MCS F2 Group Accounts

CIMA MCS
Section C - Group Accounts
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Group Accounts
IFRS 10 IFRS3 and IAS 21
Helping you to use your knowledge & understanding
From the Blueprint for the exam:
This uses the F2 syllabus area C
Number Name Application/relevant articles Useful to be studied Examinable
in conjunction with: subjects
Applicable
IFRS 3Business
Combinations
accounting
For the acquirer of a targetstandards
entity, it
explains how to recognise and measure:
IAS 27, IAS 28, IFRS
10, IFRS 11
From F2
assets and liabilities of the acquiree;

any non-controlling interest in the
acquire; and
goodwill or a gain on a bargain
purchase.
Also explains the disclosure requirements
to enable users to determine the nature
and financial impact of the business
combination
IFRS 10 Consolidated For an entity that controls one or more IAS 27, IAS 28, IFRS From F2
financial other entities, sets out the principles for 3, IFRS 11
statements the presentation and preparation of the
consolidated financial statements.
And in a different area
IAS 21
Applicable accounting standards
Number Name Application/relevant articles Useful to be Examinable

studied in subjects
conjunction with:
IAS 21 The effects of Considers the accounting treatment From F2
changes in of transactions in a currency other
foreign than the entity’s home currency. This
exchange includes transactions for an individual
rates entity and how to translate a
subsidiary entity in preparation for
consolidation
This uses the F2 syllabus area A
Your chance to explain key terms:
Goodwill
Non-controlling interest (NCI)
Unrealised profit (PUP or PURP)
Fair value adjustment
Include an explanation of when

and where this is used.
Question Time
The exam tests your ability to apply your knowledge
in the context of HappyPlayz
As we know knowledge is essential but it is not

enough.
How has Group Accounts be tested before?
We can look at tasks from

previous exams.
Nov20/Feb21 Variant 6 Section 1
The tasks that were asked:-
The reference material:-
How should the candidates have approached the
sub-tasks?
We have the benefit of the mark
scheme.
This is not available during the exam.
It helps us understand what the question
is asking for.
Task (b) Secondly, advise the Board of the factors that would have
to be considered in determining the goodwill on the acquisition on
the four subsidiaries.
The examiner will reward an answer which:

Applies requirements of IFRS 3 to scenario and offers justification
with 6-8 marks (out of a maximum of 8)
to be considered in determining the goodwill
on the acquisition on the four subsidiaries.
This section was often badly answered due to weak knowledge of goodwill or answers that were just generic
with no reference to the scenario and had limited explanation.
A level 3 response would discuss the requirements of IFRS 3 to the scenario with some justification provided.
The answers were well structured starting with a definition of the goodwill calculation and then applying the
scenario to each part.
This would include discussing the fair value of the net assets in terms of the difficulty in assessing brand names
acquired or PPE and noting that, as they would acquire 100% of the subsidiaries, there would be no NCI which
made the answers relevant to the situation in the scenario.
A level 1 answer usually provided a brief outline of goodwill with a statement stating it was the difference
between the consideration and the net assets which showed limited technical knowledge and no link to the
scenario.
A level 3 response would discuss the requirements of IFRS 3 to the scenario with some justification
provided.
1. well structured
2. starting with a definition of the goodwill calculation and
3. then applying the scenario to each part.
4. include discussing the fair value of the net assets in terms of the difficulty in assessing brand
names acquired or PPE and
5. noting that, as they would acquire 100% of the subsidiaries, there would be no NCI which made the
answers relevant to the situation in the scenario.
Question Time
The task could be used for Frinta
The task could be used for Frinta
And the same criteria applied to marking

the answers.
A level 3 response would discuss the requirements of IFRS 3 to the scenario

with some justification provided.
1. well structured
2. starting with a definition of the goodwill calculation and
3. then applying the scenario to each part.
4. include discussing the fair value of the net assets in terms of the difficulty in
assessing brand names acquired or PPE and
5. noting that, as they would acquire 100% of the subsidiaries, there would be
no NCI which made the answers relevant to the situation in the scenario.
We are told:
We may evaluate the major competitor in the market.

Our company may want to consolidate or increase the
market share through acquisitions.
advise the Board of the factors that would have to be considered in
determining the goodwill on the acquisition on any subsidiaries.
Planning 36
Sub-task (a) 14 22
Definition of goodwill 2 20
Fair value at acquisition 1 19
Valuing the intangibles – brand names 2 17
Tangible assets (PPE) 2 15
Contingent liabilities disclosed in subsidiary’s accounts 2 13
Non-controlling interest 2 11
Sub-task (c) 11 0
Question Time
Today’s class also looks at IAS21
Today’s class also looks at IAS21
I had to go back to August 2017 for the last time this standard had been
tested.
But
1. It is in the syllabus
2. It is probably overdue for its turn!
3. Our company may consider an acquisition of an overseas company
You receive the following email:
From: Senior Financial Manager

To: Financial Manager
Subject: NinjaPack
FM
The board has decided to acquire a Gaming company (Ninjapack) form the Eastland. Ninjapack has
a functional currency of the E$. Ninjaapck was unquoted when we took control.
HappyPlayz shares we issued in exchange for a 100% holding in NinjaPack & had a market value of
E$250m. This is the first time we have acquired an overseas subsidiary as a going concern.
Our Finance Director has requested a paper on the financial reporting issues arising from our
acquisition of this company. Please draft a paper for my review.
Thanks
Senior FM
Task requirement:
A paper on the financial reporting issues arising from our acquisition of

Ninjapack.
We need to break this down into the questions within the task
Let us attempt the Question
Can we identify the questions that make up the sub-task?
A paper on the financial reporting issues arising
from our acquisition of NinjaPack.
We need to break this down into the questions

within the task.
https://www.youtube.com/watch?v=vr9jSZ31pd8&t=0s
Question Time
Time’s Up
Task requirement:
A paper on the financial reporting issues arising from our acquisition of EastSEPs.
1. Share capital (share exchange) No NCI (100% subsidiary)
2. Consolidate in W$
3. Foreign subsidiary – need for SFP translations
4. OCI & reserve
5. CSPL – need for translations
Then I expanded
Just developing my ideas further
Task requirement:
1. Share capital (share exchange) No NCI (100% subsidiary)
2. Net Assets valued then translated
3. Exchange gains and losses
4. Goodwill calculation
5. Gains/losses
6. OCI & reserve
7. CSPL average rate
After another 2 minutes
I had the plan
time remaining
Start the section 45
Plan for whole section 9 36
Increase of share capital & share premium No NCI 2 34
Need to consolidate Assets & Liabilities acquired 2 32
Fair Value adjustments (and depreciation) 2 30
Retranslate annually – translation gain/loss 2 28
Movement on the value of net assets translated 2 26
Goodwill on acquisition 2 24
Retranslate annually 2 22
Translation gains/losses OCI recycled through PorL 2 20
CSPL translated at average rate 2 18
(b) The second sub-task (also worth 50%) 18 0
Does the plan address the sub-task?
We can look at the marking scheme
Sub task (a) A paper on the financial reporting issues arising from our acquisition of EastSEPs.
[sub-task (a) = 50%]

Trait
Acquisition Level Descriptor Marks
No rewardable material. 0
1 Discussion includes of determining EastSEP’s net assets value in W$ 1-2
2 Offers a clear discussion of EastSEP’s net assets valuation, goodwill at acquisition 3-4
3 Offers a clear discussion of the reporting within the consolidated accounts in the year of acquisition. 5-6
subsequent Level Descriptor Marks
years No rewardable material. 0
1 Offers a description of the retranslation of assets and goodwill annually. There can be minor errors. 1-2
Offers a good description of retranslation. The description of the translation gains and losses recognises the need to
2 3-5
report through OCI. Description includes both SFP and SPL
3 Offers a clear discussion of the reporting within the consolidated accounts in the years after the year of acquisition. 6-7
Question Time
Homework
For you to do
A practice question
Imagine that Frinta have acquired another company EastSEP.
The acquisition is 100%.
It is in another country.
It has several unique patented electrical products which are suitable for
linking to smart products including Frinta’s Friend.
We pay for the acquisition using a share exchange.
You are asked
a. Advise the Board of the factors that would have to be considered in

determining the goodwill on the acquisition of NinjaPack
sub task a = 30%
b. Advise the Board what financial reporting issues will arise from our
acquisition of NinjaPack.
sub task b = 50%
Write your response to The Board in the box below :
Question Time
In each section
All the tasks would add
to 100%.
Here we have 2 adding
to 80%.
Plan the answers
Try to allocate 8
minutes to planning
3 minutes to identify
the questions
Plan the answers
Try to allocate 8
minutes to planning
5 minutes to writing up
the plan
Plan the answers
And allocate timings so
that you know when you
must move on.
When you write your answers
Use the plan
Save time by not looking
back at the unseen
When you write up the answers
Allocate 11 minutes to
sub task (a).
And 18 minutes to sub
task (b).
Use the plan as the
headings.
This is 6 minutes longer
than you would have in
the real exam.
42 minutes v 36 minutes
But the real exam is a
month away.
State the point, put it
into context and explain
why it meets the task
requirements.
Type fast
Question Time
The mark scheme for
part (a) of the sample
section.
Sub task (a) 30%
(a)
of EastSEP.
The mark scheme for
part (b) of the sample
section.
Sub task (b) A paper on the financial reporting issues arising from our acquisition of EastSEPs.
[sub-task (b) = 50%]

Trait
Acquisition Level Descriptor Marks
No rewardable material. 0
1 Discussion includes of determining EastSEP’s net assets value in W$ 1-2
2 Offers a clear discussion of EastSEP’s net assets valuation, goodwill at acquisition 3-4
3 Offers a clear discussion of the reporting within the consolidated accounts in the year of acquisition. 5-6
subsequent Level Descriptor Marks
years No rewardable material. 0
1 Offers a description of the retranslation of assets and goodwill annually. There can be minor errors. 1-2
Offers a good description of retranslation. The description of the translation gains and losses recognises the need to
2 3-5
report through OCI. Description includes both SFP and SPL
3 Offers a clear discussion of the reporting within the consolidated accounts in the years after the year of acquisition. 6-7
Question Time
My very best wishes

MCS F2 Group Accounts

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CIMA MCS

Section C - Group Accounts

Helping you to use your knowledge & understanding

assets and liabilities of the acquiree;

Number Name Application/relevant articles Useful to be Examinable

Include an explanation of when

in the context of HappyPlayz

As we know knowledge is essential but it is not

We can look at tasks from

The examiner will reward an answer which:

And the same criteria applied to marking

A level 3 response would discuss the requirements of IFRS 3 to the scenario

We may evaluate the major competitor in the market.

Fair value at acquisition 1 19

Valuing the intangibles – brand names 2 17

Tangible assets (PPE) 2 15

Contingent liabilities disclosed in subsidiary’s accounts 2 13

From: Senior Financial Manager

A paper on the financial reporting issues arising from our acquisition of

We need to break this down into the questions

We can look at the marking scheme

[sub-task (a) = 50%]

a. Advise the Board of the factors that would have to be considered in

[sub-task (b) = 50%]

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