The Institute of Chartered Accountants in England and Wales

CORPORATE
REPORTING
IFRS SUPPLEMENT
For students who have studied
Financial Accounting and Reporting: UK GAAP

For exams in 2020

Question Bank
www.icaew.com
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© ICAEW 2019

ii ICAEW 2020
Contents
Question Bank Contents

Note: Questions marked with a * are key because they relate to a standard not present in
UK GAAP, for example IFRS 5, or to a key difference. You should prioritise these questions,
then move on to areas that you were weakest on in your studies of UK GAAP FAR.

Page

Title Question Answer

Chapter 1: Reporting framework and ethics

1 Fair presentation (IFRS) versus true and fair view (UK) 3 41

Chapter 2: Format of financial statements

1 Statement of profit or loss and financial position 4 42
2 Statement of cash flows 5 44

Chapter 3: Reporting financial performance

1–3 Discontinued operations (IFRS 5)* 7 47
4 Foreign exchange 8 47
5 Related parties (IAS 24) 8 48
6 Statements of profit or loss and changes in equity with IFRS 5 8 48

Chapter 4: Property, plant and equipment

1 Revaluation (IAS 16) 10 52
2, 3 Borrowing costs (IAS 23) 10 52
4 IAS 8 11 52
5 Impairment (IAS 36) 11 52
6–11 Non-current assets held for sale (IFRS 5)* 11 52

Chapter 5: Intangible assets

1 IAS 38 13 55
2 IAS 38 and IFRS 3 13 55
3 IAS 38 and UK GAAP differences 14 56

Chapter 6: Revenue and inventories

1–4 IFRS 15* 15 59
5 IAS 2 16 59
6 IFRS 15* 16 59

Chapter 7: Leases
1–3 IFRS 16* 17 61
4, 5 Sale and leaseback* 18 61

ICAEW 2020 Contents iii

 Page

Title Question Answer

Chapter 8: Financial instruments

1 IAS 32 and convertible preference shares 19 64
2 Debt/equity distinction 19 65

Chapter 9: Other standards

1, 2 Events after the reporting period (IAS 10) 21 67
3–5 Government grants 21 67

Chapter 10: Group accounts: basic principles

1 Goodwill/gain on bargain purchase with proportionate NCI 23 69
2, 3 Goodwill/gain on bargain purchase with fair value NCI* 23 69
4 IFRS 3 and date of business combination 24 70
5 Consolidated financial statements 24 70

Chapter 11: Consolidated statement of financial

position
1 Intra-group trading 26 72
2 Consolidated retained earnings 26 72
3 Full consolidated statement of financial position 27 72

Chapter 12: Consolidated statements of financial

performance
1 Intra-group trading 28 75
2 Consolidated profit attributable to parent 28 75
3 Full consolidated statement of profit or loss 29 75

Chapter 13: Associates and joint ventures

1 Equity method with associate (group SOFP)* 30 78
2 Equity method (group SPL) 30 78
3 Joint venture (group SOFP)* 30 78
4, 5 Full consolidated SPL with joint venture 31 79

Chapter 14: Group accounts: disposals

1 Calculation of profit/loss on disposal 33 82
2 Preparation of group SPL with disposal 33 82
3 Group SPL with disposal and IFRS 5 34 83

Chapter 15: Group statement of cash flows

1, 2 Calculation of amounts for group statement of cash flows 36 87
3 Preparation of full group statement of cash flows 36 87

iv Corporate Reporting – IFRS Supplement ICAEW 2020

Question Bank
2 Corporate Reporting – IFRS Supplement ICAEW 2020
Chapter 1: Reporting framework and ethics
1 Tattanhoe plc
You are the financial controller of Tattanhoe plc, a holding company listed on the UK stock
exchange. Together with the finance director, you have held conversations with external
consultants about accounting policy implementation issues. You have discussed a number of
areas where the finance director believes the application of the requirements of an IFRS would
not give a 'true and fair view' for users. The finance director has sent you the following extract
from a note prepared by the consultants.
"Accounting policies
It is essential that the accounting policies selected when implementing IFRS result in financial
statements that give a fair presentation. The application of the principle of substance over form
is integral in achieving this.
The choice of accounting policies is a matter of judgement and careful consideration is required
particularly where you wish to override the requirements of an accounting standard.
Tattanhoe plc's UK subsidiaries prepare their financial statements in accordance with UK GAAP,
but none of them are eligible to use the FRS 105, The Financial Reporting Standard applicable to
the Micro-entities Regime. The UK Financial Reporting Council (FRC) approach to convergence
will have a significant effect on the future accounting policies to be adopted by these
subsidiaries."
The finance director wishes to discuss the above extract with you. He has a strong personality
and he is adamant that non-compliance with IFRS may be justified where it does not give a true
and fair view.
Requirements
Prepare notes for your meeting with the finance director:
1.1 Explain the concept of 'fair presentation' and compare it with 'true and fair view'. (2 marks)
1.2 Explain the circumstances in which non-compliance with the detailed provisions of an IFRS
is justified. (2 marks)
Total: 4 marks

ICAEW 2020 IFRS Question Bank 3

Chapter 2: Format of financial statements
1 Hendon Ltd
For the year ended 15 July 20Y8 the accountant of Hendon Ltd has closed each of the ledger
accounts to arrive at the following balances.
£
At 16 July 20Y7
Inventories 180,900
Retained earnings 170,555
Allowance for depreciation
Freehold buildings 20,000
Motor vehicles 28,000
Plant and machinery 22,100
Rental income 12,120
Sales 962,300
Trade receivables 112,870
Purchases 777,200
Trade payables 210,800
Discounts
Allowed 53,400
Received 27,405
Sundry business expenses
Wages 73,500
Salaries 74,000
Office 10,000
Directors' remuneration 30,000
Dividends
Paid 40,000
Received 20,000
Interest
Paid 12,500
Received 10,000
Freehold land 70,000
Freehold buildings 160,000
Motor vehicles 124,200
Plant and machinery 74,300
10% debentures
14 July 20Y9 35,000
14 July 20Z5 90,000
Share premium account 66,000
25p ordinary shares 200,000
Investments 58,000
Bank (debit) 61,410
New share issue account 38,000
Following a physical count closing inventories were determined to be £210,000.
In addition the accountant discovers the following.
(1) The debenture interest is payable in arrears on 14 July until maturity.
(2) One motor vehicle, stated in the accounts at cost of £8,000 with accumulated depreciation
of £2,000, was stolen during the year. The insurance company has agreed to pay £7,000 in
full settlement. No entries have been made in the books in respect of this matter.

4 Corporate Reporting – IFRS Supplement ICAEW 2020

 (3) The company depreciates assets using the reducing balance method. The relevant rates are
as follows.
%
Freehold buildings 2
Plant and machinery 10
Motor vehicles 25
Freehold land is not depreciated.
(4) During the year the company issued 40,000 25p ordinary shares at 95p each. The proceeds
have been credited to the new shares issue account and still need to be properly accounted
for.
Requirement
Prepare a statement of profit or loss for the year ended 15 July 20Y8 and a statement of financial
position as at 15 July 20Y8.
Note: Ignore comparatives and taxation. Total: 20 marks

2 Middlesex Ltd
The statement of financial position of Middlesex Ltd as at 30 June 20Y8, including comparative
figures, is given below.
20Y8 20Y7
£ £ £ £
ASSETS
Non-current assets
Property, plant and equipment 333,000 311,000
Less depreciation (70,000) (69,000)
263,000 242,000
Investment 50,000 –
313,000 242,000
Current assets
Inventories 12,000 11,000
Trade and other receivables 29,000 27,000
Cash and cash equivalents 20,000 10,000
61,000 48,000
Total assets 374,000 290,000

EQUITY AND LIABILITIES

Equity
Ordinary share capital (£1 shares) 95,000 50,000
Share premium 15,000 10,000
Revaluation surplus 12,000 12,000
Retained earnings 149,000 115,000
271,000 187,000
Non-current liabilities
Interest-bearing borrowings
(12% debentures 20Z1) 50,000 60,000

ICAEW 2020 IFRS Question Bank 5

 20Y8 20Y7
£ £ £ £

Current liabilities
Provisions – 2,000
Trade and other payables 27,000 19,000
Tax liabilities 7,000 3,000
Accruals 19,000 19,000
53,000 43,000
Total equity and liabilities 374,000 290,000

You are also given the following information which is already reflected correctly in the accounts.
(1) During the year a bonus issue of 1 for 10 was made on the ordinary shares in issue at
30 June 20Y7, utilising available profits.
(2) New shares were issued on 1 July 20Y7. Part of the proceeds was used to redeem £10,000
12% debentures 20Z1 at par.
(3) During the year certain tangible non-current assets were disposed of for £20,000. The
assets had originally cost £40,000 and had a carrying amount at the disposal date of
£18,000.
(4) Trade and other payables include £5,000 for 20Y8 relating to the non-current asset
purchases.
(5) The income tax charge for the year is £7,000.
Requirement
Prepare a statement of cash flows for the year ended 30 June 20Y8 and the note reconciling
profit before tax with cash generated from operations.
Total: 17 marks

6 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 3: Reporting financial performance
1 When considering IFRS 5, Non-current Assets Held for Sale and Discontinued Operations,
which of the following statements is/are true?
A A discontinued operation must have been disposed of by the end of the reporting
period.
B A discontinued operation must be a separate major line of business or geographical
area of operation.
C A discontinued operation must be clearly distinguished operationally and for financial
reporting purposes.

2 During the financial year Alphabet plc carried out a reorganisation as follows.
Division X, a UK division whose operations are being terminated and transferred to another
UK division producing the same product.
Division Y, the sole operator in South America whose business is being sold externally to
the group.
Activity W, (part of Division Z) whose operations have been closed down. W's results have
not been reported separately.
Requirement
Which of these divisions could be a discontinued operation according to IFRS 5,
Non-current Assets Held for Sale and Discontinued Operations?

3 During the year to 30 April 20X9 Grant plc carried out a major reorganisation of its activities
as follows.
Maynard was closed down on 1 January 20X9. Maynard was the only manufacturing
division of the company, and as a result of the closure Grant's only activity will be the retail
of artists' equipment.
On 30 March 20X9 it was decided to sell Lytton, the only division that operated in Europe.
The company were confident of a sale within the year. The sale actually took place on
15 July 20X9.
The activities carried on by Hobhouse were terminated during the period. Hobhouse was
one of a number of smaller divisions which operated from the same location as the main
headquarters of Grant. All these divisions use the same central accounting system and
operating costs are allocated between them for the purpose of the management accounts.
The accounts for the year ended 30 April 20X9 were approved on 7 July 20X9.
Requirement
Which of these divisions should be classified as discontinued operations in accordance with
IFRS 5, Non-current Assets Held for Sale and Discontinued Operations in the financial
statements of Grant plc for the year ended 30 April 20X9?

ICAEW 2020 IFRS Question Bank 7

 4 Abercorn Ltd, whose year end is 31 December, buys some goods from Prima SA of France
on 30 September. The invoice value is €40,000 and is due for settlement in equal
instalments on 30 November and 31 January. The exchange rate moved as follows.
€ = £1
30 September 1.60
30 November 1.80
31 December 1.90
31 January 1.85
Requirement
State the journal entries required to record this transaction in the books of Abercorn Ltd.

5 Explain whether the following relationships are related party relationships under IAS 24,
Related Party Disclosures.
(a) Albert plc and James plc each have a board containing five directors, four of whom are
common. There are no common shareholdings. Are the companies related entities?
(b) James plc has two associated companies – Hector Ltd and Frances Ltd. Is Hector Ltd a
related party of Frances Ltd?
(c) Fredrick Pearson is a director of Gambit plc and Frodsham Ltd. Are these companies
related?
(d) Giprock Ltd controls Jasper plc. Giprock Ltd also exerts influence over Kendal plc. Are
Jasper plc and Kendal plc related entities?

6 Western Enterprises plc

Western Enterprises plc wholesales and distributes toys and models and provides distribution
services to other organisations. The following balances have been extracted from its books of
account as at 31 December 20X3.
£
Ordinary shares 800,000
5% redeemable preference shares 200,000
Share premium account 350,000
Retained earnings at 1 January 20X3 2,000,000
Revenue 11,899,000
Purchases 8,935,000
Inventories at 1 January 20X3 974,000
Staff costs – distribution 270,000
Staff costs – administration 352,000
Depreciation charge for the year
Freehold land and buildings 30,000
Distribution equipment 116,000
Other plant and equipment 160,000
General expenses 432,000
Interest receivable 41,000
Interest payable 35,000
Taxation – charge for the year 336,000

8 Corporate Reporting – IFRS Supplement ICAEW 2020

 £
Paid dividends
Ordinary shares – final regarding 20X2 60,000
Ordinary shares – interim regarding 20X3 30,000
5% redeemable preference shares – for 20X3 10,000
Patent rights 200,000
Freehold land and buildings – cost 1,200,000
Distribution equipment – cost 800,000
Other plant and equipment – cost 1,400,000
Accumulated depreciation at 31 December 20X3
Freehold land and buildings 130,000
Distribution equipment 320,000
Other plant and equipment 250,000
Trade receivables 1,600,000
Trade payables 850,000
Cash and cash equivalents 300,000
Tax liability 400,000
Additional information
(1) Included in revenue are invoices totalling £120,000 in relation to distribution services
rendered under a contract to a customer who is very unhappy with the quality of the
services provided. The overall outcome of the contract is uncertain and management
believes that of the £90,000 costs incurred to date under the contract, probably only
£65,000 will be reimbursed by this customer.
(2) The patent was acquired during the year. Amortisation of £20,000 should be charged to
administrative expenses.
(3) Inventories at 31 December 20X3 were valued at £1,304,000.
(4) Costs not specifically attributable to one of the profit or loss expense headings should be
split 50:50 between distribution costs and administrative expenses.
(5) Inventories carried at £846,000 were purchased from Germany in euros and payment is due
on 2 March 20X4. At the date of the transaction the exchange rate was €1.55 to £1. At
31 December 20X3 the exchange rate was €1.50 to £1.
(6) A final ordinary share dividend for 20X3 of £50,000 was proposed in May 20X4, payable on
28 June 20X4.
(7) £450,000 cash was received during the year as a result of a rights issue of ordinary shares.
The nominal value of the shares issued was £100,000.
(8) On 1 June 20X3 the company made the decision to sell its loss-making soft toy division as a
result of severe competition from the Far East. The company is confident that the closure
will be completed by 30 April 20X4. The division's operations represent in 20X3 10% of
revenue (after all adjustments), 15% of cost of sales, 10% of distribution costs and 20% of
administrative expenses. No disclosures are necessary in the statement of financial position.
Requirement
Prepare Western Enterprises plc's statement of profit or loss and statement of changes in equity
for the year to 31 December 20X3, a statement of financial position at that date and movements
schedules, and notes in accordance with the requirements of IFRS, to the extent the information
is available.
Total: 17 marks

ICAEW 2020 IFRS Question Bank 9

Chapter 4: Property, plant and equipment
1 Lakeland purchased freehold land and buildings on 1 July 20W3 (10 years ago) for
£380,000 including £80,000 for the land. The buildings had been depreciated at the rate of
4% per annum on cost for each of the 10 years to 30 June 20X3. On 1 July 20X3 the
property was professionally revalued at £800,000 including £200,000 for the land, an
amount which was reflected in the books. At 1 July 20X3 it was estimated that the building
had a remaining useful life of 20 years and a residual value of £100,000.
Requirements
(a) In accordance with IAS 16, Property, Plant and Equipment what should the surplus on
revaluation be on 1 July 20X3?
(b) In accordance with IAS 16, Property, Plant and Equipment what is the carrying amount
of the freehold land and buildings on 30 June 20X4?

2 On 1 January 20X9 Rolax plc borrowed £3 million to finance the production of two assets,
both of which were expected to take a year to build. Work started during 20X9. The loan
facility was drawn down and incurred on 1 January 20X9, and was used as follows, with the
remaining funds invested temporarily.
Asset A Asset B
£ £
1 January 20X9 500,000 1,000,000
1 July 20X9 500,000 1,000,000
The loan rate was 9% pa and Rolax plc can invest surplus funds at 7% p.a.
Requirement
Calculate the borrowing costs which may be capitalised for each of the assets and
consequently the cost of each asset as at 31 December 20X9.

3 Webster plc had the following loans in place at the beginning and end of 20X6.
1 January 31 December
20X6 20X6
£m £m
10% Bank loan repayable 20X8 120 120
9.5% Bank loan repayable 20X9 80 80
On 1 January 20X6, Webster plc began construction of a qualifying asset, an industrial
machine, using existing borrowings. Expenditure drawn down for the construction was:
£30 million on 1 January 20X6, £20 million on 1 October 20X6.
Requirement
What is the amount of borrowing costs that can be capitalised for the machine?

10 Corporate Reporting – IFRS Supplement ICAEW 2020

 4 On 1 January 20X1 Lydd Ltd purchased production machinery costing £100,000, having an
estimated useful life of 20 years and a residual value of £2,000. On 1 January 20X7 the
remaining useful life of the machinery is revised and estimated to be 25 years, with an
unchanged residual value.
Requirement
In accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors
what should the depreciation charge on the machinery be in the year ended 31 December
20X7?

5 Propane plc are undertaking an impairment review of assets following IAS 36, Impairment
of Assets. Investigations have uncovered the following:
Asset R has a carrying amount of £60,000, a value in use of £65,000 and a fair value less
costs of disposal of £30,000.
Asset Q has a carrying amount of £100,000, a value in use of £92,000 and a fair value less
costs of disposal of £95,000.
Requirement
In accordance with IAS 36, Impairment of Assets what amount should be recognised as an
impairment loss in relation to these two assets?

6 Gandalf Ltd has a year end of 31 December. On 30 October 20X4 it classified an item of
plant as held for sale. At that date the plant had a carrying amount of £13,200 and had been
accounted for according to the cost model. Its fair value was estimated at £11,100 and the
costs of disposal at £500.
On 15 December 20X4 the plant was sold for £10,500.
Requirement
In accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations
what amounts should be recognised as impairment loss and loss on disposal in profit or
loss for the year to 31 December 20X4?

7 Merlin Ltd has a year end of 30 June. On 1 October 20X3 it classified one of its leasehold
properties as held for sale. At that date the property had a carrying amount of £98,500 and
had been accounted for according to the cost model. Its fair value was estimated at
£120,100 and the costs of disposal at £2,500.
On 15 June 20X4 the property was sold for £115,500.
Requirement
In accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations
what amounts should be recognised as gain on reclassification and gain on disposal in
profit or loss for the year to 30 June 20X4?

ICAEW 2020 IFRS Question Bank 11

 8 Redbridge Ltd has a year end of 30 June. On 1 June 20X5 it classified one of its freehold
properties as held for sale. At that date the property had a carrying amount of £567,000
and had been accounted for according to the revaluation model. Its fair value was
estimated at £725,000 and the costs of disposal at £3,000.
Requirement
In accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations
what amounts should be recognised in the financial statements for the year to 30 June
20X5?

9 Arnold Ltd bought an asset on 1 October 20X1 for £200,000. It was being depreciated over
20 years on the straight-line basis. On 1 October 20X3, the asset was revalued to £270,000.
Subsequently, on 30 September 20X7 the asset was classified as held for sale. Its fair value
was estimated at £190,000 with costs of disposal of £5,000.
Requirements
(a) In accordance with IAS 16, Property, Plant and Equipment and best practice, what should
the balance on the revaluation surplus be at the year end of 30 September 20X4?
(b) In accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued
Operations what should the loss recognised in profit or loss for the year ended
30 September 20X7 be on classification as held for sale?

10 The following information was disclosed in the financial statements of Maine Ltd for the year
ended 31 December 20X2.
Plant and equipment
20X2 20X1
£ £
Cost 735,000 576,000
Accumulated depreciation (265,000) (315,000)
Carrying amount 470,000 261,000
During 20X2 £
Expenditure on plant and equipment 512,000
Impairment loss on reclassification of old plant as held for sale 50,000
Loss on the disposal of old plant 57,000
Depreciation charge on plant and equipment 143,000
Requirement
In accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations
what were the sales proceeds received on the disposal of the old plant?

11 The following information relates to the classification as held for sale of two machines by
Halwell Ltd.
Machine 1 Machine 2
£ £
Cost 120,000 100,000
Fair value less costs of disposal 90,000 40,000
Anticipated gain/(loss) on sale (based on fair value) 30,000 (20,000)
Requirement
In accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations
what was the total accumulated depreciation on both machines classified as held for sale?

12 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 5: Intangible assets
1 Henna plc was incorporated on 1 January 20X6. At 31 December 20X6 the following items
had arisen.
(1) Purchase of laboratory equipment for research purposes £80,000
(2) Goodwill purchased for valuable consideration £100,000
(3) Goodwill created by the company £80,000
(4) Patents purchased for valuable consideration £70,000
(5) Costs incurred by the company in developing brands £60,000
Requirement
Before amortisation, what amount should be carried as intangible assets in the statement of
financial position of Henna plc at 31 December 20X6 in accordance with IAS 38, Intangible
Assets?

2 Minbad plc
Minbad plc is a company operating in media and communications. It owns a number of
newspapers and monthly magazine titles, which were acquired when the company acquired the
assets of Newsmedia. The consideration totalled £130 million, of which £100 million was
attributed to identifiable net assets (£60 million specifically for the newspaper and magazine
titles). The acquisition occurred on 1 January 20X7. The newspaper and magazine titles are
assessed as having indefinite lives. Goodwill arising on the acquisition is estimated to have a
useful life of 20 years. However, an impairment review at 31 December 20X7 showed that
goodwill had fallen in value by £1 million during 20X7.
The newspapers and magazines have all shown increasing circulation since the acquisition.
Accordingly, in considering the financial statements to 31 December 20X7 the directors wish to
revalue the titles to £133 million, which represents the sum of amounts it is estimated could be
realised if each title and its associated rights were sold separately in the market at
31 December 20X7. The directors estimate that this approximates closely to current cost.
On 1 January 20X7 the company decided to expand its printing capacity by investing in new
high tech machinery costing £20 million. This machinery had been developed by a French
company and Minbad plc had to pay £20 million to acquire the patent allowing it sole use of the
technology for 10 years. In addition, Minbad plc has also developed a range of greeting cards to
be sold alongside, and advertised in, the monthly magazines. These cards will all be sold under
a newly developed brand name which Minbad plc has developed at a cost of £6 million in 20X7.
Requirements
2.1 Assuming that IAS 38, Intangible Assets and IFRS 3, Business Combinations are complied
with, prepare the table of movements and accounting policy notes for intangible assets for
inclusion in the financial statements of Minbad plc for the year ended 31 December 20X7.
(6 marks)
2.2 Comment on your treatment of Minbad plc's intangible assets in 2.1 above in the light of
the IASB Conceptual Framework. (4 marks)
Total: 10 marks

ICAEW 2020 IFRS Question Bank 13

3 Dronfield Ltd
IAS 38, Intangible Assets defines an intangible asset as an identifiable non-monetary asset
without physical substance. An asset is a resource:
 controlled by an entity as a result of past events; and
 from which future economic benefits are expected to flow to the entity.
IAS 38 requires an entity to recognise an intangible asset in its financial statements if it meets the
recognition criteria.
Dronfield Ltd is a large company which researches, develops and manufactures pharmaceutical
products. The company has in the past prepared its financial statements using UK GAAP and is
considering changing to using IFRS. The company invests heavily in the following areas.
(1) Research into alternative chemically active ingredients that may have therapeutic benefit.
The research activities identify chemical compounds that have commercial application
possibilities.
(2) Development of chemical compounds by applying research findings to design new drug
therapies. At the end of the development phase each new compound must be successful in
a series of regulatory trials before production can commence.
(3) The investment in marketing and brand development of new pharmaceutical products. This
includes the significant launch costs of new drugs and the ongoing brand development
activities.
(4) The acquisition, either directly or through business combinations, of pharmaceutical
patents and brands at the fully licensed stage.
Requirements
3.1 Discuss the IAS 38 definition of an intangible asset with specific reference to the three terms
in bold typeface above. (3 marks)
3.2 Explain and justify the required accounting treatment for each of the above four areas by
considering the recognition criteria for internally developed and acquired intangible assets.
(4 marks)
3.3 Outline the key differences between UK GAAP and IFRS in respect of intangible assets other
than goodwill. (3 marks)
Total: 10 marks

14 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 6: Revenue and inventories
1 Webber sells two types of product, the sleigh and the sled. Webber sells the sleigh as an
agent of Caplin receiving commission of 15% on selling price. Webber sells the sled as
principal at a gross margin of 30%.
The following information relates to the year ended 30 September 20X8.
Sleighs Sleds
£ £
Total sales 200,000 75,000
Gross profit 60,000 22,500
Requirement
According to IFRS 15, Revenue from Contracts with Customers what revenue should
Webber recognise in total for sleighs and sleds for the year ended 30 September 20X8?

2 On 1 January 20X0, Alexander Ltd supplied goods to David Ltd for an agreed sum of
£600,000. This amount becomes payable on 31 December 20X2. David Ltd could have
bought the goods for cash of £450,000 on 1 January 20X0. The imputed rate of interest to
discount the receivable to the cash sales price is 10%.
Requirement
In accordance with IFRS 15, Revenue from Contracts with Customers what amounts for
revenue and financing income should Alexander Ltd record in profit or loss relating to this
transaction for the year ended 31 December 20X0?

3 Southwell Ltd, a manufacturing company, sold a property with a carrying amount of

£4.5 million for £5 million to Financier Ltd on 1 January 20X4. Southwell Ltd retains the right
to occupy the property and has an option to repurchase the property in two years' time for
£6 million. Property prices are expected to rise and the current market value is £8 million.
The annual rate for 20% over two years is 9.5%.
Requirement
In accordance with IFRS 15, Revenue from Contracts with Customers what should be
recognised in the financial statements relating to this transaction for the year ended
31 December 20X4?

4 White Goods Ltd sells an electrical appliance for £2,400 on 1 October 20X7 making a mark
up on cost of 20%. The customer is given a one-year interest-free credit period. White
Goods Ltd has a cost of capital of 9%.
Requirement
In accordance with IFRS 15, Revenue from Contracts with Customers, what amount should
the company recognise as revenue from the sale of the appliance in profit or loss for the
year ended 31 December 20X7?

ICAEW 2020 IFRS Question Bank 15

 5 Taunton plc manufactures spare parts for a range of agricultural equipment. These are sent
from its UK factory to its various distribution centres in the United Kingdom and Eire.
Requirement
According to IAS 2, Inventories, which of the following expenses should be included as part
of the cost of finished goods inventories?
A Rectification costs of a lorry-load of parts that were badly damaged in an accident en
route to one of the UK distribution centres.
B Expenses paid to the firm's lorry-drivers for transporting parts from the distribution
centres to customers.
C Shipping costs for drivers and lorries to the Eire distribution centre.
D Subsistence and accommodation expenses relating to the return journey from Eire.

6 Parson plc
Parson plc has entered into the following transactions during the year ended 31 December 20X3.
(1) On 1 October 20X3 Parson plc received £400,000 in advance subscriptions. The
subscriptions are for 20 monthly issues of a magazine published by Parson plc. Three issues
of the magazine had been despatched by the year end. Each magazine is of the same value
and costs approximately the same to produce.
(2) A batch of unseasoned timber, which had cost £250,000, was sold to Banko plc for
£100,000 on 1 January 20X3. Parson plc has an option to repurchase the timber in 10 years'
time. The repurchase price will be £100,000 plus interest charged at 8% p.a. from
1 January 20X3 to the date of repurchase. The market value of the timber is expected to
increase as it seasons.
(3) Parson plc made a major sale on 1 January 20X3 for a fee of £450,000, which related to a
completed sale and after-sales support for three years. The cost of providing the after-sales
support is estimated at £50,000 pa, and the mark-up on similar after-sales only contracts is
20% on cost.
Requirements
6.1 Prepare extracts from Parson plc's financial statements for the year ended 31 December 20X3,
clearly showing how each of the above would be reflected. Notes to the financial
statements are not required. (10 marks)
6.2 Explain the treatment of transaction (2) above. (2 marks)
Total: 12 marks

16 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 7: Leases
1 Henry acquired the right to use an asset on a lease. The details were as follows.
Date of acquisition 1 January 20X1
Present value of future lease payments £7,210
Annual lease payments in arrears £2,000
The interest rate implicit in the lease is 12% p.a. The payments are made on the last day of
each year. There is no option to purchase the asset at the end of the lease.
In accordance with IFRS 16, Leases what is the lease liability at 31 December 20X2?
Round your answer to the nearest pound.

2 Sam plc acquired the right to use a machine on a lease. The details were as follows.
Date of commencement 1 July 20X6
Present value of future lease payments £24,300
Deposit (including the first payment) £8,000
Remaining annual lease payments (in advance) 4 @£8,000
Interest rate implicit in the lease 12%
The useful life of the machine is 8 years. There is no option to purchase the machine at the
end of the lease.
What is the carrying amount of the right-of-use asset as at 30 June 20X7 in accordance with
IFRS 16, Leases?

3 Isaac plc acquired the right to use an item of plant under a lease on 1 January 20X7. The
present value of the future lease payments at the commencement date was £7,731,000 and
three lease payments of £3 million p.a. are due to be paid in arrears on 31 December each
year.
The useful life of the plant is deemed to be six years. There is no option to buy the asset at
the end of the lease term.
The interest rate implicit in the lease is 8% p.a.
In accordance with IFRS 16, Leases, what is the total charge to the statement of profit or loss
in respect of this lease for the year ended 31 December 20X7?

ICAEW 2020 IFRS Question Bank 17

4 Frayn plc
On 1 January 20X6, Frayn plc sold its head office building to Copenhagen Ltd for £3 million and
immediately leased it back on a 10-year lease. On that date, the carrying value of the building
was £2.6 million and its fair value was £3 million. The present value of the lease payments was
calculated as £2.1 million. The remaining useful life of the building at 1 January 20X6 was
15 years. The transaction constituted a sale in accordance with IFRS 15.
Requirements
4.1 A right-of-use asset must be recognised in respect of the leased building. At what value
should this right-of-use asset be recognised on 1 January 20X6 in the financial statements
of Frayn plc?
4.2 What is the gain on the sale that may be recognised on 1 January 20X6 in the financial
statements of Frayn plc?
Total: 6 marks

5 Astley Co
Astley Co owns a distribution depot which it is considering selling to Newton, a property
development company, under a sale and leaseback arrangement. Astley intends moving into
newer premises on a different site in three or four years' time. When Astley moves out, Newton
intends demolishing the current buildings and replacing them with flats. The current fair value of
the premises is approximately £4 million and the current carrying amount of the depot in
Astley's statement of financial position is £3.4 million.
The transfer meets the IFRS 15, Revenue from Contracts with Customers criteria to be classified
as a sale.
The market rental for Astley's depot is estimated to be £350,000 per year and Newton has
offered Astley the following two options:
Option 1 Option 2
Period of leaseback 4 years 3 years
Annual rental payable by Astley in arrears £350,000 £350,000
Purchase price payable by Newton £3.85m £4.3m
The interest rate implicit in the lease is 4%.
Requirement
Explain the accounting treatment and subsequent impact on Astley's profit or loss of each of the
above options.
Total: 6 marks

18 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 8: Financial instruments
1 Maroon plc
On 1 January 20X4 Maroon plc issued 100,000 £1 6% convertible redeemable preference
shares. Issue costs of £6,700 were incurred and the preference shares are redeemable at par for
cash on 31 December 20X8 or are convertible into 20,000 new £1 ordinary shares at that time.
The preference dividend is paid on 31 December each year.
The interest rate on similar financial instruments without the convertibility option is 8%. The
impact of the issue costs is to increase the effective interest rate to 9.7%.
Requirements
1.1 Prepare extracts from Maroon plc's financial statements for the year ended
31 December 20X4 on the basis that the convertible preference shares are accounted for:
(a) in accordance with their legal form; and
(b) in accordance with IAS 32, Financial Instruments: Presentation. (5 marks)
1.2 Comment on the usefulness of the presentation requirements of IAS 32 in understanding
the nature of the preference shares and how its requirements affect the view presented.
(3 marks)
Total: 8 marks

2 Woodseats plc
Difficulties can arise in the presentation of financial instruments in the statement of financial
position of an entity in relation to their classification as liabilities and equity and to the related
interest, dividends, losses and gains.
The objective of IAS 32, Financial Instruments: Presentation is to address this problem by
establishing principles for presenting financial instruments as liabilities or equity and for
offsetting financial assets and financial liabilities.
On 1 January 20X3 Woodseats plc had only 50 million £1 ordinary shares in issue, which had
been in issue for many years. During the year ended 31 December 20X3 Woodseats plc entered
into the following financing transactions.
(1) On 1 January 20X3 Woodseats plc issued 20 million 8% £1 preference shares at par. The
preference shares are redeemable at par on 30 June 20X8. The appropriate dividend in
respect of these shares was paid on 31 December 20X3.
(2) On 30 June 20X3 Woodseats plc issued 10 million 12% £1 irredeemable preference shares
at par. Dividends are discretionary and non-cumulative. The appropriate dividend in
respect of these shares was paid on 31 December 20X3.
In reviewing the draft financial statements of Woodseats plc, the auditors drew attention to an
error which had begun in the previous year's financial statements. Expenditure had been
capitalised as an intangible asset which did not meet the criteria in IAS 38. The carrying amount
of the intangible asset included in the draft statement of financial position was as follows.
£m
At 1 January 20X3 4.5
Costs incurred during 20X3 2.0
Amortisation charge (0.5)
At 31 December 20X3 6.0

ICAEW 2020 IFRS Question Bank 19

 The draft profit for 20X3, before adjusting for these capitalised costs, was £15 million. Retained
earnings at 1 January 20X3 were £75 million.
Requirements
2.1 Describe the concept of 'substance over form' and its application to the presentation of
financial liabilities under IAS 32, Financial Instruments: Presentation. (3 marks)
2.2 Prepare extracts from the financial statements of Woodseats plc for the year ended
31 December 20X3 to the extent the information is available, showing how the above
would be reflected in those financial statements.
Notes to the accounts are not required. Ignore taxation. (7 marks)
Total: 10 marks

20 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 9: Other standards
1 Brick Ltd, Cement Ltd and Mortar Ltd are independent companies, each with a year end of
31 December. Each company is owed a substantial amount by Ladder Ltd. The debts arose
on the following dates.
Brick Ltd 20 December 20X1
Cement Ltd 20 January 20X2
Mortar Ltd 25 January 20X2
On 31 January 20X2 Ladder Ltd went into liquidation, and on 2 February 20X2, as a result
of the amount which Ladder Ltd owed to it, Mortar Ltd went into liquidation.
Requirement
By which company/companies will Ladder Ltd's default be regarded as an event requiring
adjustment under IAS 10, Events After the Reporting Period?

2 The directors of Laurel plc are reviewing the draft statement of financial position at
31 December 20X2. The following events after the reporting period have been identified.
(1) On 1 February 20X3 a fraud perpetrated by the accounts receivable controller was
discovered. Receivables recorded in November 20X2 were overstated by £30,000.
(2) Property, plant and equipment with a carrying amount of £25,000 was destroyed by a
fire on 15 January 20X3. No insurance recovery is expected.
(3) A claim brought by a customer which was under negotiation at the end of the
reporting period was settled in court on 12 January 20X3. A payment of £20,000 in full
settlement was made on 24 January 20X3.
Requirement
Which of these events would be regarded as an adjusting event according to IAS 10, Events
After the Reporting Period?

3 A housebuilding company receives a government grant to provide social housing as part of

its new development. Under the terms of the grant 10% of the dwellings must be social
housing. The construction is expected to take three years.
Requirement
How should the conditions attached to the grant be reflected in the accounting treatment?

4 An entity purchased an item of machinery for £500,000 on 1 April 20X5 at which time it
received a government grant of 20% of the cost of the machinery. The machinery is being
depreciated at 25% per annum on the reducing balance basis.
Requirement
Show how the machinery and the grant should be presented in the financial statements for
the year ended 31 March 20X7 using the deferred income method.

ICAEW 2020 IFRS Question Bank 21

5 Fordham Ltd
Fordham Ltd receives a UNESCO grant to cover 20% of the cost of an asset which has a fair
value of £90,000 and a three year life. Annual profits before accounting for depreciation on the
asset are expected to be £60,000 for each of the three years.
Requirements
Show the effect on the statement of financial position and on profit or loss for each of the three
years if the grant is accounted for by:
(a) deducting it from the cost of the asset; and
(b) treating it as deferred income. Total: 10 marks

22 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 10: Group accounts: basic principles
1 The summarised statements of financial position of Peep Ltd and Pitti Ltd at 31 December
20X6 are as follows.
Peep Ltd Pitti Ltd
£ £
Net assets 300,000 160,000

Share capital (£1 shares) 100,000 100,000

Retained earnings 200,000 60,000
300,000 160,000

On 31 December 20X6 Yum plc purchased for cash 90% of Peep Ltd's shares for £360,000
and 75% of Pitti Ltd's shares for £100,000. The carrying amounts of the assets in both
companies are considered to be fair values and non-controlling interest is valued on the
proportionate basis.
Requirement
What amounts in respect of goodwill/gain on a bargain purchase will arise from these
acquisitions?

2 Wolf plc acquired 80,000 £1 ordinary shares in Fox plc on 1 April 20X5 at a cost of £77,000.
Fox plc's retained earnings at that date were £50,000 and its issued ordinary share capital
was £100,000. Non-controlling interest is valued at fair value of £32,000.
Requirement
What is the amount of the gain on a bargain purchase arising on the acquisition?

3 Sansom plc has two subsidiaries, Mabbutt Ltd and Waddle Ltd. It purchased 10,000
£1 shares in Mabbutt Ltd on 1 January 20X1 for £35,000 when the retained earnings of
Mabbutt Ltd stood at £21,000 and the fair value of the NCI was £13,000. It purchased
15,000 £1 shares in Waddle Ltd for £20,000 on 31 December 20X1 when the retained
earnings of Waddle Ltd stood at £16,000 and the fair value of the NCI was £10,000.
Non-controlling interests at the acquisition date are to be measured at their fair value.
The issued share capital of the two subsidiaries is as follows.
Mabbutt Ltd £15,000
Waddle Ltd £20,000
By the end of 20X4 goodwill impairment losses totalled £4,400.
Requirement
What is the carrying amount of goodwill in the consolidated statement of financial position
at 31 December 20X4?

ICAEW 2020 IFRS Question Bank 23

 4 In accordance with IFRS 3, Business Combinations the timetable for the acquisition of a
subsidiary will usually include the following four dates.
(1) The date on which consideration passes
(2) The date on which an offer becomes or is declared unconditional
(3) The date from which the acquiring company has the right to share in the profits of the
acquired business under the agreement
(4) The date on which control passes
Requirement
What will be the effective date for accounting for the business combination?

5 Crawford Ltd
The statements of financial position and statements of profit or loss for Crawford Ltd and
Dietrich Ltd are given below.
Statements of financial position as at 30 June 20X0
Crawford Ltd Dietrich Ltd
£ £
ASSETS
Non-current assets
Property, plant and equipment 27,000 12,500
Investments (2,000 £1 shares in Dietrich Ltd at cost) 2,000 –
29,000 12,500
Current assets 25,000 12,000
Total assets 54,000 24,500

EQUITY AND LIABILITIES

Equity
Ordinary share capital 20,000 3,000
Share premium account 6,000 –
Retained earnings 9,000 14,000
Total equity 35,000 17,000
Non-current liabilities 12,000 –
Current liabilities 7,000 7,500
Total equity and liabilities 54,000 24,500
Crawford Ltd acquired its shares in Dietrich Ltd five years ago when Dietrich's retained earnings
were nil. At the start of the current year retained earnings were £2,000 and £4,000 respectively.
Statement of profit or loss for the year ended 30 June 20X0
Crawford Ltd Dietrich Ltd
£ £
Revenue 24,000 30,000
Cost of sales (9,000) (11,000)
Gross profit 15,000 19,000
Distribution costs (2,300) (1,300)
Administrative expenses (1,500) (2,700)
Profit from operations 11,200 15,000
Finance cost (1,200) –
Profit before tax 10,000 15,000
Income tax expense (3,000) (5,000)
Profit for the year 7,000 10,000

24 Corporate Reporting – IFRS Supplement ICAEW 2020

 Requirements
5.1 Briefly explain the objectives of producing group accounts. (3 marks)
5.2 Briefly explain the following words/phrases.
(a) Single entity concept
(b) Control
(c) Equity (6 marks)
5.3 Prepare, for Crawford Ltd, the consolidated statement of profit or loss and the consolidated
statement of changes in equity (retained earnings and the non-controlling interest columns
only) for the year ended 30 June 20X0 and the consolidated statement of financial position
as at that date. (12 marks)
Total: 21 marks

ICAEW 2020 IFRS Question Bank 25

Chapter 11: Consolidated statement of financial position
1 Austen plc has owned 100% of Kipling Ltd and 60% of Dickens Ltd for many years. At
31 December 20X5 the trade receivables and trade payables shown in the individual
company statements of financial position were as follows.
Austen plc Kipling Ltd Dickens Ltd
£ £ £
Trade receivables 50,000 30,000 40,000
Trade payables 30,000 15,000 20,000

Trade payables are made up as follows.

Amounts owing to:

Austen – – –
Kipling 2,000 – 4,000
Dickens 3,000 – –
Other suppliers 25,000 15,000 16,000
30,000 15,000 20,000

The intra-group accounts agreed after taking into account the following.
(1) An invoice for £3,000 posted by Kipling Ltd on 31 December 20X5 was not received by
Austen plc until 2 January 20X6.
(2) A cheque for £2,000 posted by Austen plc on 30 December 20X5 was not received by
Dickens Ltd until 4 January 20X6.
Requirement
What amount should be shown as trade receivables in the consolidated statement of
financial position of Austen plc?

2 The following is the draft statement of financial position information of Ho plc and Su Ltd, as
on 30 September 20X2.
Ho plc Su Ltd
£ £
Ordinary £1 shares 2,600,000 1,000,000
Retained earnings 750,000 700,000
Trade payables 350,000 900,000
Other payables – 100,000
3,700,000 2,700,000

Total assets 3,700,000 2,700,000

Ho plc acquired 60% of the share capital of Su Ltd several years ago when Su Ltd's retained
earnings were £300,000. Su Ltd has not yet accounted for the estimated audit fee for the
year ended 30 September 20X2 of £40,000.
Requirement
What should the amount of consolidated retained earnings be on 30 September 20X2?

26 Corporate Reporting – IFRS Supplement ICAEW 2020

3 Dublin Ltd
The following are the summarised statements of financial position of a group of companies as at
31 December 20X9.
Dublin Shannon Belfast
Ltd Ltd Ltd
£ £ £
ASSETS
Non-current assets
Property, plant and equipment 90,000 60,000 50,000
Investments: 40,000 £1 shares in Shannon 50,000 – –
12,000 6% loan notes of Shannon 12,000
30,000 £1 shares in Belfast 45,000 – –
197,000 60,000 50,000
Current assets 203,000 70,000 30,000
Total assets 400,000 130,000 80,000
EQUITY AND LIABILITIES
Equity
Ordinary share capital 190,000 50,000 40,000
Revaluation surplus – 10,000 –
Retained earnings 60,000 30,000 16,000
Total equity 250,000 90,000 56,000
Non-current liabilities – loan notes 20,000
Current liabilities 150,000 20,000 24,000
Total equity and liabilities 400,000 130,000 80,000

Dublin Ltd purchased its shares and loan notes in Shannon Ltd five years ago when there were
retained earnings of £20,000 and a balance on its revaluation surplus of £10,000.
Belfast Ltd had retained earnings of £16,000 when Dublin Ltd acquired its shares on
1 January 20X9.
At the end of 20X9 the goodwill impairment review revealed a loss of £300 in relation to the
goodwill acquired in the business combination with Belfast Ltd.
During November 20X9, Shannon Ltd had sold goods to Belfast Ltd for £12,000 at a mark-up on
cost of 20%. Half of these goods were still held by Belfast Ltd at 31 December 20X9.
Dublin Ltd prefers to measure goodwill and the non-controlling interest using the proportionate
method wherever possible.
Requirement
Prepare the consolidated statement of financial position as at 31 December 20X9 of Dublin Ltd
and its subsidiaries.
Total: 12 marks

ICAEW 2020 IFRS Question Bank 27

Chapter 12: Consolidated statements of financial
performance
1 For the year ended 30 April 20X6 Hop Ltd and its 90% subsidiary Skip Ltd had the following
trading accounts.
Hop Ltd Skip Ltd
£ £
Revenue 100,000 46,000
Cost of sales (70,000) (34,500)
Gross profit 30,000 11,500

Notes
1 In each company all sales were made at the same percentage mark-up.
2 Goods purchased by Skip Ltd at a cost of £9,000 were sold to Hop Ltd. This transaction
is reflected in the above trading accounts.
3 Hop Ltd had sold two-thirds of these purchases at the year end.
4 There had been no trading between Skip Ltd and Hop Ltd in previous years.
Requirement
(a) What should the consolidated revenue be for the year?
(b) What should the consolidated gross profit be for the year?

2 Set out below are the summarised statements of profit or loss of Dennis plc and its 80%
subsidiary Terry Ltd.
Dennis plc Terry Ltd
£ £
Profit from operations 89,000 45,000
Dividend from Terry Ltd 16,000 –
Profit before tax 105,000 45,000
Income tax expense (42,000) (15,000)
Profit for the year 63,000 30,000

Requirement
What is the profit for the year attributable to the owners of Dennis plc to be disclosed in the
consolidated statement of profit or loss?

28 Corporate Reporting – IFRS Supplement ICAEW 2020

3 Humphrey plc
The following are the draft statements of profit or loss for the year ended 30 September 20X5 of
Humphrey plc and its subsidiary Stanley plc.
Humphrey plc Stanley plc
£ £
Revenue 1,100,000 400,000
Cost of sales (600,000) (240,000)
Gross profit 500,000 160,000
Distribution costs (60,000) (50,000)
Administrative costs (65,000) (55,000)
Profit from operations 375,000 55,000
Finance cost (25,000) (6,000)
Investment income 20,000 5,000
Profit before tax 370,000 54,000
Income tax expense (160,000) (24,000)
Profit for the year 210,000 30,000

The following information is relevant

(1) Humphrey plc acquired 80% of Stanley plc many years ago, when the retained earnings of
that company were £5,000. On the same date Humphrey plc acquired 50% of the £100,000
6% loan stock of Stanley plc. Non-controlling interest is measured at fair value. At the
acquisition date the fair value of the NCI was estimated at £13,000.
(2) Total intra-group sales in the year amounted to £100,000, Humphrey plc selling to
Stanley plc.
(3) At the year end the statement of financial position of Stanley plc included inventory
purchased from Humphrey plc. Humphrey plc had recognised a profit of £2,000 on this
inventory.
(4) The retained earnings of Humphrey plc and Stanley plc as at 30 September 20X4 were
£90,000 and £40,000 respectively. Stanley plc's share capital is comprised of 50,000
£1 ordinary shares.
(5) Humphrey plc paid ordinary dividends of £100,000 in the year and dividends of £8,000 on
irredeemable preference shares. Stanley plc paid an ordinary dividend of £20,000.
Requirement
Prepare a consolidated statement of profit or loss and extracts from the consolidated statement
of changes in equity in respect of retained earnings and non-controlling interest for the year
ended 30 September 20X5.
Total: 8 marks

ICAEW 2020 IFRS Question Bank 29

Chapter 13: Associates and joint ventures
1 Durie plc has many subsidiary companies. On 1 January 20X6 Durie plc bought 30% of the
share capital of Edberg Ltd for £6,660. The retained earnings of Edberg Ltd at that date
were £13,000 and the fair value of its assets less liabilities was £20,000. The excess of fair
value over carrying amount related to a plot of land which was still owned at 31 December
20X9; its fair value was unchanged at that date. The fair value was not reflected in the books
of Edberg Ltd.
The summarised draft statement of financial position of Edberg Ltd on 31 December 20X9
includes the following.
£
Share capital – £1 ordinary shares 5,000
Retained earnings 17,000
Total equity 22,000
By the end of 20X9 the investment in Edberg Ltd had been impaired by £264.
Requirement
At what amount should the investment in Edberg Ltd be shown using the equity method on
31 December 20X9?

2 Extracts from the statements of profit or loss of Pik plc and its subsidiaries and Wik Ltd, its
associate, for the year ended 31 March 20X6 are as follows.
Pik plc Wik
(inc subsidiaries) Ltd
£ £
Gross profit 2,900,000 1,600,000
Administrative expenses (750,000) (170,000)
Distribution costs (140,000) (190,000)
Dividends from Wik Ltd 20,000 –
Profit before tax 2,030,000 1,240,000
Income tax expense (810,000) (440,000)
Profit for the year 1,220,000 800,000

Pik plc acquired 25% of the ordinary shares in Wik Ltd on 1 April 20X3 when the retained
earnings of Wik Ltd were £80,000.
Requirement
At what amount should the profit before tax be shown in the consolidated statement of
profit or loss of Pik plc for the year ended 31 March 20X6?

3 Drought plc became a venturer in a joint venture by acquiring 40% of the ordinary shares of
Deluge Ltd, on 1 January 20X7 for £250,000. At that date Deluge Ltd had retained earnings
of £210,000 and a factory building with a fair value £60,000 in excess of its carrying amount
and a remaining useful life of 20 years. No fair value adjustment has been carried out in the
books of Deluge Ltd. At 31 December 20X9 Deluge Ltd had retained earnings of £420,000.
Requirement
What amount should be shown as 'investment in joint venture' in the consolidated
statement of financial position of Drought plc at 31 December 20X9?

30 Corporate Reporting – IFRS Supplement ICAEW 2020

4 Corfu Ltd
Corfu Ltd holds 80% of the ordinary share capital of Zante Ltd (acquired on 1 February 20X9)
and 30% of the ordinary share capital of Paxos Ltd. Paxos Ltd is a joint venture set up by
Corfu Ltd and two other venturers on 1 July 20X8. The contractual agreement provides for joint
control of Paxos Ltd. Corfu Ltd uses the equity method of accounting wherever possible.
The draft statements of profit or loss for the year ended 30 June 20X9 are set out below.
Corfu Zante Paxos
Ltd Ltd Ltd
£ £ £
Revenue 12,614,000 6,160,000 8,640,000
Cost of sales and expenses (11,318,000) (5,524,000) (7,614,000)
Trading profit 1,296,000 636,000 1,026,000
Dividends received from Zante Ltd 171,000 – –
Profit before tax 1,467,000 636,000 1,026,000
Income tax expense (621,000) (275,000) (432,000)
Profit for the year 846,000 361,000 594,000

Included in the inventory of Paxos Ltd at 30 June 20X9 was £150,000 for goods purchased from
Corfu Ltd in May 20X9, which the latter company had invoiced at cost plus 25%. These were the
only goods Corfu Ltd sold to Paxos Ltd but it did make sales of £50,000 to Zante Ltd during the
year. None of these goods remained in Zante Ltd's inventory at the year end.
Requirement
Prepare a consolidated statement of profit or loss for Corfu Ltd for the year ended 30 June
20X9.
Total: 8 marks

5 Minnie plc
Minnie plc has a number of wholly-owned subsidiaries and a 50% interest in Mouse Ltd, an entity
set up and controlled jointly with a third party.
The statements of financial position of the two entities as at 31 December 20X5 are as follows:
Minnie Mouse
Group Ltd
£ £
Non-current assets
Property, plant and equipment 406,000 160,000
Investment in Mouse Ltd 10,000 –
416,000 160,000
Current assets
Inventories 100,000 50,000
Others 200,000 110,000
716,000 320,000
Equity
Share capital 200,000 20,000
Retained earnings 366,000 180,000
566,000 200,000
Current liabilities 150,000 120,000
716,000 320,000

ICAEW 2020 IFRS Question Bank 31

 Their respective statements of profit or loss for the year ended 31 December 20X5 are as
follows:
Minnie Mouse
Group Ltd
£ £
Revenue 490,000 312,000
Cost of sales and expenses (280,000) (200,000)
Dividend from Mouse Ltd 20,000
Profit before tax 230,000 112,000
Income tax expense (100,000) (32,000)
Profit for the year 130,000 80,000

Dividends recognised in the statement of changes in equity

during the period: 60,000 40,000
During December 20X5 Minnie plc transferred goods to Mouse Ltd for £50,000. Minnie plc sells
goods at a mark-up of 25%. Mouse Ltd had not paid Minnie plc's invoice or sold any of the
goods to third parties by the year end.
No dividends from Mouse Ltd are outstanding in Minnie plc's books.
Requirement
Prepare a consolidated statement of financial position and statement of profit or loss for Minnie
plc and its joint venture as at 31 December 20X5 using equity accounting.
Total: 8 marks

32 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 14: Group accounts: disposals
1 Yogi plc has held an 80% investment in Bear Ltd for many years. On 31 December 20X6 it
disposed of all of its investment. Details for the acquisition and disposal are as follows.
£
Consideration transferred on acquisition 7,380,000
Fair value of Bear Ltd's net assets at acquisition (reflected in Bear Ltd's books) 9,000,000
Sale proceeds on 31 December 20X6 9,940,000
Goodwill acquired in the business combination has been fully written off as a result of
impairment reviews.
The summarised statement of financial position of Bear Ltd on 31 December 20X6 showed
the following.
£
Called up share capital 3,000,000
Retained earnings 7,350,000
Equity 10,350,000

Requirement
What is the profit/(loss) on disposal of the shares in Bear Ltd that should be included as part
of the profit for the period from discontinued operations figure in the consolidated
statement of profit or loss of Yogi plc for the year ended 31 December 20X6?

2 Parable plc
Parable plc is a holding company with a number of subsidiaries. The consolidation for the year
ended 31 December 20X8 has been carried out to include all subsidiaries except Story Ltd.
Story Ltd has been 80% owned by Parable plc since 20X2, at which date Story Ltd's retained
earnings amounted to £50,000, but on 30 June 20X8 Parable plc sold all of its shares in Story Ltd.
Details are as follows.
£
Cost of original investment (80,000 out of 100,000 £1 ordinary shares) 150,000
Goodwill acquired in the business combination fully recognised as an
expense as a result of impairment reviews 30,000
Sales proceeds 500,000
Because Parable plc is unsure how to deal with its investment in Story Ltd in the 20X8
consolidation, it has not yet consolidated Story Ltd into the group financial statements.
Statements of profit or loss for the year ended 31 December 20X8 are set out below.
Parable plc Story
group Ltd
£ £
Profit from operations 875,500 325,600
Sales proceeds on disposal of Story Ltd 500,000 –
Profit before tax 1,375,500 325,600
Income tax expense (405,000) (102,500)
Profit for the year 970,500 223,100

Profit attributable to
Owners of Parable plc 870,300
Non-controlling interest 100,200
970,500

ICAEW 2020 IFRS Question Bank 33

 The Parable plc group and Story Ltd had retained earnings brought forward of £1,926,300 and
£326,400 respectively. Other non-controlling interests brought forward were £507,500.
Requirement
Prepare the consolidated statement of profit or loss and the retained earnings and non-
controlling interest columns for the statement of changes in equity for the Parable plc group for
the year ended 31 December 20X8 in so far as the information is available. Total: 8 marks

3 Arbitrary plc
Arbitrary plc holds 80% of the ordinary shares of Contrary Ltd which it purchased five years ago,
on 1 July 20X0, for £175,000. On 1 July 20X5 Arbitrary plc sold all of these shares and used the
proceeds (£212,000) to purchase 65% of the ordinary shares of Enthusiast Ltd on the same date.
The share capitals of Contrary Ltd and Enthusiast Ltd have remained constant for many years at
£100,000 and £200,000 respectively. Net assets of Contrary Ltd and Enthusiast Ltd were as
follows.
Contrary Ltd Enthusiast Ltd
At At At
acquisition 1 January 20X5 1 January 20X5
£ £ £
Net assets 187,000 150,000 280,000

Statements of profit or loss and extracts from the statements of changes in equity for all three
companies for the year ended 31 December 20X5 were as follows.
Statements of profit or loss
Arbitrary Contrary Enthusiast
plc Ltd Ltd
£ £ £
Revenue 1,926,500 521,600 792,400
Cost of sales (1,207,200) (386,200) (405,900)
Gross profit 719,300 135,400 386,500
Distribution costs (207,500) (79,200) (198,200)
Administrative expenses (192,600) (26,100) (107,100)
Dividend received from Contrary Ltd 8,000 – –
Profit before tax 327,200 30,100 81,200
Income tax expense (110,000) (9,500) (27,500)
Profit for the year 217,200 20,600 53,700

Statements of changes in equity

Retained earnings
Arbitrary Contrary Enthusiast
plc Ltd Ltd
£ £ £
Balance brought forward 671,300 50,000 80,000
Total comprehensive income for the year 217,200 20,600 53,700
Dividends paid on ordinary shares (50,000) (10,000) –
Balance carried forward 838,500 60,600 133,700

No entries have been made in Arbitrary plc's statement of profit or loss relating to the sale of
Contrary Ltd.
Contrary Ltd's dividends were paid before disposal.
In an earlier accounting period an impairment loss of £12,700 was recognised in relation to the
goodwill arising on the acquisition of Contrary Ltd.

34 Corporate Reporting – IFRS Supplement ICAEW 2020

 Requirements
3.1 Prepare the consolidated statement of profit or loss and the retained earnings and non-
controlling interest columns for the consolidated statement of changes in equity for
Arbitrary plc for the year ended 31 December 20X5 in so far as the information is available.
Note: You should assume that the disposal of Contrary Ltd constitutes a discontinued
operation in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued
Operations. (15 marks)
3.2 Calculate the profit on disposal that would be shown in the individual accounts of Arbitrary
plc and explain how and why this differs from group profit on disposal. (4 marks)
3.3 Briefly discuss the concepts of control and ownership in the context of this disposal.
(4 marks)
Total: 23 marks

ICAEW 2020 IFRS Question Bank 35

Chapter 15: Group statement of cash flows
1 Spades plc, which has a number of subsidiaries, acquired an 80% interest in the share
capital of Clubs Ltd on 1 May 20X6, when the net assets of Clubs Ltd were £600,000.
Extracts from the consolidated statement of financial position of Spades plc as at
30 September 20X6 are as follows:
20X6 20X5
£ £
Non-controlling interest 750,000 720,000
Non-controlling interest in the profit for the year was £100,000.
Requirement
What is the amount to be included in the consolidated statement of cash flows for the
dividends paid to the non-controlling interest according to IAS 7, Statement of Cash Flows?

2 Romeo plc had acquired 75% of Juliet Ltd for £750,000 a number of years ago. During the
year ended 31 December 20X7 Romeo plc disposed of its entire interest in Juliet Ltd for
£1,020,000 in cash. The net assets of Juliet Ltd at the date of disposal were:
£
Property, plant and equipment 700,000
Inventories and receivables 150,000
Cash and cash equivalents 75,000
Trade payables (47,000)
878,000
Requirement
In accordance with IAS 7, Statement of Cash Flows what amount would be disclosed as
'Disposal of subsidiary' under cash flows from investing activities?

3 Greenfingers plc
Greenfingers plc is a 40-year-old company producing wooden furniture. 22 years ago it
acquired a 100% interest in a timber import company, Arbre Ltd. Nine years ago it acquired a
40% interest in a competitor, Water Features Ltd and on 1 January 20X7 it acquired a 75%
interest in Garden Furniture Designs Ltd. The draft consolidated accounts for the Greenfingers
Group are as follows.
Draft consolidated statement of profit or loss for the year ended 31 December 20X7
£
Profit from operations 4,455,000
Share of profit of associates 1,050,000
Dividends from long-term investments 465,000
Interest payable (450,000)
Profit before taxation 5,520,000
Income tax expense (1,485,000)
Profit for the year 4,035,000

Profit attributable to:

Owners of Greenfingers plc 3,735,000
Non-controlling interest 300,000
4,035,000

36 Corporate Reporting – IFRS Supplement ICAEW 2020

 Draft consolidated statement of financial position as at 31 December
20X7 20X6
£ £ £ £
ASSETS
Non-current assets
Property, plant and equipment
Buildings at carrying amount 6,225,000 6,600,000
Machinery: Cost 9,000,000 4,200,000
Acc depreciation (3,600,000) (3,300,000)
Carrying amount 5,400,000 900,000
11,625,000 7,500,000
Goodwill 300,000 –
Investments in associates 3,300,000 3,000,000
Other investments 1,230,000 1,230,000
16,455,000 11,730,000
Current assets
Inventories 5,925,000 3,000,000
Receivables 5,550,000 3,825,000
Cash and cash equivalents 13,545,000 5,460,000
25,020,000 12,285,000
Total assets 41,475,000 24,015,000

EQUITY AND LIABILITIES

Attributable to owners of the parent
Ordinary share capital (25p shares) 11,820,000 6,000,000
Share premium account 8,649,000 6,285,000
Retained earnings 10,335,000 7,500,000
30,804,000 19,785,000
Non-controlling interest 345,000 –
Total equity 31,149,000 19,785,000
Non-current liabilities
Lease liabilities 2,130,000 510,000
Loans 4,380,000 1,500,000
6,510,000 2,010,000
Current liabilities
Trade payables 1,500,000 840,000
Lease liabilities 720,000 600,000
Income tax payable 1,476,000 690,000
Interest and finance charges 120,000 90,000
3,816,000 2,220,000
Total equity and liabilities 41,475,000 24,015,000

Additional information
(1) There have been no acquisitions or disposals of buildings during the year.
Machinery costing £1.5 million was sold for £1.5 million resulting in a profit of £300,000.
New machinery was acquired in 20X7, including additions of £2.55 million acquired under
leases.

ICAEW 2020 IFRS Question Bank 37

 (2) Information relating to the acquisition of Garden Furniture Designs Ltd is as follows:
£
Property, plant and equipment 495,000
Inventories 96,000
Trade receivables 84,000
Cash 336,000
Trade payables (204,000)
Income tax (51,000)
756,000
Non-controlling interest (189,000)
567,000
Goodwill 300,000
867,000

2,640,000 ordinary shares issued as part consideration 825,000

Balance of consideration paid in cash 42,000
867,000

Requirement
Prepare a consolidated statement of cash flows for the Greenfingers Group for the year ended
31 December 20X7 using the indirect method. The only note required is that reconciling profit
before tax to cash generated from operations.
Total: 17 marks

38 Corporate Reporting – IFRS Supplement ICAEW 2020

Answer Bank
40 Corporate Reporting – IFRS Supplement ICAEW 2020
Chapter 1: Reporting framework and ethics
1 Tattenhoe plc
Notes for meeting
1.1 Fair presentation and true and fair view
IAS 1, Presentation of Financial Statements describes the concept of fair presentation. Fair
presentation involves representing faithfully the effect of transactions, other events and
conditions in accordance with the definitions and recognition criteria in the Conceptual
Framework.
This is developed by stating that the application of IFRS, interpretations and additional
disclosures will result in fair presentation.
The traditional UK approach required financial statements to comply with the Companies
Act (and therefore UK standards) and give a true and fair view. True could be approximated
to 'represent faithfully' and fair to 'fair presentation'. IAS 1 links them by stating that
compliance with standards will give a fair presentation. As a result there is unlikely to be any
difference between the two.
1.2 Non-compliance with IFRS
IAS 1 allows non-compliance with a standard (or interpretation) only where management
concludes that compliance would be so misleading as to conflict with the objectives of
financial statements set out in the Conceptual Framework. However this is only where the
relevant regulatory framework requires, or does not prohibit, such a departure.
The standard uses the phrase 'where management concludes' which may indicate that
there is a margin for those preparing the financial statements to use this exception where
they believe it is appropriate. However, IAS 1 talks about this coming about 'in extremely
rare circumstances'. To all intents and purposes, these circumstances will never occur.
Inappropriate accounting policies or non-compliance are not rectified by disclosure of the
policies adopted or by description in the notes to the financial statements.
The true and fair override is a UK concept and not permitted under IFRSs.

ICAEW 2020 IFRS Answer Bank 41

Chapter 2: Format of financial statements
1 Hendon Ltd
Statement of profit or loss for the year ended 15 July 20Y8
£
Revenue 962,300
Cost of sales (W8) (753,320)
Gross profit 208,980
Other operating income (12,120 + 27,405 + 1,000*) 40,525
Distribution costs (W8) (22,550)
Administrative expenses (W8) (243,700)
Loss from operations (16,745)
Finance cost (W2) (12,500)
Investment income (20,000 + 10,000) 30,000
Net profit for the year 755

*profit on disposal of non-current assets

Statement of financial position as at 15 July 20Y8

£ £
ASSETS
Non-current assets
Property, plant and equipment (W9) 321,830
Investments 58,000
379,830
Current assets
Inventories 210,000
Trade and other receivables (W7) 119,870
Cash and cash equivalents 61,410
391,280
Total assets 771,110

EQUITY AND LIABILITIES

Equity
Ordinary share capital (W4) 210,000
Share premium (W5) 94,000
Retained earnings (W6) 131,310
435,310
Non-current liabilities
Interest-bearing borrowings 90,000

Current liabilities
Trade and other payables 210,800
Short-term borrowings 35,000
245,800
Total equity and liabilities 771,110

42 Corporate Reporting – IFRS Supplement ICAEW 2020

 WORKINGS
(1) Accumulated depreciation
Charge B/f Disposals C/f
£ £ £ £
Freehold (160,000 – 20,000)  2%) 2,800 20,000 – 22,800
Vehicles (((124,200 – 8,000) – (28,000 –
2,000))  25%) 22,550 28,000 (2,000) 48,550
Plant (74,300 – 22,100)  10% 5,220 22,100 – 27,320

(2) Finance cost

£
20Y9 debentures (35,000  10%) 3,500
20Z5 debentures (90,000  10%) 9,000
12,500
 All interest due has been paid in year.
(3) Cost of property, plant and equipment
£
Freehold (70,000 + 160,000)) 230,000
Vehicles (124,200 – 8,000) 116,200

(4) Ordinary share capital

£
Per TB 200,000
New issue (40,000  25p) 10,000
210,000
(5) Share premium
£
Per TB 66,000
New issue ((95p – 25p)  40,000) 28,000
94,000

(6) RETAINED EARNINGS

£ £
Dividends 40,000 B/d 170,555
C/d 131,310 Profit for the year 755
171,310 171,310

(7) Trade and other receivables

£
Trade receivables 112,870
Insurance claim 7,000
119,870

ICAEW 2020 IFRS Answer Bank 43

 (8) Analysis of expenses
Cost Distribution Administrative
of sales costs expenses
£ £ £
Opening inventories 180,900
Purchases 777,200
Discounts allowed 53,400
Closing inventories (210,000)
Plant and machinery – depreciation charge
(W1) 5,220
Motor vehicles – depreciation charge (W1) 22,550
Freehold buildings – depreciation charge (W1) 2,800
Expenses (total sundry expenses) 187,500
753,320 22,550 243,700

(9) Analysis of property, plant and equipment

Cost or Accumulated Carrying
valuation depreciation value
(W3) (W1)
£ £ £
Freehold buildings 230,000 22,800 207,200
Motor vehicles 116,200 48,550 67,650
Plant and machinery 74,300 27,320 46,980
420,500 98,670 321,830

2 Middlesex Ltd
Statement of cash flows for the year ended 30 June 20Y8
£ £
Cash flows from operating activities
Cash generated from operations (Note) 71,000
Interest paid (W6) (6,000)
Tax paid (W2) (3,000)
Net cash from operating activities 62,000
Cash flows from investing activities
Purchase of property, plant and equipment (W3) (57,000)
Proceeds from sale of property, plant and equipment 20,000
Purchase of investments (50,000)
Net cash used in investing activities (87,000)
Cash flows from financing activities
Issues of ordinary shares (W4) 45,000
Redemption of non-current interest-bearing borrowings (10,000)
Net cash from financing activities 35,000
Net increase in cash and cash equivalents 10,000
Cash and cash equivalents brought forward 10,000
Cash and cash equivalents carried forward 20,000

44 Corporate Reporting – IFRS Supplement ICAEW 2020

 Reconciliation of profit before tax to net cash generated from operations for the year ended
30 June 20Y8
£
Profit before tax (W7) 46,000
Finance cost (W6) 6,000
Property, plant and equipment – depreciation charge (W1) 23,000
Profit on disposal of property, plant and equipment (2,000)
Change in inventories (W5) (1,000)
Change in trade and other receivables (W5) (2,000)
Change in trade and other payables (W5) 3,000
Change in provision (2,000)
Cash generated from operations 71,000

WORKINGS
(1) PROPERTY, PLANT AND EQUIPMENT – ACCUMULATED DEPRECIATION

£ £
Disposal (40,000 – 18,000) 22,000 B/f 69,000
C/f 70,000 Charge for year () 23,000
92,000 92,000

(2) TAX PAID

£ £
Cash () 3,000 B/f 3,000
C/f 7,000 Charge for year 7,000
10,000 10,000

(3) PROPERTY, PLANT AND EQUIPMENT – COST OR VALUATION

£ £
B/f 311,000 Disposal 40,000
Additions () 57,000 C/f 333,000
C/f 5,000
373,000 373,000

(4) SHARE CAPITAL AND PREMIUM

£ £
B/f (50,000 + 10,000) 60,000
Accumulated profit/losses
(bonus issue) (50,000 ÷ 10) 5,000
C/f (95,000 + 15,000) 110,000 Cash () 45,000
110,000 110,000

(5) Changes in current items

£
Inventories (12,000 – 11,000) (1,000)
Receivables (29,000 – 27,000) (2,000)
Payables (27,000 – 5,000 – 19,000) 3,000

(6) Finance cost

£50,000  12% = £6,000

ICAEW 2020 IFRS Answer Bank 45

 (7) RETAINED EARNINGS

£ £
Bonus issue ```5,000 B/f 115,000
Income tax ```7,000 Net profit for the year () 46,000
C/f 149,000
161,000 161,000

46 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 3: Reporting financial performance
1 Statements B and C are true. In order to be classified as discontinued, a component must
either have been disposed of or be held for sale (provided that it is highly probable that it
will be sold within 12 months of classification (IFRS 5.8)).
2 Division Y could be a discontinued operation as a geographical area of operations is being
sold.
Division X is not a discontinued operation as a separate line of business is not being
terminated – production is shifting from one division to another.
Activity W is not discontinued, as it cannot be separately distinguished for financial
reporting purposes.
3 Maynard and Lytton should both be classified as discontinued operations. Maynard
amounts to the withdrawal from a particular line of business. Lytton amounts to the
withdrawal from a geographical area of operation. The date of sale is irrelevant.
Hobhouse is probably not a discontinued operation since it is unlikely to qualify as a
component of Grant plc. It is small in size, and allocation of operating costs is unlikely to
give a sufficiently precise measure of the division’s costs for the period.
4 The purchase will be recorded in the books of Abercorn Ltd using the rate of exchange
ruling on
30 September.
DEBIT Purchases £25,000
CREDIT Trade payables £25,000
Being the £ cost of goods purchased for €40,000 (€40,000  €1.60/£1)
On 30 November, Abercorn Ltd must pay €20,000. This will cost €20,000  €1.80/£1 =
£11,111 and the company has therefore made an exchange gain of £12,500 – £11,111 =
£1,389.
DEBIT Trade payables £12,500
CREDIT Exchange gain: profit or loss £1,389
CREDIT Cash £11,111
On 31 December, the year end, the outstanding liability will be recalculated using the rate
applicable to that date: €20,000  €1.90/£1 = £10,526. A further exchange gain of £1,974
has been made and will be recorded as follows.
DEBIT Trade payables £1,974
CREDIT Exchange gain: profit or loss £1,974
The total exchange gain of £3,363 will be included in the operating profit for the year
ending 31 December.
On 31 January, Abercorn Ltd must pay the second instalment of €20,000. This will cost
them £10,811 (€20,000  €1.85/£1).
DEBIT Trade payables £10,526
DEBIT Exchange loss: profit or loss £285
CREDIT Cash £10,811

ICAEW 2020 IFRS Answer Bank 47

 5 This question explores the nature of the relationships and attempts to contrast control and
the exercise of influence. Two entities which are related parties of a third party are not
necessarily related parties of each other.
(a) All five directors of Albert plc are members of its key management personnel and are
therefore its related parties. The same is the case for all five directors of James plc.
Individually the four common directors do not have significant influence over either
Albert plc or James plc, but together, as the clear majority of the board, they can
control both of them. There is nothing in IAS 24's definitions of a related party which
makes these entities related parties of each other. But IAS 24 requires consideration of
the substance of situations, not just their legal form. If the four directors are acting in
concert, then in substance they control both entities which are therefore related parties
of each other.
(b) Hector Ltd and Frances Ltd are associates of the same investor. James plc has
significant influence over each company, but not control. Hector Ltd and Frances Ltd
would not normally be regarded as related parties of each other.
(c) Gambit plc and Frodsham Ltd have one director in common, but there is no
information about shareholdings which would indicate that this director has control
over either of them. They would not normally be regarded as related parties of each
other.
(d) Kendal plc is an associate of Giprock Ltd and Jasper plc is a member of the Giprock
Group, so Kendal plc and Jasper plc are related parties per IAS 24.9(b)(ii).

6 Western Enterprises plc

Statement of profit or loss for the year ended 31 December 20X3
£
Continuing operations
Revenue (W4) 10,660,000
Cost of sales (W4) (7,314,000)
Gross profit 3,346,000
Distribution costs (W4) (627,000)
Administrative expenses (W4) (568,960)
Profit from operations 2,150,040
Finance cost (35 + 10) (45,000)
Investment income 41,000
Profit before tax 2,146,040
Income tax expense (336,000)
Profit for the year from continuing operations 1,810,040
Discontinued operations
Loss for the year from discontinued operations (W4) (319,240)
Profit for the year 1,490,800

48 Corporate Reporting – IFRS Supplement ICAEW 2020

 Statement of changes in equity for the year ended 31 December 20X3
Share Share Retained
capital premium earnings Total
£ £ £ £
Balance at 1 January 20X3 700,000 2,000,000 2,700,000
Changes in equity for 20X3:
Issue of share capital 100,000 350,000 450,000
Dividends (90,000) (90,000)
Total comprehensive income
for the year 1,490,800 1,490,800
Balance at 31 December 20X3 800,000 350,000 3,400,800 4,550,800
Notes
1 The profit from operations is arrived at after charging
£
Depreciation (30 + 116 + 160) 306,000
Amortisation of intangibles 20,000
Employee benefits (270 + 352) 622,000
Foreign exchange loss (W3) 28,200
2 A final ordinary share dividend for 20X3 of £50,000 is proposed for payment on 28 June 20X4.
3 On 1 June 20X3 the company classified its soft toy division as held for sale. The division had
been loss-making for some time due to severe competition from the Far East. It is expected
that the closure will be complete by 30 April 20X4.
Amounts attributable to this division in 20X3 were: revenue £1,184,000, expenses
£1,503,000, and pre-tax loss £319,000.
Statement of financial position as at 31 December 20X3
£ £
ASSETS
Non-current assets
Property, plant and equipment (see Note) 2,700,000
Intangibles (see Note) 180,000
2,880,000
Current assets
Inventories 1,304,000
Trade and other receivables (1,600 – 55 (W1)) 1,545,000
Cash and cash equivalents 300,000
3,149,000
Total assets 6,029,000
EQUITY AND LIABILITIES
Equity
Ordinary share capital 800,000
Share premium 350,000
Retained earnings 3,400,800
Total equity 4,550,800
Non-current liabilities
Preference share capital 200,000
Current liabilities
Trade and other payables (850 + 28.2 (W3)) 878,200
Taxation 400,000
1,278,200
Total equity and liabilities 6,029,000

ICAEW 2020 IFRS Answer Bank 49

 Note
Property, plant and equipment
Freehold Other plant
land and Distribution and
buildings equipment equipment Total
£ £ £ £
Cost
At 1 January 20X3 1,200,000 800,000 1,400,000 3,400,000
At 31 December 20X3 1,200,000 800,000 1,400,000 3,400,000
Depreciation
At 1 January 20X3 100,000 204,000 90,000 394,000
Charge for the year 30,000 116,000 160,000 306,000
At 31 December 20X3 130,000 320,000 250,000 700,000
Carrying amount
At 31 December 20X3 1,070,000 480,000 1,150,000 2,700,000
At 1 January 20X3 1,100,000 596,000 1,310,000 3,006,000

£
Intangibles
Cost at 31 December 20X3 200,000
Amortisation (20,000)
Carrying amount at 31 December 20X3 180,000

This patent was acquired during the year.

WORKINGS
(1) Revenue
£ £
Per list of balances 11,899,000
Adjustment regarding contract under dispute
Included in revenue 120,000
Costs recoverable (65,000)
Adjustments to revenue and trade receivables (55,000)
11,844,000

(2) Analysis of expenses

Cost of Distribution Administrative
sales costs expenses
£ £ £
Opening inventories 974,000
Purchases 8,935,000
Staff costs 270,000 352,000
Depreciation
Land and buildings 15,000 15,000
Distribution equipment 116,000
Other PPE 80,000 80,000
General expenses 216,000 216,000
Amortisation of patent 20,000
Foreign exchange loss 28,200
Closing inventories (1,304,000)
8,605,000 697,000 711,200

50 Corporate Reporting – IFRS Supplement ICAEW 2020

 (3) Foreign exchange loss
£
Payable at date of transaction 846,000
Payable at year end date (846,000  1.55/1.5) (874,200)
Exchange loss at end of reporting period (28,200)

(4) Continuing/discontinued analysis

Continuing Discontinued
operations operations Total
£ £ £
Revenue (W1 – 90:10) 10,660,000 1,184,000 11,844,000
Cost of sales (W2 – 85:15) (7,314,000) (1,291,000) (8,605,000)
Gross profit 3,346,000 (107,000) 3,239,000
Distribution costs (W2 – 90:10) (627,000) (70,000) (697,000)
Admin expenses (W2 – 80:20) (568,960) (142,240) (711,200)
Profit/(loss) from operations 2,150,040 (319,240) 1,830,800
Finance cost (35 + 10) (45,000) – (45,000)
Investment income 41,000 – 41,000
Profit/(loss) before tax 2,146,040 (319,240) 1,826,800
Income tax (336,000) – (336,000)
Profit/(loss) for the year 1,810,040 (319,240) 1,490,800

ICAEW 2020 IFRS Answer Bank 51

Chapter 4: Property, plant and equipment
1 (a) The revaluation surplus is £540,000.
(b) The total carrying amount of freehold land and buildings is £775,000.
WORKING
Land Buildings Total
£ £ £
Cost on 1 July 20W3 80,000 300,000 380,000
10 years' depreciation
(300  4%  10) (120,000) (120,000)
80,000 180,000 260,000
Revaluation surplus 120,000 420,000 540,000
200,000 600,000 800,000
Depreciation (600 – 100)/20 (25,000) (25,000)
200,000 575,000 775,000

2
Asset A Asset B
£ £
Borrowing costs
To 31 December 20X9 £1,000,000/£2,000,000  9% 90,000 180,000
Less investment income
To 30 June 20X9 £500,000/£1,000,000  7%  6/12 (17,500) (35,000)
72,500 145,000
Cost of assets
Expenditure incurred 1,000,000 2,000,000
Borrowing costs _ 72,500 145,000
, 1,072,500 2,145,000

3 The amount of borrowing costs to be capitalised is £3.43 million.

120 80
Capitalisation rate = weighted average rate = (10%  ) + (9.5%  ) = 9.8%
120 + 80 120 + 80

Borrowing costs = (£30m  9.8%) + (£20m  9.8%  3/12) = £3.43m

4 Depreciable amount at 31 December 20X6 = (£100,000 – £2,000)  14/20 = £68,600
Depreciation charge in 20X7 = £68,600  1/25 = £2,744
5 An asset is impaired when the recoverable amount is lower than the carrying amount of the
asset. To determine whether an asset is impaired, compare the recoverable amount to the
carrying amount. The recoverable amount is the greater of the value in use and the fair
value less costs of disposal.
Asset R is not impaired as recoverable amount is greater than carrying amount. Asset Q is
impaired as recoverable amount of £95,000 is lower than the carrying amount of £100,000.
An impairment loss of £5,000 should be recognised.
6 An impairment loss should be recognised when the asset is classified as held for sale. This
will be the difference between the carrying amount (£13,200) and its fair value less costs of
disposal (£11,100 – £500 = £10,600). An impairment loss of £2,600 (£13,200 – £10,600) is
therefore recognised at this point.
When the asset is actually sold any further loss or gain is treated as a loss or gain on
disposal. Here there is a further loss of £100 (£10,600 – £10,500).

52 Corporate Reporting – IFRS Supplement ICAEW 2020

 7 Although an impairment loss is recognised when a non-current asset measured under
IAS 16's cost model is classified as held for sale, any gain is only recognised when the asset
is actually derecognised (ie, sold). Hence the only gain recognised is that on sale of £17,000
(£115,500 – £98,500).
8 Where an asset has been held under the revaluation model and is subsequently classified
as held for sale the asset must be revalued to fair value immediately before the
reclassification. Any gain will be taken to the revaluation surplus and any loss to profit or
loss (except to the extent that it reverses a gain held in the revaluation surplus). So here, a
revaluation gain is recognised of £158,000 (£725,000 – £567,000).
Once revalued in this way, the measurement is then adjusted to the normal basis for held
for sale assets, so fair value less costs of disposal. The effect is that the costs of disposal
(here £3,000) are recognised in profit or loss as an impairment loss.
9 (a) The balance on the revaluation surplus will be £85,000.
Revaluation
surplus
£
Gain on revaluation (W) 90,000
Reserve transfer:

New depreciation – old depreciation to 30/9/X4 

270,000 200,000  (5,000)
– 
 18 20 
Balance at 30/9/X4 85,000
WORKING
£
Cost 200,000
Less depreciation (200,000  2/20) (20,000)
Carrying amount at revaluation 180,000
Gain on revaluation 90,000
Valuation 270,000

(b) The loss recognised in profit or loss will be £5,000.

£
At 30/9/X7:
Revalued amount 270,000
Depreciation (270,000  4/18) (60,000)
Carrying amount on reclassification 210,000
Revalue to fair value (190,000)
Loss to revaluation surplus 20,000
Revaluation surplus at 30/9/X4 85,000
Reserve transfer
New depreciation – old depreciation (5,000  3) (15,000)
Revaluation surplus at 30/9/X7 70,000
Impairment loss (20,000)
Balance c/f (transfer to retained earnings on disposal) 50,000

Because there was a sufficient balance on the revaluation surplus in respect of this
asset to which the loss could be charged, the only impairment loss taken to profit or
loss is the costs of disposal of £5,000.

ICAEW 2020 IFRS Answer Bank 53

 10 The disposal proceeds were £53,000.
PLANT ACCOUNT (CARRYING AMOUNT)
£ £
B/f 261,000 Depreciation 143,000
Additions 512,000 Loss on disposal 57,000
Impairment loss 50,000
Disposal proceeds (ß) 53,000
C/f 470,000
773,000 773,000

11
Machine 1 Machine 2
£ £
Fair value less costs of disposal 90,000 40,000
Carrying amount (ß) (60,000) (60,000)
Anticipated gain/(loss) on sale 30,000 (20,000)
Cost 120,000 100,000
Carrying amount (60,000) (60,000)
Accumulated depreciation 60,000 40,000

Total accumulated depreciation £60,000 + £40,000 = £100,000

54 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 5: Intangible assets
1 £170,000
(1) should be carried forward as property, plant and equipment under IAS 16.
(2) and (4) should be carried forward as intangible assets under IAS 38.
(3) and (5) should not be carried as intangible assets – per IAS 38 (paragraphs 48 and 63).

2 Minbad plc
2.1 Notes to the financial statements at 31 December 20X7 (extracts)
Intangible assets
Publishing
Goodwill Patents titles Total
£m £m £m £m
Cost
At 1 January 20X7 – – – –
Additions 30 20 60 110
At 31 December 20X7 30 20 60 110
Amortisation/impairment
At 1 January 20X7 – – – –
Charge for year (20 ÷ 10) 1 2 – 3
At 31 December 20X7 1 2 – 3
Carrying amount
At 1 January 20X7 – – – –
At 31 December 20X7 29 18 60 107

Note: Of the additions during the year totalling £110 million, the goodwill and publishing
titles were acquired through a business combination. The patents were separately acquired.
Accounting policy note
Purchased intangibles are recognised at the fair value of consideration paid and separately
from goodwill.
Patents are amortised on a straight-line basis over the life of the legal agreement.
Publishing titles are considered to have an indefinite life and are not amortised but are
subject to annual impairment reviews.
Goodwill is not amortised but is subject to annual impairment reviews.
Note: This analysis shown above is required by IAS 38.118 (e)(i).
2.2 IASB Conceptual Framework
Under the IASB Conceptual Framework, an asset is a resource controlled by the entity as a
result of past events from which future economic benefits are expected.
Here, Minbad plc has control over all the intangibles as it has either legally purchased them
(the goodwill, newspaper titles and patents) or developed them internally (the brand).
However, an additional requirement of the Conceptual Framework is that items can only be
recognised as intangible assets if:
 there is a probable inflow of economic benefits; and
 the cost/value can be measured reliably.

ICAEW 2020 IFRS Answer Bank 55

 Acquired intangibles meet this requirement, but, as IAS 38 clearly identifies, it is not
possible to separate out reliably the cost of internally generated brands from the costs to
develop the business as a whole.
Other sections of the Conceptual Framework highlight the importance of providing relevant
information to users of financial statements. It could be argued that users would find the
value of internally generated intangibles of great relevance when assessing/evaluating a
business.
With regard to the proposed revaluation, although under IAS 38 either the cost or
revaluation model can be used, intangibles should only be revalued where there is an
'active market' for them. This must be a market where all items traded are homogeneous,
which clearly cannot be true for assets such as magazine titles.

3 Dronfield Ltd
3.1 IAS 38 definitions
The definition of an intangible asset in IAS 38, Intangible Assets (paragraph 8) is consistent
with the Conceptual Framework asset definition.
The key aspects of the definition are set out below.
Identifiable – an intangible asset should be identifiable so that it can be distinguished from
goodwill. Concluding on whether a resource is identifiable is not straightforward.
IAS 38 states that an asset is identifiable when:
 it is separable, that is it is capable of being sold, transferred, rented or exchanged
individually or with related items; or
 it arises from contractual or other legal rights, regardless of whether those rights are
transferable or separable by the entity from other rights and obligations.
A separable asset is individual and the acquirer does not require other assets to be
acquired with it. Examples could be quotas, franchises and licences.
An example of an asset arising from legal rights would be the legal right to operate some
plant and equipment in circumstances where the assets cannot generate economic benefits
without the transfer of the legal right to do so, and the legal right is of no benefit without
the plant and equipment to which it relates.
Control – an entity can demonstrate control of an asset through:
 being able to obtain future economic benefits from it; and
 restricting the access of others to those benefits.
This control usually arises from the ability to enforce legal rights in a court of law, for
example through the ownership of a patent. However, legal enforceability is not a necessary
condition. For example, trade secrets confidentially known to a few people will give access
to future benefits and restrict their use by others.
Human resources and market share are examples of intangible resources that fail to meet
the control test in the definition of an asset, since they cannot be legally protected or
controlled.
Future economic benefits may flow from an increase in revenues or a reduction in costs
from the use of the asset. These benefits could arise from the product itself or from the use
of the intellectual property as part of the production process.

56 Corporate Reporting – IFRS Supplement ICAEW 2020

 3.2 Required accounting treatments
Dronfield Ltd invests in four key business areas. The intangible resources it develops or
acquires would meet the definition of an intangible asset. The issue is whether they meet
the recognition criteria and should be included in the statement of financial position.
IAS 38 requires an entity to recognise an intangible asset if future economic benefits are
probable and the cost can be measured reliably.
(1) Research activities
Dronfield Ltd's own research activities are planned investigations that try to identify
new scientific knowledge. They meet the IAS 38 definition of a research phase of
activity.
IAS 38 does not allow the recognition of intangible assets arising from the research
phase. An entity cannot demonstrate that it is probable that future economic benefits
will be generated. Hence the costs incurred do not meet the recognition criteria and
should be recognised as an expense in profit or loss.
(2) Development activities
Dronfield Ltd's own development activities apply those research findings to design
specific therapies that could be commercially beneficial. This is a development phase
because it is further advanced than the research phase.
An intangible asset from the development phase should be recognised if, and only if,
the entity can demonstrate that a number of stringent conditions have been met. In
summary, the entity should be able to demonstrate the following.
 The technical feasibility of completing, and the intention to complete, the asset
and the ability to use or sell it (this demonstrates completion of the process that
will generate economic benefits).
 How the intangible asset will generate future economic benefits, either through
the existence of an external market or its use internally, and the availability of
resources to complete it (this demonstrates the generation of economic benefits
required by the recognition criteria).
 The ability to measure the development expenditure reliably (recognition criteria
requirement).
In practice, the criteria severely restrict the ability of entities to recognise development
phase costs as assets. Assets should only be recognised from the date that the
recognition criteria are met and retrospective recognition of costs previously expensed
is not allowed.
The existence of regulatory trials means that costs incurred before the successful
outcome of these trials should not be recognised as an asset, because before the
completion of these trials, technical feasibility cannot be demonstrated. Hence, it is
extremely unlikely that any development phase costs should be recognised as an asset
by Dronfield Ltd.
(3) Marketing and brand development costs
IAS 38 states that internally generated brands and marketing costs should never be
recognised as intangible assets.
The standard takes the view that costs of developing market positions and brands
cannot be distinguished from the cost of developing the business as a whole. Hence
the costs cannot be measured reliably and the recognition criteria cannot be met.

ICAEW 2020 IFRS Answer Bank 57

 (4) Acquired intangibles
IAS 38 states that it is always probable that future economic benefits will arise from
acquired intangibles. The basis for this is that if there were no such future benefits, the
acquirer would not have bothered to acquire them; the probability that they will arise is
adjusted for in the price offered: the greater the probability, the higher the price, and
vice versa.
IAS 38 also states that the cost of separately acquired intangibles can usually be
measured reliably, particularly when the purchase consideration is in the form of cash
or other monetary assets. The cost of intangibles acquired through a business
combination should also be capable of reliable measurement, for example by
reference to the way the acquirer built up the acquisition price. There is a rebuttable
presumption of reliable measurement when such intangibles have finite useful lives.
3.3 Key differences between UK GAAP and IFRS with regard to intangibles
 IFRS 3 requires the recognition of all the acquiree's intangible assets provided they can
be reliably measured. (The test that economic benefits are expected to flow to the
acquirer is automatically met in a business combination.) IFRS 3 suggests many
examples of such intangibles, for example customer contracts, customer relationships
and order backlogs. As these are to be recognised separately from goodwill, their
carrying amount should go to reduce the carrying amount of goodwill. Under UK
GAAP, only intangible assets that can be sold separately from the business are
recognised in an acquirer's financial statements. As compared with calculations under
UK standards, intangibles will be higher, and goodwill lower, under IFRS 3.
 IAS 38 requires the recognition as assets of all development expenditure meeting the
relevant recognition criteria. Under UK GAAP it is an accounting policy choice whether
to capitalise or to expense costs that meet the recognition criteria.
 The criteria for recognising development costs are more restrictive under IAS 38
because there is a requirement to demonstrate (rather than have a reasonable
expectation of) future benefits.

58 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 6: Revenue and inventories
1 £
Revenue recognised as agent (£200,000  15%) 30,000
Revenue recognised as principal 75,000
Total revenue 105,000

2 At the time of supply, revenue is recognised for the cash sale price of £450,000. Interest will
then be accrued until payment is made. For the year ended 31 December 20X0 the interest
charge is £450,000  10% = £45,000.
3 As there is an option to repurchase, this is a call option with a repurchase price above the
original selling price, so it is treated as a financing arrangement, a sale is not recognised
and the property remains within Southwell Ltd's SOFP.
Initial loan: DEBIT Cash £5m
CREDIT Loan £5m
Interest: DEBIT Finance cost (Profit or loss) (£5m  9.5%) £0.475m
CREDIT Loan £0.475m
Total loan liability is £5.475 million
4 The amount receivable discounted to present value = £2,400 × 1/1.09 = £2,202
This is recognised as income on 1 October 20X7. The difference between this and the sale
proceeds (2,400 – 2,202 = 198) is treated as interest and will be recognised over the
12-month interest-free credit period.
5 Cost comprises all costs of purchase, conversion and other costs incurred in bringing the
inventories to their present location and condition (IAS 2 paragraph 10). Only C meets this
definition of costs. Abnormal costs such as A are effectively excluded by IAS 2.16(a).

6 Parson plc
6.1 Financial statement extracts
Statement of financial position as at 31 December 20X3
£
EQUITY AND LIABILITIES
Non-current liabilities
Borrowings (100,000 + 8,000) 108,000
Deferred income (W2) 160,000
Current liabilities
Deferred income (W2) 300,000
Statement of profit or loss for the year ended 31 December 20X3
£
Revenue (W1) 390,000
Finance cost (8%  100,000) 8,000
6.2 Transaction (2)
As there is an option to repurchase, this is a call option with a repurchase price above the
original selling price. The transaction is effectively a financing agreement secured on the
timber and does not give rise to revenue. The proceeds of £100,000 are therefore
recognised as borrowings in non-current liabilities. In the year to 31 December 20X3
Parson plc should recognise a finance cost of £8,000 (8% of £100,000) which will increase
the borrowings.

ICAEW 2020 IFRS Answer Bank 59

 WORKINGS
(1) Revenue
£
Transaction (1) (3/20  400,000) 60,000
Transaction (3)
Sale (450,000 – (50,000  120%  3)) 270,000
After-sales support Year 1 (50,000  120%) 60,000
390,000
(2) Deferred income
Current Non-current
£ £
Transaction (1) (400,000  12/20, 5/20) 240,000 100,000
Transaction (3) (50,000  120% for Years 2 and 3) 60,000 bb60,000
300,000 160,000

60 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 7: Leases
1 Liability at 31.12.X2 is £4,804
Date B/f Interest 12% Payment C/f
£ £ £ £
31.12.X1 7,210 865 (2,000) 6,075
31.12.X2 6,075 729 (2,000) 4,804

2 The carrying amount of the machine is £32,300 – £6,460 = £25,840

£
Lease liability (PVFLP) 24,300
Payments at the start of the lease (deposit) 8,000
Right-of-use asset 32,300
Depreciate the machine over the shorter of the lease term (five years) and the useful life
(eight years)
Depreciation charge for the year £32,300/5 = £6,460
3
£ Finance charge
Initial liability (PV of future lease payments) 7,731,000
Interest 8% (£7,731,000  8%) 618,480 618,480
Payment (3,000,000)
Total lease liability at 31.12.X7 5,349,480

Depreciation is charged based on the shorter of the lease term (three years) and the useful
life (six years) as there is no option to purchase the asset at the end of the lease period.
Depreciation
£ charge
Right-of-use asset 7,731,000
Depreciation charge 7,731,000/3 (2,577,000) 2,577,000
Carrying amount 5,154,000

Charge to the profit and loss is £618,480 + £2,577,000 = £3,195,480

4 Frayn plc
4.1 £1,820,000
IFRS 16 requires that, at the start of the lease, Frayn should measure the right-of-use asset
arising from the leaseback of the building at the proportion of the previous carrying amount
of the building that relates to the right of use retained. This is calculated as carrying amount
 discounted lease payments/fair value. The discounted lease payments were given in the
question as £2.1 million.
The right-of-use asset is therefore: £2.6m  £2.1m/£3m = £1,820,000.
4.2 £120,000
Frayn only recognises the amount of gain that relates to the rights transferred.
Stage 1: Total gain is £3,000,000 – £2,600,000 = £400,000
Stage 2: Gain relating to rights retained £(400,000  2,100,000/3,000,000) = £280,000
Stage 3: Gain relating to rights transferred £(400,000 – 280,000) = £120,000

ICAEW 2020 IFRS Answer Bank 61

5 Astley Co
Option 1 – sale below FV
There is an apparent profit on sale of £450,000 (£3.85 million sales price less £3.4 million
carrying amount). However, IFRS 16 recognises that this sales price is below the £4 million fair
value, and requires that the true substance of the transaction between Newton and Astley
regarding this transaction is recognised. The 'underpayment' is deemed to be the prepayment
of a lease payment by Astley.
£ £
DEBIT Cash 3,850,000
DEBIT Right-of-use asset (W2) 1,079,894
DEBIT Prepayment 150,000
CREDIT Lease liability (W1) 1,270,463
CREDIT Gain on rights transferred (W3) 409,431
CREDIT PPE (carrying amount) 3,400,000
5,079,894 5,079,894

WORKINGS
(1) Lease liability
£
Year 1 350,000/1.04 336,538
2
Year 2 350,000/1.04 323,595
3
Year 3 350,000/1.04 311,149
4
Year 4 350,000/1.04 299,181
1,270,463

(2) Right-of-use asset

(1,270, 463 – 150,000)

3,400,000  = 1,079,894
4,000,000

(3) Gain on the sale and leaseback

Stage 1:
Total gain on the sale = fair value – carrying amount
= £4,000,000 – £3,400,000
= £600,000
Fair value of the building is used, NOT the actual amount paid.
Stage 2:

1,270, 463
Gain relating to rights retained = £600,000  = £190,569
4,000,000

Stage 3:
Gain relating to rights transferred = £600,000 – £190,569 = £409,431

62 Corporate Reporting – IFRS Supplement ICAEW 2020

 Option 2 – sale above FV
At first glance, this option seemingly generates a profit on sale of £900,000 as the £4.3 million
sales price is above the £3.4 million carrying amount.
However, as this is a sale and leaseback, the gain on sale must be apportioned to reflect the
rights retained by Astley as it will continue to use the building over the length of the lease.
This sales price is £300,000 above the £4 million fair value, but this extra consideration is
adjusted for when calculating the gains to be recognised by Astley in the financial statements.
Instead, this excess above the fair value of the building is deemed to be 'additional financing' by
Newton. IFRS 16 requires that this is presented in the financial statements to reflect the true
substance of the transaction.
Therefore, the start of the lease will reflect the following transaction:
£ £
DEBIT Cash 4,300,000
DEBIT Right-of-use asset (W2) 570,590
CREDIT Lease liability (W1) 671,282
CREDIT Financial liability 300,000
CREDIT Gain on rights transferred (W3) 499,308
CREDIT PPE (carrying amount) 3,400,000
4,870,590 4,870,590

WORKINGS
(1) Lease liability
£
Year 1 350,000/1.04 336,538
Year 2 350,000/1.042 323,595
Year 3 350,000/1.043 311,149
971,282

The lease liability is adjusted for the extra consideration on the purchase, and counted as
additional financing provided by Newton, so the discounted lease payments figure of
£971,282 is reduced by the payment made by Newton above the fair value of the building.
(2) Right-of-use asset
(971,282 – 300,000)
3,400,000  = 570,590
4,000,000
(3) Gain on the sale and leaseback
Stage 1:
Total gain on the sale = fair value – carrying amount
= £4,000,000 – £3,400,000
= £600,000
Fair value of the building is used, NOT the actual amount paid.
Stage 2:
671,282 
Gain relating to rights retained = £600,000  = £100,692
4,000,000
Stage 3:
Gain relating to rights transferred = £600,000 – £100,692 = £499,308
Therefore only the gain of £499,308 (not the full amount of £900,000) is recognised in profit
or loss.

ICAEW 2020 IFRS Answer Bank 63

Chapter 8: Financial instruments
1 Maroon plc
1.1 Extracts from financial statements for the year ended 31 December 20X4
(a) (b)
Legal Form IAS 32
Statement of profit or loss
Finance cost (W2) – 8,327
Statement of changes in equity
Dividends paid 6,000 –
Statement of financial position
Non-current liabilities
Borrowings (W2) – 88,177
Equity
Equity element of convertible debt (W1) – 7,450
Convertible preference shares (100,000 – 6,700) 93,300 –
Statement of cash flows
Cash flows from operating activities
Interest paid – (6,000)
Dividends paid (6,000) –
Cash flows from financing activities
Proceeds from issue of convertible, redeemable
preference shares 93,300 93,300
Note: IAS 7, Statement of Cash Flows allows flexibility in the presentation of interest paid
and dividends paid.
WORKINGS
(1) Splitting the liability and equity components on initial recognition
Payments Discount factor
Amount 8% (Note) Present value
£ £
20X4 6,000 0.925926 5,556
20X5 6,000 0.857339 5,144
20X6 6,000 0.793832 4,763
20X7 6,000 0.735030 4,410
20X8 106,000 0.680583 72,142
Liability component 92,015
Equity component (Bal fig) 7,985
Total 100,000

Allocation of issue costs:

Liability component (92,015 – (6,700  92,015/100,000)) 85,850
Equity component (7,985 – (6,700  7,985/100,000)) 7,450
n
Note: The discount factors are calculated using the 1/(1+r) formula.

64 Corporate Reporting – IFRS Supplement ICAEW 2020

 (2) Calculating the liability carrying amount at year end using the post-issue costs
effective interest rate
£
Liability at 1 January 20X4 85,850
Interest expense at 9.7% (9.7%  85,850) 8,327
Cash paid (6,000)
Liability at 31 December 20X4 88,177

1.2 The legal form of the preference shares is equity. They are a type of share capital. If the
transaction is accounted for in accordance with its legal form, the preference shares are
included in equity and the dividends are presented as part of the movement in equity.
The substance of redeemable preference shares is that they are debt as there is a
contractual obligation to make repayments of interest and capital. These terms meet the
definition of a financial liability.
However, the convertibility option means that the preference shares also have an equity
component. The same effect could have been achieved by issuing warrants and
redeemable preference shares separately.
The requirements of IAS 32 reflect the substance of the transaction, focusing on the
economic reality that in effect two financial instruments have been issued. These preference
shares are a compound financial instrument and split accounting should be applied.
The requirements of IAS 32 will increase the amount of borrowings in the financial
statements compared with if the preference shares had been accounted for in accordance
with their legal form. As a result gearing will be higher and it may be more difficult for
Maroon plc to obtain further borrowing.
Should the legal form be accounted for, the preference share dividend should be
recognised in the statement of changes in equity. Under IAS 32 the amount should be
recognised as an expense in profit or loss. The IAS 32 expense is higher than the dividend
paid as it includes the amortisation of the discount of the liability. Earnings under IAS 32 will
be lower than under the legal form.
The cash flows are the same in both sets of circumstances, although they will be
categorised differently as interest and dividends paid. However, users of financial
statements may perceive a different level of risk.
Note: Convertible bonds are another type of compound financial instrument. Their legal
form is debt. For convertible bonds, gearing would be higher if the legal form was applied.

2 Woodseats plc
2.1 Substance over form and the presentation of financial liabilities under IAS 32, Financial
Instruments: Presentation
Under the IASB Conceptual Framework for Financial Reporting, information must be
relevant and faithfully represented. Faithful representation means that financial information
represents the substance of an economic phenomenon rather than merely representing its
legal form.
The substance is not always consistent with the legal form of a transaction. This is often the
case when an arrangement involves a number of linked transactions or components.
IAS 32 uses the substance of a financial liability rather than its legal form to determine the
classification in the statement of financial position. Some financial instruments take the legal
form of equity but are liabilities in substance as they include contractual obligations to
transfer economic benefits to the holder. This approach is consistent with the definition of a

ICAEW 2020 IFRS Answer Bank 65

 liability in the IASB Conceptual Framework and such financial liabilities are classified in
liabilities and not equity.
More complex financial instruments may combine features of both equity instruments and
financial liabilities. IAS 32 looks at the substance of the components of the instrument and
classifies them separately.
2.2 Financial statement extracts
Statement of financial position as at 31 December 20X3
£m
EQUITY AND LIABILITIES
Equity
Ordinary share capital 50
Preference share capital (irredeemable) 10

Non-current liabilities
Preference share capital (redeemable) 20
Statement of profit or loss for the year ended 31 December 20X3
£m
Cost of sales (2m – 0.5m) (1.5)
Finance cost (20m  8%) (1.6)
Statement of changes in equity for the year ended 31 December 20X3
Ordinary Irredeemable
share preference Retained
capital share capital earnings Total
£m £m £m £m
Balance at 1 January 20X3 50 – 75 125
Correction of prior period error – – (4.5) (4.5)
Restated balance 50 – 70.5 120.5
Issue of share capital 10 10
Dividends paid (10  12%  6/12) (0.6) (0.6)
Total comprehensive income (15 – 1.5) 13.5 13.5
Balance at 31 December 20X3 50 10 83.4 143.4

66 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 9: Other standards
1 Adjustments will need to be made by Brick Ltd and Mortar Ltd.
Brick Ltd The debt arose before the end of the reporting period, so this would be an
adjusting event.
Cement Ltd The debt arose after the reporting period, so that this would be a
non-adjusting event.
Mortar Ltd As for Cement Ltd – a non-adjusting event, but of such significance that
Mortar Ltd is no longer a going concern. Thus adjustments will be made to
the accounts.
2 (1) and (3) would be regarded as adjusting events (IAS 10.9 and .22).
3 An entity receiving such a grant should identify precisely those conditions which give rise to
costs. This will determine the period over which the grant is earned and it may be necessary
to split the grant and allocate parts on different bases.
In this case there will be a cost associated with building social housing which will be less
profitable than private housing. If social housing plots are inserted at different phases of the
development, then the grant should be split among these plots and recognised as each of
them are completed.
If it appears possible at any time that one or more of the social housing plots will not be
provided, then a contingent liability for repayment of that proportion of the grant must be
disclosed. If it is probable that one or more plots will not be built, then a provision should
be recognised.
4 Note that 20X7 is the second year of the asset's ownership, so at 1 April 20X6 the carrying
amounts of both the asset and the deferred income will have been reduced to 75% of their
initial amounts.
Statement of profit or loss extract – year ended 31 March 20X7
£
Depreciation ((£500,000  75%)  25%) (93,750)
Government grant income ((£100,000  75%)  25%) 18,750

Statement of financial position extract – as at 31 March 20X7

£
Non-current assets
Machinery (£500,000  75%  75%) 281,250

Non-current liabilities
Deferred income (£100,000  75%  75%  75% ) 42,187
Current liabilities
Deferred income (£100,000  75%  75%  25%) 14,063

ICAEW 2020 IFRS Answer Bank 67

5 Fordham Ltd
(a) Deducting the grant from the cost of the asset
Statement of financial position
Year 1 Year 2 Year 3
£ £ £
Non-current asset (£90,000  80%) 72,000 72,000 72,000
Accumulated depreciation (£72,000/3) (24,000) (48,000) (72,000)
48,000 24,000 –

Profit or loss
Year 1 Year 2 Year 3 Total
£ £ £ £
Profit for the year 60,000 60,000 60,000 180,000
Depreciation (24,000) (24,000) (24,000) (72,000)
36,000 36,000 36,000 108,000

(b) Treating the grant as deferred income

Statement of financial position
Year 1 Year 2 Year 3
£ £ £
Non-current asset 90,000 90,000 90,000
Accumulated depreciation (£90,000/3) (30,000) (60,000) (90,000)
60,000 30,000 –
Deferred income (liability) (12,000) (6,000) –
48,000 24,000 –

Profit or loss
Year 1 Year 2 Year 3 Total
£ £ £ £
Profit for the year 60,000 60,000 60,000 180,000
Depreciation (30,000) (30,000) (30,000) (90,000)
30,000 30,000 30,000 90,000
Grant 6,000 6,000 6,000 18,000
36,000 36,000 36,000 108,000

The overall effect on the financial statements is the same whichever method is used. Companies
may prefer the deferred income method as it does not affect the carrying amount of the asset.

68 Corporate Reporting – IFRS Supplement ICAEW 2020

 Chapter 10: Group accounts: basic principles
1
Yum plc

90% 75%

Peep Ltd Pitti Ltd

£
Peep – consideration transferred 360,000
Non-controlling interest at acquisition (300,000  10%) 30,000
Net assets at acquisition (300,000)
Goodwill 90,000

Pitti – consideration transferred 100,000

Non-controlling interest at acquisition (160,000  25%) 40,000
Net assets at acquisition (160,000)
Gain on a bargain purchase (20,000)*
* Recognised in consolidated profit or loss in the period in which the acquisition is
made (ie, on 31 December 20X6).
2
£
Consideration transferred 77,000
Non-controlling interest at acquisition at fair value 32,000
109,000
Net assets at acquisition (100,000 + 50,000) (150,000)
Gain on a bargain purchase (41,000)
3 Goodwill shown in the statement of financial position will be £7,600.
£ £
Mabbutt Ltd
Consideration transferred 35,000
Fair value of non-controlling interest at acquisition 13,000
Less net assets
Share capital 15,000
Retained earnings 21,000
(36,000)
Goodwill 12,000
Impairment to date (4,400)
Balance c/f 7,600

Waddle Ltd £ £
Consideration transferred 20,000
Fair value of non-controlling interest at acquisition 10,000
Less net assets at acquisition
Share capital 20,000
Retained earnings 16,000
(36,000)
(6,000) *
* Recognised as a gain in consolidated profit or loss in the year in which the acquisition
was made.

ICAEW 2020 IFRS Answer Bank 69

 4 (4) The date on which control passes
A business combination is accounted for from the acquisition date, which is the date on
which control in the acquiree is obtained (IFRS 3 paragraph 8).

5 Crawford Ltd
5.1 The objectives of producing group accounts
Group accounts aim to reflect substance ie, if one company controls another, they
effectively operate as a single economic entity.
Therefore, the parent, or controlling company, should provide information about the
economic activities of the group by preparing consolidated accounts. These will show
the economic resources controlled by the group, the obligations of the group and the
results achieved with those resources. The overall aim is to present the results and state
of affairs of the group as if they were those of a single entity.
5.2 Terms
(a) Single entity concept
The single entity concept focuses on the existence of the group as an economic unit
(as discussed above). This contrasts with legal form where each group company is
actually a separate legal person.
(b) Control
Control is defined as follows:
 Power
 Exposure, or rights to variable returns from involvement with the investee
 Ability to use power to affect the level of variable returns
In an individual company the assets are under the direct control of that company.
However, where a company becomes a subsidiary, the assets are under indirect
control of the parent via its control of the subsidiary.
Control can be achieved in a number of ways, the most obvious being a holding of
over 50% of the ordinary ie, vote-carrying, shares.
(c) Equity
Equity is defined in the IASB Conceptual Framework (Elements) as the residual amount
found by deducting all of the entity's liabilities from all of its assets. In an individual
company those net assets are owned by one ownership interest – the company's
shareholders. However, in consolidated accounts the consolidated net assets will
include 100% of the subsidiary even though some of those net assets may not be
owned by the group. Therefore, the equity interest may be split between:
 the parent company's shareholders; and
 the non-controlling shareholders in the subsidiary.

70 Corporate Reporting – IFRS Supplement ICAEW 2020

 5.3 Consolidated statement of financial position as at 30 June 20X0
£
ASSETS
Non-current assets
Property, plant and equipment (27,000 + 12,500) 39,500
Current assets (25,000 + 12,000) 37,000
Total assets 76,500

EQUITY AND LIABILITIES

Equity attributable to owners of the parent
Ordinary share capital 20,000
Share premium account 6,000
Retained earnings (9,000 + (2/3 × 14,000 – nil)) 18,333
44,333
Non-controlling interest (1/3 × 17,000) 5,667
Total equity 50,000
Non-current liabilities 12,000
Current liabilities (7,000 + 7,500) 14,500
Total equity and liabilities 76,500

Consolidated statement of profit or loss for the year ended 30 June 20X0
£
Revenue (24,000 + 30,000) 54,000
Cost of sales (9,000 + 11,000) (20,000)
Gross profit 34,000
Distribution costs (2,300 + 1,300) (3,600)
Administrative expenses (1,500 + 2,700) (4,200)
Profit from operations 26,200
Finance cost (1,200)
Profit before tax 25,000
Income tax (3,000 + 5,000) (8,000)
Profit for the year 17,000
Profit attributable to
Owners of Crawford Ltd () 13,667
Non-controlling interest (1/3 × 10,000) 3,333
17,000

Consolidated statement of changes in equity for the year ended 30 June 20X0 (extracts)
Attributable to owners
of Crawford Ltd Non-controlling
Retained earnings interest
£ £
Balance brought forward (2,000 + (2/3  4,000))
(1/3 × (3,000 + 4,000)) 4,666 2,334
Total comprehensive income for the period 13,667 3,333
Balance carried forward 18,333 5,667

Note: No goodwill arises on the acquisition of Dietrich Ltd as the shares were acquired at
net asset value ie, their nominal value when retained earnings were £nil.

ICAEW 2020 IFRS Answer Bank 71

Chapter 11: Consolidated statement of financial position
1
£ £
Austen plc 50,000
Kipling Ltd 30,000
Dickens Ltd 40,000
Less cash in transit (2,000)
38,000
118,000
Less intra-group receivables
Owed to Kipling Ltd (2,000 + 3,000 + 4,000) 9,000
Owed to Dickens Ltd 3,000
(12,000)
Group trade receivables 106,000

2
£
Ho plc 750,000
Su Ltd – Ho plc's share of post-acquisition retained earnings
(60% ((700 – 40) – 300)) 216,000
Consolidated retained earnings 966,000

3 Dublin Ltd
Consolidated statement of financial position as at 31 December 20X9
£
ASSETS
Non-current assets
Property, plant and equipment (90,000 + 60,000 + 50,000) 200,000
Intangibles (W3) 2,700
202,700
Current assets (203,000 + 70,000 + 30,000 – 1,000 (W6)) 302,000
Total assets 504,700

EQUITY AND LIABILITIES

Equity attributable to owners of the parent
Ordinary share capital 190,000
Retained earnings (W5) 80,900
270,900
Non-controlling interest (W4) 31,800
Total equity 302,700
Non-current liabilities (loan notes 20,000 – 12,000) 8,000
Current liabilities (150,000 + 20,000 + 24,000) 194,000
Total equity and liabilities 504,700

72 Corporate Reporting – IFRS Supplement ICAEW 2020

 WORKINGS
(1) Group structure
Dublin Ltd

80% 75%

Shannon Ltd Belfast Ltd

(2) Net assets
Year Acquisition Post-
end date acquisition
Shannon Ltd £ £ £
Share capital 50,000 50,000 –
Revaluation surplus 10,000 10,000 –
Retained earnings (30,000 – 1,000 (W6)) 29,000 20,000 9,000
89,000 80,000
Belfast Ltd
Share capital 40,000 40,000 –
Retained earnings 16,000 16,000 –
56,000 56,000

(3) Goodwill
Shannon Ltd Belfast Ltd
£ £
Consideration transferred 50,000 45,000
Non-controlling interest at acquisition
((80,000 × 20% / 56,000 × 25%) 16,000 14,000
66,000 59,000
Net assets at acquisition
Shannon Ltd (W2) (80,000)
Belfast Ltd (W2) (56,000)
(Gain on a bargain purchase)/goodwill (14,000) 3,000
Recognised in profit or loss (impairment) to date 14,000 (300)
– 2,700
(4) Non-controlling interest at year end
£ £
Shannon Ltd
NCI at acquisition (W3) 16,000
Share of post-acquisition reserves ((W2) 9,000 × 20%) 1,800
17,800
Belfast Ltd
NCI at acquisition (W3) 14,000
Share of post-acquisition reserves ((W2) nil × 25%) –
14,000
31,800

ICAEW 2020 IFRS Answer Bank 73

 (5) Retained earnings
£
Dublin Ltd 60,000
Shannon Ltd (80%  9,000 (W2)) 7,200
Belfast Ltd (75%  nil (W2)) –
Less goodwill impairment to date (W3) (300)
Add gain on a bargain purchase (W3) 14,000
80,900

(6) PURP
£12,000  20/120  50% = £1,000
£ £
DEBIT Retained earnings (Shannon) 1,000
CREDIT Group inventory (current assets) 1,000

74 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 12: Consolidated statements of financial
performance
1 (a) £134,000
£
Hop Ltd 100,000
Skip Ltd 46,000
Less intra-group sales (9,000 × 46/34.5) (12,000)
134,000
(b) £40,500
£
Hop Ltd 30,000
Skip Ltd 11,500
Less PURP ((12,000 – 9,000)  1/3) (1,000)
40,500
2 £71,000
£
Profit from operations – Dennis plc 89,000
Less income tax expense (42,000)
47,000
Group share of Terry Ltd (80%  30,000) 24,000
71,000

3 Humphrey plc
Consolidated statement of profit or loss for the year ended 30 September 20X5
£
Revenue (W2) 1,400,000
Cost of sales (W2) (742,000)
Gross profit 658,000
Distribution costs (W2) (110,000)
Administration expenses (W2) (120,000)
Profit from operations 428,000
Finance cost (W2) (28,000)
Investment income (W2) 6,000
Profit before tax 406,000
Income tax expense (W2) (184,000)
Profit for the year 222,000
Profit attributable to
Owners of Humphrey plc ( 216,000
Non-controlling interest (W3) 6,000
222,000

ICAEW 2020 IFRS Answer Bank 75

 Consolidated statement of changes in equity for the year ended 30 September 20X5
(extracts)
Retained earnings
attributable to Non-
owners of controlling
Humphrey plc interest Total
£ £ £
Balance brought forward (W4 and W6) 118,000 20,000 138,000
Total comprehensive income for the year 216,000 6,000 222,000
Dividend paid on irredeemable prefs (8,000) – (8,000)
Dividends paid on ordinary shares (W5) (100,000) (4,000) (104,000)
Balance carried forward 226,000 22,000 248,000

WORKINGS
(1) Group structure
Humphrey plc

80%

Stanley plc
(2) Consolidation schedule
Humphrey plc Stanley plc Adj Consol
£ £ £ £
Revenue 1,100,000 400,000 (100,000) 1,400,000
C of S
Per Q (600,000) (240,000) 100,000
PURP (2,000) – – (742,000)
Distribution (60,000) (50,000) (110,000)
Administrative (65,000) (55,000) (120,000)
Finance cost (adj W5) (25,000) (6,000) 3,000 (28,000)
Inv income (20 – 16 (W5)) 4,000 5,000 (3,000) 6,000
Income tax (160,000) (24,000) (184,000)
PAT 30,000

(3) Non-controlling interest

£
20%  30,000 (W2) or as PAT in question 6,000

(4) Retained earnings b/f

£
Group
Humphrey plc 90,000
Stanley plc (80%  (40,000 – 5,000)) 28,000
118,000

(5) Investment income

Intragroup dividend
£
Received by Humphrey plc (80%  20,000) 16,000
Received by NCI (20%  20,000) 4,000
Paid by Stanley plc 20,000

76 Corporate Reporting – IFRS Supplement ICAEW 2020

 Intragroup interest
Paid by Stanley plc to Humphrey plc (100,000  6%  50%) £3,000
Cancel receipt and payment on consolidation

(6) Non-controlling interest b/f

£
Fair value at acquisition 13,000
Share of post-acquisition retained earnings to 1 October 20X4
(40,000 – 5,000) × 20% 7,000
20,000

ICAEW 2020 IFRS Answer Bank 77

Chapter 13: Associates and joint ventures
1 £7,596
£
Cost of investment in Edberg Ltd 6,660
Share of post acquisition change in net assets
(calculated as 30%  change in retained earnings (17,000 – 13,000)) 1,200
7,860
Impairment losses to date (264)
7,596

Tutorial note
If both of the following apply, then the fair value adjustment can be omitted from the
calculation of the post-acquisition change in the associate's net assets:
(a) The amount of the fair value adjustment is the same at the end of the reporting period
and the date the investment is made.
(b) The adjustment has not been reflected in the associate's books.

2 £2,210,000
£
Pik plc (incl subsidiaries)
Gross profit 2,900,000
Less: Administrative expenses (750,000)
Distribution costs (140,000)
Share of profit of associates (25%  800,000) 200,000
2,210,000

3 £330,400
£
Cost of investment 250,000
Share of post acquisition increase in net assets ((420,000 – 210,000)  40%) 84,000
Share of depreciation on FVA ((60,000  3/20)  40%) (3,600)
Investment in joint venture 330,400

78 Corporate Reporting – IFRS Supplement ICAEW 2020

4 Corfu Ltd
Consolidated statement of profit or loss for the year ended 30 June 20X9
£
Revenue (W2) 15,130,667
Cost of sales and expenses (W2) (13,578,667)
1,552,000
Share of profit of joint venture (W4) 178,200
Profit before tax 1,730,200
Income tax expense (W2) (735,583)
Profit for the year 994,617

Profit attributable to
Owners of Corfu Ltd () 964,534
Non-controlling interest (W3) 30,083
994,617

WORKINGS
(1) Group structure

Corfu Ltd

80%
(5/12 Incl.) 30%

Zante Ltd Paxos Ltd

(2) Consolidation schedule

Zante Ltd
Corfu Ltd 5/12 Adj Consol
£ £ £ £
Revenue 12,614,000 2,566,667 (50,000) 15,130,667
C of S
Per Q (11,318,000) (2,301,667) 50,000
PURP re Paxos (30% 
(150,000  25/125)) (9,000) (13,578,667)
Income tax (621,000) (114,583) (735,583)
150,417

(3) Non-controlling interest

£
Zante Ltd (20%  150,417 (W2)) 30,083

(4) Share of profit of joint venture

£
Paxos Ltd (30%  594,000) 178,200

ICAEW 2020 IFRS Answer Bank 79

5 Minnie plc
Consolidated statement of financial position as at 31 December 20X5
£
Non-current assets
Property, plant and equipment 406,000
Investment in joint venture (W4) 95,000
501,000
Current assets
Inventories 100,000
Others 200,000
Total assets 801,000

Equity attributable to owners of the parent

Share capital 200,000
Retained earnings (W2) 451,000
651,000
Current liabilities 150,000
Total equity and liabilities 801,000

Consolidated statement of profit or loss for the year ended 31 December 20X5
£
Revenue 490,000
Cost of sales and expenses (280 + (W3) 5) (285,000)
Share of profit of joint venture (80  50%) 40,000
Profit before tax 245,000
Income tax expense (100,000)
Profit for the year 145,000

Profit attributable to:

Owners of the parent 145,000
Non-controlling interests 0
145,000
WORKINGS
(1) Group structure
Minnie
50%

Mouse Pre acq'n ret'd earnings £0 (set up by Minnie plc)

(2) Consolidated retained earnings
Minnie plc Mouse Ltd
£ £
Per question 366,000 180,000
PURP (W3) (5,000)
Pre-acquisition retained earnings (–)
180,000
Group share of post-acquisition earnings
Mouse Ltd (180  50%) 90,000
451,000

80 Corporate Reporting – IFRS Supplement ICAEW 2020

 (3) Provision for unrealised profit on inventories
Investor's share of unrealised profit in inventories:
£50,000  (25%/125%)  50% = £5,000

... DEBIT Cost of sales & Retained earnings £5,000

CREDIT Investment in Mouse Ltd £5,000
(4) Investment in Mouse Ltd
£
Cost of joint venture 10,000
Add post-acquisition retained reserves (W2) 90,000
Less PURP (W3)* (5,000)
95,000

* Adjusted against the joint venture rather than group inventories because in this scenario it
is the joint venture that holds the inventories. The credit adjustment is made wherever the
inventories are held under equity accounting.

ICAEW 2020 IFRS Answer Bank 81

Chapter 14: Group accounts: disposals
1 £1,660,000
£
Sales proceeds 9,940,000
Net assets at disposal (10,350,000)
Add back NCI in net assets (10,350,000  20%) 2,070,000
Profit on disposal 1,660,000

2 Parable plc
Consolidated statement of profit or loss for the year ended 31 December 20X8
£
Continuing operations
Profit before tax 875,500
Income tax expense (405,000)
Profit for the year from continuing operations 470,500

Discontinued operations
Profit for the year from discontinued operations (111,550 (W2) + 69,640 (W3)) 181,190
Profit for the year 651,690

Profit attributable to:

Owners of Parable plc () 529,180
Non-controlling interest (W4) 122,510
651,690

Consolidated statement of changes in equity for the year ended 31 December 20X8 (extracts)
Owners
of Parable plc Non-
Retained controlling
earnings interest
£ £
Balance brought forward (W5 and W6) 2,117,420 592,780
Total comprehensive income for the period 529,180 122,510
Eliminated on disposal of subsidiary (W3) – (107,590)
Balance carried forward 2,646,600 607,700

WORKINGS
(1) Group structure
Parable plc group
80% (sold 30 June
20X8 6/12m)

Story Ltd

(2) Profit for year to disposal

£
PAT of S Ltd 223,100
 6/12 = 111,550

82 Corporate Reporting – IFRS Supplement ICAEW 2020

 (3) Profit on disposal of operations
£ £
Sale proceeds 500,000
Less net assets at disposal:
Net assets at 1 January 20X8 (100,000 + 326,400) 426,400
Profit to 30 June 20X8 (W2) 111,550
(537,950)
Add back NCI in net assets (537,950  20%) 107,590
Profit on disposal 69,640

(4) Non-controlling interest for year

£
Story Ltd (111,550 (W2)  20%) 22,310
Other 100,200
122,510

(5) Retained earnings b/f

£
Parable plc group 1,926,300
Add Story Ltd (80%  (326,400 – 50,000)) 221,120
Less goodwill impairment to date (30,000)
2,117,420

(6) Non-controlling interest b/f

£
Story Ltd ((100,000 + 326,400)  20%) 85,280
Other 507,500
592,780

3 Arbitrary plc
3.1 Consolidated statement of profit or loss for the year ended 31 December 20X5
£
Continuing operations
Revenue (W2) 2,322,700
Cost of sales (W2) (1,410,150)
Gross profit 912,550
Distribution costs (W2) (306,600)
Administrative expenses (W2) (246,150)
Profit before tax 359,800
Income tax expense (W2) (123,750)
Profit for the year from continuing operations 236,050

Discontinued operations
Profit for the year from discontinued operations (10,300 (W3) + 79,060 (W4)) 89,360
Profit for the year 325,410

Profit attributable to
Owners of Arbitrary plc () 313,952
Non-controlling interest (W5) 11,458
325,410

ICAEW 2020 IFRS Answer Bank 83

 Consolidated statement of changes in equity for the year ended 31 December 20X5
(extracts)
Attributable
to owners Non-
of Arbitrary plc controlling
Retained interest
earnings
£ £
Balance brought forward (W6) + (W7) 629,000 30,000
Total comprehensive income for the year 313,952 11,458
Added on acquisition of subsidiary (W8) – 107,397
Eliminated on disposal of subsidiary (W4) – (30,060)
Dividend paid on ordinary shares (20% × 10,000) (50,000) (2,000)
Balance carried forward 892,952 116,795

Non-controlling interest carried forward: proof

Enthusiast £
Net assets at 1 January 20X5 280,000
Profit for year ended 31 December 20X5 53,700
333,700
NCI 35% 116,795

3.2 Calculation of profit in individual accounts of Arbitrary plc

£
Sale proceeds 212,000
Less cost (175,000)
Profit 37,000

The different calculations of profit on disposal reflect the different way in which the
subsidiary (Contrary Ltd) is accounted for in the individual and consolidated accounts.
In the individual statement of financial position of Arbitrary plc Contrary Ltd is carried at cost
of £175,000. The profit on disposal is therefore the sale proceeds less this cost.
In the consolidated financial statements the cost of Contrary Ltd is replaced with its
underlying net assets and with goodwill acquired in the business combination. The profit on
disposal is therefore based on sale proceeds less the percentage of net assets being sold
(here 80%) less the unimpaired goodwill which is being sold in full (as it only ever related to
the 80% share of net assets acquired).
3.3 Application of control and ownership ideas
Control
Up to 1 July 20X5 Arbitrary plc owns 80% of Contrary Ltd and therefore controls it. So the
consolidated statement of profit or loss should include 100% of Contrary Ltd's profits up to
that date.
After 1 July 20X5 Arbitrary plc no longer controls Contrary Ltd. Its results should be
excluded from the consolidated statement of profit or loss for the last six months of the year
and also from the consolidated statement of financial position at the year end.
This treatment reflects the fact that once Contrary Ltd has been sold its resources are no
longer under group control.

84 Corporate Reporting – IFRS Supplement ICAEW 2020

 Ownership
For the first six months of the year 100% of Contrary Ltd's profits are included in the
consolidated statement of profit or loss. However, 20% of its profits are owned by the non-
controlling interest and this has to be deducted in arriving at the group's share of profit
(£20,600  6/12  20%).
When the disposal occurs the group is selling its ownership interest in the net assets and
the associated goodwill. Therefore the group profit on disposal is calculated from the point
of view of ownership.
WORKINGS
(1) Group structure
Arbitrary plc

65%
80% (acq 1 July 20X5
(sold 1 July 20X5
6/12m)
6/12m)

Contrary Ltd Enthusiast Ltd

(2) Consolidation schedule

Enthusiast
Arbitrary Ltd
plc 6/12 Consol
£ £ £
Revenue 1,926,500 396,200 2,322,700
Cost of sales (1,207,200) (202,950) (1,410,150)
Distribution cost (207,500) (99,100) (306,600)
Admin exp (192,600) (53,550) (246,150)
Tax (110,000) (13,750) (123,750)
PAT 26,850

(3) Profit for year to disposal

£
PAT of C Ltd 20,600
 6/12 10,300

ICAEW 2020 IFRS Answer Bank 85

 (4) Profit on disposal of Contrary Ltd
£ £
Sale proceeds 212,000
Less: Carrying amount of goodwill at date of disposal:
Consideration transferred on acquisition 175,000
NCI at acquisition (187,000  20%) 37,400
Less net assets at acquisition (187,000)
Goodwill at acquisition 25,400
Less impairment to date (12,700)
(12,700)
Less: Carrying amount of net assets at disposal:
Net assets at 1 January 20X5 150,000
Profit to 1 July 20X5 (W3) 10,300
Dividends paid (10,000)
(150,300)
Add back NCI in net assets (150,300  20%) 30,060
Profit on disposal 79,060

(5) Non-controlling interest in year

£
Contrary Ltd (20%  10,300 (W3)) 2,060
Enthusiast Ltd (35%  26,850 (W2)) 9,398
11,458

(6) Retained earnings b/f

£
Arbitrary plc 671,300
Contrary Ltd (80%  (50,000 – (187,000 – 100,000))) (29,600)
Goodwill impairment to 31 December 20X4 (12,700)
629,000

(7) Non-controlling interest b/f

£
Contrary Ltd (150,000  20%) 30,000

(8) Non-controlling interest added on acquisition of subsidiary

£
Enthusiast Ltd ((280,000 + 26,850 (W2))  35%) 107,397

86 Corporate Reporting – IFRS Supplement ICAEW 2020

Chapter 15: Group statement of cash flows
1 £190,000
NON-CONTROLLING INTEREST

£ £
c/f 750,000 b/f 720,000
Non-controlling interest in
profit for the year 100,000
Dividend paid to Acquisition of subsidiary
non-controlling interest () 190,000 (600  20%) 120,000
940,000 940,000

2 £945,000 (£1,020,000 – £75,000)

3 Greenfingers plc
Consolidated statement of cash flows for the year ended 31 December 20X7
£ £
Cash flows from operating activities
Cash generated from operations (Note) 1,116,000
Interest paid (W2) (420,000)
Income taxes paid (W3) (750,000)
Net cash used in operating activities (54,000)
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired (W4) 294,000
Purchase of property, plant and equipment (W5) (3,255,000)
Proceeds from sale of property, plant and equipment 1,500,000
Dividends received from investments 465,000
Dividends received from associates (W6) 750,000
Net cash used in investing activities (246,000)
Cash flows from financing activities
Proceeds from issue of ordinary share capital (W7) 7,359,000
Proceeds from issue of loan notes (W8) 2,880,000
Payments under leases (W10) (810,000)
Dividends to owners of Greenfingers (3,735 + 7,500 – 10,335) (900,000)
Dividends paid to non-controlling interests (W9) (144,000)
Net cash from financing activities 8,385,000
Net increase in cash and cash equivalents 8,085,000
Cash and cash equivalents at beginning of year 5,460,000
Cash and cash equivalents at end of year 13,545,000

ICAEW 2020 IFRS Answer Bank 87

 Note: Reconciliation of profit before tax to cash generated from operations
£
Profit before tax 5,520,000
Adjustments for:
Depreciation (W1) 975,000
Profit on sale of property, plant and equipment (300,000)
Share of profits of associates (1,050,000)
Investment income (465,000)
Interest expense 450,000
5,130,000
Increase in receivables (5,550 – 3,825 – 84) (1,641,000)
Increase in inventories (5,925 – 3,000 – 96) (2,829,000)
Increase in trade payables (1,500 – 840 – 204) 456,000
Cash generated from operations 1,116,000

WORKINGS
(1) ACCUMULATED DEPRECIATION – MACHINERY

£ £
b/f (Machinery) 3,300,000
Disposal 300,000
Depreciation charge () 600,000
c/f (Machinery) 3,600,000
3,900,000 3,900,000

Total depreciation: £
Freehold buildings (6,600 – 6,225) 375,000
Machinery 600,000
975,000
(2) INTEREST PAYABLE

£ £
Cash paid () 420,000 b/f 90,000
c/f 120,000 CSPL 450,000
540,000 540,000

(3) TAXATION

£ £
Cash paid () 750,000 b/f 690,000
c/f 1,476,000 CSPL 1,485,000
On acquisition 51,000
2,226,000 2,226,000
(4) Purchase of subsidiary
£
Cash received on acquisition 336,000
Less cash consideration (42,000)
Net cash inflow 294,000

88 Corporate Reporting – IFRS Supplement ICAEW 2020

 (5) MACHINERY – COST

£ £
b/f 4,200,000 Disposal 1,500,000
On acquisition 495,000
Leased 2,550,000
Additions () 3,255,000 c/f 9,000,000
10,500,000 10,500,000

(6) INVESTMENTS IN ASSOCIATES

£ £
b/f 3,000,000
Share of profit (CSPL) 1,050,000 Dividends received () 750,000
c/f 3,300,000
4,050,000 4,050,000

(7) SHARE CAPITAL AND PREMIUM

£ £
b/f (6,000 + 6,285) 12,285,000
Non-cash consideration
(660 + 165) 825,000
c/f (11,820 + 8,649) 20,469,000 Proceeds from issue () 7,359,000
20,469,000 20,469,000

(8) LOAN NOTES

£ £
b/f 1,500,000
Proceeds from issue () 2,880,000
c/f 4,380,000
4,380,000 4,380,000

(9) NON-CONTROLLING INTEREST

£ £
b/f –
Dividends to NCI () 144,000 Share of profits (CSPL) 300,000
c/f 345,000 On acquisition 189,000
489,000 489,000

(10) OBLIGATIONS UNDER LEASES

£ £
b/f Current 600,000
Long-term 510,000

Capital repayment () 810,000 New lease commitment 2,550,000

c/f Current 720,000
Long-term 2,130,000
3,660,000 3,660,000

ICAEW 2020 IFRS Answer Bank 89

90 Corporate Reporting – IFRS Supplement ICAEW 2020