A statement of changes in exam papers

August 2020

Struggling with SOCIE? Fear not, Chris Barlow is here to lend a helping hand.

IAS 1 states that a statement of changes in equity (SOCIE) forms part of a set of published company accounts, but it seems to be a common theme within the ACCA FR exam that students struggle with, or totally omit it, in a published company accounts exam question (see examiner’s reports from March 2020).

Given the preparation of a SOCIE has appeared within published company accounts questions for up to six marks, then with a comprehensive understanding of what is recognised in it and how to approach it in the exam, then it can be a statement of changes in exam results. What might have been a fail can readily turn into a pass. So, let’s look at how we can change this exam performance.

The SOCIE is quite literal in that it is a statement that shows the users of the accounts how the equity section has changed from the start of the period to the end of the period. So, what appears in it? Surely that’s obvious, no? Equity appears on the statement of financial position alongside the assets and liabilities.

We could all name the assets and liabilities if challenged to do so without thinking, but what about the equity balances? Ask yourself what they are and list them out, what balances appear within equity?

Yes, you got there, they are as follows:

• Equity shares.

• Share premium.

• Retained earnings.

• Other comprehensive income.

• Convertible option (hard!).

OK, now identify what causes these balances to change each year and which balances they impact. Go on, list them!

You should have thought of the following:

• Share issues (rights/bonus/new issue) – equity shares and share premium.

• Profit or loss for the year – retained earnings.

• Ordinary dividends – retained earnings.

• Revaluation gains (and associated deferred tax) – other comprehensive income.

• Prior year errors – retained earnings.

• Changes in fair value of FVTOCI financial instruments – other comprehensive income.

• Convertible debt – convertible option (hard!).

Do you spot a theme as you look through what changes the equity balances? If you’ve not then apart from the change in fair value of FVTOCI financial instruments and the convertible debt, all the other adjustments are straight out of ACCA FA, that everyone will have either passed or received an exemption for.

So, it cannot be a case of a lack of knowledge surrounding the SOCIE, it must be a lack of proper exam technique that is the issue. Why is this the case?

Possibly as students are focused on maximising marks on the SFP and/ or SPLOCI, marks that can be too difficult to obtain for many. So, as we’re working through the adjustments to the SFP and SPLOCI we should be thinking about adjusting the SOCIE too, so that we can maximise marks there. So, how do we do this and ensure that we get the ‘easy marks’?

• Opening balances – copy them across from
the trial balance. Easy!

• Profit or loss for the year – use your own
figure from the SPL. Whether this is the
right or wrong number you will get an easy
own figure mark here, provided you treat it
correctly. Add the profit for the year from
the SPL (or subtract the loss) from retained
earnings as the last thing you do in answering
the question, and give yourself time to do so.

• Share issues – you should be able to do this in your sleep. The nominal value of the shares issued goes to share capital and the excess above the nominal value goes to share premium. Easy! Don’t forget any links to EPS calculations…

• Ordinary dividends – the total dividend paid to the equity shareholders (dividend per share multiplied by the number of shares in issue) is a reduction in the retained earnings. Easy!

So potentially three or four, pretty easy, marks that can be scored in an exam question that can mean the difference between a pass and a fail. Yes, the examiner could throw in a curve ball in relation to the share issue but if that is done then there will be an easier mark elsewhere.

Head over to www.opentuition.com to find questions geared around the statement of changes in equity and how to attempt it as part of a published company accounts question.

• Chris Barlow is a tutor with OpenTuition