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Hi all,
How should you treat the sale of inventory in Q1 with the option to buy back at a much lower price ? I guessed you should presume the company will certainly buy it back at some stage.
I reversed the sale and adjusted the inventory to its FV at year end.
Not sure if I should have kept it at Cost or FV ? Usually Inventory stays at Cost but in this case it has left the business …
Also not sure if I was meant to account for a Financing agreement i.e the difference between the sales price and the buy back price because this is the substance of the arrangement.
Pretty sure what I did was either wrong or incomplete. Would be nice to know.
Thanks
Hi guys! Anyone remembers Q2c? Initially I did not have a clue how to address this question… I ended up writing about the impairment of the warehouse as a result of the flood and concluded that Fs should be adjusted to reflect this. There was an insurance claim to be received but concluded that is not probable that they will be entitled to it and should not adjust Fs . Has anyone wrote anything similar??
I got my Goodwill total of 59. I got 24 for Spade and 25 for Club.does anyone have the same answers as well.
I wrote that flood is a non-adjusting event for the warehouse that was damaged by flood.
But for other warehouses I wrote that it discovered conditions at the reporting date and hence FS should be adjusted.
For insurance I was also not sure. I think I also wrote that it cannot be recognized as asset as it is not probable that benefits will flow. But not sure about it…Btw, translation of loan and retail. (Q2b)
Charge to PL of fixed interest should be based on average exchange rate, right?
Retail division I wrote that since it is valued at carrying value, should be at exchange rate at purchase date.The retail division was worth more by year end so the entity could elect to re-value should they wish. If they re-value you take the date of revaluation which was year end as the exchange rate. I don’t think it was clear from the question whether they had re-valued or not so you were probably ok to say historical cost. so long as you explained all this.
I think it was trying to get you to suggesting Hedging the asset and the loan since they were in the same currency but only touched on this saying it was possible and it would smooth the effects of any swings in currency
Q2b was about monetary and non monetary assets. Which exchange rate we should use. I don’t think that there were any hedging, because only loan should be recalculated. For asset we use historic exchange rate. So there is no forex on it.
I took the question that its FV was recalculated due to some impairment indicators. So, assumed that it was cost model, not revaluation model. So it shouldn’t be revalued. I slightly stated that in the question…
I also was thinking about hedge, but in the end didn’t write anything about it. Decided it’s too much for 6 points 🙂
So, interest on loan (charge for the year) should be calculated on average exchange rate? With interest to be paid recalculated at year end ex.rate and with difference to PL?
Apologies I think Lemontrees & KPMG are correct. Hedging does not appear to be applicable here although it could be advised as a risk mitigator.
I got that wrong !
Does this mean that you cannot re-value foreign currency non-monetary assets held at historical cost ? Ambiguous..
The standard calculations of question 1 were straightforward, adjustments were bit difficult though. I had no idea what about factoring in part(b) but i gave it a shot.
Question 2 was fair enough, but question 3 was a disaster
I think it’s not about that they can’t because it’s in foreign currency.
The company should adopt cost model or revaluation for PPE. If revaluation, than PPE should be revalued every reporting period. => translated at ex.rate at the date of revaluation.
If cost model => ex.rate at the date of acquisition. + impairment indicators. I would probably translate it at the new rate if it was impaired(but not sure about it). As it was not revalued, I said that ex.rate at transaction date.
For q3, I completely agree…
Also didn’t like it.
for a) I said that it should be discontinued operation, as it was closure of the major line of the business. I said that roylties should be recognised as other income in the preiod they relate to.
I don’t remeber what was there with licensing… For other consideration I also don’t remember what I wrote. Anyone knows the answer? 🙂for b) I said that considertion = FV of licence (given in the question) + legal cost (600k-100k which relate to previous year). I think i said diff bw Consideration and NCI should go to PL, which is incorrect (should go to OCE). Not sure how strict they will be about it…
c) DTA … this was a difficult one for me… I wrote that it can be recognized only up to 70% of taxable difference (3*tax rate*70%). The rest should not be recognized, as there are expected future losses in the following 4 years.
Any other ideas on these 3?
a) I also said it should be a discontinued operation and that the contingent consideration should be included in it. Royalties i said should be an intangible asset which i’m presuming is wrong.
b) I only discounted the 100k legal costs and said that the remaining 500k could be capitalised. I also said the difference between consideration and NCI should go to retaining earnings.
c) I wrote loads about the deferred tax standard and basically said that they couldn’t recognise it as they were expecting a loss in the next four years.
Hi,
I did Q1 (a) as the very last question i did.
I managed to get half of the workings done, clearly labelled.
However, i didnt have time to correctly input them into a laid out balance sheet.
Will i get the marks (or some of them) for my workings even if i didnt have time to input them to B/S? It could be the deciding factor between me passing or failing.
I guess it was 25 share options, with the price at the grant date 18, and initial number of employee entitled – 5000
Yeah, think it was 5000 employees and 25 share options.
What did you answer for this q? I done the calc’s for the three years changing the no of employees and FV of options and noted that the treatment of averaging the cost was incorrect as the expense should have been recognised at best estimate each year end.
As I understand it – the price of the options in an equity-settled payment should be as that of the grant date, without revaluation.
@gavin23 said:
I done the calc’s for the three years changing the no of employees and FV of options and noted that the treatment of averaging the cost was incorrect as the expense should have been recognised at best estimate each year end.The rest – I did the same as you
@gavin23 said:
I took them to be SAR’s but could have read it wrong.🙁 would be sad for me if I overlooked it. But good for you 🙂
@dskinner83 said:
It was about the Conceptual Framework exposure draft – first part was about Substance over form, prudence, dereconition and liability definition.In part b you had to say how some shares would be treated, and then I can’t remember the very las part.
I’m surprised so few people did question 4 – I did because I took one look at 3 and thought I’d take my chances with 4!
Fingers crossed for a positive outcome.
haha)) same here…after i saw 3rd question even a bit, i said no chance to choose it.
@cm69170 said:
Factoring is a topic studied at a much lower level, i remember it from F3 or possibly F7, surprised when that came up. Factoring with recourse is not passing the risks of the debt going bad to the factor as you would have to refund the factor if this happens.Without recourse the factor bears the risks, but something in the question stated that the longer the debt remains uncollected the more the business would have had to pay in interest… or something along those lines?
It really is basic receivables stuff. Basic double entry of when the cash is received the receivables is wiped out and a provision for bad debts is created, etc etc etc
Hard to get 9 marks there though, not sure if others found it the same!
Indeed factoring was hard because last time even i saw it, it was in f9 but from point of view finance not accounting, so i wrote just what i was remembering from f9.:/
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