has no sense and cannot be considered.
Consequently:
shall be reduced to the impaired value of 18 CU.
QUESTION Nr. 4.)

All the three cases are related to the Solely Payments of Principal and Interest condition requested for the
i) SPPI condition not respected, because there's a raw materials market price risk exposure of cash flows;
ii) SPPI condition respected, because the non-leveraged link to inflation is admitted by IFRS 9;
iii) SPPI condition not respected, because there's a leveraged link to inflation (300%), not admitted by IFRS 9.
b.i) VALUATION
Price paid 101,67

Principal 100,00

Discounted cash flows (101,82) 7,04 94,78 0,00
IRR 6,500%
Amortized Amortized
Interest
accrued
the year year
2018 101,82 6,62 7,50 100,94
2019 100,94 6,56 107,50 (0,00)
b.ii) EFFECTS ON FINANCIAL STATEMENTS
Colosseum Plc - Statement of Financial Position at 31.12.2018

101,82
(0,88)
Colosseum Plc - Statement of Income - Year 2018

(0,88)
Colosseum Plc - Statement of Financial Position at 31.12.2019

100,94
(100,94)
Amortized cost (0,00)
Colosseum Plc - Statement of Income - Year 2019

(0,94)
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI - FINAL EXAM –DECEMBER 17TH 2019
NOTE: not all information provided is necessarily relevant: use only relevant information.
Question 1) a) Prepare the Statement of Changes in Shareholders’ Equity of Aldebaran Plc for year
2018 using the annexed scheme (all data in CU): previous year Net Loss has been fully covered with
Retained Earnings; Issue of new Savings Shares for cash 400; Issue of new ordinary shares through
conversion of Convertible Bonds (face value of the bonds 1.000) at a conversion rate of 2-to-1; Total
Comprehensive Income for the year 78 [detail of Total Comprehensive Income: increase in Valuation
Reserve for Financial Assets valued Fair Value Through Other Comprehensive Income 23; Net Profit
55].
c) Statement of Cash Flows prepared using the indirect method: i) Explain the main features of indirect
method. Explain the treatment in the Statement of Cash Flows and the effect on Cash Flows of the
following items: ii) increase in inventories; iii) increase in accounts payable to suppliers.
Question 2) We are preparing year 2018 financial statement of Big Concert Plc, the holding of a group
in which is included Violin Ltd, a quite profitable subsidiary. Big Concert Plc owns the majority of
share capital of Violin Ltd, and the remaining part is owned by other shareholders.
Total Consolidated Net profit CU 5.000; Net profit for non-controlling interest in Violin CU 1.800.
01.03.2018 Big Concert conducted a 4-for-1 shares split, without requiring any cash to shareholders.
01.06.2018 Issue of nr. 2.600 new shares as follows: nr. 1.200 bonus shares; nr. 1.400 shares for cash.
b) In the Financial Statement for year 2017, year 2017 Consolidated Basic EPS of Big Concert was
controlling interest CU 3.667; Net profit for non-controlling interest CU 675. Calculate Consolidated
Basic EPS for year 2017 to be disclosed in the Financial Statement for year 2018.
c) i) Is it correct that Big Concert doesn’t disclose its separate Basic EPS? ii) Is it relevant to consider
if part of total consolidated net profit is attributable to non-controlling interest in Violin?
Question 3) Impairment of fixed assets under IAS 36. a) Cash Generating Unit: i) definition and assets
which can be included in a CGU; ii) in impairment procedures, is it frequently considered a CGU
instead of a single fixed asset and why? b) Impairment loss reversal: i) definition and when it is
possible to account for it; ii) are there limitations in the amount of the reversal which can be
recognized? iii) where shall the reversal be written in the Financial Statement?
c) Schlern AG purchased on 01 Jan. 2016 the factory Ski Jump, composed only of machinery, which
can be considered a CGU under IAS 36. The price paid for the purchase of the CGU was 100 CU;
depreciation was accounted respectively for 15 CU (year 2016), 15 CU (year 2017) and 12 CU (year
2018); in 2017 an impairment loss of 20 CU was accounted; in 2018 an impairment loss reversal of 3
CU was accounted. Calculate the carrying amount of the CGU as at 31 Dec. 2016, 2017 and 2018.
Question 4 Under IFRS 9, explain the Contractual Terms requirement necessary to classify a security
in the “At Amortized Cost” class of financial assets.
Question 5
i) Why do Consolidated Financial Statements present non-controlling interest information? ii) Where is
non-controlling interest disclosed?
Advanced Financial Accounting - EXAM 17th December 2019
Question 1): ALDEBARAN Plc - Statement of Changes in Shareholders' Equity as at 31st December 2018
Allocation of
Allocation of previous year Comprehensive
Shareholders'
Balance as at previousyear profit (loss): Issue of new Income (Loss)
(CU) Equity as at
1st Jan. 2018 profit (loss): Contributions shares at 31st Dec.
31st Dec. 2018
Reserves from 2018
shareholders
Saving Shares 0
Valuation reserves: revaluation surplus 715
Valuation reserves: other valuation reserves (43)
Net Profit (Loss) year 2017 (63)
Page 1 of 4
QUESTION Nr. 1) ALDEBARAN Plc - SOLUTION DRAFT

1st Hypotheisis - ALDEBARAN Plc - Statement of Changes in Shareholders' Equity as at 31st December 2018
Allocation of
(CU) Income (Loss) at Equity as at
1st Jan. 2018 profit (loss): Contributions shares
31st Dec. 2018 31st Dec. 2018
Reserves from
shareholders
Ordinary shares 2.200 500 2.700
Additional paid-in capital 108 500 608
Valuation reserves: revaluation surplus 715 715
Valuation reserves: other valuation reserves (43) 23 (20)
Net Profit (Loss) year 2017 (63) 63 0
Net Profit (Loss) year 2018 0 55 55
Total Shareholders' Equity 3.350 0 0 1.400 78 4.828
check 4.828
2nd Hypotheisis - ALDEBARAN Plc - Statement of Changes in Shareholders' Equity as at 31st December 2018
(CU) Balance as at Allocation of Allocation of Issue of new Comprehensive Shareholders'
Ordinary shares 2.200 500 2.700
Additional paid-in capital 108 108
Valuation reserves: revaluation surplus 715 715
Valuation reserves: other valuation reserves (43) 23 (20)
Net Profit (Loss) year 2017 (63) 63 0
Net Profit (Loss) year 2018 0 55 55
Total Shareholders' Equity 3.350 0 0 900 78 4.328
check 4.328
Note : the 1.000 CU Convertible bonds have been converted into 500 CU new Ordinary shares, with a 2bonds-to-1share conversion rate (1.000 * 1/2).
The conversion didn't produce any cash flow, but produced an increase in Ordinary Shares of 500 CU. Furthermore, since there is no specific
information on how convertible bonds before the conversion were accounted by the entity (in particular whether there was, before conversion, an equity
component of the compound instrument already accounted), the difference of 500 CU between the face value of converted bonds and the face value of
new issued shares at conversion (1.000-500=500) can be accounted in the Statement of Changes in Equity at 31 dec 2018 alternatively according to two
different hypothesis: 1) to write the difference of 500 CU in Additional Paid-in Capital; 2) to consider that the equity component of the convertible bond
was already accounted in equity and consequently no difference has to be written in Additional Paid-in Capital.
Page 2 of 4
QUESTION Nr. 2) BIG CONCERT Plc - SOLUTION DRAFT
In EPS calculation, for comparability reasons, Non-cash operations on equity must be considered as if they had occurred from the earliest period
disclosed in the Financial Statement. Therefore both share split and bonus issue:
- in EPS for year 2017 to be included in 2018 Financial Statement, are considered as occurred at 1st Jan 2017: of course the new adjusted 2017
EPS disclosed in 2018 F.S. will be different (lower) from the one disclosed in 2017 Financial Statement.
a) YEAR 2018
Nr. of shares
Issued Treasury Outstanding Issued Treasury Outstanding
01.01.2018 Balance at the beginning of the year 5.000 (300) 4.700 5.000 (300) 4.700
01.01.2018 Adjustment for share split 15.000 (900) 18.800 15.000 19.700
01.01.2018 Adjustment for bonus shares 1.200 20.000 1.200 20.900
01.06.2018 Issue of new shares for cash 1.400 21.400 1.400 22.300
01.11.2018 Sale of treasury shares for cash 250 21.650 250 22.550
31.12.2018 Balance at year end 22.600 (950) 21.650 22.600 (50) 22.550
I) One of nr. 1.200 shares for the bonus part of the June share capital increase. Of course the nr. 1.400 shares of the remaining part of this share
capital increase, which occurred for cash, shall be considered starting from June;
II) Another one related to the share split. Nevertheless, since textbooks don't give detailed indication on the treatment of any eventual Treasury
Share at the moment of the split operation and since the aim of adjustments is to make EPS significant and comparable with a reasonable level of
approximation, two alternative Hypotheses for an adequate adjusment could be considered for the exam:
Hypothesis 1 (more precise): The share split consists of the issue of nr. 20.000 new shares (5.000*4) in substitution of the nr. 5.000 old shares
withdrawn and cancelled (of which 300 are Treasury Shares). Therefore for the calculation of the weighted average nr. of shares outstanding is
necessary a positive adjusment of nr. 14.100 shares, calculated as follows: positive adjustment nr. 15.000 shares [(5.000*4)-5.000] for issued
shares; negative adjustment of nr. 900 shares [(300*4)-300] for Treasury Shares.
Hypothesis 2 (less precise but still accepted for the exam): The share split consists of the issue of nr. 20.000 new shares (5.000*4) in
substitution of the nr. 5.000 old shares withdrawn and cancelled. Therefore for the calculation of the weighted average nr. of shares outstanding
is necessary a positive adjustment nr. 15.000 shares [(5.000*4)-5.000] for issued shares.
Shares Weighted Shares Weighted
Weight Weight
outstanding shares outstanding shares
20.000 5/12 8.333 20.900 5/12 8.708
21.400 5/12 8.917 22.300 5/12 9.292
21.650 1/6 3.608 22.550 1/6 3.758
Weighted average nr. of outstanding shares 100,000% 20.858 100,000% 21.758
Basic consolidated EPS year 2018 = 3.200 = 0,153 3.200 = 0,147
20.858 CU 21.758 CU

Two adjustments to the nr. of shares outstanding during former year are necessary:
II) Another one for the share split. Alternatively one of these three hypotheses can be accepted: one of the two above explained hypotheses; a
third hypothesis of adjusting directly the nr. of shares outstanding during the year [(4.785*4)-4.785] = 14.355.
Average nr. of shares before adjustments 4.785 4.785 4.785
Adjustment for share split occurred during 2018 14.100 15.000 14.355
Adjustment for bonus issue occurred during 2018 1.200 1.200 1.200
Adjusted average nr. of shares 20.085 20.985 20.340

3.677 0,183 3.677 0,175 3.677 0,181
split and bonus issue of 2018 =
20.085 CU 20.985 CU 20.340 CU
Page 3 of 4
QUESTION Nr. 3) SKI JUMP CGU - SOLUTION DRAFT
01.01.2016 Purchase price 100

31.12.2017 Impairment Loss (20)
31.12.2018 Impairment Loss Reversal 3
Page 4 of 4
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI - FINAL EXAM – JANUARY 30TH 2020
Question Nr. 1 a) Prepare the Statement of Cash Flows of Solar Energy Plexus (SEP) Ltd for year 2019
using the following information (all data in CU): Purchases of fixed assets 544; Cash and cash equivalents at
beginning of the year 93; Increase in accounts payable 91; 3-for-1 Ordinary shares reverse-split conducted
during the year, on a total Ordinary share capital of 700; Dividends paid on Saving shares 12; Decrease in
inventories 165; Total share capital increase 386, of which 192 issued as bonus shares and the remaining part
issued for cash; Decrease in accounts receivable 108; Cash and cash equivalents at end of the year 137; Net
Loss after tax 65; Loss before tax 85; Depreciation 35; Losses on disposal of businesses 3; Proceeds from
disposal of businesses 94; Income tax paid in cash 10; Provisions expense charged to Statement of Income 5.
b) Explain shortly the following problems related to year 2019 data of SEP Ltd: i) Why is Net Loss after tax
lower than Loss before tax? Why is there income tax paid in cash? (Suggestion: think of the BP or the
Unicredit cases discussed during lessons). ii) What’s the effect of the share reverse-split on: Statement of
Income; Statement of Cash Flows; Statement of changes in Equity? c) Comment shortly the financial policy of
SEP Ltd as it appears in 2019 Statement of Cash Flows.
Question Nr. 2 You have the following information concerning Marcus’ Resort Plc consolidated results for
year 2019. Ordinary shares: 01/Jan/2019 Total shares Nr. 1.300; 01/Jan/2019 Treasury shares Nr. 10;
01/Mar/2019 Nr. 450 new Ordinary shares issued (Nr. 250 for cash and nr. 200 bonus shares); 01/Jun/2019
Purchase of Treasury shares Nr. 70; 01/Nov/2019 Sale of Treasury shares Nr. 30.
12.000; New convertible bonds issued during the year 500 CU; Convertible bonds outstanding at the end of
the year Nr. 900; Each block of Nr. 5 convertible bonds is convertible into Nr. 1 ordinary share; Interest
expense on bank loans CU 190; Interest expense for the current year relating to the liability component of the
convertible bond CU 130 (current and deferred tax relating to this interest expense CU 40).
a) Calculate consolidated Basic EPS; b) Calculate consolidated Diluted EPS; c) i) Why does a company
operate a share split? (Suggestion: think of the BASF case discussed during lessons); ii) What is the correct
treatment in the calculation of EPS of a share split occurred during the year?
Question Nr. 3 Impairment of fixed assets under IAS 36: a) i) Why can impairment be necessary for fixed
assets, even if they are regularly depreciated? ii) What kind of external indicators should be considered in
assessing whether there is any indication that an asset or CGU may be impaired? b) i) Why can goodwill paid
on an acquisition be impaired? ii) What factors were relevant for the strong impairment losses accounted by
telecom companies and banks during yeas 2011-2012? (Suggestion: think of the article from the Financial
Times discussed during lessons) c) KbBry Legend Inc., a big US car producer, is considering its diesel cars
producing CGU, showing a relevant decrease trend in sales because of tax advantages for people purchasing
electric power cars recognized by the Federal Government for the next 5 years. i) Should it consider this
indication for impairment analysis? ii) If in the analysis of the CGU: carrying amount = 30 CU; value in use
25 CU; fair value less cost of disposal 21 CU. Is there an impairment loss, and in this case what is its value
and why? iii) If the carrying amount of the CGU of 30 CU is composed by goodwill for 3 CU and tangible
fixed assets for 27 CU, what would be the allocation of the impairment loss to the assets in the CGU, if any?
in the At Amortized Cost class for a European Bank preparing its Financial Statement in Euros: i) a non-
leveraged debt instrument issued in US Dollars receiving all payments in US Dollars; ii) a fixed interest bond
receiving repayment at maturity with a premium linked to the 30% of the performance of Eurostoxx 50 share
index; iii) a bond with interest payments indexed to 300% of Eurozone inflation index.
b) Bob Plc applies IFRS9 and purchased on 1 Jan. 2019 a debt instrument classifying it into the At Amortized
Cost financial assets as follows: price paid 98,19 CU, overhead financial markets research costs 0,30 CU. The
debt instrument has the following terms: 2 years remaining to maturity; principal amount 100,00 CU; fixed
interest rate paid annually 6,00%. i) Valuate the financial asset at 31 Dec. 2019 and at 31 Dec. 2020.
QUESTION Nr. 1)
Solar Energy Plexus Ltd - Statement of Cash Flows - Year 2019 (CU)
Adjustment for Losses on disposal of businesses 3
Decrease in inventories 165
Decrease in accounts receivable 108
Increase in accounts payable 91

Proceeds from disposal of businesses 94

Dividends paid on savings shares (12)
Cash produced by (used in) financing activities 182
b) SUGGESTIONS FOR THE ANSWER

i) Even for tax, accrual is different from cash flow.
Net Loss after tax is lower than Loss before tax (both written in ther Statement of Income) due to accrued
anticipated taxes written with positive sign in the statement of income (and consequently in the assets of
the statement of financial position). These anticipated taxes (they are not tax receivables to be paid to SEP
by Tax Authorities, but a possibility for SEP to pay lower taxes in future periods) are reasonably related to
tax loss carryforward, expenses written in the statement of income but not yet recognized by Tax
Authorities, or other similar situations.
Even if accrued taxes have positive sign, there can be tax cash outflows during the year for payments
related to former year final payment, to tax advance payments for the current year, or to other similar
situations.
ii) The share capital reverse-split is a non-cash operation, though which SEP issued 1 new-issued Ordinary
share for every 3 former Ordinary shares cancelled. Consequently:
- it doesn't generate any cash inflow for the Statement of Cash Flows;
- it doesn't generate specific revenues or expenses for the Statement of Income (apart from specific
administrative and issue costs, which should not be particularly relevant);
- it doesn't generate changes in the Statement of Changes in Equity: both the total value of Equity and the
total face value of share capital issued don't change. The information on the decrease in the nr. of shares
(and on the corresponding increase in the face value of the single share) due to the reverse-split shall be
given in the notes to the financial statement.
Of course there will be the need of adjustement in the calculation of 2019 EPS and of the comparable 2018
EPS disclosed in 2019 financial statement of SEP ("from the earliest period disclosed").
c) SUGGESTIONS FOR THE ANSWER

SEP invested an important sum in fixed assets, financing it with:
- a relevant cash flow produced by operating activities, mainly due to reduction in working capital from
operations (the changes in all the three components increased the value of cash produced by operating
acivities during the year), in a situation with a relevant Loss before tax and values of all other adjustments
not so relevant;
- a share capital paid-in increase;
- proceeds from disposal of businesses (note that this disposal produced cash even if there was a loss on
disposal accounted in the statement of income).
QUESTION Nr. 2) MARCUS' RESORT Plc

01/01/2019 1.300 10 1.290
01/01/2019 bonus issue 1.500 10 1.490
01/03/2019 issue for cash 1.750 10 1.740
01/06/2019 purchase of treasury shares 1.750 80 1.670
01/11/2018 sale of treasury shares 1.750 50 1.700
1.490 1/6 248

1.740 1/4 435
1.670 5/12 696
1.700 1/6 283

Basic EPS CU 6,62


QUESTION Nr. 3)
3.c) KBBRY LEGEND INC. - DIESEL CARS FACTORY CASE
i) The decrease trend in sales of diesel cars is relevant (internal indicator) and has a mid-term perspective, due to
the long duration of tax advantages on purchase of electric cars (external indicator): therefore an impairment
analysis is needed.
ii) Recoverable Amount is 25 CU, coinciding with Value in Use which is higher than Fair Value Less Cost of
Disposal.
Therefore:
Impariment Loss (5)
Consequently:
- the Carrying Amount of the CGU written in the fixed assets of the Statement of Financial Position shall be
reduced to 25 CU.
iii) Since both goodwill and tangible fixed assets are part of the CGU, the impairment loss shall be allocated to
assets to reduce (up to zero value of the asset) goodwill, first, and the remaning part shall be allocated to reduce
tangible fixed assets:
Carrying
Carrying amount
amount before Impairment loss
after impairment
impairment
Goodwill 3 (3) 0
Tangible fixed assets 27 (2) 25
Total Diesel cars CGU 30 (5) 25
QUESTION Nr. 4.)

All the three problems are related to the Solely Payments of Principal and Interest condition requested for the
i) SPPI condition is respected, because the debt instrument is not leveraged and the original investment was in
USD, the same currency as the expected cash flows produced by the financial asset: therefore there's not a
specific foreign exchange risk exposure of cash flows. The fact that the Bank prepares its Financial Statements
in Euros poses of course problems of translating exchange differences in cash flows received when they occur,
in order to prepare the Financial Statements, but this doesn't represent a breach of the SPPI condition.
ii) SPPI condition is not respected, because there's a share prices risk exposure of cash flows at repayment, even
with a low indexing percentage (30%);
iii) SPPI condition is not respected, because the link to inflation is admitted by IFRS 9 only if it is a non-
leveraged link (max 100%). In this case there's a 300% leverage.
b) VALUATION
Price paid 98,19

Principal 100,00

IRR 7,000%
Amortized Amortized
Interest
accrued
the year year
2018 98,19 6,87 6,00 99,06
2019 99,06 6,93 106,00 (0,00)
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI - FINAL EXAM – JUNE 11TH 2020
NOTES:
A) Not all the information provided is necessarily relevant: use only relevant information.
B) This is the paper version, including also schemes to be completed, of the online exam which was held
online through the Blackboard platform.
C) For each question time assigned and weight in valuation are specified and they necessarily differ
from the “traditional” in person exams. Contents and approach are quite similar to the ones of the
“traditional” in person exams: they are only a bit more focused.
Q 1) STATEMENT OF COMPREHENSIVE INCOME – MAX GRADES 8 – TIME ASSIGNED 15

MINUTES
We are analyzing the Italian bank’s Banca Mille Chilometri SpA year 2019 performance.
Complete the annexed two schemes of analysis, discussed during lessons and provided in course materials,
derived from the Italian compulsory schemes, using the following information (Euro/Million).
OPERATING NOTES:
- signs of items are correctly indicated;
- insert in the “Description” column the description of the single item, subtotal or total. Description can be
written in short, provided that it is reasonably clear and appropriate (for instance “Staff exp” for “Staff
expenses”, “Incr FVTOCI” for “Increase in fair value of Financial assets at FVTOCI”);
- values must be written in the other two columns, where indication in square brackets is given.
INFORMATION:
Staff expenses: (105)
Fees and commissions expense: (125)
Interest income: 704
Impairment losses on loans: (186)
Interest expense (597)
Increase in fair value of Financial assets at FVTOCI 121
Fees and commissions income 297
Cash flow produced by financing activities 306
Increase in fair value of Cash Flow Hedges 94
Common Shares Capital 170
Tax on income from continuing operations (32)
Q 2) EQUITY AND EPS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES

We are preparing year 2019 financial statement of Miles Behind Plc, the holding of a group.
Total Consolidated Net profit CU 3.000; Net profit for non-controlling interest CU 700.
01.03.2019 Miles Behind Plc conducted a 4-for-1 shares split, without requiring any cash to shareholders.
01.06.2019 Issue of nr. 1.600 new shares as follows: nr. 1.200 bonus shares; nr. 400 shares for cash.
01.11.2019 Purchase of treasury shares for cash nr. 250.
b) In the Financial Statement for year 2018, year 2018 Consolidated Basic EPS of Miles Behind Plc was
controlling interest CU 2.488; Net profit for non-controlling interest CU 625.
Calculate Consolidated Basic EPS for year 2018 to be disclosed in the Financial Statement for year 2019.
Q 3) FINANCIAL INSTRUMENTS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES
Under IFRS 9, we are preparing the financial statement as at December 31st 2019 of Sunny Circus
Investments Plc, considering the following three financial assets owned by the entity. Show the effects of the
valuation of each one of the three financial assets in the Financial Statement of Sunny Circus Investments Plc
as at December 31st 2019, considering:
- the Statement of Financial Position at Dec. 31st 2019;
- the Statement of Income for year 2019;
- the Statement of Other Comprehensive Income for year 2019.
Add a short comment on valuation and accounting treatment applied to the single financial asset.
OPERATING NOTES.
- Market prices can be considered representing correctly the fair value of each financial asset.
- Do not consider tax effects.
a) Biker Bear, fixed rate debt instrument meeting the SPPI requirement, classified in the “Held To Collect”
class of financial assets:
- amortized cost at Dec 31st 2019 CU 97,50;
- market price at Dec. 31st 2019 CU 106,50. The increase in market price is due to a relevant decrease in
market interest rates.
b) Juggler Seal, floating rate debt instrument meeting the SPPI requirement, classified in the “Held To
Collect and Sale” class of financial assets:
- carrying amount before valuation CU 101,00;
- market price at Dec 31st 2019 CU 101,30.
c) Acrobat Penguin, common share, classified in the “FVTPL” class of financial assets:
Q4) CONSOLIDATED FINANCIAL STATEMENT– MAX GRADES 7 – TIME ASSIGNED 15

MINUTES
Sage Horse Holding Plc (SHH), the Parent company of a group, owns shareholdings in the following four
companies.
Explain if (and why) the situation of the single company requires SHH to include it in the Consolidated
Financial Statement of the group.
a) Sugar Powder Plc is listed in a stock exchange. SHH owns 40% of share capital; the remaining 60% of
share capital is owned by a very large number of small investors.
b) Finger Mountain Inc is not listed. SHH owns 45% of share capital; 40% of share capital is owned by
Sugar Powder Plc; the remaining 15% of share capital is owned by a few small investors.
c) Your Land Inc is not listed. SHH owns 40% of share capital; the remaining 60% of share capital is owned
by two investment funds. The two investment funds, according to a written agreement between them, meet
before any shareholders’ meeting of Your Land Inc, in order to agree on major decisions concerning the
company.
d) Cellar Door Inc is not listed. SHH owns 40% of share capital; the remaining 60% of share capital is owned
by a few investment funds. The General Manager of Cellar Door is one of the Directors of SHH; Cellar Door’s
major customer is SHH group.
ADVANCED FINANCIAL ACCOUNTING - PROF. ALBERTO MARCHESI - FINAL EXAM - 2020 JUNE 11
QUESTION 1) ANNEXED WORKING PAPER
This is the paper version of the online scheme to be completed in Blackboard for the exam.
Banca Mille Chilometri SpA - Analysis of Income Statement (Euro/Million) - Year 2019
Subtotals or
Description Items
Totals
Net margin on other financial operations 203

Gross profit from financial operations
Net profit from financial operations
Other administrative expenses (86)

Operating costs
Operating profit from continuing operations
Other current profits (losses) from continuing operations 11
Total profit (loss) before tax from continuing operations
Total profit (loss) after tax from continuing operations

Gainss (losses) after tax on non-continuing operations (135)
Net Profit (Loss)
Banca Mille Chilometri SpA - Statement of Comprehensive Income - Year 2019
Subtotals or
Description Items
Totals
Change in fair value of exchange differences 8
Comprehensive Income
Page 1 of 5
AFA EXAM 2020 JUNE 11 - SOLUTION DRAFT
QUESTION 1) Banca Mille Chilometri SpA - SOLUTION DRAFT

Banca Mille Chilometri SpA - Analysis of Income Statement (Euro/Million) - Year 2019
Interest income 704
Interest expense (597)
Net interest margin 107
Fee and commission income 297
Fee and commission expense (125)
Net fees and commissions 172
Net margin on other financial operations 203
Gross profit from financial operations 482
Impairment losses/write-backs on financial operations (186)
Net profit from financial operations 296
Staff expenses (105)
Other administrative expenses (86)
Operating costs (191)
Operating profit from continuing operations 105
Other current profits (losses) from continuing operations 11
Total profit (loss) before tax from continuing operations 116
Tax on income from continuing operations (32)
Total profit (loss) after tax from continuing operations 84
Gains (losses) after tax on non continuing operations (135)
Net Profit (Loss) (51)
Banca Mille Chilometri SpA - Statement of Comprehensive Income - Year 2019

Net Profit (Loss) (51)
Change in fair value of FVTOCI financial assets 121
Change in fair value of Cash Flow hedges 94
Change in fair value of Exchange differences 8
Total of Other comprehensive income after tax 223
Comprehensive Income 172
Page 2 of 5
QUESTION 2) MILES BEHIND Plc - SOLUTION DRAFT
In EPS calculation, for comparability reasons, Non-cash operations on equity must be considered as if they had occurred from the earliest
period disclosed in the Financial Statement. Therefore both share split and bonus issue:
- in EPS for year 2018 to be included in 2019 Financial Statement, are considered as occurred at 1st Jan 2018: of course the new adjusted
2018 EPS disclosed in 2019 F.S. will be different (lower) from the one disclosed in 2018 Financial Statement.
a) YEAR 2019
Net profit for non-controlling interest (700)
Nr. of shares
01.01.2019 Balance at the beginning of the year 5.000 0 5.000
01.01.2019 Adjustment for share split 15.000 0 20.000
01.01.2019 Adjustment for bonus shares 1.200 0 21.200
01.06.2019 Issue of new shares for cash 400 0 21.600
01.11.2019 Purchase of treasury shares for cash 250 21.350
31.12.2019 Balance at year end 21.600 250 21.350
I) An adjustment of nr. 1.200 shares for the bonus part of the June share capital increase. Of course the nr. 400 shares of the remaining part
of this share capital increase, which occurred for cash, shall be considered starting from June;
II) Another adjustment related to the share split.
The share split consists of the issue of nr. 20.000 new shares (5.000*4) in substitution of the nr. 5.000 old shares withdrawn and cancelled
(there are no Treasury Shares). Therefore for the calculation of the weighted average nr. of shares outstanding is necessary a positive
adjusment of nr. 15.000 shares[(5.000*4)-5.000] .
Shares Weighted
Weight
outstanding shares
21.200 5/12 8.833
21.600 5/12 9.000
21.350 1/6 3.558
Weighted average nr. of outstanding shares 100,000% 21.392
Basic consolidated EPS year 2019 = 2.300 = 0,108

21.392 CU

Two adjustments to the nr. of shares outstanding during former year are necessary, in order to comply with IAS 33 comparability
requirements:
II) Another adjustment of nr. 15.000 shares for the share split (first Hypothesis); alternatively, this adjustment can be calculated as 3 times
the average number of outstanding shares during year 2018 (Second Hypothesis) and amounts to nr. 14.535 shares (4.845*3). In both
hypotheses Basic consolidated EPS of year 2018 to be disclosed in 2019 Financial Statement is made reasonably comparable with the
2019 one.
First Hypothesis Second Hypothesis

Average nr. of shares before adjustments 4.845 4.845
Adjustment for share split occurred during 2019 15.000 14.535
Adjustment for bonus issue occurred during 2019 1.200 1.200
Adjusted average nr. of shares 21.045 20.580

2.488 0,118 2.488 0,121
split and bonus issue occurred in 2019 =
21.045 CU 20.580 CU
Page 3 of 5
QUESTION 3) SUNNY CIRCUS INVESTMENTS Plc - SOLUTION DRAFT
Effects of the valuation in the Financial Statement of the entity.
Statement of Financial Position as at 31 Dec. 2019

ASSETS EQUITY
HTC Biker Bear bond 97,50 Valuation reserve for HTCS Juggler Seal bond 0,30
Amortized Cost 97,50
HTCS Juggler Seal bond 101,30

Carrying amount 101,00
Increase in fair value 0,30
FVTPL Acrobat Penguin share 35,00

Decrease in FV (2,00)
Statement of Income year 2019
Losses due to decrease in FV of Acrobat 2,00

Penguin share at FVTPL
Statement of Other Comprehensive Income year 2019
Increase in fair value of HTCS Juggler Seal bond 0,30
Comment outline.
Classification of financial assets is strongly related to measurement (that is, to the valuation and to the accounting
treatment in the Financial Statement). According to IFRS 9, the three situations discussed require different
measurement treatments. Taxation effects on gains/losses/changes in value are not considered.
a) HTC Biker Bear bond: the asset is valued and written in the assets at amortized cost (97,50) and its increase in
market value is not relevant for the amortized cost valuation.
b) HTCS Juggler Seal bond: the asset is valued and written in the assets at fair value (101,30) and its increase in fair
value (0,30) is written as a positive item in the Other Comprhensive income, because it is a not negotiated gain;
consequently to the OCI results, the valuation reserve of the Statement of Financial Position is increased of the not
negotiated gain (0,30).
c) FVTPL Acrobat Penguin share: the asset is valued and written in the assets at fair value (35,00) and its decrease in
fair value (2,00) is written in the expenses of the Statement of Income, even if it is not a negotiated loss.
Page 4 of 5
QUESTION 4) SAGE HORSE HOLDING PLC - SOLUTION DRAFT
a) Sugar Powder Plc.

SHH shall include Sugar Powder Plc in its Consolidated Financial Statement.
Even if its 40% shareholding is not the majority of shares, the remaining 60% of the shares is strongly
fragmented in the hands of small investors, with effects on their participation and vote in shareholders' meetings.
This, in particular in a listed subsidiary, is usually giving the parent a strong (voting) power over the investee.
b) Finger Mountain Plc.
SHH shall include Finger Mountain Plc in its Consolidated Financial Statement.
SHH has a direct shareholding of 45% and an indirect shareholding of 40% through its subsidiary Sugar Powder
Plc.
Total ownership by companies included in SHH group is therefore 85%.
c) Your Land Inc.

SHH shall NOT include Your Land Inc in its Consolidated Financial Statement.
The two investment funds, owning a total of 60% of share capital and therefore the majority in voting power, act
according to an agreement to direct major decisions of Your Land Inc.
d) Cellar Door Inc.

SHH shall include Cellar Door Inc in its Consolidated Financial Statement.
Two indications of power over the investee are, in particular if considered togehther, very relevant for control:
- the strong overlap in top management of the parent and of the subsidiary, with effects on decisions on relevant
activities of the subsidiary;
- the strong dependence in operations, due to the fact that SHH group is the major customer of Cellar Door Inc.
Page 5 of 5
UNIVERSITA’ CATTOLICA DEL S. CUORE – MILANO - SCHOOL OF BANKING, FINANCE AND
INSURANCE - GRADUATE PROGRAM IN BANKING AND FINANCE/TRADING AND RISK
MANAGEMENT - ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI
FINAL EXAM – JANUARY 29TH 2019
Question Nr. 1
1.1) Prepare the Statement of Cash Flows
Prepare the Statement of Cash Flows of BARKER Ltd for year 2019 using the annexed
partially prepared scheme and the following information (all data in CU).
Cash and cash equivalents at beginning of the year 102;
Repayment of medium-term loans 205;
Increase in accounts receivable 155;
Total share capital increase 336, of which: 100 issued for conversion of convertible bonds; 130
issued as bonus shares; the remaining part issued for cash;
Staff expenses 288;
Decrease in inventories 92;
Depreciation 164;
Proceeds from disposal of fixed assets 69;
Income tax paid for cash 10;
Provisions charged to Statement of Income 2019 for the risk related to an important lawsuit for
environmental pollution 191.
Question Nr. 2
You have the following information concerning PHONE JOKER Plc consolidated results for
year 2019.
2.1) Calculate consolidated Basic EPS;
2.2) Calculate consolidated Diluted EPS.
INFORMATION ON ORDINARY SHARES DYNAMICS:
01/Jan./2019 Total shares Nr. 1.400;
01/Jan./2019 Treasury shares Nr. 0;
01/Mar./2019 New shares issued Nr. 250 (detail of the issue: Nr. 150 issued as bonus shares;
the remaining part of the shares issued for cash)
01/Nov./2019 Purchase of Treasury shares Nr. 70.
OTHER INFORMATION:
Consolidated Net profit attributable to non-controlling interest CU 1.000;
Total consolidated Net profit CU 14.000;
New bank loans obtained during the year 590 CU;
Convertible bonds outstanding Nr. 800: each block of Nr. 4 convertible bonds is convertible
into Nr. 1 ordinary share;
Interest expense for the current year relating to the liability component of the convertible bond
CU 260 (current and deferred tax relating to this interest expense CU 70);
Interest expense for the current year on bank loans CU 313.
Question Nr. 3 – IMPAIRMENT OF FIXED ASSETS

Answer the following questions concerning Impairment of fixed assets under IAS 36.
3.1) Carrying amount of fixed assets;
3.2) Impairment test.
3.1) Carrying amount of fixed assets.
The company CAT & FOX Ltd bought in 2015 the machinery “COIN PRINTER”, paying a
price of 100 CU.
In 2015 Financial Statement: depreciation accounted for 10 CU.
In 2016 Financial Statement: depreciation accounted for 10 CU; furthermore, impairment loss
accounted for 30 CU, due to a strong and lasting crisis in the market for the products produced
with this machinery.
3.1.a) Calculate the carrying amount of this fixed asset at December 31st 2018.
3.1.b) In 2019 the market situation has fully and steadily recovered, so that the reason for the
impairment loss accounted in 2016 is not valid anymore. Can CAT & FOX Ltd write in its
2019 Financial Statement an impairment loss reversal of 30 CU? Why?
3.2) Impairment test
The company MIRACLE FIELDS FOREVER Inc. has performed an impairment test on its
CGU “MAGIC TREE” in order to prepare its 2019 Financial Statement.
CGU “MAGIC TREE” is going to be shut down and dismantled during 2020, due to a major
change in technology which has made its production process obsolete.
If: carrying amount = 55 CU; value in use 62 CU; fair value less cost of disposal 30 CU. Is
there an impairment loss, and, in this case, what is its value and why?
Question Nr. 4 - FINANCIAL INSTRUMENTS

Under IFRS 9, explain the following problems related to classification of financial assets in
the HTC - At Amortized Cost class:
i) a Government bond fully satisfying the SPPI condition, on which only some occasional
sales have occurred during the year;
ii) a Corporate bond fully satisfying the SPPI condition, on which relevant sales have occurred
during the year, due to a strong increase in the credit risk of the issuer;
iii) a Corporate bond fully satisfying the SPPI condition, on which relevant sales and
purchases have occurred during the year, in order to benefit from strong market volatility;
iv) a Corporate bond with interest payments indexed to three times the inflation rate.
QUESTION Nr. 1)
BARKER Ltd - Statement of Cash Flows - Year 2019 (CU)

1 Description Item value Total
2 Profit before tax 27
3 Adjustment for gains on disposal of fixed assets (53)
4 a
5 b
6 c
7 d
8 e
9 Decrease in accounts payables (71)
10 Cash produced by (used in) ….. f
11 Purchases of fixed assets (181)
12 g
13 Cash produced by (used in) ….. h
14 Issue of bonds 77
15 i
16 l
17 Cash produced by (used in) ….. m
18 n
19 o
20 Cash and cash equivalents at end of the year 153
QUESTION Nr. 1)
BARKER Ltd - Statement of Cash Flows - Year 2019 (CU)

Profit before tax 27
Adjustment for gains on disposal of fixed assets (53)
Increase in accounts receivable (155)
Cash produced by (used in) investing activities (112)
Issue of bonds 77
QUESTION Nr. 2) PHONE JOKER Plc

01/01/2019 1.400 0 1.400
01/01/2019 bonus issue 1.550 0 1.550
01/03/2019 issue for cash 1.650 0 1.650
01/11/2019 1.650 70 1.580
1.550 1/6 258

1.650 2/3 1.100
1.580 1/6 263

Basic EPS CU 8,016


QUESTION Nr. 3) IMPAIRMENT OF FIXED ASSETS
3.1) CARRYING AMOUNT OF FIXED ASSETS - CAT & FOX Ltd
3.1.a Carrying amount calculation at 31 dec 2018

2015 Purchase price 100
2015-dec Depreciation (10)
2015-dec Carrying amount 90
2016-dec Impairment loss (30)
3.1.b Year 2019 reversal

2019-dec Original 2016 impairment 30
2019-dec 2017 adjustment for depreciation (3)
2019-dec 2018 adjustment for depreciation (3)
2019-dec Reversal that can be written 24
The impairment loss reversal that can be written is 24, since it is necessary to consider the
depreciation that would be accounted for if the impairment loss had not be written and
depreciation had been accounted for according to the original depreciation schedule.
Therefore a calculation of this depreciation not accounted for is necessary: in this case it
amounts to 6 (3 for 2017 + 3 for 2018). The impairment loss reversal is 24 (30-3-3).
3.2) IMPAIRMENT TEST - MIRACLE FIELDS

Since the Magic Tree CGU is going to be shut down, it is not allowed to consider value in use.
Therefore only the Fair value less cost of disposal shall be considered.
Therefore:
Impariment Loss (25)
Consequently:
shall be reduced to 30 CU.
QUESTION Nr. 4.)

All the three problems are related to the two "Solely Payments of Principal and Interest" and "Hold To Collect"
conditions requested for the classification in the At Amortized Cost class of Financial Assets as follows:
i) it can be classified in this class, since both SPPI and HTC conditions are respected. In particular, the HTC
business model condition is respected, because a reduced number of occasional sales is permitted;
ii) it can be classified in this class, since both SPPI and HTC conditions are respected. In particular, the HTC
business model condition is respected, because, even if sales are relevant, they are due to a portfolio rebalancing
due to the increase in risk of the issuer. This kind of sales is permitted;
ii) it cannot be classified in this class anymore, since SPPI condition is respected, but HTC condition is not
respected . In particular, the HTC business model condition is not respected, because sales are relevant and they
are due to dealing operations to exploit market volatility. This kind of sales is not permitted and in case it
occurs, makes the portfolio no more classifiable in the At Amortized Cost class;
iv) SPPI condition is not respected, because the link to inflation is admitted by IFRS 9 only if it is a non-
leveraged link. In this case there's an indexing leverage of three times.
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI –ONLINE EXAM – SEPTEMBER 1st 2020
NOTES:
B) This is the paper version, including also schemes to be completed, of the online exam which
was held online through the Blackboard platform.
C) For each question, time assigned and weight in valuation are specified and they necessarily
differ from the “traditional” in person exams. Contents and approach are quite similar to the
ones of the “traditional” in person exams: they are only a bit more focused.
Q 1) STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY + CASH FLOW

EFFECTS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES
1.a) Prepare the Statement of Changes in Shareholders’ Equity of Plough & Seed Plc for year 2019
using the scheme and the following additional information (all data in CU):
1) Previous year Net Profit allocation: 40 to Retained earnings and the remaining part to dividend;
2) Issue of new Savings Shares through conversion of Convertible Bonds, so that the value of Saving
Shares at the end of year 2019 amounts to 120;
3) Issue of new ordinary shares of 130 for cash, with Additional paid-in capital paid by new
shareholders 100;
4) Total Comprehensive Loss for the year (27). Detail of Total Comprehensive Loss: Net Loss (41);
increase in Valuation Reserve for Financial Assets valued at Fair Value Through Other Comprehensive
Income 14.
1.b) What’s the effect on the Statement of Cash Flows for year 2019 of operations 2) and 3)?
Q 2) EPS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES

We are preparing year 2019 financial statement of SOLUTION SIDE Plc, the holding of a group.
2.a) Calculate consolidated Basic EPS for year 2019 using the following information.
Consolidated Net profit for Group shareholders after deducting non-controlling interest CU 300; Net
profit for non-controlling interest CU 70.
01.01.2019 Balance at beginning of year: Shares issued nr. 500; Treasury shares nr. 0.
01.03.2019 The company conducted a 5-for-1 shares split, without requiring any cash to shareholders.
01.05.2019 Issue of nr. 150 new shares as follows: nr. 50 bonus shares; nr. 100 shares for cash.
2.b) In the Financial Statement for year 2018, year 2018 Consolidated Basic EPS of SOLUTION SIDE
Plc was calculated with these numbers: Average nr. of outstanding shares nr. 500; Total consolidated
Net profit CU 248; Net profit for non-controlling interest CU 62.
Calculate Consolidated Basic EPS for year 2018 to be disclosed in the Financial Statement for year
2019.
2.c) Is it required to SOLUTION SIDE Plc to disclose in its financial statement for year 2019, in
addition to its Basic Consolidated EPS, also its Basic Separate EPS? Why?
Q 3) IMPAIRMENT OF ASSETS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES
Impairment of Assets under IAS 36.
3.a) SURPRISE SERVICE Inc is preparing its financial statement for year 2019.
Its CGU BETA before 2019 impairment has a carrying amount of 96 CU, composed as follows:
goodwill 21 CU; machinery 50 CU; equipment 25 CU.
Value In Use of the CGU at the end of 2019 is 70 CU; its Fair Value Less Cost of Disposal is 65 CU.
Calculate the value of impairment loss, if any, and represent your results in the financial statement at
December 31st 2019 in both:
- Statement of Income;
- Statement of financial position, indicating separately the values attributed to goodwill, machinery and
equipment.
3.b) In calculation of Recoverable amount: are there situations in which Value In Use cannot be used?
Q 4) FINANCIAL INSTRUMENTS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES

Under IFRS 9, we are preparing the financial statement as at December 31st 2019 of PROBLEM SIDE
INVESTMENTS Plc, considering the following three financial assets owned by the entity.
Show the effects of the valuation of each one of the three financial assets in the Financial Statement of
PROBLEM SIDE INVESTMENTS Plc as at December 31st 2019, considering:
- the Statement of Financial Position at Dec. 31st 2019;
- the Statement of Income for year 2019;
- the Statement of Other Comprehensive Income for year 2019.
OPERATING NOTES.
a) ROHAN BOND, fixed rate debt instrument meeting the SPPI requirement, classified in the “Held
To Collect” class of financial assets:
- market price at Dec. 31st 2019 CU 97,55. The increase in market price is due to normal fluctuations
in market prices.
b) HORSE TONGUE BOND, floating rate debt instrument meeting the SPPI requirement, classified
in the “Held To Collect and Sale” class of financial assets:
c) FLAMING SWORD SHARE, common share, classified in the “FVTPL” class of financial assets:
Advanced Financial Accounting - EXAM September 1st, 2019
Question 1.a): PLOUGH & SEED Plc - Statement of Changes in Shareholders' Equity as at 31st December 2019
Allocation of Comprehensive Shareholders'

Balance as at 1st Issue of new
(CU) previous year Income (Loss) at Equity as at 31st
Jan. 2019 shares
profit (loss) 31st Dec. 2019 Dec. 2019
Ordinary Shares 250

Saving Shares 50
Valuation reserves: Revaluation surplus 74
Valuation reserves: Financial Assets at FVTOCI 85

Total Shareholders' Equity 768
QUESTION Nr. 1) PLOUGH & SEED Plc - SOLUTION DRAFT
1.a) STATEMENT OF CHANGES IN EQUITY

PLOUGH & SEED Plc - Statement of Changes in Shareholders' Equity as at 31st December 2019
Allocation of Comprehensive Shareholders'

Balance as at Issue of new
(CU) previous year Income (Loss) at Equity as at 31st
1st Jan. 2019 shares
profit (loss) 31st Dec. 2019 Dec. 2019
Ordinary Shares 250 130 380

Additional paid-in capital 0 100 100
Retained earnings 213 40 253
Valuation reserves: Revaluation surplus 74 74
Valuation reserves: Financial Assets at
FVTOCI 85 14 99
Net Profit (Loss) year 2018 96 (96) 0
Net Profit (Loss) year 2019 0 (41) (41)
Total Shareholders' Equity 768 (56) 300 (27) 985
check 985
1.b) EFFECTS ON STATEMENT OF CASH FLOWS

OPERATION 2 - Issue of saving shares through conversion
The operation has effects on the Statement of Changers in Equity, since it produces an increase of 70 CU in saving shares,
reducing convertible debts which are not included in equity. It doesn't have any effect on the Statement of Cash Flows, since the
cash was received by the company at the issue of Convertible bonds, while now it's a non-cash operation: the conversion produces
a reduction in convertible debt of 70 CU vs. an increase in saving shares of the same amount, and no further cash inflow has been
received by the company in the conversion operation.
OPERATION 3 - Ordinary shares issue with additional paid-in capital

This operation is relevant both for the Statement of Changers in Equity and the Statement of Cash Flows for a total amount of 230
CU in both statements. In fact the new 130 CU ordinary shares are issued for cash and to new shareholders is required a further
payment in cash of 100 CU as additonal paid-in capital. Additonal paid-in capital is requested to new shareholders in situations
where it is necessary to recognize an existing (positive) difference in value from par value of the newly issued shares.
QUESTION 2) SOLUTION SIDE Plc - SOLUTION DRAFT
In EPS calculation, for comparability reasons, Non-cash operations on equity must be considered as if they had occurred from the
earliest period disclosed in the Financial Statement. Therefore both share split and bonus issue:
- in EPS for year 2018 to be included in the 2019 Financial Statement, are considered as occurred at 1st Jan 2018: of course the new
adjusted 2018 EPS disclosed in the 2019 Financial Statement will be different (lower) from the one disclosed in the 2018 Financial
Statement.
2.a) YEAR 2019
Net cosolidated profit before deducting non-controlling interest 370

Net consolidated profit for group shareholders CU 300
Nr. of shares
01.01.2019 Balance at the beginning of the year 500 0 500
01.01.2019 Adjustment for share split 2.000 0 2.500
01.01.2019 Adjustment for bonus shares 50 0 2.550
Two adjustments to the nr. of shares outstanding are necessary, due to the two different non-cash operations on share capital occurred.
I) An adjustment related to the share split.
The share split consists of the issue of nr. 2.500 new shares (500*5) in substitution of the nr. 500 old shares withdrawn and cancelled
(there are no Treasury Shares). Therefore for the calculation of the weighted average nr. of shares outstanding is necessary a positive
adjusment of nr. 2.000 shares [(500*5)-500].
II) An adjustment of nr. 50 shares for the bonus part of the May share capital increase. Of course the nr. 100 shares of the remaining part
of this share capital increase, which occurred for cash, shall be considered starting from the beginning of May.
Shares Weighted
Weight
outstanding shares
2.550 1/3 850
2.650 5/12 1.104
2.625 1/4 656
Basic consolidated EPS year 2019 = 300 = 0,115

2.610 CU
2.b) YEAR 2018 ADJUSTED FOR THE FINANCIAL STATEMENT OF YEAR 2019
Net cosolidated profit before deducting non-controlling interest 248

Net consolidated profit for group shareholders CU 186
In calculating 2018 consolidated EPS to be disclosed in the Financial Statement for year 2019, two adjustments to the nr. of shares
outstanding during year 2018 are necessary, in order to comply with IAS 33 comparability requirements, due to the two non-cash
operations on equity occurred during year 2019 (for calculation see notes to 2.a):
I) An adjustment of nr. 2.000 shares for the share split;
II) An adjustment of nr. 50 shares for the bonus issue.
Average nr. of shares before adjustments 500
Adjustment for share split occurred during 2019 2.000
Adjustment for bonus issue occurred during 2019 50
Adjusted average nr. of shares 2.550
Basic consolidated EPS year 2018 adjusted for both share split 186 0,073
and bonus issue occurred in 2019 = 2.550 CU
QUESTION 3) IMPAIRMENT OF ASSESTS - SOLUTION DRAFT
3.a) SURPRISE SERVICE Inc - CGU BETA

Less: Recoverable amount - 70,00
Impairment loss 26,00
Recoverable amount = Value in Use = 70
Since: Value in Use 70 > Fair value less cost of disposal 65
Impairment loss allocation to assets in the CGU

Total Impairment loss 26,00
Less Godwill impairment - 21,00
Remaining impairment 5,00
Carrying amount Remaining impairm.

CU % proportion allocation
Machinery carrying amount 50,00 66,67% 3,33
Equipment carrying amount 25,00 33,33% 1,67
Total Machinery & Equipment carrying amount 75,00 100,00% 5,00
Impairment of a CGU in which goodwill is included shall be:

• first allocated to goodwill;
• the remaining part, if any, allocated proportionally to other fixed assets classes in the CGU, based on
their carrying amount proportion (for instance: Impairment for machinery = 5 CU * 66,67% = 3,33 CU)

Goodwill -
Impairment - 21,00
Machinery 46,67
Impairment - 3,33
Equipment 23,33
Impairment - 1,67
CGU Beta after impairment 70,00
Statement of Income - year 2019

Impairment of Beta CGU: 26,00
Goodwill 21,00
Machinery 3,33
Equipment 1,67
QUESTION 4) PROBLEM SIDE INVESTMENTS Plc - SOLUTION DRAFT
Effects of the valuation in the Financial Statement of the entity.

ASSETS EQUITY
a) HTC ROHAN bond 97,50 Valuation reserve:

Amortized Cost 97,50 b) for HTCS HORSE TONGUE bond (0,80)
b) HTCS HORSE TONGUE bond 100,20

Decrease in fair value (0,80)
c) FVTPL FLAMING SWORD share 39,00

Increase in FV 4,00
Gains due to increase in Fair Value:

c) of FVTPL FLAMING SWORD share 4,00
Statement of Other Comprehensive Income year 2019
Decrease in Fair Value:

b) of HTCS HORSE TONGUE bond 0,80
Comment outline.
Classification of financial assets is strongly related to measurement (that is, to the valuation and to the
accounting treatment in the Financial Statement). According to IFRS 9, the three situations discussed require
different measurement treatments. Taxation effects on gains/losses/changes in value are not considered.
a) HTC ROHAN bond: the asset is valued and written in the Assets at amortized cost [97,50 CU] and any
increase in market value is not relevant for the amortized cost valuation. The only gains that could be written
should be related to effective sales of HTC financial assets occurred during the period, which is not the case
considered.
b) HTCS HORSE TONGUE bond: the asset is valued and written in the assets at fair value [100,20 CU] and
its decrease in fair value [0,80 CU] is written as a negative item (that is, in the Oher Recognized
Comprehensive Losses) in the Statement of Other Comprhensive Income, because it is a non-negotiated loss
in value; consequently to the OCI results, the valuation reserve of the Statement of Financial Position is
decreased of the non-negotiated loss [-0,80 CU].
c) FVTPL FLAMING SWORD share: the asset is valued and written in the assets at fair value [39,00 CU]
and its increase in fair value [4,00 CU] is written in the Revenues section of the Statement of Income, even
if it is a non-negotiated gain.
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI - FINAL EXAM – DECEMBER 17TH 2020
NOTES:
B) This is the paper version, including also schemes to be completed, of the online exam which was held online
through the Blackboard platform.
C) For each question time assigned and weight in valuation are specified and they necessarily differ from the
“traditional” in person exams. Contents and approach are quite similar to the ones of the “traditional” in person
exams: they are only a bit more focused.
Q 1) STATEMENT OF CASH FLOWS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES

In the Statement of Cash Flows of Tubular Bells Inc. for year 2019, explain how you would treat the following
information. Indicate:
(i) category of the SofCF in which you would include it,
(ii) amount and sign of the item,
(iii) reason for the treatment applied.
a) Increase in share capital of 100 CU, of which 30 CU as bonus shares and the rest for cash.
b) Decrease in inventories of 30 CU.
c) Depreciation of fixed assets of 80 CU.
d) Repayment of loans liabilities of 110 CU.
e) Conversion of convertible bonds into new ordinary shares 30 CU.
f) Loss on disposal of fixed assets 27 CU.
Q2) EPS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES

A) We are preparing year 2019 consolidated financial statement of Mild Machine Plc, the holding of a group.
Calculate consolidated Basic EPS for year 2019 using the following information.
Total Consolidated Net profit CU 500; Net profit for non-controlling interest CU 200.
01.04.2019 Mild Machine Plc conducted a 1-for-4 shares reverse-split.
01.09.2019 Issue of nr. 1.800 new shares as follows: nr. 1.400 shares for cash; the remaining number issued as
bonus shares.
B) What are the most frequent situations in which Diluted EPS differs significantly from Basic EPS? What are
the reasons of this difference?
Q 3) IMPAIRMENT OF FIXED ASSETS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES

3.a) Mechanic Tools Inc is preparing its financial statement for year 2019.
Its CGU Supertools, before 2019 impairment, has a carrying amount of 106 CU, composed as follows:
goodwill 26 CU; machinery 60 CU; equipment 20 CU.
Value In Use of the CGU at the end of 2019 is 70 CU; its Fair Value Less Cost of Disposal is 76 CU.
Calculate the value of impairment loss, if any, and represent your results in the financial statement at
December 31st 2019 in both:
- Statement of Income;
- Statement of financial position, indicating separately the values attributed to goodwill, machinery and
equipment.
3.b) What is an impairment loss reversal? If goodwill has been impaired in previous periods, can an
impairment loss reversal be written in a subsequent period?
Q4) CONSOLIDATED FINANCIAL STATEMENT – MAX GRADES 7 – TIME ASSIGNED 15
MINUTES
Q4.1) Inclusion in the Consolidated Financial Statement.
Watch Tower Holding Plc (WTH), the listed Parent company of a group adopting IFRSs, owns a shareholding
in the company Someway Back Now Inc (SBN). Explain if (and why) WTH is required to include it in the
Consolidated Financial Statement of the group.
SBN is not listed. WTH owns 38% of ordinary share capital of SBN; another 32% of ordinary share capital of
SBN is owned by Out Of Line Inc (OOL), a company not included in the WTH group; the remaining 30% of
ordinary share capital is owned by a few small investors. There’s a written voting agreement between WTH
and OOL, according to which OOL shall vote in the same way of WTH in shareholders’ meetings of SBN.
Q4.2) Consolidation area.
Hyper Rubber Holding Plc is the parent of a group composed mainly of companies operating in the chemical
industry. In preparing its Consolidated Financial Statement according to IFRS 10, the group is thinking of
excluding from the consolidation area its subsidiary Country Hotels Inc., operating in the hotels and
restaurants industry, due to the totally different business. Do you agree with that and why?
Q4.3) Preparing Consolidated Statement Of Income.
Free Rider Industries Plc (FRI) has shareholdings only in one subsidiary, Green Blue Herding Ltd (GBH),
amounting to 80% of ordinary share capital of GBH, while the remaining 20% is owned by Out Of Circle Inc
(OOC), a company not included in the FRI group.
A) Prepare the Consolidated Statement of Income of the FRI group for year 2019, according to IFRS 10, given
the following data (all in CU; consolidation adjustments and eliminations have already been made correctly).
B) Explain shortly how and why you prepared the Consolidated Statement of Income of the FRI group for
year 2019 in the way you did.
Separate data FRI Plc GBH Ltd

Sales 3.000 1.000
Production Expenses (2.100) (600)
Interest expense (400) (200)
Tax expense (300) (100)
Net Profit 200 100
AFA EXAM 2020 DECEMBER 17th - SOLUTION DRAFT
QUESTION 1) Tubular Bells Inc. - Statement Of Cash Flows
2) Amount
Short descripiton 1) Category in SoCF 3) Reason
& Sign
a) Increase in share capital CF Financial activities +70 - Only the for cash part of the increase is relevant in SoCF, with cash inflow of 70 CU.
- The bonus part is not relevant for SoCF. It's just an accounting entry, shifting 30 CU from
reserves to share capital, without any cash inflow. For the same reason, from the Statement ot
Financial Position and Statement of Changes in Equity point of view, it also doesn't produce any
increase in Equity.
b) Decrease in inventories CF Operating activities +30 In the calculation of CF from Operating activities, changes in working capital need adjustments.
A decrease in working capital assets requires a positive-sign adjustment, to measure correctly
CF. In particular, a decrease in Inventories requires a positive adjustment, since (from the
accrual point of view) it increases the cost of product sold in the Statement of Income and
therefore reducing the net profit (or increasing the net loss), without requiring any cash outflow.
c) Depreciation CF Operating activities +80 In the calculation of CF from Operating activities, Depreciation needs a positive adjustment,
since depreciation is an expense (with negative sign in the Statement of Income) not requiring
any cash outflow. For fixed assets the cash outflow (with negative sign) takes place at the
moment of the investment and is considered in CF from Investing activities.
d) Repayment of Loans CF Financial activities (-) 110 Repayment of debts requires a cash outflow, therefore it has negative sign.
e) Conversion of Bonds CF Financial activities 0 Conversion of convertible debts doesn't produce any cash flow, since it's a shift within the
"Liabilities and Equity" side of the Statement of Financial Position. It is relevant for the
Statement ot Financial Position and the Statement of Changes in Equity point of view, since it
produces an increase in Equity and a reduction in Liabilities.
f) Loss on Disposal CF Operating activities +27 In the calculation of CF from Operating activities, Loss on disposal of fixed assets needs an
adjustment with positive sign, since the loss measures (from the accrual point of view) the
difference between the price received for the sale of the asset and its carrying amount. The cash
produced by the sale shall be consdidered, with positive sign (cash inflow), in CF from Investing
activities.
Page 1 of 4
QUESTION 2) MILD MACHINE Plc - SOLUTION DRAFT
A) CONSOLIDATED EPS
In EPS calculation, for comparability reasons, Non-cash operations on equity must be considered as if they had occurred from the earliest
period disclosed in the Financial Statement. Therefore both share reverse-split and bonus issue in EPS for year 2019 are considered as
occurred at 1st Jan 2019.
No information is available for calculation of year 2018 EPS (ajusted for the 2019 non-cash operations) to be included in 2019 Financial
Statement. Therefore it's not possible to calculate it, with the necessary adjustments. Of course, if information had been available, we
should have considered both the two non-cash operations as occurred from 1st Jan 2018.
Net consolidated profit before non-controlling interest 500

Net consolid. profit for group shareholders CU 300
Nr. of shares
01.01.2019 Adjustment for share reverse-split (15.000) 0 5.000
01.01.2019 Adjustment for bonus shares 400 0 5.400
01.09.2019 Issue of new shares for cash 1.400 0 6.800
01.11.2019 Sale of treasury shares for cash (50) 6.700
I) An adjustment of nr. 400 shares for the bonus part of the September share capital increase. Of course the nr. 1.400 shares of the
remaining part of this share capital increase, which occurred for cash, shall be considered starting from September;
II) Another adjustment related to the share reverse-split.
The share reverse-split consists of the issue of nr. 5.000 new shares (20.000/4) in substitution of the nr. 20.000 old shares withdrawn and
cancelled (there are no Treasury Shares). Therefore for the calculation of the weighted average nr. of shares outstanding is necessary a
negative adjusment of nr. 15.000 shares [(-5.000*4)+5.000].
Shares Weighted
Weight
outstanding shares
5.400 2/3 3.600
6.800 1/12 567
6.650 1/12 554
6.700 1/6 1.117
Basic consolidated EPS year 2019 = 300 = 0,051

5.838 CU
B) MOST FREQUENT SITUATIONS IN WHICH DILUTED EPS DIFFERS FROM BASIC EPS
The value of Diluted EPS differs from Basic EPS when there are existing contracts including potentially dilutive operations which could
take place in the future, related to the possible exercise of existing options (in the broad sense of the word) which, if exercised, would
influence numerator and denominator of EPS.
The most frequent situations which could generate a difference are convertible bonds, options or warrants to subscribe new shares,
convertible preference shares, contingently issuable shares, contracts of repurchase of shares.
In order to produce a difference, the effects of the potential exercise should be dilutive, since this is not always the case: therefore it is
necessary to assess, with suitable calculation, if the future exercise could produce a worse profitability per share, that is a lower Diluted
Earning Per Share or a higher Diluted Loss Per Share.
Page 2 of 4
QUESTION 3) IMPAIRMENT OF FIXED ASSETS - SOLUTION DRAFT
(A) MECHANIC TOOLS INC.

Tangible Fixed
Goodwill 26,00 Assets composition
Total tangible fixed assets 80,00 100,0%
Machinery 60,00 75,0%
Equipment 20,00 25,0%
CGU Supertools Carrying amount before 2019 impairment 106,00
Value In Use at end 2019 70,00

Fair Value Less Cost of Disposal at end 2019 76,00
Fair Value Less Cost of Disposal at end 2019 > Value In Use at end 2019
Therefore: Recoverable amount = Fair Value Less Cost of Disposal 76,00
Impariment Loss 30,00

Recoverable amount (76,00)
Impairment Loss allocation (to Godwill, first; the remaning part to Tangible fixed assets proportionally)
Less: Impairment of Goodwill (26,00)
Impariment of Tangible fixed assets 4,00
Of which:
Impariment of Machinery 75,0% 3,00
Impariment of Equipment 25,0% 1,00
Effects of the valuation in the Financial Statement of the entity and impairment loss allocation:

ASSETS
CGU Supertoolos 76,00
Goodwill 0,00
Impairment (26,00)
Machinery 57,00
Impairment (3,00)
Equipment 19,00
Impairment (1,00)

EXPENSES
I.L. on goodwill 26,00
I.L. on Tangilbe assets 4,00
- on machinery 3,00
- on equipment 1,00
B) IMPAIRMENT LOSS REVERSAL

- An impariment loss reversal is the elimination, total or partial, of an impariment loss recognized in prior periods
for a Fixed Asset or CGU, due to the fact that the loss no longer exists or is reduced. This occurs when there has
been a change in the estimates used to determine its Recoverable amount. There are limitations to the reversal,
related to: depreciation process; goodwill.
- Goodwill is an asset with indefinite life, non-amortized and related to higher prices paid for assets/businesses
acquired in relation to expectations of future competitive advantages. Therefore, according to IAS 36, an
impairment loss recognized for goodwill cannot be reversed in a subsequent period. This prohibition applies both
to End-of-the-year Financial Statements and Interim Financial Statements.
Page 3 of 4
QUESTION 4) CONSOLIDATED FINACIAL STATEMENT - SOLUTION DRAFT
1) Inclusion in the Consolidated FS

WTH shall include SBN in its Consolidated Financial Statement.
Even if WTH's 38% shareholding in SBN is not the majority of shares and OOL is not part of the WTH Group,
the written voting agreement according to which OOL shall vote in the same way of WTH in shareholders'
meetings allows to reach a 70% (38%+32%) of voting power over the investee.
This, according to IFRS 10, is one of the situations for control.
2) Consolidation area
Hyper Rubber Holding shall include Country Hotels in its Consolidated Financial Statement.
According to IFRS 10, all controlled companies shall be included in the consolidation area, no matter their
specific business activities.
Since the activity of Country Hotels is strongly different, specific additional information shall be given,
according to Information by Segment accounting principle rules.
3) Preparing Consolidated SoI
A) FRI Group Consolidated Statement of Income - Year 2019

Sales 4.000
Production expenses - 2.700
Interest expense - 600
Tax expense - 400
Consolidated Net Profit 300
Of which:
Consolidated Net pProfit attributable to FRI shareholders 280
Net Profit attibutable to non-controlling interest 20
GBH profit 100
Non-controlling shareholders 20%
Since all consolidation eliminations and adjustments have already been made, the full amount of revenues and
expenses (after consolidation eliminations and adjustments) of the two entities shall be considered, because
IFRS 10 requires to consider 100% of Revenues and Expenses. Due to the use of this "full consolidation"
technique, IFRS requires to attribute Consolidated Net Income to the Owners of the parent entity and to the
Non-controlling interests in subsidiaries, as a compulsory disclosure of the Consolidated Statement of Income.
Page 4 of 4
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI - FINAL EXAM – JANUARY 22ND 2021
NOTES:
I) Not all the information provided is necessarily relevant: use only relevant information.
II) This is the paper version, including also schemes to be completed, of the online exam which was held online
through the Blackboard platform.
III) For each question time assigned and weight in valuation are specified and they necessarily differ from the
IV) Each Student has been assigned four questions: one question for each of the block of questions numbered
from Q1 to Q4, assigned random by the exam software.
V) Each question is composed of 2 or 3 sub-questions, indicated with capital letters A, B, C.
VI) All questions were in the “essay” mode (free text). No compulsory scheme to be filled in was assigned.
Q 1) CASH FLOWS AND CHANGES IN EQUITY (CLOCK MECHANICAL) –- MAX GRADES 8 –

TIME ASSIGNED 15 MINUTES
1.A) Prepare the Statement of Cash Flows of CLOCK MECHANICAL Inc. for year 2020, using the following
information (all data in CU; Students are required to assign correctly the signs in the SofCF):
Profit before tax: 16
Taxes on income paid: 6
Depreciation of Fixed assets: 13
Dividends paid to shareholders: 5
Increase in inventories: 4
Shareholders subscribed a share capital increase for a total amount of 33, composed as follows: new shares
issued for cash 8; bonus shares 10; additional paid-in capital 15.
Investments in new machinery and equipment: 22
Cash and cash equivalents at the beginning of the year: 2
Cash and cash equivalents at the end of the year: to be calculated.
1.B) Concerning the share capital increase of CLOCK MECHANICAL Inc., explain shortly:
i) how and why you considered it in the Statement of Cash Flows for year 2020;
ii) how and why you would consider it in the Statement of Changes in Equity for year 2020.
ADVANCED FINANCIAL ACCOUNTING – PROF. A. MARCHESI - FINAL EXAM - TEXT – JANUARY 22ND 2021
1
Q 1) CASH FLOWS AND CHANGES IN EQUITY (WORK CHEMICAL) – MAX GRADES 8 – TIME
ASSIGNED 15 MINUTES
1.A) Prepare the Statement of Cash Flows of WORK CHEMICAL Inc. for year 2020, using the following
Decrease in inventories: 9
1.B) Concerning the share capital increase of WORK CHEMICAL Inc., explain shortly:
2
Q 1) CASH FLOWS AND CHANGES IN EQUITY (ORANGE FOOD) -– MAX GRADES 8 – TIME
ASSIGNED 15 MINUTES
1.A) Prepare the Statement of Cash Flows of ORANGE FOOD Inc. for year 2020, using the following
Increase in trade receivables: 7
1.B) Concerning the share capital increase of ORANGE FOOD Inc., explain shortly:
3
Q2) EPS (WATCH + TOWER + NEIL) - MAX GRADES 8 – TIME ASSIGNED 15 MINUTES
Answer to the following three separate questions concerning EPS.
2.A) In the separate Financial Statement for year 2020 of WATCH FACTORY Ltd are presented the
following values of separate EPS, calculated correctly according to IAS 33. Consider that, at the end of year
2020, the company has warrants outstanding, according to which the warrants-holders have the right to
subscribe a share capital increase.
Year 2019 Year 2020
Basic EPS (CU) 1,10 1,30
Diluted EPS (CU) 1,08 0,75
Two analysts consider these values: Mrs. Jackson is not interested in purchasing the shares, because she thinks
that there has been a decrease in profitability; Mrs. Browne is interested in purchasing the shares, because she
thinks that there has been an increase in profitability.
Do you agree with one of them? Explain your position.
2.B) In the separate and consolidated Financial Statements for year 2020 of TOWER HOLDING PLC are
presented the following values of separate and consolidated EPS, calculated correctly according to IAS 33
(basic and diluted EPS values coincide).
Year 2019 Year 2020
Separate Basic and Diluted EPS (CU) 1,20 1,32
Consolidated Basic and Diluted EPS (CU) 1,12 0,73
Two analysts consider these values: Mr. Kaukonen is not interested in purchasing the shares, because he
thinks that there has been a decrease in profitability; Mr. Casady is interested in purchasing the shares, because
he thinks that there has been an increase in profitability.
2.C) NEIL & HORSE Inc. is calculating its EPS. Answer shortly, explaining your position.
i) Does an operation of purchase of treasury shares influence the calculation of EPS? Why?
ii) How would you treat it in the calculation?
4
Q2) EPS (ROGER+COSY +WARM) - MAX GRADES 8 – TIME ASSIGNED 15 MINUTES
Answer to the following three separate questions concerning EPS.
2.A ROGER & NICK Inc. is calculating its EPS. Answer shortly, explaining your position.
i) Does an operation of sale of treasury shares influence the calculation of EPS? Why?
ii) How would you treat it in the calculation?
2.B) In the separate and consolidated Financial Statements for year 2020 of COSY HOLDING PLC are
presented the following values of separate and consolidated EPS, calculated correctly according to IAS 33
(basic and diluted EPS values coincide).
Year 2019 Year 2020
Separate Basic and Diluted EPS (CU) 1,15 0,70
Consolidated Basic and Diluted EPS (CU) 1,08 1,63
Two analysts consider these values: Mrs. Waters is not interested in purchasing the shares, because she thinks
that there has been a decrease in profitability; Mrs. Wright is interested in purchasing the shares, because she
thinks that there has been an increase in profitability.
2.C) In the separate Financial Statement for year 2020 of WARM FACTORY Ltd are presented the following
values of separate EPS, calculated correctly according to IAS 33. Consider that, at the end of year 2020, the
company has warrants outstanding, according to which the warrants-holders have the right to subscribe a share
capital increase.
Year 2019 Year 2020
Basic EPS (CU) 1,20 1,40
Diluted EPS (CU) 1,16 0,87
Two analysts consider these values: Mr. Saucer is not interested in purchasing the shares, because he thinks
that there has been a decrease in profitability; Mr. Full is interested in purchasing the shares, because he thinks
that there has been an increase in profitability.
5
Q 3) IMPAIRMENT OF FIXED ASSETS (NUCLEUS+OCEAN) – MAX GRADES 8 – TIME
ASSIGNED 15 MINUTES
3.A) NUCLEUS GLASSES Inc., a multinational company with factories located in several different
Countries, is preparing its Financial Statement for year 2020 and is considering to run an impairment test for
its factory in Japan. In this factory there are two production lines: one producing lenses for sunglasses; one
producing windows for cars. Would you advise to identify a unique CGU for the factory or two different
CGUs for the two production lines? Explain your position.
3.B) OCEAN FISHES Inc. is preparing its Financial Statement at 31st December 2020 and is considering its
CGU FREEZED OCTOPUS, which has a carrying amount, after depreciation for year 2020, of 96 CU.
In performing the analyses for the impairment test of this CGU, the company has obtained the following
results: Value In Use 99 CU; Cost of Disposal 17 CU; Fair Value (not including Cost of Disposal) 97 CU.
Consider these two different hypotheses.
Hypothesis 1: the CGU is going to be disposed of, because the current machinery is no more compliant with
safety of food regulation.
Hypothesis 2: the CGU is going to continue its production activity, since recent interventions on the
machinery have already made it compliant with safety of food regulation.
Consider separately each of the two hypothesis and for each of them:
i) calculate the value of impairment loss, if any;
ii) represent your results in the financial statement at December 31st 2020 (in both Statement of Income and
Statement of financial position);
iii) explain shortly your position.
6
Q 3) IMPAIRMENT OF FIXED ASSETS (GIANT+SLOW) – MAX GRADES 8 – TIME ASSIGNED
15 MINUTES
3.A) GIANT TRUCKS Inc. is preparing its Financial Statement at 31st December 2020 and is considering its
CGU BOATCARRIERS, producing special trucks, which has a carrying amount, after depreciation for year
2020, of 88 CU.
In performing the analyses for the impairment test of this CGU, the company has obtained the following
results: Value In Use 95 CU; Fair Value (not including Cost of Disposal) 92 CU; Cost of Disposal 12 CU.
Consider these two different hypotheses.
Hypothesis 1: the CGU is going to continue its production activity, since market expectations for these special
trucks are quite interesting.
Hypothesis 2: the CGU is going to be disposed of, because in recent years the demand for these special trucks
has continually reduced.
Consider separately each of the two hypothesis and for each of them:
i) calculate the value of impairment loss, if any;
ii) represent your results in the financial statement at December 31st 2020 (in both Statement of Income and
Statement of financial position);
iii) explain shortly your position.
3.B) SLOW ICE CREAMS Inc., a multinational company with factories located in several different Countries,
is preparing its Financial Statement for year 2020 and is considering to run an impairment test for its factory in
Mexico. In this factory there are two production lines: one producing milk-based ice creams; one producing
fruit-based ice creams. Would you advise to identify a unique CGU for the factory or two different CGUs for
the two production lines? Explain your position.
7
Q4) FINANCIAL INSTRUMENTS (ABBEY INVESTMENTS) – MAX GRADES 8 – TIME
ASSIGNED 15 MINUTES
Under IFRS 9, we are preparing the financial statement of ABBEY INVESTMENTS Ltd, considering the
following three financial assets owned by the entity. Show the effects of the valuation of each one of the three
financial assets in its Financial Statement, considering:
i) the Statement of Financial Position at Dec. 31st 2020;
ii) the Statement of Income for year 2020;
iii) the Statement of Other Comprehensive Income for year 2020.
OPERATING NOTES.
4.A) LULLABY SONG, common share, classified in the “FVTPL” class of financial assets:
4.B) SILVER HAMMER, floating rate debt instrument meeting the SPPI requirement, classified in the “Held
To Collect” class of financial assets:
- market price at Dec. 31st 2020 CU 66,50 (at Dec. 31st 2019 the market price was 96,05 CU). The strong
decrease in market price is due to a quite relevant increase in the risk of default of the issuer, as signalled also
by repeated downgradings in its rating.
4.C) GOLDEN SLUMBERS, fixed rate debt instrument meeting the SPPI requirement, classified in the “Held
To Collect and Sale” class of financial assets:
- market price at Dec 31st 2020 CU 102,30. The increase in market price is due to a general decrease in the
level of interest rates in the financial market.
8
Q4) FINANCIAL INSTRUMENTS (DOUBLE WHITE BANK) – MAX GRADES 8 – TIME
ASSIGNED 15 MINUTES
Under IFRS 9, we are preparing the financial statement of DOUBLE WHITE BANK Ltd, considering the
following three financial assets owned by the entity. Show the effects of the valuation of each one of the three
i) the Statement of Financial Position at Dec. 31st 2020;
ii) the Statement of Income for year 2020;
iii) the Statement of Other Comprehensive Income for year 2020.
OPERATING NOTES.
4.A) ROCKY RACCOON, fixed rate debt instrument meeting the SPPI requirement, classified in the “Held
To Collect and Sale” class of financial assets:
- market price at Dec 31st 2020 CU 96,30. The decrease in market price is due to a general increase in the
level of interest rates in the financial market.
4.B) BLACK BIRD, common share, classified in the “FVTPL” class of financial assets:
4.C) BUNGALOW BILL, fixed rate debt instrument meeting the SPPI requirement, classified in the “Held To
Collect” class of financial assets:
- market price at Dec. 31st 2020 CU 72,60 (at Dec. 31st 2019 the market price was 100,05 CU). The strong
decrease in market price is due to a quite relevant increase in the risk of default of the issuer, as signalled also
by repeated downgradings in its rating.
9
Advanced Financial Accounting - January 22nd, 2021 Exam - Solution Draft
UNIVERSITA' CATTOLICA DEL S. CUORE - MILANO - SCHOOL OF BANKING, FINANCE AND INSURANCE
ADVANCED FINANCIAL ACCOUNTING - PROF. ALBERTO MARCHESI - EXAM - JANUARY 22nd 2021 - SOLUTION DRAFT
QUESTION Nr. 1) - CLOCK MECHANICAL INC.
A) STATEMENT OF CASH FLOWS

CLOCK MECHANICAL INC. - Statement of Cash Flows - Year 2020 (CU)
Income tax paid (6)
Dividends paid (5)
New shares issued for cash 8
B) SHARE CAPITAL INCREASE

i) The bonus issue doesn't generate any cash inflow nor outflow, since it's a non-cash operation. The additional
paid-in capital is further cash paid by shareholders in addition to the subscrption of shares. Therefore the cash
inflow to be written into the Cash Flow produced by (used in) Financing activities amounts to +23 CU (8 for
shares issued for cash + 15 for additional paid-in capital).
ii) The bonus issue doesn't generate any change in value of Equity, but a change in its internal composition: it's
a shift within Equity, precisely from Retained earnings (or other suitable equity reserve) to Share capital. The
additional paid-in capital is an increase in value of Equity, since shareholders pay further cash to obtain the
shares they subscribe for cash. Therefore the Statement of Changes in Equity for year 2020 will contain: an
increase of +18 (+8 CU for the new shares issued for cash and +10 for the bonus shares) at the line Shares; an
increase of +15 CU at the line Additional paid-in capital; a decrease of -10, corresponding to the bonus shares
issued, at the line Retained earnings.
Page 1 of 6
QUESTION Nr. 1) - WORK CHEMICAL INC.

WORK CHEMICAL INC. - Statement of Cash Flows - Year 2020 (CU)
Income tax paid (4)
Dividends paid (3)

increase of +14 (+5 CU for the new shares issued for cash and +9 for the bonus shares) at the line Shares; an
Page 2 of 6
QUESTION Nr. 1) - ORANGE FOOD INC.

ORANGE FOOD INC. - Statement of Cash Flows - Year 2020 (CU)
Income tax paid (3)
Increase in receivables (7)
Dividends paid (8)

increase of +25 ( +12 CU for the new shares issued for cash and +13 for the bonus shares) at the line Shares; an
Page 3 of 6
QUESTION Nr. 2) WATCH+TOWER+NEIL
2.A) WATCH - BASIC/DILUTED EPS

Although at Basic EPS level there has been an increase in current profitability, the strong
decrease in Diluted EPS, related to the warrants outstanding, signals the high likelyhood for the
warrants to be exerted, with potential negative effects on future profitability for current
shareholders. Therefore the prudent attitude of Mrs. Jackson has to be preferred.
2.B) TOWER - SEPARATE/CONSOLIDATED EPS

Although at Separate EPS level there has been an increase in the profitability of the parent
considered as a single company, the decrease in Consolidated EPS signals that the group's
profitability has worsened: the separate EPS does not capture this effect, due to specific
operations of the single company. Therefore the prudent attitude of Mr. Kaukonen has to be
preferred.
2.C) NEIL & HORSE - PURCHASE OF TREASURY SHARES

i) An operation of purchase of treasury shares influences the denominator of EPS, the number of
shares outstanding, because this number is the difference between total number of shares issued
and treasury shares. The denominator shall be reduced and therefore EPS will increase.
ii) In the calculation of EPS, the purchase reduces the number of outstanding shares and its effect
shall be considered through a weighted average, considering the changes of treasury shares
owned during the period.
QUESTION Nr. 2) ROGER+COSY+WARM
2.A) ROGER & NICK - SALE OF TREASURY SHARES

i) An operation of sale of treasury shares influences the denominator of EPS, the number of
shares outstanding, because this number is the difference between total number of shares issued
and treasury shares. The denominator shall be increased and therefore EPS will decrease.
ii) In the calculation of EPS, the sale increases the number of outstanding shares and its effect
shall be considered through a weighted average, considering the changes of treasury shares
owned during the period.
2.B) COSY SEPARATE/CONSOLIDATED EPS

Although at Separate EPS level there has been an decrease in the profitability of the parent
considered as a single company, the increase in Consolidated EPS signals that the group's
profitability has improved: the separate EPS does not capture this effect, due to specific
operations of the single company. Therefore the positive attitude of Mrs. Wright has to be
preferred.
2.A) WARM - BASIC/DILUTED EPS

Although at Basic EPS level there has been an increase in current profitability, the strong
decrease in Diluted EPS, related to the warrants outstanding, signals the high likelyhood for the
warrants to be exerted, with potential negative effects on future profitability for current
shareholders. Therefore the prudent attitude of Mr. Saucer has to be preferred.
Page 4 of 6
QUESTION Nr. 3) IMPAIRMENT OF FIXED ASSETS - NUCLEUS+OCEAN

3.A) NUCLEUS
The two businesses and production lines are reasonably quite different, even if implying the use of glass. Therefore their
cashflows should be largely independent: two separate CGUs would be advisable.
3.B) OCEAN
HYPOTHESIS 1
Carrying Amount 96
Fair Value 97
Cost of disposal (17)
Impairment Loss (16)
Since the CGU is going to be disposed of, Value In Use cannot be considered as Recoverable Amount:
- the Carrying Amount of the CGU in the fixed assets of the Statement of Financial Position shall be reduced to 80 CU.
HYPOTHESIS 2
Carrying Amount 96
Recoverable Amount = Value In Use 99
Since the CGU is going to continue its activity, we shall consider the higher beteween Value In Use and (Fair Vale - Cost of
Disposal):
- Value In Use is 99, higher than (Fair Vale - Cost of Disposal) 80, and it is also higher than carrying amount 96;
- no Impairment Loss shall be written in the expenses of the Statement of Income;
- the Carrying Amount of the CGU in the fixed assets of the Statement of Financial Position shall remain 96 CU.
QUESTION Nr. 3) IMPAIRMENT OF FIXED ASSETS - GIANT+SLOW
3.A) GIANT
HYPOTHESIS 1
Carrying Amount 88
Recoverable Amount = Value In Use 95
Since the CGU is going to continue its activity, we shall consider the higher beteween Value In Use and (Fair Vale - Cost of
Disposal):
- Value In Use is 95, higher than (Fair Vale - Cost of Disposal) 80, and it is also higher than carrying amount 88;
- no Impairment Loss shall be written in the expenses of the Statement of Income;
- the Carrying Amount of the CGU in the fixed assets of the Statement of Financial Position shall remain 88 CU.
HYPOTHESIS 2
Carrying Amount 88
Fair Value 92
Cost of disposal (12)
Impairment Loss (8)
Since the CGU is going to be disposed of, Value In Use cannot be considered as Reecoverable Amount:
- the Carrying Amount of the CGU in the fixed assets of the Statement of Financial Position shall be reduced to 80 CU.
3.B) SLOW
The two businesses and production lines are reasonably similar, even if implying the use of some different raw materials.
Therefore their cashflows should not be largely independent: one unique CGU would be advisable.
Page 5 of 6
QUESTION Nr. 4) ABBEY INVESTMENTS

4.A) LULLABY SONG
Stat. Of Fin Posit. Stat. Of Income Stat. Of OCI
37,00 2,00
2,00
39,00
Valuation at FVTPL: Financial Asset written at FV of 39 in Stat. Of Fin. Posit.; increase in FV (39-
37=2) written in Revenue section (positive item) in Stat. Of Income; No effects in Stat. Of OCI.
4.B) SILVER HAMMER

97,50 31,00
(31,00)
66,50
The HTC class is normally valued at Amortized cost, but in this case it is necessary an Impariment of the
financial asset, due to the relevant increase in risk of default, as follows: Financial Asset impaired,
written at its FV of 66,50, lower than Amortized cost, in Stat. Of Fin. Posit.; Impairment loss of 31
(97,50-66,50) written in Expense section (negative item) in Stat. Of Income; No effects in Stat. Of OCI.
4.C) GOLDEN SLUMBERS

101,00 1,30 1,30
1,30
102,30
In the HTCS class, changes in Fair Value are recognized in assets through OCI: Financial Asset written
at FV of 102,30 in Stat. of Fin. Posit.; increase in FV (102,30-101=1,30) written in Credit section
(positive item) in Stat. Of OCI; corresponding positive change of +1,30 written in Valuation reserve
within equity in Stat. of Fin. Posit.; No effects in Stat. Of Income.
QUESTION Nr. 4) DOUBLE WHITE BANK

4.A) ROCKY RACCOON
99,70 (3,40) 3,40
(3,40)
96,30
In the HTCS class, changes in Fair Value are recognized in assets through OCI: Financial Asset written
at FV of 96,30 in Stat. of Fin. Posit.; decrease in FV (99,70-96,30=3,40) written in Debit section
(negative item) in Stat. Of OCI; corresponding negative change of -3,40 written in Valuation reserve
within equity in Stat. of Fin. Posit.; No effects in Stat. Of Income.
4.B) BLACK BIRD
43,00 2,00
2,00
45,00
Valuation at FVTPL: Financial Asset written at FV of 45 in Stat. Of Fin. Posit.; increase in FV (45-
43=2) written in Revenue section (positive sign) in Stat. Of Income; No effects in Stat. Of OCI.
4.C) BUNGALOW BILL
100,10 27,50
(27,50)
72,60
The HTC class is normally valued at Amortized cost, but in this case it is necessary an Impariment, due
to the relevant increase in risk of default, as follows: Financial Asset impaired, written at its FV of
72,60, lower than Amortized cost, in Stat. Of Fin. Posit.; Impairment loss of 27,50 (100,1-72,60) written
in Expense section (negative item) in Stat. Of Income; No effects in Stat. Of OCI.
Page 6 of 6
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI - FINAL EXAM – JUNE 8th 2021
NOTES:
II) During the official exam the Student is allowed to use a pocket calculator. NO OTHER device (for
instance, tablets, cellphones, smartwatches, etc.) will be permitted.
III) Each question is composed of sub-questions.
IV) This is the paper version of the online exam which was held online through the Blackboard platform. In the
online version, all questions are in the “essay” mode (free text) and no compulsory scheme to be filled is assigned.
V) For each question, time assigned and weight in valuation are specified and they necessarily differ from the
Q-1) STATEMENT OF COMPREHENSIVE INCOME AND STATEMENT OF CHANGES IN

EQUITY – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES
We are preparing the Statement of Comprehensive Income (divided into the two sections Statement of Income
and Other Comprehensive Income) and the Statement of Changes in Equity of TOWER OF POWER BANK
for year 2020.
Indicate, for each of the items hereunder (values are not requested):
(i) if you would write it:
• only in the Statement of Income;
• only in the Statement of Changes in Equity;
• in both the Statement of Other Comprehensive Income and in the Statement of Changes in Equity;
• in no one of the above indicated statements;
(ii) if you would recognize a value with positive or negative sign;
(iii) a short explanation of your accounting choices (reason for the writing, reason for the sign, etc.)
ITEMS:
(A) Administrative expenses
(B) Decrease in fair value of Financial Assets at FVTOCI
(C) Depreciation of Tangible fixed assets
(D) Cash flow produced by operating activities
(E) Interest income
(F) Shares Capital increase
Q-2) EPS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES

(A) We are preparing year 2020 financial statement of WAITERS Plc, the holding of a group.
Calculate consolidated Basic EPS for year 2020 using the following information.
Total Consolidated Net Profit CU 2.000; Net profit for non-controlling interest CU 500.
01.03.2020 1-for-4 shares reverse split.
01.05.2020 Issue of nr. 1.200 new shares as follows: nr. 1.000 bonus shares; nr. 200 shares for cash.
(B) COOKS Plc is the holding of another group, competitor of WAITERS Plc. Consider that, at the end of
year 2020:
(i) the two competitors have identical Consolidated Basic EPS;
(ii) WAITERS Plc has convertible bonds outstanding. Contractual terms for conversion are very unfavourable
for convertible bondholders;
(iii) COOKS Plc has convertible bonds outstanding, too. Contractual terms for conversion are quite favourable
for convertible bondholders.
For a potential investor in shares, does this situation have any influence on appreciating the profitability of the
two groups and why?
ADVANCED FINANCIAL ACCOUNTING – PROF. A. MARCHESI - FINAL EXAM - TEXT – JUNE 8th 2021
Q-3) FINANCIAL INSTRUMENTS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES
(A) Under IFRS 9, we are preparing the financial statement of ALLEY INVESTMENTS Ltd, considering the
following two financial assets owned by the entity. Show the effects of the valuation of each one of the two
(i) the Statement of Financial Position at Dec. 31st 2020;
(ii) the Statement of Income for year 2020;
(iii) the Statement of Other Comprehensive Income for year 2020.
OPERATING NOTES.
(A-I) WILD CAT, common share, classified in the “FVTPL” class of financial assets:
(A-II) SOFT DOG, floating rate debt instrument meeting the SPPI requirement, classified in the “Held To
Collect” class of financial assets:
- market price at Dec. 31st 2020 CU 103,20. The relevant increase in market price is due to an improvement of
the rating of the issuer.
(B) Classification of Financial Assets under IFRS 9: are there situations in which a debt instrument is
classified in the FVTPL class and why?
Q-4) CONSOLIDATED FINANCIAL STATEMENT– MAX GRADES 8 – TIME ASSIGNED 15

MINUTES
(A) FOOD DIRECTOR Plc, the Parent company of a group operating mainly in the food industry, owns
shareholdings in the following two companies.
Explain if (and why) the situation of the single company requires FOOD DIRECTOR to include it in the
Consolidated Financial Statement of the Group.
(A-I) TAYLORS Plc is listed in a stock exchange, but it operates in the fashion industry and not in the food
industry. FOOD DIRECTOR owns 45% of share capital; the remaining 55% of share capital is owned by a
very large number of small investors.
(A-II) FINGERFOOD Inc is not listed. FOOD DIRECTOR owns 10% of share capital; the remaining 90% of
share capital is owned by a few small investors. FINGERFOOD sells only products produced or distributed by
FOOD DIRECTOR. FINGERFOOD’s general manager is also one of FOOD DIRECTOR’s top managers.
(B) In the separate financial statements for year 2020 of the three companies considered:
(i) sales of FOOD DIRECTOR Plc are 250 CU, of which 1 CU are sales to TAYLORS Plc and 70 CU are
sales to FINGERFOOD Inc;
(ii) sales of TAYLORS Plc are 20 CU;
(iii) sales of FINGERFOOD Inc are 120 CU.
Calculate consolidated sales for year 2020 of FOOD DIRECTOR Group according to the consolidation
choices you made in answering question (A) and comment shortly.
ADVANCED FINANCIAL ACCOUNTING – PROF. A. MARCHESI - FINAL EXAM - TEXT – JUNE 8th 2021
SOLUTION DRAFT
Please note that: the draft answers are quite long and articulate, in order to explain better to Students; in the answers from Students, shorter
answers have been accepted, of course if correct and getting to the points requested.
QUESTION 1) - Statement of Comprehensive Income and of Changes in Equity - TOWER OF POWER BANK
ITEM i) Where it shall be witten ii) Sign iii) Short explanation
It’s the total accrued during the period of expenses related to the functioning of the
operational/organizational structure of the bank, not including Staff expenses. In fact,
(A) Administrative expenses Only in Statement of Income Negative
the Operating expenses area of the Statement of Income of a bank includes also Staff
expenses, which are written in a separate item.
It’s due to a non-negotiated change (decrease) in value of Financial Assets valued at
In both the Statement of Other Fair Value (at FVTOCI and not at FVTPL), change in value which has not the
(B) Decrease in Fair Value of Comprehensive Income and in requirements to be recognized as accrued in the State of Income. For this reason, this
Negative
Financial Assets at FVTOCI the Statement of Changes in item it is written in OCI with negative sign and, through this, it reduces the value of
Equity Valuation Reserves in Equity. The change in value is measured net of the tax effect, if
any.
It’s the total accrued of expenses due to the obsolescence and related depreciation
(C) Depreciation of Tangible
Only in Statement of Income Negative process of fixed assets. It's a typical non-cash cost of the Statement of Income,
Fixed Assets
calculated according to a depreciation schedule.
It’s the cash flow produced or absorbed during the period by the principal revenue-
No value in the indicated
(D) Cash flow produced by No one of the indicated producing activities of the entity and other activities not included in investing and
statements. Positive sign in
operating activities statements financing. It's an item relevant for Cash Flow, but not relevant for Income, OCI nor
Statement of Cash Flows
Equity.
It’s the typical revenue of commercial banks, generated by lending to customers and
(E) Interest income Only in Statement of Income Positive
by investing in other interest-producing financial assets.
It’s the increase due to new share capital issued by the entity, for cash, bonus or
Only in Statement of Changes mixed cash-bonus issues. The for cash increase produces a quantitative increase in
(F) Shares Capital Increase Positive
in Equity equity; whereas the bonus increase produces no quantitative increase, but only a
change in the composition within equity (shift from reserves to shares capital)
Page 1 of 4
QUESTION 2) EPS - SOLUTION DRAFT
A) CONSOLIDATED EPS - WAITERS Plc

In EPS calculation, for comparability reasons, Non-cash operations on equity must be considered as if they had occurred from the
earliest period disclosed in the Financial Statement. Therefore both share reverse-split and bonus issue in EPS for year 2020 are
considered as occurred at 1st Jan 2020.
No information is available for calculation of year 2019 EPS (adjusted for the 2020 non-cash operations) to be included in 2020
Financial Statement. Therefore it's not possible to calculate it, with the necessary adjustments. Of course, if information had been
available, we should have considered both the two non-cash operations as occurred from 1st Jan 2019.
Total consolidated Net profit 2.000

Net consolid. profit for group shareholders CU 1.500
Nr. of shares
01.01.2020 Adjustment for share reverse-split (3.750) 0 1.250
01.01.2020 Adjustment for bonus shares 1.000 0 2.250
Two adjustments to the nr. of shares outstanding are necessary, due to the two different non-cash operations on share capital
I) An adjustment related to the share reverse-split.
The share reverse-split consists of the issue of nr. 1.250 new shares (5.000/4) in substitution of the nr. 5.000 old shares withdrawn
and cancelled (there are no Treasury Shares). Therefore for the calculation of the weighted average nr. of shares outstanding is
necessary a negative adjustment of nr. 3.750 shares [(-5.000)+1.250].
II) An adjustment of nr. 1.000 shares for the bonus part of the May share capital increase. Of course the nr. 200 shares of the
remaining part of this share capital increase, which occurred for cash, shall be considered starting from May.
Shares Weighted
Weight
outstanding shares
2.250 1/3 750
2.450 5/12 1.021
2.200 1/4 550
Basic consolidated EPS year 2020 = 1.500 = 0,646

2.321 CU
B) COOKS Plc VS. WAITERS Plc

In general terms, convertible bonds outstanding might signal the presence of potentially dilutive operations which could take place
in the future, related to the possible exercise of the conversion options; options which, if exercised, would influence both
numerator and denominator of EPS.
But, in order to be dilutive, a conversion option shall have a negative impact on future profitability for existing shareholders: this
requires that the conversion conditions (as stated in the contractual terms of the outstanding convertible options) are favourable to
convertible-bondholders, and, consequently, unfavourable for existing shareholders; in this situation, in case of future conversion
existing sharholders would see the profitability of the entity decrease.
The situations of COOKS and WAITERS, although they have identical Consolidated Basic EPS, are quite different in terms of
future profitability of the group:
- in the case of WAITERS, conditions are unfavourable for convertible bondholders. Therefore, it's quite unlikely that convertible
bondholders will exert the conversion opion, and even if they will, profitability of the group would increase for shareholders.
Therefore Diluted EPS coincides with Basic EPS;
- in the case of COOKS, conditions are favourable for convertible bondholders. Therefore, it's quite likely that convertible
bondholders will exert the conversion option, and if they will, profitability of the group will decrease for shareholders. Therefore
Diluted EPS should be lower than Basic EPS.
The pontential investor shall consider with particular attention and caution the situation of COOKS, since there's the reasonable
risk of lower profitability in the future, signalled by its lower Diluted EPS.
Page 2 of 4
QUESTION 3) FINANCIAL INSTRUMENTS - SOLUTION DRAFT
(A-I) WILD CAT SHARE
Statement of Financial Position as at 31/12/2020

Carrying amount before valuation 41,00
Decrease in Fair Value (4,00)
Valuation at 31/12/2020 37,00
Statement of Income - Year 2020

Loss for decrease in Fair Value 4,00
Under IFRS 9 Shares are usually accounted at FVTPL, that is the decrease in their Fair Value shall
reduce the carrying amount of the financial asset and shall be written in the Statment of Income as
Loss for the change in Fair Value, even if it is not negotiated.
(A-II) SOFT DOG DEBT INSTRUMENT
Statement of Financial Position as at 31/12/2020

Valuation at 31/12/2020 99,50
The Held To Collect class is valued at Amortized cost, in this way accounting for accrued interest
income (in the Statement of Income) for each financial year and progressively getting nearer to the
repayment value of the Financial Asset at maturity (in the Statement of Financial Position).
An increase in market price of a HTC Financial Asset is not relevant for its valuation. Only in case of
sale of the Financial Instrument a gain (from negotiation) can be recorded. This class has limits to
possible negotiations, related to compliance with its business model.
(B) DEBT INSTRUMENT AT FVTPL

A Debt instrument is classified in FVTPL Financial Assets in two cases.
- When it doesn't meet the requirements for being classified in HTC or in HTCS: SPPI; HTC or HTCS
business models.
- By irrevocable designation at recognition, in order to avoid a measurement or recognition
inconsistency (“accounting mismatch”): asymmetry or inconsistency in accounting treatment in the
financial statements of related groups of assets and liabilities.
A typical case of accounting mismatch could be in insurance companies investing in bonds: amortized
cost of these financial assets could not be consistent with measurement of liabilities arising from
insurance contracts incorporating current information.
Page 3 of 4
QUESTION 4) CONSOLIDATED FINACIAL STATEMENT - SOLUTION DRAFT
(A-I) TAYLORS Plc

FOOD DIRECTOR shall include TAYLORS in its Consolidated Financial Statement for these reasons.
1) Even if FOOD DIRECTOR's 45% shareholding in TAYLORS is not the majority of shares, the remaining
55% of TAYLORS' share capital has a strongly fragmented ownership, so that it is quite difficult that the big
number of small shareholders will influence decisions.
This, according to IFRS 10, is one of the situations for control.
2) According to IFRS 10, all controlled companies shall be included in the consolidation area, no matter their
specific business activities.
Since the activity of TAYLORS is strongly different, specific additional information shall be given, according to
Information by Segment accounting principle rules.
(A-II) FINGERFOOD Inc

Even if its small percentage of shareholding in FINGERFOOD is not relevant for control, FOOD DIRECTOR
shall include FINGERFOOD in its Consolidated Financial Statement for these reasons.
1) FINGERFOOD is strongly dependent in its business on FOOD DIRECTOR, which is its unique supplier.
2) The top management of FINGERFOOD is part of FOOD DIRECTOR top management.
Both these situations, according to IFRS 10, are signalling conditions for control.
(B) CALCULATING CONSOLIDATED SALES
FOOD DIRECTOR separate Sales 250

Adjustment for sales to TAYLORS (1)
Adjustment for sales to FINGERFOOD (70)
TAYLORS separate Sales 20
FINGERFOOD separate Sales 120
Consolidated Sales 319
In the consolidation process, adjustments for elimination of intercompany operations shall be made. In particular,
in the calculation of consolidated Sales, all intercompany sales shall be eliminated, in order to avoid inflating of
the value of consolidates sales: in this way only sales to third parties are considered, representing the sales of the
group as if it were a single entity.
As an alternative in answering, a partial simulation of the consolidation workpaper (necessarily not complete) can
be used as follows:
Trial balances Consolid. Adjustm. Consolid. Values
Debit Credit Debit Credit Debit Credit
Sales FoodDir 250 71 179
Taylors 20 20
Fingerf. 120 120
Cost of FoodDir
Product Fingerf. 1
Sold Taylors 70
From which, total consolidated Sales = 319
Note that: Debit adjustments in separate Sales are written as Credit adjustments in separate Cost of product sold
of another company in the group; total Debit and Credit adjustments have the same value.
Page 4 of 4
FINAL EXAM – JULY 13TH 2021
NOTES:
IV) This is the paper version of the online exam which was held online through the Blackboard
platform. In the online version, all questions are in the “essay” mode (free text) and no compulsory
scheme to be filled is assigned.
V) For each question, time assigned and weight in valuation are specified and they necessarily differ
Q-1) STATEMENT OF CASH FLOWS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES

We are preparing the STATEMENT of CASH FLOWS of STATIONS Ltd for year 2020 with the indirect
method.
Indicate, for each of the items hereunder if, how (value, sign, section, treatment, etc.) and why you would
consider it in preparing the Statement of Cash Flows.
ITEMS:
(A) Shares Capital increase 100 CU, of which 30 CU issued as bonus shares
(B) Dividends paid to shareholders 80 CU
(C) Gains on sales of fixed assets 150 CU
(D) Increase in payables 40 CU
Q-2) EPS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES

You have the following information concerning WAGONS Plc consolidated results for year 2020.
(A) Calculate consolidated Basic EPS;
(B) Calculate consolidated Diluted EPS.
01/Oct./2020 New shares issued Nr. 500 (detail of the issue: Nr. 200 issued for cash; the remaining part of the
shares issued as bonus shares);
01/Dec./2020 Purchase of Treasury shares Nr. 50.
OTHER INFORMATION:
Total consolidated Net profit CU 16.000;
Investments in new machinery and equipment during the year 190 CU;
Convertible bonds outstanding Nr. 900: each block of Nr. 5 convertible bonds is convertible into Nr. 1
ordinary share;
Dividends paid to shareholders during the year CU 700.
Interest expense for the current year relating to the liability component of the convertible bond CU 400;
current and deferred tax relating to this interest expense CU 100.
1
Q-3 – IMPAIRMENT OF FIXED ASSETS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES
(A) Are these cases relevant for the need to perform an impairment test?
A.1) A new law requiring very strict environmental standards for machinery.
A.2) Demand for the goods produced by a CGU progressively decreasing, due to a shift of consumers’
preference towards different products.
(B) In measuring recoverable amount, if a CGU is going to be closed and its machinery sold:
B.1) can value in use be considered?
B.2) would you consider relevant for calculation of recoverable amount the following items?
i) cost for the time of the general manager examining different sale offers;
ii) direct labour expenses for disassembling the machinery for the shipment. These expenses will be not
charged to the purchaser.
(C) Impairment of goodwill.

During lessons we discussed the big impairments on goodwill by European listed companies, starting from the
2008 crisis, as described in a newspaper article.
C.1) What were the major reasons for these impairments and which were the industries more exposed to
them?
C.2) Why does the article say that these impairments “eat into profit”?
Under IFRS 9, explain the following problems related to classification and measurement of financial assets.
(A) Corporate bond, fully satisfying the SPPI condition, on which relevant sales and purchases have occurred
during the year, in order to benefit from strong market volatility.
A.1) Can it be classified in the HTCS (Held To Collect and Sale) class?
A.2) For a bond classified in the HTCS (Held To Collect and Sale) class, is an increase in market value of the
bond relevant for its valuation and how should it be treated?
(B) Government bond fully satisfying the SPPI condition, purchased by an insurance company.
B.1) Can it be classified in the FVTPL (Fair Value Through Profit or Loss) class?
B.2) If a bond is classified in the FVTPL (Fair Value Through Profit or Loss) class, is a decrease in market
value of the bond relevant for its valuation and how should it be treated?
(C) Mid-term loan by a bank (lender) to a customer (borrower), fully satisfying the SPPI condition.
C.1) Can it be classified in the HTC (Held To Collect) class?
C.2) Would you consider relevant for its valuation these two different cases?
i) a major breach of the loan contract by the borrower;
ii) a temporary slight difficulty of the borrower.
2
QUESTION Nr. 1) STATEMENT OF CASH FLOWS
A) Shares capital increase

The item is relevant for the SoCF, as cash flow
It will have a value of 70, with positive sign
It is a cash flow in the section of financing activities
The cash flow of +70 (100-30) relates only to the cash-inflow for the paid-in (for cash) part of the share
capital increase. The 30 bonus increase is not relevant for cash flows (it is relevant for the changes in
equity)
B) Dividends paid
The item is relevant for the SoCF, as cash flow
It will have a value of 80, with negative sign
It is a cash flow in the section of financing activities
The cash flow of -80 relates to the cash-otuflow for the payment of dividends to shareholders.
C) Gains on sales of fixed assets

The item is relevant for the SoCF, prepared with the indirect method, as an adjustment
It will have a value of the adjustment of 150, with negative sign
It is an adjustment within the section of operating activities
The adjustment of -150 relates to the fact that, in the calculation of profit before taxes used as the starting
point of the calculation of cash flow from operating activities, gains on sales of fixed assets are a positive
component of income, but: these gains are related to the investment activities and not to the operating
activities; furthermore, the gain doesn't measure correctly the cash inflow produced by the sale. Hence the
need for adjustment.
D) Increase in payables
The item is relevant for the SoCF, prepared with the indirect method, as an adjustment for changes in
working capital from operations
It will have a value of the adjustment of 40, with positive sign
It is an adjustment within the section of operating activities
The adjustment of +40 relates to the fact that, in the calculation of profit before taxes used as the starting
point of the calculation of cash flow from operating activities, revenues and purchases are cosidered on an
accrual basis. From the cash flow point of view, an increase in payables reduces the cash-outflow for
payments to suppliers during the period. Hence the need for adjustment.
QUESTION Nr. 2) WAGONS Plc

01/01/2020 2.000 0 2.000
01/01/2020 bonus issue 2.300 0 2.300
01/10/2020 issue for cash 2.500 0 2.500
01/12/2020 2.500 50 2.450
2.300 3/4 1.725

2.500 1/6 417
2.450 1/12 204

Basic EPS CU 5,968


A) Relevance for the need of an impairment test

A.1) The new law is a typical situation of external indicators to be considered as a signal of possible
impairment. The new strict environmental requirements shall be considered with attention, in terms of
their possible effects on future cash flows: higher production costs (for instance, additonal costs for
treatment of waste); additional investments (for instance, additional capital expenditure to reduce
emissions of existing machinery); or even the impossibility to use the existing machinery, if totally not
compliant with the new rules.
A.2) The shift in consumers' preference is a change in markets, an external indicator, producing a
decrease in demand which should be affecting company's sales, so that even an internal indicator of
performance worse than expected should be at play. These are typical signals for a possible impairment.
B) Recoverable amount of a CGU going to be closed

B.1) Value in use cannot be considered, since there's no reasonable expectation of future cash flow from
the use of the CGU. Only fair value less cost of disposal shall be considered.
B.2)
i) The general manager cost outlined is a typical overhead cost, not directly attributable to the sale of the
machinery. Therefore it is not relevant in the cost of disposal calculation.
ii) The direct labour costs are relevant for the cost of disposal calculation, because they will be incurred if
the machinery is sold, and they will be borne by the seller.
C) Impairment of goodwill
C.1) The major reasons were depressed financial markets and deteriorating economic outlook, requiring a
revision of the assumptions which had led to the important goodwills recognized in acquisitions. The
two industries more exposed to that were the financial and the telecommunication ones.
C.2) Impairment loss on goodwill is written directly into the expenses of the statement of income,
therefore reducing net income or increasing net loss.
QUESTION Nr. 4) IFRS 9 CLASSIFICATION AND MEASUREMENT
A) HTCS
A.1) The corporate bond can be classified in HTCS, because SPPI condition is met and sales are, in general,
possible so that they should be compliant with the HTCS business model.
A.2) An increase in market value of a HTCS bond should influence its fair value and therefore is relevant. It
shall be recognized by an increase in the value of the bond written in assets and by a positive sign item in other
comprehensive income. This positve OCI item shall produce an increase in the valuation reserve written in
equity.
B) FVTPL
B.1) Insurance companies represent an example of possible accounting mismatch between value of groups of
financial assets (in which the insurance company invests) and groups of liabilities related to insurance contracts
outstanding (valued at their current value). In this case, an irrevocable designation to FVTPL (instedad of at
amortized cost) is possible at inception
B.2) A decrease in market value of a FVTPL bond should influence its fair value and therefore is relevant. It
shall be recognized by the decrease of the value of the bond written in assets and by a negative sign item in the
statement of income.
C) HTC
C.1) A loan to a customer is for a bank, normally, within the business model to collect contractual cash flows.
Since it meets also the SPPI requirement, the loan shall be classified in HTC.
C.2)
i) A major breach of contract requires to consider with particular attention the need for impairment of the HTC
loan, since it's one of the signals of increase in risk of the financial asset.
ii) A temporary slight difficulty of the borrower, if not accompanied by other signals, in itself should not give
rise to an impairment of a HTC loan. Of course the bank shall consider the reasons and the importance of the
difficulty, and monitor the develpoments in the situation of the borrower, to see if its difficulty is overcome or
not (that is, if the risk of the financial assets has not or has increased).
FINAL EXAM – AGUST 31ST 2021
NOTES:
IV) This is the paper version of the online exam which was held online through the Blackboard
platform. In the online version, all questions are in the “essay” mode (free text) and no compulsory
scheme to be filled is assigned.
V) For each question, time assigned and weight in valuation are specified and they necessarily differ
Q-1) STATEMENT OF CASH FLOWS AND STATEMENT OF CHANGES IN EQUITY – MAX

GRADES 8 – TIME ASSIGNED 15 MINUTES
We are preparing the Statement of Cash Flows and the Statement of Changes in Equity of the company
LUFTBALLONS15 A.G. for year 2020.
Indicate, for each of the items hereunder (values are not requested):
(i) its relevance and treatment for the Statement of Cash Flows and for the Statement of Changes in Equity;
(ii) if you would recognize a value with positive or negative sign;
(iii) a short explanation (reason for the writing, reason for the sign, etc.)
ITEMS:
(A) Convertible Bonds partly repaid to Bondholders and partly converted into Equity
(B) Depreciation of Tangible fixed assets
(C) Dividends paid to Shareholders
(D) “Mixed” Share Capital increase: partly Paid-in and partly with issue of Bonus Shares
Q-2) EQUITY & EPS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES
(A) Calculate consolidated Basic EPS.

You have the following information concerning SCROOGE Plc consolidated results for year 2020.
01/March/2020: 1-for-3 Share reverse split.
01/Sept./2020 New shares issued Nr. 500 (detail of the issue: Nr. 300 issued for cash; the remaining part of the
shares issued as bonus shares);
01/Nov./2020 Purchase of Treasury shares Nr. 40.
OTHER INFORMATION:
Total consolidated Net profit CU 15.000.
(B) Explain shortly the treatment of treasury shares in the calculation of EPS.
31st August 2021 Exam – Advanced Financial Accounting 1

Q-3 – IMPAIRMENT OF FIXED ASSETS – MAX GRADES 8 – TIME ASSIGNED 15 MINUTES
(A) Are these cases relevant for the need to perform an impairment test on the value of a CGU written in
assets?
A.1) A performance of CGU Alpha slightly lower than budget, because of a short slowdown in its production
activities generated by a delay in receiving supplies due to a temporary strike in transport.
A.2) Competitors have recently made important investments in new and much more efficient machinery, so
that production costs of CGU Beta are strongly higher than those of competitors.
(B) Impairment accounting.

Before impairment, GULLIVER Ltd has a CGU Gamma written in its fixed assets for a total amount of 200
CU, composed of: Machinery 170 CU; Goodwill 30 CU.
B.1) In preparing its half of the year interim Financial Statement as at June 30th 2020, after an impairment test,
GULLIVER Ltd has calculated an impairment loss of 50 CU for the CGU, due to strong market difficulties for
its products.
(i) How would you account this fact in the half of the year interim Financial Statement as at June 30th 2020?
(ii) Comment shortly.
B.2) In preparing its end of the year interim Financial Statement as at December 31st 2020, after an updated
impairment test which considers an improvement occurred in market conditions for its products, GULLIVER
Ltd has calculated that the impairment loss for CGU Delta could be reduced to 15 CU (instead of 50 CU
accounted in its interim Financial Statement as at June 30th 2020).
(i) How would you account this fact in the end of the year Financial Statement as at December 31st 2020?
(ii) Comment shortly.
Under IFRS 9, explain the following problems related to classification and measurement of financial assets.
(A) Two different Corporate bonds, on which no sales have occurred during the year.
A.1) Bond Alpha is paying interest calculated on share market index performance. Can it be classified in the
HTC (Held To Collect) class?
A.2) Bond Beta is paying interest calculated on inflation indexing. Can it be classified in the HTC (Held To
Collect) class?
(B) Government bond, correctly classified in the HTC (Held To Collect) class, purchased at 90 CU with
repayment at expiry at 100 CU, paying yearly fixed interest at a rate of 5%.
Is interest accrued yearly equal to 5%, higher than 5% or lower than 5%? Explain shortly.
(C) IFRS 9 and IAS 39: what is the major difference in the valuation of the impairment on losses on bank
loans to customers?
31st August 2021 Exam – Advanced Financial Accounting 2

FINAL EXAM - AUGUST 31st 2021 - SOLUTION DRAFT
Please note: in this draft of solution, explanations are fairly detailed for a better
understanding of problems; in the valuation of the exam papers, since it was an online
exam with restricted time assigned, shorter answers have been accepted, provided that
they highlighted correctly problems.
QUESTION Nr. 1) STATEMENT OF CASH FLOWS AND STATEMENT OF CHANGES

IN EQUITY - LUFTBALLONS15 A.G.
A) Convertible bonds
Repaid part:
- it is relevant for the SofCF, since it requires cash, but not for the SofCHinEQ, since it produces a
decrease in liabilities;
- it has negative sign in the SofCF, cash outflow for the repayment, in the Financing activities section.
Converted part:
- it is not relevant for the SofCF, since it's a non-cash operation;
- it is relevant for the SofCHinEQ, since it's a decrease in liabilities and an increase in equity;
- therefore it has positive sign in the SofCHinEQ, since it's an increase in share capital.
B) Depreciation of fixed assets

The item is relevant for preparing the SofCF as an adjustment in the calculation of Cash flow from
operating activities.
Using the indirect method for preparing the SofCF, profit or loss before taxes is net of depreciation,
and since depreciation is a non-cash expense, written with negative sign in the Statement of Income,
there's the need for a positive sign adjustment.
It is not relevant for the SofCHinEQ: it doesn't appear in it, since it's a Statement of Income item.
C) Dividends paid to shareholders

It is relevant for both the SofCF and the SofCHinEQ, since it's a cash distribution of equity to
shareholders.
In the SofCF it will appear in the financing activities section, with negative sign, since it's a cash
outflow.
In the SofCHinEQ it will appear as a change with negative sign occurred during the period:
distribution implies a reduction of equity, in terms of reduciton of former year profit, or of retained
earnings, or of other distributable item within equity.
D) Mixed share capital increase.

Paid-in part:
- it is relevant for the SofCF, because it is for cash;
- in the SofCF it will appear in the financing activities section, with positive sign since it's a cash
inflow;
- in the SofCHinEQ it will appear as a change with positive sign, since it's an increase in equity related
to share capital.
Bonus part:
It is an accounting shift within equity, from reserves to share capital, therefore:
- it is not relevant for the SofCF, because it's a non-cash operation;
- in the SofCHinEQ there will be no increase in total value of equity, but a change in composition of
equity will take place: an increase (positive sign) in share capital; a decrease (negative sign) in
reserves, for the same amount.
Page 1 of 4
QUESTION Nr. 2) EPS
A) CONSOLIDATED BASIC EPS

01/01/2020 3.000 0 3.000
01/01/2020 1for3 share reverse split 1.000 0 1.000
01/01/2020 bonus issue 1.200 0 1.200
01/09/2020 issue for cash 1.500 0 1.500
01/11/2020 1.500 40 1.460
1.200 2/3 800

1.500 1/6 250
1.460 1/6 243

Consolidated Basic EPS CU 10,825
B) TREASURY SHARES
Treasury shares are shares of the entity purchased by the entity itself or by another
company within the group (using cash for the purchase) and still held by the purchaser
itself (not cancelled).
In the calculation of EPS, treasury shares have to be subtracted from issued shares:
in fact, for a correct calculation of the number of shares we have to consider only the
shares effectively owned by "effective" shareholders (outstanding shares) and not
issued shares.
If negotiations (purchases or sales) of treasury shares occured during the year, in the
weighted average calculation would be necessary to weigh correctly the number of
shares in each subperiod.
Page 2 of 4
A) RELEVANCE FOR THE NEED OF AN IMPAIRMENT TEST
A.1) The performance of CGU Alpha is only slightly lower than budget, and furthermore this is due to a short
temporary external fact. It is a situation of internal/external indicators which don't appear to signal a possible
impairment. Of course the situation should be considered differently in case of relevant worsening due to not
temporary facts.
A.2) The competitive outlook in the industry has changed strongly, with the risk that CGU Beta could suffer from a
reduction in its profitability, due to likely aggressive policies by competitors having now lower production costs.
These are typical signals for a possible impairment and therefore an impariment test should be performed.
B) IMPAIRMENT ACCONTING - GULLIVER/CGU GAMMA

B.1) HALF OF THE YEAR INTERIM FINANCIAL STATEMENT
Statement of financial position at 30/06/2020
Fixed assets CGU Gamma 150
Goodwill before impairment 30
less impairment at 30/06/2020 (30)
0
Machinery before impairment 170
150
Statement of income 01/01-30/06/2020

Impairment loss at 30/06/2020 (50)
Impairment allocation in a CGU first reduces goodwill, and for the remaining part other fixed assets pro-quota.
B.2) END OF THE YEAR FINANCIAL STATEMENT

Statement of financial position at 31/12/2020
Fixed assets CGU Gamma 170
Goodwill before impairment 30
0
Machinery before impairment 170
plus impairment reversal at 31/12/2020 20
170
Statement of income 01/01-31/12/2020

plus impairment reversal at 31/12/2020 20
An impairment loss reversal can be written for fixed assets (tangible and intangible, goodwill not included) within
a CGU, provided that the conditions which led to the impairment loss are changed.
For goodwill, no reversal is allowed, even if it has been written in an interim financial statement.
Note that the full potential reversal value indicated by the new impairment test (35) cannot be recognized, and
only 20 of reversal can be recognized, with the following effects:
- in the SoFP at the end of the year, machinery is written back to the original value before impairment (170);
- in the SoI for the (full) year, impairment loss for the year is reduced to 30.
This because the limit of any reversal of impairment for fixed assets (other than goodwill, of course) is the carrying
amount before impairment, reduced by the part of cumulated depreciation not accounted for because of the
impairment (that is the additional part of cumulated depreciation that would have been accounted for if the
impairment hadn't taken place).
Note also that in this case, to simplify calculation, no information about depreciation accrued nor in the first six
months nor in the second six months of the year is given, so that for machinery the value of 170 can be written in
assets. Of course, if there had been depreciation not accounted for, the reversal of impairment would have been
lower than 20, and the value of machinery in assets lower than 170.
Page 3 of 4
QUESTION Nr. 4) IFRS 9 CLASSIFICATION AND MEASUREMENT
A) HTC REQUIREMENTS
A.1) Although the business model condition is presumably met, Bond Alpha cannot be classified in the
HTC class, because the SPPI condition is not met: interest paid is calculated on share maket index
performance, with a risk profile in future yeld (and cash flows) not compliant with the typical debt contract
features requirement of SPPI.
A.2) Bond Beta can be classified in HTC, provided that its owner includes it in this business model
portfolio. In fact: no sales occurred during the period; SPPI condition is met, since interest paid is calculated
considering an indexing to inflation. Of course if indexing to inflation would be leveraged (that is, indexing
higher than 100% of the inflation index), the requirement of SPPI would not be met and HTC classification
could not be accepted.
B) HTC EFFECTS OF AT AMORTIZED COST VALUATION

The bond had a carrying value at inception lower than repayment value at maturity. Therefore, since it's
classified in the HTC class, interest accrued is higher than 5%: with the at mortized cost valuation, interest
accrued is calculated considering effective interest rate, deriving from the progressive nearing to repayment
date and final cash inflow. In the case considered, interest accrued is higher than interest cashed.
C) MAJOR DIFFERENCE IN IMPARIMENT LOSSES ON BANK LOANS

For banks, the major difference in the valuation of loans to customers introduced by IFRS 9 is that not only
already occurred negative events ("trigger") shall be considered, but also expected credit losses deriving
from the adoption of a forward looking approach, with adequate simulations. This, in general, required to
IFRS adopting banks additional credit losses allowances.
Page 4 of 4
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI - FINAL EXAM – DECEMBER 21ST 2021
Question Nr. 1 1.a) Prepare the Statement of Cash Flows of EJECT BUTTONS Ltd for year 2020 using the
inventories 25; Total share capital increase 230, of which 182 issued for cash and the remaining part issued as
bonus shares; Increase in accounts receivables 82; Cash and cash equivalents at end of the year 24; Loss
before tax 65; Depreciation 127; Losses on disposal of fixed assets 22; Proceeds from disposal of fixed assets
75; Income tax paid for cash 8; Provisions charged to Statement of Income for the risk of a lawsuit 141.
1.b) Explain shortly the following issues related to the above case of EJECT BUTTONS Ltd. 1.b.i) Total
share capital increase: is there any difference in the values written in the Statement of Cash Flows and in the
Statement of Changes in Equity and why? 1.b.ii) Provisions charged to Statement of Income: is there any
difference in the values written in the Statement of Cash Flows and in the Statement of Income and why?
Question Nr. 2 You have the following information on PUPPET DANCE Plc consolidated results for year
2020. Ordinary shares: 01/JAN/2020 Total shares Nr. 2.000; 01/JAN/2020 Treasury shares Nr. 0;
01/JUL/2020 New bonus shares issued Nr. 300; 01/OCT/2020 Purchase of Treasury shares Nr. 90;
01/DEC/2020 Sale of Treasury shares Nr. 30.
13.500; Convertible bonds outstanding Nr. 1.000; Each block of Nr. 4 convertible bonds is convertible into
Nr. 1 ordinary share; Dividend paid on ordinary shares CU 180; Interest expense for the current year relating
to the liability component of the convertible bond CU 220 (current and deferred tax relating to this interest
expense CU 58).
2.a) Calculate consolidated Basic EPS; 2.b) Calculate consolidated Diluted EPS; 2.c) All other data being
unchanged, what would be the value of consolidated Diluted EPS if the conversion rate of convertible bonds
would be “Each block of Nr. 50 convertible bonds is convertible into Nr. 1 ordinary share”? Why?
Question Nr. 3 Impairment of fixed assets under IAS 36: 3.a) Definition of Cost of Disposal; 3.b) GREAT
EXPECTATIONS Inc. analyzes the CGU OLD CHARLES, which is going to be closed, due to a
reorganization of the whole group. If: Carrying amount = 25 CU; Value in use 24 CU; Fair value less Cost of
disposal 27. Which value of the CGU would you write in the Statement of Financial Position? Why?
Question Nr. 4 4.a) EBENIZER BANKS is considering, under IFRS 9, the following problems related to
classification of financial assets in the At Amortized Cost class or in another financial assets class: 4.a.i) a
debt instrument receiving fixed interest payments and with a final repayment linked to the market price of
aluminum; 4.a.ii) a Government bond issued in Euros, with interest payments paid in US Dollars and indexed
80% to US inflation rate.
4.b) IMPERFECT STORM Plc applies IFRS 9 and purchased on 1st January 2020 a debt instrument
classifying it into the At Amortized Cost financial assets as follows: price paid 101,67 CU, direct commission
paid to broker 0,15 CU, overhead company costs 0,20 CU. The debt instrument has the following terms: 2
years remaining to maturity; principal amount 100,00 CU; fixed interest rate paid annually 7,50%.
4.b.i) Valuate the financial asset at 31st Dec. 2020. 4.b.ii) Show the effects of the valuation of the debt
instrument in the Financial Statement as at 31st Dec. 2020.
Question Nr. 5 SHEPHERDS Plc owns a shareholding of 15% in the share capital of BAGPIPES Ltd and has
decided to include this company in its consolidated Financial Statement according to IFRS 10. 5.a) Do you
agree with the inclusion decision, considering that SHEPHERDS purchases the 95% of the production of
BAGPIPES? 5.b) BAGPIPES has in its separate Financial Statement receivables for 120 CU, of which 100
CU are towards SHEPHERDS. SHEPHERDS has written in the consolidated Statement of Financial Position
18 CU of these receivables, on the basis of its 15% shareholding. Do you agree with that?
FINAL EXAM - JUNE 11th 2019 - SOLUTION DRAFT
QUESTION Nr. 1)
EJECT BUTTON Ltd - Statement of Cash Flows - Year 2020 (CU)

Income tax paid (8)



i) In the Statement of Cash Flows a cash inflow (positive sign) of 182 CU is written, due to the paid-in
part of the share capital increase, while the remaining 48 CU bonus part is not relevant, since it's only an
accounting entry ("scrip issue"). Accordingly, in the Statement of Changes in Equity, increase in equity is
182 CU, because the remaining 48 CU is only an accounting shift from available riserves to shares issued.
In fact, shares issued increase by 230 CU, while available reserves reduce by (48) CU.
ii) Provisions are a Non-cash expense, written (accrued) in the Statement of Income because of future but
still uncertain expected payments and therefore affecting negatively income or loss for (141) CU. In the
Statement of Cash Flows, Provisions have to be adjusted with a positive-sign adjustment of 141 CU in
the Operating Activities section, since payments haven't taken place.
QUESTION Nr. 2) PUPPET DANCE Plc
2.a) CONSOLIDATED BASIC EPS

01/01/2020 2.000 0 2.000
01/01/2020 bonus issue 2.300 0 2.300
01/10/2020 2.300 90 2.210
01/12/2020 2.300 60 2.240
2.300 3/4 1.725

2.210 1/6 368
2.240 1/12 187

Basic EPS CU 5,26
2.b) CONSOLIDATED DILUTED EPS


2.c) ALTERNATIVE SIMULATION FOR CONSOLIDATED DILUTED EPS AND COMMENT

Calculation for Consolidated Diluted EPS CU 5,29
In case 2.b. Consolidated Diluted EPS is 4,81 CU, lower than that of Consolidated Basic EPS and this
means that there's a dilutive effect: in the (likely) case in which the conversion option will be exercised,
profitability for ordinary shareholders of the group will be lower.
In case 2.c. calculation of Consolidated Diluted EPS is 5,29 CU, higher than that of Consolidated Basic
EPS and this means that there's an antidilutive effect: in the (unlikely) case in which the conversion option
will be exercised, profitability for ordinary shareholders of the group would be higher. Therefore
consolidated Diluted EPS would coincide with consolidated Basic EPS of 5,26 CU, since rules of IAS 33
correctly don't consider antidilutive (better profitability) scenarios.
QUESTION Nr. 3)
3.b) GREAT EXPECTATIONS - CGU OLD CHARLES

Since the CGU is going to be closed, in the impairment test the Value in Use cannot to be considered
as recoverable amount (the fact that Fair Value less Cost of disposal is higher than Value in Use is
not relevant). Fair Value less Cost of disposal (27) is higher than Carrying amount (25): therefore the
value of the CGU written in the assets of the Statement of Financial Position shall not be impaired
and former carrying amount shall be kept (25).
QUESTION Nr. 4.)
4.a) IFRS 9 CLASSIFICATION PROBLEM

Both problems are related to the Solely Payments of Principal and Interest condition requested for the
classification in the At Amortized Cost class of Financial Assets, as follows:
4.a.i) SPPI condition is not respected, because, although interest payments have typical features of a debt
instrument, there's a raw materials risk exposure for cash flow at repayment;
4.a.ii) SPPI condition is not respected, because, although interest payments are indexed to inflation and indexing
is not leveraged (80% of inflation rate), the debt instrument pays cash flows in a currency (USD) different from
the currency in which it was issued (Euro).
4.b.i) VALUATION
Price paid 101,67

Principal 100,00

IRR 6,500%
Amortized
Interest Amortized
cost at the
Year income Cash flows cost at the end
beginning of
accrued of the year
the year
2020 101,82 6,62 7,50 100,94
4.b.ii) EFFECTS ON FINANCIAL STATEMENTS
Imperfect Storm Plc - Statement of Financial Position at 31.12.2020

101,82
(0,88)
Imperfect Storm Plc - Statement of Income - Year 2020

(0,88)
QUESTION Nr. 5)
5.a) SHEPHERDS/BAGPIPES INCLUSION IN THE CONSOLIDATION

The decision to include Bagpipes subsidiary in the consolidation area is correct: in fact, although the
percentage of shareholding is quite low for control, its nearly total commercial dependence (95%) on
the Group has to be considered as a factor determining control.
5.b) SHEPHERDS/BAGPIPES - VALUE OF CONSOLIDATED RECEIVABLES

According to IFRS 10, the full consolidation method shall be adopted. That means considering 100%
of receivables of the subsidiary; of course the full value shall be adjusted with the elimination of
intercompany receivables: 120 - 100 = 20 CU. Therefore the calcualtion of 18 CU (120 x 15%)
contains two mistakes: it doesn't adopt the full consolidation method; it doesn't adjust for
intercompany receivables.
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI
FINAL EXAM – 15th January 2018
Question Nr. 1
1.1) Prepare the Statement of Cash Flows of Potato Ltd for year 2017 using the following information (CU;
not all data are necessarily relevant): Losses on disposal of fixed assets 27; Decrease in inventories 120;
Dividends paid 60; Cash and Cash equivalents at the beginning of the year 54; Depreciation 270; Medium-
term loans from banks at the end of the year 543; Decrease in medium-term loans from banks 297; Increase
in accounts receivables 105; Net issue of shares against cash 540; Purchases of fixed assets 150; Proceeds
from disposal of fixed assets 199; Cash and Cash equivalents at the end of the year 343; Loss before tax
210; Gains on disposal of fixed assets 45.
Question Nr. 2
2.1) You have the following information concerning Tomato Plc results for year 2017.
Net profit attributable to non-controlling interest CU 1.000; Net profit before non-controlling interest CU
6.000; Weighted Average of Ordinary shares outstanding Nr. 400.
Convertible bonds outstanding Nr. 250; Each block of Nr. 5 convertible bonds is convertible into Nr. 1
ordinary share; Interest expense for the current year relating to the liability component of the convertible
bond CU 60 (current and deferred tax relating to this interest expense CU 18); Interest expense on non-
convertible bonds CU 80 (current and deferred tax relating to this interest expense CU 24).
i) Calculate consolidated Basic EPS (use only relevant data);
ii) Calculate consolidated Diluted EPS (use only relevant data).
2.2) What are antidilutive effects? Are they relevant for Diluted EPS calculations? Why?
2.3) What is a share split? When does it usually occur? What are its effects on EPS calculation?
Question Nr. 3
3.1) Under IAS 39, explain the main features of the “Fair Value Through Profit and Loss” class of financial
assets.
3.2) Lime Investments Plc purchased on 1st January 2016 a debt instrument paying a price of 1.045,46 CU
and a direct commission to the broker of 9,00 CU. The debt instrument has the following terms: 3 years
remaining to maturity; principal amount 1.000,00 CU; fixed interest rate paid annually 7,00%.
i) Calculate amortized cost of the financial asset at 31st December 2016 and at 31st December 2017.
ii) Show the effects of the valuation of this debt instrument in the Statements of Financial Position as at 31st
December 2016 and as at 31st December 2017 and in the Statements of Income for years 2016 and 2017.
Question Nr. 4
4.1) Consolidation procedures: explain the difference between the treatment of intercompany balances and
the treatment of profit and losses resulting from intercompany transactions recognized in assets.
4.2) In Consolidated Financial Statements: a) Is there any conceptual difference between “minority interest”
and “non-controlling interest”? b) In BP Consolidated Half Year report as at June 30th 2009 we read the
following information (in USD Million): Current Liabilities 59.320; Total assets 235.968; Net Sales and
other operating revenues 102.073; BP shareholders’ equity 101.613; Minority interest equity 500; Non-
current liabilities 74.535. Prepare the Consolidated Statement of Financial Position as at June 30th 2009 (use
only relevant information).
QUESTION Nr. 1.1) POTATO LTD
Statement of Cash Flow - Year 2017 (CU)

Increase in accounts receivable (105)
Cash provided by operating activities 57
Net cash used in investing activities 49
Dividends paid (60)
Decrease in medium-term loans from banks (297)
Net issue of shares 540
Cash produced by financing activities 183
Page 1 of 4
QUESTION Nr. 2.1) TOMATO Plc
i) CONSOLIDATED BASIC EPS

Weighted average Nr. of outstanding shares 400
Basic EPS CU 12,50
ii) CONSOLIDATED DILUTED EPS


Conversion rate one-for-five 1 5 0,2000
Weighted average Nr. of outstanding shares 400
Number of ordinary shares used to calculate Diluted EPS 450
Number of ordinary shares used to calculate Diluted EPS 450
Page 2 of 4
QUESTION Nr. 3.2) LIME INVESTMENTS Plc
i) Amortized cost calculation.
Price paid 1.045,46

Fair value at inception 1.054,46
Principal 1.000,00
Time to maturity 0 1 2 3 Total

Non-discounted cash flows (1.054,46) 70,00 70,00 1.070,00
Discounted cash flows (1.054,46) 66,67 63,49 924,31 0,00
IRR 5,000%
Amortized
Interest Amortized
cost at the
beginning of
accrued of the year
the year
2016 1.054,46 52,72 70,00 1.037,18
2017 1.037,18 51,86 70,00 1.019,04
ii) Effects on Financial Statements
Statement of Financial Position at 31.12.2016

1.054,46
(17,28)
Amortized cost 1.037,18

70,00
(17,28)

1.037,18
(18,14)
Amortized cost 1.019,04

70,00
(18,14)
Page 3 of 4
QUESTION Nr. 4.2) BP GROUP
BP Group - Consolidated Statement of Financial Position as at 30th June 2009

Current liabilities 59.320
Non-current liabilities 74.535
Total Liabilities 133.855
BP shareholders' equity 101.613

Minority interest equity 500
Total equity 102.113
TOTAL ASSETS 235.968 TOTAL LIABILITIES AND EQUITY 235.968
Page 4 of 4
ADVANCED FINANCIAL ACCOUNTING – PROF. ALBERTO MARCHESI - FINAL EXAM – FEBRUARY 2ND 2018
Question Nr. 1.
1.1) a) Prepare the Statement of Cash Flows of Grandpiano Ltd for year 2017 using the following
information (all data in CU): Increase in accounts payables 622; Dividends paid 300; Proceeds from
disposal of fixed assets 840; Increase in banks overdrafts 540; Increase in accounts receivables 860;
Cash and cash equivalents at end of the year 80; Cash and cash equivalents at beginning of the year
986; Loss before tax 138; Depreciation 738; Gains on disposal of fixed assets 88; Purchases of fixed
assets 2.860; Issue of new bonds for cash 1.976; Increase in inventories 1.376.
b) Explain the effect on cash flows of increase in accounts receivables.
1.2) a) Prepare the Statement of Changes in Shareholders’ Equity of Tubular Bells Plc for year 2017
using the annexed scheme and the following information (all data in CU): previous year Net Loss has
been fully covered (detail of the covering operation: contributions paid by shareholders to cover
losses 1.800; the remaining part of the loss has been covered offsetting it with Retained earnings);
Issue of new Preference shares for cash during year 2.610; Issue of new ordinary shares of 3.000
(detail of issue of ordinary shares: 900 issued as bonus issue; the remaining part issued for cash;
additional paid-in capital of 600 requested to new ordinary shareholders); Total comprehensive
income for the year 4.278 (detail of total comprehensive income: net profit 3.801; decrease in AFS
valuation reserve 348; revaluation of fixed assets of 825 to be charged to Revaluation surplus).
Question Nr. 2
We are preparing year 2017 financial statement of Saxophone Ltd.
a) Calculate consolidated Basic EPS of for year 2017 using the following information.
Total Consolidated Net profit CU 11.000; Net profit for non-controlling interest CU 4.200.
01.03.2017 Issue of new shares for cash nr. 1.800.
01.10.2017 Issue of nr. 27.000 new shares as follows: nr. 2.000 for cash; nr. 25.000 bonus shares.
b) In year 2016 financial statement Consolidated Basic EPS of Saxophone Ltd was calculated on
these numbers: Average nr. of outstanding shares 4.880; Net profit after non-controlling interest CU
4.800; Net profit for non-controlling interest CU 975. Calculate Consolidated Basic EPS for the year
2016 to be disclosed in the financial statement for year 2017.
c) Explain the treatment of Convertible Bonds in the calculation of Diluted EPS.
Question Nr. 3 Impairment of fixed assets. a) Impairment loss: definition and accounting allocation.
b) Impairment loss reversal.
Question Nr. 4
4.1) Cello Investments Plc purchased on 1st January 2016 a debt instrument paying a price of 986,76
CU and overhead administration costs of 8,00 CU. The debt instrument has the following terms: 3
years remaining to maturity; principal amount 1.000,00 CU; fixed interest rate paid annually 6,00%.
i) Calculate amortized cost of the financial asset at 31st December 2016 and at 31st December 2017.
ii) Show the effects of the valuation of this debt instrument in the Statements of Financial Position as
at 31st Dec. 2016 and as at 31st Dec. 2017 and in the Statements of Income for years 2016 and 2017.
4.2) Under IFRS 9, explain the requirements and conditions necessary to classify a security in the “At
Amortized Cost” class of financial assets.
FINAL EXAM - FEBRUARY 2nd, 2018 - SOLUTION DRAFTS
QUESTION Nr. 1.1) GRANDPIANO LTD - SOLUTION DRAFT
a) STATEMENT OF CASH FLOW
GRANDPIANO Ltd - Statement of Cash Flow - Year 2017 (CU)

Increase in inventories (1.376)
Increase in accounts payables 622
Cash produced by (used in) operating activities (1.102)
Purchases of fixed assets (2.860)

Net cash produced by (used in) investing activities (2.020)
Dividends paid (300)

Increase in bank overdrafts 540
Bonds issued 1.976
Cash produced by (used in) financing activities 2.216
b) Increase in accounts receivables reduces cash produced by operating activities, because it is related to
sales not yet cashed.
Page 1 of 5
Avanced Financial Accounting - EXAM 2018 February 2nd
Question 1.2): TUBULAR BELLS Plc - Statement of Changes in Shareholders' Equity as at 31st December 2017
Allocation of
Balance as at previous year profit (loss): Other changes Issue of new
(CU) Income at Equity as at
1st.01.2017 profit (loss): Contributions in reserves shares
31st.12.2017 31st.12.2017
Reserves from
shareholders
Preference shares 0
Additional paid-in capital 1.590
Retained earnings 2.205
Valuation reserves: other valuation reserves 2.364
Net Profit (Loss) (2.967)
Page 2 of 5
QUESTION Nr. 1.2) TUBULAR BELLS Plc - SOLUTION DRAFT
TUBULAR BELLS Plc - Statement of Changes in Shareholders' Equity as at 31st December 2017
Allocation of
Balance as at previousyear profit (loss): Other changes Issue of new
1st.01.2017 profit (loss): Contributions in reserves shares
31st.12.2017 31st.12.2017
Reserves from
shareholders
Preference shares 0 2.610 2.610
Additional paid-in capital 1.590 600 2.190
Retained earnings 2.205 (1.167) (900) 138
Valuation reserves: revaluation surplus 1.200 825 2.025
Valuation reserves: other valuation reserves 2.364 (348) 2.016
Net Profit (Loss) (2.967) 1.167 1.800 3.801 3.801
Total Shareholders' Equity 13.392 0 1.800 0 5.310 4.278 24.780
check 24.780
Cash contributions of 1.800 CU paid by shareholders are a real increase in equity (new cash obtained by the entity from shareholders): therefore they decrease the
value of Loss of previous year, but must not be offset with any other line of equity components. On the other hand, the remaining part of the Loss of previous year
of 1.167 CU is covered with Retained earnings reserve and therefore Retained earnings are reduced.
Page 3 of 5
QUESTION Nr. 2) SAXOPHONE Ltd - SOLUTION DRAFT
a) YEAR 2017

Nr. of shares
01.01.2017 Balance at the beginning of the year 5.000 (200) 4.800
01.01.2017 Adjustment for bonus shares 25.000 29.800
01.03.2017 Issue of new shares for cash 1.800 31.600
01.06.2017 Purchase of treasury shares for cash (350) 31.250
01.09.2017 Sale of treasury shares for cash 550 31.800
Shares Weighted
Weight
outstanding shares
29.800 1/6 4.967
31.600 1/4 7.900
31.250 1/4 7.813
31.800 1/12 2.650
33.800 1/4 8.450
Basic EPS year 2017 = 6.800 = 0,21

31.779
Average nr. of shares before adjustment for bonus issue 4.880

Adjustment for bonus issue occurred in 2017 25.000
Adjusted average nr. of shares 29.880
Basic EPS year 2016 adjusted for bonus issue of 2017 = 4.800 = 0,16
29.880
In EPS calculation, for comparability reasons, Non-cash operations on equity must be considered as if they
had occurred from the earliest period disclosed in the Financial Statement. Therefore:
- in EPS for year 2017 they are considered as occurred at 1st Jan 2017;
- in EPS for year 2016 to be included in 2017 Financial Statement, they are considered as occurred at 1st Jan
2016: of course the new adjusted 2016 EPS disclosed in 2017 F.S. will be different from the one disclosed
in 2016 F.S.
Page 4 of 5
QUESTION Nr. 4.1) CELLO INVESTMENTS Plc
Price paid 986,76

Principal 1.000,00
Overhead costs cannot be included in fair value at inception.

Non-discounted cash flows (986,76) 60,00 60,00 1.060,00
Discounted cash flows (986,76) 56,34 52,90 877,52 (0,00)
IRR 6,500%
Amortized
Interest Amortized
cost at the
beginning of
accrued of the year
the year
2016 986,76 64,14 60,00 990,90
2017 990,90 64,41 60,00 995,31
Since the financial asset was purchased at a price lower than repayment value at expiry date, amortized cost increases
during time, following a curve path and not a straight line, due to the discounting effect.

986,76
4,14

Cashed interest 60,00
Increase in amortized cost 4,14

990,90
4,41

60,00
4,41
Page 5 of 5
Question Nr. 1.
1.1) Statement of Cash Flows according to IAS 7: a) What kind of investments in financial assets can be
considered cash equivalents? b) Direct and indirect method to calculate Cash Flow from Operating activities.
1.2) a) Prepare the Statement of Changes in Shareholders’ Equity of All-Chemists Plc for year 2017 using the
annexed scheme and the following information (all data in CU). I) Previous year Net Loss has been fully
covered (detail of the covering operation: the loss has been partly covered offsetting it with Retained earnings
for 821 and with Additional paid-in capital for 313; the remaining part has been covered with cash
contributions specifically paid by shareholders to cover losses). II) Issue of new ordinary shares of 4.500
(detail of issue of ordinary shares: 1.000 issued as bonus issue; the remaining part issued for cash; additional
paid-in capital of 700 requested to new ordinary shareholders). III) Total comprehensive income for the year
723 (detail of total comprehensive income: net loss 57; increase in AFS valuation reserve 1.155; impairment
loss of previously revalued fixed assets of 375 to be charged as decrease of Revaluation surplus).
Question Nr. 2
a) Calculate consolidated Basic EPS of Straw Skates Ltd for year 2017 using the following information.
Case I) Total Consolidated Net profit CU 8.000, of which Net profit for non-controlling interest CU 0.
01.01.2017 Balance at beginning of year: Ordinary shares issued nr. 4.000; Treasury shares nr. 150.
01.03.2017 Issue of nr. 7.000 new ordinary shares as follows: nr. 7.000 for cash; nr. 0 bonus shares.
Case II) Calculate consolidated Basic EPS in the case that Net profit for non-controlling interest was 4.500.
All other data unchanged from Case I. Comment shortly the difference from Case I.
Case III) Calculate consolidated Basic EPS in the case that the 01.03.2017 new ordinary shares issue was as
follows: nr. 1.000 for cash; nr. 6.000 bonus shares. All other data unchanged from Case I. Comment shortly
the difference from Case I.
Question Nr. 3 Impairment of fixed assets according to IAS 36.
a) In measuring Value in Use, shall we use a risk-free rate for discounting estimated future cash flows?
b) Smart Saddles Inc. is considering the value of its shareholding in subsidiary Stirrups Inc. written in its
Statement of Financial Position: should it consider the fact that Stirrups Inc. has recorded operating profits
much lower than expected in budgets as a possible impairment indicator for the valuation of its shareholding?
c) Comment the following information taken from a Financial Times article: i) European companies in 2011
have reported their biggest goodwill impairments since the financial crisis, because managers revisited
optimistic assumptions used in acquisitions; ii) Such write-downs eat into profit; iii) The unusually large
number of listed companies trading at less than their book value raised the prospect of further goodwill
impairments.
Question Nr. 4
Tablet Plc purchased on 1st January 2016 a debt instrument paying a price of 890,27 CU, brokerage direct
commission of 0,80 CU, and incurring in overhead administration costs of 8,00 CU. The debt instrument has
the following terms: 3 years remaining to maturity; principal amount 1.000,00 CU; fixed interest rate paid
annually 1,00%.
i) Calculate amortized cost of the financial asset at 31st Dec. 2016, and at 31st Dec. 2017.
ii) Show the effects of the valuation of this debt instrument in the Statements of Financial Position as at 31st
Dec. 2016 and as at 31st Dec. 2017 and in the Statements of Income for years 2016 and 2017.
Question Nr. 5
a) Consolidation procedures: treatment of profit and losses resulting from intercompany transactions
recognized in assets. b) In Consolidated Financial Statements, is there any difference between “minority
interest” and “non-controlling interest”?
Avanced Financial Accounting - EXAM - 2018 June 12th
ANNEXE
ALL-CHEMISTS Plc - Statement of Changes in Shareholders' Equity as at 31st December 2017

Allocation of
1st.01.2017 profit (loss): Contributions shares
31st.12.2017 31st.12.2017
Reserves from
shareholders
Preference shares 1.200
Retained earnings 2.621
Valuation reserves: other valuation reserves 742
Net Profit (Loss) (1.492)
Page 1 of 4
QUESTION Nr. 1.2) ALL-CHEMISTS Plc - SOLUTION DRAFT
ALL-CHEMISTS Plc - Statement of Changes in Shareholders' Equity as at 31st December 2017

Allocation of
1st.01.2017 profit (loss): Contributions shares
31st.12.2017 31st.12.2017
Reserves from
shareholders
Preference shares 1.200 1.200
Additional paid-in capital 313 (313) 700 700
Retained earnings 2.621 (821) (1.000) 800
Valuation reserves: revaluation surplus 1.103 (375) 728
Valuation reserves: other valuation reserves 742 1.155 1.897
Net Profit (Loss) (1.492) 1.134 358 (57) (57)
Total Shareholders' Equity 8.487 0 358 4.200 723 13.768
check 13.768
Part of the Loss of previous year (in total 1.134 CU) is covered with Retained earnings (821 CU) and with Additonal paid-in capital (313 CU):
therefore the corresponding lines of equity components are reduced accordingly, and, of course, there's no effect on Total Shareholders' Equity
value. On the other hand, the remaining part of the Loss of previous year is covered with Cash contributions (358 CU) paid by shareholders, and
these contributions produce a real increase in Equity (new cash obtained by the entity from shareholders): therefore they decrease the value of Loss
of previous year, but must not be offset with any other line of equity components.
Page 2 of 4
QUESTION Nr. 2) STRAW SKATES Ltd - SOLUTION DRAFT
Case I)
Net profit for non-controlling interest 0
Nr. of shares
31.12.2017 Balance at year end 11.000 (92) 10.908
Shares Weighted
Weight
outstanding shares
3.850 1/6 642
10.850 7/12 6.329
10.908 1/4 2.727
Case I: consolidated Basic EPS year 2017 = 8.000 = 0,82
9.698 CU
Case II)
Case II: consolidated Basic EPS year 2017 = 3.500 = 0,36

9.698 CU
In Case II, a relevant part of Total Net profit (before non-controlling interest) is attributable to non-controlling interest
itself: this produces a strong reduction in consolidated Basic EPS (profitability) for group shareholders, and shows the
importance in groups of considering consolidated Basic EPS (group profitability) instead of separate Basic EPS (holding
company profitability, which would have been calculated on the separate data of Straw Skates Ltd).
Case III)
Nr. of shares
01.01.2017 Adjustment for bonus issue 6.000 9.850
31.12.2017 Balance at year end 11.000 (92) 10.908
Shares Weighted
Weight
outstanding shares
9.850 1/6 1.642
10.850 7/12 6.329
10.908 1/4 2.727
Case III: consolidated Basic EPS year 2017 = 8.000 = 0,75
10.698 CU
In Case III, the fact that a relevant part of the share capital increase is a bonus one requires to consider (adjust) the bonus
issue as if it had occurred at the beginning of the earliest period considered, producing a reduction in Consolidated Basic
EPS if compared to Case I (only paid-in share capital increase). This shows the importance of a correct adjustment for
any kind of non-cash operation on shares. Since we are considering only 2017 profitability, the bonus adjustment is
operated on 01.01.2017 only; had we considered also 2016 profitability, we should have adjusted 2016 calculation, too.
Page 3 of 4
QUESTION Nr. 4) TABLET Plc
Price paid 890,27

Brokerage commission 0,80
Principal 1.000,00
Overhead costs cannot be included in fair value at inception.

Non-discounted cash flows (891,07) 10,00 10,00 1.010,00
Discounted cash flows (891,07) 9,52 9,07 872,48 0,00
IRR 5,000%
Amortized
Interest Amortized
cost at the
beginning of
accrued of the year
the year
2016 891,07 44,55 10,00 925,62
2017 925,62 46,28 10,00 961,90
Since the financial asset was purchased at a price lower than repayment value at expiry date (principal), amortized
cost increases during time, following a curve path and not a straight line, due to the discounting effect. The combined
effects of a very low contractual interest rate (1%) and of a purchase price quite under principal amount determine an
effective rate (IRR) much higher than the contractual one.

891,07
34,55


925,62
36,28

Page 4 of 4

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UNIVERSITA’ CATTOLICA DEL S.

CUORE – MILANO - SCHOOL OF BANKING, FINANCE AND INSURANCE

a) STATEMENT OF CASH FLOWS

Stream Network Ltd - Statement of Cash Flows - Year 2018 (CU)

Purchases of fixed assets (123)

Issue of convertible bonds 77

b) COMMENT SCHEME SUGGESTION

a) CONSOLIDATED BASIC EPS

1.450 1/3 483

Total Consolidated Net profit 13.000

b) CONSOLIDATED DILUTED EPS

Number of convertible bonds 900

3.c) FAR-EAST FACTORY CASE

3.d) EUROPE MOTORBIKES CGU

a) IFRS 9 CLASSIFICATION PROBLEM

Price paid 97,00

Time to maturity 0 1 2 Total

b.ii) EFFECTS ON FINANCIAL STATEMENTS

Cratchit Plc - Statement of Financial Position at 31.12.2018

Cratchit Plc - Statement of Income - Year 2018

Cratchit Plc - Statement of Financial Position at 31.12.2019

Cratchit Plc - Statement of Income - Year 2019

Student: Surname ...................................................................................... Name...............................................................................

a) STATEMENT OF CHANGES IN EQUITY

Shares Weighted Shares Weighted

b) YEAR 2017 ADJUSTED FOR THE FINANCIAL STATEMENT OF YEAR 2018

Hypothesis 1 Hypothesis 2 Hypothesis 3

Basic consolidated EPS year 2017 adjusted for both share

01.01.2016 Purchase price 100

a) STATEMENT OF CASH FLOWS

FEKL MAPs Ltd - Statement of Cash Flows - Year 2018 (CU)

Purchases of fixed assets (133)

Share capital paid-in increase 196

b) COMMENT SCHEME SUGGESTION

a) CONSOLIDATED BASIC EPS

1.850 3/4 1.388

Total Consolidated Net profit 13.500

b) CONSOLIDATED DILUTED EPS

Number of convertible bonds 1.000

d) FAR EAST FACTORY

a) IFRS 9 CLASSIFICATION PROBLEM

Price paid 101,67

Time to maturity 0 1 2 Total

b.ii) EFFECTS ON FINANCIAL STATEMENTS

Colosseum Plc - Statement of Financial Position at 31.12.2018

Colosseum Plc - Statement of Income - Year 2018

Colosseum Plc - Statement of Financial Position at 31.12.2019

Colosseum Plc - Statement of Income - Year 2019

Student: Surname ...................................................................................... Name...............................................................................

a) STATEMENT OF CHANGES IN EQUITY

b) YEAR 2017 ADJUSTED FOR THE FINANCIAL STATEMENT OF YEAR 2018

Hypothesis 1 Hypothesis 2 Hypothesis 3

01.01.2016 Purchase price 100

a) STATEMENT OF CASH FLOWS

Purchases of fixed assets (544)

Share capital paid-in increase 194

b) SUGGESTIONS FOR THE ANSWER

c) SUGGESTIONS FOR THE ANSWER