W1 Group StructureID Parent %, dates, consideration, PURPS
W2 Equity TableShare Capital & Reserves
W3 GoodwillCheck for impairment & share it out (W4 & W5)
W4 NCI
Statement of Financial Position (Dec ’11 Q1)
Share of net assets at year-endW5 Reserves
Start with Parent then Post-Acq share of Sub
Fair Value Adjustments (Extra Dep’n)
SFP Add across assets & liabilities - Parent shares onlyMost adjustments here
Test Yourself!
June 2012 Q1 Statement of Financial Position
Step 1: Set out Group StructureIs goodwill working required? Calculate consideration.
Step 2: Do workings for goodwill if requiredNet assets & goodwill computation.
Step 3: Go through rest of question note by noteSet up a working (Particularly COS).
Step 4: NCI share of Profit & Other Comp. IncomeNCI% Profit given in Question X NCI % depreciation on FV adjustments (X) NCI% goodwill impairment (X) NCI % PURP if sub is seller (X) NCI% Any other affecting sub profit (X) X
Income Statement (Dec 09 Q1) Question Time!
June 2011 Q1: Group I/S
Test Yourself!
Dec 2009 Q1 Income Statement
Step 1: Set out Group StructureDates, Consideration. PURPS.
Step 2: Do workings for SFP All 5 workings needed
Step 3: Go through rest of question note by noteAdjustments for I/S e.g. COS?
Step 4: NCI share of Profit & Other Comp. IncomeNCI% Profit given in Question X NCI % depreciation on FV adjustments (X) NCI% goodwill impairment (X) NCI % PURP if sub is seller (X) NCI% Any other affecting sub profit (X) X
SFP & I/S Together (Dec 10 Q1)
Financial InstrumentsCompany A Company B
Needs to raise Capital Has extra capital to invest
Issue Equity (Shares) Pay Dividends on these each year
Issue Debt (Bonds) Pay interest each year and capital back at the end
Financial Liability to Company A
Choices:
Buy Equity of A (Shares) Receive Dividends on these & Capital Appreciation
Buy Debt of A (Bonds) Receive Interest each year and capital back at the end
Choices:
Equity Instrument to Company A
Financial Asset to Company B
Financial Asset to Company B
A Financial Instrument creates a FINANCIAL ASSET in one entity and a FINANCIAL LIABILITY (or Equity Instrument) in the other.
AC Amortised Cost
TESTS
Financial Assets
Rules:
Business Model TestJust principle & Interest
Just Debt Financial Assets!
DebtHold Not Sell
Hold not SellSell For Profit
Contractual Cashflows Not just principle & Interest
1. No change between FVPL & FVOCI
2. Only change between AC & FVPL to avoid mismatch or if business changes
Financial Liabilities
FVPLFVOCI
Equity AllJust P & I
All Others
Never
Never
Held For Trading
Not Held For Trading
All Others
Held For Trading
Never
Financial Instruments Classification
O’BalEffective Interest (Increase O’Bal)
Interest Paid/Rec’d (Decrease O’Bal)
Cl’Bal
X X (X) X
Revalue to Fair Value each year - Gain or Loss to I/S
Revalue to Fair Value each year - Gain or Loss to OCI
TESTS
Tax charge on I/S includes
Deferred tax reflects timing differencesDeferred Tax Balance (SFP) =
Financial Statements Show
More Asset
Deferred Tax
Def. Tax Liability CR
Less Asset Def. Tax Asset DR
IAS 12 - Income TaxMovement on Deferred Tax (SFP)Movement on Income Tax (SFP)
Eg. Current Bal. on Income Tax Liability is $340 Current Bal on Def. Tax Liabiity is $200 Tax Rate is 30% !The provision for Income Tax required for this year is $900. The carrying Value of the Non Current Assets is $3000 with a tax base of $2000.
Solution Income Tax provision needs to increase from $340 to $900 DR Tax Charge (I/S) $560 CR Income Tax Provision $560 !Def Tax Carrying Value of NCA $3000 Tax Base $2000 Fiancial Statements show MORE ASSETS so...Def. Tax Liability required: (3000 - 2000) x 30% = $300 Current Liability $200 Movement to I/S DR Tax Charge (I/S) $100 CR Def. Tax Liability $100
If movement on Def. Tax created by Revaluation then... DR Revaluation Reserve CR Deferred Tax
Difference between Carrying Value Assets and Tax Base x Tax Rate %
Movement to increase/decrease from last year to I/S DR/CR Income Statement Tax Charge DR/CR Def. Tax (SFP)
Step 1: Set out Pro-Forma for I/S and SFPLeave lines to insert items & info
Step 2: Do workings for notes givenEasiest first or...
Step 3: Adjust Pro-forma for adjustments in notesMake sure there’s a DR and a CR
Step 4: Balance off and complete
FS Prep Technique (June 11 Q2)
Insert figures from TB in question
In order givenEither...
You must leave this question when time is up!!!!**You will fail if you don’t
If Result of Working is a cash-flow...
INFLOW OUTFLOW
OUTFLOW INFLOW
Positive Negative
ASSET
LIABILITY
Working $Opening Balance +Closing Balance -Items increasing opening Balance +Items decreasing opening Balance -Total 0
Cash-Flow Statements
Do working for each SFP balance
Set out Pro-Forma leaving lines to fill in
Set out Pro-Forma leaving lines to fill in
Do Cash Flow from Operating ActivitiesProfit Before Tax XAdd Back Non Cash Expenses in I/S XSubract Non Cash Gains in I/S (X)Working Capital Movements X/(X)Cash Flows From Operating Activities X
Cash From Investment ActivitiesCash From Financing ActivitiesReconciliation to Cash on SFP
PPE $m
Opening Balance +
Closing Balance -
Disposals -
Additions +
Depreciation -
Impairment -
Revaluation (SOCIE) +
Total 0
Investment Property $m
Opening Balance +
Closing Balance -
Additions +
Disposals -
Gain on Fair Value +
Loss on Fair Value -
Total 0
Intangible Assets $m
Opening Balance +
Closing Balance -
New Expenditure +
Amortisation -
Total 0
Financial Assets $m
Opening Balance +
Closing Balance -
Additions +
Disposals -
Gains on Financial Assets +
Impairment of Financial Assets -
Total 0
Share Capital $m
Opening Balance +
Closing Balance -
Issue Shares +
Total 0
Long Term Borrowings $m
Opening Balance +
Closing Balance -
Repayments in Year -
New Loans +
Total 0
Tax $m
Opening Balance on Tax due +
Opening Balance on Deferred Tax +
Closing Balance on Tax due -
Closing Balance on Deferred Tax -
Tax Charge in IS +
Total 0
Cash-Flow Statements
Question Time!
December 2011 Q3 a)
Performance Analysis
Calculate Ratios First
Profitability
Margins Gross/Net/Operating ProfitRevenue
ROCEPBIT
Capital Employed
ROEPAT
Ord. Shares + Reserves
Liquidity & Efficiency
CurrentCurrent Assets
Current Liabilities
Quick Current Assets - InvCurrent Liabilities
Inv. Days InventoryCOS
x 365
Rec. Days ReceivablesCredit Sales
x 365
Pay. Days PayablesCOS
x 365
GearingCapital Gearing
Long Term DebtEquity
Int. Cover PBITInterest
Shareholders
Div YieldDivs Per Share
Share Price
Div CoverPAT
Div Paid
P/E RatioShare Price
EPS
Check how many marks available.
1.8 minutes per mark Then move on to
discussion
Discuss each ratio calculatedCompare to Ind. Ave or previous yearsGood or bad movement & impact on performanceKeep within time constraints
Question Time!
June 2011 Q3
FS Prep QuestionSmall adjustments to TB
Could be any standard
Focus on computations
IFRS Summaries
Single QuestionDiscuss requirements of standard
Short scenario with computations
Focus on marks awarded
So.... !
Learn Summaries !
Learn Computations
Accounting Policies Rules & conventions set by IFRS
Very rare to change...only if...
Changes are RETROSPECTIVE Change comparatives
IAS 8 - Accounting Policies/Estimates
Change in IFRSMore relevant to users
Restate reserves
Accounting Estimates Judgements made by accountant
May change with new info...
Changes are PROSPECTIVE Don’t change comparatives
Change in UEL of an assetChange in estimate of a provision
Just changed in current year
Question Time!
December 2010 Q4
R
M
T
Recognise
Measure?
Transfer
If:
What?
Reliable MeasureProbable Flow of Benefit
To I/S up to:
Historic Depreciated Cost
Direct CostsDismantling (Discounted amount)Separate Components
UP
DOWN
In equity to reserve (SOCI)Unless reversing impairment
Against Previous Increase FirstThen to I/S
Transfer in Reserves?Revaluation Reserve to Retained EarningsDep’n on revalued amount less dep’n on historic cost
Revalue
Cost or revaluation less Dep’n
IAS 16 - Non Current Assets Question Time!
December 2008 Q5
I
C
C
Indicators
Compare
Charge
Iestructuringnterest Rate Riseall in Share Priceosses or loss of key staffnvironmental
TO
Higher of
Carrying Value CGU
Recoverable Amount CGUValue in UseFair Value Less Cost to Sell
DR Income Statement (or revaluation reserve)
R
FLED amaged Asset
CR* 1. Damaged Asset2. Goodwill3. Other Assets Pro-Rata
IAS 36 - Impairment
*Down to higher of Value in Use or Fair Value
(CGU) Cash Generating Unit =
Smallest group of assets generating cash
Question Time!
June 2012 Q4
W
A
WhenBuilding an assetFor Sale or use
Capitalise interest cost
Amount
S Start on later of...
Interest costLess...Temporary investment income
Activities beginBorrowing costs incurredExpenditure begins
IAS 23 - Borrowing Costs
Suspend if work stops
Question Time!
June 2010 Q5
RC
A
Recognise?
Capitalise?
Amortise?
Identifiable & ControlledFuture Economic BenefitReliable Measure
Never ResearchDevelopment if:
Straight line over UEL
FeasibleFuture Economic Benefit
Indefinite life
Future Costs if: Future Economic Benefit above previously achievable
Assess for impairment each yearNo Amortisation
IAS 38 - Intangible Assets Question Time!
December 2007 Q5
F
R
Finance Lease?
Recording
Most of UELwnership Transferresent Value of Payments > F. Valueurchase = Bargain
Lower ofRecord Asset
Depreciate Asset
PV minimum lease paymentsFair Value
OPP
Record LiabilityThen
Adjust for Effective Interest
IAS 17 - Leases
S Sale & Lease Back Profit deferred over lease term
DR Asset CR Lease Liability
DR Income Statement CR Lease Liability
Adjust for Cash Paid DR Lease Liability CR Cash
O Operating Lease Charge to I/S straight line over lease term
Liability
NEED
Measure
Present Constructive/legal obligation from past event
Virtually Certain
Probable OutflowReliable Measure
Many Items - Expected ValuesOne Item - Best estimateTime value material? - Discount & Unwind
Asset
Probable Possible
Create Asset
Create Provision
Disclose Contingent
Asset
Disclose Contingent
Liability
Remote
Nothing Nothing
Nothing
IAS 37 - Provisions
Create Provision
Question Time!
December 2011 Q4B
F
D
Basic
Fraction
Diluted EPS
PAT - Pref. DivsW. Ave Number Ord. Shares
Calculation
Bonus IssueRights Issue
IAS 33 - Earnings Per Share
Weighted Ave.Date Total Shares Proportion of Year
Bonus/Rights Fraction Total
X X X ONLY HERE X
X X X NEVER HERE X
Weighted Ave No. Shares X
Have/Had...e.g. 1 for 2 = 3/2Market Value / THERP
Compare to LY LY EPS x Inverted Fraction
Convertible Debt
Diluted Earnings
Basic Earnings X
Loan Interest Saved X
Tax Benefit Lost (X)
Diluted Earnings X
Diluted Shares
Basic No. Shares X
Converted Shares X
Diluted Shares X
Share OptionsTotal No. Options in Question X
Less Non Dilutive Shares (No. Options x Exercise Price) / Market Value Shares (X)
Dilutive Shares (Add to Basic Shares) X
Question Time!
December 2009 Q5 June 2011 Q4
C
O
N
Concept
On Issue Date
Now Treat
May be converted to shares laterEntity Issues Convertible Debt
Split between debt/equity
Debt
IAS 32 - Convertible Debt
Is it Debt or Equity?
Year ItemAmount
$10m x 8%Discount Rate
10% PV
1 Interest 800,000 0.909 727200
2 Interest 800,000 0.826 660800
3 Interest 800,000 0.751 600800
3 Capital 10,000,000 0.751 7510000
Debt Value 9498800
Equity Value (Bal) 501200
Total Value 10,000,000
Debt = PV future cashflow on bond
At Amortised CostEquity Unchanged
Rather it was Equity (Improve gearing)IAS 32 Says it’s both We need to split it
Equity = Rest of bond value
PV CalculationDiscount Using Effective rate on comparable bond with no conversion option
Eg. $10m 3Yr 8% bond Effective Interest rate 10%
O’BalEffective Interest
10% Interest Paid Cl’Bal
9,498,800 949,880 800,000 9,648,680
Question Time!
December 2011 Q5
Step 1: Calculate Total Profit ExpectedTotal Expected Revenue - Total Expected Costs
Step 2: Calculate % Completion of ContractCosts to Date
Step 3: Profit Expected x % Completion = Total to I/SSubtract previous year charges
Step 4: Do Balance Sheet Working
IAS 11 - Construction Contracts
Loss Expected?....Recognise in full NOW
Total Costs x 100%Work CertifiedContract Price x 100%or...
Costs Incurred to Date XX
(X)(X)
X/(X)
Add: Recognised Profit Less: Recognised Losses Less: Progress Billings Total Amount Due From/To Customers
Question Time!
June 2011 Q5 AdjustingExisted before year end...we didn’t know until after
E.g. Overvaluation of Inventory / Fraud or error
Non-Adjusting
Events after balance sheet date but before accounts are authorised are either...
IAS 10 - Subsequent Events
We need to adjust financial statements to fix it
Happened after year-end
E.g. Inventory damaged after Y/E / litigation post Y/ENo adjustment...just disclose in a Note
Be very careful with dates in question!
Non-Adjusting event that affects going concern
Question Time!
June 2009 Q4 A
F
S
Available?
Fair Value
Sub Discontinued?
Alan to sellvailable Immediatelyocating a buyerarketed - reasonable priceMonths of SFP date
Revalue to Fair Value
Not Depreciated
P
LM
12
Major Line of BusinessGeographical AreaPlan to sellDisclosures Required
IFRS 5 - Assets Held For Sale & Dis. Op.
Any impairment to I/S
Question Time!
June 2013 Q4 a & bI
P
If Held ForCapital AppreciationRentalLand where unsure of Use
Put revaluation through I/S with no Dep’n...or
S Split if some own use
IAS 40 - Investment Property
Hold at Cost less Dep’n
Not if rented to employees!
Question Time!
June 2013 Q5
GoodsServiceBoth
Transfer of Risks & RewardsNo Management ControlReliable Measure
Stage of Completion of Contract
Reliable MeasureProbable Flow of Benefit
Separable Same contractPart Goods & Part ServicesSeparate out if possible
IAS 18 - Revenue Recognition
E
A
Expense Set off against expense or...Treat as other income
AssetReduce NBV asset or...
Hold as deferred income
Grant may relate to...
IAS 20 - Government Grants
1
2Best
Quoted Active MarketIdentical Items
Ok Quoted price...similar itemsInactive market...identical items
Levels of Inputs to determine...
3 Not GreatObserve similar itemsReplacement costDiscounted cash flows
IFRS 13 - Fair Value
Step 1: Use reading time to start these questionsNo need to read the rest of the paper
Step 2: Read the requirement VERY CAREFULLYLook for double negatives
Step 3: Consider whether you know the answerLook for this answer first
Step 4: Try to eliminate those you know are incorrect
Multiple Choice Technique
Note the answers on the question paper
Note dates as you read
Step 5: Go with your first instinct if you can’t decide
Section A Questions
Specimen Paper Q1 to Q11
Section A Questions
Specimen Paper Q11 to Q20