The Professionals’ Academy of Commerce

Exam Focused Topic-wise Test for CFAP

04 March, 2024
Test-02
Suggested Answers

Advanced Accounting & Financial Reporting

Answer.1
ML Group CSOFP as at 31.12.2020

Assets Rs.’m
Non current
Property Plant and Equipment (W1) 988.1
Goodwill (W2) 26

1,014.1
Current (232+125+95- (20 X 25/125) 448

Total assets 1,462.1

Equity and Liabilities

Equity
Share Capital 50
Retained Earnings (W6) 479.7
Other Reserves (W8) 241.9

Equity attributable to owners of parent 771.6

Non controlling Interests (W10) 169.3

Total Equity 940.9

Non current liabilities (W4) 320

Current liabilities (W5) 201.2

Total equity and liabilities 1,462.1

Workings

W1. PPE Rs.’m

Given amounts:
ML 500
NL 225
OL 210

935
Adjustments:
Fair value gains on acquisition of:
NL (150-[25+105+15]) 5
OL (200-[25+140+22]) 13
deprec on FV gains:
NL (5/10) X 4 (2)
OL (13/5) X 2 (5.2)
 Accum

Reinstatement of ML’s plant in sale and lease back

Transaction (note* below) 50X9/10 45

OL impairment loss attributable to PPE (W3) (2.8)

988

Note* The sale and lease back transaction did not meet the IFRS 15 conditions for a sale. This is
because ML retained substantially all economic benefits relating to the asset (has right to use
the asset over the entire remaining economic life). Therefore, the substance of the transaction is that
of a loan.

W2. Goodwill on acquisition of:

i) NL

Cost of acquisition (68+87) 155

NCI at acquisition 39
Less FV of identifiable NA (150)

Goodwill at acquisition 44
Less impairment loss (W4) (18)

Carrying amt at 31.12.2020 26

ii) OL

Cost of acquisition 130

NCI at acquisition 40%X200 80
Less FV of identifiable NA at acquisition (200)

Goodwill at acquisition 10

Impairment loss (4) (10)

Carrying amount at 31.12.2020 -

W3. Review of NL and OL as CGUs for impairment:

i) NL

Carrying amounts at 31.12.2020:

Identifiable:
Given (Equity) 240
Net FV gain (5-2) 3
Unrealised profit in inventory 25X20/125 (4)

239
Goodwill 44

Total 283
 Recoverable amount (given in question) 265

Total loss (283-265) 18

Allocated to Goodwill (18)

ii) OL
Carrying amounts at 31.12.2020:
Identifiable:
Given (Equity) 250
Net FV gain (13-5.2) 7.8

257.8
Grossed up Goodwill 10 X 100/60 16.7

Total 274.5

Recoverable amount (given) 255

Total loss (274.5-255) 19.5

Allocated to gross goodwill (maximum) (16.7)

Balance to PPE (there are no other intangible assets) 2.8

Loss allocated to goodwill to be recognised 16.7X 60% 10

W4. Non current liabilities

Given amounts:
ML 175
NL 63
OL 30
Adjustments:
Non current portion of sale and lease back loan:
Liability at 31.12.20 (60X1.1-9.8) =56.2
Liability at 31.12.21 (56.2X1.1-9.8) 52.0

320
W5.Current liabilities

Given amounts:
ML 125
NL 47
OL 25
Adjustments:
Current portion of sale and lease back loan (56.2-52) 4.2

201.2

W6 Group Retained Earnings

ML RE 563
Share of post acquisition RE of
NL (35%[105-80]+80%[160-105]) 52.8
OL (60%[170.5(W7)-140]+55%[175-170.5]) 20.8
Adjustments:
Reversal of gains on remeasurement/disposal of FVTPL assets
- NL (205-87-50) (68)
- OL (165-15-130) (50)
Gain on derecognition of NL as associate:
Fair Value at date of derecognition 68
Carrying amt of associate (equity value):
Cost 50
Share of post acquisition
RE 35%(105-80) 8.8
Other reserves35%(15-10) 1.8
(60.6) 7.4
Accum FV depreciation:
- NL 80%X2 (1.6)
- OL(60%X13X1.75/5+55%X13X0.25/5) (3.1)
Unrealised profit in closing inventory 4X80% (3.2)
Reversal of gain on sale and lease back of plant (60-50) (10)
Finance cost on sale and lease back loan 10%X60 (6)
Depreciation of sale and lease back plant 50/10 (5)
Reverse of lease rentals 9.8
Impairment losses (W3):
- Goodwill in NL 80%X18 (14.4)
- Goodwill in OL (10)
- PPE in OL (2.8)

479.7

W7. OL Reserves at 1.10.2020

Other Reserves Other reserves
Rs.’m Rs.’m
 Balances at 31.12.2020 175 50
Less profit for the year 18X3/12 (4.5)
Less OCI for the year 12X3/12 (3)

Balances at 1.10.2020 170.5 47

W8. Other Reserves

Rs.’m
ML OR 189
Share of post acquisition OR of
NL (35%[15-10]+80%[55-15]) 33.8
OL (60%[47(W7)-22]+55%[50-47]) 16.7
Adjustments on reducing holding in OL:
Disposal proceeds 15
Identifiable NA transferred to NCI (W9) (12.6) 2.4

241.9

W9. Net assets transferred to NCI on ML reducing holding in OL

Rs’m
OL identifiable NA on 1.10.2020:
Share capital 25
Retained Earnings (W7) 170.5
Other reserves (W7) 47
Net FV gain (13-13X1.75/5) 8.5

251

Amount transferred to NCI 5%X251 12.6

W10. NCI in

i) NL

At acquisition 39
Post acquisition changes:
RE 20%(160-105) 11
FV depreciation 20%X2 (0.4)
Unrealised profits 20%X4 (0.8)
Goodwill loss 20%X18 (3.6)
Other Reserves 20%(55-15) 8

53.2

ii) OL

At acquisition 80
Post acquisition changes:
 RE [40%(170.5-140)+45%(175-170.5)] 14.2
FV depreciation [40%X13X1.75/5+45%X13X0.25/5] (2.1)
Net assets from owners of parent 12.6
Other Reserves [40%(47-22)+45%(50-47)] 11.4

116.1

Total NCI (53.2+116.1) 169.3

Answer.2

The share option scheme is an equity-settled share-based payment scheme within

the scope of IFRS 2. Its expense should be recognised in profit or loss over the
vesting period taking into account vesting conditions.

The requirement for managers to remain employed is a service vesting condition

and is reflected in the estimation of the number of awards expected to vest.

The requirement for the share price to increase is a market-based performance

condition which is not reflected in the estimation of the number of awards expected
to vest, but is instead already reflected in the fair value of the share option at the
grant date.

At 30 April 2022 therefore, the total expected expense in relation to the scheme is
calculated as Rs. 193.9 million ((25 managers – 3 leavers)  7,500 options  Rs.
1,175 fair value at grant date) which would be spread over the 3 year vesting period.

The corresponding entry is to equity, although IFRS 2 does not specify an account
within equity. As ZL has not recorded any entries in respect of the scheme, a
correction entry is required of:

Debit Credit
------- Rs. in million -------
Staff costs (P/L) (193.9  0.5/3) 32.3
Equity 32.3
Answer.3
The cash settled share-based payment scheme has been modified to create an equity settled
scheme which means that, as from the date of amendment, the scheme must be accounted
for as equity settled.

The accounting treatment is as follows:

(i) The original liability recognised in respect of the cash-settled share-based payment should
be derecognised and the equity-settled share-based payment should be recognised based
on the fair value of the options at the modification date, to the extent that the services
have been rendered up to the modification date.

(ii) The difference, if any, between the carrying amount of the liability as at the modification
date and the amount recognised in equity at the same date should be recognised in profit
or loss immediately.
Rs. in million
Carrying amount of liability (200×10,000×Rs.
3,000)×95%×1/4 1,425
Fair value of equity at modification date
(200×10 ,000 × Rs. 3,200) ×95 %×1/4 1,520
Expense recognised in profit or loss 95

Journal : Debit Credit

------ Rs. in million ----
--
Liability 1,425
Profit or loss 95
Equity 1,520

At the year end, the equity settled scheme will be remeasured, as an additional year of the
scheme has passed and the estimate of the number of staff should be updated. The fair value
of the options is not remeasured for equity-settled share- based payments, as the fair value is
fixed at the grant/modification date.

Rs. in
million
Equity at date of modification 1,520
Equity at 31 May 2021 [(200–10–10)×10,000×3,200]
×2/4 2,880
Expense recognised in profit or loss 1,360

Journal : Debit Credit

------ Rs. in million ----
--
Profit or loss 1,360
Equity 1,360