ACCA FR INT DECEMBER 2026 — STUDENT SCENARIO GUIDE Version 0.3 · 31 October 2026 Original independent study material. Not approved by ACCA. =========================================================================== Core scenario-family map =========================================================================== # ACCA FR scenario and solution guide — December 2026, international IFRS **Purpose.** Recognise a situation, select the accounting logic, and understand the financial-statement effect. This guide contains scenario *families*, not a pool of practice questions or predicted December questions. A family can produce many case facts and end requirements; families can also be combined. There is no fixed finite list of every possible case. The families below are a practical map of the 2026–27 FR syllabus, not an ACCA list of guaranteed case types. Follow the detailed study-guide limits for each topic. [Official syllabus](https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/studyguides/fr_s26_j27_syllabus_and_study_guide.pdf); [examinable documents](https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/fr_sbr_examdoc_sS26_j27.pdf). ## How to use this guide For each scenario, answer in this order: **(1) identify the transaction or reporting problem; (2) choose the applicable principle; (3) decide recognition and measurement; (4) calculate the amount; (5) place it in the correct statement; (6) check dates, disclosures and knock-on effects**. Where there are two plausible treatments, state the fact that decides between them. If a fact is missing, state the assumption. A case can blend several rows below. **Section B** has three distinct case scenarios, each with five independent two-mark objective tests. ACCA says the cases may come from any part of the syllabus and may mix topics. The five tests can ask for different consequences of the same case; they must not depend on getting an earlier answer right. The heading “chapter” below refers to the official syllabus area, not a particular publisher's textbook chapter numbering. [ACCA examiner approach](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/fr-approach.html). ## Section B: syllabus-linked scenario families | ID | Syllabus family | Possible scenario | Solution logic to teach | |---|---|---|---| | B-A1 | A1–A2 Conceptual Framework | Management wants to recognise an item whose economic substance or measurement is disputed. | Define asset/liability and relevant information; test recognition, measurement basis and faithful representation. Explain why the proposed entry improves or harms the accounts. | | B-A3 | A3 Regulation | Management invokes local practice or asks how an IFRS requirement is developed. | Identify the role of IFRS standards, the IASB and national regulation; distinguish principles from rules and explain the standard-setting process at syllabus depth. Do not invent a recognition rule where the outcome asks for regulatory explanation. | | B-A4 | A4 Group concepts | Parent controls an investee, significant influence exists, or management omits an intragroup item. | Decide subsidiary versus associate from rights and influence, then choose consolidation or equity accounting and eliminate intragroup effects where required. | | B-B1a | B1 PPE: initial cost | Equipment is self-constructed; installation, testing and borrowing costs are mixed with general expenses. | Include costs directly attributable to getting the asset ready for use and qualifying borrowing costs; exclude operating/training/general costs. Set depreciation start at availability for use. | | B-B1b | B1 PPE: later measurement | An asset is revalued, a component replaced, or disposed of midyear. | Update carrying amount, treat revaluation in the correct performance/equity component, revise future depreciation over remaining life, and calculate disposal gain/loss from carrying amount. Check component accounting. | | B-B1c | B1 Investment property | Property is held for rent/capital appreciation rather than own use. | Classify from use; apply the chosen IAS 40 cost or fair-value model consistently. Under fair value, recognise changes in profit or loss and do not depreciate. Under cost, follow the applicable cost-model depreciation and impairment requirements. | | B-B2 | B2 Intangibles | Research and development spending is mixed, or a brand/goodwill is claimed as an asset. | Separate purchased from internally generated items; expense research, test development recognition conditions from the relevant date, then amortise or test impairment as appropriate. Distinguish goodwill from separable intangibles. | | B-B3 | B3 Impairment | An asset or cash-generating unit has declining performance; goodwill is included. | Identify indication/test requirement, compare carrying amount with recoverable amount, recognise loss, allocate any CGU loss in the required order and test permissible reversals. Never reverse goodwill impairment. | | B-B4 | B4 Inventory/agriculture | Inventory cost exceeds selling recovery, or biological assets change in value. | For inventory use the lower of cost and net realisable value, normally item by item; for biological assets use fair value less costs to sell unless the narrow initial-recognition reliability exception applies. Agricultural produce is measured at fair value less costs to sell at harvest, then IAS 2 applies. | | B-B5a | B5 Financial assets | Receivables are factored, or an investment changes value. | Determine whether rights/risks have transferred for receivables; classify the instrument and apply amortised cost, FVOCI or FVTPL treatment as the syllabus requires. Trace gains/losses to the correct statement. | | B-B5b | B5 Liabilities/equity | Redeemable preference shares, loan notes or convertible debt are issued. | Test substance as liability/equity; for liability calculate effective interest and carrying amount; split convertible debt into liability and equity components when required. | | B-B6a | B6 Leases | Lessee has payments, interest, depreciation and a possible exemption. | Establish lease term and initial liability, recognise right-of-use asset, unwind interest less cash payments and depreciate over the relevant period. Check short-term/low-value exemptions only where the facts support them. | | B-B6b | B6 Sale and leaseback | Asset is sold and immediately leased back at fair value. | First decide whether a sale occurred, then measure the seller-lessee's retained right and gain relating to rights transferred; do not recognise the full gain automatically. Stay within the fair-value fact pattern in the FR guide. | | B-B7a | B7 Provisions | Warranties, onerous contracts, environmental or restructuring obligations arise. | Test present obligation, probable outflow and reliable estimate; select best estimate or expected value as appropriate; discount if material. Distinguish provision from contingent disclosure or no entry. | | B-B7b | B7 Events after reporting date | An event occurs between year-end and authorisation. | Ask whether it evidences a condition existing at year-end. If yes, adjust amounts; if not, assess material disclosure. Separate new information about old conditions from genuinely new conditions. | | B-B8 | B8 Taxation | Tax charge differs from tax payable; depreciation, revaluation or losses create temporary differences. | Compute current tax separately; compare carrying amount with tax base, classify taxable/deductible difference, calculate deferred tax at the supplied rate and trace movement to profit or loss or other comprehensive income where relevant. | | B-B9a | B9 Performance and held-for-sale | Asset/disposal group is available for immediate sale; a component is discontinued. | Test whether sale is highly probable and the asset is available for immediate sale; apply IFRS 5's lower-of-carrying-amount-and-fair-value-less-costs-to-sell rule to items within its measurement scope, cease depreciation on those items, and separately present a qualifying discontinued operation. Check measurement exceptions for assets in a disposal group. | | B-B9b | B9 Policies, estimates, errors | An entity changes depreciation method, discovers a prior error or changes a policy. | Identify estimate versus policy versus error; determine prospective or retrospective treatment and comparatives accordingly. | | B-B9c | B9 Earnings per share | Bonus/rights issues, options or convertible debt affect EPS. | Reconcile profit attributable to ordinary shareholders and weighted-average shares; adjust comparative shares for bonus element; for diluted EPS include only genuinely dilutive instruments. | | B-B9d | B9 IFRS S1 overview | A sustainability disclosure question asks about purpose or scope. | Answer only the high-level FR learning outcome: objective, scope and core content; do not import detailed SBR sustainability requirements. | | B-D1p | D1 / IFRS 18 presentation | A draft statement uses old profit subtotals or places income/expense in the wrong category. | Classify income and expenses in the IFRS 18 categories using the facts; present mandatory operating profit, profit before financing and income taxes, and profit or loss subtotals. Do not assume gross profit or profit before tax is mandatory. | | B-B10 | B10 Revenue | Contract has multiple obligations, variable consideration or recognition over time. | Identify contract and obligations, determine transaction price including the constraint on variable consideration, allocate price using relative stand-alone selling prices, then decide when/as each obligation is satisfied. For progress measures, check evidence and recognise related contract asset/liability effects. | | B-B10b | B10 Special arrangements | Principal/agent, repurchase, bill-and-hold or consignment terms obscure the actual sale. | Identify who controls the good and when control transfers; apply the specific arrangement conditions before recognising gross/net revenue or delaying revenue. | | B-B11 | B11 Government grants | Cash or asset grant is conditional on spending or ongoing compliance. | Check reasonable assurance and grant type, then match income with related costs over the relevant periods; reconcile any deferred balance. | | B-B12 | B12 Foreign currency | Foreign-currency purchase is unpaid at year-end, or a non-monetary item is measured at cost/fair value. | Identify functional currency, use transaction-date rate initially, retranslate monetary items at closing rate and recognise exchange difference; historical-cost non-monetary items retain transaction-date rate, whereas fair-value items use the rate when fair value is measured. | | B-C1–C3 | C Analysis | Two years, competitors or sector data show conflicting margins, liquidity and cash trends. | Calculate relevant ratios, explain *why* movements matter, use scenario context, and state limitations from accounting policies, group changes and year-end balances. | | B-C4 | C Public/not-for-profit interpretation | Public or charitable entity reports a surplus but service goals differ from profit goals. | Interpret performance against service objectives and resources, not only commercial profit ratios; distinguish stakeholder needs. | | B-D1 | D1 Single-entity preparation | Trial balance has several adjustment notes. | Prepare workings first, adjust each balance once, then assemble IFRS 18-aligned profit or loss/OCI and statement of financial position; reconcile equity, tax and retained earnings. | | B-D2 | D2 Simple group preparation | Parent acquires or disposes of a subsidiary and trades with it. | Calculate acquisition-date net assets, goodwill and NCI; separate pre/post acquisition reserves; eliminate investment, intragroup balances and unrealised profit; add associate equity method if present. | This is a **coverage map**, not a ranking of exam likelihood. ACCA specifically warns against relying on “core topic” spotting. Historical examiner reports can supply examples, but no past pattern excludes a syllabus family. [ACCA examiner approach](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/fr-approach.html). ## Section C: scenario families and worked reasoning paths ACCA states one 20-mark question tests **preparation**, the other **interpretation**; one concerns an individual entity and the other a non-complex group. Thus the valid complete-paper pairings are **individual preparation + group interpretation** or **group preparation + individual interpretation**. The four families below are the study catalogue, not four questions in one exam. [ACCA FR FAQ](https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/faqs.html). ### C-S1 — Individual-entity preparation **Recognise it:** trial balance and adjustment notes, or draft financial statements that need correction. The end product may be full statements or extracts. **Solution path:** 1. Create a schedule for every adjustment: opening amount, event/date, recognition/measurement, profit or loss/OCI, asset/liability and closing amount. Typical embedded matters include leases, PPE revaluation/impairment, instruments, revenue, tax/deferred tax and EPS; the full syllabus remains in scope. 2. Use IFRS 18 presentation for the December 2026 syllabus. Build the statement of profit or loss/OCI and statement of financial position from adjusted balances. Do not assume every income or expense belongs in operating profit; classify from the facts and current examinable guidance. 3. Reconcile retained earnings, other equity and the accounting equation. Show workings so a later arithmetic slip is visible rather than burying adjustments in final totals. 4. If asked for cash flows, prepare **single-entity extracts using the indirect method** within the FR guide's stated scope. Start the operating-activities reconciliation at **operating profit**, adjust non-cash items included in that subtotal, then adjust relevant working-capital movements. Apply the IAS 7 classifications as amended by IFRS 18; do not use an older profit-before-tax starting point. [ACCA IFRS 18 guidance](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/ifrs-18.html). **Variants:** PPE plus deferred tax; lease plus revenue; instruments plus EPS; held-for-sale plus discontinued operation; foreign-currency trade balances; government grant; operating cash-flow extract with receivables, inventory, payables and non-cash charges. [ACCA examiner approach](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/fr-approach.html); [2026–27 study guide](https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/studyguides/fr_s26_j27_syllabus_and_study_guide.pdf). ### C-G1 — Group preparation **Recognise it:** parent and subsidiary statements with acquisition/disposal dates, ownership and consolidation adjustments. The required output may be a group statement of financial position, profit or loss/OCI, or extracts. **Solution path:** 1. Establish control, acquisition/disposal date and ownership; separate pre- and post-acquisition results. For a simple group, use the parent, up to two subsidiaries and one associate only within the guide's stated limits. 2. Compute acquisition-date identifiable net assets at fair value, consideration and goodwill or bargain purchase. Choose the stated NCI measurement basis; calculate NCI at acquisition and reporting date. A bargain purchase gain requires reassessing the measurements before recognising it in profit or loss. 3. Add parent and subsidiary line items for the relevant period, eliminate the investment against subsidiary equity, eliminate intragroup balances/transactions and dividends, and remove unrealised profit in inventory or transferred assets. Reflect extra depreciation on fair-value adjustments, impairment of goodwill, other components of equity and group/associate effects. 4. Reconcile group retained earnings, NCI and final statement totals. On a disposal, use the syllabus restriction to a parent's entire investment and identify any discontinued operation where applicable. **Variants:** midyear acquisition; fair-value uplift of depreciating asset, inventory, monetary liability or previously unrecognised item; intragroup sale with unrealised profit; transfer of non-current asset; intragroup dividends; NCI at fair value versus proportionate net assets; goodwill impairment; associate; full disposal. [2026–27 study guide](https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/studyguides/fr_s26_j27_syllabus_and_study_guide.pdf). ### C-S2 — Individual-entity interpretation **Recognise it:** two periods, competitor figures or industry benchmarks with a request to assess performance/position, often supported by a cash-flow statement and narrative facts. **Solution path:** 1. Choose relevant profitability, liquidity, efficiency, gearing and investor ratios; calculate consistently and show formulae. Ratios are inputs to the analysis, not the final answer. 2. Explain each material movement in business terms and connect it to facts such as pricing, credit policy, asset purchase, financing or one-off events. Distinguish an inference from a demonstrated cause. 3. Reconcile profit trends with cash-flow information; examine working-capital movements, non-cash adjustments and financing/investing cash effects. Explain differences between profit and cash without assuming a cash shortage from a ratio alone. 4. Evaluate limitations: policy changes, seasonality, year-end balances, current values, missing comparability and stakeholder objectives. End with a balanced conclusion and specific information or action needed. **Variants:** time trend; competitor or industry comparison; rapid growth with weak cash; higher gross margin but weaker operating margin; debt-funded expansion; seasonal balances; asset revaluation; discontinued operation; investor/lender perspective. ACCA says analysis and interpretation carry more weight than simple ratio calculation. [ACCA FR FAQ](https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/faqs.html). ### C-G2 — Group interpretation **Recognise it:** consolidated statements or group/competitor comparisons, often with an acquisition or disposal that changes the reporting boundary. **Solution path:** 1. Compute comparable ratios only after noting which entities and periods are consolidated. Identify NCI, acquisition timing, fair-value uplifts and intragroup eliminations that change the reported amounts. 2. Separate organic performance from changes caused by buying or selling subsidiaries where the data allow; if they do not, flag the limitation rather than inventing a like-for-like result. 3. Interpret profitability, returns, liquidity and gearing together with group cash flow and non-financial facts. Explain why a ratio can move solely from consolidation mechanics or a newly acquired business. 4. State a conclusion from the relevant stakeholder's perspective and identify missing segment, acquisition or cash data needed to strengthen it. **Variants:** acquisition distorts year-on-year growth; disposal improves ratios without underlying recovery; goodwill impairment; NCI changes shareholder-attributable results; intragroup sales removed; associate earnings differ from cash dividends; fair-value uplift changes depreciation; group cash flow differs from group profit. [ACCA examiner approach](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/fr-approach.html). ## What the tutor should return when a student selects a scenario Return the selected **scenario ID and syllabus area**, a short fact pattern, the decision tree above adapted to those facts, calculation order/formulae where relevant, presentation effects, common traps and a compact worked illustration. Offer an end question only if the student asks for practice. Keep the reference guide and any optional practice paper separate. **Review status:** The scenario families and exam structure have been checked against ACCA's 2026–27 detailed FR learning outcomes, FR examinable-documents column, examiner approach, FAQ and IFRS 18 technical article. See the separate review record for the scope and corrections. This is a syllabus-level map, not an examiner-approved exhaustive catalogue or a substitute for the official study guide. Numerical worked solutions and model marking have not yet been independently validated. =========================================================================== Section B question types =========================================================================== # ACCA FR INT December 2026 — Section B question-type atlas **Status:** Original worked teaching examples, aligned to the [2026–27 detailed study guide](https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/studyguides/fr_s26_j27_syllabus_and_study_guide.pdf) and [FR examinable documents](https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/fr_sbr_examdoc_sS26_j27.pdf). This atlas groups distinct **decisions** a question can test. ACCA can change figures, wording and combine decisions, so no finite set can enumerate every question. Section B consists of three unique cases, each with five independent two-mark objective tests; the examples below are standalone question types, not predictions or copied ACCA questions. [ACCA examiner approach](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/fr-approach.html). **How to use:** For each type, read the fact pattern and question, decide the rule first, then compare the worked answer. All amounts are $ unless stated otherwise. A single case can draw five independent types from one family or several families. Each example is deliberately small; a case may supply more facts than needed. ## A. Conceptual and regulatory framework ### B-A1 — Conceptual Framework (A1–A2) 1. **Asset or expense?** An entity pays 30,000 for an advertising campaign expected to increase sales; it cannot control customers' future purchases. *Question:* Is the spending an asset? **Solution:** No identifiable present economic resource is controlled as a result of the campaign; expense the 30,000, subject to any separately identifiable prepaid service at reporting date. Expected benefit alone does not establish an asset. 2. **Present obligation?** The board plans to close a branch next year but has not announced or begun the plan. *Question:* Is there a liability today? **Solution:** A plan alone creates no present obligation to another party; no liability solely from the board decision. Reassess if a legal or constructive obligation arises. 3. **Useful-information qualities.** Management selects a highly favourable valuation unsupported by observable evidence to make a property figure look current. *Question:* Which fundamental quality is most threatened? **Solution:** Faithful representation; a current number is useful only if it represents the economic substance without material bias. Relevance alone is insufficient. 4. **Measurement choice.** A machine has historical cost 100,000 and current replacement cost 130,000. *Question:* What does each measure represent? **Solution:** Historical cost reflects the original transaction basis (subsequently adjusted where required); current cost reflects the amount to acquire an equivalent asset at the measurement date. Neither amount is automatically the correct reported carrying amount; the applicable standard and model decide. 5. **Recognition versus disclosure.** A lawsuit might create an obligation but the facts do not establish the IAS 37 recognition conditions. *Question:* Does the Conceptual Framework alone mandate recognition? **Solution:** Apply the specific IAS 37 requirements. The Framework informs reasoning but does not override an applicable standard; a possible obligation may require contingent-liability disclosure rather than recognition. ### B-A3 — Regulatory framework (A3) 1. **Why regulate?** Two companies use different reporting treatments for identical transactions. *Question:* What is a primary reason for common IFRS standards? **Solution:** Comparable, decision-useful reporting and reduced scope for inconsistent or self-serving policies. Standards still require judgement and enforcement. 2. **Principles and rules.** A proposed system contains broad principles but no application guidance. *Question:* Name one strength and one limitation. **Solution:** Principles can reflect economic substance across novel transactions; they can also produce inconsistent judgements without suitable guidance, disclosure and enforcement. 3. **Standards are not the whole framework.** An entity claims IFRS standards alone guarantee reliable reporting. *Question:* What else matters? **Solution:** Corporate law/regulation, governance, audit, enforcement and ethical behaviour affect reporting quality. Merely citing a standard does not ensure faithful application. 4. **Standard-setting process.** A new accounting issue has emerged. *Question:* Which body issues IFRS Accounting Standards, and why is public consultation used? **Solution:** The IASB develops and issues IFRS Accounting Standards; consultation and exposure drafts gather evidence and feedback before finalisation. The IFRS Foundation oversees the boards. 5. **National role.** A national standard setter comments on an IASB proposal. *Question:* Has it thereby changed an IFRS standard? **Solution:** No. National bodies can contribute evidence and feedback or determine local adoption, but only the IASB's due process changes an IFRS Accounting Standard. 6. **Sustainability standard setter.** A candidate confuses the IASB and ISSB. *Question:* Which board develops IFRS Sustainability Disclosure Standards? **Solution:** The ISSB. The IASB develops IFRS Accounting Standards. The FR outcome asks for the ISSB's purpose and role, not detailed climate-standard application. ### B-A4 — Group concepts (A4) 1. **Control.** Investor P owns 45% of S but has contractual power to direct S's relevant activities and exposure to variable returns. *Question:* Can S be a subsidiary despite ownership below 50%? **Solution:** Yes, if P can use its power to affect its returns. Voting percentage alone is not decisive; confirm all control elements. 2. **Associate.** P owns 30% of A and participates in financial and operating policy decisions without control. *Question:* How is A treated in consolidated statements? **Solution:** Significant influence indicates an associate; apply the equity method, not full line-by-line consolidation. 3. **Intragroup sale.** P sells inventory to S and S still holds it. *Question:* Why eliminate P's sale and any unrealised profit? **Solution:** The group is one economic unit; a transfer within it is not a sale to an external customer, and profit on unsold inventory is not realised externally. 4. **Accounting policies and dates.** S uses a different inventory policy from P. *Question:* What is required for consolidation? **Solution:** Adjust S's information to uniform group accounting policies for like transactions; align reporting dates or make permitted adjustments to achieve comparable group information. 5. **Exemption.** A subsidiary's parent is itself part of a larger group. *Question:* Is it always exempt from preparing consolidated accounts? **Solution:** No. Apply the specific IFRS 10 exemption conditions; the mere existence of a higher parent is insufficient. ## B. Transactions — assets and impairment ### B-B1a — PPE initial cost (B1) 1. **Capitalise or expense.** A machine costs 200,000; delivery 8,000, installation 12,000 and staff training 5,000. *Question:* Initial PPE cost? **Solution:** 220,000 (200,000 + 8,000 + 12,000). Training is not a directly attributable cost of getting the machine into the condition necessary to operate as intended; expense it. 2. **Self-construction.** Direct materials 90,000, direct labour 40,000 and abnormal wastage 6,000. *Question:* Cost before other eligible items? **Solution:** 130,000; abnormal wastage is expensed, not capitalised. 3. **Borrowing costs.** A qualifying building is being constructed using specific borrowings; 12,000 eligible interest accrues while construction is active. *Question:* Treatment? **Solution:** Capitalise borrowing costs attributable to the qualifying asset during the eligible construction period; do not capitalise interest after the asset is substantially ready for use. 4. **Depreciation start.** A machine is ready for intended use on 1 October but first used on 1 December. *Question:* When does depreciation begin? **Solution:** 1 October, when available for use, not the first day of actual production. ### B-B1b — PPE subsequent measurement (B1) 1. **Component replacement.** An aircraft engine component with carrying amount 18,000 is replaced by a new 60,000 component meeting recognition criteria. *Question:* Entries? **Solution:** Derecognise the old component (18,000 loss before proceeds, if none) and recognise the new 60,000 component; do not leave both in PPE. 2. **Revaluation surplus.** PPE carrying amount 80,000 rises to fair value 100,000 with no prior loss. *Question:* Where is the 20,000 increase? **Solution:** Other comprehensive income and revaluation surplus in equity, subject to the rule for reversing a previous revaluation decrease in profit or loss. 3. **Depreciation after revaluation.** Asset revalued to 120,000, residual value zero, remaining useful life six years. *Question:* Annual straight-line depreciation? **Solution:** 20,000 per year from the revalued carrying amount, assuming no later changes. 4. **Disposal.** Carrying amount 45,000, sale proceeds 52,000 and selling costs 2,000. *Question:* Gain or loss? **Solution:** 5,000 gain: net proceeds 50,000 less carrying amount 45,000. ### B-B1c — Investment property (B1) 1. **Classification.** A building is held solely to earn rentals. *Question:* PPE or investment property? **Solution:** Investment property under IAS 40, because the purpose is rental income rather than owner occupation. 2. **Fair-value model.** Opening fair value 300,000; closing fair value 324,000. *Question:* Treatment? **Solution:** Carry at 324,000 and recognise the 24,000 gain in profit or loss. Do not depreciate while using the fair-value model. 3. **Cost model.** Cost 300,000, residual zero, 30-year life. *Question:* Is depreciation ignored because it is investment property? **Solution:** No. Under the cost model, apply relevant depreciation and impairment requirements; straight-line depreciation is 10,000 annually on these facts. ### B-B2 — Intangible assets (B2) 1. **Research/development cut-off.** Project research costs 20,000; 40,000 of development expenditure is incurred before all recognition criteria are demonstrated and 30,000 after. *Question:* Maximum amount capitalised from these costs? **Solution:** 30,000, assuming the post-criteria spending is directly attributable. The earlier 60,000 is expensed and cannot later be reinstated as an asset. 2. **Purchased versus internal brand.** P buys a separable trademark for 50,000; it also estimates its internally built brand at 200,000. *Question:* Which asset is recognised? **Solution:** Recognise the purchased trademark at cost, subject to the relevant requirements; do not recognise the internally generated brand simply from management's valuation. 3. **Finite useful life.** A licence costs 80,000, has an eight-year useful life and zero residual value. *Question:* Annual straight-line amortisation? **Solution:** 10,000 from when the licence is available for use, unless the consumption pattern requires another method. 4. **Indefinite life.** An intangible has no foreseeable limit to useful life. *Question:* Amortise? **Solution:** Do not amortise while life is indefinite; test for impairment annually and reassess the indefinite-life conclusion each reporting period. ### B-B3 — Impairment (B3) 1. **Recoverable amount.** Carrying amount 120,000; fair value less costs of disposal 95,000; value in use 102,000. *Question:* Impairment? **Solution:** Recoverable amount is the higher figure, 102,000; impairment loss is 18,000. 2. **CGU allocation.** A CGU loss is 30,000 and includes goodwill of 12,000. *Question:* First allocation? **Solution:** Reduce goodwill by 12,000 first; allocate the remaining 18,000 to other CGU assets pro rata, subject to individual floors and other restrictions. 3. **Reversal cap.** An impaired asset has carrying amount 70,000; revised recoverable amount 95,000; without prior impairment its carrying amount would be 88,000. *Question:* Maximum reversal? **Solution:** 18,000, raising carrying amount only to 88,000. A goodwill impairment is never reversed. ### B-B4 — Inventories and agriculture (B4) 1. **Inventory NRV.** Inventory cost 50,000; expected sale proceeds 54,000, completion costs 5,000 and selling costs 2,000. *Question:* Carrying amount? **Solution:** NRV is 47,000; carry at lower of cost and NRV, 47,000, with a 3,000 write-down. 2. **Biological asset.** Livestock fair value 90,000 and costs to sell 4,000 at year-end. *Question:* Measurement? **Solution:** 86,000 fair value less costs to sell, with the relevant movement in profit or loss; apply the narrow IAS 41 reliability exception only if its conditions are met. 3. **Harvest.** Produce is harvested when fair value less costs to sell is 20,000. *Question:* What is its cost for subsequent IAS 2 accounting? **Solution:** 20,000 becomes deemed cost at harvest; subsequent inventory accounting follows IAS 2. 4. **Bearer plant.** A fruit tree produces crops over multiple periods. *Question:* Is the tree itself measured under IAS 41 fair value less costs to sell? **Solution:** A bearer plant is accounted for under IAS 16; produce growing on it remains within IAS 41. Sources for this block: [IAS 16](https://www.ifrs.org/issued-standards/list-of-standards/ias-16-property-plant-and-equipment/), [IAS 36](https://www.ifrs.org/issued-standards/list-of-standards/ias-36-impairment-of-assets/), [IAS 40](https://www.ifrs.org/issued-standards/list-of-standards/ias-40-investment-property/), [IAS 41](https://www.ifrs.org/issued-standards/list-of-standards/ias-41-agriculture/), plus the ACCA detailed study guide above. ## B. Transactions — instruments, liabilities and performance ### B-B5a — Financial assets (B5) 1. **Factoring with recourse.** Receivables of 100,000 are transferred for 95,000 but the seller must reimburse the factor for customer defaults. *Question:* May the seller simply remove the receivables? **Solution:** No automatic derecognition. Assess whether substantially all risks and rewards were transferred; continuing significant credit risk points to retaining the receivables and recognising financing for cash received. The precise facts determine the outcome. 2. **Amortised cost.** A debt asset is held to collect contractual cash flows solely of principal and interest. *Question:* Likely classification? **Solution:** Amortised cost, if the relevant IFRS 9 conditions are met; use the effective interest method and assess impairment. 3. **FVOCI debt.** A qualifying debt asset is held both to collect and to sell; fair value increases by 6,000. *Question:* Where does the fair-value movement go? **Solution:** Other comprehensive income for a qualifying FVOCI debt asset, while interest and impairment effects follow IFRS 9 profit-or-loss rules. 4. **FVOCI equity election.** A non-trading equity investment has a valid irrevocable FVOCI election. *Question:* Is a fair-value increase reported in profit or loss? **Solution:** No; it goes to OCI. The election is available for qualifying equity instruments not held for trading and is made at initial recognition. 5. **FVTPL.** An investment does not qualify for, or is designated to, an alternative measurement category. Fair value rises 8,000. *Question:* Effect? **Solution:** Recognise the 8,000 fair-value gain in profit or loss for an FVTPL asset. ### B-B5b — Financial liabilities and equity (B5) 1. **Substance of preference shares.** An issuer must redeem preference shares for cash on a fixed date. *Question:* Equity or liability? **Solution:** The unavoidable contractual cash obligation makes the instrument a financial liability in substance, regardless of its share name. 2. **Effective interest.** Liability opening carrying amount 95,000, effective rate 10%, cash coupon 6,000. *Question:* Closing carrying amount? **Solution:** Finance cost 9,500; closing liability 98,500 (95,000 + 9,500 − 6,000). 3. **Convertible debt split.** Proceeds of a qualifying compound instrument are 100,000 and the present value of equivalent non-convertible debt is 91,000. *Question:* Initial equity component? **Solution:** 9,000 residual equity component; liability component 91,000, before transaction-cost allocation. 4. **Ordinary shares.** An entity issues ordinary shares for 120,000 with no obligation to repay. *Question:* Finance cost on the proceeds? **Solution:** No effective-interest finance cost from the ordinary share issue; recognise equity, subject to share capital/premium classification and eligible issue costs. ### B-B6a — Lessee leases (B6) 1. **Initial liability.** Three annual end-of-year payments of 10,000 have supplied present-value factors 0.91, 0.83 and 0.75. *Question:* Initial lease liability? **Solution:** 24,900 (9,100 + 8,300 + 7,500), assuming those are the only included payments. 2. **Subsequent liability.** Opening lease liability 24,900, interest rate 10% and end-year cash payment 10,000. *Question:* Closing liability? **Solution:** 17,390 (24,900 + 2,490 interest − 10,000 payment). 3. **Right-of-use depreciation.** ROU asset cost 24,900, no ownership transfer, three-year lease term and five-year underlying useful life. *Question:* Annual straight-line depreciation? **Solution:** 8,300 over the three-year lease term, assuming no purchase option reasonably certain to be exercised and no other changes. 4. **Recognition exemption.** A 10-month lease has no purchase option. *Question:* Can the lessee elect a recognition exemption? **Solution:** It can elect the short-term exemption if the IFRS 16 conditions are met; payments are generally expensed systematically. Also assess low-value exemption where relevant. ### B-B6b — Sale and leaseback (B6) 1. **Is there a sale?** Seller-lessee transfers an asset but retains control under a repurchase arrangement. *Question:* Recognise a sale gain? **Solution:** First test IFRS 15 transfer-of-control requirements. If the transfer is not a sale, retain the asset and account for proceeds as a financial liability; no sale gain. 2. **Rights transferred.** Asset carrying amount 80,000, fair value and proceeds 100,000; the seller-lessee retains a right of use equal to 40% of fair value. *Question:* Gain recognised at transfer if it qualifies as a sale? **Solution:** Total gain is 20,000; recognise only the 60% relating to rights transferred, 12,000. The remaining 8,000 relates to retained use and is not an immediate gain. This is a simplified fair-value fact pattern within FR scope. ### B-B7a — Provisions and contingencies (B7) 1. **Warranty expected value.** 1,000 products sold: 80% no claim, 15% minor repair at 20, 5% major repair at 100. *Question:* Provision? **Solution:** 8,000: 1,000 × [(0.15 × 20) + (0.05 × 100)]. A sale with warranty obligation occurred; expected value suits a population of similar claims. 2. **Onerous contract.** Unavoidable cost of meeting a contract is 70,000; benefits are 50,000; compensation to exit is 12,000. *Question:* Provision for unavoidable loss? **Solution:** 12,000, the lower cost of fulfilling (20,000 net loss) and exiting (12,000), after considering any impairment of assets used in the contract first. 3. **Restructuring.** Management approves a plan internally but has not communicated it or begun implementation. *Question:* Provision? **Solution:** No constructive obligation yet merely from board approval. A detailed formal plan plus a valid expectation in affected parties is needed. 4. **Contingent asset.** An entity has a probable but not virtually certain legal recovery. *Question:* Recognise an asset? **Solution:** No. Disclose a contingent asset where inflow is probable; recognise only when realisation is virtually certain. 5. **Decommissioning.** A legal obligation to restore a site exists when equipment is installed. *Question:* Initial treatment? **Solution:** Recognise a provision at present value if material and include the corresponding eligible cost in the asset; subsequently unwind discount as finance cost and depreciate the asset component. ### B-B7b — Events after reporting period (B7) 1. **Adjusting event.** A customer owing 30,000 at year-end enters bankruptcy after year-end; evidence shows severe financial difficulty already existed at year-end. *Question:* Adjust receivables? **Solution:** Yes. The later bankruptcy confirms a pre-existing condition; adjust the year-end carrying amount for expected loss. 2. **Non-adjusting event.** A fire destroys a factory two months after year-end with no pre-existing condition. *Question:* Adjust year-end PPE? **Solution:** No. Disclose nature and estimated financial effect if material, or state inability to estimate. 3. **Dividend declared later.** Directors declare a dividend after reporting date. *Question:* Year-end liability? **Solution:** No liability at the reporting date merely because it was declared later; disclose if material as appropriate. ### B-B8 — Taxation (B8) 1. **Current tax.** Taxable profit 200,000 and tax rate 25%; 8,000 of current tax has already been paid. *Question:* Current tax charge and closing payable? **Solution:** Charge 50,000; payable 42,000, assuming no opening balance or other tax adjustments. 2. **Taxable temporary difference.** PPE carrying amount 100,000 and tax base 70,000; tax rate 25%. *Question:* Deferred tax liability? **Solution:** 7,500 (30,000 taxable temporary difference × 25%), subject to any relevant exceptions. 3. **Deductible temporary difference.** Provision carrying amount 20,000; tax deduction arises only on payment; tax rate 25%. *Question:* Potential deferred tax asset? **Solution:** 5,000, recognised only to the extent that future taxable profit is probable and any relevant exception is satisfied. 4. **Revaluation tax.** PPE revaluation gain 40,000 is in OCI and gives rise to a 25% taxable temporary difference. *Question:* Where is the related 10,000 deferred tax charge? **Solution:** OCI, following the underlying revaluation, with a corresponding deferred tax liability. ### B-B9a — Held for sale and discontinued operations (B9) 1. **Classification.** An asset is available for immediate sale and its sale is highly probable. *Question:* Held for sale? **Solution:** Yes if all IFRS 5 criteria are met; a management intention without a committed, highly probable sale is insufficient. 2. **Measurement.** Eligible non-current asset carrying amount 90,000; fair value less costs to sell 84,000. *Question:* New amount and depreciation? **Solution:** Carry at 84,000, recognise a 6,000 loss and cease depreciation while classified held for sale. Apply exceptions to assets excluded from IFRS 5 measurement where relevant. 3. **Discontinued operation.** A component is disposed of and represents a separate major line of business. *Question:* Presentation? **Solution:** Present a single post-tax discontinued-operation amount separately in profit or loss, with required analysis; a disposal of an immaterial ordinary asset does not necessarily qualify. ### B-B9b — Policy, estimate and error (B9) 1. **Estimate.** Remaining useful life of a machine changes from five to three years after new information. *Question:* Restate past depreciation? **Solution:** No. Account prospectively by allocating the current carrying amount over the revised remaining life. 2. **Policy change.** Entity voluntarily changes an accounting policy and the new policy gives reliable, more relevant information. *Question:* Prospective or retrospective? **Solution:** Apply retrospectively unless impracticable, restating comparatives and opening equity as required, subject to transition provisions. 3. **Prior-period error.** A material expense was omitted last year. *Question:* Charge this year's profit? **Solution:** Correct retrospectively by restating last year's comparative amounts (or earliest practicable opening balance), rather than treating it as this year's expense. ### B-B9c — Earnings per share (B9) 1. **Basic EPS.** Profit attributable to ordinary shareholders 120,000; weighted-average ordinary shares 60,000. *Question:* Basic EPS? **Solution:** $2.00 per share. 2. **Bonus issue.** A one-for-four bonus issue occurs during the year. *Question:* What happens to comparative EPS? **Solution:** Restate the comparative weighted-average share number for the bonus element as though it had always existed; profit numerator is unchanged. 3. **Rights issue.** Shares are issued below market value. *Question:* Why adjust earlier-period shares? **Solution:** A rights issue has a bonus element; calculate the theoretical ex-rights price and bonus factor, then restate pre-issue and comparative share numbers. 4. **Diluted EPS.** Convertible debt would add 10,000 after-tax interest to earnings and 20,000 shares. *Question:* Include it automatically? **Solution:** Test whether the resulting EPS is lower than basic EPS. Include only if dilutive; use adjusted earnings and shares consistently. 5. **Options.** 10,000 options have exercise price below average market price. *Question:* Are all 10,000 added to denominator? **Solution:** No. Use the treasury-stock method: add only shares issued for no consideration after assuming proceeds buy shares at the average market price. ### B-B9d — IFRS S1 overview (B9) 1. **Objective.** An entity asks why IFRS S1 disclosures exist. *Question:* What is the high-level aim? **Solution:** To disclose sustainability-related risks and opportunities useful to primary users in decisions about providing resources to the entity, where they could reasonably affect prospects. 2. **Core content.** A report contains only emissions figures. *Question:* What broad areas does IFRS S1 organise disclosures around? **Solution:** Governance, strategy, risk management, and metrics and targets. FR asks for the overview, not full SBR-level application. ### B-D1p — IFRS 18 presentation (D1 cross-cutting) 1. **Mandatory subtotals.** A draft statement shows gross profit and profit before tax but no operating profit. *Question:* Is it complete under IFRS 18? **Solution:** No. Operating profit and profit before financing and income taxes are mandatory defined subtotals, along with profit or loss; gross profit and profit before tax may be shown but are not the mandatory substitutes. 2. **Operating category.** Management labels every income item as operating. *Question:* Correct? **Solution:** Not necessarily. Classify income and expenses in the IFRS 18 operating, investing, financing, income taxes and discontinued-operations categories according to the facts and relevant requirements. 3. **Indirect cash flow.** An older template begins with profit before tax. *Question:* What starting subtotal is required by IAS 7 as amended by IFRS 18? **Solution:** Operating profit or loss. Adjust only relevant non-cash items included in that starting subtotal and working-capital movements. ### B-B10 — Revenue: general model (B10) 1. **Separate obligations.** A device and a separately usable two-year service are sold together for 1,200. Stand-alone prices are 1,000 and 500. *Question:* Allocate transaction price? **Solution:** Device 800 (1,200 × 1,000/1,500); service 400 (1,200 × 500/1,500). Recognise each as its performance obligation is satisfied. 2. **Variable consideration.** Contract promises a 10,000 bonus if delivery is early, but the outcome is highly uncertain and inclusion would risk a significant revenue reversal. *Question:* Include bonus now? **Solution:** Constrain the estimate; do not include the uncertain amount in transaction price until the IFRS 15 constraint is met. 3. **Over-time criterion.** A customer controls a building as it is constructed. *Question:* Point-in-time or over-time? **Solution:** Over time if the customer controls the asset as created; measure progress using a method that faithfully depicts performance. 4. **Contract balance.** Revenue earned to date 60,000; amounts billed 45,000. *Question:* Contract asset or liability, ignoring receivable distinctions? **Solution:** A 15,000 contract asset if the right to consideration remains conditional on more than passage of time; an unconditional right is a receivable. 5. **Contract costs.** An incremental sales commission is payable only if a contract is won and is expected to be recovered. *Question:* Expense immediately? **Solution:** Recognise a contract-cost asset under IFRS 15 unless a permitted practical expedient applies, then amortise consistently with transfer of related goods or services. ### B-B10b — Revenue: special arrangements (B10) 1. **Principal or agent.** A platform arranges a third party's service and never controls it before transfer. *Question:* Gross or net revenue? **Solution:** Agent revenue is its fee/commission, not the gross customer payment; assess control before transfer. 2. **Repurchase.** Seller must repurchase an asset at a specified price. *Question:* Is ordinary revenue necessarily recognised? **Solution:** No. Assess the repurchase terms and IFRS 15 guidance; a forward or call option generally prevents the customer obtaining control and may produce a lease or financing arrangement. 3. **Bill-and-hold.** Customer is billed but goods remain at seller's premises. *Question:* Is billing alone sufficient? **Solution:** No. Assess whether the arrangement has a substantive reason, goods are separately identified and ready for transfer, and the seller cannot redirect them, alongside control criteria. 4. **Consignment.** Dealer can return unsold goods and supplier retains control until sale to end customer. *Question:* When does supplier recognise revenue? **Solution:** When control transfers to the end customer, not when goods are delivered to dealer. ### B-B11 — Government grants (B11) 1. **Recognition threshold.** Government offers a grant subject to conditions that the entity cannot yet demonstrate it will satisfy. *Question:* Recognise income? **Solution:** No, until there is reasonable assurance that the conditions will be met and the grant received. 2. **Expense grant.** 30,000 grant compensates three years of eligible training costs, evenly incurred. *Question:* Annual income? **Solution:** 10,000 each year to match the related costs, assuming the grant conditions are met. 3. **Asset grant.** 50,000 grant relates to an asset with a five-year life. *Question:* Is all 50,000 immediate profit? **Solution:** No. IAS 20 permits deferred-income or deduction-from-asset presentation; recognise the benefit systematically over the asset's useful life. Under deferred income, 10,000 is released annually on these facts. ### B-B12 — Foreign currency (B12) 1. **Initial transaction.** Goods cost €10,000 when $1 = €0.80. *Question:* Initial $ amount? **Solution:** $12,500 (€10,000 ÷ 0.80), assuming $ is functional currency. 2. **Monetary retranslation.** The €10,000 payable remains unpaid at year-end when $1 = €0.75. *Question:* Closing payable and exchange effect? **Solution:** $13,333.33 (€10,000 ÷ 0.75); exchange loss $833.33 versus initial $12,500, in profit or loss unless a specific exception applies. 3. **Historical-cost non-monetary item.** Inventory bought for €10,000 remains unsold. *Question:* Retranslate its historical cost at closing rate? **Solution:** No. Historical-cost non-monetary items retain the transaction-date translation; other measurement requirements, such as NRV, are assessed separately. 4. **Fair-value non-monetary item.** A non-monetary asset's fair value is measured in foreign currency on 31 December. *Question:* Which exchange rate translates that fair value? **Solution:** The rate at the date fair value was measured; the resulting difference follows the accounting treatment of the underlying gain or loss. Sources for this block: ACCA [IFRS 18 technical article](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/ifrs-18.html), IFRS Foundation summaries of [IAS 7](https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows/), [IFRS 5](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-5-non-current-assets-held-for-sale-and-discontinued-operations/), [IFRS 15](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-15-revenue-from-contracts-with-customers/) and [IFRS 16](https://www.ifrs.org/issued-standards/list-of-standards/ifrs-16-leases/), plus the detailed study guide. ## C–D. Analysis and preparation in Section B ### B-C1–C3 — Analysis and limitations (C1–C3) 1. **Ratio calculation.** Revenue 500,000 and gross profit 150,000. *Question:* Gross margin? **Solution:** 30% (150,000/500,000); calculate on comparable figures before explaining the movement. 2. **Trend interpretation.** Revenue rises 20% while operating profit falls 10%, and the entity opened new stores. *Question:* What is a supported conclusion? **Solution:** Sales growth has not translated into operating profit; start-up or operating costs of new stores may explain the decline, but verify with expense and segment data rather than asserting cause as fact. 3. **Cash versus profit.** Profit improves, but operating cash inflow falls while receivables increase sharply. *Question:* What does this suggest? **Solution:** Cash collection/credit quality warrants investigation; profits include accruals. Examine receivable days, ageing and other cash-flow items before concluding customers cannot pay. 4. **Comparability.** One entity revalued its PPE; the comparator uses historical cost. *Question:* Is return on capital employed directly comparable? **Solution:** No. A higher revalued asset denominator can depress the ratio without poorer operations; adjust or explain the policy/value difference. 5. **Year-end snapshot.** A retailer has low inventory on its year-end date after peak holiday trading. *Question:* Can closing inventory alone represent average stock? **Solution:** Not reliably; seasonality can distort efficiency and liquidity measures. Use average balances if suitable data exist and explain the limitation. 6. **EPS limitation.** Profit rises due to one-off disposal gain while EPS rises. *Question:* Does EPS prove sustainable improvement? **Solution:** No. Explain the one-off item, changes in share count and the limits of EPS before assessing underlying performance. ### B-C4 — Not-for-profit/public sector interpretation (C4) 1. **Objective.** A charity reports a surplus but fewer clients served. *Question:* Has performance necessarily improved? **Solution:** No. Assess service outcomes, reach, quality and resources against its mission; a surplus is not the sole goal. 2. **Stakeholder measure.** A public clinic's cost per patient rises as it treats more complex cases. *Question:* Is the rise automatically inefficiency? **Solution:** No. Case mix and quality affect cost; compare service outcomes and complexity before drawing a conclusion. ### B-D1 — Single-entity preparation (D1) 1. **Adjustment routing.** Trial balance includes unrecorded depreciation 10,000. *Question:* What statements change? **Solution:** Depreciation expense lowers profit/retained earnings by 10,000 and accumulated depreciation lowers PPE carrying amount by 10,000. 2. **Equity reconciliation.** Opening retained earnings 100,000, profit 30,000 and dividends paid 8,000. *Question:* Closing retained earnings? **Solution:** 122,000 (100,000 + 30,000 − 8,000), ignoring other adjustments. 3. **Statement of changes in equity.** A 20,000 revaluation surplus arises and no transfer is made. *Question:* Where is it shown? **Solution:** OCI and the revaluation-surplus column in the statement of changes in equity, subject to related tax and previous revaluation losses. 4. **Cash-flow extract.** Operating profit 100,000 includes depreciation 15,000; receivables increase 8,000, inventories decrease 3,000, payables increase 4,000. *Question:* Cash from operating activities before income taxes, ignoring other items? **Solution:** 114,000 = 100,000 + 15,000 − 8,000 + 3,000 + 4,000. Start with operating profit under IFRS 18. 5. **Presentation.** Draft profit or loss puts all interest, tax and discontinued-operation results into operating profit. *Question:* Is that acceptable? **Solution:** No. Apply IFRS 18 category and subtotal requirements to each item using the facts; reconcile profit or loss and OCI with equity. ### B-D2 — Simple group preparation (D2) 1. **Goodwill, proportionate NCI.** P buys 80% of S for 120,000; acquisition-date identifiable net assets at fair value are 100,000; NCI is measured as proportionate net assets. *Question:* Goodwill? **Solution:** 40,000 = consideration 120,000 + NCI 20,000 − net assets 100,000. 2. **Goodwill, fair-value NCI.** Same facts, but NCI fair value is 27,000. *Question:* Goodwill? **Solution:** 47,000 = 120,000 + 27,000 − 100,000. The chosen NCI basis changes goodwill. 3. **Post-acquisition reserves.** S retained earnings rise from 40,000 at acquisition to 70,000 at reporting date; P owns 80%. *Question:* P's share of post-acquisition increase before other adjustments? **Solution:** 24,000 = 80% × 30,000; account separately for fair-value depreciation, intra-group profit and impairment where present. 4. **Unrealised inventory profit.** P sells goods to S for 125,000 at cost 100,000; 40% remain unsold externally. *Question:* Unrealised profit? **Solution:** 10,000 = 25,000 profit × 40%; remove it from group inventory and group profit. If the seller is S, allocation between parent and NCI differs. 5. **Intragroup balance.** P records 20,000 receivable from S; S records matching payable. *Question:* Group presentation? **Solution:** Eliminate both balances, subject to reconciling any cash in transit or mismatch. 6. **Associate.** Group buys 30% of A for 50,000; A earns 20,000 after acquisition and pays no dividend. *Question:* Investment carrying amount before other adjustments? **Solution:** 56,000 = 50,000 + 30% × 20,000, subject to impairment and relevant equity-method adjustments. 7. **Midyear acquisition.** P controls S from 1 July; both have 31 December year-ends. *Question:* Include a full year of S's profit in consolidated profit or loss? **Solution:** No; include S's results from acquisition date only, with pre-acquisition profit used in acquisition-date net assets. 8. **Full disposal.** P sells all of S during the year. *Question:* Continue consolidating S to year-end? **Solution:** No; consolidate S only until control is lost, then account for disposal and consider whether it qualifies as a discontinued operation. FR scope restricts this disposal outcome to the parent's entire investment. Sources for this block: ACCA [detailed FR study guide](https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/studyguides/fr_s26_j27_syllabus_and_study_guide.pdf), [examiner approach](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/fr-approach.html), [FR FAQ](https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/faqs.html) and [IFRS 18 technical article](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/ifrs-18.html). ## Additional decision variants across the same families These extend the question-type coverage where the detailed study guide calls for a different decision from the primary examples. They can be combined with the cases above. ### A1–A4 extensions 1. **A1 enhancing qualities.** Two reports are equally relevant and faithfully represented, but one is published much later. *Question:* Which enhancing characteristic is weaker? **Solution:** Timeliness; delayed information may be less useful for decisions. Comparability, verifiability and understandability are other enhancing qualities. 2. **A2 value in use.** An asset's expected future cash flows are discounted from continued use and ultimate disposal. *Question:* Which measurement basis is being estimated? **Solution:** Value in use, an entity-specific current-value measure; it is not necessarily fair value, which reflects market-participant assumptions. 3. **A2 fulfilment value.** A liability is measured using the present value of resources the entity expects to transfer to fulfil it. *Question:* Which measure? **Solution:** Fulfilment value, an entity-specific current-value measure for a liability. 4. **A4 reporting exemption.** A parent wishes to omit consolidation because it has only one subsidiary. *Question:* Is that reason sufficient? **Solution:** No. Apply the specific IFRS 10 exemption conditions; the number of subsidiaries by itself does not remove the consolidation requirement. ### B1–B4 extensions 5. **B1 revaluation decrease.** PPE carrying amount 100,000 falls to 92,000 and has no existing revaluation surplus for that asset. *Question:* Where is the 8,000 decrease? **Solution:** Profit or loss. A decrease can be recognised in OCI only to the extent of an existing surplus for that asset. 6. **B1 subsequent expenditure.** A machine receives routine annual servicing of 6,000. *Question:* Add to PPE? **Solution:** Expense routine maintenance; capitalise only qualifying replacement or enhancement costs, derecognising replaced components where identifiable. 7. **B1 investment-property transfer.** Owner-occupied property starts being leased to an external tenant. *Question:* Is management's intention alone enough to reclassify? **Solution:** Classification changes when actual use changes; identify the transfer date and apply IAS 40 and IAS 16 measurement rules for the chosen models. 8. **B2 goodwill versus separable intangible.** A business combination includes a customer relationship that can be separately identified and reliably measured. *Question:* Leave it all within goodwill? **Solution:** No. Recognise an identifiable intangible separately where IFRS 3/IAS 38 criteria are met; goodwill is residual. 9. **B3 impairment indicator.** A major adverse technological change makes equipment obsolete. *Question:* What action? **Solution:** Assess recoverable amount because an external impairment indicator exists, then recognise a loss if carrying amount exceeds recoverable amount. 10. **B3 goodwill test.** A cash-generating unit contains goodwill but has no visible impairment indicator. *Question:* Can annual testing be skipped? **Solution:** No. Goodwill is tested for impairment annually and when indicators arise. 11. **B4 inventory cost.** An entity chooses the highest purchase price for identical interchangeable units simply to reduce profit. *Question:* Is arbitrary item selection acceptable? **Solution:** No. Use an IAS 2 permitted cost formula such as FIFO or weighted average consistently for interchangeable items; specific identification is for non-interchangeable items. ### B5–B9 extensions 12. **B5 factoring without recourse.** All substantive credit risk and rewards are transferred and no control is retained. *Question:* Continue reporting receivables? **Solution:** Generally derecognise them if IFRS 9 derecognition tests are satisfied; assess any retained interest or servicing separately. 13. **B5 FVOCI equity disposal.** A qualifying elected equity investment is sold. *Question:* Recycle accumulated FVOCI gain through profit or loss? **Solution:** No. The accumulated amount may be transferred within equity, but not recycled to profit or loss. 14. **B6 low-value lease.** An individual low-value laptop is leased for three years. *Question:* Is the short-term exemption needed? **Solution:** No; the separate low-value asset exemption may be elected if its conditions are met, even though the lease exceeds 12 months. 15. **B7 contingent liability.** A present obligation has a possible rather than probable outflow. *Question:* Provision? **Solution:** No provision on those facts; disclose a contingent liability unless the possibility of outflow is remote. 16. **B7 material discounting.** A restoration payment of 121,000 is due in two years; discount rate 10%. *Question:* Initial provision? **Solution:** 100,000 = 121,000/1.1², if the present-obligation recognition conditions are met. Unwind discount subsequently. 17. **B8 unused tax loss.** A company has tax losses but no credible taxable-profit forecast. *Question:* Automatically recognise a deferred tax asset? **Solution:** No. Recognition requires probable future taxable profit against which the loss can be used. 18. **B9 material expense.** A large restructuring charge is buried in a generic expense line. *Question:* What presentation issue arises? **Solution:** Material items may require separate disclosure of nature and amount so users understand performance; do not label it an extraordinary item. 19. **B9 full-market share issue.** Ordinary shares are issued for full market value partway through the year. *Question:* Restate prior shares like a bonus issue? **Solution:** No bonus element; include the new shares in weighted average from the issue date, without bonus restatement. ### B10–B12, C and D extensions 20. **B10 progress measure.** A construction obligation qualifies for over-time recognition and costs incurred faithfully depict progress. *Question:* How calculate progress? **Solution:** A suitable input method can use qualifying costs incurred divided by expected total qualifying costs; exclude costs that do not depict performance and revisit estimates. 21. **B10 point-in-time transfer.** Goods are shipped but the seller still controls them under the contract. *Question:* Recognise revenue merely on dispatch? **Solution:** No. Recognise when the customer obtains control; delivery terms, acceptance and other indicators matter. 22. **B11 grant repayment.** A grant becomes repayable after a condition is breached. *Question:* Ignore it because income was recognised earlier? **Solution:** No. Apply IAS 20 repayment treatment to deferred income or asset carrying amount and recognise any excess appropriately. 23. **B12 functional versus presentation currency.** Entity's primary economic environment uses euros but reports to shareholders in dollars. *Question:* Which is functional? **Solution:** The euro if the primary economic environment indicators support it; dollar may be presentation currency. FR's transaction translation outcome should not be confused with full foreign-subsidiary translation. 24. **C1–C3 stakeholder lens.** A lender and an ordinary shareholder analyse the same gearing increase. *Question:* Must conclusions be identical? **Solution:** No. A lender focuses on debt service and downside protection; shareholders may weigh growth returns against risk. Both must use the same facts and acknowledge limitations. 25. **D1 statement of changes in equity.** A company issues shares at a premium and pays dividends. *Question:* Where are these shown? **Solution:** Show share capital and premium movements separately and deduct distributions from retained earnings within the statement of changes in equity; dividends are not profit-or-loss expenses. 26. **D2 fair-value liability.** A subsidiary has an identifiable contingent liability meeting IFRS 3 acquisition recognition requirements but absent from its own books. *Question:* Ignore it in acquisition net assets? **Solution:** No. Include its acquisition-date fair value where recognition criteria are met; this reduces net assets and affects goodwill and later group results. 27. **D2 intra-group PPE transfer.** Parent sells PPE to subsidiary at a gain while the group still uses it. *Question:* Group adjustment? **Solution:** Remove the intra-group gain, restore the asset to the group's pre-transfer carrying basis and correct subsequent depreciation; allocation depends on which entity sold the asset. 28. **D2 intra-group dividend.** S pays P a dividend recorded as income by P. *Question:* Group profit? **Solution:** Eliminate P's intra-group dividend income on consolidation and adjust NCI for its share of S's distribution; a group's receipt from itself is not external income. 29. **D2 bargain purchase.** Consideration plus NCI is 90,000 but acquisition-date net identifiable assets are 100,000. *Question:* Immediate goodwill of negative 10,000? **Solution:** Reassess all measurements first. If a genuine bargain remains, recognise the 10,000 gain in profit or loss, not negative goodwill as an asset. 30. **D2 two subsidiaries.** Parent controls two subsidiaries and has one associate. *Question:* Must all three be added line by line? **Solution:** Consolidate each subsidiary line by line for periods of control; equity-account the associate as a single investment and share of result, within the simple-group syllabus limit. These extensions target decisions otherwise easily hidden inside a broad family. The complete set remains an outcome-led study atlas rather than a claim that ACCA can ask only these formulations. =========================================================================== Section C variant atlas =========================================================================== # Section C scenario variants and solution routes — FR INT December 2026 This companion maps the **different decisions** that can be embedded in the four Section C pathways. The twelve full 20-mark examples in `section-c-worked-cases.md` demonstrate representative combinations. ACCA can vary amounts, dates, entities and end requirements indefinitely; learn the decision routes and show workings rather than memorising one answer. The [2026–27 FR study guide](https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/studyguides/fr_s26_j27_syllabus_and_study_guide.pdf) and [examiner approach](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/fr-approach.html) set the assessable boundary. ## S1 — Individual-entity preparation The stem may start with a trial balance, draft statements, extracted balances or management's proposed treatment. It may require complete statements, selected extracts, notes or comments. Solve each adjustment separately, then feed its profit/OCI and asset/liability effects into the statements. Check the accounting equation and retained earnings. | Variant | Recognition cue | Solution route and possible requirement | |---|---|---| | PPE cost / self-construction | Invoice mixes purchase, installation, testing, training, borrowing | Separate directly attributable/eligible borrowing cost from expense; calculate cost and depreciation from availability-for-use date. | | PPE revaluation / component | Fair value change or replacement part | Depreciate to valuation date, recognise revaluation in OCI or P/L according to prior history, derecognise replaced part, revise later depreciation. | | Intangible R&D | Project phases and feasibility date | Expense research and pre-criteria development; capitalise qualifying later cost; amortise once available for use. | | Impairment | Value in use and fair value less disposal costs | Choose higher recoverable amount; compare carrying value; recognise loss and adjust future depreciation. | | Inventory | Cost, selling price, completion/selling costs | Calculate NRV and lower-of-cost/NRV carrying amount; put write-down in profit or loss. | | Financial instrument | Discounted issue proceeds, coupon and effective rate | Split compound instrument if needed; effective-interest schedule; show closing liability and finance cost. | | Lease | Payments, discount rate, initial direct costs | Calculate liability and ROU asset; unwind finance cost, deduct payments, depreciate ROU asset; check exemptions. | | Revenue | Bundled obligations, variable consideration or progress | Apply five-step model, allocate price, constrain uncertain amount, recognise at point or over time and show contract balance. | | Provision / event | Warranty, lawsuit, decommissioning or post-year-end event | Test present obligation and year-end condition; measure provision or disclose contingency; adjust only qualifying subsequent events. | | Tax / deferred tax | Carrying amount and tax base differ | Compute current tax separately; calculate temporary differences; trace deferred tax to P/L or OCI with underlying item. | | Held for sale / discontinued | Committed sale of non-current asset or component | Check classification, lower measurement for assets within scope, cease depreciation, present discontinued results separately where criteria met. | | Foreign currency | Unsettled foreign payable or fair-valued non-monetary item | Initial transaction rate; closing rate for monetary item; correct rate for non-monetary item and gain/loss location. | | EPS | Bonus, rights, options or convertible debt | Calculate weighted-average shares; adjust for bonus element; test dilution and present EPS as required. | | IFRS 18 statement format | Draft uses old IAS 1 subtotals | Classify income/expense, present operating profit and profit before financing and income taxes; show profit/OCI and equity correctly. | | Cash-flow extract | Indirect operating section or investing/financing extract | Single entity **extracts only**; begin indirect operating section with operating profit, adjust included non-cash items and working capital, classify cash flows under amended IAS 7. | ## G1 — Group preparation The stem may ask for consolidated financial position, profit or loss/OCI, or extracts. Begin with a timeline, ownership and control map. Use acquisition-date values for goodwill and distinguish pre-acquisition from post-acquisition results. Check both NCI and group equity. | Variant | Recognition cue | Solution route and possible requirement | |---|---|---| | Control or associate | Voting rights, contractual power or significant influence | Control -> line-by-line consolidation; significant influence without control -> equity method. | | Acquisition midyear | Date during reporting year | Include subsidiary income/expense only after control begins; acquisition-date reserves enter net assets, not group post-acquisition retained earnings. | | NCI measurement | Fair value or proportionate share given | Use specified choice at acquisition; it changes goodwill and impairment attribution. | | Goodwill / bargain purchase | Consideration, FV net assets, NCI | Compute consideration + NCI − identifiable FV net assets; reassess a negative amount then recognise genuine bargain gain. | | FV uplift of PPE | Acquisition-date FV exceeds book value | Add uplift to net assets; depreciate post-acquisition uplift over remaining life; reduce group post-acquisition results accordingly. | | FV inventory / liabilities / unrecognised item | Acquisition-date measurement differences | Include FV differences in acquisition net assets; reverse them as inventory sells or obligations settle, affecting post-acquisition profit. | | Goodwill impairment | Recoverable amount of CGU / stated loss | Reduce goodwill; allocate effect between parent and NCI according to chosen NCI basis and case facts. | | Inventory profit | Intragroup sale remains unsold outside group | Eliminate revenue and purchase/cost; remove unrealised profit from inventory and group profit; identify upstream versus downstream seller for NCI effect. | | Non-current asset transfer | Intragroup asset sold above group carrying value | Eliminate gain; restore group asset basis and correct excess/shortfall depreciation. | | Intragroup balances / cash in transit | Reciprocal receivable and payable mismatch | Reconcile timing first, then eliminate reciprocal balances. | | Intragroup dividends | Subsidiary pays parent | Eliminate parent dividend income and adjust NCI for its share; do not treat internal distribution as group income. | | Associate | One associate and post-acquisition profit/dividend | Carry at cost + share of post-acquisition profit − dividends − impairment; present share of profit, without line-by-line consolidation. | | Full disposal | Parent sells entire investment in subsidiary | Consolidate only until loss of control; calculate disposal result from proceeds and carrying amounts including goodwill/NCI; test discontinued presentation. FR excludes partial disposals for this outcome. | | Multiple entities | Up to two subsidiaries and one associate | Repeat acquisition/adjustment workings per entity, then combine; do not exceed the detailed guide's simple-group limit. | ## S2 — Individual-entity interpretation Start with the question's stakeholder and comparison basis. Compute only useful ratios, then explain *causes, consequences and limits*. The [ACCA interpretation article](https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/performance-appraisal.html) cautions that naming ratio movements without case-specific interpretation earns little credit. | Variant | Reasoning route | |---|---| | Two-year trend | Calculate comparable margins, liquidity, efficiency and gearing; connect each material change to supplied events and qualify inference. | | Competitor / industry comparison | Check reporting policies, business mix, capital intensity, age of assets and dates before treating a benchmark as equivalent. | | Profit up, cash down | Reconcile non-cash items and working capital; look for slow collections, inventory build and tax/interest payments. | | Gross margin up, operating margin down | Distinguish pricing/product-cost change from operating expense growth; test one-off items and expansion costs. | | Debt-funded expansion | Compare returns with financing risk, interest coverage and cash generation; a rising asset base may temporarily depress ROCE. | | IFRS 18 ratio numerators | For ROCE and interest cover use profit before financing and income taxes, not operating profit where investing-category income or expense differs. For indirect operating cash flow, use operating profit. | | Seasonal balances / year-end acquisition | Explain why closing ratios may misrepresent average activity; use averages where data permit. | | Accounting-policy or current-value difference | Adjust or explain non-comparability from revaluation, impairment, depreciation or other policies. | | Discontinued operation | Separate recurring continuing performance from disposal/ceased activity; use re-presented comparisons where available. | | EPS and investor focus | Check weighted-average shares, one-off profits and EPS limitations before drawing investment conclusions. | | Lender / supplier / shareholder | Tailor conclusion to repayment, trade-credit or return/risk concerns; cite missing evidence. | ## G2 — Group interpretation A group comparison adds a **reporting-boundary** question before ordinary ratio analysis: which entities and periods are included? Separate true operating movement from acquisition/disposal and consolidation effects wherever data allow. Do not invent a like-for-like result when data are absent. | Variant | Reasoning route | |---|---| | Acquisition expands group | Separate acquired from existing revenue/profit; check acquisition date, synergy, FV depreciation and higher capital employed. | | Full disposal shrinks group | Compare continuing operations and distinguish recurring profit from disposal gain; check cash proceeds versus operating cash. | | NCI | Distinguish group totals from profit/equity attributable to parent's shareholders; avoid assigning 100% subsidiary performance to them. | | Goodwill / impairment | Ask whether returns justify goodwill; impairment can depress profit without current cash outflow and signal weaker expectations. | | FV uplift | Extra depreciation and remeasured capital can change margins and ROCE without a matching operating deterioration. | | Intragroup sales / unrealised profit | Consolidated revenue/profit exclude internal activity, so parent-only trends are not directly comparable with group trends. | | Associate | Equity-accounted profit appears without equivalent revenue consolidation or cash dividend; separate accounting result from cash received. | | Cash-flow tension | Group operating cash may differ from profit because of working capital, acquired balances, non-cash charges and period of control. | | Competitor groups | Compare ownership mix, acquisition timing, accounting policies and segment composition before ranking ratios. | | Public/non-profit context | If such an entity is used for interpretation, consider service outcomes and stakeholder aims alongside financial ratios at the FR learning-outcome depth. | **Exam method:** Write a clear conclusion linked to the requirement, state important missing information and distinguish an evidenced cause from a plausible explanation. Source: [ACCA FR examiner approach](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/fr-approach.html) and [2026–27 detailed study guide](https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/studyguides/fr_s26_j27_syllabus_and_study_guide.pdf). =========================================================================== Section C worked casebook =========================================================================== # ACCA FR INT December 2026 — Section C worked casebook **Original teaching material.** Each case below is a self-contained 20-mark constructed-response exercise with a model answer and an illustrative marking guide. These are not ACCA past questions or official marking schemes. The cases cover distinct requirement patterns; figures and combinations in the actual exam are open-ended. ACCA confirms that each exam has one preparation and one interpretation question, and one individual entity and one simple group question. The valid pairings are therefore S1+G2 or G1+S2. [ACCA FAQ](https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/faqs.html), [examiner approach](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/fr-approach.html). ## Coverage map | Pathway | Case 1 | Case 2 | Case 3 | Further examinable variations to recognise | |---|---|---|---| | S1 Individual preparation | IFRS 18 profit or loss/OCI and financial-position extracts: revenue, PPE, tax | Indirect cash-flow extract and changes in equity | Lease, loan note and EPS | Leases, instruments, EPS, grants, foreign currency, held-for-sale, provisions and combinations of adjustments | | G1 Group preparation | Consolidated financial position: goodwill, NCI, fair-value uplift, intra-group inventory | Consolidated profit or loss: midyear acquisition, intra-group sales, associate | Fair-value NCI, impairment and intragroup PPE | Two subsidiaries, fair-value NCI, bargain purchase, intra-group PPE/dividends, full disposal, goodwill impairment | | S2 Individual interpretation | Two-year ratio analysis | Profit/cash tension and lender perspective | IFRS 18 ratios, EPS, revaluation and investor view | Competitor and industry comparisons, seasonality, accounting-policy changes, discontinued operations, EPS | | G2 Group interpretation | Acquisition-driven growth and NCI | Disposal, associate and comparison limits | Acquisition, impairment and cash | Fair-value adjustments, goodwill impairment, intra-group eliminations, group cash flows, competitor comparisons | The four pathways are the stable *requirement* families; the listed adjustments and combinations are the variable scenarios. The casebook is a set of worked representatives rather than a prediction of all future questions. The [2026–27 detailed study guide](https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/studyguides/fr_s26_j27_syllabus_and_study_guide.pdf) defines the full assessable scope. --- ## S1-A — Individual preparation: statement extracts (20 marks) ### Scenario and requirements Lumen Ltd has a 31 December 2026 year-end. Its draft figures before the following corrections are: revenue 600,000; cost of sales 360,000; distribution expense 40,000; administrative expense 60,000; finance expense 12,000. The draft includes a $30,000 cash receipt for a two-year service contract beginning 1 July 2026 entirely in revenue. A machine acquired on 1 January 2026 for $100,000, residual value zero and useful life five years, has not been depreciated. At 31 December it is revalued to $96,000 after depreciation. The revaluation has no previous downward history. Taxable profit for current-tax purposes is $100,000. For this exercise tax rules follow cash receipts and allow no tax depreciation this year; the tax rate is 25%. Assume sufficient probable future taxable profit to support deferred-tax assets and that IAS 12 offset conditions for deferred-tax balances are met. Ignore other temporary differences and tax payments. **Required:** (a) Correct revenue and calculate operating profit and profit before financing and income taxes under IFRS 18 (7 marks); (b) calculate machine carrying amount, depreciation, revaluation surplus and related deferred tax (8 marks); (c) show profit or loss, OCI and financial-position extracts for these items, including current tax (5 marks). Assume all stated operating expenses are in the operating category and finance expense in the financing category. ### Worked solution - Service revenue earned: $30,000 × 6/24 = **$7,500**. Deferred contract liability: **$22,500**. Corrected total revenue: $600,000 − $22,500 = **$577,500**. - Depreciation before revaluation: $100,000/5 = **$20,000**. Pre-revaluation carrying amount: **$80,000**. Revaluation uplift: $96,000 − $80,000 = **$16,000** in OCI. Closing machine: **$96,000**. - Operating profit: $577,500 − $360,000 − $40,000 − $60,000 − $20,000 = **$97,500**. No investing-category item is given, so profit before financing and income taxes is also **$97,500**. Profit before income taxes after $12,000 finance expense is **$85,500**. - Current tax: taxable profit $100,000 × 25% = **$25,000**. Because the $30,000 cash has already been taxed, the $22,500 deferred service revenue has tax base zero and creates a **$5,625 deferred tax asset**. With no tax depreciation, the machine's tax base remains $100,000; its closing carrying amount $96,000 gives a **$1,000 net deferred tax asset** from a $4,000 deductible temporary difference. For clarity, the machine's depreciation creates a $5,000 deferred tax asset in profit or loss and its $16,000 revaluation creates a $4,000 deferred tax liability in OCI; the net machine DTA is $1,000. Gross closing deferred-tax assets are $10,625 and the deferred-tax liability is $4,000. Under the supplied offset assumption, the combined closing net DTA is **$6,625**. - Profit-or-loss tax expense is current tax $25,000 less deferred-tax credits $5,625 (contract) and $5,000 (depreciation) = **$14,375**. Profit for the year is **$71,125**. OCI revaluation gain $16,000 less related tax $4,000 = **$12,000**. Total comprehensive income is **$83,125**. Financial-position extracts: machine $96,000; contract liability $22,500; current tax payable $25,000 (assuming none paid); net deferred-tax asset $6,625; revaluation surplus increase $12,000. ### Illustrative marking guide (20) | Credit | Marks | |---|---:| | Service timing, revenue $7,500 and contract liability $22,500 | 3 | | Corrected total revenue $577,500 and IFRS 18 operating subtotal $97,500 | 3 | | Profit before financing and income taxes $97,500 | 1 | | Depreciation $20,000 and pre-revaluation carrying amount $80,000 | 2 | | Revaluation $16,000 in OCI and closing machine $96,000 | 2 | | Deferred tax on service $5,625 and machine closing net DTA $1,000 | 3 | | Tax effects split: $10,625 credit in profit or loss, $4,000 charge in OCI | 2 | | Current tax $25,000 and profit for year $71,125 | 2 | | OCI net $12,000 and financial-position presentation/reconciliation | 2 | | **Total** | **20** | **Check:** Current tax is based on the supplied taxable profit, not reconstructed from corrected accounting profit. A tax-base assumption is explicitly supplied to avoid ambiguity. [IAS 12](https://www.ifrs.org/issued-standards/list-of-standards/ias-12-income-taxes/); [ACCA IFRS 18 article](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/ifrs-18.html). --- ## S1-B — Individual preparation: indirect cash-flow extract and equity (20 marks) ### Scenario and requirements Harbour Ltd's 2026 IFRS 18 statement shows operating profit of $180,000. Included in operating profit are depreciation $35,000, amortisation $8,000, an impairment loss $7,000 and a $4,000 gain on disposal of equipment. During the year, inventories rose from $70,000 to $82,000; trade receivables fell from $95,000 to $88,000; trade payables rose from $60,000 to $69,000. Tax paid was $28,000. Equipment with carrying amount $16,000 was sold for $20,000 cash. New equipment was bought for $50,000 cash. Interest paid was $9,000 and dividends paid $15,000. Assume the entity has no specified main business activity that changes the normal IAS 7 classification of interest. Opening retained earnings were $140,000 and profit for the year was $102,000. There was no OCI. **Required:** (a) prepare an extract of cash flows from operating activities by the indirect method (11 marks); (b) classify the stated investing and financing cash flows and calculate each subtotal (5 marks); (c) calculate closing retained earnings and explain why profit differs from operating cash (4 marks). ### Worked solution | Operating cash-flow extract | $ | |---|---:| | Operating profit | 180,000 | | Add depreciation | 35,000 | | Add amortisation | 8,000 | | Add impairment | 7,000 | | Less gain on disposal included in operating profit | (4,000) | | Increase in inventories | (12,000) | | Decrease in trade receivables | 7,000 | | Increase in trade payables | 9,000 | | **Cash from operating activities before income taxes** | **230,000** | | Income taxes paid | (28,000) | | **Net cash from operating activities** | **202,000** | Investing cash: equipment proceeds $20,000 less acquisition $50,000 = **$30,000 outflow**. Financing cash: interest paid $9,000 and dividends paid $15,000 = **$24,000 outflow** on the stated facts. Closing retained earnings = $140,000 + $102,000 − $15,000 = **$227,000**. Profit and operating cash differ because the former includes non-cash charges and an accrual-based disposal gain while working-capital balances and tax cash payments change cash timing. The $20,000 disposal proceeds belong in investing cash, not a second operating inflow. ### Illustrative marking guide (20) | Credit | Marks | |---|---:| | Start with operating profit, not profit before tax | 2 | | Add back three non-cash charges correctly | 3 | | Remove disposal gain | 1 | | Three working-capital movements with correct signs | 3 | | Cash before tax $230,000, tax paid and operating net $202,000 | 2 | | Investing proceeds/acquisition classified and net $30,000 outflow | 2 | | Interest/dividends financing and net $24,000 outflow | 3 | | Closing retained earnings $227,000 | 2 | | Explanation of accruals, non-cash items and disposal cash placement | 2 | | **Total** | **20** | **Check:** The starting point and normal interest/dividend classifications follow the IFRS 18 amendments to IAS 7. [ACCA IFRS 18 article](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/ifrs-18.html); [IAS 7](https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows/). --- ## G1-A — Group preparation: consolidated financial position (20 marks) ### Scenario and requirements At 31 December 2026, Parent P reports assets $500,000 (including its investment in S of $150,000 and a $12,000 receivable from S), liabilities $180,000, share capital $200,000 and retained earnings $120,000. Subsidiary S reports assets $260,000, liabilities $80,000, share capital $100,000 and retained earnings $80,000 (its net assets therefore total $180,000). P bought 80% of S on 1 January 2026 for $150,000. At acquisition S's retained earnings were $40,000. Its equipment had a fair value $20,000 above carrying amount, with four years' remaining life and no residual value. There were no other fair-value differences. NCI is measured at its proportionate share of identifiable net assets. P sold goods to S during 2026 at a total profit of $10,000; 40% remain in S's closing inventory. S records a matching $12,000 payable to P. Ignore tax and goodwill impairment. **Required:** Calculate (a) acquisition-date net assets, NCI and goodwill (6 marks); (b) post-acquisition reserves, group retained earnings and closing NCI (6 marks); (c) consolidated assets, liabilities and equity at 31 December 2026, with reconciliation (8 marks). ### Worked solution - Acquisition-date identifiable net assets: share capital $100,000 + retained earnings $40,000 + equipment uplift $20,000 = **$160,000**. NCI at acquisition = 20% × $160,000 = **$32,000**. Goodwill = $150,000 + $32,000 − $160,000 = **$22,000**. - Extra annual depreciation on uplift = $20,000/4 = **$5,000**; unamortised uplift at reporting date = **$15,000**. Adjusted S post-acquisition reserves = ($80,000 − $40,000) − $5,000 = **$35,000**. - Unrealised profit from P's downstream sale = 40% × $10,000 = **$4,000**. Group retained earnings = P $120,000 + 80% × S adjusted post-acquisition $35,000 − $4,000 = **$144,000**. Closing NCI = acquisition $32,000 + 20% × $35,000 = **$39,000**. The downstream unrealised profit is borne by the parent, not NCI. - Assets = P $500,000 + S $260,000 + uplift remaining $15,000 + goodwill $22,000 − investment $150,000 − intercompany receivable $12,000 − unrealised inventory profit $4,000 = **$631,000**. - Liabilities = P $180,000 + S $80,000 − intercompany payable $12,000 = **$248,000**. - Equity = P share capital $200,000 + group retained earnings $144,000 + NCI $39,000 = **$383,000**. Check: liabilities + equity = $248,000 + $383,000 = **$631,000**. ### Illustrative marking guide (20) | Credit | Marks | |---|---:| | Acquisition-date net assets $160,000 and uplift | 2 | | Acquisition NCI $32,000 and goodwill $22,000 | 4 | | Extra depreciation and remaining uplift | 2 | | Adjusted post-acquisition reserves $35,000 | 2 | | Unrealised profit $4,000 and correct downstream attribution | 2 | | Group retained earnings $144,000 and closing NCI $39,000 | 2 | | Consolidated asset workings and total $631,000 | 3 | | Liability elimination, equity presentation and balance check | 3 | | **Total** | **20** | --- ## G1-B — Group preparation: consolidated profit or loss (20 marks) ### Scenario and requirements P acquired 80% of S on 1 July 2026. Both have 31 December 2026 year-ends and S's income/expenses accrue evenly through the year. P's annual revenue, cost of sales, operating expenses, finance expense and tax expense are respectively $800,000, $480,000, $140,000, $20,000 and $40,000. S's annual figures are $300,000, $180,000, $60,000, $4,000 and $20,000. After acquisition P sold goods to S for $40,000 (cost to P $30,000); one quarter remain in S's inventory at year-end. The group recognises $5,000 goodwill impairment for S, allocated entirely to the parent on the stated proportionate-NCI basis. P also owns 30% of an associate throughout the year; the associate's post-tax profit is $20,000, and no dividend was paid. Assume goodwill impairment and the unrealised-profit adjustment are operating-category items, the associate share is in the investing category, and finance expenses in the financing category under IFRS 18. Ignore tax on consolidation adjustments. **Required:** Prepare a consolidated statement of profit or loss to profit for the year and attribute that profit between owners of P and NCI. Show workings (20 marks). ### Worked solution Only **six months** of S's results are consolidated: revenue $150,000; cost $90,000; operating expenses $30,000; finance $2,000; tax $10,000. Eliminate P-to-S revenue of $40,000 and matching transfer cost of $40,000. Unrealised profit = ($40,000 − $30,000) × 25% = **$2,500**; increase consolidated cost of sales by that amount. Associate share of post-tax profit = 30% × $20,000 = **$6,000**. | Consolidated profit or loss, year ended 31 December 2026 | $ | |---|---:| | Revenue: 800,000 + 150,000 − 40,000 | **910,000** | | Cost of sales: 480,000 + 90,000 − 40,000 + 2,500 | (532,500) | | Gross profit (useful additional subtotal) | 377,500 | | Operating expenses: 140,000 + 30,000 + 5,000 goodwill impairment | (175,000) | | **Operating profit** | **202,500** | | Share of associate's profit | 6,000 | | **Profit before financing and income taxes** | **208,500** | | Finance expense: 20,000 + 2,000 | (22,000) | | Profit before income taxes | 186,500 | | Income tax: 40,000 + 10,000 | (50,000) | | **Profit for the year** | **136,500** | S's post-acquisition profit after its own finance expense and tax is $150,000 − $90,000 − $30,000 − $2,000 − $10,000 = **$18,000**. NCI receives 20% × $18,000 = **$3,600**. Profit attributable to P owners is **$132,900**. The downstream unrealised profit and goodwill impairment are parent-attributable on these facts. ### Illustrative marking guide (20) | Credit | Marks | |---|---:| | Six-month apportionment of S revenue, costs, finance and tax | 4 | | Intragroup revenue/cost elimination | 2 | | Unrealised profit $2,500 and cost-of-sales adjustment | 2 | | Revenue $910,000 and cost of sales $532,500 | 2 | | Goodwill impairment and operating profit $202,500 | 2 | | Associate share $6,000 and IFRS 18 subtotal $208,500 | 2 | | Finance, tax and total profit $136,500 | 2 | | S post-acquisition profit $18,000 and NCI $3,600 | 2 | | Parent attribution $132,900 and clear workings | 2 | | **Total** | **20** | **Check:** The 30% associate is equity-accounted, not consolidated line by line. The group does not include S's pre-acquisition results. [ACCA group scope](https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/studyguides/fr_s26_j27_syllabus_and_study_guide.pdf); [ACCA IFRS 18 article](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/ifrs-18.html). --- ## S2-A — Individual interpretation: two-year performance and position (20 marks) ### Scenario and requirements Nova Ltd sells all goods on credit. Management expanded into two new regions during 2026 and introduced discounts. Figures ($000) are: | | 2025 | 2026 | |---|---:|---:| | Revenue | 1,000 | 1,200 | | Cost of sales | 600 | 780 | | Operating profit | 150 | 168 | | Current assets | 300 | 360 | | Of which inventory | 100 | 150 | | Of which receivables | 120 | 170 | | Current liabilities | 150 | 240 | | Non-current borrowings | 200 | 260 | | Total equity | 450 | 500 | | Net operating cash inflow | 140 | 90 | Use closing balances for working-capital days because opening 2025 balances are not supplied; note that limitation. **Required:** Calculate gross margin, operating margin, current ratio, quick ratio, receivable days, inventory days and debt/equity for both years (7 marks). Assess performance, liquidity, financing and cash quality with a balanced conclusion (13 marks). Use 365 days. ### Worked solution | Measure | 2025 | 2026 | |---|---:|---:| | Gross margin = (revenue − cost of sales)/revenue | 40.0% | 35.0% | | Operating margin = operating profit/revenue | 15.0% | 14.0% | | Current ratio = current assets/current liabilities | 2.00 | 1.50 | | Quick ratio = (current assets − inventory)/current liabilities | 1.33 | 0.88 | | Receivable days = receivables/revenue × 365 | 43.8 | 51.7 | | Inventory days = inventory/cost of sales × 365 | 60.8 | 70.2 | | Debt/equity = non-current borrowings/equity | 44.4% | 52.0% | **Interpretation:** Revenue rose 20%, but gross margin fell five points. Discounts are a plausible contributor; the new regions may also have different costs or product mix, which needs evidence. Operating profit rose 12%, below revenue growth, and operating margin slipped one point, suggesting expansion costs or weaker underlying margins. Liquidity weakened: current ratio fell to 1.50 and quick ratio below 1. Receivable days lengthened by about eight days while inventory days lengthened by about nine; growth may absorb cash and increase collection/obsolescence risk. Operating cash inflow declined from 140 to 90 despite higher operating profit, so investigate credit control, inventory and the detailed cash-flow reconciliation. Debt/equity rose, increasing financing exposure, although the figures alone do not prove distress. Conclude that expansion drove sales but margins, liquidity and cash conversion deteriorated; ask for region-level margins, ageing of receivables, inventory analysis and average balances before recommending further expansion. Closing balances and possibly seasonal trading limit precision. ### Illustrative marking guide (20) | Credit | Marks | |---|---:| | Seven correctly calculated and labelled measures (1 each) | 7 | | Revenue growth and gross-margin analysis tied to discounts | 2 | | Operating-profit/margin analysis tied to expansion | 2 | | Liquidity analysis using both current and quick ratios | 2 | | Receivables/inventory days interpreted with cash consequences | 2 | | Operating cash versus profit and borrowing trend | 2 | | Balanced conclusion and relevant additional evidence | 2 | | Closing-balance/seasonality limitation | 1 | | **Total** | **20** | A ratio movement alone is not an explanation. [ACCA interpretation guidance](https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles/performance-appraisal.html). --- ## S2-B — Individual interpretation: lender and cash-flow perspective (20 marks) ### Scenario and requirements Delta Ltd seeks a new loan. For 2026 ($000): revenue 1,000; operating profit 70; profit for the year 50; depreciation included in operating profit 20; trade receivables increased 60; inventories increased 40; trade payables increased 10; income tax paid 10. There are no other operating adjustments. Net investing cash outflow was 80 and financing cash inflow was 100. Current assets are 240, current liabilities 200, and borrowings 300. The prior-year operating cash inflow was 80. A similar competitor has operating margin 15%, current ratio 1.6 and receivable days 45; Delta's closing receivables are 205 and all its revenue is on credit. Management says the higher closing cash balance proves the loan is safe. **Required:** (a) reconcile operating profit to net operating cash and net cash change (8 marks); (b) calculate Delta's operating margin, current ratio and closing-balance receivable days (3 marks); (c) advise a lender on the strength and limitations of the evidence (9 marks). Use 365 days. ### Worked solution Operating cash before tax = $70 + $20 − $60 − $40 + $10 = **$0**. Net operating cash after $10 tax paid = **$10 outflow**. Net cash change = operating $(10) − investing $80 + financing $100 = **$10 inflow**. Thus cash rose because of financing, not because operations generated cash. Delta's operating margin is **7.0%** (70/1,000), current ratio **1.20** (240/200), and receivable days **74.8** (205/1,000 × 365). The competitor's 15% margin, 1.6 current ratio and 45 days are stronger on those measures, but accounting policies, business mix and year-end timing may differ. **Advice:** The deterioration from prior-year operating cash inflow 80 to a 10 outflow, slow collections and inventory build create repayment risk. Profit is positive but accrual-based; financing inflow can temporarily lift cash while adding obligations. The $80 investing outflow could support future capacity, but its returns are not evidenced. Request debt maturity/interest terms, receivables ageing, inventory quality, forecast operating cash, covenant headroom and reasons for differences from the competitor. Do not infer insolvency from these facts alone; conclude that new lending should depend on credible cash-generation evidence and security/terms, rather than the closing cash increase. ### Illustrative marking guide (20) | Credit | Marks | |---|---:| | Start from operating profit and add depreciation | 2 | | Three working-capital signs and cash before tax $0 | 3 | | Tax cash and net operating outflow $10 | 1 | | Net cash change $10 and financing explanation | 2 | | Three ratios/days correctly calculated | 3 | | Comparison to competitor, with comparability limits | 2 | | Collection/inventory and repayment-risk analysis | 3 | | Additional evidence a lender needs | 2 | | Balanced conclusion avoiding unsupported insolvency claim | 2 | | **Total** | **20** | The statement of cash flows is interpreted alongside profit and position; it is not replaced by a ratio list. [ACCA cash-flow interpretation article](https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f7/technical-articles.html). --- ## G2-A — Group interpretation: acquisition-driven growth (20 marks) ### Scenario and requirements Orion Group acquired 80% of S on 1 January 2026. S contributed $300,000 revenue and $45,000 operating profit to the 2026 consolidated figures after acquisition-related adjustments; these amounts are already included in the group totals. There is no investing-category income or expense in either year, so operating profit equals profit before financing and income taxes for this example. Other data ($000): | | 2025 | 2026 | |---|---:|---:| | Group revenue | 1,000 | 1,450 | | Group operating profit | 150 | 190 | | Group assets at year-end | 800 | 1,200 | | Non-current borrowings | 200 | 350 | | Equity including NCI | 400 | 500 | | Net operating cash inflow | 140 | 120 | S's post-acquisition profit after tax was $30,000; NCI is 20%. Assume 2025 had no S and the supplied S contribution can be deducted for a **rough** like-for-like comparison, though synergies and intra-group effects cannot be separated. **Required:** Calculate reported and adjusted revenue/operating-profit growth, return on capital employed (operating profit divided by closing equity plus non-current borrowings), debt/equity and S's post-tax NCI share (8 marks). Assess the group's performance, comparability, financing and cash flow (12 marks). ### Worked solution - Reported revenue growth = (1,450 − 1,000)/1,000 = **45.0%**. Adjusted revenue excluding S contribution = 1,450 − 300 = **1,150**; rough like-for-like growth = **15.0%**. - Reported operating-profit growth = (190 − 150)/150 = **26.7%**. Adjusted operating profit = 190 − 45 = **145**; rough like-for-like change = (145 − 150)/150 = **3.3% decline**. - ROCE using profit before financing and income taxes (equal here to operating profit) and stated closing capital = 150/(400 + 200) = **25.0%** in 2025 and 190/(500 + 350) = **22.4%** in 2026. Debt/equity = 200/400 = **50.0%**, then 350/500 = **70.0%**. S post-tax NCI share = 20% × 30 = **$6,000**. **Interpretation:** Acquisition accounts for much of reported revenue growth; the supplied deduction suggests the pre-existing activities grew sales but lost some operating profit. The latter is only indicative: synergies, eliminations and changed cost allocation may affect a true like-for-like comparison. ROCE fell despite higher reported profit, partly because the acquisition expanded the capital base; closing rather than average capital can distort the comparison. Borrowing relative to equity increased, raising finance risk. Operating cash inflow fell while profit rose; investigate acquisition-related working capital, non-cash adjustments and interest commitments. NCI means not all group profit belongs to P shareholders; do not attribute the whole subsidiary result to them. The group has expanded, but evidence of organic profitability and cash conversion is mixed. Request segment results, acquisition financing terms, purchase-price allocation and group cash-flow detail. ### Illustrative marking guide (20) | Credit | Marks | |---|---:| | Reported and adjusted revenue growth | 2 | | Reported and adjusted operating-profit growth | 2 | | Two ROCE calculations | 2 | | Debt/equity and NCI share | 2 | | Acquisition versus organic-growth interpretation | 3 | | ROCE/capital-base and closing-balance limitations | 2 | | Debt and operating-cash implications | 2 | | NCI attribution and group comparison limits | 2 | | Balanced conclusion and targeted further information | 3 | | **Total** | **20** | --- ## G2-B — Group interpretation: full disposal and associate (20 marks) ### Scenario and requirements P Group owned 80% of loss-making S throughout 2025 and sold its entire interest on 30 June 2026, losing control. S contributed 2025 revenue $250,000 and operating loss $20,000, and pre-disposal 2026 revenue $100,000 and operating loss $10,000. The group also holds an associate; its 2026 share of the associate's post-tax profit was $10,000, while cash dividend received was $3,000. Summary data ($000) are: | | 2025 | 2026 | |---|---:|---:| | Reported revenue including S while controlled | 1,200 | 1,100 | | Reported operating profit including S while controlled, excluding disposal gain | 120 | 150 | | Current assets at year-end | 400 | 350 | | Current liabilities at year-end | 300 | 250 | | Net operating cash inflow | 100 | 130 | A $40,000 gain on selling S is separately reported within the results of a discontinued operation because S is a separate major line of business. The figures for 2025 above are **unrestated management totals** supplied solely for analysis; a published IFRS 5 comparative presentation would re-present discontinued operations. Assume simple subtraction of S's contributions is useful for an indicative continuing-activities comparison and ignore unquantified consolidation effects. **Required:** Calculate reported and indicative continuing-activities revenue and operating-profit growth, current ratios, and difference between associate profit share and dividend (8 marks). Explain the effect of disposal, discontinued presentation, NCI, cash flow and comparability for an investor (12 marks). ### Worked solution - Reported revenue change = (1,100 − 1,200)/1,200 = **8.3% decline**. Excluding S from both periods gives indicative continuing revenue 2025 **950** (1,200 − 250), 2026 **1,000** (1,100 − 100), an **increase of 5.3%**. - Reported operating-profit growth = (150 − 120)/120 = **25.0%**. Excluding S's losses gives indicative continuing operating profit 2025 **140** (120 − (−20)) and 2026 **160** (150 − (−10)), an **increase of 14.3%**. The $40 disposal gain is not included in these operating-profit figures. - Current ratio: 2025 **1.33** (400/300), 2026 **1.40** (350/250). Associate share of profit exceeds cash dividend by **$7,000**; equity-accounted profit is not the same as cash received. **Interpretation:** Reported sales fall partly because S is no longer consolidated after 30 June, so simple group totals obscure modest underlying growth. Removing S's operating losses explains part of reported profit improvement; the $40,000 disposal gain is non-recurring and separately presented as a discontinued operation. P's owners were entitled to only 80% of S's results before disposal; the remaining 20% belonged to NCI. The current ratio improved slightly, but both current assets and liabilities fell after the disposal, so the change is not conclusive evidence of better liquidity. Operating cash improved, yet the supplied figures cannot isolate S's cash contribution; sale proceeds belong to investing cash and are not recurring operating cash. The associate adds $10,000 accounting profit but only $3,000 dividend cash. An investor should ask for re-presented IFRS 5 comparatives, continuing-operations cash flows and recurring earnings before concluding that the group is stronger. ### Illustrative marking guide (20) | Credit | Marks | |---|---:| | Reported revenue movement and indicative continuing revenue growth | 2 | | Reported operating-profit movement and indicative continuing growth | 3 | | Both current ratios and associate profit/dividend difference | 3 | | Disposal's effect on consolidated perimeter and comparison | 2 | | Discontinued-operation gain and recurring-earnings distinction | 2 | | NCI attribution and associate accounting/cash distinction | 2 | | Liquidity/cash-flow analysis and investing cash treatment | 3 | | Comparative-data limitations and balanced investor conclusion | 3 | | **Total** | **20** | **Check:** These are analytical restatements from supplied management data, not an IFRS-compliant comparative statement. The accounting for full disposal, discontinued operations, associate equity method and group interpretation is within the [FR detailed study guide](https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/studyguides/fr_s26_j27_syllabus_and_study_guide.pdf). --- ## S1-C — Individual preparation: lease, loan note and EPS (20 marks) ### Scenario and requirements Mira Ltd's draft 2026 operating profit before the following adjustments is $140,000. On 1 January 2026 it began a three-year equipment lease with three $20,000 payments at each year-end. The discount rate is 10% and supplied present-value factors are 0.909, 0.826 and 0.751. There are no initial direct costs, incentives, residual guarantees or transfer of ownership; the equipment's useful life is five years. On the same date Mira issued a non-convertible loan note for net cash proceeds of $46,000. Its annual cash coupon is $4,000, paid at year-end, and its effective interest rate is 10%. No accounting entry for the lease or 2026 loan finance cost has been made; the $46,000 proceeds were correctly recorded as a liability. There is no investing-category income or expense. Current tax expense for the year is $25,000 with no deferred tax effect from these items. Mira had 50,000 ordinary shares until 30 June and issued 10,000 more for full market value on 1 July. No preference shares or potential ordinary shares exist. **Required:** (a) calculate the lease liability, right-of-use asset, 2026 lease interest, payment, depreciation and closing balances (8 marks); (b) calculate loan finance cost and closing loan liability (4 marks); (c) prepare IFRS 18 profit subtotals to profit for the year and basic EPS (8 marks). Round whole-dollar statement figures at the end. ### Worked solution Lease liability and ROU asset at commencement = $20,000 × (0.909 + 0.826 + 0.751) = **$49,720**. Lease interest = $49,720 × 10% = **$4,972**; after $20,000 cash payment, closing lease liability = **$34,692**. ROU depreciation = $49,720/3 years = **$16,573.33**; closing ROU asset ≈ **$33,146.67**. The three-year lease term is used because no ownership transfer or reasonably certain purchase is given. Loan effective finance cost = $46,000 × 10% = **$4,600**; closing loan liability = $46,000 + $4,600 − $4,000 coupon = **$46,600**. | Profit or loss, year ended 31 December 2026 | $ | |---|---:| | Draft operating profit | 140,000 | | ROU depreciation | (16,573) | | **Operating profit** | **123,427** | | **Profit before financing and income taxes** | **123,427** | | Lease interest | (4,972) | | Loan effective interest | (4,600) | | Profit before income taxes | 113,855 | | Current tax expense | (25,000) | | **Profit for the year** | **88,855** | Weighted-average ordinary shares = 50,000 × 12/12 + 10,000 × 6/12 = **55,000**. Basic EPS = unrounded profit $88,854.67 ÷ 55,000 = **$1.62 per share** to two decimals. The full-market issue has no bonus restatement. ### Illustrative marking guide (20) | Credit | Marks | |---|---:| | Lease present value and initial ROU asset $49,720 | 3 | | Lease interest, payment and closing liability $34,692 | 2 | | ROU depreciation and closing asset | 3 | | Loan effective interest $4,600 | 2 | | Loan closing liability $46,600 | 2 | | Operating and profit-before-financing/tax subtotals | 2 | | Finance costs, profit before tax and profit after tax | 3 | | Weighted shares 55,000 and EPS $1.62 | 3 | | **Total** | **20** | --- ## G1-C — Group preparation: fair-value NCI and intragroup PPE (20 marks) ### Scenario and requirements At 31 December 2026, P reports assets $600,000 (including investment in S $180,000), liabilities $250,000, share capital $200,000 and retained earnings $150,000. S reports assets $300,000, liabilities $100,000, share capital $100,000 and retained earnings $100,000. P acquired 75% of S on 1 January 2026 for $180,000; S's retained earnings were then $60,000. NCI fair value at acquisition was $55,000. At acquisition S's equipment fair value exceeded book value by $40,000; it had five years' remaining life and no residual value. Ignore tax. At 31 December 2026 goodwill is impaired by $10,000; allocate this full-goodwill impairment 75% to P owners and 25% to NCI. On 1 July 2026, S sold PPE to P and recorded a $20,000 gain. The PPE remains in the group and had four years' remaining life at transfer. P depreciated it using the transfer price. There are no other consolidation adjustments. **Required:** (a) calculate acquisition goodwill and closing goodwill (5 marks); (b) calculate adjusted post-acquisition profit, group retained earnings and NCI (8 marks); (c) prepare consolidated assets, liabilities and equity totals with a balance check (7 marks). ### Worked solution Acquisition-date identifiable net assets = $100,000 share capital + $60,000 retained earnings + $40,000 FV uplift = **$200,000**. Full goodwill = $180,000 consideration + $55,000 fair-value NCI − $200,000 net assets = **$35,000**. Closing goodwill after $10,000 impairment = **$25,000**. Extra depreciation on acquisition uplift = $40,000/5 = **$8,000**, leaving $32,000 uplift in group assets. S reported post-acquisition retained-earnings increase of $40,000; after FV depreciation this is **$32,000**. The upstream PPE gain of $20,000 is not realised by the group and is removed from S's result. Excess depreciation recorded by P for six months = $20,000/4 × 6/12 = **$2,500**; reverse it in P's result. Remaining asset overstatement is **$17,500**. Adjusted S post-acquisition result for NCI attribution = $32,000 − $20,000 = **$12,000**. Group retained earnings = P $150,000 + 75% × S adjusted $12,000 + $2,500 reversal of P's excess depreciation − 75% × goodwill impairment $10,000 = **$154,000**. Closing NCI = acquisition $55,000 + 25% × S adjusted $12,000 − 25% × $10,000 impairment = **$55,500**. Assets = P $600,000 + S $300,000 − investment $180,000 + remaining FV uplift $32,000 + closing goodwill $25,000 − remaining intragroup PPE profit $17,500 = **$759,500**. Liabilities = $250,000 + $100,000 = **$350,000**. Equity = P share capital $200,000 + group retained earnings $154,000 + NCI $55,500 = **$409,500**. Liabilities plus equity = **$759,500**. ### Illustrative marking guide (20) | Credit | Marks | |---|---:| | Acquisition net assets $200,000 and full goodwill $35,000 | 3 | | Impairment and closing goodwill $25,000 | 2 | | FV depreciation $8,000 and remaining uplift $32,000 | 2 | | Upstream gain elimination and excess depreciation, net $17,500 | 3 | | Adjusted S post-acquisition result $12,000 | 3 | | Group retained earnings $154,000 | 2 | | Closing NCI $55,500 | 2 | | Asset/liability/equity totals and balance check | 3 | | **Total** | **20** | **Check:** The sale was **upstream** (S to P), so the $20,000 seller gain reduces S's profit for NCI allocation. The $2,500 excess depreciation was recorded by P as buyer and its reversal belongs to P owners. The net group asset reduction remains $17,500. NCI is at fair value, so goodwill impairment is shared under the stated allocation. --- ## S2-C — Individual interpretation: IFRS 18 ratios, shares and valuation (20 marks) ### Scenario and requirements Aster Ltd revalued its PPE upward by $80,000 near the end of 2026, with the net increase included in equity and capital employed. It issued 20,000 ordinary shares for full market value on 1 July 2026, having 40,000 shares before that date. The industry average 2026 operating margin is 15% and ROCE is 30%, but industry entities have different asset ages. Aster's figures ($000 except shares) are: | | 2025 | 2026 | |---|---:|---:| | Revenue | 800 | 900 | | Operating profit | 90 | 105 | | Investing-category income | 10 | 5 | | Profit before financing and income taxes | 100 | 110 | | Finance expense | 20 | 30 | | Profit attributable to ordinary shareholders | 60 | 64 | | Closing capital employed | 400 | 500 | | Net operating cash inflow | 90 | 70 | | Weighted-average ordinary shares | 40,000 | calculate | **Required:** Calculate operating margin, ROCE using the IFRS 18 numerator, interest cover, basic EPS for both years and 2026 weighted shares (9 marks). Assess performance from a shareholder's perspective, including revaluation, cash and benchmark limits (11 marks). ### Worked solution | Measure | 2025 | 2026 | |---|---:|---:| | Operating margin = operating profit/revenue | 11.25% | 11.67% | | ROCE = profit before financing and income taxes/closing capital employed | 25.0% | 22.0% | | Interest cover = profit before financing and income taxes/finance expense | 5.00 | 3.67 | | Basic EPS = ordinary profit/weighted-average shares | $1.50 | $1.28 | 2026 weighted shares = 40,000 × 12/12 + 20,000 × 6/12 = **50,000**; EPS = $64,000/50,000 = **$1.28**. The full-market issue does not require a bonus adjustment. Do not use operating profit as ROCE or interest-cover numerator here: investing income makes profit before financing and income taxes different. **Interpretation:** Revenue and operating profit increased and operating margin improved slightly, but both operating margins are well below the stated industry benchmark. ROCE fell from 25% to 22%, partly because revaluation enlarged the closing capital denominator late in the year; a rough 2026 figure excluding the $80,000 increase is 110/(500−80) = **26.2%**, but this is not a fully comparable restatement because valuation and depreciation effects need further adjustment. Interest cover worsened as finance expense rose. Total ordinary profit increased from $60,000 to $64,000, yet EPS fell because the weighted share count increased by 25%; this matters to existing shareholders. Operating cash declined despite higher profit, so investigate working capital and whether the new capital produced returns. Differences in asset age limit industry ROCE comparison. Conclude that operating growth is modest and per-share returns and cash weakened; seek share-issue use of proceeds, average capital, debt terms and cash-flow detail before deciding whether shareholder value improved. ### Illustrative marking guide (20) | Credit | Marks | |---|---:| | Both operating margins | 2 | | Both ROCE calculations with correct IFRS 18 numerator | 2 | | Both interest-cover calculations | 2 | | Weighted shares 50,000 and both EPS figures | 3 | | Margin and industry comparison | 2 | | Revaluation effect and cautious adjusted ROCE | 2 | | Finance cost/interest-cover risk | 2 | | EPS/share-count interpretation | 2 | | Cash versus profit, limitations and balanced conclusion | 3 | | **Total** | **20** | --- ## G2-C — Group interpretation: acquisition, impairment and cash (20 marks) ### Scenario and requirements Cedar Group acquired 75% of S at the start of 2026. S contributed $200,000 revenue and $25,000 operating profit to 2026 group totals after acquisition-date fair-value depreciation; its post-tax profit was $16,000. The group recognised a $20,000 goodwill impairment in 2026 operating profit. An associate contributed $8,000 share of post-tax profit in 2026, classified in the investing category. The impairment and associate profit are included in the stated group results. Other figures ($000) are: | | 2025 | 2026 | |---|---:|---:| | Group revenue | 1,000 | 1,250 | | Operating profit | 160 | 155 | | Profit before financing and income taxes | 160 | 163 | | Finance expense | 20 | 30 | | Non-current borrowings | 200 | 350 | | Equity including NCI | 500 | 580 | | Net operating cash inflow | 150 | 130 | Assume no acquisition in 2025, no other material changes in group structure, and that the S contribution can be deducted only for an indicative comparison; synergies and eliminations cannot be identified. **Required:** Calculate reported and indicative pre-existing-activity revenue growth, operating-profit movement before/after the impairment, interest cover, debt/equity and S's NCI post-tax share (9 marks). Assess performance, risk, cash and comparison limits for a prospective investor (11 marks). ### Worked solution Reported revenue growth = (1,250−1,000)/1,000 = **25.0%**. Excluding S's $200,000 contribution gives indicative pre-existing revenue $1,050,000 and **5.0%** growth. Reported operating profit fell $5,000, or **3.1%**. Before goodwill impairment, 2026 group operating profit would be $175,000; after excluding S's $25,000 contribution, indicative pre-existing operating profit is **$150,000**, **6.25% below** 2025's $160,000. This is an analytic bridge, not an IFRS restatement. Interest cover = profit before financing and income taxes/finance expense: **8.00** in 2025 and **5.43** in 2026. Debt/equity = **40.0%** then **60.3%**. NCI share of S's post-tax profit = 25% × $16,000 = **$4,000**. **Interpretation:** The acquisition explains most reported sales growth; the existing activities may have weakened on the supplied simplified comparison. Impairment is non-cash in 2026 but signals lower expected recoverable value of acquired goodwill; it should not be ignored when judging acquisition quality. Associate profit raises the IFRS 18 subtotal but does not mean equivalent cash dividends were received. Borrowings rose markedly and interest cover fell, while operating cash inflow declined despite higher revenue. NCI means not all subsidiary profit accrues to parent shareholders. Fair-value depreciation is already in S's contribution, but synergies and eliminations cannot be isolated, so the adjusted comparison is indicative only. Request acquisition purchase-price data, cash-flow detail, segment results and debt maturities; the reported growth alone is not enough to conclude the investment improved returns. ### Illustrative marking guide (20) | Credit | Marks | |---|---:| | Reported and indicative revenue growth | 2 | | Operating-profit movement and impairment bridge | 2 | | Indicative existing-activity operating profit and movement | 2 | | Both interest-cover ratios using IFRS 18 subtotal | 1 | | Debt/equity and NCI share | 2 | | Acquisition versus existing-business interpretation | 2 | | Impairment and associate-profit/cash distinction | 2 | | Debt, cover and operating-cash risk | 2 | | NCI and consolidation-comparison limits | 2 | | Investor conclusion and relevant further information | 3 | | **Total** | **20** | --- ## Review boundary for this casebook These twelve worked cases exercise four distinct Section C requirement pathways and selected adjustment families. They do **not** exhaust the combinatorial space of exam facts. Each question has a separate original marking allocation summing to 20; actual ACCA markers use their own keys and may award appropriate credit for alternative workings. The main arithmetic and statement reconciliations were independently checked as recorded in the accompanying validation record. Any future case or revised fact pattern requires its own check.