F2

Question 1

methods of issuing shares (3)

Answer 1

IPO
a placing
A rights issue

Question 2

When can the WACC be used as a discount rate for NPV calculations?

Answer 2

`- capital structure is constant
no diff business risk with new investnment
new investment is marginal to the company

Question 3

what is a financial asset

Answer 3

• contractual right to receive cash or another financial asset
• contractual right to exchange financial instruments with another entity under conditions that are potentially favourable

if you acquire = equity financial asset

eg investments in shares of another company

Question 4

what is a financial liability

Answer 4

contractual obligation to:

• deliver cash or another financial asset to another entity
• to exchange financial instruments with another entity under conditions that are potentially unfavourable

eg trade payables, loans from banks

Question 5

what is an equity instrument

Answer 5

any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities
eg issue of ordinary shares

Question 6

initial measurement of a financial liability

Answer 6

@ FV for intital measurement (minus attributable costs of FL)

Question 7

subsequent measurement of a financial liability

Answer 7

@ amortised costs

Question 8

types of derivatives

Answer 8

foward - oblig to buy or sell a defined amount of specific underlying asset, at a specified price at a specified future date

future contracts - oblig to buy or sell a standard quantity of a specific underlying item at a specified future date

options - the right but not the obligation to buy or sell a specific underlyng asset at a specified price on or before a specified future date

Question 9

EPS ratio

Answer 9

earnings / no of shares

earnings = groups profit after tax less profit of NCI and irredeemable pref share dividend

Question 10

bonus vs rights issue shares

Answer 10

bonus - no additional income but more shares.

rights additional income to business and more shares issued

Question 11

impact of a rights issue

Answer 11

two parts.

1. new shares issued at a discount, but are treated as being issued at full market price. get the weighted average number of shares depending on when the issue was
2. deal with the free element (discount). effectively we are diluting the shares in issue by giving those shares away for free. we deal with this by restating last years comparative EPS.

a rights issue with for sure reduce the EPS.

Question 12

how to know if a lease is a finance lease

Answer 12

• if there is an option to buy at the end of the lease. below FV
• if ownership passes at the end of the lease term
• if the term of the lease represents the majority part of the assets economic life
• PV of the min lease payments represents substantiallu all the assests FV
• lessee bears losses arising from cancelling the lease
• assets are speciailized nature

Question 13

who records the ‘rights to use’ of a lease

Answer 13

the lessee, not the lessor

Question 14

how to accoutn for a finance lease

Answer 14

1. derecognise asset and record a receivable
   2, record finance lease receipts as a reduction in the receiveable
2. record int income on the receivable

Question 15

IFRS Leases - requirement for accounting

Answer 15

that a lease be accounted for on the basis of their economic substance rather than their legal form. a lessee will not own the asset , but will control it for the duration of the lease
IFRS 16 requires that the PV of the future lease payments be calculated at the start f the lease and for the PV to be capitalised s an asset and a liability. the asset will appear under PPE and the liability will be split betwen current and non current liabilities depening on whethers its due in the next 12 months

Question 16

revenue from customers - the 5 steps (COPAR)

Answer 16

1. ID the contrract
2. id the separte obligations
3. determine the transaction price
   
   • Variable consideration (bonus pd on delivery)
     - significant financial components
     - non cash consuderations (sahres)
     - consideration payment to a customer (rebates)
4. allocate the transaction price to performance obligations
5. recognise revenue on each performance oblig is satiisfied (at a point in time, over time)
   - consignment inventory (legally owned by one party, held by another, can sell and return etc)

Question 17

IAS 37 provisions etc - reason for this rule?

Answer 17

companies would use this to deflate revenue in good uyears and increase in bad years previously

provisions were often recognised as as result of an intent to make an expenditure , rather than an obligation to.

Question 18

IAS 37 - contingent liability - recognised when?

Answer 18

• an entity has a present obligation , as a result of a past event, an outflow of resources is probably needed to settle the oblig (50%) and a reliable estimate of amount can be made.

Question 19

IAS 37 - provisions etc - what is a contructive obligation

Answer 19

established pattern of past practice (retail returns)

policy, not legal but their own.

Question 20

IAS 37 - what cant you provision for ?

Answer 20

future operating losses - doesnt meet the liability as it a future things not based on a past event

Question 21

IAS 37 - when to put in a contingent liability

Answer 21

• less certain than an obligation
• not probable outflow
• diffciult to estimate reliabilty

account for this: not recognised / discloed in a note

Question 22

IAS 37 - recognition / disclosure etc - when?

Answer 22

a/c treament / liab / asset

certain / regcog / recogn
probable / provsion / discloure note
possible / disclosure / no disclosure
remote / no disclosure / no disclosure

Question 23

contingent liability definition

Answer 23

a possible obligation that arises from past events and whose existence will be confirmed only by the occurance or non occurence of one or more uncertain future events not wholly within control of the entity

Question 24

intangible assests that cannot be capitalised (internally generated)

Answer 24

goodwill 
brands
published titles
newpapers masts
customer lists
intellectual property

Question 25

purchased intangible assets

Answer 25

should be recognised at cost plus any attributable csots of preparing the assets for its intended use

Question 26

subsequent treatment of an intangible asset

Answer 26

``` cost model (cost less amort & any impairement - finite life) or should not be amort if infinite life - only impaired annually or revalution model (only if there is an active market) ``` amortization should start from the date the asset is available for use- not just when the company starts using it.

Question 27

IAS 38 - R&D - what to do and when

Answer 27

research - to expenses when incured ``` when is it dev? when the criteria is met - SECTOR - Sell/use -intend to complete - reliable measurement of cost - commerically/technically feasibe - adequate resources - probable future benefits ``` is criteria met then capitalise, if not continue to put to expenses.

Question 28

IAS 21

Answer 28

Effects of change on foreign exchange rates

Question 29

functional currency

Answer 29

of the primary economic environment in which the entity operates - mainly influences sales price - country that mainly influences labour, material & other costs of providing goods and services

Question 30

presentation currency

Answer 30

in which the entity presents its financial statements

Question 31

ias 21 forex - initial recognition

Answer 31

recorded by applying a spot rate (rate on the date of the transaction)

Question 32

ias 21 forex - subsequent treatment

Answer 32

depends if monetary or non monetary. monetary - @spot rate non monetary - @leave at historic rate

Question 33

integrated reporting - main purpose

Answer 33

to explain to the providers of finance how an entity creates value over time

Question 34

integrated thinking

Answer 34

the active consideration by an organisation of the relationships between its various operating and functional units and the capitals that the organisation uses or affects.

Question 35

objectives of an integrated report

Answer 35

- to improve the quality of info available to providers of financial capital to enable a more efficient and prodcutie allocatino of capital - to provide a more choesive and efficient approach to corporate reporting that draws on different reporting strands and commicates the full range of actors that materially affect the ability of an organisation to create value over time - to support integrated thinking decision making and actions that focus on the creation of value over the short medium and long term - to enhance accountability and stewardship for the broad base of capitals (financial, manufactured intellectual, human social and relationship and natural) and promote udnerstandin of their interdependencies

Question 36

integrated reporting - the capitals

Answer 36

``` financial - debt,equity etc manufactured - buildings, equip intellectual - patents, copyright, human - training, people, experience social & relationship - bewteeen communities, brand, reputation natural - water, land, air, minerals ```

Question 37

pros and cons - integrated reporting

Answer 37

more informed user increase user understanding via more discloures improved stakeholder reputation via more transparency can lead to imrpvoed efficiences cons bias, as not audited reluctance to disclose, fear of losing competitive advantage might be too much info for one user to digest

Question 38

liquidity ratios

Answer 38

- current ratio - quick/acid test ratio - inventory days - receivable days - payable days

Question 39

accounting policies that can affect ratios

Answer 39

revaluation vs cost model for valuation of assets - FIFO vs AVCO inventory valudation fiancnial assets - gains/losses can go to PnL or OCI one off non recurring iteims (acq/disposal of sub)

Question 40

limitations of financial reporting

Answer 40

``` historic data non financials ignored filed 3 months after date (non relevant) detail lacking a/c policies / standards per jurisidcation ```

Question 41

investor ratios

Answer 41

dividend cover interest cover price earning ratio

Question 42

solvency / gearing ratios

Answer 42

gearing (debt / equity)

Question 43

over trading

Answer 43

entity growing too fast without adequate long or short term fiannce. may enf up unable to pay suppliers as debt falls due.

Question 44

ROCE

Answer 44

operting profit / capital employed cap employed = equity and NIC and int bearing borrowings - non CA

Question 45

related parties - def

Answer 45

if control, joint control, common control or significant infuclent exists between the party and reporting entity including: key mgmt personnel close family members of key mgt personnel (kids, spouse

Question 46

related parties - not when:

Answer 46

``` providers of finance (banks) key customers or suppliers two joint ventures same director in common gove dept / trade untion or public utilities ```

Question 47

influence

Answer 47

power to participate

Question 48

control

Answer 48

power to direct

Question 49

Forex- IAS?

Answer 49

21

Question 50

IAS 21 Forex - translating P&Lusing which rate

Answer 50

avg rate

Question 51

IAS 21 Forex - translating SFP using which rate

Answer 51

assets and liab - closing rate (at reporting date) | goodwill - closing rate

Question 52

attribution of exchange diff (IAS 21 Forex)

Answer 52

on goodwill - all to parent if NCI is measured using % of NA or between parent & NCI is FV method on net assets - split between parent and NCI depending on their holding %

Question 53

definition of parent / sub relationship

Answer 53

50% holding of voting rights

Question 54

Acquisition accounting for a parent / sub

Answer 54

- assets, liab, inc & expe added - goodwill recognised - share capital if the parents only - intra group balances are eliminated - uniform a/c policies are used NIC are presented in equity

Question 55

types of consideration of buying a sub

Answer 55

cash share issue deffered consideration contingent consideration

Question 56

goodwill calculation (sub)

Answer 56

``` FV of Ps invest in S Value of NCI (FV or % of NA) @ acq less: sub'a NAs @acq = Goodwill - Impairment = Goodwill @reporting date ```

Question 57

NCI calculation (sub)

Answer 57

Value of NCI @ acq + NCI% of post acq reservces - NCI% of impairment (FV only)

Question 58

consolidated reserves calculation (sub)

Answer 58

parents reserves PUP adj (if parent is seller) whoever has the profit - impairment - P% of post acq reserves

Question 59

investment in associate

Answer 59

the power to participate in the fianncial and operating policy decisions of the investee but not he control or joint control over policy ``` >20% and/or -represented on the board - partcipates in policy making material transactions between them interchange of managerial staff ```

Question 60

accounting for investment in associate?

Answer 60

equity method one liner within non current assets called investment in assocate.

Question 61

joint arrangement

Answer 61

an arrangement of which two or more parties have control

Question 62

joint venture

Answer 62

whereby the parties that have joint control of the arragement have rights to the net assets of the arragement accounted for - equity method

Question 63

joint operation

Answer 63

whereby parties that have joint control if the arrangement have rights to the net assets and obligations to the liabilities not a separate entity

Question 64

diff between joint venture and subsidiary

Answer 64

A single business may establish a subsidiary company that it fully or partially controls, whereas a joint venture is formed by an agreement between two or more entities for a specific business purpose. Neither company owns a joint venture wholly

Question 65

classifications of cash flow x 3

Answer 65

cash flow from op act - entities principal revenue earning activities (direct & indirect) cash flow from invest act - acq and disposal of long term assets cash flow from financing act - that change the size and composition of the entities equity and borrowings