ACCA Strategic Business Reporting (SBR) Practice & Revision Kit For exams in September 2022, December 2022, March 2023 and June 2023Fourth action March 2022 Isa o7ateon7t “eISBN 97BISOH7ASIIT British Library Cataloguing in-Publication Data ‘catlogue fara fortis book is availble fromthe Betis Librory ubkehed by BPP Leorning Mado Ltd BP Howse, Aline Place 142-1 Usbridge Roost Landon Wi2 BRA wiva.bpp.comleemingmesta Print inthe United Kingdom Your lsoring materials, published by BPP Learning Media Ltd, ore printed on paper obtcined from troveable, sustainable sources, -l rights reszrved. 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ESIFRSContents Page Finding questions Question index v Topic index vit The exam ra Helping you with your revision xi Essential skill areas xix Section 4: Preparation questions Questions 3 Answers 89 Section 2: Exam-standard questions Questions 7 Answers 109 Section 3: Mock exams Mock exam 1 © Questions 2a + Answers 201 Mock exam 2 (ACCA Specimen exam 1, amended) © Questions 309 © Answers 319 Mock exam 3 (March/June 2021 exam) + Questions 397 © Answers 347 Mock exam ls (September/December 2021 exam) © Questions 361 © Answers 369 Mathematical tables 383 Review form pep Teac Contents iiFinding questions Question index ‘The questions in section 1 are preparation questions to help consolidate your knowledge before {you move onto the exam-standard questions in section 2. The questions in section 2 are grouped ‘according to the structure of the exam. Section A of the exam will contain two questions, the first ‘on groups and the second on ethical and reporting issues. Section B of the exam will contain two 25-mark questions which could caver any area of the syllabus. Here we have generally categorised questions containing analysis/appreisal of information and current issues under "Section B-type questions’ however, these areas could be examined in either section of the exam, ‘Questions which require consideration of an issue from the perspective of an investor or other stakeholder are marked below with an asterisk * Many of these questions are bosed on past real SBR exem questions (or predecessor exams P2 ‘and ACR), which have been updated for changes in the syllabus or accounting standards os ‘appropriate, as indicated in the question index below. The IASB's Conceptual Framework for Financial Reporting was substantially revised and reissued in March 2018. References to the Conceptual Framework or the revised Conceptual Framework throughout this Kit refer to the March 2018 version unless otherwise stated. mn eee curines Se ees ne efined benefit plan Sundry standards “Control “Part dispose Step acquisition Foreign operation 10 Consolidated statement of cashflows | Rise pol etielat Relat Groups quest (SBR Specimen exam 2) Luploid (SBR September/December 2019) Sugar Co (SBR September/December Hummings Co (SBR March 2020) Carbise (SBR March/June 2019) BPP iv Finding questions payneuur Clee Page number Question | Answer type questions | Current issues 27 Calendar Co (SBR Specimen exam 2) igiwire (SBR September/December 201 (amended) 2012/December 2011) | 82_Yenong (Adapted from P2 June 2015) 2014) [34 Lupin [85 Janne® (A e208) [36 SunChem (P2 September/December 2015 LE (emended)) | Question containing analysis (ai 40 _Holls* (68R December 2018) [MH Crypto GBR [42 Guidance (SBR September/December |" 2o19) TB Hondiood Go Gai Septembor/Decoriber 2020) ‘Amster* (P2 December 2017 (amended) Havana (Adapted from P2 December 2013) _ Operating segments* (adapted from P2 December 2011/ June 2010) Cloud (P2 December 2015 (amended) BPP Finding questions[Financial reporting issues [se [sa Zedtech (SBR Mar/Jun 2019 (amended) | icaces ia Gleercu| Nites ee CeoaMiacie urs Kayte (SBR December 2018 (amended) /adapted from P2 December Evolve (P2 Sep/D fies Gasnature (P2 Sep/Deo 2015 (amended) Complexity* (Adapted from P2 December & OH ie Fone Revenus recognition Ethan (P2 December 2012 (amended) Whitebirk (P2 December 2010 (amended) | Joey Ramsbury Kloncet* Joyach Mock exam 2 (ACCA Specimen exam 1, amended) 1 2 a 4 Kutchen Co Abby Co Africant Cot Rationale Co Mock exam 3 (March/June 2021 exam) 1 2 3 4 vi Columbia Co Bismuth Co Sitka Co Colat Co* Finding questions BPP Leap esiMock exam '4 (September/December 2021 exam) Chuckle Co Agency Co Stem Go Symbol Co* Fone BPP AMIN Finding questions viTopic index Listed below are the key SBR syllabus topics and the numbers of the questions in this Kit covering those topics. We have also included a reference to the relevant Chapter of the BPP SBR Workbook, the companion to the BPP SBR Practice and Revision Kit, in case you wish to revise the information on the topic you have covered. I you need to concentrate your practice and revision on certain topics or if you want to attempt all available questions that refer to a particular subject, you will find this index useful. cer fii oe ‘Accounting policies (lAS 8) (APMs) Mock exam 2: Q3 Mock exam 4: Q3, 39, 81,42, 61, | Mock exam 4: Qt eee eee Mock exam 4: 08 | Business combinations (FRS 3) 11-14, 36, Mock exam t: 1, Mock exam 2: Qt, Mock exam 3: Qt, Mock exam 4: Qt | Conceptual Framework 11, 28, 33, 34, 35, 38.40.48, 1 | 51, 52, 53 | Mack exam t: Qh, Mock exam 2: QU | ‘Alternative performance measures ['35, 39, Wf, 42, Wt ~ | 18 Consolidated statement of cash fiows | 15,16, 17 7 Deferred tax (AS 12) 113, 25, 34, 40, 57, 68 \7 | Mock exci 3: Q2 | 112,13, 19 3 | Mock exam 2: Qt, | Mock exam 3: Q3 a | Mock exam 4: OF Ethies 120-26, 2 | Mock exam 1: 2, | Mock exam 2: Q2, Mock exam 3: Q2, LM m4: Q: 12, 18, 25, 29, 43, 54, 5 | Mock exam 2: Qt, Mock exam 3: Qt, Mock exam 4: QU 1h, 28, 32, 35, 26, 55, 60, 62, | | 63, Mock exam 1: Q4, Mock exam 2: Q3, Mock exam 3: Q3, Mock exam 4: Ot BPP vill Topic index yeasSullabus topic | Financial instruments (IFRS 9) | Foreign transactions and entities (AS 2) | IFRS for SMEs Standard Commentary IFRS Practice Statement 2 Making Materiality Judgments Impairment (IAS 36) IFRS Practice Statement 1 Management _ Ree 12,13, 18, 23, 26, 28, 31, 33, 8 | 41, 45, 48, 57, 58, 59, 60, 62, | 6a | Mock exam 2: 1, | Mock exam 3 2, 118,19, Mock exam 4: 2 43, 64 40, Wt 27, 30, 31, 95, 36, Mock exam 1: 93, Mock exam 3: Q4 30, 38, 43, 48 1H, 22, 60, 51, 66, 63, 4 | Mock exam 3: 2, 27, 36, 38, 49, 50, 55, ic Mock exam 3: Q3, Mock exam 4: Q2, Mock exam 4: Q4 Vereen “Joint arrangements (IFRS 11) | | Leases (FRS 16) | | | Moasuroment Non-current assets held for sale and discontinued operations (IFRS 5) Operating segments (FRS 8) 11, 28, 41, 58, Mock exam 4: Q3 60, Mock exam 3: Q3, Mock exam 4: Q3 24, 27, 28, 29, 34, W1, 46, 49, 36, Mock exam 1: O4, Mock exam 2: Q3 Provisions, contingent liabilities ond contingent assets, Related party transactions (IAS 24) | BPP Mock exam 2: 2 Mock exam 1: Q3, 20, 23, 25, 29, St, Mock exam 3: Qt, Mock exam 4: Qt 20, 26, 36, 30, 31, 55, Mock exam 2: Q2 Topic index ixSullabus topi ‘Share-based payment (IFRS 2) ‘Step acquisitions (FRS 10) | L —— x Topic index ete 414, 17, 34, 45, 61, Mock exam 1: Ot | 11,15, | Mock exam 1: Qt, | Mock exam 2: Qt, | Mock exam 4 Q1 29, Mock exam 3: Q4 ees a BPP Learns waaThe Exam Computer-based exams Strategie Professional exams are all computer-based exams (CBE). ACCA CBE practice platform ACCA has launched a free on-demand resource, the ACCA CBE practice platform, o mirror the live CBE experience. You can access the ACCA CBE practice platform via the Study Support Resources section of the ACCA website: navigate to the CBE question practice section ‘and log in with your myACCA credentials. If you are sitting SBR as a CBE, practising as many exam-style questions as possible in the ACCA CBE practice platform will be key to passing the exam. Important note for UK students who are sitting the UK variant of Strategic Business Reporting If you are sitting the UK variant of the Strategic Business Reporting exam you will be studying under International standards, but between 15 and 20 marks will be available for comparisons between International and UK GAAP. This Practice & Revision Kit is based on IFRS Standards only. An online supplement covering the ‘additional UK issues and providing additional illustrations and examples is available on the Exam ‘Success Site; for details of how to access this, see the inside cover of this Kit Approach to examining the syllabus ‘The Strategie Business Reporting syllabus is assessed by a 3 hour and 15 minute exam. The pass mark is 50%. All questions in the exam are compulsory At the revision stage, we advise students to revisit the following main syllabus requirements so that you have a good understanding of the overall objectives of this exam. Remember, ACCA's examining team expect you to be able to: * Demonstrate professional competences within the business reporting environment. You will be examined on concepts, theories, and principles, and on your ability to question and comment on proposed accounting treatments. + Relate professional issues to relevant concepts and practical situations. The evaluation of alternative accounting practices and the identification and prioritisation of issues will be a key element of the exam. © Exercise professional and ethical judgement, and integrate technical knowledge when ‘addressing business reporting issues in a business context. * Adopt either a stakeholder or an external focus in answering questions and demonstrate personal skills such as problem solving, dealing with information and decision making. You will also have to demonstrate communication skills appropriate to the scenario. + Demonstrate specific professional knowledge appropriate to the preparation and presentation of consolidated and other financial statements from accounting dota, to conform with relevant accounting standards. Here, you may be required to interprot financial statements for different stakeholders and/or communicate the impact of changes in accounting regulation on financial reporting, The ACCA website contains a useful explanation of the verbs used in exam questions. See: ‘What is the examiner asking? ‘available at www.accaglobal.com/uk/en/student/sa/study- skills/questions.htm! BPP leasyns The Exam xtFormat of the exam Mace orca erature cd ‘Two compulsory scenario-bosed questions, totalling 50 marks Question 1 80 marks): * Based on the financial statements of group entities, or extracts thereof (syllabus area D) + Also likely to require consideration of some financial reporting issues (@yllabus area C) © Discussion ond explanation of numerical aspects will be | uid / ‘Question 2 (20 marks): Consideration of the reporting implications and the ethical implications of specific events in a contemporary scenario Two professional marks will be awarded in Section A. Further guidance willbe given in the questions clarifying what these professional marks will be awarded for. Section B | Two compulsory 25-mark questions Questions: * May be scenario, case-study, or essay based * Willcontain both discursive and computationel elements | Could deal with any aspect of the syllabus © Will always include either a full or part question that requires the appraisal of financial and/or non-financial information {rom either the preparer’s or another stakeholder's perspective | Two professional marks will be awarded in Section B. Further | guidance will be given in the questions clarifying what these | professional marks will be awarded for. Current issues The current issues element of the syllabus (Syllabus area F) may be examined in Section A or B but will not be a full question; more likely to form part of another question. xit The Exam 50 incl. 2 professional rks) Gnel. 2 professional marks) BPP vereAnalysis of past exams ‘The table below shows when each element of the syllabus has been examined and the section in which the element was examined. anced Were rests preety caste shut ics Cie 2018 [2018 |2019 [2019 |2020 2020/2021 2021 Fundamental ‘ethical and professional principles [Professional and lethical behaviour in |corporate reporting [The financiat ‘The applications, strengths and weaknesses of an leccounting framework Reporting the financial ‘performance of a range of entities Revenue |Non-current ossets | Financial struments lEmployee benefits Income taxes Provisions, lcontingencies and, levents after the reporting period Fair value Imeasurement 19 |Reporting requirements of |small and medium sized entities (SMEs) 4, [Other reporting 18 issues BPP Hans The Exam xiiii eva emacs eee eee re arab cael call (ciate ek thy jexam1 jexam2 2018/2018 |2019 | 2019 |2020 2020 2021 2021! Financial ‘statements of ‘groups of entities \Group accounting A A including [statements of lcash flows |Associates and A ljoint arrangements | IChanges in group A a Structures | 16 [Foreign \ Itransactions land entities Interpreting ifinancial statements for \different stakeholders [Analysis and AB 8 interpretation of ¥inancial information ond measurement of performance ‘The impact of changes and potential changes In accounting regulation 20 [Discussion of AB B [solutions to current | issues in financial | reporting IMPORTANT! The table above gives a broad idea of how frequently major topics in the syllabus are examined. It should not be used to question spot and predict, for example, that c certain topic will not be examined because it has been examined in the last two sittings. The examiner's reports indicate that they are well aware that some students try to question spot. The examining team avoid predictable patterns and may, for example, examine the same topic two sittings in a row, particularly if there has been a recent change in legislation. Equally, just because a topic has not been examined for a long time, this does not necessarily mean it will be examined in the next exam! Syllabus and Study Guide The complete SBR syllabus and study guide can be found by visiting the exam resource finder on the ACCA website, BPP xiv The Exam ganExaminable documents The following documents are examinable for sittings up from September 2021 to June 2022, Knowledge of new exominable regulations issued by 31 August will be required in examination sessions being held in the following exam year. Documents may be examinaible even if the effective date is in the future. The syllabus and study guide offers more detailed guidance on the depth and level at which the examinable documents will be examined. Geer ieu Gertie ch LCi A ECO yEnc uc Financial Reporting Standards (IFRSs) Presentation of Financial Statements Inventories ‘Statoment of Cash Flows ‘Accounting for Government Grants and Disclosure of Government Assistance ‘Share-based Payment Business Combinations | Non-current Aesots Held for Sale and Discontinued Operations | Financial Instruments: Disclosures BPP earns The Exam xv(emchen eee tunhr cue eco uier tcl ities caine cine Ua) Operating Segments Financial Instruments Joint Arrangements Disclosure of Interests in other Entities Fair Volue Measurement Revenue from Contracts with Customers Leases IFRS for Small and Medium-sized Entities, eens | ‘Conceptual Framework for Financial Reporting (March 2018) ‘The International Integrated Reporting Framework | IFRS Practice Management Commentary | Statement 1 IFRS Practice Making Materiality Judgements Statement 2 Important note Many of these IFRS standards are also tested in Financial Reporting (FR). The technical knowledge required for SBR is an extension of that required for FR. The SBR exomining team have commented that many student responses do not demonstrate a good technical FR knowledge. However, a good understanding of FR is vital to pass your SBR exam and you need to be able to demonstrate it. Before you begin your studies for SBR, be sure that you have revised cll FR toplos. BPP xvi The Exam pensHelping you with your revision BPP Learning Media - ACCA Approved Content Provider {As an ACCA Approved Content Provider, BPP Learning Media gives you the opportunity to use revision materials reviewed by the ACCA examining team. By incorporating the ACCA examining team's comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Practice & Revision kit provides excellent, ACCA-approved support for your These materials are reviewed by the ACCA examining team. The objective of the review is to ensure that the material properly covers the syllobus and study guide outcomes, used by the ‘examining team In setting the exams, in the appropriote breadth and depth. The review does not ensure that every eventuality, combination or application of examinable topics is addressed by the ACCA Approved Content. Nor doas the review comprise a detailed technical check of the content as the Approved Content Provider has its own quality assurance processes in place in this respect. BPP Learning Media do everything possible to ensure the material is accurate and up to date ‘when sending to print. n the event that any errors are found after the print date, they are Uploaded to the following website: ww.bpp.com/learningmedia/Errata. The structure of this Practice & Revision Kit This Practice & Revision Kit is divided into three sections. The questions in Section 1 are preparation questions to help develop your knowledge. Section 2 contains exam-standard ‘questions which are of appropriate complexity and format to mimic the style of the final exam. Section 3 contains four mock exams. You should attempt all four mock exams, preferably under ‘exam conditions, as this will provide excellent preparation before you take the real exam. Question practice Question practice is a core part of learning new topic areas. When you practice questions, you should focus on improving the Exam success skills - personal to your needs — by obtaining feedback or through a process of self-assessment. Practising os many exam-style questions as possible (using the ACCA CBE practice platform as ‘much as you can) will be the key to passing this exam. You should attempt questions under timed conditions and ensure you produce full answers to the discussion parts as well as doing the caloulations, Also ensure that you attempt all mock exams under exam conditions. ACCA have launched a free on-demand resource designed to mirror the live exam experience helping you to become more familiar with the exam format. You can access the platform via the Study Support Resources section of the ACCA website navigating to the CBE question practice section and logging in with your myACCA credentials. Selecting questions To help you plan your revision, we have provided a full topic index which maps the questions to topics in the syllabus (see page wil). Making the most of question practice At BPP Learning Media we realise that you need more than just questions and model answers to get the most from your question practice. © OurTop tips, included for certain questions, provide essential advice on tackling questions, presenting answers and the key points that answers need to include, © We include marking guides to show you what the examining team rewards. * We include comments from the examining team to show you where students struggled or performed well in the actual exam BPP. waa Helping you with your revision xvitAttempting mock exams This Kit has four mock exams, including ACCA's Specimen exam 1, the March/June 2021 hybrid ‘exam and the September/December 2021 hybrid exam, ail of which have been updated for copplicable changes in exominable documents. We strongly recommend that you attempt the mock exams under exam conditions. Topics to revise ACCA's examining team consistently warn very strongly against question-spotting and trying to predict the topics that will be included in the exam. Students should not be surprised if the same topic area is examined in two successive sittings. ACCA's examining team regards few areas as off-limits for questions, and all of the syllabus can be tested. That scid, the following areas of the syllabus are very important, and your revision therefore needs to cover them particularly well. ‘+ Group accounts: Group accounts will always be examined as part of Section A but may cso feature in Section B. You will not be asked to prepare full consolidated financial statements in SBR but do need to be able to prepare extracts from them or key calculations within. You must also be able to explain the accounting treatment, as the marks for numerical aspects will be limited. The group accounts question could feature ‘consolidated statements of cash flows, foreign subsidiaries or changes in group structure, ‘a8 well as the underlying principles of group accounting, all of which are included in the ‘SBR syllabus. + Ethical issues: Ethical issues will feature in Section A of every exom. itis important that {you can analyse ethical issues with regards to the fundamental principles of ACC's Code of Ethies and Conduct. * Analysis and appraisal of information will be tested in Section B. You should not focus only on ‘traditional financial analysis such as ratios. You will need to appraise companies using a range of financial and non-financial information, and from the perspective of different stakeholders. + Anin-depth knowledge of the Conceptual Framework is required. You are expected to be ‘able discuss the consistency of each examinable IFRS with the Conceptual Framework. + Developments in Financial Reporting: You need to be able to discuss the effect of « cchange or proposed change in accounting standards and other developments, such as the IFRS Practice Statement 2 Making Materiality Judgements, including the effect it may have on how stakeholders will analyse the financial statements. You need to read widely to develop your knowledge of current issues, including reading articles published on ACCA's website ond looking at real published annual reports. + More complex IFRS Standards such as IFRS 15 Revenue from Contracts with Customers ‘and IFRS 16 Leases, as there is significant scope for discussion and justification in more ‘complex standards. BPP xvill_ Helping you with your revision ipsamEssential skill areas ‘There are three areas you should develop in order to achiave exam success in Strategic Business. Reporting (SBR). These are: ()_ Knowledge application Q Specific Strategic Business Reporting skills @ Exam success skils {At the revision and final exam preparation phases these should be developed together as part of a.comprehensive study plan of focused question practice. Take some time to revisit the Specific Strategic Business Reporting skills and Exam success. . These are shown in the diagram below and followed by tutorial guidance of how to apply them. ‘exam Success skills ~—. Specific SBR skills ‘Those are the skills specific to SBR that we think you need to develop in order to pass the exam. In the BPP Strategic Business Reporting Workbook, there are five Skills Checkpoints which define each skill and show how it is applied in answering a question. A brief summary of each skill is given below. Skill 1: Approaching ethical issues Question 2 in Section A of the exam will require you to consider the reporting implications and the ethical implications of specific events in a given scenario. BPP agus Essential skill areas xxixn that ethics will feature in every exam, it is essential that you master the appropriate technique for approaching ethical issues in order to maximise your mark. BPP recommends a step-by-step technique for approaching questions on ethical issues: Step 1 Copy and paste the question requirements to the word processor response option. Work out how many minutes you have to answer the question and make a note of the time under the question requirements. Step 2 Read the requirements and analyse them. Underline each sub-requirement separately and identify the verb(s). Ask yourself what each sub-requirement means, Step 3 Read the scenario, identify which IFRS Standard may be relevant, whether the proposed accounting treatment complies with that IFRS Standard. Identify which fundamental principles from the ACCA Code of Ethics are relevant and whether ‘there are any threats to these principles. Step 4 Prepare an answer plan using key words from the requirements as headings. Ensure your plan makes use of the information given in the scenario. Step 5 ‘Complete your answer using key words from the requirements as headings. Skils Checkpoint 1 in the BPP Workbook for Strategic Business Reporting covers this technique in detail through application to an exam-standard question. Consider revisiting Skills Checkpoint 1 tand completing the scenario-based question to specifically improve this skill, Skill : Resolving financial reporting issues Financial reporting issues are highly likely to be tested in both sections of your Strategic Business Reporting exam, so its essontial that you master the skill for resolving financial reporting issues in order to maximise your chance of passing the exam. The basic approach BPP recommends for resolving financial reporting issues is very similar to the ‘one for ethical issues. This consistency is important because in Question 2 of the exam, both will be tested together. Step 1 Copy and paste the question requirements to the word processor response option. Work out how many minutes you have to answer the question and make @ note of the time under the question requirements, Step 2 Read the requirements and analyse them. Underline each sub-requirement separately, identify the verb(s) and ask yourself what each, sub-requirement means. Step 3 Read the scenario, identify which IFRS Standard may be relevant and whether the proposed accounting treatment complies with that IFRS Standard. Stop 4 Prepare an answer plan using key words from the requirements as headings. Ensure your plan makes use of the information given in the scenario. Step 5 Complete your answer, using separate headings for each item in the scenario. ‘Skills Checkpoint 2 in the BPP Workbook for Strategic Business Reporting covers this technique in detail through application to an exam-standard question. Consider revisiting Skills Checkpoint 2 ‘and completing the scenario based question to specifically improve this skill Skill 3: Applying good consolidation techniques ‘Question 1 of Section A of the exam wil be based on the financial statements of group entitles, of extracts thereof. Section B of the exam could deal with any aspect of the syllabus so it is also possible that groups feature in Question 3 or ', BPP xx Essential skill areas NGGood consolidation techniques are therefore essential when answering both narrative and numerical aspects of group questions. Skills Checkpoint 3 focuses on the more challenging technique for correcting errors in group financial statements that have already been prepared. A step-by-step technique for applying good consolidation techniques is outlined below. Step 1 ‘Copy and paste the question requirements to the word processor response option. Work out how many minutes you have to answer the ‘question and make a note of the time under the question requirements. Step 2 Read the requirements and analyse them. Underline each sub-requirement separately and identify the veri(6). Ask yourself what each sub-requirement means. Step 3 Read the scenario, identify exactly what information has been provided and what {you need to do with this information. Identify which consolidation \workings/adjustments may be required and which IFRS Standards or parts of the Conceptual Framework you may need to explain, Step 4 Make notes on the group structure. Identify which consolidation working, adjustment or correction to error is required. Do not perform any detailed calculations at this stage. Step 5 ‘Complete your answer using key words from the requirements as headings. Ensure {your explanations refer to underlying accounting concepts and the relevant standards. If you are asked for calculations, perform the calculation first, then explain it. ‘Skills Checkpoint 8 in the BPP Workbook for Strategic Business Reporting covers this technique in detail through application to cn exam-standard question. Consider revisiting Skills Checkpoint 3 ‘and completing the scenario based question to specifically improve this skill. Skill 4: Creating effective discussion More marks in your SBR exam will relate to narrative answers than numerical answers. Its very tempting to practise only numerical questions, as they are easy to mark because the answer is. right or wrong, whereas narrative questions are more subjective and « range of different answers willbe given credit. Even when attempting narrative questions, itis tempting to do a brief answer plan and then look at the answer rather than attempting o full answer. Unless you pros narrative questions in ful, to time, you will never acquire the necessary skills to tackle questions. ‘The basic five steps adopted in Skills Checkpoints 1-3 should also be used in discussion questions. Steps 2 and 4 are particularly important for discussion questions. You wil definitely need to spend a third of your time reading and planning. Generating ideas at the planning stage to create a comprehensive answer pian will be the key to success in this style of question. Consideration of the Conceptual Framework, ethical principles and the perspective of stakeholders will often help with discursive questions in SBR. iscussion Remember that very few marks are available for just stating relevant knowledge. You must make ‘ure your answers are applied to the scenario given. A step-by-step technique is outlined below. Step 1 Copy and paste the question requirements to the word processor response option. Work out how many minutes you have to answer the question and make « note of the time under the question requirements, Stop 2 Read the requirements and analyse them. Underline each sub-requirement separately, identify the verb(6) and ask yourself what each sub-requirement means. BPP ceasunc Essential skill areas 30dStep 3 Read and analyse the scenario Step + Prepare an answer plan Step 5 Complete your answer Skills Checkpoint ln the BPP Workbook for Strategic Business Reporting covers this technique in datoll through application to on exam-standard question. Consider revisiting Skills Checkpoint 4 ‘and completing the scenario based question to specifically improve this Skill 5: Exam readiness Skills Checkpoint 5 gives general advice on being 'exam ready’ and focusses on how to make best use of the computer-based exam software. Consider revisiting Skills Checkpoint 5 in the BPP Workbook for SBR to prepare for your exam. Exam success ski Passing the SBR exam requires more than applying syllabus knowledge and demonstrating the Specific SBR skill; it also requires the development of excellent exam technique through question practice. We consider the following six skills, or exam techniques, to be vital for exam success. These skills ‘were introduced in the BPP Workbook and you can revisit the five Skills Checkpoints in the BPP. Workbook for tutorial guidance of how to apply each of the six Exam success skills in your question practice and in the exam. ‘Aim to consider your performance in all six Exam success skills during your revision stage question practice and reflect on your particular strengths and weaker areas which you can then work on. Exam success skill 1 Advice on developing this skill Active reading To avoid being overwhelmed by the quantity of information provided, you must take an active ‘approach to reading each question ‘Active reading means focussing on the question's requirement first, highlighting key verbs such 1s prepare’, comment’, ‘explain’, ‘discuss’, to ensure you answer the question properly. Then read the rest of the question, and as you now have an understanding of what the question requires you to do, you can highlight important and relevant information, and use the scratchpad with the exam software to make notes of any relevant technical information you think you will need In the CBE the highlighter too! provided in the toolbar at the top of the screen offers a range of colours: BPP xxil Essential skill areas Lesa¥ |Highight *F stikethrough This allows you to choose different colours to answer different aspects to a question. For ‘example, if a question asked you to discuss the pros and cons of an issue then you could choose a different colour for highlighting pros and cons within the relevant section of an exhibit. ‘The strikethrough function allows you to delete areas of an exhibit that you have dealt with ~ this can be useful in managing information if you are dealing with numerical questions because it can allow you to ensure that all numerical areas have been accounted for in your answer. ‘The CBE also allows you to resize windows by clicking and dragging on the bottom right-hand ‘corner of the window. This functionality allows you to display a number of windows at the same time, so this could cllow you review: © the ques © the window containing your answer (whether a word processing or spreadsheet document) and the exhibit relating to that requirement, at the some time, 1 requirements and the exhibit relating to that requirement, at the same time, or Exam success skill 2 Advice on developing this skill This skill con be developed by analysing question requirements and applying this process: Step Read the requirement Firstly, read the requirement a couple of times slowly and carefully and highlight the active verbs. Use the active verbs to define what you plan to do. Make sure you identify any sub-requirements. In SBR, the detoiled aspects of a requirement are often embedded in the scenario. For example, in the scenario, the directors may ask you explain something, and then the requirement will ask you to respond to the director's instruction. Therefore, the initial requirement by itself may not provide a complete Understanding of a question's requirement, clthough itis @ useful starting point. We recommend you copy the requirements into the word processor response option, in order to form the basis of your answer plan. See Exam success skill 3: Answer planning below. Step 2 Read the rest of the question By reading the requirement first, you will have an idea of what you are looking out for as you read through the scenario and exhibits. This is a great time saver and means you don't end up having to read the whole question in full twice. You should do this in an active way ~ see Exam success skill: Managing information, Step 3 Read the requirement again Road the requirements again to remind yourself of the exact wording before BPP in Essential skill areasstarting your written answer. This will capture any misinterpretation of the requirements or any requirements missed entirely. Itis particularly important to pay attention to any dates you are glven in requirements. This is especially the case when, for example, discussing an accounting treatment up to a particular date. No marks will be awarded for discussing the treatment at a different date than that asked for in the requirement. Exam success skill 3 Advice on developing this skill We recommend that you plan your answer directly in the word processor response option and then fill out the detail of the plan with your answer. This will save you time spent on creating a separate plan, say in the scratchpad, and then typing up your answer separately - though you could copy and paste between the scratchpad and response option if you wanted to do so. The easiest way to start your answer plan is to copy the question requirements to your chosen response option (eg word processor). This will allow you to ensure that your answer plan ‘addresses ail parts of the question requirements. Then, as you read through the exhibits, you can copy and paste any relevant information into your chosen response option under the relevant requirement. This approach also has the advantage of moking sure your answer is opplied to the scenario given, which is crucial in the SBR exam. ‘Copying and pasting simply involves selecting the relevant information and either right clicking to access the copy and paste functions, or alternatively using Ctrl-C to copy and Ctrl-V to paste. Exam success skill & Advice on developing this skill This skill can be developed by applying the following process: Step! Use a standard proforma working where relevant If answers can be laid out in a standard proforma then always plan to do so. This will help the marker to understand your working and allocate the marks easily. It wll also help you to work through the figures in a methodical and time-efficient way, Step2 Show your workings Keep your workings as clear and simple as possible and ensure they are cross referenced to the main part of your cnevwor. Whera it helps, provide brief narrative explanations to help the marker understand the steps in the calculation. This means that if« mistake is made then you do not lose any subsequent marks for follow-on caloulations BPP xxly Essential skill areas eauStep3 Keep moving! Itis important to remember that, in an exam situation, itis difficult to get every number 100% correct. The key is therefore ensuring you do not spend too long on Cony single calculation. If you are struggling with a solution then make a sensible ‘assumption, state it and move on. You can use the spreadsheet to prepare calculations. if you wish. If you do so, you can make use of formulas to help with calculations, instead of using a calculator. For example, the ‘sum’ function: =SUM(A110) would add all the numbers in spreadsheet cells At to A10. You con use the symbol § to Golculate a number ‘to the power of.., eg =1.10%2 calculates 1.10 squared - this is very useful if you need to perform a discounting calculation, If you use the spreadsheet for calculations, make sure the spreadsheet cell includes your formula ‘and net just the final answer, s0 that the marker can see what you have done and can award follow-on marks even if you have made a mistake earlier in the calculation. If you do decide to use a calculator instead, don't just put the final answer into a cell without Including your workings - make sure you type up your workings as well and cross refer to them in your final answer. Exam success skill 5 Advice on developing this skill Step 1 Use headings Using the headings and sub-headings from your answer plan will give your answer structure, order and logic. This will ensure your answer links back to the requirement and is clearly signposted, moking it easier for the marker to understand the different points you are making. Underlining your headings will also help the marker. Step 2 Write your answer in short, but full, sentences Use short, punchy sentences with the aim that every sentence should say something different and generate marks. Write in full sentences, ensuring your style is professional. Step 3 Do your calculations first, explanation second Questions often ask for an explanation with suitable calculations, the best approach is to prepare the calculation first but present it on the bottom half of the page of your answer. Then add the explanation before the calculation. Performing the calculation first should enable you to explain what you have done. Ina OBE, this is easy to do - prepare your calculation, then type up your answer cobove it. IF you wish, you can use the word processor to type up narrative discussion and the spreadsheet to prepare any calculations. If you do so, make sure you clearly cross reference to your calculation so the marker can follow what you have done. See Exam success skill 4 - efficient numerical analysis. BPP aan Essential skill areas xxvExam success skill 6 Advice on developing this skil The exam is $ hours 15 minutes long, which translates to 1.95 minutes per mark. Therefore a 40-mark requirement should be allocated a maximum of 20 minutes to complete your answer before you move on to the next task. At the beginning of a question, work out the amount of time {you should be spending on each requirement and write the finishing time next to each requirement ‘on your exam. In a CBE, you could put the time allocation next to the requirements in your answer plan. If you take the approach of spending 10-15 minutes reading and planning at the start of the exam, adjust the time allocated to each question accordingly. eg if you allocate 15 minutes to reading, then you will have 3 hours remaining which is 1.8 minutes per mark. Keep an eye on the clock ‘Aim to attempt all requirements, but be ready to be ruthless and move on if your answer is not going os planned. The challenge for many is sticking to planned timings. Be aware this is difficult to achieve in the early stages of your studies and be ready to let this skill develop ever time. If you find yourself running short on time and know that a full answer is not possible in the time {you have, consider recreating your plan in overview form and then add key terms and details as, time allows. Remember, some marks may be available, for example, simply stating a conclusion which you don't have time to justify in ful BPP xowi Essential skill areas aanQuestion BankBPP 2 Strategic Business Reporting (SBR) gantnsSection 1 — Preparation questions [Tutorial note. ‘The Section 1 questions are designed to help you prepare forthe SER examination. They are not | of a full exam standard but are stl very holpfl in testing your understanding of key areas of the | syllobus. The numer of marks and time allocated to each question inthis section is fr indicative | purposes only 1 Financial instruments 12 mins (©) Graben Co purchases @ bond for $44,014 on 1 January 20X1. It will be redeemed on 31 December 20X4 for $600,000. The bond is held at amortised cost and carries no ‘coupon. Required Caleulate the valuation of the bond for the statement of financial position as at 31 December 20X1 and the finance income for 20X1 shown in profit or loss. (@ morks) Compound sum of $t: (+1) Year 2% 4% 6% 8% = 10% = 12% 14% 1 4.0200 1.0400 1.0600 1.0800 1.1000 141200 1.1400 2 1.040% 1.0816 11236 1.1664 1.2100 1.2544 1.2996 3 10812 112691910 1.2597 1.8310 HKD 1.HBIS 4 10B24 1.1699 1.2625 1.3605 LGW 1.5735 1.6890 5 140K 1.2167 1.3382«1.M693 1.6105 1.7623 1.9254 (©) Baldie Co issues '4,000 convertible bonds on 1 January 20X2 at par. The bonds are redeemable three years later at a par value of $500 per bond, which is the nominal value. The bonds pay interest annually in arrears at an interest rate (based on nominal value) of 6%, Each bond can be converted at the maturity date into 30 $1 shares. The prevailing market interest rate for three year bonds that have no right of conversion is 9%. Required Show how the convertible bond would be presented in the statement of financial position at {January 20x2. (@ marks) Cumulative three year annuity factors: 5% 2.723 9% 2.531 (otal = 6 marks) BPP Laine Questions 32 Leases 20 mins Sugar Co leased « machine from Spice Co. The torms of the lease are as follows: Inception of lease {January 20x1 Lease term 44 years at $78,864 per annum payable in arrears Present value of future lease payments $250,000 Useful life of asset 4 oars: Required ©) — Colculate th This table shows the cumulative present value of $1 per annum, receivable or payable at the end of each year for n years. forest rate implicit in the lease, using the table below. (@ marks) Years Interest rates @) 6% 8% 10% 1 0.948 0.926 0.909 2 1.893 1783 1736 3 2.673 2577 2.87 4 365 32 3.170 5 nate 3.993 3701 (©) Explain, with suitable workings and extracts from the financial statements, how Sugar Co should account for the lease for the year ended 31 December 20X1, Notes to the accounts ‘are not required. (7 marks) (Total = 10 marks) 3 Defined benefit plan 20 mins [opp note In this question, proforma are give to you to hap you get used to sating out your | anewer. You may wish to transfer them to a separate sheet, or cternativly to use o separate | sheet for your workings. Brutus operates a defined benefit pension plan for its employees. The present value of the future benefit obligations and the fair value of its plan assets on 1 January 20X1 were St10 million and ‘$150 million respectively ‘The pension plan received contributions of $7 million and paid pensions to former employees of $10 milion during the yeor. Extracts from the most recent actuarial report shows the following: Present value of pension plan obligation at 31 December 20X1 Sttom Fair value of plan assets at 3t December 20X1 stom Present cost of pensions earned in the period Stim Yield on high quality corporate bonds at 1 Januory 20X1 10% ‘On 1 January 20X1, the rules of the pension plan were changed to improve benefits for plan members. The actuary has advised that this will cost $10 milion. Required Propare extracts from the notes to Brutus’ financial statements for the year ended $1 December 20X1 which show how the pension plan should be accounted for. (10 marks) Note. Assume contributions and benefits were paid on 31 December. BPP 4 Strategic Business Reporting (SBR) ugxauncNOTES TO THE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Defined benefit expense recognised in profit or loss Current service cost Post service cost Net interast on the net defined benefit asset (Other comprehensive income (items that will not be reclassified to profit or loss) Remeasurement of dofined benefit plans Remeasurement gain on defined benefit obligation Remeasurement loss on plan assets NOTES TO THE STATEMENT OF FINANCIAL POSITION Net defined benefit asset recognised in the statement of financial position 31 December 20Xt $m Present value of pension obligation value of plan assets _ Not asset — ‘Changes in the present value of the defined benefit obligation $m Opening defined benefit obligation Interest on obligation Current service cost Past service cost Benefits poid Gain on remeasurement of obligation (balancing figure) a Closing defined benefit obligation — Changes in the fair value of plan assets Sm ‘Opening fair value of plon assets Interest on plan assets Contributions Benefits paid Loss on remeasurement of assets (balancing figure) a Closing fair value of plan assets — BPP Sm $m. 31 December 20x0 $m Questions 54 Sundry standards 59 mins © © Penn hes a defined benefit pension plan. Required Using the information below, prepare extracts from the statement of financial position cond the statement of profit or loss and other comprehensive income for the year ended 81,January 20X8. Ignore taxation. (10 marks) @ The opening plan assets were $3.6 million on 1 February 20X7 and plan lial this date were $4.3 milion. ies at (Company contributions to the plan during the year amounted to $550,000, The contributions were poid at the start of the yeor. (i) Pensions paid to former employees amounted to $390,000. These were paid at the start of the year. (i) The yield on high quality corporate bonds was 8% at 1 February 20X7. () Oni Jenuary 20X8, five staff were made redundant, and an extra $58,000 in total was added to the value of thelr pensions. (w)_ Current service costs as provided by the actuary are $275,000. (Wi) Att January 20X8, the actuary valued the plan liabilities at $4.64 milion and the plan assets at $4.215 million. Sion operates a defined benefit pension plan for its employees. Sion has a 31 December year end. The following details relate to the plan. $'000 Present value of obligation at 1 January 20X8, 40,000 Market value of plan assets at 1 January 20X8 40,000 20X8 20x9 $'000 $'000 Current service cost 2,500 2,860 Benefits paid out 1974 2,200 Contributions paid by entity 2,000 2,200 Present value of obligation at end of the year 46,000 40,800 Market value of plan assets at end of the year 43,000 35,680 Yield on corporate bonds at start of the year 8% 9% During 208, the benefits available under the plan were improved. The resulting inerease in the present value of the defined benefit obligation was $2 milion as at 31 December 20X8. Contributions were paid into the plan and benefits were paid out of the plan on the final day of each accounting period. (On 31 December 20X9, Sion divested of part of its business, and as part of the sale ‘agreement, transferred the relevant part of its pension fund to the buyer. The present value of the defined benefit obligation transferred was $11. million and the fair value of plan assets transferred was $10.8 million. Sion also made o cash payment of $400,000 to the buyer in respect of the plan. BPP 6 Strategic Business Reporting (SBR) gaan© Required @ Coleulate the net defined benefit liability as atthe start and end of 20X8 onl 20%9 showing clearly any remeasurement gain or loss on the plan each year. Show amounts to be recognised in the financial statements in each of the years 20X8 and 20X9 in respect of the plan. (5 marks) Bed Investment Co entered into a contract on t July 20X7 with Em Bank. The contract consisted of a deposit of a principal amount of $10 million, carrying an interest rate of 2.5% per annum and with a maturity date of 30 June 20X9. Interest wil be receivable at maturity together with the principal. In addition, a further 3% interest per annum will be payable by Em Bank if the exchange rate of the dollar against the Ruritantan kroner (RKR) ‘exceeds or is equal to $1.15 to RKR 1. Bed’s functional currency is the dollar. Required Exploin how Bed should account for the above investment in the financial statements for the yeor ended 31 December 20X7 (no calculations are required). 6 marks) (Total = 30 marks) 5 Control 23 mins © © © @ IFRS 10 Consolidated Financial Statements focuses on control as the key concept underlying the parent/substdiary relationship. Required Explain the circumstances in which an investor controls an investee according to IFRS 10. (@ marks) Twist holds 40% of the voting rights of Oliver and 12 other investors each hold 8% of the voting rights of Oliver. A shareholder agreement grants Twist the right to appoint, remove. cond set the remuneration of management responsible for directing the relevant activities. To change the agreement, a two-thirds majority vote of the shareholders is required. To date, Twist has not exercised its rights with regard to the management or activities of Required Explain whether Twist should consolidate Oliver in accordance with IFRS 10. (3 marks) Copperfield holds 45% of the voting rights of Spenlow. Murdstone and Steerforth each hold 26% of the voting rights of Spenlow. The remaining voting rights are held by three other shareholders, each holding 1%, There are no other arrangements that affect decision- making, Required Explain whether Copperfield should consolidate Speniow in accordance with IFRS 10. (8 morks) Scrooge holds 70% of the voting rights of Cratchett. Marley has 30% of the voting rights of Cratchett. Marley also has an option to acquire half of Scrooge's voting rights, which is exercisable for the next two years, but at a fixed price that is deeply out of the money (and is expected to remain so for that two-year period). Required Explain whether either of Scrooge or Marley should consolidate Cratchett in accordance with IFRS 10. (8 marks) (Total = 12 marks) BPP6 Associate 39 mins The statements of financial position of J Co and its investee companies, P Co and § Co, at 31 December 20X5 are shown below. ‘STATEMENTS OF FINANCIAL POSITION AS AT $1 DECEMBER 20X5 JCo PCo SCo s'000 $000 $000 Assets Non-current assets Freehold property 1,950 1,250 500 Plant and equipment 795 375 285 Investments 500 - = 4.245 1,625 785 Current assets Inventories 300 265 Trade receivables 290 370 Cash 120 20 710 655 4.440 Equity and liabilities Equity Share capital ($1 ordinary shares) 2,000 4,000 750 Retained earnings 4,460 985 390 3.460 1,885 1140 Non-current liabilities 12% debentures 500 100 - Current liabilities Bank overdraft 560 Trade poyables 680 350 300 7,240 350 300 200 2,335, 1540 Additional information (©) JCo acquired 600,000 ordinary shares in P Co on 1 January 200 for $1,000,000 when the accumulated retained earnings of P Co were $200,000. (©) Atthe date of acquisition of P Co, the fair value of its freehold property was considered to bbe $400,000 greater than its value in P Co's statement of financial position. P Co had ‘acquired the property ten years earlier and the buildings element (comprising 50% of the total value) is depreciated on cost over 50 years. (©) JCo acquired 225,000 ordinary shares in $ Co on 1 January 20X4 for $500,000 when the retained profits of S Co were $150,000. (@)_ PCosells goods to J Co at cost plus 25%. J Co held $100,000 of these goods in inventories cot 31 December 20X5. (©) _ tis the policy of J Go to review goodwill for impairment annually. The goodwill in P Co was written off in full some years ago. An impairment test conducted at the year end revealed impairment losses on the investment in $ Co of $92,000. (itis the group's policy to value the non-controlling interest at acquisition at fair value. The market price of the shares of the non-controlling shareholders just before the acquisition was $1.68. Required Prepare, in a format suitable for inclusion in the annual report of the J Group, the consolidated statement of financial position at 31 December 205. (20 marks) BPP 8 Strategie Business Reporting (SBR) gags een7 Part disposal 4&9 mins BPP note. In this question, proforma are given to you to help you get used to setting out your answer. You may wish to transfer them to a separate sheet or to use a separate sheet for your workings. Angel Co bought 70% of the share capital of Shane Co for $120,000 on t January 20X6. At that date Shane Co's retained earnings stood at $10,000. The statements of financial position at 31 December 20X8, summarised statements of profit or loss and other comprehensive income to that date and movement on retained earnings are given below. AngelCo Shane Co $'000 $000 ‘STATEMENTS OF FINANCIAL POSITION Non-current assets Property, plant and equipment. 200 Investment in Shane Co 120 320) Current assets 4,210 220 Equity Share capital - $1 ordinary shares 500 100 Retained reserves 400 90 900 “490 Current liabilities _ 310 30 220 $000 $1000 Profit before interest and tox 100 20 Income tax expense (40) _® Profit for the year 60 12 Other comprehensive income (not reclassified to P/L), net of tox _10 _6 Totol comprehensive income for the year 70 78 MOVEMENT IN RETAINED RESERVES Bolance at 31 December 20X7 330 72 Total comprehensive income for the year _70 18 Bolance at 31 December 20X8 500 90 Angel Co sells one half of its holding in Shane Co for $120,000 on 30 June 20X8. At that date, the fair value of the 35% holding in Shane was slightly more at $130,000 due to a share price rise, The remaining holding is to be dealt with as an associate. This does not represent a discontinued operation. No entries have been made in the accounts for the above transaction. Assume thot profits accrue evenly throughout the year. itis the group's policy to value the non-controlling interest at acquisition fair value. The fair value of the non-controling interest on 1 January 20X6 wos $51.4 milion. BPP Fags Questions 9Required ©) ) Prepare the consolidated statement of financial position, statement of profit or loss and other comprehensive income and a reconciliation of movement in retained reserves for the tyear ended 31 December 20X8, (20 marks) Ignore income taxes on the disposal. No impairment losses have been necessary to date, PART DISPOSAL PROFORMA ANGEL GROUP ‘CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X8 $1000 Non-current assets Property, plont and equipment Investment in Shane Current assets [HII Equity attributable to owners of the parent Share capital Retained earnings Current liabilities ‘CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2X8 $1000 Profit before interest and tax Profit on disposal of shares in subsi Share of profit of associate Profit before tax Income tax expense Profit for the year Other comprehensive income (not reclassified to P/L) net of tax: Share of other comprehensive income of associate Other comprehensive income for the year Total comprehensive income for the year Profit attributable to: ‘Owners of the parent Non-controlling interests Total comprehensive income attributable to: ‘Owners of the parent Non-controlling interests —_ CONSOLIDATED RECONCILIATION OF MOVEMENT IN RETAINED RESERVES $'000 Balance at 31 December 20X7 Total comprehensive income for the year Balance at 31 December 20X8 Explain the accounting treatment that would be required if Angel had disposed of 10% of its holding in Shane, (© marks) (Total = 25 marks) BPP 10 Strategic Business Reporting (SBR) Leann8 Step acquisition 29 mins ‘8D acquired 60% of the 1 milion $1 ordinary shares of KL on 4 July 20XO for $3,250,000 when KL's retoined earnings were $2,760,000. The group policy is to measure non-controlling interests Gt fair value at the date of acquisition, The fair value of non-controlling interests at 1 July 20X0 ‘was $1,960,000. There has been no impairment of goodwill since the date of acquisition, SD acquired a further 20% of KL's share capital on { March 20X1 for $1,000,000. The retained earnings reported in the financial statements of SD and KL as at 30 June 20X1 are $9,400,000 and $3,400,000 respectively. KL sold goods for resale to SD with a sales value of $750,000 during the periad from 1 March 20Xt to 30 June 20X1. 40% of these goods remain in SD's inventories at the year-end. KL applies a mark-up of 25% on all goods sold. Profits of both entities can be assumed to accrue evenly throughout the year. Required (@) Explain the impact of the additional 20% purchase of KL's ordinary share capital by SD on the consolidoted financial statements of the SD Group for the year ended 30 June 20X1. (6 marks) (©) Calculate the amounts that will appear in the consolidated statement of financial position of the SD Group as at 30 June 20X1 for: ) Goodwill (Consolidated retained earnings; ond Gi) Non-controlling interests (10 marks) (Total = 15 marks) 9 Foreign operation 49 mins | BPP note. in this question, proformas for the translation workings ore given to assist you with the ‘approach. You will need to also need to draw up proformas for the consolidated financial statements and the remaining group workings. Standard acquired 80% of Odense SA for $520,000 on t January 20X5 when the retained reserves of Odense were 2,500,000 Danish krone. The financial statements of Stondard and Odense for the year ended 31 December 20X6 are os follows: STATEMENTS OF FINANCIAL POSITION AT 81 DECEMBER 20X6 Standard Odense s'000 Kr'000 Property, plant and equipment 1,285 4,400 Investment in Odense 520 4,805 Current assets Share capital Retained earnings Loans Current liabilities BPP seams Questions ttSTATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR YEAR ENDED $1 DECEMBER 20X6 Standard Odense g7000—-Kr'000 Revenue 4125 5,200 Cost of sales (10) —_@,300) Gross profit 76 2,900 Other expenses (80) G10) Dividend from Odense _40 - Profit bafore tax 575 1,990 Income tax expense (120) (040) Profit/Total comprehensive income forthe year 395, 1,350 ‘STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR 31 DECEMBER 20X6 (EXTRACT FOR RETAINED EARNINGS) Standard Odense $000 ——kr'000 Balance at 1 January 20X6 HS 3,355 Dividends paid on 31 December 20X6 195) (408) Total comprehensive income for the year 305 1,350 Balance at 31 December 20X6 415 “4,300 In the year ended 31 December 20X5, Odense’s total comprehensive income was 1,200,000 Danish krone. On 31 December 20X5, Odense paid dividends of 345,000 Danish krone. An impairment test conducted at 31 December 20X6 revealed impairment losses of 148,000 Danish krone relating to Odense's goodwill. No impairment losses had previously been recognised. It is group policy to translate impairment losses at the closing rote. At the date of acquisition, Standard chose to measure the non-controlling interest in Odense at the proportionate share of the fair value of net assets. Exchange rates were as follows: Kr to $1 1 January 20x5 OM 31 December 20X5 a8 Average 205 od 31 December 20X6 at Average 20X6 a Required Prepare the consolidated statement of financial position and consolidated statement of profit or loss and other comprehensive income of the Standard Group for the year ended $1 December 20X6 (round your answer to the nearest $1000). (25 marks) BPP 42 Strategic Business Reporting (SBR) aunTRANSLATION OF ODENSE - STATEMENT OF FINANCIAL POSITION Kr'000 Rate $'000 Property, plant and equipment X6CR Current assets X6CR Shore capital HR Pre-acquisition retained earnings HR Post-aequisition retained earnings: 20XS profit XS AR 20XS dividend X6 Actual 20X6 profit X6 AR 20X6 dividend X6 Actual Exchange difference on net assets Bal. fig. Loans X6CR Current liabilities X6CR ‘TRANSLATION OF ODENSE - STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Odense Rate Odense Kr000 — (AR)-—«$'000 Revenue Cost of sales Gross profit Other expenses Profit before tax Income tax expense Profit/Total comprehensive income for the year 10 Consolidated statement of cash flows 39 mins BPP note. In this question, proformas are given to you to help you get used to setting out your ‘answer. You may wish to transfer them to a separate sheet, or alternatively to use a separate sheet for your workings. (On 1 September 20X5 Swing Co coquired 70% of Slide Co for $5,000,000 comprising $1,000,000 cash and 1,500,000 $1 shares. The statement of financial position of Slide Co at acquisition was as follows: $'000 Property, plant and equipment 2,700 Inventories 1,600 Trade receivables 600 Cash 400 Trade payables (800) Income tax payable (200) BPP Hes Questions 13‘The consolidated statement of financial position of Swing Co as at 31 December 20X5 was 9s follows: 20X5 20X4 Non-current assets $000 $000 Property, plant and equipment 35,500 25,000 Goodwill 44400 36,900 Current assets Inventories 16,000 Trade receivables 9,800 Cosh 2,400 28,200 65,100 Equity attributable to owners of the parent Share capital Share premium Revaluation surplus Retained eornings Non-controlling interest Current liabilities Trade payables Income tax payable The consolidated statement of profit or loss and other comprehensive income of Swing Co for the year ended 31 December 20X5 was as follows: 20X5 $'000 Profit before tax 16,500 Income tax expense (6.200) Profit for the year 11,300 Other comprehensive income (not reclassified to P/L) Revaluation surplus 500 Total comprehensive income for the year 11,800 Profit attributable to: ‘Owners of the parent 11,100 Non-controlling interest 200 11,300 Total comprehensive income for the year attributable to: ‘Owners of the parent 11,450 Non-controlling interest 200 + (500 x 30%) 350 11,800 Notes 1 Depreciation chorged for the year was $5,800,000. The group made no disposals of property, plant and equipment. 2 Dividends paid by Swing Co omounted to $900,000. Itis the group's policy to value the non-controlling interest at its proportionate share of the {oir value of the subsidiary's identifiable net assets. ‘ BPP 14 Strategic Business Reporting (SBR) paneRequired Prepare the consolidated statement of cash flows of Swing Co for the year ended 31 December 20X5. No notes are required. CONSOLIDATED STATEMENT OF CASH FLOWS PROFORMA STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 20X5 $1000 Cash flows from operating activities Profit before tax Adjustments for: Depreciation Impairment losses Increase in trade receivables (W4) Increase in inventories (W4) Increase in trade payables (W4) Cash generated from operations Income taxes paid (W3) Net cash from operating activities Cash flows from investing activities Acquisition of subsidiary, net of cash acquired (W5) Purchase of property, plant & equipment (Wt) Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Dividends paid Dividends paid to non-controlling interest (W2) Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Workings 1 Assets Property, plant and equipment $000 b/d OCI (revaluation) Depreciation/Impoirment Acquisition of sub/associate Cash paid/(rec'd) 6 _ old — 2 Equity Share Share Retained capital premium earnings $'000 $1000 $'000 b/d PAL Acquisition of subsidiary Cash (paid)/rec'd B os _ a old “Dividend paid is given in question but working shown for clarity. BPP (20 marks) $'000 Goodwill $'000 Non- controlling interest $'000 ‘Questions 15,3 Liabilities Tax payable $000 b/d PIL Acquisition of subsidiary Cash (paid)/reo'd old a 4 Working capital changes Inventories Receivables — Payables $'000 $'000 $'000 Balance b/d Acquisition of subsidiary Increase/(decrease) (balancing figure) = ne =e Balance c/d — —_ — 5 Purchase of subsidiary $'000 Cash received on coq Less cash consideration Cash outflow ition of subsidiary Note. Only the cash consideration is included in the figure reported in the statoment of cash flows. The shares issued as part of the consideration are reflected in the share capital working (W2) above. Goodwill on acquisition (to show no impairment): $'000 Consideration Non-controlling interest Net assets acquired Goodwill BPP 16 Strategic Business Reporting (SBR) ggnsSection 2 —- Exam-standard questions 11 Robby 59 mins Adapted from P2 June 2012 You work in the finance department of Robby, an entity which has two subsidiaries, Hail and Zine. Robby has recently appointed two new directors, with limited finance experience, to its board. You have received an email from the finance director, which is shown in Exhibit 1. ‘The following exhibits provide information relevant to the question. Exhibit 1 - Email from finance director To: An accountant From: Finance director Subject: New directors ~ help required Hi, cur two new directors ore keen to understand the group financial statements. In particular, they want to understand the effect of acquisitions and joint operations on the consolidated ‘accounts. 11am putting togethor a briofing document for them and would like you to prepare sections for inclusion in the document on goodwill and on joint operations. Please use the acquisitions of Hail ‘and Zine (Exhibit 2) to explain the how the goodwill on acquisition of subsidiories is accounted for in the group financial statements at 31 May 20X3. Use the gos station joint operation (Exhibit 3) to explain what a int operation is and how we account for tin the group financial statements. Make sure you explain the financial reporting principles that underlie both of these Exhibit 2 — Details of acquisitions of Hall and Zinc Accounting polley: measure non-controling interests at acquisition ot fair value (1) Hail acquisition. On 1 June 20X2, acquisition of 80% of the equity interests of Hail. The purchase consideration comprised cash of $50 million payable on 1 June 20X2 and $24.2 million payable on 31 May 20X4, A further amount is payable on 31 August 20X6 if the cumulative profits of Hal for the four-year period from 1 June 20X2 to 31 May 20X6 exceed $150 million. On 1 June 20X2, the fair value of the contingent consideraition was ‘measured at $40 million. On 31 May 20X3, this fair value was remeasured at $42 million. (On the acquisition date, the fair value of the identifiable net assets of Hail was $130 million. The notes to the financial statements of Hail at acquisition disclosed a contingent lability (On 1 June 20X2, the fair value of this contingent liability was reliably measured at $2 million. The non-controlling interest at fer value was $30 million on 1 June 20X2. An ‘oppropriate discount rate to use is 10% per annum. (Zine acquisition. On 1 June 20%0, acquisition of 5% of the ordinary shares of Zinc, Robby had treated this investment at fair value through profit or loss, (On 1 December 20X2, acquisition of a further 55% of the ordinary shares of Zinc, obtoining control Consideration: Shareholding Consideration % $m June 20X0 5 2 1 December 202 8 16 60, 18 At 1 December 20X2, the fair value of the equity interest in Zinc before the business combination was $5 million. BPP tgatanc Questions 17The non-controlling interest at fair value was $9 million on 1 December 20%2. The fair value of the identifiable net assets at 1 December 20X2 of Zine was $26 milion, and the retained earnings were $15 milion. The excess ofthe fair value of the net assets was due to on increase in the value of property, plant and equipment (PPE), which was provisional pending receipt ofthe final valuations. These valuations were received on 1 Morch 20X3 ond resulted in an additional increase of $3 milion in the fair volue of PPE at the date of acquisition. This increase does not affect the fair value of the non-controliing interest at acquisition. At 31 May 20X2 the carrying omount of the investment in Zinc in Robby's separate financial statements was $3 million. Exhibit 3 - Details of joint operation Robby holds a 40% share of a natural gas station. No separate entity was set up under the joint ‘operation. Assets, liabilities, revenue and costs are apportioned on the basis of shareholding. 1 Thenatural gas station cost $15 million to construct, was completed on 1 June 20X2 and is to be dismantled at the end of its life of ten years. The present value of this dismantling cost to the joint operation at 1 June 20X2, using a discount rate of 5%, was $2 milion. 2 Inthe year, gas with @ direct cost of $16 milion was sold for $20 milion. Additionally, the joint operation incurred operating costs of $0.5 milion during the year. The revenue and costs are receivable and payable by the other joint operator who settles amounts outstanding with Robby after the year end Exhibit 4 - Factoring agreement Robby held a portfolio of trade receivables with o carrying amount of $# milion at 31 May 20X3. At that dote, the entity entered into a factoring agreement with a bank, whereby it transferred the receivables in exchange for $3.6 milion in cash. Robby has agreed to reimburse the bank for any shortfall between the amount collected and $3.6 milion. Once the receivables have been collected, any amounts above $3.6 milion, less interest on this amount, will be repaid to Robby. The directors of Robby believe that these trade receivables should be derecognised. Required (©) Prepare for inclusion in the briefing note to the new directors: (An explanation, with suitable calculations, of how the goodwill on acquisition of Hail and Zine should be accounted for in the consolidated financial statements at 31 May 20X3. (16 marks) (An explanation as to the nature of a joint operation and, showing suitable calculations, of how the joint operation should be accounted for in Robby's separate and consolidated statements of financial position at 31 May 20X3. (Ignore retained earnings in your answer.) @ marks) Note. Marks will be allocated In (a) for a suitable discussion of the principles involved as well as the accounting treatment. (©) Explain the appropriate accounting treatment of the factoring agreement in the financial statements for the year ended 31 May 20X3, and evaluate this treatment in the context of the Conceptual Framework for Financial Reporting (7 marks) (Total = 30 marks) BPP. AERIS 18 Strategic Business Reporting (SBR) ne12 Banana Co 59 mins SBR September 2018 (amended) Banana Cos the parent of a listed group of companies which have a year end of 30 June 20X7. Banana Co has made a number of acquisitions and disposals of investments during the current financial year and the directors require advice as to the correct accounting treatment of these ccquisitions and disposals. The following exhibits provide information relevant to the question. Exhibit 1 ~ The acquisition of Grape Co On 1 January 20X7, Banana Co acquired an 80% equity interest in Grape Co. The follow! summary of Grape Co's equity at the acquisition date. Equity share copital ($1 each) Retained earnings Other components of equity Total ‘The purchase consideration comprised 10 milion of Banana Co's shares which had a nominal value of St each and @ market price of $6.80 each. Additionally, cash of $18 milion was due to be paid on t January 20X9 if the net profit after tax of Grape Co grew by 5% in each of the two {years following acquisition. The present value of the total contingent consideration at 1 January 20X7 was S16 milion, It was felt that there was « 25% chance of the profit target being met. At ‘acquisition, the only adjust ment required to the identifiable net assets of Grape Co was for land which had a fair value $5 million higher than its carrying amount. This is not included within the $70 milion equity of Grape Co at 1 January 20X7. Goodwill for the consolidated financial statements has been incorrectly calculated as follows: $m Share consideration 68 ‘Add NCI at acquisition (20% x $70 million) % Loss net assets at acquisit 70) Goodwill a acquis 12 The financial director did not take into account the contingent cash since it was not probable that it would be paid, Adaltionally, he measured the non-controlling interest using the proportionate method of net assets despite the group having « published policy to measure non-contralling interest at fair value, The share price of Grape Co at acquisition wes $4.25 and should be used to value the non-controling interest. Exhibit 2 ~ Acquisition/disposal of Strawberry Co. Banana Co had purchased a 40% equity interest in Strawberry Co for $18 million @ number of {years ago when the fair value of the identifiable net assets was $44 milion. Since acquisition, Banana Co had the right to appoint one of the five directors on the board of Strawberry Co. The investment has always been equity cccounted for in the consolidated financial statements of Banana Co. Banana Co disposed of 75% of its 40% investment on ! October 20X6 for $19 milion suhen the fair values of the identifiable net assets of Strawberry Co were $50 milion. At that date, Banana Co lost its right to appoint one director to the board. The foir value of the remaining 10% equity interest was $4.5 million at disposal but only $4 milion at 30 June 20X7. Banana Co has recorded a loss in reserves of $14 milion coloulated as the difference between the price paid of $18 milion and the fair value of $4 milion at the reporting date. Banana Co has stoted that they have 1 intention to sell their cemaining shares in Strawberry Co and wish to classify the remaining 10% interest as fair value through other comprehensive income in accordance with IFRS 9 Financial Instruments. BPP tess Questions 19Exhibit 3 - The acquisition of Melon Co On 30 June 20X7, Banana Co acquired all of the shares of Melon Co, an entity which operates in the biotechnology industry. Melon Co was only recently formed and its only asset consists of a licence to carry out research activities. Melon Co has no employees as research activities were ‘outsourced to other companies. The activities are still at a very early stage and itis not clear that any definitive product would result from the activities. A management company provides personnel for Melon Co to supply supervisory activities and administrative functions. Banana Co believes that Melon Co does not constitute a business in accordance with IFRS 3 Business Combinations since it does not hove employees nor carries out any of its own processes. Banana Co intends to employ its own staff to operate Melon Co rather than to continue to use the services of the management company. The directors of Banana Co have concluded that Melon Co does not meet the definition of a business specified in IFRS 3 and should therefore be treated as an asset acquisition. Exhil it 4 - The acquisition of bonds ‘Ont July 20X5, Banana Co acquired $10 milion 5% bonds at par with interest being due at 30 June each year. The bonds are repayable at a substantial premium so that the effective rate of interest was 7%. Banana Co intended to hold the bonds to collect the contractual cash flows arising from the bonds ond measured them at amortised cost. (On 1 July 20X6, Banana Co sold the bonds to a third party for $8 million. The fair value of the bonds was $10.5 milion at that date. Banana Co has the right to repurchase the bonds on 1 July 20X8 for $8.8 milion and itis likely thot this option will be exercised. The third party is obliged to return the coupon interest to Banana Co and to pay additional cash to Banana Co should bond values rise. Banana Co will also compensate the third party for any devaluation of the bonds. Required (@) _ Draft an explanatory note to the directors of Banana Co, discussing the following: (How goodwill should have been calculated on the acquisition of Grape Co and show the accounting entry which is required to amend the financial director's error (8 marks) Why equity accounting was the appropriate treatment for Strawberry Co in the consolidated financial statements up to the date of its disposal showing the carrying * ‘amount of the investment in Strawberry Co just prior to disposal (4 marks) (ii) How the gain or loss on disposal of Strawberry Co should have been recorded in the consolidated financial statements and how the investment in Strawberry Co should be accounted for after the port disposal (4 marks) Note. Any workings can either be shown in the main body of the explanatory note or in an appendix to the explanatory note, (b) Discuss whether the directors are correct to treat Melon Co as an asset acquisition. (7 marks) (© _ Discuss how the derecognition requirements of IFRS 9 Financial Instruments should be applied to the sale of the bond including calculations to show the impact on the consolidated financial statements for the year ended 30 June 20X7. (7 marks) (Total = 30 marks) BPP 20 Strategic Business Reporting (SBR) yeanns12 Banana Co 59 mins SBR September 2018 (amended) Banana Co is the parent of a listed group of companios which have a year end of 30 June 20X7. Banana Co has made a number of cequisitions and disposals of investments during the current financial year and the directors require advice as to the correct accounting treatment of these acquisitions and disposals. The following exhibits provide information relevant to the question. Exhibit 1 - The acquisition of Grape Co (On 1 January 20X7, Banana Co acquired an 80% equity interest in Grape Co. The following is @ summary of Grape Co's equity at the acquisition date. $m Equity share capital ($1 each) 20 Retained earnings 42 Other components of equity 8 Total 70 The purchase consideration comprised 10 milion of Banana Co's shares which had ¢ nominal value of $1 each and a market price of $6.80 each. Additionally, cosh of $18 million was due to be paid on 1 January 20X9 if the net profit after tax of Grape Co grew by 5% in each of the two {years following acquisition. The present value of the total contingent consideration at 1 January 20X7 was $16 milion. It was felt that there was a 25% chance of the profit target being met. At ‘acquisition, the only adjustment required to the identifiable net assets of Grape Co was for land which had « fair value $5 million higher than its carrying amount. This is not included within the $70 million equity of Grape Co at 1 January 20X7. ‘Goodwill for the consolidated financial statements has been incorrectly calculated as follows: $m Share consideration 68 ‘Add NCI at acquisition (20% x $70 milion) t% Less net assets at acquisition 0) Goodwill at acquisition “2 The financial director did not take into account the contingent cash since it was not probable that it would be paid. Additionally, he measured the non-controlling interest using the proportionate method of net assets despite the group having a published policy to measure non-controling interest ot fair value, The share price of Grape Co at acquisition wos $4.25 and should be used to value the non-controling interest. Exhibit 2 - Acquisition/disposal of Strawberry Co Banana Co had purchased « 40% equity interest in Strawberry Co for S18 milion a number of {years ago when the fair value of the identifiable net assets was $44 millon. Since acquisition, Banana Co had the right to appoint one of the five directors on the board of Strawberry Co. The investment has always been equity accounted for in the consolidated financial statements of Banana Co. Banana Co disposed of 75% of its 40% investment on 1 October 20X6 for $19 milion ‘when the foir values of the identifiable net assets of Strawberry Co were $50 million. At that date, Banana Co lost its right to appoint one director to the board. The fair value of the remaining 10% equity interest was $4.5 milion at disposal but only $4 milion at 30 June 20X7. Banana Co has recorded a loss in reserves of $14 million calculated as the difference between the price paid of $18 million and the fair value of $4 million at the reporting date. Banana Co has stated that they have ‘no intention to sell their remaining shares in Strawberry Co and wish to classify the remaining 10% interest as foir value through other comprehensive income in accordance with IFRS 9 Financial Instruments. BPP tom Questions 19