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