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@omz86 said:
I dont think that was the case. Im pretty sure Q1 Part (a) was strictly equity method. The question in a(i)(ii) said it was ‘correctly’ accounted for as an associate and we were asked to use the equity method. It was only in Part (b) were we asked to consolidate as if control had taken place.Yep so part a) equity method, i.e. the CSI method in the SOFP (SPLOCI wasn’t examined).
Part b) consolidation using step acquisition technique
Wasn’t part a) primarily discussion around significant influence vs control?
It was only a couple of hours ago and my mind has already gone to mush haha
@xanpech said:
In the ethics question I started mentioning insider dealing but thinking about it I’m not sure it even qualified as that and I prob should have just looked at it in terms of acca code of ethicsThat’s what it was amounting to. I’m sure you’ll get credit for that. I also mentioned the illegal activity of trading using MNPI which would also lack integrity and professional behaviour. By holding the shares, he was threatening his own objectivity from the start.
It was insinuated that although even with the 48% of shareholding that control was present, so became an acquisition achieved in stages from Associate to Sub.
To account for the 30%, you use equity accounting methodology (in the absence of a set of group accounts) which is held on the SOFP as cost ($ paid), plus share of profit to date (difference between RE’s given in question), less any impairment loss (none relevant).
The extra 18% purchased gave rise to the need for consolidation and so should have given rise to Goodwill, NCI & FV adjustment calcs. You would revalue the associate up to FV at date of acq’n and use this in your goodwill calc as “FV of investment already held” combining it with your consideration paid (for the extra 18%) along with NCI using the proportionate method.
I’ve tried to remember what I can here, along with some answers/thoughts I had during the exam:
Q1 on a step acquisition from associate to subsidiary. Talked about the differences between significant influence and control and how equity accounting to be used up to the point of control assumed. Relatively simple goodwill calculation if you remembered to bring in the FV of the existing investment held. Talked about how associate was to be accounted for and then moved onto NCI being at proportionate value in GW calc. There were also some FV adjustments to make in respect of revaluation (including the arising of deferred tax as a result). I think from what I remember, good will was around $1.4m in my answer (though may be way out!)
Q2 was really quite straight forward in my opinion. There was a whole host of ethical issues and dilemmas being faced of which I addressed using PIPCO. I then talked about the chain of command when it comes to resolving these issues (i.e. not just resigning in the first instance without speaking to person themselves, another key member of management personnel, the audit committee and finally, the ACCA).
I also talked about what the principles and threats were not in relation to the scenario to try and obtain close to the full 11 marks (however, this caused me issue with timing in hindsight).
The treatment of the accounting for ships and containers was wrong on several levels (aggregating separate material items on the balance sheet), depreciating all as one and changing the depreciation policy without the end result being more relevant/reliable measurement. Finally, IAS 16 specifies that if you are to hold the assets under the revaluation model, you must hold the entire class of these assets in the same way (and not cherrypick), which is not what the accountant was doing.
Q3 & 4 is where I really struggled. 4 in particular seemed particularly tricky and I found it difficult to pinpoint exactly what the examiners were after. I made some scarce remarks about the business combination hitting the P&L through goodwill impairment and in turn, hitting the EPS figure. I also mentioned that in an asset acquisition, dep’n and amortisation would hurt the profit in the first year.
I also talked briefly about the contingent consideration, which would need to be allocated across the assets obtained and so if the significantly higher figure was used, we would give rise to an inflated balance sheet and skewing any ROCE calculations, putting us in a position whereby impairment may be significant in a future period. I also recall stating the revenue recognition criteria somewhere in Q4 for the non refundable fee paid. I just said that it should be held as a contract asset and the transaction price written down accordingly upon full recognition.
Finally, question 3 again seemed quite a tough question to deal with (related to the Joint Venture). It asked us whether the JV should have been classified as a sub by one of the JV participants, which really messed with my head. For another of the sub-requirements, I just threw a load of standards based on impairment somewhere here via bullet points as time was of the essence. I stated the definitions of an asset under the conceptual framework and then went onto IAS 38’s PIRATE criteria for recognising internally generated intangible assets for the production costs being capitalised or not. Not sure if this was the right approach but was really clutching at straws!!
All in all, think i’ll come out with between 40-50% and will be resitting in March due to Q3 & Q4 and the missing out of 8 marks in Q1 (related to assets) due to bad timing planning!
@kanchandhankar said:
I am sure you will get marks of those working even if answer growth was wrongGood luck with your results!
@kanchandhankar said:
As far as i remember
D 5 yrs ago .2
Latest .23
.2x (1+g)=.23
G= .23/.2 sq root 4 -1
=3.555
=3.6 %I reckon i’ve slipped up on my calculator to get 2.9% somehow, but clearly wrote out that exact working in my answer – annoying!
@juliat said:
The WACC figures look familiar, I hope I just messed up in adding up rather than the method… can you remember your growth at all?I think i got 2.89% for the growth rate using the historic growth model.
Yep fingers crossed one of us just messed up on some arithmetic and scores almost full on the calculation itself!
I got the WACC question for Moscow Co. & the Lease vs Buy question.
Looking back over Lease vs Buy i’ve definitely messed up in a couple areas of my NPV calculations forgetting to use the post-tax cost of capital instead of pre-tax, but hoping i’ve done enough elsewhere to get the marks.
If my memory serves me right, the WACC answer i got was
Ve – $175m
Vd – Convertible debt – $84m
Vd – Loan – $125mKe – 9.6%
Kd – Convertible debt – 7.5%
Kd – Loan – 6.4%Total WACC came out between 8% & 9% (ish)
It’s a little concerning that everyone has different answers but at least we will score marks for workings, even if we slipped up at any point!
In Sections A & B, I found the CBE format (of which was now mandatory) of these questions to be 10x harder than the paper based I sat in December 2017. To give 8 possible tick boxes and asked to tick the 4 which are correct gives you a much less chance at scoring two marks statistically than it would have with a traditional A, B, C or D answered question.