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- February 21, 2020 at 8:02 am
Hello Sir, for PYQ Sept/Dec 2019 Q1(a)
1. Why the cost of investment and the FV of the identifiable net asset will be material/matters to the group’s materiality (21.1%& 17.9% of group assets)? The cost of investment not only show in the individual FS and FV of net asset is included in the calculation of goodwill? Can I just calculate the goodwill to the projected group assets for the materiality?
2. Is it essential to list all the recognition criteria of the accounting standard before applying to the scenario/question ( eg: IFRS 15 ) as the examiner list it all out in the answer?is it depending on the marks allocation? if not list/explain the accounting treatment will get no marks?
3. Why the investment in Peppers Co is a joint venture rather than a joint operation? (50% control of each party)
4.in the tutorial note” including the risk that revenue and CAPEX incurred in establishing the coffee shops is not appropriately recognised”.The CAPEX of coffee shops which have been explained in the previous paragraph,what is the other points that examiner refers to?
Thank you.February 21, 2020 at 9:14 am
1. That is a good observation. If you think of each line item in the SoFP of the consolidation financial statements it will be the sum of 100% of each of the line items of assets and liabilities of the subsidiaries. So if the FV of the net assets acquired is $85m in total – this is the total amount that will be added to group net assets – and is clearly material (17.9%). It is then superfluous to calculate and comment on the materiality of $100m also. Yes you could have calculated goodwill $15m and said as that is 3.2% total assets it is material. However, if goodwill was only $5m (e.g. purchase price was only $90m or FV of assets $95m) would you have concluded that the investment was immaterial? Clearly that would have been wrong as goodwill is not the only asset recognised in the consolidated financial statements as a result of the acquisition.
2. No absolutely not. It is generally the application of knowledge to a scenario that gets credit. So listing all the conditions with no application probably only gets 1 mark. All are listed in the model answer for completeness/as an instructional tool for tutors/students and to show markers the range of points that could be made. For example, instead of saying that it seems likely that conditions are met “given that the board approval ….” a candidate might give another valid reason for assuming that conditions are met.
3.Both joint operations and joint ventures are joint arrangements but in a joint venture the ventures have rights to the NET ASSETS of the arrangement. In this case it is a joint venture because through 50% share ownership of Peppers Co, the Group has rights to its net assets. A “typical” example of a joint operation is when two parties operate an oil pipeline. You will find lectures in the SBR section of our resources if you want more details of the distinction but I would say that in AAA it’s going to be a joint venture because only this is going to be accounted for using the equity method (IAS 28).
4. The model answer focuses on the $15m for the operating licences. The tutorial note is just saying that the $28m could be overstated if it includes revenue expenses or understated if some capital expenses have been omitted (treated as revenue expenses).February 24, 2020 at 3:02 am
Thank you Sir,it is very well explained and this helps me a lot 🙂February 24, 2020 at 8:13 am
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