Hammad Sarwar

Date 07th
November 2016

Revision course
of ACCA Paper
P2 Corporate
Reporting

FORMAT OF THE EXAM PAPER

There are four questions of which you must do three as follows:

Section A (Compulsory Case Study)

(q1) The case will be based around a group scenario. There will be 35 marks of numbers
and 15 marks of narrative. (50 marks)

Section B (Choice of 2 from 3 questions)

(q2) Focus. Typically the second question in the exam focuses on a single technical
subject, such as pensions, financial instruments or deferred tax.Often this question
requires thorough technical knowledge. (25 marks)
(q3) Mix. Usually there are roughly 5 mini scenarios, each valued at 5 marks and
covering a wide range of financial reporting issues. These questions require problem
solving and usually far less technical knowledge than question two. (25 marks)
(q4) Current Issues . (25 marks)
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ACCA P2 Exam Pass Rates

Average Pass rate 49%

PASS RATES CHART

Highest 58%
Lowest 44%

2015

March 2016 47%

2014

June 2016

46%

Sept 2016

50%

2013

2012

46% 46% 47% 47% 48% 48% 49% 49% 50% 50% 51%
June

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Dec

Examinable document

http://www.accaglobal.com/content/dam/acca/globa
l/PDF-students/acca/f7/examinable%20documents/f7
-p2-examdocs-2016-2017.pdf

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Important Technical Articles

IFRS 15
http://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/r
evenue-revisited1.html

Financial Instruments
http://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/im
pairment-of-financial-assets.html
http://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/
hedge-accounting.html
http://www.accaglobal.com/pk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/w
hat-financial-instrument.html
http://www.accaglobal.com/pk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/fi
nancial-instrument-part2.html
http://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/if
rs9-financialinstruments.html

Defer tax
http://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/p2/technical-articles/d
eferred-tax.html

Leases
http://www.accaglobal.com/pk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/
lease.html
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IFRS 2

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Consolidation Topics

Basic Consolidation
Complex consolidation
Disposal
Acquisition
Foreign currency

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Keep titles to one line where possible

Example title on a second line

Cash flow
Joint Venture
Relevant standards (IAS 7,21,27,28and
IFRS 3,10,IFRS 11)

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Key Definitions
Consolidated financial statements: the financial statements
of a group presented as those of a single economic entity.
Group: A Parent and all its subsidiaries (IFRS 10)
Subsidiary: an entity that is controlled by another entity (IFRS
10).
Parent: an entity that has one or more subsidiaries. (IFRS 10)
Control: the power to direct relevant activities. (IFRS 3,IFRS
10)

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Key Definitions
Associate: an entity in which an investor has significant
influence and which is neither a subsidiary nor an interest in a
joint venture. (IAS 28)
Significant influence: power to participate in the financial and
operating policy decisions but is not control or joint control over
those policies.(IAS 28)
Non Controlling Interest : The equity in a subsidiary not
attributable to a parent (IFRS 3)

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Key Definitions
Joint arrangement: An arrangement of which two or more
parties have joint control (IAS 28)
Joint control: The contractually agreed sharing of control of an
arrangement, which exists only when decisions about the
relevant activities require the unanimous consent of the parties
sharing control (IAS 28)
Joint venture: A joint arrangement whereby the parties that
have joint control of the arrangement have rights to the net
assets of the arrangement
Acquire: The business or businesses that the acquirer obtains
control in a business combination (IFRS 3)
Acquirer: The entity that obtain control of the acquire (IFRS 3)

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Important Points
All Assets and liabilities of subsidiary should be measured at
Fair Value at acquisition date.
All intangible assets should be recognised for the purpose
of consolidation
Contingent liabilities of the acquirer are recognised if their
fair values can be measured reliably.
Consolidation should be on the basis of control and not on
the basis of ownership
Similar items should be merged and intercompany balances
should be cancelled

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Important Points
All Assets and liabilities of subsidiary should be measured at
Fair Value at acquisition date.
All intangible assets should be recognised for the purpose
of consolidation
Contingent liabilities of the acquirer are recognised if their
fair values can be measured reliably.
Consolidation should be on the basis of control and not on
the basis of ownership
Similar items should be merged and intercompany balances
should be cancelled

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Basic Steps
Identify the date of acquisition , Reporting date, Group
structure and area of consolidation
Adjustments
Prepare Net assets of subsidiaries
Compute Goodwill, NCI and Consolidated reserves
SOFP and SOCI

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Net assets (ONLY SUBSIDIARY)

At Acquisition

Share capital

Share Premium

At Reporting date

X
X

Retained Earnings

Any other Reserve

Fair Valuation

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Net assets (ONLY SUBSIDIARY)

At Acquisition

Adjustment

At Reporting date

X/(X)

X/(X)

E. Amortisation

--

X/(X)

E. Depreciation

--

X/(X)

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Non controlling Interest

NCI at acquisition

XX

Post acquisition share of NCI (D-C) x NCI% XX

U.p of Stock x NCI% (only if S co. sold)

(XX)

U.p of Fixed Asset x NCI% (only if S co. sold) (XX)

Impairment loss x NCI% (only if full goodwill)
XX

(XX)

!Use Fair value of NCI at acquisition in case of full goodwill approach

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Consolidated Retained earnings

H co. retained earnings

XX

S co. (post acquisition D-C) x H%

XX

Share of investment in A co.

XX

(Post acq profit of A x A%)

Impairment of Associate investment

(XX)

U.p of Stock x H% (only if S co. sold)

(XX)

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Consolidated Retained earnings

*U.p of Fixed Asset (net of depreciation) (XX)
Impairment loss x H% (Only if full goodwill) (XX)
Negative Goodwill

XX

Unwinding of discount

(XX)

Changes in Contingent Consideration

Acquisition cost

XX/(XX)

(XX)
XX

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Consolidation
Practice Question
P acquired 80% of the equity share capital of S on 1 April 20X2, paying
$2.5m in cash. At this date, the retained earnings of S were $950,000.
Below are the statements of financial position of P and S as at 31 March
20X4:

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Consolidation
Practice Question
It is group policy to value the NCI at fair value at the date of
acquisition.
The fair value of the NCI in S at 1 April 20X2 was $600,000.
An impairment review was carried out at the reporting date and it
was determined that goodwill had been impaired by $150,000.

Required:
Prepare a consolidated statement of financial position as at 31
March 20X4.
Show how your answer would differ if the NCI was valued using
the proportionate share of net assets.

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Paris acquired 80% of Londons equity shares on 1 October

20X5.
Goodwill was calculated valuing the NCI at fair value at the date
of acquisition. At 31 December 20X5, it was determined that
goodwill arising on the acquisition had been impaired by $30,000.
Impairments are charged to operating expenses.
London paid a dividend of $150,000 on 15 December 20X5.
Required:
Prepare a consolidated statement of comprehensive income for
the year ended 31 December 20X5.

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Associate
Associates must be accounted for using the equity method
unless the investment is classified as held for sale when it is
accounted for under IFRS 5.
An associate is not consolidated so none of the associates
income and expenses or assets and liabilities will be included
within the group accounts. There is no non-controlling interest
in an associate as it is not consolidated.
In Equity method of accounting by which an equity
investment is initially recorded at cost and subsequently
adjusted to reflect the investor's share of the net assets of the
associate (investee).
Investment in Associate = Cost + Post acquisition Profit x A%Impairment loss
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Implication if IFRS 5
If the subsidiary was acquired and is held exclusively with a
view to its subsequent disposal. For such a subsidiary, if it is
highly probable that the sale will be completed within 12
months then the parent should account for its investment in the
subsidiary under IFRS 5 as an asset held for sale, rather than
consolidate it under IFRS 10.

However, IFRS 10 still requires that if a subsidiary that had

previously been consolidated is now being held for sale, the
parent must continue to consolidate such a subsidiary until it is
actually disposed of.

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Consolidated SOFP
Net assets: 100% P + 100% S
Share capital: P only
Retained earnings: 100% P plus group share of postacquisition retained earnings of S ,ADD/less consolidation
adjustments
Non-controlling interest: value of acquisition + NCI share of
post-acquisition retained reserves

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FORMAT
Non Current Assets(H+S+/-Adjustments)
Goodwill

XX

XX

Other Investments
Investment in Associate
(Cost+Share of Post Profit - impairment loss)
Current Assets (H+S+/-Adjustments)

XX

XX

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XX

FORMAT
Share Capital (H only)

XX

Reserves

XX

NCI

XX

Non Current Liabilities (H+S+/-Adjustments)

Current Liabilities (H+S+/-Adjustments) XX XX

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XX

Consolidated SOCI
Adjustments required
Eliminate intra group sales and purchases
Eliminate unrealised profit on intra group purchases still in
inventory at the year end (Added in COGS)
Eliminate intra group dividends, i.e show only Ps dividends
Show the NCI as a separate line after PAT

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Consolidated SOCI
Procedure
Combine all P and S results from revenue to profit after tax.
Time apportion where the acquisition is mid-year
Exclude intra group investment income
Calculate NCI (NCI = % x PAT)

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Format
Revenue (H+S+/-Adjustments)

XX

COGS (H+S+/-Adjustments)
Gross Profit

(XX)
XX

Operating Expenses (H+S+ Impairment Loss)

Other Income

(XX)

XX

Share of profit from associate (Net of Impairment Loss)

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XX

Format Continued
Finance Cost

(XX)

Profit Before Tax

XX

Tax

(XX)

Profit For the year

XX

Profit Attributable to:

Parent
NCI

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XX
XX

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Adjustments in COI
Cash
Share exchange(adjustment is only required when not
recorded by the holding company)
Deferred consideration(recorded at present value and
unwinding will be recognized in consolidated retained earnings)
Contingent consideration must be measured at fair value at
the acquisition date.
Loan or debenture( it will become as a part of cost of
investment only if issued as a part of consideration)

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Adjustments
Pre and Post Acquisition Dividend
Fair Valuation
Excess Depreciation/Amortisation
Current Account
Cost of Investment
Acquisition-related costs must be recognised as an
expense

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Non Controlling Interest

Measurement of NCI. IFRS 3 allows an accounting policy
choice, available on a transaction by transaction basis, to
measure NCI either at:
fair value (sometimes called the full goodwill method), or
the NCI's proportionate share of net assets of the acquiree
(option is available on a transaction by transaction basis).
In order to be able to calculate the goodwill attributable to
the NCI either the share price of the subsidiary will be given
or the question may state that the fair value of the NCI
is a certain amount..

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Complex Consolidation
Indirect holding adjustment
Accounting for a sub subsidiary requires an indirect holding
adjustment.
Goodwill in the sub subsidiary is calculated from the perspective of the
ultimate parent company. Therefore, the cost of the investment in the
Sub subsidiary should be the parent's share of the amount paid by its
subsidiary.
The NCI's share of the cost of the investment in the sub subsidiary
must be eliminated from the NCI calculation.

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Complex Group (D shape)

All consolidation workings are the same as those used
in vertical group situations, with the exception of
goodwill.
The goodwill calculation for the sub subsidiary
differs slightly from a vertical group. The cost of the sub
subsidiary must include the following:
the cost of the parents holding (the direct holding)
the cost of the subsidiarys holding (the indirect
holding)
the indirect holding adjustment.
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Vertical and D - shape

Consolidation method:
Net assets: show what group controls.
Capital and reserves: based on effective holdings eg 80% =
64% therefore NCI = 100% - 64% = 36%
Date of effective control
SS comes under Ps control:
Date S acquired, if S already holds shares in SS.
If S acquired SS later, that later date.

Adjustment is required in NCI

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