IAS 1 · Case studies (Step 3 of 5)
Case study
Mervane SA (fictitious entity), an industrial company, closes its accounts on 31 December 20X6; the financial statements will be authorised for issue on 28 February 20X7. The preparer builds the presentation file submitted to a review check: classification of a borrowing whose covenant is not met at the closing date, going concern with a working capital deficit, compliance statement, comprehensive income and changes in equity, and a transition note to IFRS 18. IAS 1 remains applicable until IFRS 18 applies (annual periods beginning on or after 1 January 2027). Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.
Your assignment
Compute the non-current portion of the Altis borrowing, judge the right to defer at the closing date in view of the letter of 20 February 20X7 and record the reclassification; compute the total of current liabilities; assess going concern and the compliance statement; compute the reclassifiable subtotal, total comprehensive income and closing equity; record the reclassification to profit or loss; write the transition view to IFRS 18; present the cumulative effect of the entries, the information to prepare for the notes, deal with the review points and conclude.
You prepare a complete file: documents, work, entries and conclusion, then compare your work with the solution and the review points of the file.
Autonomous professional situation
As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.
9 documents: open each one to read it.
Document 1Memo
Mervane SA (fictitious entity) makes machine tools and closes its accounts on 31 December 20X6; its functional currency is the euro. Case conventions: amounts in EUR; other comprehensive income is net of tax; case convention (pedagogical assumption, not attributed to the standard): all the requirements of IAS 1 other than those of the file are applied; the entries are illustrative. The content of IAS 7, IAS 8 and IAS 33 is not duplicated.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Outstanding of the Altis borrowing | €4,500,000.00 | |
| Instalment within 12 months | €500,000.00 | |
| Covenant limit (multiple) | 3 units | |
| Ratio at 31 December 20X6 (multiple) | 3.4 units | |
| Trade and other current payables | €2,150,000.00 | |
| Accrued expenses | €420,000.00 | |
| Portion of the borrowing due within 12 months | €500,000.00 | |
| Current assets | €6,200,000.00 | |
| Excess of current liabilities over current assets | €870,000.00 | |
| Cash shortfall without renewal | €1,150,000.00 | |
| Share of the main customer in revenue | 40% | |
| Profit for the period | €2,260,000.00 | |
| Items not reclassified (net) | €410,000.00 | |
| Hedge gain of the period | €150,000.00 | |
| Positive translation difference | €25,000.00 | |
| Reclassification adjustment to profit or loss | €60,000.00 | |
| Opening equity | €12,300,000.00 | |
| Share issue | €300,000.00 | |
| Dividends declared | €900,000.00 | |
| Closing equity per the accounting records | €14,485,000.00 | |
| Stand invoice | €18,000.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Company profile and case conventions
Altis borrowing: agreement and covenant
Letter from Altis Bank dated 20 February 20X7
Other liabilities and current assets
Board of directors: going concern
Profit and other comprehensive income of 20X6
Changes in equity of 20X6
IFRS 18 transition note
Invoice for a trade fair stand
Organise your work freely: deal with each point, then argue your conclusion.
Task 1Analysis
Draw up the plan of the file: which presentation points are at stake and which documents are useful?
Task 2Calculation
Altis borrowing: compute the non-current portion before the effect of the covenant.
Part 1 · Calculation
Altis borrowing: compute the non-current portion before the effect of the covenant.
Task 3Professional judgement
Does the entity have the right to defer settlement at the closing date, in view of the letter of 20 February 20X7?
Task 4Journal entries
Record the reclassification of the borrowing to current.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 5Calculation
Compute the total of current liabilities.
Part 1 · Calculation
Compute the total of current liabilities.
Task 6Professional judgement
Can the statements be prepared on the going concern basis and what information to give?
Task 7Professional judgement
Is the statement of compliance with IFRS possible?
Task 8Calculation
Compute the subtotal of other comprehensive income that will be reclassified.
Part 1 · Calculation
Compute the subtotal of other comprehensive income that will be reclassified.
Task 9Calculation
Compute total comprehensive income.
Part 1 · Calculation
Compute total comprehensive income.
Task 10Journal entries
Record the reclassification of the hedge gain to profit or loss.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 11Calculation
Reconcile closing equity.
Part 1 · Calculation
Reconcile closing equity.
Task 12Analysis
Write the transition view to IFRS 18.
Task 13Effects on the financial statements
What is the cumulative effect of the two entries on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Other comprehensive income
Task 14Analysis
Which information is to be prepared for the notes?
Task 15Conclusion
Write the conclusion of the file and deal with the review points.
Points raised during the review of this file: read them as the preparer would.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 17).
Document this file
These working papers use the data and results of this case.
Normative references