[dennis98]

And finally! In March June 2017 question 1 the question says that the group has more than 15 associates but there’s no “investments in associates” in the group SFP and no mention in the answer?

[dennis98]

Interesting, thanks again. Could I also ask! –
In June 2010 Vegas question the co has invested in two associates during the year which are in quite different businesses than the parent. The answer says that there is a risk that because both the group finance team and the group auditor are not familiar with these businesses and the related accounting issues and there may be accounting errors as a result eg the deferral of revenue for a travel agent. Why would a group finance team have to prepare the FS for an associate? And how much are group auditors normally involved in the audit of an associate as compared to the audit of a subsidiary?

[dennis98]

Could I also ask-
Say a company acquires a subsidiary (a 70% holding) and it pays more than the actual value of the shares, in order to also get control. In the co’s own individual FS at the next year end it would normally look at the current value on the stock exchange for it’s various equity investments, in order to revalue them to fair value. But when you have more than 50% of the shares and also have control, then presumably the fair value is more than the actual current value of the shares, because there is also control. So how does a co go about revaluing its equity investments at each year end (which are subsidiaries) in its own individual FS?

[dennis98]

Perfect, thanks for your help.

[dennis98]

In the December 13 paper (Stow group question) there is a disposal of a sub and the answer says there is a risk that the profit on disposal in the parent FS is calculated wrongly – it should be proceeds less cost of investment. This is technically incorrect then?

[dennis98]

Thanks. But doesn’t the carrying amount always have to be FV for an equity investment asset under IFRS9?

[dennis98]

So if you had a plan to convert a warehouse to a residential building (and you have a revaluation policy on all buildings) but you haven’t got permission for this conversion yet at the year end, then the maximum value the building can have at that year end is based on its value as a warehouse (ie significantly lower than the value it will have as soon as you do receive permission for the conversion). Yes?
Thanks again.

[dennis98]

Thanks again for your help.
In general do companies have to get permission to convert a warehouse to a residential building?

[dennis98]

Thanks. So Black Scholes is used for both, yes? Not just for equity based.

[dennis98]

Thanks. So if you’re using it as a warehouse then what is considered its best use?

[dennis98]

Can anyone remember the property development one in q3? Had they got permission to develop the building as an investment property before the year end? If not then I assume they couldnt revalue it based on investment property values but only as a warehouse. ie highest and best use at that time.

[dennis98]

Any thoughts on the cash settled share based payment one?

[dennis98]

Yeah i’d say youre right , i just said theres a risk that it should be treated as an associate but its not. didnt develop the point further as you did.

[dennis98]

business risks-

losing mkt share
losing customers
margin down
revenue down ( multiplying the 10 month figures by 6/5)
ebitda down
big fine probable 20 million (25% of total assets)
exec director gone to bronte for 3 months so skills loss
guaranteeing bronte’s loan which could cost them
failure of bronte’s technology development

any more?
are those correct?

[dennis98]

no worries. is it true to say for a groups question (question 1) there was almost nothing to say that was groups related ? except to confirm that Bronte is not an associate, to confirm that they have 18% but dont have significant influence

[dennis98]

did do that

[dennis98]

For the building I just said you cant revalue it as an investment property before the conversion happens. you can only revalue it in the current period based on its current use. I didnt consider the project at all or do any calculation with the figures as they were not relevant to the current period. For procedures i said – confirm that a gain has not been posted to the P/L as this would overstate profit. Is this wrong?

[dennis98]

The part in question 3 about the fine which was appealed by the client for which the first payment was due on the first day after the year end- is events after the reporting period relevant here or just provisions?

[dennis98]

Wasnt the plan to change the buildings use to residential to happen in the following accounting year? ie nothing had happened yet, no expenditure had been incurred yet.

[dennis98]

So its possible to have a situation where one misstatement causes profit to be misstated by 80% but gets a qualified opinion, and another where there’s multiple misstatements but they only cause profit to be misstated by 30%, but that gets an adverse opinion?

[dennis98]

Thanks. So when the component auditor reports to you their schedule of uncorrected misstatements, would you still go through them to make sure that they do not, on their own or in aggregate, mean there would be a material misstatement in the Group FS?

[dennis98]

Thanks, so is it true to say that the term “contingent consideration” is a misnomer because even if the probability is very low it is always treated as a provision and never as a contingent liability? Whereas normally if a future payment is considered to not be probable, it is not treated as a provision but as a contingent liability.

[dennis98]

Thanks. But if there has not been a writedown in the individual company’s FS are the individual company’s FS in breach of IFRS?

[dennis98]

So if PBT is £100m then the range is £5m – £10m, and then if the IR and CR is low you would set it at closer to £10m, and if the IR and CR are high you would set it at closer to £5m, yes?
Thank you.

[dennis98]

Thanks again for your help.

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