[qwert443]

Hi @Parwadh

Concerning question in Section A, for sure it was ROMM not Audit Risk. Someone else also mentioned it in other post in this topic(@Chowdhury).

In question with audit evidence, I also may be wrong. I remember that they were asking what audit evidence needs to be obtained. Audit evidence is a result from audit procedures, hence if you only write that you have received for example Board Minutes and did not write what you have done with it(inspection, confirm etc.) full marks will not be granted. @Kingamazur.km30 mentioned it.

In section B in Forensic questions I do not remember exactly. In BPP book, where there was questions concerning pre-actepance of forensic assignment or agreed on procedures. In the answers to them there were also information about the intended users of report(to whom it is prepared), Scope, Timeline etc. Ethics was also included in it, so the marks will be granted I think. As above, @Chowdhury in his post has mentioned that in this point we have to evaluate matters to consider before accepting client and it is not only ethics.

I hope everyone will pass !

[qwert443]

In 3A, the question was about the pre-aceptance conditions to accept forensic assignment. Yes, indeed ethical and professional considerations should be met. However: fees, scope, capacity and professional competence also has to be considered.

In 2A, I have only calculated only materiality for Group and evaluated impact on consolidated FS. However in point (ii) it as quite visible that 1,4m of fines was material to subsidiary as profit of subsidiary was 0,9m.

[qwert443]

In Q3 b) I wrote around 7 procedures, however in my post I have provided only short breakdown of it as the description of the procedures were quite lengthy. In addition to the above:

– Verify if the goods, where purchased on market price as there was risk that the goods were overpriced.

For Q2, I assume there was 4-5 points for discussion matters and 2-3 points for audit evidence(based on previous exams marking scheme).

(i)Audit evidence: Obtain Board Minutes that Management decided to sell the subsidiary, Obtain and verify latest FS to verify value of assets, Verify if the entity in the consolidated FS was classified as discontinued operation, Perform inquiry and mathematical check of impairment assessment before classification as asset held for sale, Inspect correspondence with potential buyers and verify if the Management is committed to sale and sale price.

(ii) Audit evidence: Inspect correspondence with local authorities concerning fine, Perform inquiry over the estimation of provision by Management and verify all inputs used to calculate it, Inspect post year bank statements to verify actual amount paid, Obtain written representation that estimation was made based on best knowledge.

(iii) Audit evidence: Obtain Company agreement and verify stakeholders %(all necessary terms), Obtain report from Companies Houses and verify stakeholders, Inspect individual FS and check the value of assets/revenue, Obtain board minutes and check if 5 from 9 board members were appointed by the Company, Inspect FS if the necessary disclosures were made.

More or less I have write something like that 🙂

[qwert443]

Hello everyone,
I had following questions in my exam:

1. There was question concerning the Gemini Group, where two subsidiaries were supermarkets chain and one was providing bank services.

a) Evaluate business Risk (Exchange Rates as one subsidiary was in another country, Rivalry with other supermarket chain, Inventory Management, New accounting system, Higher gearing and going concern, Highly regulated industry of banking services entity)

b) Risk of material misstatements (Exchange Rates IAS 21, Provision IAS 37, Management bias, Renovation of supermarkets IAS 16, Inventory Valuation IAS 2, IFRS 3 and IAS 28 on accounting treatment, IAS 1 as one subsidiary has non IFRS accounting etc.)

c) Provide audit procedures concerning capital expenditure (renovation of supermarkets)

d) Explain ethical matters (Self-interest as contingent fee, self-review as additional non-audit services, Advocacy as Company insisted that Audit Partner should search for new companies)

2. a) Explain matters and provide audit evidence expected to obtain

(i) It was related to sale of subsidiary and Company did not apply IFRS 5 Discontinued Operations and asset held for sale. I wrote about impairment and criteria of IFRS 5 if there were met.
(ii) Relates to the material fine concerning of non-compliance with laws. It was material for individual FS, however for the group it was not. The assessment of IAS 37 has to be made and necessary adjustment
(iii) The joint venture with government was set up and how to classify it in the consolidated FS. Company has majority on Board and entity has to be fully consolidated (IFRS 3,10 and IAS 28 consideration)

b) Two adjustment has been made except the material one concerning sale of subsidiary. The opinion has to be qualified with sentence: except for as the misstatement was material, but not pervasive.

3. a) Provide considerations before the forensic assignment has to be accepted. I wrote about scope of work, fees, intended users, timeline, ethical matters (independence, objectivity) and preconditions (access to data and people).

b) Provide procedures over the quantification of loss. I have provided (in shortcut):
– Physical count
– Obtain all orders and verify them
– Obtain all GRNs
– Verify all invoices and payments to customer
– Inspect all manual GRNs made by suspected employee.

c) Evaluate effectiveness of IC system and why it is insufficient:
– Lack of segregation of duties
– The were not check of orders and anyone can make it
– No reconciliation of GRNs vs Orders vs Invoices
– Accounting system was not linked to Warehouse system
– Procurement Manager has access to warehouse system and can make adjustments.

[qwert443]

My exam was not the hardest one, however there was a lot to do and no so much time to do it….

I had following questions:

1) a) Provide the WHO requirements and how free trade agreements between countries may impact the investment

b) Prepare report for investment, where:

(i) Calculate NPV, where there was a lot of variables. The most tricky one was the double tax treaty, where there were different tax rates 30% and 20%. Also the exchange rates have to be calculated. I had positive NPV around 2mln, however I was not sure whether it was correct.

(ii) Discuss Assumptions, so just wrote about WACC, inflation, revenues, exchange rates etc.

(iii) Calculate Duration and I had 3 years and 2 months. I did not calculate the sensitivity analysis of revenue

(IV) Evaluate the duration and sensitivity analysis

2.

a) That was hedging question. The Company with base currency USD has to pay 18,250 mln EUR on 1 August and now was 1 March. All futures expire by month end. There was requirement to perform analysis the forward rate, futures and option rates.

For the Forward it was quite straight forward as we have 5 months forward rate so I had multiple 18,250 EUR by higher rate of EUR/USD and it was around 21,300 mln USD.

For Futures we have contract price 125k EUR and we have to use 164 contracts. Also the contract date was by the end of September. As the payment was on 1 August the unexpired basis was Futures price-Spot price * 2/7. The total amount was around 21,200 and it was the best option

In the option I had used September put option and It was the worst beneficial as the premium was increase the cost by 21,400.

b) Compare additional scenarios and different rates were provided for futures and forwards. I have calculated it the same as in point a) and still Futures was the best option.

c) Reasons of creating local treasury departments and benefits.

3. The question relates to the disposal of coffee shops and investment in juicy bar division

a) (i) Calculate the price of coffee shops division. The CF was provided and i have calculated FCFE and used dividend model to value the company. It was around 3,800 mln.

(ii) Prepare Forecast Statement of Financial Position. In this I had something messed up with Current Assets

(iii) Calculate EPS. In my calculation the EPS increased by 11%

(iv) Calculate WACC. I have calculated new equity beta and used CAPM

b) Advantages and Disadvantages of disposal coffee shops

c) Benefits of the Demerger proposed by NED.

[qwert443]

I was also considering going for IA as in Kaplan exam kit there was a similar question with football players. However, I treated it as leasing as there was information that first 3 years of the contract it was a loan instead of sale.

After the team decide to buy the player, then it would be treated as intangible asset. Although it may be wrong and correct treatment should be IA from the begining

[qwert443]

That was the hard part the question with the tokens as they cannot be treated as equity. It also relates to last question, which asked why the tokens graned to Directors was not Share Base Payment and were Employee Benefits. It was stated in exibit that tokens are not equity instruments. Also there was not any information that tokens are not refundable….

If tokens were equity, it would be simply share issues(tokens). Then DR 10mln Cash and CR 10mln Share Capital(Or Share Premium). However I wrote that this liability, which has to returned with profit to investors. Company will only retain % of profits.

[qwert443]

Hi all,
I had the same exam version with crypto as most of you. I have answered in following way:

Question 1
a) (i) Concerning the Fair Value, the difficulty relates that the sale subsidiary caused loss of control, which is not taken account in a market share price of subsidiary. In accordance with IFRS13 the Level 2 prices had to be used, which is observable for disposal of similar sized companies, which includes losing the control.

(ii) Calculation of the profit:
Net consideration: 35,000
FV of interest o retained interest: 1,000*5(market price)*0,8(FV of losing control)=4,000
Net asset: (45,000)
Goodwill: (3,600)
NCI using Fair value method (10,000*20%*5(it is not including the losing of control): 10,000
Profit: 400

(iii) CF Adjustment
CF from operations: 146.4
Working capital: deduct all working capital of subsidiary(IFRS10)
Contributions into Benefit plan (12)
Financial asset increase: (15) – this is not operating activity and it should be divided into:
(3) acquisition of the bond on reporting date- investing activity in minus and no interest in financing activities as acquired on reporting date
(1) acquisition of new financial asset- investing activity in minus
(6) increase in the value of associate and it is non-cash event. Therefore, no impact on CF and only dividend from associate for 1 should be recognized in investing in plus
(5) the deposit was made in April, hence investing activities in minus and interest to financing for half a year
The remaining adjustments were easy one

b) The dispute with supplier- that is typical question from AA/AAA exam, where the Company is obliged to adjust the FS after reporting date and before the publishing, if the subsequent is classified as adjusting event. The event occured in reporting year, hence it refers to that period.

Question 2

a) ethical issue relates to lack of professional behaviour and competence. FD also demonstrated the breach of integrity and objectivity(did not tell the holding that there a liquidity problems) in his judgement of FS and non-compliance with other laws. The going concern and law non-compliance is at risk. Moreover I have added few sentences about lack of knowledge about the hedge(lack of competence as qualified accountant)

b) The accounting treatment for FC Gate Co for the transaction over 3 years:

In Kaplan Exam kit there was similar question with player contracts and football club. It would state the player contracts should be recognized as Intangibles Assets. However in this question i wrote that important to determine under IFRS 15 Revenue if the transfer was a sale. The hard part was that usually in exam questions the entity sales something and in this case there was a buyer…. I concluded it was not a sale as there is no obligatory of purchase a player after expiry of contract, therefore it should be treated as leasing under IFRS 16, where PV of liability(7,000(initial payment)+2,600 per year discunted by 5% should be ROU depreciated under 3 years. The initial payment should be included in calculation as transaction was at reporting date 31.12.2017 and contract starts on 1.01.2018. Therefore it should be recognized… I think I might be wrong…

c) the government grants as of 31.03.2017 and 31.03.2018:

Under IAS20 a government grant is recognised only when there is reasonable assurance that the entity will comply with any conditions attached to the grant and the grant will be received.

(i) Company received decision of obtaining the grant concerning the stadium in December 2016, however final condition was met in July 2017. Therefore grant should be recognized in 2018 as deduction from total costs or def income. As of 31.03.2017 there was not reasonably assurance and it should be not recognized as it is not virtually certain

(ii) Grant refers to cost incurred in March 2017 and was received in July 2017. I wrote that grant receivable as compensation for costs already incurred, should be recognised as income or retained earnings in 2018

(iii) I do not remember

Question 3

(a) There was a scheme under, which Lucid(forestry company) is financing it liqudity towards the supplier of trees via reverse factoring. The question was, whether liability towards the bank should be trade payables or debt. For me it was easy one as i have recently wrote FM and there are factors that indicates that is debt:
– the repayment period of the reverse factoring liability is significantly longer than the normal payment date. Lucid has 90 days to Bank and on invoice was 30 days
– interest is charged by the bank and interests were 7%

(b) Under IAS 12 Company can recognize DTA to the extent of that it would be used against a profit. Current law stated losses from prior year can be carried forward indefinitely, however the is possibility to change this to limit it to 3 years. As of the reporting date there was significant historical losses, potential tax law changes and no profit in near future Company cannot recognize DTA.

(c) question relates to the investors risk in face of Management estimation and judgements, so I described Conceptual Framework and IAS37.

Question 4

(a) Crypto asset disclosure requirements – Just wrote the faithful presentation and relevance of FS disclosure.

(b) Whether the development cost and promotional costs can be capitalised as intangible asset. The development of trading platform meets the requirements of IAS38 for capitalisation as it is providing economy benefit. The promotional costs should be expensed to PL

(c) I just wrote that the token can be treated as crowdfunding, where the profits are gained on % of transactions in the market by the Company. The investors [provided money to company for token, however in exhibit there were two times stated that it is not equity. Hence I treated is a liability and made following journals( DR Cash 1mln; CR Liability 1mln)(DR Cash 9mln; CR Liability 9mln)

(d)The program was an employee benefit rather than a share based payment, because it not includes equity instrument in a settlement of transaction(in point C it was also important that token was not equity instrument)

I must agree with you that questions in this exam were quite strange in comparison to prior exams… Also there was not many calculations to do.

Hope everyone will pass

[qwert443]

Hi all,
I had the same exam version with crypto as most of you. I have answered in following way for harder part of questions:

Question 1
a) (ii) Calculation of the profit:
Net consideration: 35,000
FV of interest o retained interest: 1,000*5(market price)*0,8(FV of losing control)=4,000
Net asset: (45,000)
Goodwill: (3,600)
NCI using Fair value method (10,000*20%*5(it is not including the losing of control): 10,000
Profit: 400
(iii) CF Adjustment
CF from operations: 146.4
Working capital: deduct all working capital of subsidiary(IFRS10)
Contributions into Benefit plan (12)
Financial asset increase: (15) – this is not operating activity and it should be divided into:
(3) acquisition of the bond on reporting date- investing activity in minus and no interest in financing activities as acquired on reporting date
(1) acquisition of new financial asset- investing activity in minus
(6) increase in the value of associate and it is non-cash event. Therefore, no impact on CF and only dividend from associate for 1 should be recognized in investing in plus
(5) the deposit was made in April, hence investing activities in minus and interest to financing for half a year
The remaining adjustments were easy ones
Question 2
b) The accounting treatment for FC Gate Co for the transaction over 3 years:
In Kaplan Exam kit there was similar question with player contracts and football club. It would state the player contracts should be recognized as Intangibles Assets. However in this question I wrote that important to determine under IFRS 15 Revenue if the transfer was a sale. The hard part was that usually in exam questions the entity sales something and in this case there was a buyer…. I concluded it was not a sale as there is no obligatory of purchase a player after expiry of contract, therefore it should be treated as leasing under IFRS 16, where PV of liability(7,000(initial payment)+2,600 per year discunted by 5% should be ROU depreciated under 3 years. The initial payment should be included in calculation as transaction was at reporting date 31.12.2017 and contract starts on 1.01.2018. Therefore it should be recognized… I think I might be wrong…
c) the government grants as of 31.03.2017 and 31.03.2018:
(i) Company received decision of obtaining the grant concerning the stadium in December 2016, however final condition was met in July 2017. Therefore grant should be recognized in 2018 as deduction from total costs or def income. As of 31.03.2017 there was not reasonably assurance and it should be not recognized as it is not virtually certain
(ii) Grant refers to cost incurred in March 2017 and was received in July 2017. I wrote that grant receivable as compensation for costs already incurred, should be recognised as income or retained earnings in 2018
(iii) I do not remember
Question 3
(a) There was a scheme under, which Lucid(forestry company) is financing it liquidity towards the supplier of trees via reverse factoring. The question was, whether liability towards the bank should be trade payables or debt. For me it was easy one as i have recently wrote FM and there are factors that indicates that is debt:
– the repayment period of the reverse factoring liability is significantly longer than the normal payment date. Lucid has 90 days to Bank and on invoice was 30 days
– interest is charged by the bank and interests were 7%

(b) Under IAS 12 Company can recognize DTA to the extent of that it would be used against a profit. Current law stated losses from prior year can be carried forward indefinitely, however the is possibility to change this to limit it to 3 years. As of the reporting date there was significant historical losses, potential tax law changes and no profit in near future Company cannot recognize DTA.

Question 4
(a) Crypto asset disclosure requirements – Just wrote the faithful presentation and relevance of FS disclosure.
(b) Whether the development cost and promotional costs can be capitalised as intangible asset. The development of trading platform meets the requirements of IAS38 for capitalisation as it is providing economy benefit. The promotional costs should be expensed to PL
C) I just wrote that the token can be treated as crowdfunding, where the profits are gained on % of transactions in the market by the Company. The investors [provided money to company for token, however in exhibit there were two times stated that it is not equity. Hence I treated is a liability and made following journals( DR Cash 1mln; CR Liability 1mln)(DR Cash 9mln; CR Liability 9mln)

(d) The program was an employee benefit rather than a share based payment, because it not includes equity instrument in a settlement of transaction(in point C it was also important that token was not equity instrument)

[qwert443]

@Ryanwilkes

I have put the same in CSR. Also provided that the trust and confidence will increase of shareholders as Optima was listed company.

Nevertheless I think exam was not the hardest, however I must agree that it was different than previous one as there was no financial question or almost nothing about the risk.

[qwert443]

Indeed the first question was very weird and I did not know how to approach it either. I just described that Company segment its customers on the value-based by their economic value(mid to high income) and potential implication of that. I also provided info that differentiation strategy refers to the high quality for high price. In the end I have provided some information about the rapid growth of low cost gyms and impact of it on the Company current strategy. I think my answer will not be highly marked.

[qwert443]

I have the same exam version.

1. In this question there were two segments of customers: mid to high and budgeted. Company was using a differentiation strategy to attract the “high” customers. I have only described what strategy the company is using and what is the target. In point b) questions relate to the recommendation on how to improve the Company positions in the market, so I have provided solutions on how to maintain a strong position in “high” customers and how the Company has the possibility to attract the customers from the low end.

2. At first I was struggling with how to approach the questions with opportunities and threats as I was wondering what the differences between this and analysis of advantages and disadvantages…. The question asked what are the opportunities and threats of the new government contract. In opportunities I have provided that there is a new possible long term revenue stream, potential identification, new business opportunity, and increase the reputation of the Company. In the Threats I have provided that reputation may be damaged if the contract was unsuccessful, also that the contract may be on loss financial position if the performance review was negative due to unsatisfactory results of it and also that if the new business opportunity was identified the company will not be able to use resources for it. I think in this question I did it wrong as I have described advantages and disadvantages of contract.

In the second part of the questsion I have described what is VFM(3E: Economy, Efficiency and Effectivnes) and impact over the contract(potential audit, provide best quality at best price etc, or meeting tight requirements)

3. The same as above I may missinteprate the opportunities/threats with advantages and disadvanteges. In opportunities of Big Data I have provided: better understanding of customers requirments/behaviour, possibility to identification of new business opportunity, identification potential process inefficiency and effective use of marketing strategy. In threats I have provided: data security, high cost of implementation, lack of skilled staff, which must be trained.

In mobile application part I have used 6Is model to provide benefits(Integration, Interactivity, Intelligence, Individualism, Independent of place and Industry structure) to describe benefits.

4. The last question was the easiest one. There were 4 control deficiencies: Lack of monthly review of report, Instructors were not performing obligatory training, the security issue and customers may enter the gym without having membership and the refurbishment of the club without the approval(the refurbishment was performed by the husband of the club manager). We were asked to provide potential impact of the deficiency and recommend how to improve it.

Overally, I think the exam was not the hardest. However I am not satisfied with how I had approached the questions and I may have maybe make misunderstanded the questions with opportunities/threats…. I was confident before the exam and now I only want to achieve 50% 🙂

[qwert443]

@GraceOla
Yes, exactly. Therefore they have asked us in this question for the planning variance, which occurs due to change in the number of journeys. The operating variance is the comparison between the actual usage vs revised. However the total variance should be calculated between the acutal and original budget.

[qwert443]

Hi,
In the question concerning coal I have calculated the below variances as someone stated above:

Material price planning variance = 1,775 Adv
Material price operating variance= 710 Fav
Material usage planning variance = 1600 Adv
Material usage operating variance= 600 Adv

It gives the total adverse variance of 3,265, which is correct as in the budgeted coal cost was 12,000 and actual was 15,265.

[qwert443]

Ruby67 are you referring to the revaluation ?

Also in the question I think you had to also add the additional depreciation for the two months of borrowing capitalization, which was 8 if I remember correctly.

It is funny that this question checked wider spectrum of knowledge about FR syllabus than whole section A or B.

In the section B did you have a question with the calculation of the depreciation of aircraft ? I had calculated it as 1280 and I assume it is incorrect…..

[qwert443]

In the question there was information that the disposal was in 30 March 20×9 and the reporting date was on 30 June 20×9. Also there was information that since acquisition till 30 June 2018 the profit of subsidiary was 3,000 and for the 2019 was 2,000.

You had to calculate it as: NCI at acquisition + 20% * 3,000+20%*9/12*2000 – 20% on adjustment on PUP.

@ruby67
I was wondering if these dividend refers to the preference share or maybe to the all shares. I have also included it in the SOCE.

Have you maybe capitalized borrowing costs for 6 months in relation to the construction of plant(additional depreciation on other expense) ? Also I did the adjustment for the first two months of loan interest as the loan was taken on 1st March 2019 and in the TB the interest were calculated for the full year(2,000 * 9%). I do not know if it is correct…..

[qwert443]

@Pjashu1995

I had the same exam version as you and I have loss from the disposal 600(Sale proceeds-Goodwill-Net asset at date+NCI). In the next question you had to respond to the questions of CEO, why the profit for the year was so low despite the fact of the subsidiary sale. I think it is somehow connected.

Concerning the previous question(31) with the SOPL at the end of the exam I have noticed that proceeds from the rights of share issues(share premium) were allocated to the Revenue and it has to be deducted.I think that question was one of the toughest one on the F7 exam from couple of years.

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