dfs exam weds

What does IMO stand for?

Tips

My tips for your DFS exam on Wednesday are:

• Have a basic understanding of all examinable IAS's. A list of examinable IAS are in the resources on the students page.
• Remember only consolidate a subsidiary - don't consolidate an associate. Associates are accounted for under IAS 28 using the equity method of accounting.
• Show all your workings - even if you make a total mess of the answer. You can only be penalised once for a c/f mistake.
• If you are asked for a report (a section B question) write a report - not a letter/memo. You will get credit for complying with this.
• With ratio analysis, get a basic knowledge of the purpose of each ratio. You will be asked (a) to calculate and (b) to write about it.
• With a cash flow remember when to add/deduct increases/decreases in working capital. Remember if it worsens the cash flow deduct - if it increases the cash flow add. For example increases in trade receivables means less cash has been received, thus an 'outflow' so you deduct the increase.
• Try to remain calm.

Remember it is important to show your workings - if you don't then the marker won't know how you've arrived at an answer. Even if the resulting answer is wrong, you can still pick up marks by showing your approach.

Good luck.

Steve

Yes I think so Lor, with the difference being that you add the goodwill to the % of he associates net assets that you have a share in, and total it under investments, rather than show it as a separate goodwill item.


Does anyone know if we're likely to intragroup trading with items remaining un sold at the year end?

I guess no-one really knows jimbob but we've been told to prepare for it.

There's no saying it will be in there, but it's not all that different from a subsidiary, if you have the book you could probably grasp it quite quickly.

so you dont do the goodwill etc?? i wonder if we will have a subsidiary and an associate, where then you just calculate the Minority interest part and thats it

SUBSIDIARY

A subsidiary is an entity that is controlled by another entity (IAS 27)

Control is defined as being when the parent(an entity with one or more subsidiaries) has:
-Majority voting shares (more than 51%)
-Right to exercise influence over subsidiary (usually by having an agreement with other investors)
-Controls voting rights
-Parent manages subsidiary
-Parent has ability to appoint and remove directors (usually by having an agreement with other investors)

When consolidating accounts with a subsidiary we need to calculate the;
-goodwill
-consolidated reserves (group retained earnings)
-minority interests.

Then you do a line by line consolidation, adding the subsidiaries figures to the parents to get one total for receivables, PPE, payables, revenue, distribution costs, etc.
Also, you must eliminate all intra-group transactions (in accordance with the single entity concept), e.g, intra-group sales. Also, any unrealised profits must be deducted from any transferred goods which have yet to be sold.

ASSOCIATE

An associate is an entity over which the investor has significant influence. (IAS 28)

The standard makes a presumption that significant influence exists once the investor has at least 20% of the voting rights. Other circumstances where significant influence arises include when the investor is the sole supplier to the entity.

If investor has significant influence, it must use the equity method of accounting in the consolidated accounts:
-In the Profit & Loss account, the investor will put a separate line for it's share of the associate's profits
-In the balance sheet, there will be one line entered, showing the value of investment in the entity. This can be calculated in one of two ways:

• parent's share of net assets plus unamortised goodwill
• cost of investment plus any post-acquisition profits

Also, note that the share of post-acquisition profits, less any goodwill impairment will be added to the parent's reserves.

As for past exam questions, the June 2005 DFS paper has a question with a subsidiary and an associate. You have to calculate the goodwill in the subsidiary and the value of investment in the associate only. However, I have gone as far as doing the consolidated balance sheet, so attempt that, and I'll post my answers later today if anyone wants.