9.1 Step-by-Step Approach to IFRS Problems
- Read the question carefully: Identify the specific IFRS standards and disclosures required.
- List required adjustments: E.g., business combination adjustments, fair-value uplifts, deferred tax, intercompany eliminations.
- Draft journal entries: Write clear Dr/Cr entries for each adjustment before preparing schedules.
- Prepare standalone schedules: Income statement and balance sheet for each entity using trial-balance figures and your adjustments.
- Consolidate and eliminate: Combine like items, eliminate intercompany balances/transactions, recognise goodwill and NCI.
- Compute and interpret ratios: Assess liquidity, profitability, leverage and market metrics on the consolidated figures.
- Review and check: Ensure statements balance, classification is correct, references to IFRS are noted, and workings are clearly shown.
9.2 Common Pitfalls & Tips
- Omitting eliminations: Always eliminate intercompany receivables/payables, sales/COGS, dividends and unrealised profits.
- Goodwill calculation errors: Remember to include non-controlling interest (at fair value or proportionate share) and any previously held interests.
- Deferred tax on uplifts: Don’t forget the DTL on fair-value adjustments and the annual deferred-tax movement.
- Inventory valuation: Apply lower of cost or NRV and remove unrealised intercompany profit from closing inventory.
- Rounding & consistency: Keep units consistent (e.g. \$’000) and round only at the final step to avoid mismatches.
- Referencing standards: Cite the relevant IFRS/IAS (e.g. IFRS 3 para 18) to strengthen your answer.
9.3 Practice Problem
Scenario: Entity X acquires 70% of Entity Y for \$4 000 000. Y’s fair-value net assets total \$5 000 000 and include a \$500 000 PPE uplift (remaining life 5 years). During the year, X sold goods to Y for \$200 000 at 20% markup; 10% remains unsold at year-end. Outline your step-by-step solution.
- Identify applicable standards: IFRS 3, IAS 16, IAS 12, IFRS 10, IAS 2.
- Calculate consideration, FV net assets, goodwill, and NCI.
- Prepare acquisition journal entries, including DTL for uplift.
- Prepare standalone P&L and BS for X and Y, incorporating depreciation on uplift.
- Consolidate: aggregate, eliminate intercompany sales/COGS and unrealised profit, recognise goodwill and NCI.
- Compute consolidated ratios and interpret results.
- Review: ensure all eliminations, tax effects and disclosures are included.