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I just came home and ate a whole packet of Tunnock’s Chocolate bars. This exam was horrible, I actually think my brain stopped working half-way through. Doing the mental marking if I pass it will a be a miracle but I am already thinking about a resit 🙁
Q1
(a) Difficulties in the application of FV estimate to Frogget Co
I wrote, the definition of fair value, and mentioned the ideal estimate uses level 1 inputs and market based approach, however only level 2 inputs in the share prices of similar sized entities are avaialbe. Concluded with the cashflow method being unsuitable due to Froggets poor performance.(ii) Group profit on Disposal – not too challenging; Cash proceeds $35mil add: retianed investment in Froget $5mil less subsidary (FV $45mil, goodwill ($6mil less 60% imparement = -$2.4mil); Non controlling interest -$8.4mil) – not sure about this one, i think i got $5.8mil.
(b) Consolidated cashflow statement and commentaries
Identified the non-cash adjustments – depreciation, loss on disposal of PPE. Also stated that any cashflows for PPE should go in the investing section.Reversal of $35million poreeds from sale – investing cashflow.
Working capital – nightmare, this really where I messed up and got seriously confused, i knew needed to apply the rule 2 of IAS 7 – remvoving assets and liabilites of the sub on disposal from the closing balances – adding to the closing movements less the subsidary’s recievables and inventory.**
**Anyone who answered this one confidently please share how you did it – I wasted so much time on this one 🙁
Ignored the financial instruement – actually, no I added it in the cashflow reconciliation, said it was in the wrong location so not part of operating cashflows
(c) The dispute with supplier – I’m guessing this was an event after reporting period, which I said should be adjusted if the amount had material significance, otherwise the note is suffiient – felt really dodgy this one!
Q2 – Ethics
Non-compliance with the profitability and sustainability report – I said the directors action indicated professional incompotence; tried to make the arguement that reporting goes beyond just the IFRS standards and users of the statements also require other forms of information to make informed decision. Also said the profitability reporting would in fact be useful to help management to properly manage the resources and stop things like over investing in players etc.Ethical implications of hedging instrument – tied this to proffessional compotence again, the need to consult external expert on the hedging policy of the club, clearly not doing so had contributed to losses.
Ethical implication on the assumption of going concern – I said it was possible the director was losing objectivity (over optimistic) in light of the club’s agenda to raise itself up into higher division, it may be the case that he unable to consider the current sitation objectivly and should consult external 3rd party e.g. auditors to see if approriate conclusion to draw.
(b) The accounting treatment for FC Gate Co for the transaction over 3 years:
I went with IFRS 16 – Leases, as the lessor FC Gate needed to recognise right of use asset and lease liaiblity, and discounted the liaiblity to present value using 5% discount rate over 3 years – recorded as $16.63mil; right of asset ($16.63mil + 7.0mil for wages – probably really wrong). For the one-off bonus just expensed through profit and loss when its incurred.
c) the governemtn payment – Ignored was running out of time
Q3. After this point complete mess – Defered Tax question under UK-Variant so asking for difference with FRS 102 – which hadnt prepared for. Lucky if I get 2 marks for the nonsense I wrote.
Q4. The final question I didnt even attempt.
Basically only answered half the paper! **weirdly very theraputic writing this.
