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Passed with 54% was not expecting it though.
ACCA is so weird when you expect to pass with good marks you don’t when you don’t expect to pass at all you do pass. It happened twice with me now.
ACCA gives you opposite result of what you expect.
It was written that the goodwill reversal of $2m is included in current draft P/L so the reversal should be deducted from P/L
Q4 of the exam was based on this article
for 1st company (something like cavon) it was said that A shares are ordinary shares. Payment of dividends is not mandatory. However, dividend can only be paid to B shares after payment to A shares
To me it looks like A shares were not ordinary shares and they were preference dividend. However, B shares are only paid after A shares are paid dividend which gives an indication that these are ordinary shares and so are equity.
For second scenario Lidan it was said that these include redemption option and the settlement can be made in cash or issue of A shares.
So it looks like these were convertible bonds, as it includes the redemption option in both (equity and cash). so it is part equity and part debt. That’s what I guessed in the exam. Hope it was correct. Best of luck everyone.
After asking from tutors and reading articles all I can say is that here the recoverable amount is the recoverable amount of the assets only, not the net assets (ie assets-liabilities). That’s why you compare this recoverable amount to the assets + goodwill, not net assets + goodwill.
Otherwise you could deduct the liabilities from the recoverable amount and compare this new amount to net assets + goodwill this will give you the same answer.
I looked at an article from deloitte and it says:
”Allocating assets and liabilities to CGUs:
The allocation of assets and liabilities to a CGU, so as to establish the carrying amount of the CGU, should be determined on a basis consistent with the way the recoverable amount
of the CGU is determined (IAS 36: 75).”To me it looks like:
When it says in the question that ”The recoverable amount has been determined without consideration of liabilities which all relate to the financing of operations”
So we should also determine the carrying amount without consideration of liabilities which all related to the financing of operation in order to be consistent with the way the recoverable amount is determined.
Why the examiner is so keen to ask question that he wants students cannot answer. I looked at an article from deloitte and it says:
”Allocating assets and liabilities to CGUs:
The allocation of assets and liabilities to a CGU, so as to establish the carrying amount of the CGU, should be determined on a basis consistent with the way the recoverable amount
of the CGU is determined (IAS 36: 75).”To me it looks like:
When it says in the question that ”The recoverable amount has been determined without consideration of liabilities which all relate to the financing of operations”
So we should also determine the carrying amount without consideration of liabilities which all related to the financing of operation in order to be consistent with the way the recoverable amount is determined.
Am I right?
Can you explain what it means by : The recoverable amount has been determined without
consideration of liabilities which all relate to the financing of operationsFor December 2011:
Carrying value is quite literal
What two things do we carry as regards the subsidiary we carry net assets and we carry goodwill.
Now what was the goodwill at acquisition 12 months ago [60 for dec 11 question]
at the year end 12 months later before the impairment what is it still now = 60 before the impairmentwhat about the net assets, at the point in time when we are doing the impairment review as always we are doing the impairment review at the year end so how bigger the net assets in this entity at that year end are 1089.
Carrying Value [1089+60]
Impairment 50
Recoverable value =1099That is the kind of logic that you should be looking.
However regarding your question from december 2012, it looks like it has something to do with the last sentence of point 2 in December 2012.
[Both Bower and Heeny were impairment tested at 30 November 2012. The recoverable amounts of both cash
generating units as stated in the individual financial statements at 30 November 2012 were Bower,
$1,425 million, and Heeny, $604 million, respectively. The directors of Minny felt that any impairment of assets
was due to the poor performance of the intangible assets. The recoverable amount has been determined without
consideration of liabilities which all relate to the financing of operations.]What does it mean by: The recoverable amount has been determined without
consideration of liabilities which all relate to the financing of operationsto me it looks like the recoverable amount only includes assets and needs to be compared with assets and not nets assets. But I will look for its more clear answer and comeback to you.
Thank you for the extracts
Impairment occurs when the recoverable value of the asset falls below the carrying value.
When calculating goodwill impairment in a sub we will look at the carrying value of the sub and compare it with the recoverable value to calculate the impairment.
and what does the subsidiary carries as its carrying value?
the answer is the net assets and goodwillCarrying Value of the sub=total net assets before impairment + Goodwill before impairment
Impairment (BALANCING FIGURE)
Recoverable Value
For your December 2011 extracts
Carrying value of the sub = [1089+60] (net assets at year end just before impair+gw)
Impairment (balance)=50
Recoverable value=1099So
Goodwill at acquisition =60
Impairment (50)
Goodwill at year end 10For your December 12 extracts
Carrying value of Heeny [631 + 23]=654
Impairment (balance)=50
Recoverable value = 604Goodwill at acq = 23
Impairment (50) [of which 27 relates to intangibles goodwill can never be negative]It does not matter when the buyer makes the payment. You need to recognize the whole revenue immediately at the point the land is transferred to the buyer.
However, if the buyer is paying in installments you are not only selling him the land but also financing him to purchase your land. So effective you are selling him the land and giving him the loan as well.
Your Sales figure should be clearly split between the amount that is related sale of land and the amount that is related to loan.
That split of the sales figure need to be recognized as follows:
Revenue : Recognition
Land (at the point land is transferred to the buyer)
Financing (over the period the installments are paid)You have the answer in your question
For impairment of CGU, should I use Total asset or Total equity as FV of NET ASSET?
What is Total Equity
Total Equity = Total Assets – Total Liabilities= NET ASSETS
so in essence Equity=net assets
You did not provided the question extract here but in most of the questions of groups you can see impairment is calculated by using this method and fair value of net assets is calculated somewhat like that
Share Capital
Share Premium
Other Components of Equity
Fair value of adjustment (if any)=fair value of net assets.
@ Mike I checked it on Google, Tolstoy wrote war and peace.
https://en.wikipedia.org/wiki/War_and_Peace
I am glad it was helpful for you. I wish you all the best for your p7 exam.
I will be glad if it will be helpful for you. Let me know your email and I will email you the latest revision kit.
I am sorry Mike, I actually know nothing about Tolstoy & I am not very English-stic but I did tend to write about it in my last post I don’t know how I forgot it. In simple words I would say Peace be upon you too.
I don’t know about all 5 but I do know about you and John Moffat, I mostly find the answers of all my questions in your forum and I am also a big fan of John Moffat. I loved his lectures and passed my F5 and F9 with them.
Thanks to you Mike for putting your time and effort to help all of us pass the exams.
Hi Nivcool,
How a deferred tax is created?
What happens is we accountants carry different value from tax accountants and creates a temporary difference.
We carry the assets and liabilities on their carrying values and tax man carries them tax base.
We calculate deferred tax as follows
Carrying value – Tax = Temporary difference x corporation tax % = DT
When we calculate Deferred tax on an asset say a ppe with a carrying value of $10m and a tax base of $7m and CT rate is say 30%.
$10m – $7m = $3m x 30% = $0.9 deferred tax liability.
Now lets talk about a provision
Say company have an environmental provision of $60m CT rate 30% and tax man recognizes environmental costs as the cashflow
now this provision is liability and so
Carrying value of provision : ($60) [negative because it is a liability]
Tax Base : 0
Temporary difference : ($60) x 30% CT rate
DT (ASSET)= (18)Same rule applies for pension liability
Below is a recently written article on policies by a P2 tutor. It will help you.
WORD BLIND
I’m in the mood to deliver a sermon. The subject will be ‘the same word can mean
different things to different people’. The word I am going to use to illustrate the point is
‘policy’. The particular problem with the word policy shows itself in stark relief when a student
asks this deceptively tricky question: “I have changed my depreciation policy from straight
line to reducing balance. Why does the text say this is not a change in policy? It obviously is a change in policy!” Goodness, I can feel myself quake. It is a horrible question with an even
more horrible answer.
The word policy comes to us from the mists of time long before anyone had the bold idea of
inventing accounting standards and trying to impose consistency. Back then, accountants
had a wide range of choices for their financial reporting and the choices they made became
known as ‘policies’. For example, in the context of leasing, there was a choice between ignoring all finance resulting in pure operating lease accounting and accommodating some finance resulting in the mixed model of operating and finance lease accounting like we do today. Back before standards most companies chose pure operating lease accounting and that was their lease policy. But others chose the mixed model and that was their lease policy.Then, one-by-one, standards were issued and choices were closed. To continue the leases
example, after IAS 17 a company previously applying pure operating leases had to swap to
the mixed model and the policy choice disappeared. As each standard was issued the
choice disappeared and companies had to align their policies with the standard. The idea of a policy as a choice has effectively gone. ‘Policy choice’ has disappeared.But as this was going on, a new and different meaning of ‘policy’ sprang into use. This
meaning is nowhere in the standards and everywhere in real life, and this conflict is the
root of the confusion.This very different animal is all about volume, compromise and materiality. It is true to say that IAS 16 on depreciation contains no policy choice. You must depreciate an asset on an
individual asset-by-asset basis over its life to match the cost with use. And many companies
do just that. They simply look at each asset on an individual basis and estimate its use, and
thereby derive depreciation for each asset. But in big companies with lots of similar assets, a little trick called a ‘formula’ is used. Say there are hundreds of machines that are similar and all last roughly five years (some more and some less). In that company the accountant might say: “I shall depreciate all of them over five years.” Now this is in direct contradiction to IAS 16, which says that depreciation must be on an asset-by-asset basis. But here is the trick. The accountant comes back and says: “I know that, but if I do as I propose, the error will be immaterial and therefore I can.” Neat trick. Now this becomes the big company ‘formula’. So the big company policy is to match cost with use and the formula is the five-year life compromise used to deliver that policy.Now say that same big company realises that reducing balance would better reflect the
matching of cost with use. Well, then that company will keep its ‘policy’ of matching cost to
use and change its ‘formula’ to reducing balance.Obviously, that is a change of formula and not a change of policy. But, as you know,
accountants who routinely use these ‘formula’ in their accounting do not call them ‘formula’. They call them ‘policies’. You can now see this meaning is in direct contradiction to the
standards. But these ‘formula’ are still called ‘policies’ just the same.Hence the problem. The original meaning of ‘policies’ is in the context of ‘choice’. The newer
meaning of ‘policies’ is in the context of ‘formula’. So the standards have one meaning
and people in the real world have another meaning for the same word. This is common. So
when someone uses a word and the context seems skewed, then ask them to explain a little
more and you might find they are using that word to mean something quite different to what
you understand by that word. You can now understand them and save yourself a whole load
of heartache. Here endeth the lesson.Hello Kangmo,
There is a question 4 from june 2011 on Financial Instrument. I think it will give you a great feel about the changes in Financial Instruments. What things are no longer required from IAS 39.
Also I can tell you that in my new notes I can’t see anything from IAS 39 except impairment on financial instruments.My advise is that you focus on IFRS 9 for finanacial instruments measurement and recognition and focus on IAS39 for impairment of financial instruments.
https://www.accaglobal.com/content/dam/acca/global/PDF-students/2012/p2int_jun_2011_qu.pdf
https://www.accaglobal.com/content/dam/acca/global/PDF-students/2012/p2int_2011_jun_a.pdf
Yes IAS39 is obsolete as regards recognition of Financial Instruments Assets and Liabilites. However it is still applicable for impairment of for financial instruments.
For Financial Instruments the IFRS 9 is relevant.
There maybe some minor changes just look for those changes apart from that its fine. However if you are looking for the latest revision kit I can help you with that
If you look at the question point 2 it says ”It is the group’s policy to measure the non-controlling interest at acquisition at its proportionate share of the
fair value of the subsidiary’s net assets.”Proportionate Goodwill or Partial Goodwill is where the NCI is valued at its proportionate share of net assets and is assumed to have no ownership of goodwill.
It is a complex group question
The group have direct and indirect ownership of caller
The direct ownership is 14%
The indirect ownership is 60% x 70%=42%
Combined ownership 56%
NCI 44%we can calculate goodwill for this question as follows:
fv of direct ownership (at june 2012 when Trailer got control) $280
fv of indirect ownership 1270 x 60% = 762
f.v of nci 44% (1150×44% as it is valued at proportionate share of net assets) 506
less: fv of net assets (1150)Goodwill $398
[280+762+506-1150=398]
I hope it will help you.
I have another question from Question Ashanti.
In paragraph 6 of question it’s written:
Ashanti owned a piece of property, plant and equipment (PPE) which cost $12 million and was purchased on
1 May 2008. It is being depreciated over 10 years on the straight-line basis with zero residual value. On
30 April 2009, it was revalued to $13 million and on 30 April 2010, the PPE was revalued to $8 million. The
whole of the revaluation loss had been posted to the statement of comprehensive income and depreciation has
been charged for the year. It is Ashanti’s company policy to make all necessary transfers for excess depreciation
following revaluation.In the answer
Working 6
At 30 April 2009, a revaluation gain of ($13m – $12m – depreciation $1·2m) $2·2 million would be recorded in equity for
the PPE. At 30 April 2010, the carrying value of the PPE would be $13m – depreciation of $1·44m i.e. $11·56m. Thus there
will be a revaluation loss of $11·56m – $8m i.e. $3·56m. Of this amount $1·96m ($2·2m less $0·24m transfer for excess
depreciation) will be charged against revaluation surplus in reserves and $1·6 million will be charged to profi t or loss.There is a depreciation of $1.44m. My question is that why the depreciation of $1.44m is not charged to P/L.
I found the answer, it is in the question para 6:
The
whole of the revaluation loss had been posted to the statement of comprehensive income and depreciation has
been charged for the year. It is Ashanti’s company policy to make all necessary transfers for excess depreciation
following revaluation.which means the whole revaluation loss of $3.56 has been charged to OCI instead of $1.96, So $1.6 should be added back .
Martin Jones is not from BPP he is from LSBF. If you studied from his method then you will get lost in the method used by bpp. The style that he use to answer narrative question is heading sentence, heading sentence since according to marking guide it is 1 mark per idea. So if it is a 7 marks question it will 7 headings and 7 sentences using his answer style. If you studied by his method then I recommend that you use his revision kit in which he has answered many questions himself in the same style. Studying from different method and doing revision practice from a different method at the last month will only confuse you. I recommend you to use the method that is consistent to your understanding.
