Associates! (DFS)

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GemmaLouise
GemmaLouise Registered Posts: 56 Regular contributor ⭐
Anyone have any idea the likelyhood of being asked to do a consolidated SFP / Income statement for an associate and how it would be tested?!

Noticed it hasnt been tested for years!!

Thanks!

Gemma

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  • jilt
    jilt Registered Posts: 2,903 Beyond epic contributor 🧙‍♂️
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    Anyone have any idea the likelyhood of being asked to do a consolidated SFP / Income statement for an associate and how it would be tested?!

    Noticed it hasnt been tested for years!!

    Thanks!

    Gemma

    Well my initilal thought was if associates featured on the paper then it would probably not be a practical question but are you saying they have asked for one in the past?

    Oh lord, stress level up a notch! :lol:
  • Steve Collings
    Steve Collings Registered Posts: 997 Epic contributor 🐘
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    Only the examiner knows the likelihood for the December 09 sitting!

    You could be asked to calculate the amount at which an interest in an associate is included in the consolidated financial statements. You could also be asked for a definition of the equity method of accounting under IAS 28 and a definition of what the equity method is.

    You simply account for the investment at cost, so:

    DR non current asset investment
    CR cash

    If the value of the investment rises (i.e. if the share price increases) then so does the investment so:

    DR non current asset investment
    CR income from associate

    If the value of the investment falls (i.e. if the share price decreases) then so does the investment so:

    CR non current asset investment
    DR loss on investment

    If the associate pays the investor a dividend then this means their assets have decreased because they have paid out money, therefore your investment decreases so:

    DR cash
    CR non current asset investment

    Therefore you account for the investment initially at cost. The carrying value of the investment is adjusted for the investor's share of profits or losses or dividends received.

    You have an associate when you hold more than 20% but less than 51% of the shareholding. Anything less is a simple investment. Anything more is a subsidiary.

    Regards
    Steve
  • safrica
    safrica Registered Posts: 106 Dedicated contributor 🦉
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    jilt wrote: »
    Well my initilal thought was if associates featured on the paper then it would probably not be a practical question but are you saying they have asked for one in the past?

    Oh lord, stress level up a notch! :lol:

    Yes, it has been tested in one of the 2005 papers, can't remember which one..but not since ! I just remember it was asked to calculate at which cost the investment in the associate would be shown in the statement of financial position...
    It is part of the syllabus though.....chapter 9 or 10 of the Kaplan book.
  • GemmaLouise
    GemmaLouise Registered Posts: 56 Regular contributor ⭐
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    Thanks Steve - much appreciated!

    Also two more quick questions:

    In chapter 16 of the kaplan book there are further standards that college didnt specifically teach but told us to read. Examples of these are, IAS 18 Revenue, IFRS Non current assets held for sale and discontinued use - is sound knowledge of these required or just an awareness?!


    Also could you give a brief defintion of what the following formulas mean:-

    earnings per share

    price earnings ratio



    Any information on this would be very much appreciated!!

    Thankyou!
  • Steve Collings
    Steve Collings Registered Posts: 997 Epic contributor 🐘
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    With IAS 18 you will be expected to be able to define revenue and fair value. You should also be able to understand when revenue is recognised on:

    1. The sale of goods.
    2. Rendering of services.
    3. Dividends.

    IFRS 5 is the non current assets held for sale standard and you should appreciate that such an asset is deemed as such if its carrying amount will be recovered through a sale transaction as opposed to continued use. You should also understand how to account for such an asset (i.e. LOWER of carrying amount or fair value less costs to sell). You need to understand that such an asset is shown separately than other assets in the SoFP. You also need to know to show post tax profit or loss separately for discontinued operations.

    Earnings per share is basically a measure of how much profit the entity is making for its shareholders.

    Price earnings ratio is basically a measure of confidence that investors have in the future of a company so the higher the ratio the more confidence investors have in the future, whereas a low ratio such as 1 would indicate very little confidence.

    Hope that helps.

    Regards
    Steve
  • dobbieobby
    dobbieobby Registered Posts: 231 Dedicated contributor 🦉
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    Oh God, now I'm worried...
  • ema192
    ema192 Registered Posts: 107 Dedicated contributor 🦉
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    Steve do you have any idea of the most popular recently examined IAS's and ratios please??
  • Steve Collings
    Steve Collings Registered Posts: 997 Epic contributor 🐘
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    Gross profit margins, net profit margins and gearing ratios tend to come up a lot. In terms of IAS's you know you're going to get a consolidated set of accounts to do (IAS 27) you know you're going to get a statement of cash flows (IAS 7) and you know you're going to be asked to do a goodwill calculation somewhere along the way (IFRS 3).

    Other accounting standards could be asked in their entirety (1, maybe 2). The examiner could also ask about the Framework Document e.g. define assets/liabilities/income/expenses/equity or the qualitative characteristics of financial statements (understandability, comparability, relevance and reliability). He has been known to ask ethical questions (June 2008 saw a confidentiality question being asked).

    I can't give you "hot topics" to study because you need to make sure you've covered the whole syllabus but those are some of the things above that seem to come up quite a lot. Though I must advise students not to be complacent where DFS is concerned - especially after the June 2009 horrors!

    Regards
    Steve
  • GemmaLouise
    GemmaLouise Registered Posts: 56 Regular contributor ⭐
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    What were the June 09 horrors? Are you refering to the IAS questions?
  • messedup89
    messedup89 Registered Posts: 1,281 Beyond epic contributor 🧙‍♂️
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    a mass failure of section 2!
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