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, examiner approach.
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 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; ACCA IFRS 18 article.
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; IAS 7.
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; ACCA IFRS 18 article.
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.
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.
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.
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.