3 On 1 January 2014, Plastik acquired 80% of the equity share capital of Subtrak.

The consideration was satisfied by

a share exchange of two shares in Plastik for every three acquired shares in Subtrak. At the date of acquisition, shares
in Plastik and Subtrak had a market value of $3 and $2·50 each respectively. Plastik will also pay cash consideration
of 27·5 cents on 1 January 2015 for each acquired share in Subtrak. Plastik has a cost of capital of 10% per annum.
None of the consideration has been recorded by Plastik.
Below are the summarised draft financial statements of both companies.
Statements of profit or loss and other comprehensive income for the year ended 30 September 2014
Plastik Subtrak
$’000 $’000
Revenue 62,600 30,000
Cost of sales (45,800) (24,000)
––––––– –––––––
Gross profit 16,800 6,000
Distribution costs (2,000) (1,200)
Administrative expenses (3,500) (1,800)
Finance costs (200) (nil)
––––––– –––––––
Profit before tax 11,100 3,000
Income tax expense (3,100) (1,000)
––––––– –––––––
Profit for the year 8,000 2,000
Other comprehensive income:
Gain on revaluation of property (note (i)) 1,500 nil
––––––– –––––––
Total comprehensive income 9,500 2,000
––––––– –––––––
Statements of financial position as at 30 September 2014
Assets
Non-current assets
Property, plant and equipment 18,700 13,900
Investments: 10% loan note from Subtrak (note (ii)) 1,000 nil
––––––– –––––––
19,700 13,900
––––––– –––––––
Current assets
Inventory (note (iii)) 4,300 1,200
Trade receivables (note (iv)) 4,700 2,500
Bank nil 300
––––––– –––––––
9,000 4,000
––––––– –––––––
Total assets 28,700 17,900
––––––– –––––––
Equity and liabilities
Equity
Equity shares of $1 each 10,000 9,000
Revaluation surplus (note (i)) 2,000 nil
Retained earnings 6,300 3,500
––––––– –––––––
18,300 12,500
––––––– –––––––
Non-current liabilities
10% loan notes (note (ii)) 2,500 1,000
––––––– –––––––
Current liabilities
Trade payables (note (iv)) 3,400 3,600
Bank 1,700 nil
Current tax payable 2,800 800
––––––– –––––––
7,900 4,400
––––––– –––––––
Total equity and liabilities 28,700 17,900
––––––– –––––––
12
Revising Financial Reporting (FR)

Topics to revise
The FR exam has a Section A with 15 2-mark OTQs and a Section B with a further 15 2-mark OTQs based on three
scenarios. This gives the examining team greater scope to examine the whole of the syllabus and bring in topics
that do not feature in the longer questions. Section C will have two 20-mark questions. Sections A and B account
for 60% of the marks on the exam. So it is really not possible to pass this exam by only revising certain topics.
A consolidation question could feature in Section C and can be a statement of financial position or statement of
profit or loss or both, and it may include an associate, so be prepared for all of this. Therefore you must revise all
the consolidation workings, and you must know how to account for an associate. All questions are compulsory.
A single company accounts preparation question allows the examining team to bring in more complex issues that
they would not test in the consolidation question. Make sure you can deal with leases, deferred tax, calculating
finance costs using the effective interest rate, prior period adjustments and discontinued operations.
Other possibilities for Section C are more complex questions which may test your understanding of leases and
revenue recognition in one part of the question with an analysis of an extract from the financial statements
(including statements of cash flow). In the analysis questions, you may be asked to calculate ratios and to provide
an explanation of their movement, you may also be asked to critically analyse the information you have been
provided with by management.
Issues that could appear anywhere are non-current assets (including leased assets) and impairment, intangible
assets, EPS, provisions, regulatory issues and the treatment of loan notes and government grants.

Question practice
This is the most important thing to do if you want to get through. Many of the most up-to-date exam questions are
in this Kit, amended to reflect the new exam format. Practise doing them under timed conditions, then go through
the answers and go back to the Study Text for any topic you are really having trouble with. Come back to a question
a week later and try it again – you will be surprised at how much better you are getting. Be very ruthless with
yourself at this stage – you have to do the question in the time, without looking at the answer. This will really
sharpen your wits and make the exam experience less worrying. Just keep doing this and you will get better at
doing questions and you will really find out what you know and what you don't know.

BPP Tutor Toolkit Copy Revising Financial Reporting ix