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Aca Masters Far
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Overview
The materials divide each examination area into three sections:
1. Learning Notes: this section summarises the key technical content.
2. Exam Technique Guidance: this section provides specific advice on how to approach the exam
questions.
3. Master Plan: this section categorises all the recent past exam questions by topic.
Our FAR course is designed to accompany these materials as it teaches the technical content and
demonstrates how to answer each type of exam question in order to score prize-winning marks.
1. Watch the class for that topic (if you have purchased the FAR course).
2. Use the Learning Notes to memorise the key technical information for that topic.
3. Read the Exam Technique Guidance and use the Master Plan to practice the recent past
exam questions on that topic from the ICAEW Question Bank.
4. Read the relevant ICAEW Workbook pages to consolidate your technical knowledge on that
topic.
This approach has the following advantages:
• Each study session will be exam focussed as you will be preparing for a specific question in
your exam.
• You will be able to create a study plan which ensures that you cover every examinable topic
and every type of exam question.
• You will be more efficient with your time as you can allocate smaller studying time slots
(weekday lunchtime) to small topics and larger studying time slots (weekends) to large
topics.
• You can watch a video on how to structure a FAR study plan here.
Once you have mastered each topic, you should follow the Final Exam Preparation advice which is
included at the end of the document.
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Contents
▪ Assets (p4)
▪ Provisions (p15)
▪ Groups (p33)
▪ Ethics (p45)
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ASSETS
Property, Plant and Equipment (PPE)
A resource:
• controlled by the company
• as a result of past events
• future economic benefits (cash) probable / potential to produce future economic benefits
• can be measured reliably:
▪ Cost
▪ Fair Value (FV) - price asset could be sold for
▪ Present Value (PV) of future cash flows
1. Cost Model
• Asset depreciated over Useful Economic Life (UEL) when it is ready for use
▪ Each separate component depreciated over its UEL
• Dr P&L, Cr PPE
▪ Land is not depreciated as has infinite UEL
▪ UEL, residual values and depr method reviewed annually
• PPE Carrying Amount (CA) on SFP = Cost – Accumulated Depr
2. Revaluation Model
• Asset depreciated over UEL when it is ready for use as per cost model
• Asset revalued to FV
▪ FV > CA: Dr PPE CA, Cr OCI
• Depr in later years will be higher as PPE now has higher CA
▪ This additional depr will cause profits to be lower
▪ Profits are transferred to Retained Earnings (RE) so RE will be lower due to revaluation
▪ OCI gains are transferred to Revaluation Reserve (RR) so RR will be higher due to revaluation
▪ Can choose to transfer the amount of additional depr from RR to RE
• Dr RR, Cr RE
• Assets must be revalued frequently enough so that FV and CA do not materially differ
• PPE Carrying Amount (CA) on SFP = FV – Accumulated Depr
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IAS 36 Impairment
• Indicator of impairment: physical damage; fall in FV; change in market
• Impairment expense if: Recoverable Amount (RA) < CA
• RA amount is the amount of cash business could generate from the asset
• Higher of:
▪ FV minus costs to sell (FV-CtS)
▪ Value in Use (VIU)
• Present Value (PV) of future cash flows that will be generated from asset
• Cash flow forecast over a maximum of 5 years, excluding tax and financing costs
Discontinued Operations:
▪ Division or subsidiary which has already been disposed of or is held for sale
- Separate geographical area of business / separate market
- Must be able to separate financial information from rest of business
▪ P&L results presented as a single ‘Profit from discontinued operations’ line
- Includes P&L impairment expense from assets classified as AHfS (above)
DEPR
b/f (X)
CY Depr (X) CY depr charge on asset (straight line/reducing balance method)
CY Impairment (X) CY impairment charge
Disposals X Removes accumulated depr on asset derecognised
Revaluation X Reverses accumulated depr on asset, remaining Dr goes to cost (above)
AHfS X Removes accumulated depr on asset which is now reclassified to AHfS
c/f (X)
CA Cost – Depr = CA
b/f X PY SFP
c/f X CY SFP
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Intangible Assets (IA)
A resource:
• controlled by the company
• as a result of past events
• future economic benefits (cash) probable / expectation of future economic benefits
• identifiable:
o Separable: can be sold without selling whole business; or
o Legal rights over asset
• can be measured reliably:
▪ Cost
▪ Fair Value (FV) - price asset could be sold for
▪ Present Value (PV) of future cash flows
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Intangible Assets (note in financial statements)
COST
b/f X
Additions X Cost of asset purchased + directly attributable costs
Development costs (not internally developed goodwill/brands/customer lists)
Disposals (X) Asset derecognised as no longer controlled
Revaluation X Rare as needs to be active market for asset
AHfS (X) Asset reclassified to AHfS so removed
c/f X
AMORTISATION
b/f (X)
CY Amortisation (X) CY amortisation charge on asset (UEL: expected sales period/legal rights)
CY Impairment (X) CY impairment charge
Disposals X Removes accumulated amortisation on asset derecognised
Revaluation X Rare as needs to be active market for asset
AHfS X Removes accumulated amortisation on asset which is now reclassified to AHfS
c/f (X)
CA Cost – Amortisation = CA
b/f X PY SFP
c/f X CY SFP
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Inventories
• Goods sold by the company and materials used to make those goods
• Expense to P&L:
▪ Costs not directly attributable to acquiring inventories
• Storage, selling, distribution
Subsequent Measurement
• Lower of Cost and NRV
• Impairment expense if: Cost > NRV
• Cr Inventory, Dr P&L
Disposal
• When inventory sold to customer
• Allocate items of inventory based on FIFO or WAC
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EXAM TECHNIQUE GUIDANCE
The ‘explain the accounting treatment’ questions have more available marks than maximum marks. This
makes it realistic to target full marks on those questions because you do not need get everything correct to
score full marks. However, you must ensure that you get enough points down to score the marks.
MASTER PLAN
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REVENUE AND GRANTS
IFRS15 Revenue
• Revenue recognised when control transferred (goods delivered/services provided), not when cash
received
Goods Services
Identify customer contract Terms approved by buyer and seller
Identify the distinct Goods to be delivered Services to be provided
Performance Obligations (PO)
Determine Price Future payments: discounted to PV
Non-cash consideration: FV
Variable consideration: most likely outcome/expected value
Allocate Price to PO Goods and services provided together:
Allocate based on standalone prices
Overall discount applied evenly to both
Recognise revenue when When goods delivered to customer When service provided to customer
PO satisfied When customer legally owns goods
• Customer pays within 12m after goods delivered/services provided (pays after PO satisfied)
▪ Contract asset (accrued income) if still some work still to be performed
▪ When goods delivered/services provided: Cr Revenue, Dr Contract Asset
▪ When cash received: Cr Contract Asset, Dr Cash
• Customer pays within 12m after goods delivered/services provided (pays after PO satisfied)
▪ Receivable if no further work to be performed or if invoice sent
▪ When goods delivered/services provided: Cr Revenue, Dr Receivable
▪ When cash received: Cr Receivable, Dr Cash
• Customer pays later than 12m after goods delivered/services provided (pays after PO satisfied)
▪ Price needs to be discounted to PV using discount factor/effective interest rate (EIR)
▪ Cr Revenue, Dr Receivable
▪ Receivable subsequently measured using amortised cost:
B/F Interest Income Cash C/F
X X (X) 0
PV of future payment Discount factor/EIR Payment received from customer
Dr Receivable, Cr Revenue Dr Receivable, Cr Finance Income Cr Receivable, Dr Cash
• EIR will increase the initial asset up to the actual amount of cash received
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• PO satisfied over time
▪ Constructing/creating an asset for customer
▪ Revenue recognised based on progress to competition if
▪ asset has no alternative use and
▪ right to receive payment for work complete
- Output method: value of goods/services transferred as % of total
- Input method: cost of goods/services transferred as % of total
▪ If unable to measure outcome of contract: revenue = recoverable costs incurred
• Warranties
▪ Standard warranty is not a distinct PO (may require a provision)
▪ Additional warranty is a distinct PO
• Principal v Agent
▪ Agent business selling goods/services which Principal business will provide to customer
▪ Agent only recognises commission as revenue
▪ Principal recognises revenue when PO to end customer is satisfied
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IAS20 - Grants
• Income recognised when conditions of the grant will be met, not when cash received
• Accounting policy choice when grant relates to an asset: Capital and Income
1. Capital: Recognise grant against cost of the asset
▪ When grant received: Cr PPE, Dr Cash
▪ Future expenses reduced as depr will be lower
2. Income: Recognise income over the period which the grant conditions are met
▪ When grant received: Cr Deferred Income, Dr Cash
▪ Record over grant condition period: Dr Deferred Income, Cr P&L
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EXAM TECHNIQUE GUIDANCE
The ‘explain the accounting treatment’ questions have more available marks than maximum marks. This
makes it realistic to target full marks on those questions because you do not need get everything correct to
score full marks. However, you must ensure that you get enough points down to score the marks.
MASTER PLAN
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PROVISIONS
A liability of uncertain timing or amount:
• a legal or constructive obligation (constructive obligation: expectation that company will pay)
• as a result of past events
• future economic (cash) outflow probable (probable: more than 50% probability)
• can be measured reliably:
▪ best estimate of future payment
Subsequent Measurement
• Provision remeasured at each year end with movement recorded in P&L
• Dr/Cr Provision, Cr/Dr P&L
• Difference between amount of provision and cash actually paid to settle liability is recorded in P&L
• Cr Cash, Dr Provision, Cr/Dr P&L (difference)
Scenarios
• Onerous contract: future costs exceed future revenue
▪ Legal obligation if there is a contract
▪ A result of past events because legal contract has been signed
▪ Provision is lower of: PV of future costs/contract penalty
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• Asset dismantling and restoration costs
▪ Legal obligation if contract / Constructive obligation if expected behaviour to restore
▪ A result of past events once asset constructed
▪ Provision is PV of future costs
▪ Provision expense directly attributable to bringing asset into use so is capitalised
▪ Cr Provision, Dr PPE
▪ Subsequent depr will be higher
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EXAM TECHNIQUE GUIDANCE
The ‘explain the accounting treatment’ questions have more available marks than maximum marks. This
makes it realistic to target full marks on those questions because you do not need get everything correct to
score full marks. However, you must ensure that you get enough points down to score the marks.
MASTER PLAN
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FINANCIAL INSTRUMENTS, EQUITY, LEASES
Liability v Equity
Financial Liability
• Obligation to pay cash or financial asset
▪ Trade payables
▪ Bonds/Loans payable
▪ Redeemable shares
▪ Shares with fixed dividend
Initial Recognition
• Liability initially measured at FV:
▪ Transaction amount
▪ Future payments discounted to PV (not always the same as nominal/par/face value)
Payment Discount Factor/EIR PV/FV
Yr1 X X X
Yr2 X X X
Yr3 X X X
X
▪ Costs directly attributable to issuing debt (broker fees) deducted from liability
Sale and Repurchase: repurchase price > original selling price = cash received is a loan (financial liability)
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Convertible Instruments
• Loans/Bonds where lender has the option to convert the debt into equity
• Rather than having debt repaid in cash, they can receive shares instead
• Company has a liability because obligation to make interest payments
• If lender has paid > PV of payments (FV of bond): difference is what they have paid for equity option
Initial Recognition
• Liability initially measured at FV:
▪ Future payments discounted to PV
▪ Use EIR for a similar bond without conversion option (given in question)
Payment Discount Factor/EIR PV/FV
Yr1 X X X
Yr2 X X X
Yr3 X X X
X Liability (Cr)
(X) Cash (Dr)
X Equity (Cr)
• Equity measured as difference between what lender has paid and PV of payments (FV)
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Financial Asset
• Right to receive cash or financial asset
• Equity in another entity
▪ Cash
▪ Trade receivables
▪ Bonds/Loans receivable
▪ Shares in other companies
Initial Recognition
• Asset initially measured at FV:
▪ Quoted price
▪ Future payments discounted to PV (not always the same as nominal/par/face value)
Payment Discount Factor/EIR PV/FV
Yr1 X X X
Yr2 X X X
Yr3 X X X
X
▪ Costs directly attributable to acquiring asset (broker fees) capitalised
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IAS 33 Earnings Per Share (EPS)
• Listed companies
• Earnings means profit
Treasury shares
• Company repurchases own shares
▪ Dr Treasury Shares (Equity) Cr Cash
• Reduce number of shares for EPS
Distributable Reserves
• Dividends paid from Retained Earnings (RE) subject to company having cash to make payment
• Listed companies cannot pay a dividend if it will cause net assets < undistributable reserves
▪ Undistributable reserves: Share Capital, Share Premium, Revaluation Reserve
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IFRS 16 Leases
Lease:
• Right to control
• An identifiable asset
• Obtain the economic benefits from it
Exemption election:
• Leases < 12m with no purchase option
• Low value and not part of bigger asset (phones, laptops)
• Rent expensed to P&L
Lease Liability
Initial Recognition
• Liability initially measured at:
▪ Future payments discounted to PV
Payment Discount Factor/EIR PV
Yr1 X X X
Yr2 X X X
Yr3 X X X
X
Subsequent Measurement
• Depr over period company will use asset
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Sale and Leaseback
• Company sells an asset and immediately leases it back
• Sells an asset: profit/loss on disposal
• Leases an asset: ROU asset and lease liability
• Has only sold part of the asset because has retained a ROU for the asset
• Can only recognise profit/loss on disposal for part sold
• Example: sold freehold but now has a leasehold - the difference is the part disposed
• Part of asset which has been retained and part which has been sold calculated as:
PV of future lease payments / FV = part retained
PV of LP = £80k
FV = £100k
80% of asset has been retained
20% of asset has been sold
Profit/Loss on disposal
Proceeds X
CA (X)
Profit/Loss X/(X)
20% X/(X)
ROU Asset
CA x 80%
Lease Liability
B/F Interest Expense Cash C/F
X X (X) X
PV of LP Discount factor/EIR Payment made
Cr Liability Cr Liability, Dr Finance Costs Dr Liability, Cr Cash
• EIR rate will increase the initial liability to the actual amount of cash paid
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EXAM TECHNIQUE GUIDANCE
The ‘explain the accounting treatment’ questions have more available marks than maximum marks. This
makes it realistic to target full marks on those questions because you do not need get everything correct to
score full marks. However, you must ensure that you get enough points down to score the marks.
MASTER PLAN
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FOREIGN EXCHANGE (IAS21)
Functional currency
• Currency used in the Financial Statements
Revenue / Purchases
• Foreign currency sales and purchases are recorded at the spot rate (transaction date rate)
Assets / Liabilities
• Monetary items
▪ amounts settled directly in cash (receivables, payables, loans, bonds)
▪ remeasured at the rate at SFP date
▪ gain or loss recorded in the P&L
▪ there will also be an FX gain or loss in P&L when amount is paid if FX rate at payment date is
different from FX rate used for SFP
• Non-monetary items
▪ amounts not settled directly in cash (PPE, Inventory)
▪ not remeasured
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ACCOUNTING POLICIES, ESTIMATES AND ERRORS (IAS8)
Policy Estimate Error
Examples Depr: change in P&L expense line Depr: UEL, residual value, method Depr: Incorrect calculation
Inventory: FIFO or WAC Provisions: probable outflow Inventory: omitted items
Change Only if will result in FS providing Apply change to future periods Apply correction for all
more reliable and relevant periods
information
Material:
Apply change to all periods Comparatives restated
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EVENTS AFTER THE REPORTING PERIOD (IAS10)
• The cut-off date to consider events is the date when FS authorised for issue to shareholders
• Errors identified before the authorisation date: adjusted in the current financial statements
• Errors identified after the authorisation date: IAS8 error
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RELATED PARTIES
Related parties
• A person (including family member) who has:
▪ Control
▪ Significant influence
▪ Management responsibility (Director)
• A company:
▪ Parent / Subsidiaries / Other Subsidiaries / Directors of Parent
▪ Associate / Company with Significant Influence
▪ JV / JV owner / Same JV owner
▪ Same JV / Associate owner
▪ A person (including family member) has control / significant influence / management
responsibility of both companies
- Open book is useful for related party relationships
Disclosure
• Nature of the relationship
• Value of the transactions
• Amount of any balance outstanding at the year end
• Compensation received by Directors
• Terms and conditions of any outstanding balance (security/guarantees)
• Amounts written off
• Whether transactions are on an arm's length basis
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SINGLE ENTITY FINANCIAL STATEMENTS (FS)
Profit and Loss (P&L)
Revenue X
Cost of sales (X)
Gross profit X
Admin expenses (X)
Distribution expenses (X)
Other operating expenses (X)
Operating profit X
Finance income X
Finance costs (X)
Profit before tax (PBT) X
Tax (X)
Profit from continuing operations X
Profit from discontinued operations X IFRS5 criteria
Profit X To Retained Earnings (RE)
Other Comprehensive Income (OCI)
Gains on property revaluation X To Revaluation Reserve (RR)
Total comprehensive income for year X Profit and OCI
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Statement of Financial Position (SFP)
ASSETS
Non-current assets (>12m)
Property, Plant and Equipment x Note with breakdown
Right-of-Use Assets x Can include within PPE
Intangible Assets x Note with breakdown
Financial Assets (Investments) x
X
Current assets (<12m)
Inventories x
Accrued Income (Contract Asset) x
Trade Receivables x
Prepayments x
Cash x
X
Assets Held for Sale x IFRS5 criteria
Total Assets X
LIABILITIES
Current liabilities (<12m)
Provisions x Note with breakdown
Accruals x
Trade Payables x
Tax Payable x
Accrued expenses x
Deferred Income (Contract Liability) x
X
Non-current liabilities (>12m)
Preference Shares x Redeemable or fixed dividend
Leases x
Financial Liabilities x
X
NET ASSETS X Assets - Liabilities = Net Assets
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Statement of Changes in Equity (SOCE)
Ordinary Share Retained Revaluation
Share Capital Premium Earnings (RE) Reserve (RR)
Bf x x x x Per PY SFP
Shares issued x x
Profit x Per P&L
Dividends paid (x)
Gains on property revaluation x Per OCI
Transfer from RR to RE x (x) Additional depr
Cf X X X X Per CY SFP
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EXAM TECHNIQUE GUIDANCE
• Set up cost matrix for P&L expense categories (cost of sales, admin, other operating)
• Work through notes in order and calculate numbers for P&L and SFP (referencing all workings)
• If required to produce a disclosure note (PPE, IA, SOCE) then use this as your SFP working
• Input the final numbers into P&L and SFP as you go
• When time is running out, input other unadjusted TB items into P&L and SFP
• Calculate profit for the year and include in retained earnings
• Everything on the TB should be crossed off by the end
It is very difficult to complete this question within the time so it is important that you don’t overrun. The
‘explain the accounting treatment’, ethics and conceptual framework questions have more available
marks than maximum marks. This makes it realistic to target full marks on those questions. However,
you will need plenty of time on those questions to get enough points down so make sure that you don’t
overrun on this question.
MASTER PLAN
TOPIC VIDEO CLASSES QUESTIONS ICAEW
Workbook
P&L, SFP Single Entity Accounts (with OCI) Q6 Tipperary Ch2
OCI Assets Q12 Ashgill
P&L, SFP Single Entity Accounts (with SOCE) Q2 Giyani Ch2
SOCE Equity and Financial Instruments Q6 Tipperary
Q13 Ballabriggs
Q76 Sentinel
Q26 Totana
Q76 Sentinel
P&L, SFP, Single Entity Accounts (with disclosure note) Q5 Alloa Ch2
Disclosure Note Assets Q7 Gamow Ch4.10
Provisions Q9 Pisa Ch5.6
Q60 Bisaro Ch9.5
Q64 Ansellia
P&L and SFP only Q3 Temera
Q4 Dedlock
Q8 Laderas
Q10 Chedington
Q11 Kwano
Q14 Arenas
Q68 Bilberry
Q72 Lipizzan
Key
Small topic
Medium topic
Large topic
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GROUPS
GROUP
Associate (A)
Joint Venture (JV)
Financial Asset
Subsidiary (S) <20%
Investment (I)
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Subsidiary (S)
• Legally separate companies but assets under control of P
• Control indicated by shareholding >50%
• Group FS reflect that they are effectively a single company: economic substance over legal form
▪ P&L/OCI: Add profits and losses of companies under control
▪ SFP: Add assets and liabilities (net assets) of companies under control
▪ SFP: Equity shows who owns companies in the group
• A company is nearly always worth more than the value of the Net Assets (NA) on its SFP because:
▪ some assets are not measured at FV (assets measured at cost)
▪ some assets are not recognised on SFP (internally generated intangible assets)
• In group FS, adjustments made to S net assets:
▪ assets uplifted to FV
▪ assets which are not recognised in individual FS of S are now recognised
• To calculate NA in S:
▪ easier to use equity balances rather than add all the assets and subtract all the liabilities
▪ NA = Equity (as per SFP)
FV of Net Assets in S (W1)
At Acquisition Date At Year End/Disposal Date Increase/Decrease
Share Capital X X No change
Share Premium X X No change
Retained Earnings X X X/(X)
Revaluation Reserve X X X/(X)
Net Assets (NA) of S per S individual SFP X X
FV Uplift – PPE† X X Decrease: Depr
FV Uplift – IA now recognised† X X Decrease: Amort
FV Uplift – Contingent Liability now recognised (X) (X) X/(X)
Net Assets (NA) of S for Group FS X X X/(X)
†Additional depr/amortisation in group FS if assets uplifted to FV are depreciable
• Difference between what P pays to acquire its shares in S and the value of NA in S is deemed to be a
Goodwill (GW) asset in S
• Calculated at acquisition: when P acquires control of S
Goodwill Asset in S (W2)
Consideration paid (cost) to acquire shares in S X Cash (Cr Cash)
Deferred Cash (Cr Liability) – Finance cost if payment >12m
Contingent Cash (Cr Liability)
Shares in P (Cr Share Capital/Share Premium)
NCI X
FV of Net Assets in S (W1) (X) Any provisional values used can be remeasured within 12m
Goodwill Asset in S (SFP) X Asset not amortised
Annual impairment test
If negative: Gain on Bargain Purchase (GoBP) in P&L
Non-Controlling Interest (NCI)
• Shareholders who own remaining shares in S (if P did not acquire 100% of shares)
• Accounting policy choice for how to initially measure the NCI in each S:
▪ NA method: NCI% of NA in S (W1)
▪ FV method: NCI% of NA and GW asset in S
• FV usually gives higher amount as it also allocates part of S GW asset to the NCI
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Profits/Gains made by Group
• NCI allocated:
▪ Share of S profits/gains based on NCI% shareholding in S
Non-Controlling Interest (W3)
NCI at acquisition (W2) X
Share of S profit/gains since acquisition X Current year: NCI% of S profit/gains (P&L/OCI)
Cumulative: NCI% of increase in S NA since acquisition (W1)
Share of S GW impairment (X) FV method for GW/NCI: NCI% because part of GW allocated to NCI
NCI (SFP) X
• Group allocated:
▪ 100% of P profits
▪ Share of S profits based on P% shareholding in S
Retained Earnings (W4)
100% P profit X RE are accumulated profits so amounts which impact P&L also impact RE
Share of S profit since acquisition X Current year: P% of S profit (P&L)
Cumulative: P% of increase in S RE since acquisition (W1)
Share of S GW impairment (X) FV method for GW/NCI: P% because part of GW allocated to NCI
NA method for GW/NCI: 100% share because none of GW allocated to NCI
Share of A profit since acquisition X Current year: P% of A profit (P&L)
Cumulative: P% of increase in A RE since acquisition
RE (SFP) X
▪ 100% of P gains
▪ Share of S gains based on P% shareholding in S
Revaluation Reserve (W5)
100% P gains X
Share of S gains since acquisition X Current year: P% of S gains (OCI)
Cumulative: P% of increase in S RR since acquisition (W1)
Share of A gains since acquisition X Current year: P% of A gains (OCI)
Cumulative: P% of increase in A RR since acquisition (W1)
RR (SFP) X
Provision for Unrealised Profit (PURP): eliminate profit made by seller for assets still in group
▪ Dr P&L/RE (Seller)
▪ Cr Inventories/PPE† (Purchaser)
▪ Cr Receivables (Seller)
▪ Dr Payables (Purchaser)
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Consolidated (Group) SFP
P S adj adj GROUP
ASSETS
PPE X X X (X) X S assets uplifted to FV for Group FS - extra depr
Intangible Assets (IA) X X (X) X S unrecognised assets now recognised - extra amort
Goodwill (IA) (W2) X X S GW asset (W2)
Financial Assets (Investments) X (X) - P investment replaced with S NA, GW and NCI
LIABILITIES
Payables X X (X) X Intragroup balances eliminated
Tax Payable X X X
Provisions X X Contingent liabilities in S now recognised
Deferred Consideration X X Future payment discounted to PV (finance cost)
Contingent Consideration X X Provision for probable payable measured at FV
EQUITY
NCI (W3) X NCI (W3)
Share Capital X X P Share Capital only
Share Premium X X P Share Premium only
Retained Earnings (W4) X X Group RE (W4)
Revaluation Reserve (W5) X X Group RR (W5)
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Consolidated (Group) P&L and OCI
P S adj GROUP
Revenue X X (X) X Intragroup transactions eliminated
Cost of sales (X) (X) X Intragroup transactions eliminated
(X)
- PURP (X) (X) PURP: eliminate profit made by seller
Gross Profit X
Admin costs (X) (X)
- Extra depr (FV uplift) (X) (X) S assets uplifted to FV for Group FS - extra depr
- Reverse extra depr (PPE Purp) X Adjust seller column
Other costs (X) (X)
- GOBP X
- GW Impairment (X) (X) S column if FV method used for GW/NCI
- Increase in contingent consideration (X) Contingent consideration: increase in provision
- Transaction costs (X) Legal/advisor fees to acquire shares in S
Operating Profit X
Investment Income X
- Dividends received X (X) Remove dividends from S/A to P
- Profit/loss on disposal X (X) Remove P/L on disposal in P individual FS
Finance Cost (X) (X) Deferred consideration: discounted to PV
PBT X
Tax (X) (X) (X)
Profit X X X
Attributable to:
P X X X 100% of P profit + P% of S profit
NCI X X NCI% of S profit
OCI
Revaluation gains X X X
Attributable to:
P X X X 100% of P gains + P% of S gains
NCI X X NCI% of S gains
▪ Adjustments to profit will impact RE
▪ If required to only prepare SFP then adjustments above included in RE
• P profit/RE included in Group RE (W4)
• S profit/RE included in S NA (W1)
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Disposal
• No longer a subsidiary when control is lost
▪ Control indicated by shareholding >50% so control lost when shareholding <50%
• Calculate profit/loss on disposal as with any disposal:
▪ Dr Cash (Proceeds received)
▪ Cr CA (S no longer controlled so NA/GW/NCI derecognised on SFP)
▪ Cr/Dr P&L on disposal
▪ Cash received > value of CA on SFP = profit
▪ Cash received < value of CA on SFP = loss
Disposal of S
Proceeds X
CA (X) NA at disposal date (W1)
GW at disposal date (W2)
NCI X NCI at disposal date (W3)
P/L on disposal X/(X)
SFP
• Don’t consolidate as S no longer under control of group at year end
P&L
• Consolidate S up to the point of disposal (prorate full year P&L)
▪ Part of profit allocated to NCI
• Profit/loss on disposal (above)
▪ None of profit allocated to NCI and this is the profit made on the group’s investment in S
• IFRS5 discontinued operation: all profits in respect of S presented as single line in P&L
▪ ‘Profit/loss from discontinued operations’ on face of P&L
SOCE
• NCI removed on disposal
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Associate (A)
• Significant influence indicated by shareholding ≥20%
• Not control so do not consolidate P&L and NA
• Equity method of accounting:
Consolidated (Group) SFP
Investment in Associate
Consideration paid (cost) to acquire shares in A X
P% share of A profits/gains since acquisition X
Dividends received from A (X) Not included in Group P&L
Impairment of investment (X)
SFP X Cannot be negative unless P has obligation on behalf of A
Consolidated (Group) P&L and OCI
P&L: Share of A profit
P% share of A profit X If FV of A assets > CA of A assets: extra depr charge
Impairment of investment (X)
P&L X
P&L
• Remove dividend received from A and replace with share of A profits (above)
• Provision for Unrealised Profit (PURP): eliminate P% of profit made by seller for assets still held
▪ Dr Profit/RE (Seller)
▪ Cr Inventories (if P is Purchaser)
▪ Cr Investment in A (if A is Purchaser)
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EXAM TECHNIQUE GUIDANCE
• If required to complete extracts from two statements then complete both parts at the same time
▪ P&L and Non-Current Assets
▪ P&L, Assets and Liabilities
▪ P&L and SOCE
• When working through the notes, consider how each note will impact both statements
MASTER PLAN
QUESTION TYPE VIDEO CLASS QUESTIONS ICAEW
SFP Groups - technical class 1: Basics Q37 Laois Ch10
(no associate or JV) Group SFP questions Q71 Chamba Ch11
(no associate or JV)
P&L and SOCE Groups - technical class 1: Basics Ch10
(no associate or JV) Group P&L and SOCE questions Ch12
(no associate or JV)
P&L and SFP extracts Groups - technical class 1: Basics Q35 Tazel
Group extracts questions Q42 Pentridge
Q23.1 Kildare
Q66.1 Eria
Subsidiary disposal Groups - technical class 2: Q32.1 Genoa Ch14
Subsidiary disposal questions Q39 Mantia
Q71.3 Chamba
Q75 Lusitano
SFP Groups - technical class 3: Q34 Tongwell Ch13
(with associate or JV) Associate and JV Q38 Altima
Q40 Dominica
Group SFP questions Q41 Huygens
(associate or JV) Q43 Corbiere
Q44 Manilva
Q63 Chato
Q79.2 Tahiti
P&L and SOCE Groups - technical class 3: Q36 Cambus Ch13
(with associate or JV) Associate and JV Q67 Ophrys
Group P&L and SOCE questions
(associate or JV)
Explain questions Group ‘explain’ questions Q34.3 and 34.4 Tongwell
Q35.2 Tazel
Q37.2 Laois
Q40.2 and 40.3 Dominica
Q41.3 Huygens
Q43.3 Corbiere
Q45 MilloMops – Issue 3
Q46 Avebury – Issue 4
Q47 Frogmette – Issues 1 and 2
Q48 Advent – Issue 1
Q52 Girton – Issue 1
Q55 Barbadine – Issue 1
Q56 Brisco – Issue 3
Q59 Burgos – Issue 2
Q67.2 Ophrys
Q70.2 Verata
Q79.1 Tahiti
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CASH FLOW STATEMENT
EXAM TECHNIQUE GUIDANCE
Operating
• Start with PBT and adjust for all non-cash (accrual) items which have been included in PBT
▪ Finance costs/Investment income
▪ Depr/Amortisation/Impairments (from asset T account – see Investing below)
▪ Profit/Loss on disposal (CA from asset T account – see Investing below)
▪ Share of A profit/loss
▪ FX gain/loss on retranslation of monetary items
• Work through current assets/liabilities balances
▪ Receivables: increase ‘bad’ for cash so deduct
▪ Payables: increase ‘good’ for cash so add back
▪ Inventory: increase ‘bad’ for cash so deduct
▪ Prepayments: increase ‘bad’ for cash so deduct
• Tax and interest paid
▪ Use T account to work out the tax and interest paid
Investing
• Work through the non-current asset balances and use T account to calculate cash paid/received
▪ PPE
- Additions
- Proceeds from sale (Proceeds - CA = P/L on disposal)
▪ Intangibles
- Additions
- Proceeds from sale (Proceeds - CA = P/L on disposal)
▪ Investment in A
- Dividend received (Investment in A working)
▪ Purchase/Sale of S
- Cash paid/received (GW/S disposal working)
Financing
• Work through the non-current liabilities and equity balances and use T account
▪ Lease
- Payment of lease (exclude interest element of payment: amortised cost table)
▪ Share Capital/Premium
- Proceeds from share issue
▪ NCI
- Dividend paid (NCI SOCE column)
▪ Group RE
- Dividend paid (Group RE SOCE column)
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Cash Flow Statement
Operating
PBT X Continuing and discontinued operations
Finance costs X Per P&L
Depr/Amortisation/Impairments X Asset T account (Investing)
Profit on disposal (X) Asset T account (Investing) for CA of asset disposed
Share of A profit (X) Per P&L/Investment in A working
Receivables decrease X Adjust movement if S acquired/disposed during year
Payables decrease (X) Adjust movement if S acquired/disposed during year
Inventory decrease X Adjust movement if S acquired/disposed during year
Interest paid (X) Including interest element of lease payment (capital element in financing)
Tax paid (X) Continuing and discontinued operations
X
Investing
PPE/IA purchase (X) T account Dr/Cr if S acquired/disposed with PPE/IA during year
PPE/IA proceeds from sale (X) T account Dr/Cr if S acquired/disposed with PPE/IA during year (GW is an IA)
Dividends received from A X Investment in A working / T account
Purchase of S (X) Consideration paid (minus cash balance in S)
Disposal of S X Proceeds received (minus cash balance in S)
X
Financing
Lease payment (X) Capital element of payment only (interest element in operating)
Share issue X Bonus issue does not involve cash
Dividend paid to NCI (X) T account Dr/Cr if S disposed/acquired during year
Dividend paid to group shareholders (X) T account Cr if extra depr’ transferred from RR
X
Cash bf X PY SFP
Cash cf X CY SFP
MASTER PLAN
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CONCEPTUAL FRAMEWORK
Qualitative Characteristics of FS
• Relevance: relevant to decisions taken by users (shareholders, employees, HMRC)
• Faithful representation:
▪ Complete, neutral, free from error
▪ Economic substance over legal form:
• Leases: asset controlled by company but not legally owned
• Groups: single economic unit but legally separate
• Redeemable shares: debt but legally equity
• Sale and repurchase: loan but legally a sale
• Enhancing characteristics: comparable, verifiable, timely, understandable
Measurement bases:
• Cost (PPE Cost model; Inventory)
• FV (PPE Revaluation model; Financial assets; S assets on acquisition)
• VIU (PPE Impairment)
• Current cost (Cost of an equivalent asset)
Going concern
• FS prepared on basis than business will continue trading for foreseeable future (12m)
▪ Break up basis if not a going concern: all assets reclassified as current and measured at FV-CtS
Inherent Limitations of FS
• Historic looking: not useful for predicting future performance of business
• Standardised format: all FS look the same even though all businesses are different
• Unrecognised assets: internally-generated intangibles assets (brands, customer lists, goodwill)
• Lack of non-financial information
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UK GAAP DIFFERENCES
Topic IFRS UK GAAP
Format P&L, OCI, SFP, SOCE Statement of Income and Retained Earnings option
Terminology Statement of Financial Position (SFP) Balance Sheet
Receivables/Payables Debtors/Creditors
Non-current Assets Fixed Assets
Borrowing costs Must capitalise when conditions met Can choose whether to capitalise
Intangibles Must capitalise development when conditions met Can choose whether to capitalise development
Discontinued Single line in P&L Separate column in P&L
Operations/AHfS AHfS presented separately AHfS not in separate category
AHfS not depreciated AHfS depreciated
Inventory NRV: open market selling price Selling price estimated by company
Revenue IFRS15 5 step model Recognised based on risks and rewards
Grant for Asset Deduct from PPE or Deferred Income No option to deduct from PPE
Performance model: when conditions met
Accrual model: same as IFRS deferred income
Leases ROU asset and lease liability Finance lease: like IFRS (asset and liability)
Operating lease: no ROU asset/liability; rent in P&L
Groups Goodwill: no amortisation; annual impairment test Goodwill: amortisation (10yr max UEL)
Negative Goodwill: GoBP in P&L Negative Goodwill: negative asset on SFP
Acquisition costs: expensed Acquisition costs: capitalised
NCI: FV or % of NA method NCI: % of NA method
Associate/JV: no goodwill Associate/JV: goodwill recognised
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ETHICS
Threats Principles
Self-interest Professional competence
Self-review Integrity
Advocacy Professional behaviour
Intimidation Objectivity
Familiarity Confidentiality
Ethics is relatively easy in the FAR exam and there are more available marks than maximum marks, meaning
that scoring full marks is very achievable. However, you must ensure that you get enough points down to
score the marks. If it is a five-mark question, you need five separate points.
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Final Exam Preparation
You should attempt the 2021 and any available 2022 exam papers under strict exam conditions.
You should then mark your answer to identify which questions / topic areas you need to focus on. Having
identified any areas of weakness, you should:
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