FA2 final pre

Chapter 3 Qualitative Characteristics

Conceptual Framework
Business entity content: Entities or Properties of the Business are legally separate
from the Owners. (If economic applies to all companies.)
● only apply to private limited companies.

Accruals Concept: Transactions is recognised when it is occurred, NOT when the cash
is paid or received.

Going Concern Concept: The assumption that the business will continue to exist into
the foreseeable future, at least 12 months. If not, the business will close or shutdown
that is known as the Break-up basis.
● Auditors also need to foresee the going concern concept as part of their job to be
more certain.

Consistency Concept: Similar items should be given similar treatment.

● Example: pel kot depreciation
Fair Presentation: Financial statements are required to present fairly in all material
(តម្លៃមួយនៃះពិតជាសំខាន់) respects the financial results and position of the business.
Compliance with IFRS achieves fair presentation.
● In another meaning, ka present bos yg ng vea fair, for example: present
dividend, non-current asset.

Materiality concept: when its omissions or misstatements; affect the user’s decision
making.
(កត់ខុសអាចប៉ះពាល់ការសមៃៃចចិត្ត)
Qualitative characteristics
Fundamental QC
1. Relevance
2. Faithful Representation
Enhancing QC
1. Comparability
2. Understandability
3. Timeliness
4. Verifiability

Relevance: The ability to influence the economic decisions of users and is provided in
time to influence those decisions.

Faithful Representation: Complete, Neutral and Free from error.

Comparability: Financial Statements can be compared from one period to the next and
with different entities.

Understandability: Users are able to appreciate its significance.

Timeliness: Should be provided quickly enough to be of use in decision-making, and

should not delay in reporting it.

Verifiability: Information can be verified or proven.

Chapter 4 Sources, Records, Books of Prime Entry and Petty Cash

Imprest System
Cash in Petty Cash Box + Petty Cash Vouchers + IOUs - Cash Received = Imprest
Amount
CiPCB = Cash remaining in the box
PCV = Expenditure by petty cash
CR = Stationery sold
Imprest / Float Amount = Amount put into petty cash

Chapter 5 Posting and Balancing

 Chapter 6 Inventory

Inventory
1. Held for Resale
2. In the Process of production for sale
3. To be consumed in the production process or giving a service
Initial Inventory Cost
COST
1. All costs of Purchase,
2. Costs of Conversion and
3. Other costs to bring the inventories to the Present Location and Condition.
NOT COST
1. Abnormal waste (wasted time and materials),
2. Storage costs (except for maturing inventory),
3. Selling costs, 4. Unrelated administrative costs
● If closing inventory is understated, COS will be overstated
● Next year Op inventory will understate, COS will be understated
 Chapter 7 Property, Plant and Equipment

Types of Expenditure
1. Revenue Expenditure (OPEX): is the expenditure incurred for the purpose of
the trade of the business or to maintain the existing earning capacity of
non-current assets.
2. Capital or Asset Expenditure (CAPEX): is the expenditure in the acquisition
of non-current assets or an improvement in their earning capacity.
- General Expenditure
● Selling expense
● Administration expense
- Maintenance the NCA
● Repairing the NCA
- Buying the NCA
● PPE - Machinery
- Improving the NCA
 ● Upgrade the machine
CAPEX - included in PPE cost
Revenue expenditure - Excluded from PPE cost
Cost of NON-Current Assets
1. Purchase price, less discounts → Trade discount
2. Costs to bring asset to location of use
3. Import duties → not refundable
4. Installation and construction costs → cost for renting the service
5. Estimated cost of required removal or restoration → ex: rent the car
6. Borrowing costs (for assets that are constructed) → (interest cost
7. Renovations that improve performance beyond original performance. —> (get
the service to upgrade the machine)
NOT Costs:
● General overheads
● Training costs —-> Revenue Expenditure (OPEX)
● Regular service or maintenance

- Depreciation & Residual : is an estimated amount

- Useful life: teag benefit ban marn year
- NBV = tomlai merl tv NCA sol marn
Find the new depreciate
Measurement after Recognition
For each class, reporting entities have the choice of:
1. THE COST MODEL
PPE valued at cost less accumulated depreciation and impairment.
2. THE REVALUATION MODEL
PPE carried at a revalued amount being its fair value at the date of revaluation less
subsequent depreciation.

Loss: Expense
Surple= gain
In business accounting, other comprehensive income (OCI) includes revenues,
expenses, gains, and losses that have yet to be realized and are excluded from net
income on an income statement. OCI represents the balance between net income and
comprehensive income.
Excess Depreciation:
Asset Register
An asset register is used to record all non-current assets. It is separate from the
nominal ledger and contains more details about assets such as:
1. Internal reference number → lek dak oy rmb
2. Manufacturer’s serial number → jenh pi factory mean ey somkol
3. Description of the asset → color of the asset(for ex:car)
4. Location of the asset
5. Department that “owns” the asset
6. Purchase date
7. Cost
8. Depreciation
9. Carrying amount
 Chapter 8 Intangible Non-Current Asset

Intangible Assets
→ An Intangible Asset is an identifiable non-monetary asset without physical
substance.
→ COST Model
Intangible Assets are valued at cost less accumulated amortisation.
→ Residual Value is assumed to be Zero.

Amortisation
- An intangible asset with definite life must be amortised over its useful life. - An
intangible asset with an indefinite useful life is not amortised but is reviewed each year
for impairment.

Development Cost
Asset
A self-made intangible asset is recognised when:
- Probable future economic benefit
- Intention to complete the asset
- Resources are available to complete the asset
- Ability to use the asset - Technical feasibility
- Expenditure related to the assets can be measured

Research Cost
- Research costs are all costs related to research or a self-made intangible asset
before meeting the criteria for a self-made intangible asset.
- Research costs are an Expense.

Disclosures for Intangible Assets

1. Method of amortisation used
2. Useful life of the assets or amortisation rate used
3. Gross carrying value, accumulated amortisation and accumulated impairment losses
at beginning and end of period
4. Movements during the period
5. Carrying amount of internally-generated intangible assets

Chapter 9 Accruals and Prepayments

Accruals
Accruals or Accrued Expenses are expenses that have been incurred during the
accounting period, but the invoice has NOT been received or NOT yet paid.
Example: Payment in Arrear It would be affected on
1. Increase in Expense
2. Decrease in Profit
3. Increase in Liability
Accruals are recognized as a Liability.
Prepayment =Payment in advance
Prepayments or Prepaid Expenses are expenses that have been paid during the
current accounting period, but will NOT be incurred until the next accounting period.
Example: Payment in Advance It would be affected on
1. Decrease in Expense
2. Increase in Profit
3. Increase in Asset
Prepayments are recognized as an Asset.

Prepayment brought forward = opening prepayment

Cash paid = Expense paid
Accrual carried forward = Closing accrual
Accrued Income
Accrued Income (receivables) is income earned from a customer but not yet received
(the customer has not paid yet).
Double Entry
Dr. Accrued Income
Cr. Income
Accrued Income recognized as an Asset.
Unearned Income
Unearned Income is income for which a customer has paid in advance, but the
business has not provided the goods or service yet.
Double Entry
Dr. Cash
Cr. Unearned Income
Unearned Income recognized as a Liability.
 Chapter 10 Provisions and Contingencies

Provision
A Provision is a liability of uncertain timing or amount, based on the ‘Best Estimation’.
For Example: Lawyer.
Provision are recognised when:
1. An entity has a present obligation.
2. It is probable an outflow of resources is required.
3. A reliable estimate can be made.
Provision recognized as a Liability.

Contingent Liability
A contingent liability is a possible obligation.
Contingent liabilities are not recognised because:
1. It is not probable that settlement of the obligation will be required, or
2. The amount cannot be measured reliably.
Contingent liability should be Disclose in the note.
Contingent Asset
A possible asset depending on the result of a future event.
- Recognize when virtually certain.
- Disclose when probable.

Probability of occurrence Inflow Outflow

Virtually (>95%) Receivable Payable
Probable (51% - 95%) Disclose a contingent asset Provision
Possible (5% - 50%) Ignore Disclose a contingent liability
Remote(less than 5%) Ignore Ignore

Chapter 11 Irrecoverable Debts and Allowances

Copy of FA2-BC2 Irrecoverable debts and allowance for receivables
Revenue Recognition
What would be the accounting entry for each day?
1.) 25 June 20X9
Cambridge received an order from a new customer, Exxon, for products with a
sales value of $900,000. Exxon enclosed a deposit with the order of $90,000.
Dr Cash $90,000
Cr Deposit liability $90,000
IFRS 15, Revenue from contracts with customers

Step 5:
1. Revenue is recognised when goods are delivered not when it is
purchased.
2. When service is performed
No revenue = No receivable
 Chapter 12 Sale Tax
Sales Tax
- Sales tax can be a fixed percent of the sales price of goods. This entire amount
is remitted to the government.
There are 2 types of Value Added Tax (VAT):
1. Output VAT: Tax charges on Customers (When Sell goods).
2. Input VAT: Tax charges on Sellers (When Purchase goods). (Claimable) →
VAT Payable to Government = Output VAT - Input VAT

VAT on sales (Output VAT)

Chapter 13 Control Accounts

Control Accounts
Most businesses have control accounts for trade receivables and payables.
● A control account is a total account.
● Its balance is the total of many individual assets or liabilities.
● The individual assets/liabilities are separately detailed in subsidiary accounting
records.

Benefits of Control Accounts

● Check on accuracy
● Help find errors
● Easier to calculate the balance.
Note
● Most modern accounting systems integrate the ledger accounts and the general
ledger accounts (control accounts) so when an individual ledger account is changed,
the general ledger account (control account) is also automatically changed.
Return outward = return eyvan oy ke
Discount
2 types of Discounts
1. Trade Discount: Discount at the point of sale
2. Settlement or Cash Discount: Discount after trade discount or invoice is paid early.
It appears in both side Buyers and Sellers.
a. Discount Received (Buyer perspective) (Deduction from COGS) or Purchase
b. Discount Allowed (Seller perspective) (Reduction in Revenue)

Chapter 14 Bank Reconciliation

1. You receive a bank statement
2. You compare the balance per bank statement with the balance in bank ledger
account
3. If they are not in agreement, we need to reconcile the balances. Specifically, you
prepare a bank reconciliation statement and you correct the bank ledger account.
4. The usual reasons for the differences between the bank statement balance and
the bank ledger account balance are as follows:
- Timing differences
1. Unpresented/Outstanding cheques - Cheques given to supplier but not yet
presented for payment or not yet deposited or still in process of clearing.
Treatment: Subtract from the bank statement balance
 2. Outstanding lodgement or deposit in transit - Cheques deposited but not
yet cleared in the bank
Treatment: Add to bank statement balance
- Bank errors
1. Erroneous bank credit - Subtract from the bank statement balance
2. Erroneous bank debit - Add to the bank statement balance
- Unrecorded items or Omissions
1. Dishonoured cheque - A cheque from customer, but rejected by the bank (
no enough balance will make the bank reject the balance)
Adjusting entry: Dr A/R Cr Cash at bank
2. Bank charges - Bank or service charges that are already debited in the
bank but not yet recorded in the business accounting system
Adjusting entry: Dr Bank charges Cr Cash at bank
3. Direct de debits - Bank to bank payments not yet recorded by the
business
Adjusting entry: Dr A/P Cr Cash at bank
4. Standing order - Fixed scheduled payments not yet recorded by the
business
Adjusting entry: Dr A/P Cr Cash at bank
5. Direct credits - Bank to bank payments from customers not yet recorded
by the business
Adjusting entry: Dr Cash at bank Cr A/R
6. Interest credited or Interest earned - interest credited by the bank but not
yet recorded by the business
Adjusting entry: Dr Cash at bank Cr Interest income
7. Interest debited or Interest charged - Interest debited by the bank but not
yet recorded by the business
Adjusting entry: Dr Interest expense Cr Cash at bank
8. Dividend received - Dividend credited by the bank but not yet recorded by
the business
Adjusting entry: Dr Cash at bank Cr Investment income
 - Book errors - errors affecting the bank ledger account in the accounting system
1. The error resulted to an overstated bank ledger account balance - Dr
Relevant ledger account Cr Cash at bank
2. The error resulted to an understated bank ledger account balance - Dr
Cash at bank Cr Relevant ladder account
Bank Reconciliation
A Bank reconciliation is a comparison of a bank statement with the bank account
in the general ledger.
In Simple, Bank reconciliation is the process of reconciling the difference
between Cash book balance and Bank statement.
- Cash Book balance is the business’ record of their bank account.
- Bank Statement balance is the bank’s record of the bank account.
Cash Book balance = Bank Statement balance
Deposit not credit - bank error
Deposit credited after date (+)

Chapter 15 Correction of errors

Types of Errors
● Complete omission – a transaction is not recorded at all
● Errors of principle – an item is posted to the correct side of the wrong type of
account and consequently is in breach of an accounting principle (eg when cash
paid for machinery repairs (expense) is debited to the machinery cost account
(asset))
● Errors of commission – an item is entered to the correct side of the wrong
account but the class of accounts is still correct (eg when cash paid for heat and
light (expense) is debited to the telephone expense account (expense))
● Reversal of entries – the amount is correct, the accounts used are correct, but
the account that should have been debited is credited and vice versa.
● Error of original entry – an incorrect figure is entered in the accounting records
but is posted to the correct accounts.
 ● Errors of transposition – eg writing $381 as $318
Effect in SOPL
Overstated expenses, Understated net profit
Understated expenses, Overstated net profit
Effect in SOFP
Understated asset, Understated net asset
Overstated asset, Overstated net asset

Chapter 16 Incomplete record

The business has no records at all.

Profit = Closing Capital + Drawings - Opening Capital - Capital introduced
Capital = Assets - Liabilities
Closing capital = Opening capital + Profit + Capital introduced - Drawings

The business has incomplete records

Based on markup
Sales = COGS x (1 + mu)
COGS = Sales / (1 + mu)
Purchases = COGS + Closing inventory - Opening inventory
Closing inventory = Opening inventory + Purchases - COGS
Based on margin
Sales = COGS/(1 - m)
COGS = Sales x (1 - m)
Purchases = COGS + Closing inventory - Opening inventory
Closing inventory = Opening inventory + Purchases - COGS
Notes: Margin is based on sales (i.e., Sales = 100%)
Therefore, margin = GP/Sales
Inventory loss
COGS using standard formula (Op ivt + Purchases - Cl ivt)
Less COGS based on mark up or margin [Sales/(1+mu)] or Sales x (1-m)]
Inventory loss
Journal entry
Chapter 17 Preparation of Financial Statements for Companies
Copy of Copy of FA CBE Trial Balance Questions
Financial Statement or Annual Report
There are 5 components in Financial Statement:
1. Statement of Profit / Loss or Income Statement (Revenue and Expense)
2. Statement of Financial Position or Balance Sheet (Assets, Liabilities and
Capital/net asset)
3. Statement of Cash Flow (Cash in and Cash out)
4. Note to Financial Statement
5. Statement of Changes in Equity
Complete set of financial statements
Statement of Financial Position - shows Assets, Liabilities, and Equity as of a
particular date (usually as of year-end)
Statement of Profit or Loss and Other Comprehensive Income - shows Revenues
- Expense = Profit; and Other Comprehensive Income e.g. Revaluation gain
(OCI)
Statement of Financial Position (SOFP)
Assets
Noncurrent assets
Property, plant and equipment
Intangible assets
Long-term investments
Other noncurrent assets
Current assets
Inventory
Trade and other receivables
Short-term investment
Prepayments
Cash and cash equivalents
Equity
Share capital
Share premium
Retained earnings
Revaluation surplus
Liabilities
Noncurrent liablities
Bank loan
Mortgage payable
Finance lease
Long-term provisions
Loan notes
Bonds payable
Current liabilities
Trade and other payables
Tax payable
Dividend payable
Provisions
Accruals or Accrued expenses
Unearned revenue
Bank overdraft
Assets = Equity + Liabilities

Statement of Profit or Loss and Other Comprehensive Income

Revenues
Less Cost of sales
Gross profit
Less Operating expenses
Administrative expenses
Selling expenses
Distribution expenses
Other operating expenses
Operating profit
Less Finance costs
Profit before tax
Tax expense
Profit for the year
Other comprehensive income (OCI)
Revaluation gain
Total comprehensive income = Profit for the year + OCI

Chapter 18 Introduction to company accounting

Key learnings points
Equity section of a company’s SOPL
Share capital - (Ordinary share capital and irredeemable preference shares) total par
value or nominal value of shares issued to shareholders
Share premium - the excess of total proceeds from issuance of shares over the total
nominal value
Retained earnings (R/E) - accumulated net profit
Closing R/E = Opening R/E + Net Profit - Dividends
Nominal value or Par value is the legal value of the shares
A company cannot issue shares at below par or nominal value.
Total proceeds from issuance of shares = Total number of shares issued x Net price per
share
Total nominal value = Total number of shares issued x Nominal value per share
How to record issuance of shares?
Dr Bank @ total proceeds
Cr Share capital @ total par value
Cr Share premium @ proceeds less total par value
Right issue - existing shareholders have the right to buy shares at a certain exercise
price, which is usually below market price.
The number of rights = The number of shares
New shares = Number of right x 1/number of rights exercisable per new share
Accounting entry:
Dr Cash or Bank @ new shares x exercise price
Cr Share capital @ total par value
Cr Share premium @ total exercise price less par value
Effects on the financial statements:
- Increase in Asset
- Increase in Share capital and share premium
- Increase in Equity
- Increase in number of shares issued and outstanding
- No change in Liability
-
Bonus issue - Shares issued for free It is like a dividend payable in shares.
Number of bonus shares = Total shares issued and outstanding x bonus issue %
Accounting entry:
Dr Share premium @ total par value
Cr Share capital @ total par value
Or
Dr Retained earnings @ tidal par value
Cr Share capital @ total par value
Effects of a bonus issue on the financial statements:
- Decrease in share premium or Retained earnings
- Increase in Share capital
- Increase in number of shares issued and outstanding
- Overall: No change in Equity, No change in liability; No change in Asset
Share capital
 1. Ordinary shares - Have voting power
2. Preference shares - No voting power. Priority interim of dividend, and in the event
of liquidation and winding up
- Redeemable preference shares: A liability (Noncurrent liability)
- Irredeemable preference shares: An equity (Shareholders

Chapter 19 Events after the reporting period

Adjusting Events
Examples:
1. Discovery of fraud or errors
2. Information an asset was impaired at the end of the reporting period, for example:
● Sale of inventories below cost (SP < Cost)
● Bankruptcy of a customer (enter liquidation)
● Evidence of decline in asset value
3. The settlement of a court case - Provision
Non-Adjusting Events
Examples:
1. Announcement of a plan to discontinue an operation
2. Major purchases and disposals of assets
3. Destruction of assets by fire
4. Equity and share transactions after the end of the year
Events after the reporting period —>
Adjusting —> Prepare adjusting entry
Non adjusting —-> . Material —> disclose in notes to FS
. Immaterial —-> Ignore
Chapter 20 Statement of Cash Flows
FA-BC2 Activity 20
SOCF Guide
Cash and Cash Equivalent
Cash
Cash on hand and demand deposits.
Note: Overdrafts shall be treated as negative cash.
Cash equivalents
Short-term (less than 90 days), highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of
change of value.
Cash Flow Statement
Cash Flow Activities are divided into:
1. Operating Activities
Cash received and spent by selling goods and services through the normal activity of
the business.
2. Investing Activities
Cash used in:
1. Buying PPE and other investments
2. Any investment income.
3. Proceeds from selling PPE and other investments
3. Financing Activities Cash from/to:
1. Investors (shareholders)
2. Lenders (banks)
Operating Activities
Examples:
1. Cash receipt from cash sale
2. Cash receipt from credit customer
3. Cash payment to suppliers
4. Cash payment to employees
5. Cash payment to general expenses
Investing Activities Examples:
1. Cash payment to buy PPE
2. Cash receipt from disposal of PPE = Proceed
3. Cash payment to buy long term stocks
4. Cash receipt from selling long term stocks
5. Cash receipt from dividend payment on long term stocks
Financing Activities Examples:
1. Cash proceeds from issuing shares
2. Cash receipt from capital injection
3. Cash receipt from taking a loan
4. Cash payment on principal of a loan
5. Cash payment on interest (Can be put under operating, too) (In Cambodia, we
often put under operating activities)
6. Cash Payment on dividend to shareholders
Cash Flow Preparation
1. Direct Method
Cash received from customers X
Cash paid to suppliers (X)
Cash paid to employees (X)
Net cash flow X
2. Indirect Method
Profit before tax X
Non-Cash Expenses X
Non-Cash Income (X)
Net cash flow X
We show only the net operating cash flow by adjusting profit.
Operating Activities Adjustment
Start with net profit or loss then adjust the following:
- Add depreciation
- Less profit or add loss on non-current asset disposal
- Add interest expense
- Less interest paid
- Add tax expense
- Less tax paid
Profit before tax means tax is not deducted yet
Operating Activities Adjustment
Start with net profit or loss then adjust the following:
- Less increase / Add decrease in inventory = CA
- Less increase / Add decrease in receivable = CA
- Add increase / Less decrease in payable = CL
Investing Activities Adjustment
- Less purchase of PPE
- Add proceeds from PPE disposal
- Less purchase of long-term stock
- Add sell of long-term stock
Ban luy add/ os luy dork
Financing Activities Adjustment
- Add proceeds from issuance of share capital
- Add proceeds from long term borrowing
- Less dividend paid
- Less loan payment
Denote:
Profit, SOFP, CA, CL => Operating activities pf SOCF
NCA => Investing activity
NCL, Equity => Financing activity

Chapter 21 Introduction to Consolidated Financial Statements

Parent-Subsidiary relationship - There is a parent-subsidiary relationship when
one company (the parent) controls another company (the subsidiary).
The concept of Control
- Control exists when one company owns more than 50% of the shares in
another company, i.e. more than 50% of the voting power
- Exceptions: Even if a company owns less than 50% of the shares in
another company, there is control if any of the following exists
1. Power to govern the financial and operating policies of the investee
by virtue of an agreement with other shareholders
2. Power to appoint the majority of the board of directors in another
company
Control
Control is presumed to exist when the parent owns more than 50% of the
voting power (e.g. 50%+ of shares).
Also, a parent can have control when:
1. The parent has power by an agreement; or
2. The parent has power to appoint a majority of members of the board of
directors.
Associate
An entity in which an investor has significant influence.(power to
participate) No parent-subsidiary relationship
Significant influence
The power to participate in decision making. Significant influence is
assumed if the investor holds more than 20% of voting rights.
Accounting for Investment in Associates
Associates are accounted for using the equity method.
 Chapter 22 Consolidated Statement of Financial Position
FA-BC2 Practice Consolidated SOFP
Key Learning Points on Consolidation
Hornkongkea Sodana - FA Quiz No 5 (JD 2023)
Key learning points
Consolidation = P + S (S means Subsidiary, P means Parents)
Investment in S should be eliminated.
Consolidated Share capital and Share premium = P only
Consolidated Retained earnings = R/E of P + Share in post-acquisition profit
“Post-acquisition profit = R/E of S at year end - R/E of S at acquisition date
Consolidated Receivable = P + S - intra group receivables
Consolidated payable = P + S - intra group payable
Goodwill = consideration + NCI at acquisition date - FV of net asset of S
*Consideration = Investment in S at Cost
Noncontrolling interest (NCI) at acquisition date can be valued at:
1. FV at NCI
2. Proportionate in net asset of S
Consolidate NCA = P + S + V gain
NCI at year end = NCI at acquisition date + NCI’s share in post acquisition profit
Non-Controlling Interest
Non-controlling interest (NCI) is the entity in a subsidiary that is not
owned by parent.

Key Notes
1. Group PPE = P + S + FV Gain
2. Group Inventory = P + S - Unrealized Profit (Ot yk profit ler klun eng te)
3. Group Receivables = P + S - Intra group receivables
4. Group Payables = P + S - Intra group payables
5. Unrealized Profit
Calculation - Unrealized Profit
Profit on Intra-group trading x Percentage Remaining
If P sells to S:
Dr Group retained earning in full amount
Cr Inventory in full amount
If S sells to P:
Dr Group retained earning with (Unrealized Profit x Share% of P)
Dr NCI with (Unrealized Profit x Share% of NCI)
Cr Inventory in full amount
Basic Consolidation with NCI
1. Add together all the uncancelled assets and liabilities
2. Cancel investment in subsidiary with subsidiary equity
3. Calculate Goodwill = Consideration + NCI at acquisition date - FV of net assets of S
4. Calculate group retained earning base on ownership
5. Show NCI balance in Equity Section (portion that parent does not own)
Goodwill
Goodwill is an intangible asset that accounts for the excess purchase price of another
company. (value bos company kern marn)
Calculation - Goodwill
Fair value of consideration transferred (Price of Subsidiary)
Add
Fair value of NCI at acquisition date
Less
Ordinary share capital of subsidiary
Share premium of subsidiary
Retained earning at acquisition date of subsidiary
Fair value adjustment of subsidiary (Revaluation surplus)
Calculation - Group Retaining Earning
Parent Retained Earning at reporting date
Add
(S Retained earnings At Reporting Date - S Retained earnings At Acquisition(kert mun
pel parent tv tinh share)) x Parent’s Share of profit
Less
Unrealized profit (if any)
Calculation - Non-Controlling Interest (NCI)
Fair value of NCI at acquisition date
Add
(S Retained earnings At Reporting Date - S Retained earnings At Acquisition ) x NCI’s
Share of profit (base on share percentage)
Less
Unrealized profit (only happen when S sells to P)

Answer
 Chapter 23 Consolidated Statement of Profit or Loss
FA-BC2 Consolidated SOPL Practice
Intra-group trading: happens when parent and subsidiary sell goods to each other.
Unrealized profit: happens when the goods remained in inventory of the purchasing
party at year end.
Unrealized profit = Profit of intra-group trading x % of Remaining Inventory
 Chapter 24 Analysis and Interpretation of Financial Statements

Warren Buffet Investment

Only invest in a business that you understand. Invest in a business that has competitive
advantage by either:
1. Selling a unique product or service
2. Being the low cost provider

Warren Buffet Profitability Requirements

Must have growing profit over 10 years
Gross profit margin 40% +
Net profit margin of 20% +
Ignore dividends
Low depreciation (never use EBITDA)
(Total 10-year capital expenditure)/(Total 10-year profit) must be 50% or less

Profitability Ratios
Return on Equity (ROE) (Should be higher than the inflation rate)
ROE = Net Profit/Equity
Total shareholders or owner’s equity
Return on Capital Employed (ROCE)
ROCE = PBIT / (Equity + Long-Term Debt)
Loan and borrowing
ROCE = PBIT / (Assets - Current Liabilities)
Gross Profit Margin = Gross Profit/Sales (The higher, the better)
Net Profit Margin = Net Profit / Sales (Should be higher that COS)
Efficiency Ratios
Inventory Period = Average Inventory / (Cost of sales / 365)
Receivables period = Average Receivables / (Sales/365)
Payables period = Average Payables / (Cost of sales /365)
Payables period = Average Payables / (Purchases /365)
Cash Cycle = Days Receivable + Days Inventory - Days Payable
The shorter, the better. Ideal cash cycle is a negative cash cycle.
Liquidity and Solvency Ratios
Liquidity (The ability to pay short-term obligations)
Current ratio = Current Assets / Current Liabilities
Quick ratio = (Cur. Assets - Inventory) / Current Liabilities
—-> Quick asset
Ideal at least 2:1
Solvency (The ability to pay long-term obligations.)
Gearing = Debt / Equity or Gearing = Debt/(Debt + Equity)
—-> Long term debt ( loans and borrowing )
Interest cover = PBIT / Interest
—-> measure the ability to pay interest charges
—--> The higher, the better | should be > 1

Limitations of Financial Statement Analysis

1. Past information may not predict future performance.
2. Comparisons may not be appropriate
3. Ratios are affected by accounting policy
4. There is no standard definition of ratios
5. Inflation can increase profitability ratios