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IFRS 18Case studies (Step 3 of 5)

Case study

Step 3 of 5
Professional fileIFRS 18L4 · Expert

IFRS 18 transition file of an industrial group: classification by category, subtotals, performance measures, restated comparative

9 documents17 tasks≈ 300 min
0 / 18 items completed
Standards
IFRS 18 — Presentation and Disclosure in Financial Statements
Assistance levelFree workspace · autonomous situation
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn

Case brief

Situation

Hexalor SA (fictitious entity), an industrial group, applies IFRS 18 for the first time to its period beginning on 1 January 2027; the 2026 comparative period is restated. The preparer builds the transition file submitted to a review check: classification of the income and expenses of the comparative, reclassification between categories, required subtotals, reconciliation of the measure "adjusted operating profit", transition difference and operating cash flow from operating profit. 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

Classify the income and expenses of the 2026 comparative and record the reclassification of the unwinding; compute operating profit, profit before financing and income taxes, profit before income taxes and profit for the period; compute the transition difference and describe the reconciliation; identify the management-defined performance measure, compute it and reconcile its two items with the tax and non-controlling interest effects; compute the operating cash flow; present the effect of the entry, the notes to prepare, 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.

  • Organise the work
  • Document each point
  • Argue the conclusion

Documents

File documents

9 documents: open each one to read it.

Document 1Memo

Group profile and case conventions

Hexalor SA (fictitious entity) makes machine tools; its 2027 period begins on 1 January 2027 and its comparative period is 2026; its functional currency is the euro; it has no specified main business activity. Case conventions: amounts in EUR; case convention (pedagogical assumption, not attributed to the standard): simplified statutory-rate approach of 25 % for the tax effect; the unwinding is the only difference in classification; the entry is illustrative. The content of IAS 7 is not duplicated.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Revenue€62,000,000.00
Other operating income€320,000.00
Cost of sales€38,500,000.00
Distribution and administrative expenses€11,200,000.00
Operating result under IAS 1€12,620,000.00
Tax expense€3,040,000.00
Result of discontinued operations€180,000.00
Unwinding of the decommissioning provision€220,000.00
Gain on the disposal of a machine€230,000.00
Exchange gain on trade receivables€90,000.00
Deposit interest€140,000.00
Share of the associate€360,000.00
Interest on the bank loan€960,000.00
Restructuring costs€380,000.00
Tax effect of the restructuring€95,000.00
Effect of the restructuring on non-controlling interests€28,500.00
Litigation settlement€300,000.00
Tax effect of the litigation€75,000.00
Effect of the litigation on non-controlling interests€22,500.00
Depreciation and amortisation€3,150,000.00
Increase in working capital€1,090,000.00
Total operating expenses after reclassification€49,480,000.00
Income of the investing category€500,000.00
Expenses of the financing category€1,180,000.00
Training invoice€12,500.00

Sorting the information

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.

To sort9

  • Group profile and case conventions

  • 2026 statement of profit or loss under IAS 1

  • Note on the decommissioning provision

  • Breakdown of other operating income

  • Earnings release: published measure

  • Reconciling items of the measure

  • 2026 cash flow data

  • Summary of the restated comparative

  • Training invoice

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

      Organise your work freely: deal with each point, then argue your conclusion.

      1. Task 1Analysis

        Draw up the plan of the file: which transition points are at stake and which documents are useful?

      2. Task 2Professional judgement

        Classify the income and expenses of the comparative into the five categories.

      3. Task 3Journal entries

        Record the reclassification of the unwinding to financing.

        Calculator

        Click in an answer field to be able to insert the result.

        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.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      4. Task 4Calculation

        Compute the operating profit of the restated comparative.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the operating profit of the restated comparative.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      5. Task 5Calculation

        Compute profit before financing and income taxes.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute profit before financing and income taxes.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      6. Task 6Calculation

        Compute profit before income taxes.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute profit before income taxes.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      7. Task 7Calculation

        Compute profit for the period.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute profit for the period.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      8. Task 8Calculation

        Compute the transition difference of operating profit.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the transition difference of operating profit.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      9. Task 9Analysis

        Describe the reconciliation of the comparative with IAS 1.

      10. Task 10Professional judgement

        Is "adjusted operating profit" a management-defined performance measure? And operating profit?

      11. Task 11Calculation

        Compute the measure "adjusted operating profit".

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the measure "adjusted operating profit".

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      12. Task 12Calculation

        Compute the net effect of tax and non-controlling interests of the restructuring.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the net effect of tax and non-controlling interests of the restructuring.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      13. Task 13Calculation

        Compute the net effect of tax and non-controlling interests of the litigation settlement.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the net effect of tax and non-controlling interests of the litigation settlement.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      14. Task 14Calculation

        Compute the operating cash flow from operating profit.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the operating cash flow from operating profit.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      15. Task 15Effects on the financial statements

        What is the effect of the reclassification entry on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

      16. Task 16Analysis

        Which information is to be prepared for the notes?

      17. Task 17Conclusion

        Write the conclusion of the file and deal with the review points.

      File review

      Points raised during the review of this file: read them as the preparer would.

      Review notes

      • BlockingResolvedReview point (blocking): attach the breakdown of the other operating income to support their operating classification
      • Non-blockingResolvedReview point (cleared): statutory rate of 25 % confirmed for the jurisdictions of the reconciling items, by case convention

      Information requests

      • ObtainedRequest to the accounting department: breakdown of the other operating income
      • Assumption documentedDocumented assumption: single tax rate for the simplified approach

      Completion checklist

      • Classification established category by categoryDone
      • Reclassification of the unwinding documentedDone
      • Required subtotals reconciled to the comparativeDone
      • Performance measure reconciled with tax and non-controlling interest effectsDone
      • Entry balanced and effect on the financial statements establishedDone
      • Tax rate of the simplified approach confirmed (case convention)Done

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 18).

      Document this file

      These working papers use the data and results of this case.