[P2-D2]

Hi,

If the acquisition date is 1 May then we will add 4 months of the profit for the year to the opening retained earnings balance. So we will add 5/12 of 140 to the 350 figures given in the question.

This is quite a common scenario in the exam so please keep an eye out for it.

Thanks

[P2-D2]

Hi,

In example 1 the sales are intra-group and so we will always eliminate the sales from revenue and cost of sales in full, regardless of what is still held in inventory at the year. We are applying the single entity concept where we cannot sell to ourselves and inflate the revenues and costs.

In example 2 the adjustment given in the answer is for the PUP, eliminating the intra-group profit on consolidation. There isn’t anything in the question to say that the amounts due are still outstanding at the reporting date and so there is no requirement to eliminate the receivable/payable balance.

Good luck with the exam.

Thanks

[P2-D2]

Hi,

The current notes are valid up to and including the June 2025 exam sitting. For the September exam sitting onwards we will see the introduction of IFRS 18 and new class notes will be provided for this. They are nearly complete and will be on the website shortly.

Thanks,

[P2-D2]

Hi,

The current notes are valid up to and including the June 2025 exam sitting. For the September exam sitting onwards we will see the introduction of IFRS 18 and new class notes will be provided for this. They are nearly complete and will be on the website shortly.

Thanks,

[P2-D2]

Yes, possibly but I’m unsure why they’d want to do so. However, you don’t need to worry about it at this level.

Thanks

[P2-D2]

If you are asked to calculate the total equity then this will include the NCI balance too. There is enough information in the question to be able to calculate this figure, so I’m surprised to hear that it has not been taken into account. You can calculate it using the proportionate share of net assets method.

Thanks.

[P2-D2]

Hi,

I think that only (iii) is permitted under IFRS (IAS 12 Deferred Tax).

(i) is not permitted as there is no obligation to replace, plus the asset could be sold in the time period and so no provision required.

(ii) is not permitted as a change in useful life of an item of PPE is a change in estimate and so accounted for by spreading the carrying value over the new remaining useful life, there is no adjustment to what has happened in the past.

(iii) the revaluation increases the CV of the asset and so creates a larger temporary difference than we previous had and so an increased deferred tax liability, even though we will not sell it there is a gain in OCI that requires an associated tax adjustment to match the tax to the period in which it relates.

Thanks

[P2-D2]

Hi,

When looking at the income tax expense figure you need to look at the current tax and deferred tax components. The current tax is given to you in the question, the challenge is the deferred tax aspect.

When looking at the deferred tax aspect then remember the steps that we went through in the class notes and the videos.

1. Calc. TD where we compare the CV vs. Tax base. – Given in the question at 8.2 million. Just note that 3.6 million is revaluation, so only the difference of 4.6 million will impact profit of loss.
2. TD x tax rate 25%
3. Movement to profit or loss. So compare to the opening balance of 3.2 million to get the movement.

Attempt the question given the above and let me know how you get on.

Thanks

[P2-D2]

Hi,

Yes, you will also need to include the parent’s share of the post-acquisition earnings of the associate within the group retained earnings. It ensures that the Group SFP balances as we will have added the same figure in the investment in associate balance in the non-current assets.

Thanks

[P2-D2]

The answer is given in the response to the original post, where the issue costs were originally expensed through profit or loss incorrectly and we are not adding them back to retained earnings.

Thanks

[P2-D2]

Hi,

It looks like an odd question and not something we’d see at this level, maybe at SBR level. I think that given it says we are not applying IFRS16 then it is not being treated as a lease back and so treated as an outright sale. We therefore would not need the information regarding the PV of the future lease payements.

Thanks

[P2-D2]

Hi,

I can’t just answer the question outright without you showing how you have treated each of the scenarios yourself. If you explain the treatment of each then I can confirm if you are right or wrong, and if wrong I can look to correct you.

It is better to do it this way as it helps your learning.

Look forward to hearing back from you.

Thanks

[P2-D2]

Hi,

We’re looking at a non-current asset held for sale as opposed to a discontinued operation in this instance as it is the disposal of PPE as opposed to a line of business or geographical area.

When looking at NCA-HFS we’d look at each asset individually and compare the CV to the FV less costs to sell, measuring the NCA-HFS at the lower.

Plant – FV less cost to sell look like being lower than the CV and so recognise at the lower on the SFP and then the difference is an impairment through profit or loss.

Factory – FV less cost to sell must be greater than the CV if expected to sell for a profit, so asset held at CV. No profit is recognised until it is eventually sold, presumably in the next accounting period.

Thanks

[P2-D2]

Your understanding is all perfectly correct, so no need to worry. Good luck with the rest of the studies.

[P2-D2]

Hi,

Yes, you would reduce the line item in the SPL as you say, but on the CSFP then we would need to reduce the group retained earnings and not as they have, reducing the investment in associate.

Thanks

[P2-D2]

Hi,

Yes, you would reduce the line item in the SPL as you say, but on the CSFP then we would need to reduce the group retained earnings and not as they have, reducing the investment in associate.

Thanks

[P2-D2]

Hi,

Yes, I agree with what you say in that under the net assets method 100% of the impairment should be deducted from the goodwill. It appears to be an error in the answer.

Your journal entry is correct too.
Thanks

[P2-D2]

Hi,

Most of what you have done looks correct. I think though that there is a slight error on the second journal entry where the CR should be to the revaluation surplus and not PPE. If you then net off the first three journals you will then have the same as what is in the answer.

Thanks.

[P2-D2]

Hi,

Most of what you have done looks correct. I think though that there is a slight error on the second journal entry where the CR should be to the revaluation surplus and not PPE. If you then net off the first three journals you will then have the same as what is in the answer.

Thanks.

[P2-D2]

Be careful not to get the profit in the individual account (based on legal form) and the profit in the group accounts (based on substance) confused. In the individual accounts we just have proceeds less the value of the investment disposed of, there is no goodwill in the individual accounts.

In the group accounts, the proceeds are compared against the assets (including goodwill) and liabilities disposed of.

[P2-D2]

Hi,

Yes, under IAS 20 we would use the depreciation policy to spread the deferred income so as to match the income against the depreciation expense.

Thanks,

[P2-D2]

Hi,

When we equity account for the associate we account for our share of the associates profit for the year in the consolidated accounts. The associate will have paid out a dividend from this profit that we have received and included within the investment income figure. If we do not then remove the share of the dividend that we have received from the associate then we will be double counting as that share of the dividend is in the profit figure we have equity accounted for.

Hope that clears it up for you.

Thanks,

Chris

[P2-D2]

Hi,

The key piece of narrative information that you are missing is that in the additional information it says that the loss of $2 million is what has been made at that date, i.e. this is the profit for the six-month period and so no pro-rating is required. In this question the profits do not accrue evenly during the year.

Thanks,

[P2-D2]

Hi,

Yes, with the bonus issue you do not need to do any weighting calculation. There is no impact on cash (as none was received in a bonus issue) and so no impact on profits, so we do not need to weight the share issue.

Thanks

[P2-D2]

Hi,

A slightly different approach is required here. You have the cash (working capital) cycle at 70 days so would need to use this alongside the inventory days and payable days to get the receivable days.

Payable days can be calculated from the credit purchases and the cost of sales figures.

Inventory days can be calculated from the inventory turnover period. If we are turning over inventory over six times in a year (365 days) then we are holding it for on average 365/6 days.

We then know that the total of 70 days is equal to inventory + receivables – payables so you should then be able to find the answer.

Let me know if you do not.

Thanks

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