comments 12052024.xlsx

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1	No	Comments
2	1	Good morning
3		Hope you are well and safe
4										Do check your email for:
5	2	Today, we tackle the Mock Test paper that was issued to all recently								a. Suggested answer
6										b. Pre-populated template - updated with some suggested workings
7		Comments
8
9		Question 1
10	3	Exhibit 1
11												It is mentioned in the exam question that it adopted equity accounting from 1/11/x4
12												Equity accounting = acquisition cost + share of post-acq profits - impairments
13												The necessary adjustments have already been made by the accountant. There is no need for candidates
14												to make further adjustments
15												This is evidenced by the revised carrying amount i.e.
16													Cost	900
17													Share of post acq	65
18													Carrying amount as at 31/10/x7	965
19		Part (a)(i)
20		That additional 40% investment
21		Results in D controlling S
22
23		From 31/10/X7 onwards, S is treated as a subsidiary
24		Consolidated FS would have to be prepared from that day onwards
25		Comment on the need to account for the other 'payment considerations' that have not been accounted for by D									a. Issue of new shares -> 40m
26											b. Contingent consideration
27
28		Some comments put in with regards the 30% portion => remeasure
29		Treat it as if the 30% associate status was 'disposed of' and 'reacquired' at the fair value
30
31			New FV				1057
32			Carrying amount before adjustment				965
33			Gain on 'disposal' of associate				92
34
35		Mention the need to compute goodwill as at 31/10/x7, being the date of acquisition of subsidiary
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37
38		Question 2
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44		Based on IAS 1
45		Classification of liabilities => whether as current or non-current
46		A liability is classified as current when the entity does not have the right to defer settlement of the liability beyond 12 months from the reporting DATE
47
48		Popular theme / concern									Worry:
49		In the case of a term loan => normally, one would classify the term loan as non-current									If the covenant was breached
50		The loan has T&Cs => loan covenants									Bank found out
51			The moment the condition is breached (not complied with)								Bank demands repayment of the whole loan
52			Then, the loan becomes repayable in full								Does the entity have the funds?
53			The WHOLE amount of the loan will be classified as CURRENT LIABILITY								If no => need to close down company?
54
55		Exhibit 2
56		This case is relevant for you
57		It is an example of an application of current issues
58		Being the effects arising from CLIMATE CHANGE
59
60		Issue:	Recent major storms had destroyed local flood defences						Outside the entity?
61
62		The question mentions that J is expected to have to undertake major structural work to protect the factory against flooding
63		However, it is forecast to occur in 20X9 => next year => in the future
64		IAS 37 does not allow the provision of such future expenses until there is legal or constructive obligation …..									Recognise the expense in the future when the obligation arises
65											When the entity undertakes the repairs
66		Factory		Impairment indicator?							At that time, the expense is recognised in SOPL
67				Is there a need to test for impairment?							Dr Expense		The MD's recommendation to setoff the expense against the revaluation surplus => not acceptable
68				If RA < CA => impairment loss adjustment							Cr Creditor / bank
69
70			RA is the higher of:
71			a. FVLCTS vs
72			b. VIU
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75				If there is impairment loss adjustment				However, the revaluation surplus does not relate to
76				a) Set off against revaluation surplus				the factory
77				b) Balance taken to SOPL				If there is impairment loss adjustment => charge to SOPL
78
79		Candidates => make sure you are prepared in exams for issues that take place arising from EVENTS
80
81			2020		covid-19				Going concern, impairment and provisions
82			2021		covid-19	climate change			Going concern, impairment and provisions
83			2022		covid-19	climate change		War	Going concern, impairment and provisions
84			2023			climate change		War	Going concern, impairment and provisions
85			2024			climate change		War	Going concern, impairment and provisions
86
87		Exhibit 3
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95		Standard initial accounting entry
96		When the building was initially acquired:
97		1/7/x7	Dr PPE - building			50
98			Cr Bank / creditor etc				50
99
100		At the same time