Answers

Strategic Professional – Essentials, SBR – INT

Strategic Business Reporting – International (SBR – INT) September/December 2024 Sample Answers

1 (a) Control
IFRS 10 Consolidated Financial Statements sets out the following three elements of control:
– power over the investee;
– exposure, or rights, to variable returns from involvement with the investee; and
– the ability to use its power over the investee to affect the amount of those returns.
Rights confer power when they are sufficient to give the investor the current ability to direct the ‘relevant activities’ unilaterally.
In accordance with IFRS 10, relevant activities are activities of the investee which significantly affect the investee’s returns.
Application to Layout Co
Control is normally assumed when an investor holds more than 50% of the voting rights. Layout Co only owns 45% of the
voting rights, and this suggests that control does not exist. Moreover, the other 55% of the voting rights are held by a single
investor, rather than being dispersed.
However, assessing control is more complicated than this, because it would seem that Brassioc Co’s relevant activities are
directed through its board of directors.
Layout Co cannot take any decision on its own as business decisions require the approval of seven out of twelve executive
directors, and only five executive directors are appointed by Layout Co. Also, the fact that Layout Co can appoint the majority
of the non-executive directors is irrelevant as they have no decision-making power. Currently, Layout Co does not have rights
which give it the ability to direct the relevant activities of the company.
The forward contracts’ settlement date is in over nine months’ time and therefore Layout Co does not have the current ability
at 31 December 20X7 to direct the relevant activities of Brassioc Co.
This means that the existing private investor can direct the relevant activities of Brassioc Co. Layout Co should not treat
Brassioc Co as a subsidiary as at 31 December 20X7.

(b) Pension plan

In accordance with IAS 19 Employee Benefits, Layout Co should recognise a net interest component of $1·2 million ($24m x
5%). This is recognised as an expense in the statement of profit or loss and increases the net pension plan deficit.
The cash contributions are accounted for as a reduction to the net plan deficit (an increase to the plan assets). As such, a
$4 million expense should be removed from the statement of profit or loss.
The payment to another pension provider is a settlement. There is a loss on settlement of $10 million ($60m – $50m) in profit
or loss. This forms part of the service cost component. Therefore, the total service cost is $16 million ($10m + $6m) which
increases the net plan deficit and is recognised as an expense in the statement of profit or loss.
At the year end, a net deficit of $40 million should be recognised in non-current liabilities on the statement of financial position.
This is the valuation provided by the actuary after the information about the settlement event is considered. The previous
valuation of $32 million is no longer accurate.
A remeasurement loss of $2·8 million arises. This is recognised in other comprehensive income and presented as an item
which will not be reclassified to profit or loss in the future.
$m
Net deficit at 1 January 20X7 24·0
Net interest component 1·2
Service cost component 16·0
Cash contributions (4·0)
Remeasurement loss (balancing figure) 2·8
––––
Net deficit at 31 December 20X7 40
––––

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 (c) Spreadsheet solution
Tutorial note: As Brassioc Co is an associate, its net assets, goodwill and non-controlling interest, which have been incorrectly
recognised in the draft consolidated statement of financial position at the reporting date, will need to be removed.
An investment in the associate at a cost of $35 million will be added to the statement of financial position. This will subsequently
be increased by Layout Co’s share of post-acquisition profits.
Layout Group
Draft consolidated statement of financial position as at 31 December 20X7
Remove Associate Pension Pension Pension Pension
Draft sub profits interest service cash remeasurement Revised
$m $m $m $m $m $m $m $m
Assets
Non-current assets
Property, plant and
equipment (W2) 634 (56·8) 577·2
Investment in
associates (W3) 51 35 4·4 90·4
Goodwill (W1) 81 (3) 78
–––––– ––––––––
Total non-current assets 766 745·6
–––––– ––––––––
Current assets 1,456 (47) 1,409
–––––– ––––––––
Total assets 2,222 2,154·6
–––––– ––––––––
Equity
Share capital 135 135
Other components of equity 189 (2·8) 186·2
Retained earnings (W3) 1,506 (4·4) 4·4 (1·2) (16) 4 1,492·8
Non-controlling interest (W4) 299 (56·4) 242·6
–––––– ––––––––
Total equity 2,129 2,056·6
–––––– ––––––––
Liabilities
Non-current liabilities
Net defined benefit deficit 24 1·2 16 (4) 2·8 40
Current liabilities 69 (11) 58
–––––– ––––––––
Total equity and liabilities 2,222 2,154·6
–––––– ––––––––
Workings
(W1) Goodwill
$m
Consideration 35
NCI at acquisition 51
Fair value of net assets at acquisition (83)
–––
Goodwill 3
–––
(W2) PPE
$m
Per SFP 32
Uplift ($83m FV – $10m – $3m – $39m) 31
Depreciation on uplift ($31m/5 years) (6·2)
–––––
56·8
–––––
(W3) Post-acquisition retained earnings
$m
Retained earnings at rep date ($55m – $6·2m (W2)) 48·8
Retained earnings at acquisition (39)
–––––
Post acquisition 9·8
–––––
Group share ($9·8m x 45%) 4·4
NCI share ($9·8m x 55%) 5·4

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 (W4) NCI at reporting date
$m
NCI at acquisition 51
NCI share of post-acquisition retained earnings (W3) 5·4
–––––
56·4
–––––

2 (a) Long-term borrowing

IAS 7 Statement of Cash Flows requires Apaniiwa Co to explain the changes in liabilities arising from financing activities and
not simply to show the net movement of $11·1 million ($21·1m – $10m).
The initial recognition of the lease liability of $8 million does not involve a cash flow and should not be reported in the
consolidated statement of cash flows. Similarly, the recognition of the subsidiary’s loan of $1·5 million at acquisition is not a
cash flow and should also not be reported in the consolidated statement of cash flows.
The increase in long-term borrowings of $2·5 million and the repayment of lease liabilities of $0·9 million should be shown as
separate cash flows from financing activities.
High-interest bank account
IAS 7 defines cash equivalents as short-term, highly liquid investments which are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value. IAS 7 states that an investment normally qualifies as a cash
equivalent when it has a short maturity of three months or less from the date of acquisition.
The money in the high-interest account does not appear to meet this definition because it cannot be withdrawn until six months
have passed. The lack of contractual right to early termination prevents the classification of the deposits as cash equivalents
even though Apaniiwa Co considers that the bank would release the funds. As such, the money in the high-interest account
does not meet the definition of a cash equivalent.
The money paid into the high-interest account during the year should be presented as a cash outflow from investing activities.
Any interest received should be presented as a cash inflow from investing activities.

(b) Sustainability
In order to produce a sustainability report, Mr Lennox requires knowledge of IFRS S1 General Requirements for Disclosure
of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. Preparing the report without this
knowledge would be a breach of the principle of professional competence and due care.
Mr Lennox should inform Ms Ruiz of his knowledge gaps. If possible, he should attend external training courses on the
application of these standards. If not, then he should not perform the work. Apaniiwa Co may need to pay a third party to assist
with the preparation of this report.
Cash flow statement
It is difficult for Mr Lennox to act with objectivity when he has been threatened with dismissal and replacement.
It appears that Ms Ruiz is purposefully concealing the extent of her dividend payment, and this demonstrates a lack of integrity
and objectivity. This has been driven by the fact that Ms Ruiz is a major shareholder who wants to hide the value of her
dividend from third parties, creating a self-interest threat.
Mr Lennox should document the relevant facts. Additionally, he should examine the other financial statements in order to see if
the foreign currency loss and dividends paid have also now been misstated in them. He should collect together evidence from
the financial records which indicate that the two amounts are incorrectly presented and should identify the parties which will
be affected by the errors.
Mr Lennox needs to determine with whom he can discuss the matter as under normal circumstances, he would discuss such
issues with his immediate line manager. However, in this case, his immediate line manager is Ms Ruiz which could pose
a problem for him as he is likely to receive a response which is not appropriate. He should discuss the matter with other
recipients of the financial statements which is likely to be board members and possibly the audit committee.
He may consider contacting ACCA for advice and guidance. In any event, it will be helpful to document his involvement, the
substance of any discussions held with Ms Ruiz and other parties, and the basis of any decisions which were made. If there
is no satisfactory resolution of the issue which could easily be the case, he should consider his position with the company.

3 (a) Transaction price

In accordance with IFRS 15 Revenue from Contracts with Customers, Cial Co should allocate the transaction price in proportion
to relative stand-alone selling prices. This is the price at which an entity would sell the good or service on a separate basis at
contract inception. IFRS 15 states that the observable price of a good or service sold separately provides the best evidence
of stand-alone selling price. If stand-alone selling prices are not readily available, the entity should estimate the stand-alone
selling price of each element of the contract using all information which is reasonably available.

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 Cial Co regularly sells the computers separately for $1,720 but the individual selling prices of the printers and display screens
are not available. Because the stand-alone selling prices for printers and display screens are not directly observable, Cial Co
must estimate them using all available information, maximising the use of observable inputs.
To estimate the stand-alone selling prices, Cial Co will use an adjusted market assessment approach for the printers and an
expected cost plus a margin approach for the display screen.
The adjusted market assessment approach focuses on the amount which the entity believes the market, to which it sells goods
or services, is willing to pay for a good or service. In this case, Cial Co can refer to competitors’ prices for similar goods or
services. Because Cial Co believes that the competitors’ prices reflect the entity’s own costs and margins, a stand-alone price
of $180 can be used for the printer.
The expected cost plus a margin approach focuses on the entity’s cost of production but must reflect the margin the market
would be willing to pay. Cial Co achieves a profit margin of 25% on the selling price of its products. Therefore, the stand-alone
selling price of the monitor will be $200 ($150/75 x 100).
The sum of the stand-alone selling prices of $2,100 ($1,720 + $180 + $200)) exceeds the promised consideration of
$2,000. In this case, the total transaction price is allocated proportionately across the three products based on the stand-alone
selling prices, as follows:
Stand-alone price Working Transaction price
$ $
Computer 1,720 $1,720/$2,100 x $2,000 1,638·1
Printer 180 $180/$2,100 x $2,000 171·4
Monitor 200 $200/$2,100 x $2,000 190·5
–––––– –––––––
Total 2,100 2,000
–––––– –––––––

(b) Discontinued operation

A discontinued operation is a component of the entity which either has been disposed of or is classified as held for sale, and
– represents a separate major line of business or geographical area of operations, or
– is part of a single coordinated plan to dispose of a separate major line of business or a separate major geographical area
of operations, or
– a subsidiary acquired exclusively with a view to resale.
In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the term ‘component of an entity’
comprises operations and cash flows which can be clearly distinguished from the rest of the entity. A component of an entity
may be a reportable segment or an operating segment, a reporting unit, a subsidiary, or an asset group. A component is usually
identified at a level higher than a single cash-generating unit. As such, a licence is unlikely to be a component of an entity.
The assessment of a separate major line of business is based upon the size and relative importance of the business. The
licensing revenue from the piece of software was relatively small in the context of the overall business. However, a numerical
determination alone is not necessarily going to determine whether the disclosure is in accordance with the guidance in IFRS 5.
The sale of a licence was not due to a coordinated strategic decision to end a specific line of business but appears to be part
of the normal course of business which includes continuous change to the composition of licences.
Even though the licence had been purchased with a view to reselling, it does not constitute a ‘subsidiary acquired exclusively
for resale.’ Therefore, the licence sold was just one of several individual sales. In conclusion, none of the criteria in IFRS 5 are
fulfilled and the classification of the profit on sale of the licence within discontinued operations was inappropriate.

(c) Change in use

The cost of the land was correctly recognised as property, plant and equipment on 31 December 20X6. However, with the
change of use from business purposes to a property which will earn rental income, it should be recognised as an investment
property from 1 September 20X7.
IAS 40 Investment Property gives the entity the choice of accounting policy as either the fair value model or the cost model.
IAS 40 states that if the fair value of an investment property is not reliably measurable, the entity should measure that
investment property using the cost model. It is only in exceptional cases that the fair value of an investment property cannot
be measured reliably. Cial Co had a good understanding of how to determine the fair value of the land when determining the
purchase price it was willing to pay. Moreover, similar plots of land had recently been sold for $11 million. Per IFRS 13 Fair
Value Measurement, this would most likely constitute a level 2 or 3 input to a market-based approach.
When an owner-occupied property becomes an investment property carried at fair value, Cial Co should record any difference
at that date between the carrying amount of the property and its fair value in the same way as a revaluation in accordance with
IAS 16 Property, Plant and Equipment. On 1 September 20X7, Cial Co should have recognised a gain of $1 million ($11m –
$10m) in other comprehensive income.
The subsequent gain of $0·5 million ($11·5m – $11m) at 31 December 20X7 would be recognised in profit or loss.

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 (d) Payment to acquire option
The option to buy the building is for the purpose of receipt of a non-financial asset and, as such, is outside the scope of
IFRS 9 Financial Instruments. The reason for this is that the contract will be settled by physical delivery of the building. This
‘own use’ exemption means that it is not accounted for as a derivative.
The payment made will be recognised as an asset. This would be a non-financial asset, although it would not meet the
definition of investment property. In accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates, it should be
translated into the company’s functional currency using the exchange rate on the purchase date. The asset is non-refundable,
so is a non-monetary item, which means it will not be retranslated at the reporting date.

4 (a) (i) Materiality

Materiality in the IFRS Sustainability Disclosure Standards is based on financial materiality, which focuses on how
sustainability issues affect the financial performance, financial position and cash flows of an entity.
Materiality in the European Sustainability Reporting Standards is based on a concept referred to as double materiality.
This focuses on financial materiality, as above, but also focuses on impact materiality, which is how the entity impacts the
environment and society. This means that entities consider both what is material to the environment and what is material
to them, and that the two assessments are interrelated and interdependent.
(ii) Timing of reporting
According to IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, the sustainability
report should cover the same reporting period as the financial report, which is the 12-month period to 31 December
20X7.
Risks
According to IFRS S2 Climate-related Disclosures, users should be informed about both climate-related physical risks and
climate-related transition risks which might reasonably be expected to affect an entity’s prospects. These are likely to be
significant for Kimimila Co because it manufactures petrol car engines, and the market for these is likely to diminish as
the demand for lower-carbon alternatives increases.
For the risks and opportunities identified, Kimimila Co has disclosed information about the impact on future financial
performance and position. Kimimila Co should also disclose information about the impact on cash flows. Moreover,
Kimimila Co has only disclosed information about the impact over the next 12 months; IFRS S2 states that companies
should disclose the impact over the short, medium, and long term.
Greenhouse gas emissions
Kimimila Co has only disclosed its Scope 1 greenhouse gas emission. IFRS S2 states that entities should also disclose
information about Scope 2 and Scope 3 greenhouse gas emissions. Note that Kimimila Co would be exempt from
disclosing Scope 3 greenhouse gas emissions in its first annual report produced under the IFRS Sustainability Disclosure
Standards.
Although it can be difficult to measure greenhouse gas emissions, particularly Scope 3, S2 prescribes the use of the
Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard when doing so (unless the entity’s jurisdiction
or exchange requires use of a different method) to increase comparability between entities. Measurement uncertainty
will arise, but Kimimila Co should disclose information about its measurement approach, as well as the inputs and
assumptions used.
Targets
According to IFRS S2, companies should disclose climate-related targets which it has set to monitor its progress. The
share-based payment was based on a clear target to reduce greenhouse gas emissions by an average of 10% per year. As
such, Kimimila Co should have disclosed the metric used, the objective of the target and the period over which the target
applied. It should also disclose the fact that it did not satisfy this climate-related target.
Carbon credits
Kimimila Co uses carbon credits. According to IFRS S2, Kimimila Co should have disclosed the fact that 50% of its carbon
reduction target is based on the use of carbon credits. It should also have disclosed the types of carbon credit used (i.e.
whether they are based on carbon reduction or removal), and other factors to help the users assess the credibility and
integrity of its carbon credits.

(b) Financial assets

The financial assets are measured at amortised cost, and therefore fall within the impairment requirements of IFRS 9 Financial
Instruments.
Climate-related matters may affect Kimimila Co’s exposure to credit losses. The wildfires, floods and policy and regulatory
changes could negatively affect a borrower’s ability to meet its debt obligations to Kimimila Co. Further, assets could be affected
by climate change, which would result in the reduction of their worth as security for the loans. In recognising and measuring
expected credit losses, IFRS 9 requires use of all reasonable and supportable information which is available without undue

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 cost or effort. Climate-related matters may therefore be relevant as they will affect the range of potential future economic
outcomes. Kimimila Co will need to assess whether there has been a significant increase in credit risk and whether the loans
are credit‑impaired. In turn, expected credit losses are required to be measured through a loss allowance at an amount equal
to the 12-month expected credit losses or full lifetime expected credit losses.
Deferred tax assets
Deferred tax assets for deductible temporary differences and unused tax losses and credits are recognised under IAS 12 Income
Taxes to the extent that it is probable that future taxable profit will be available against which those amounts can be utilised.
Suppliers are likely to increase their prices, and this will lead to lower profits in future periods.
Some of Kimimila Co’s products are likely to become less popular and, once again, this will have a negative impact on future
profits.
The impact of climate change is creating uncertainty. This is likely to mean that Kimimila Co cannot forecast future profits with
much certainty.
As a result of the above, future profits may be less likely. Kimimila Co may be unable to recognise deferred tax assets or could
be required to derecognise its deferred tax assets which were previously recognised.

(c) Share-based payment

In accordance with IFRS 2 Share-based Payment, an expense should be recognised in respect of the share-based payment
scheme over the four-year vesting period based on the number of options expected to vest. As an equity-settled scheme, the
expense is measured using the fair value of the options at the grant date, which is $8 per option.
The greenhouse gas target is a non-market performance condition. As at 31 December 20X6, this was expected to be met. The
total expense and equity recognised by this date would have been $900,000 (10 directors x 15,000 options x $8 fair value x
3/4).
In the year ended 31 December 20X7, the share options did not vest because the non-market performance condition was not
met. As such, the $900,000 expense and equity recognised to-date should be reversed.

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Strategic Professional – Essentials, SBR – INT
Strategic Business Reporting – International (SBR – INT) September/December 2024 Sample Marking Scheme

Marks
1 (a) Discussion and application of the IFRS 10 principles to the scenario:
Principles 4
Discussion 7
–––
Max 8
–––

(b) Discussion and application of the IAS 19 principles to the scenario:

Discussion 4
Application and accounting 7
–––
Max 8
–––

(c) Pre-populated spreadsheet

PPE – calc 2
PPE – adj 2
Investment in associate – calc 1
Investment in associate – adjs 2
Goodwill – calc 1
Goodwill – adj 1
Remove CA and CL 1
Other components of equity – adj 1
Retained earnings – adjs 3
Non-controlling interest – calc 1
Non-controlling interest – adj 1
Net defined benefit deficit 1
–––
Max 14
–––
30
–––

2 (a) Long-term borrowings 5

High-interest bank account 7
–––
Max 8
–––

(b) Sustainability principles 1

Sustainability actions 3
Cash flow ethical principles 5
Cash flow actions 5
–––
Max 10
–––
Professional skills marks 2
–––
20
–––

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 Marks
3 (a) Discussion of the following:
IFRS 15 principles 2
Discussion of computer 1
Discussion of printer and monitor 5
Allocation calculation 2
–––
Max 8
–––

(b) Discussion of the following:

IFRS 5 principles 3
Application of principles to scenario 6
Conclusion 1
–––
Max 7
–––

(c) Discussion of the following:

PPE/investment property classification 2
Fair value 3
Measurement and gains 3
–––
Max 6
–––

(d) Discussion of the following:

IFRS 9 principles 1
Discussion of asset recognition 3
IAS 21 principles and application 1
–––
Max 4
–––
25
–––

10
 Marks
4 (a) (i) Discussion of the following:
IFRS approach 1
ESRS approach 1
–––
2
–––
(ii) Discussion of the following:
Timing of reporting 1
Risks 4
Greenhouse gas emissions 4
Targets 2
Carbon credits 2
–––
Max 10
–––

(b) Discussion of the following:

IFRS 9 principles 1
Application to measurement of credit losses 3
IAS 12 principles 1
Application to ability to forecast future profits 3
–––
Max 6
–––

(c) Discussion of the following:

IFRS 2 principles 2
Non-market performance conditions 1
Expense and equity in 20X6 2
Discussion of reversal in 20X7 2
–––
Max 5
–––
Professional skills marks 2
–––
25
–––

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