SBR*** ACCA P2 June 2018 Exam was.. Instant Poll and comments ***

@nathan488 said: I got this from IAS 37 guidelines: A constructive obligation arises if past practice creates a valid expectation on the part of a third party, for example, a retail store that has a long-standing policy of allowing customers to return merchandise within, say, a 30-day period. [IAS 37.10] Using this, I don’t believe there is a constructive obligation since there was no past occurrence, were just told they’re “willing” to settle it in case I’d go with the lawyer saying it’s not probable and thus no provision This is what I mean though, these questions are so subjective

Exactly, they are willing but that don't mean anything , they may just be crazy and uninformed and offering 7m when there is no need.

Yes good point, I've read there is no negative marking on p2 , probably how I managed to get 39 on previous failure when I felt like I had about 20. So there is likely many ways to get the marks with reasonable knowledge applied

@craighughes88 said: Surely it is relevant as a lesee a finance lease goes on the balance sheet as a right of use asset? and the asset decreases as we pay rents yet the operating lease is just expensed ? Therefore i also raised ethical points surrounding them trying to increase assets by recognising intangible assets where it should just be expensed as a lease But who knows could be completely wrong I am no P2 expert lol

Yes you could be right no offense. But i do remember my sir saying the new ifrs 16 for lesses there is no such finance or operating lease! Hope im right

I thought the exam was fairly ok. Bargin Purchase 28m Goodwill 71m FV adj of 75 (I deducted 5m for the contingent liability not provided for) and either 36 or 30 Value of the share received (180 %10 /3)*2 =12 by $4 =48, I think the 10% share was worth 51 or 53 so loss on disposal. I also did question 2 & 3 I discussed ethic and the over stating of the profits in both The Gas contract should not be held as an assets as it no longer gives rise to future benefits and should be re-classed as a liability at its NPV I provided for the 7m as by offering the settlement they created a constructive liability The 50k to bring each item to sale I expensed as these are inventory not non current asset

@jmmyjimmy said: Guys, what do you remember about government grants? I wrote that there has been a prepayment, which is subsequently reduced against spl. The grant can be of income nature or capital nature. Hence it can be recognised either as other income, or against the prepayment? Is it possible to recognised the grant as follows: Dr Cash Cr Prepayment ?

The question said right at the end that it’s not accounted or recognised under IAS 20 grants :/ But your actual accounting seems okay. I wrote for the £4m non refundable fee TO the other entity that they need to defer the expense (deferred expense) until it’s at that date, since they’ve paid for it but haven’t yet consumed the “benefit” of these trials Then for the other free of £2m being received, I think I said to defer it as deferred income again for the similar reasons I also waffled a bit about IFRS 15 and performance obligations. At that point I had gone through an answer booklet and was just glad to have finished in time :’)

Hate the autopsy after the exam...UK variant and did questions 2 and 4. Q1 - not the worst - quite fair. Annoyed that I forgot two adjustments that would have made my balance sheet balance!!!!! Did the calcs but didnt put the gain on BP to RE and didnt increase current liabilities for the provision otherwise would have balanced. Q2 - detailed and tricky but hoping a lot of theory and sensible comments using facts will pick up marks. I think the gas contract was a ROU Asset that should have been impaired as part if the CGU impairment review - not an intangible but I didnt put this in the exam which is annoying (wrote about CGU impairment review then the intangible criteria and that this doesnt meet intangible criteria so should be derec and a liability held at pv with interest payments at effective rate etc). Q4 wasnt too bad but part 4a i and ii was a bit waffly and poorly written because of the time pressure! Part 4b was very nice. The UK variant bits were nice and hoping for some easy marks but never know. Lets all enjoy the sun and get merry!!!

@robertoh said: Hate the autopsy after the exam...UK variant and did questions 2 and 4. Q1 - not the worst - quite fair. Annoyed that I forgot two adjustments that would have made my balance sheet balance!!!!! Did the calcs but didnt put the gain on BP to RE and didnt increase current liabilities for the provision otherwise would have balanced. Q2 - detailed and tricky but hoping a lot of theory and sensible comments using facts will pick up marks. I think the gas contract was a ROU Asset that should have been impaired as part if the CGU impairment review - not an intangible but I didnt put this in the exam which is annoying (wrote about CGU impairment review then the intangible criteria and that this doesnt meet intangible criteria so should be derec and a liability held at pv with interest payments at effective rate etc). Q4 wasnt too bad but part 4a i and ii was a bit waffly and poorly written because of the time pressure! Part 4b was very nice. The UK variant bits were nice and hoping for some easy marks but never know. Lets all enjoy the sun and get merry!!!

I’m glad you feel happy over the paper! I agree with you that it was a mix of easy and hard for sure, but there were certainly rewarding areas you could’ve scored near to max marks on in my opinion. I also did the variant UK I do feel I’ve missed some core objectives of Q2/Q3 but feel I can make up the 50 marks with: - my consolidation (I did all relevant workings and was 3 off so am quite confident I should get at least 25/35 if the examiner is nice) - the 9 marker on associates and significant influence I feel was very approachable if you knew what they wanted, I mentioned: Definition of associate, what constitutes significant influence (20-50% and the factors too about attending board meetings etc) Then wrote the main difference in accounting being equity method not being allowed in FRS 102 but FVOCI is, where under IFRS SME’s, you can’t use FVOCI but can Equity account - the 6 marks on ethics of the guarantee was really nice (I mentioned about IAS 24 and IFRS 9 and how it should be disclosed by standard and then the waffle on ethics) - the other UK question on deferred tax asset was very approachable too (I mentioned the definition and the criteria to recognise a deferred tax asset. I then discussed the probability of them making future profit and referenced the economic crisis, I also then said although they’re expecting a significant profit, due to the external indicators, it’s probably impaired and thus actually may not make profit etc The above questions I feel very confident about, then the remaining ones not as much at all, but I wrote all the jargon on standards and application to the question so hopefully if I have done well on the above then I can scrap some marks on the remaining questions. I think a main indicator on passing is how well you’ve done on Q1 since that’s 50 makes worth

Disposal 10% I used 180 share capital and got a value of 48 Calculated increase to nci and difference recorded to oce Impairment 14 Goodwill sub 1 -20 something and sub 2 70 something Got a negative post profit -6 for sub 1 and sub 2 was 42 i think but these included increase in other components of equity which i seperated after Deducted 5 for contingent liability Fv plant was 80 and land 30

My balance sheet did not balance by 35

@lannajacques said: Disposal 10% I used 180 share capital and got a value of 48 Calculated increase to nci and difference recorded to oce Impairment 14 Goodwill sub 1 -20 something and sub 2 70 something Got a negative post profit -6 for sub 1 and sub 2 was 42 i think but these included increase in other components of equity which i seperated after Deducted 5 for contingent liability Fv plant was 80 and land 30

May I ask why you take the adjustment to OCE, I took mine to RE (realistically a 0.5-1 mark difference) Every question I’ve done before has taken it to RE, I know this was a disposal in exchange for shares in another company, but the NCI portion itself I took to RE

I got 48m consideration and calculated 10% of net assets and goodwill at year end and got 1,9 gain to equity.

Ah yes the part in Q2 about the defered tax - added a few lines of waffle in there about the potentially hyper inflationary environment of the sub and the possibility of valuing it in dollars which could stop the huge operating losses, and the massive gain being mainly down to FX rates.

@anonymous123 said: why financial instrument in 1a has to be at 49 ? i thought it had to be at amortised cost ? it was kept for the cash flow so it kept until maturity and then sell ? it passed the business model test surely.

If held to maturity it is not sold. The question said it is sold but did not say anything about maturity so i held it at FVTPL

Good points - didnt have time to write about parent functional currency potentially being the same for sub but that would make great sense!

Good idea in mentioning the volatility of the FX rate, I mentioned how the rate is already depreciating at a significant rate and how this is another indicator of external impairment :)

@natha488 The entries for a decrease in ownership without loosing control is DR cash (usually) CR NCI CR Other components of equity

@jmmyjimmy said: Guys, did anyone have goodwill of: S1 - (28) S2 - 71. ???

same here .hope got full marks on goodwill

@mackawara said: same here .hope got full marks on goodwill

Me too

@nathan488 said: May I ask why you take the adjustment to OCE, I took mine to RE (realistically a 0.5-1 mark difference) Every question I’ve done before has taken it to RE, I know this was a disposal in exchange for shares in another company, but the NCI portion itself I took to RE

The entries for a decrease in ownership without loosing control is DR cash (usually) CR NCI CR Other components of equity

@mackawara said: I got 48m consideration and calculated 10% of net assets and goodwill at year end and got 1,9 gain to equity.

I did same also...phew

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I got exactly the same as you. Hopefully that’s a good thing!

Question 1a. I think the consolidation was fair enough 1b. was straightforward equity accounting associate and susidiary with dicussions on ifrs on what constitutes control Skipped 2-no time to read seemed vague and ambigous. Did 3 & 4. Question 3 part a; was finance lease ,so discussed the treatment part b R&D capitalisation and expenditure.and also applied bits of ias 37 provisions part c can't remeber Quetion 4 was good. About historical cost and Current cost (fair value) for Assets and Liabilities....accounting treatment and whether it should remain same or not Goodluck to everyone!

@jmmyjimmy You will not be penalised. Put your mind at rest. You will get mark in other areas that will give you pass mark. Best of luck

Q3Ai has to do more with recognition and measurement of PPE than lease. though a bit of lessor accounting may suffice. Remember ifrs 16 (new lease standard) doesn't have operating and finance lease...

@almirak said: .

fully agree.

@lannajacques said: My balance sheet did not balance by 35

Mine did not balance by 36.

I thought that was quite a kind exam. Question 1a was simpler than most of the practice questions. No major disposals, no foreign sub, no complicated adjustments requiring you to calculate a PV etc. I finished it quite quickly, although my balance sheet didn't balance by 6m. I think I forgot to add the fair value of the provision to liabilities and maybe made another mistake somewhere . Not sure I treated the provision correctly within goodwill either, I used 5m but maybe 10.6m was the correct figure to use. Hopefully I still got most of the marks. For the share exchange, the shares received were in the new company. It stated no control or significant influence was gained so I calculated the value as 2/3 * 180 * 10% * 4 = 48m and debited that to other financial investments. The increase in NCI I got as 390 * 10% = 39m so there was a 9m credit to other components of equity. I think 1b and 1c were fairly straightforward and well prepared students should have been able to pick up plenty of marks there. I did 2 & 3. The gas storage facility, I wrote over a page on impairment of intangible assets before realising that actually the contract was probably a lease! I was out of time for that question then but I had a few minutes at the end. I came back and wrote some points about it being a lease and so should be dealt with as an accounting error and adjusted retrospectively. Can't really remember the details of the IFRS 9 question but I just waffled about the various rules about FVTPL, FVTOCI, amortised cost and expected credit losses for ages then applied them to the scenario. For deferred tax I said they would need firm evidence, like confirmed bids, that the sale was likely to make profits big enough to use the tax losses and would have to disclose their reasoning for this. The medical equipment I said it was a finance lease as lessee controlled the asset for the entire useful life. IFRS 16 does distinguish between operating and finance lease, but only for the lessor. I also said that although it was provided 'free of charge', it came under the scope of IFRS 15 as it was part of the same contract, so consideration could be calculated based on standalone selling price. The prepaid research and income, I said research costs would be expensed but as hadn't happened yet would be treated as a receivable until then. The non refundable deposit from the government I said was deferred income and couldn't be recognised as revenue until control of the vaccine has passed over as it likely had value to other parties. The legal provision I said they should recognise a provision of 7m and disclose and contingent liability of 6m. I said that the fact they they made the offer indicated there was a likely outflow of benefits. I didn't talk about constructive obligations though. Not entirely convinced I got that right. Overall I think it was a pretty reasonable paper. It felt like the examiner was trying to give everyone a decent chance of passing without making it too easy. Good luck in July everyone!

I hate discussing the exam, yet i read through all of your comments, and i have some things that were similar to some of you i must say it is comforting, Quick question thou, when there is a gain for bargain based on the FV of the NCI being lower than its share of net assets where do you take this amount, surely you should not net it off against the goodwill applicable to the parent? for this reason my Goodwill was 76 Mill and not 71mill i had a hard time convincing my self i did the right thing here so for the hell of it please let me know if this treatment is wrong?

@siyaj said: I hate discussing the exam, yet i read through all of your comments, and i have some things that were similar to some of you i must say it is comforting, Quick question thou, when there is a gain for bargain based on the FV of the NCI being lower than its share of net assets where do you take this amount, surely you should not net it off against the goodwill applicable to the parent? for this reason my Goodwill was 76 Mill and not 71mill i had a hard time convincing my self i did the right thing here so for the hell of it please let me know if this treatment is wrong?

Are you talking about where do you take the negative good will of Alston? Under IFRS 3, any negative goodwill (bargain purchase) should be credited to P/L immediately So I showed my negative goodwill under my parents column in retained earnings and then the positive goodwill of the other parent to the face of my SOFP