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Corporate Reporting Exam Techniques

This content provides an introduction to exam format and techniques for corporate reporting, including illustration and learning support resources. It covers topics such as group consolidation, accounting standards, current issues, and more.

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Corporate Reporting Exam Techniques

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  1. Lili Han P2 Corporate Reporting Exam techniques

  2. Content • Introduction • Illustration • Learning support resources

  3. Introduction - Exam format - Consolidation - IAS

  4. Introduction - exam format • Section A (50 marks) • Question 1  Compulsory • 35 marks  numbers (‘Groups’) • 15 marks  narrative • Section B (25 marks/each) • Question 2  Accounting standards (2 marks) • Question 3  Accounting standards (2 marks) • Question 4  Current issues (2 marks) • Answer Two out of the three questions!!! • Heading and Section 1' • Simple English 1'

  5. Introduction - consolidation Q1 Group Consolidation -- Changes in group structure -- Complex groups -- Overseas subsidiary -- Group SCFs

  6. Introduction - IAS SFP NCA PPE (IAS 16, IAS 23, IAS 20) Intangibles (IAS 38) Impairment (IAS 36) Goodwill (IFRS 3) Investments (shares/debts) (IFRS 9) Investment in associates (IAS 28 (revised) Investment properties (IAS 40) CA Inventory (IAS 2) Receivables (IAS 39 – Impairment) Cash (IAS 7)

  7. Introduction - IAS Equity (IAS 32) Share capital Share premium Irredeemable preference shares Equity element of convertible debt Retained earnings Revaluation surplus Other components of equity (fx gains/losses, act. Gains/losses) NCL Debentures/loan stock (IAS 39/IFRS 9) Deferred tax (IAS 12) Convertible debentures (IAS 32/39) Pension liability (IAS 19)

  8. Introduction - IAS CL Tax payable (IAS 12) Leases (IAS 17)  including sale & leaseback Provisions (IAS 37) SOCI Profit/loss (IS) Revenue (IFRS 15) Pension expense (IAS 19) SBP (IFRS 2) Fx gains/losses (IAS 21) Finance costs (IAS 19 and IAS 39) Tax (IAS 12) BASICS!!!! OCI Revaluation of PPE Gains and losses on FVTOCI Actuarial gains/losses  ‘Remeasurement’

  9. Illustration - IAS 37- IFRS 5- IAS 16- IAS 23

  10. Illustration - 1 Provision (IAS37) -Criteria (R) Reasonably reliable estimate There must be a reasonably reliable estimate available for the future costs (O) Obilgation There must be a present legal or constructive obligation at the year end. (T) Transfer Cash must be expected to transfer out in the future.

  11. Illustration - 1 • Russian Chemical Spill • A company spills chemicals onto Russian land, causing damage that will cost $ 7m to clean. There is no environmental legislation but the company has clean green policies on its websites. • Required: • Discuss Financial Statement effects for the current year. • (3 marks)

  12. Illustration - 1 Suggested Answer 1 Criteria (R)-cost Reliably (O)-present Obligation (T)- economic benefit Transfer 2 Application R- $7m O- constructive obligation arising from past events T - transfer 3 Accounting treatment $7m must be provided. Dr P/L Cr Provision

  13. Illustration - 2 Oil Rig • A company starts using an oil rig at a cost as follows: • $m • Construction 200 • Installation 100 • The oil starts pumping at the year start. At this point the company sign a licence with the government agreeing to dismantle the rig when the oil runs out which is estimated to be 20 years. The cost of dismantling the rig is estimated at $120m and the discount rate is 10%. • Required: • Discuss Financial Statement effects for the current year. (7 marks)

  14. Illustration - 2 Suggested Answer 1 Criteria (ROT) 2 Application (ROT) 3 Measurement (PV of provision=18) 4 Fixed asset (200+100+18=318) 5 Depreciation (318/20=16) 6 Unwinding (18*10%=1.8) 7 Financial statement effects SFP $m I/S $m PPE (200+100+18-16) 302 Dep 16 Provision (18+1.8) 19.8 Finance cost 1.8

  15. Illustration - 3 Held for sale (IFRS5) - Criteria (S)-held for Sale (A)-Available for sale (L)- Looking for potential buyers (E)- Expected to complete within 1 year

  16. Illustration - 3 Rockby (held for sale) • Plant with a carrying value of $5m at the year end ceased to be used because of a downturn in the economy. The company had decided at that time to maintain the plant in a workable condition in case of a change in economic conditions. Rockby subsequently sold the plant by auction six weeks later for $3m. • Required: • Discuss the effect of the above on the current financial statement. (7 marks)

  17. Illustration - 3 Suggested Answer 1 Held for sale criteria (SALE) 2 Held for sale application (SALE) 3 Impairment indicator 4 Impairment review (CV>RV) 5 Measurement-Impairment=2 (go to p/l) - CV=5 - RV (higher of VIU =0 and NRV=3) 6 After balance sheet event criteria 7 Accounting treatment-non-adjusting

  18. Illustration - 4 Discontinued operations (IFRS5) - Criteria An operation is discontinued if it is closed or sold during the year or held for sale at the year end. (S)-held for Sale (A)-Available for sale (L)- Looking for potential buyers (E)- Expected to complete within 1 year

  19. Illustration - 4 Rockby (discontinued) • Rockby has committed itself before its year end to a plan to sell a subsidiary, Bye. The sale is expected to be completed four months after the year end. The subsidiary Bye has net assets of $5m and goodwill of $1m. Bye is expected to make losses of $600,000 up to disposal. Rockby had entered negotiations to sell Bye at the year end and prepared the subsidiary for disposal at that time. Rockby expected to receive $4.4m for the company after selling costs. The value in use of Bye was estimated at $3.9m. • Required: • Discuss the effect of planned sale of Bye upon the current financial statements. (9 marks)

  20. Illustration - 4 Suggested Answer 1 Discontinued operation 2 NCAHFS criteria (SALE) 3 Application 4 Impairment indicator - loss 5 Impairment review (CV>RV) 6 Measurement-Impairment=1.6 - CV=5+1=6 - RV (higher of VIU =3.9 and NRV=4.4) 7 Allocation 8 Accounting treatment 9 Disclosure

  21. Illustration - 5 Cost (IAS 16) The initial cost of a tangible fixed asset is all the expenditure in bringing the asset to its present location and condition. Finance cost (IAS23) Under existing rules, finance related to the period of building a fixed asset is capitalised.

  22. Illustration - 5 Supermarket • A supermarket chain build their own supermarket. Costs are as follows: • $m • Materials 30 • Labour 20 • Legal costs related to planning permission 2 • General legal costs 3 • Apportioned management time 5 • Also a 10% loan of $40m was taken out for the full year, but the building took only nine of those twelve months to complete. • Required: • Calculate and explain initial cost. (3 marks)

  23. Illustration - 5 Suggested Answer 1 Cost 2 Finance cost 3 Measurement(30+20+2+40*10%*9/12=55)

  24. Learning support resource

  25. Learning support resources • ACCA approved tuition and learning materials • Student Accountant and its APP • Website – exam specific resources • ACCA-X on Xuetang X • BPP language programme • ACCA learning community • Student service wechat

  26. Exam specific resources • Syllabus and study guide • Examiners’ approach articles • Technical articles, study support videos and podcasts • Examiners’ reports • Self-study guide & re-take guide • Question practice: • ACCA approved materials • Specimen exams • Practice tests

  27. Thank you! Insert supporting copy here, keep to a maximum of four lines ACCA supporting you

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