FR: Preparation of financial statements

Answer: D. IFRS 18 introduces a structured income statement with five categories: (1) operating, (2) investing, (3) financing, (4) income taxes, and (5) discontinued operations. This replaces the more flexible IAS 1 format. The key change is the mandatory separation of operating from investing and financing activities, improving comparability. Administrative and distribution costs (A) are sub-classifications within operating — they are not the only categories. Netting prohibitions (B) apply to specific items, not everything. The line items within categories (C) have mandatory requirements.

Answer: A. Indirect method: Start with PBT $650,000. Add back depreciation +$95,000. Remove profit on disposal −$18,000 (non-operating item — add back loss/remove gain). Working capital: receivables increase −$40,000; inventory increase −$15,000; payables decrease −$25,000. Cash generated from operations = $650,000 + $95,000 − $18,000 − $40,000 − $15,000 − $25,000 = $647,000. Less tax paid −$120,000 = $527,000. Option B includes profit on disposal instead of removing it. Option C ($577,000) treats the decrease in payables as a source of cash (adding $25,000) instead of a use (subtracting it). Option D is cash before tax. Note: the profit on disposal is excluded from operating activities — the full proceeds appear under investing activities.

Answer: B. The statement of changes in equity captures all changes in equity from non-owner sources, including items in OCI that do not pass through profit or loss. Revaluation surpluses under IAS 16 are recognised in OCI and transferred to the revaluation surplus in equity — they never enter profit or loss (unless they reverse a previous revaluation loss that was charged to P&L). Depreciation (A), finance costs (C), and impairment of goodwill (D) are all recognised in profit or loss. Dividends paid and share issues also appear in the SOCE.

Answer: C. Take each item in turn. (1) Goods purchased FOB shipping point belong to the buyer from the moment they leave the supplier, so although still in transit they are correctly owned by Meadowbrook and correctly included in the count — no adjustment. (2) Inventory is measured at the lower of cost and net realisable value, so the damaged goods are written down from cost $8,000 to NRV $3,000, a reduction of $5,000. Correct closing inventory = $180,000 − $5,000 = $175,000. Option A makes no adjustment at all. Option B wrongly excludes the $12,000 of goods in transit (they are owned under FOB shipping point). Option D writes the damaged goods down by their full cost of $8,000 instead of down to NRV.

Answer: D. Deferred tax liabilities are presented as non-current liabilities — they arise from temporary differences that will reverse in future periods, typically beyond 12 months. IAS 12 permits offsetting a deferred tax asset against a deferred tax liability only when the entity has a legally enforceable right to offset current tax assets/liabilities and they relate to the same tax authority. Option A places deferred tax with current liabilities, which is incorrect. Option B is partly right (netting is permitted) but says 'always' — netting requires specific conditions. Option C is completely wrong.

Answer: A. Carrying amount = $180,000 − $110,000 = $70,000. Proceeds = $95,000. Gain on disposal = $25,000. Indirect method treatment: The gain of $25,000 is included in operating profit — it must be removed (deducted) from profit in the operating section because the full proceeds belong in investing activities. The full $95,000 proceeds are shown as an inflow under investing activities. Option B incorrectly shows proceeds under operating activities. Option C puts proceeds under financing activities. Option D uses carrying amount rather than full proceeds under investing activities.

Answer: A. Work through the provision account. Opening provision $120,000, less claims paid during the year $35,000 (these are charged against the provision, not profit or loss), leaves $85,000. The provision required at the year end is $95,000, so it must be topped up by $95,000 − $85,000 = $10,000, which is a charge to profit or loss. Equivalently, the total expense for the year = closing provision $95,000 + claims paid $35,000 − opening provision $120,000 = $10,000 charge. Option B has the direction wrong — this is a charge, not a credit. Option C uses the closing estimate as if it were the whole charge. Option D treats the claims paid as a profit or loss credit, but utilisation reduces the liability rather than affecting profit directly.

Answer: C. Under IAS 23, borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset must be capitalised. Capitalisation period: from when activities begin until the asset is ready for use — 1 January to 30 September = 9 months. Borrowing costs to capitalise = $3,000,000 × 6% × 9/12 = $135,000. Option A uses the full year: $3,000,000 × 6% = $180,000. Option B calculates 3 months only. Option D is wrong — IAS 23 requires capitalisation, not expensing, for qualifying assets.

Answer: D. Per the SD25 examiner question: Consideration = $4,200,000 + PV of deferred consideration. PV = $2,400,000 × 0.857 = $2,056,800. Total consideration = $4,200,000 + $2,056,800 = $6,256,800. NCI at fair value = $2,600,000. Total = $8,856,800. Less fair value of net assets at acquisition = $5,800,000. Goodwill = $8,856,800 − $5,800,000 = $3,056,800. Using the undiscounted deferred consideration instead would give $4,200,000 + $2,400,000 + $2,600,000 − $5,800,000 = $3,400,000. The examiner specifically noted candidates failing to discount deferred consideration. That figure is not among the options, and $3,854,800, $2,456,800 and $5,254,800 do not follow from any consistent treatment of the consideration, NCI and net assets.

Answer: A. IFRS 3 allows: (1) Full goodwill (fair value) method — NCI measured at fair value at acquisition date; total goodwill includes the element attributable to NCI. (2) Proportionate share method — NCI measured as the NCI's proportion of identifiable net assets; goodwill only reflects the parent's share. The full goodwill method gives a higher goodwill figure (it includes NCI's share). Option B is incorrect — they almost always give different goodwill figures. Option C reverses the methods. Option D is wrong — both methods are permitted under IFRS 3.

Answer: D. This is an upstream sale (subsidiary Stekk sold to parent Glooble), so the unrealised profit sits in the seller — the subsidiary. Unrealised profit on the transfer = $560,000 − $448,000 = $112,000. The asset is now depreciated by Glooble on the inflated $560,000, so the group reverses one year of excess depreciation: $112,000 ÷ 10 = $11,200. Net adjustment to the subsidiary's post-acquisition profit = −$112,000 + $11,200 = −$100,800. Stekk's post-acquisition profit = ($740,000 − $500,000) − $100,800 = $139,200. Because both the unrealised profit and the depreciation adjustment are in the subsidiary, the group takes its 55% share of the adjusted figure: 55% × $139,200 = $76,560. Consolidated retained earnings = parent's $1,660,000 + $76,560 = $1,736,560. Option B applies 55% to the unrealised profit but then adds the $11,200 depreciation at 100%, which is inconsistent. The examiner (SD25) noted most candidates missed the depreciation adjustment altogether.

Answer: C. Under the equity method, the carrying amount = cost + group share of post-acquisition profit − group share of post-acquisition dividends received. Cost = $207m. Gamara acquired the shares on 1 January 20X5, so only the profit for the 9 months to 30 September 20X5 is post-acquisition: $62m × 9/12 = $46.5m, and the group's 30% share = $13.95m. The $22m dividend was paid on 10 June 20X5 (after acquisition), so Gamara's 30% share, $6.6m, is a return of investment that reduces the carrying amount. Carrying amount = $207m + $13.95m − $6.6m = $214.35m ≈ $214m. Option A ($219m) forgets to time-apportion the profit. Option B ($221m) forgets to deduct the dividend. Option D ($226m) makes both errors. The examiner (SD25) flagged time-apportionment and the dividend deduction as the two steps candidates most often miss.

Answer: D. The consolidated revaluation surplus = the parent's full closing surplus + the group's share of the subsidiary's POST-acquisition movement in surplus. The subsidiary's pre-acquisition surplus is excluded because it arose before control was obtained. Smockhaus's post-acquisition increase = $75m − $50m = $25m, and the group's 80% share = $20m. Consolidated revaluation surplus = Profysh's closing $375m + $20m = $395m. Option A ($400m) includes 100% of the subsidiary's post-acquisition increase ($375m + $25m). Option B ($435m) takes 80% of the subsidiary's full closing balance ($375m + $60m) rather than just the post-acquisition movement. Option C ($450m) simply adds both companies' full closing balances ($375m + $75m), ignoring both pre-acquisition exclusion and the ownership percentage.

Answer: D. Only post-acquisition results are consolidated, and revenue is consolidated at 100% (the non-controlling interest is dealt with at the profit level, not by scaling revenue). Sub Co was acquired on 1 October 20X4 and the year end is 31 March 20X5, so the post-acquisition period is 6 months. Consolidated revenue from Sub Co = 6/12 × $1,200,000 = $600,000. Option C ($900,000) applies the parent's 75% share — proportionate consolidation, which the examiner (SD25) flags as a fundamental error scoring zero. Option B ($1,200,000) includes the full year, ignoring that pre-acquisition revenue is excluded. Option A ($300,000) miscounts the post-acquisition period as 3 months rather than 6.

Answer: B. Per the SD25 examiner: PURP on goods held at year end. Goods in Sub's inventory = $900,000 at transfer price. Markup is 25% on cost, so profit element = 25/125 × $900,000 = $180,000. The examiner specifically flagged using margin (20% of $900,000 = $180,000) vs markup (25/125 × $900,000 = $180,000) — both give $180,000 here, but the correct formula is markup on cost. Since the parent sold to the subsidiary, the unrealised profit is 100% the parent's — the NCI is not affected (NCI relates to the subsidiary's profit, not the parent's). The examiner explicitly stated this. $225,000 applies the 25% mark-up to the transfer price instead of to cost.

Answer: C. Per the SD25 examiner: The intragroup dividend to eliminate is only the portion received by the parent ($2,000,000 × 80% = $1,600,000). The $400,000 paid to NCI is an external transaction — it correctly reduces NCI in the SOCIE. The examiner noted many candidates eliminated the full $2,000,000, which would incorrectly reduce profit attributable to NCI. Option A eliminates the full amount. Option B treats the dividend as entirely external. Option D adjusts retained earnings rather than P&L/dividend income.

Answer: A. The fair value uplift on the plant = $620,000 − $500,000 = $120,000. This uplift is depreciated over the remaining useful life of 4 years, giving annual additional depreciation of $120,000 ÷ 4 = $30,000. However, the subsidiary was acquired only 9 months before the year end, so just 9 months of that additional depreciation is charged in the first consolidated year: $30,000 × 9/12 = $22,500. Option D ($30,000) is the full-year charge with no time-apportionment — the error the examiner (SD25) flags as fundamental. Option B ($120,000) charges the whole fair value adjustment in one year. Option C ($15,000) time-apportions for only 6 months. Additional depreciation on a fair value adjustment must always be time-apportioned for a mid-year acquisition.

Answer: A. The fair value adjustment increases the 'cost' of inventory from the group's perspective at acquisition. When inventory is sold, the full fair value (not just Sub's book value) is charged to cost of sales. This increases COS by $40,000, reducing consolidated profit. The examiner (SD25, Note 2) specifically highlighted this: the inventory FV adjustment increases COS when the inventory is sold. Option B incorrectly reduces COS. Option C adjusts revenue. Option D defers incorrectly — the inventory was sold in the period so the cost flows through immediately.

Answer: B. Impairment loss = $3,200,000 − $2,900,000 = $300,000. Under IAS 36, impairment losses in a CGU are allocated first to goodwill. The $300,000 is less than the goodwill balance of $800,000, so it is fully absorbed by goodwill. Goodwill reduced by $300,000; other assets unaffected. The impairment cannot reduce any other asset below its individual recoverable amount. Option A splits equally. Option C applies pro-rata without the priority rule. Option D uses arbitrary allocation.

Answer: C. Under IFRS 3, when the consideration paid is less than the fair value of net assets acquired (a bargain purchase), the entity must first reassess all identifiable assets and liabilities to ensure no errors. After reassessment, any remaining excess (gain from bargain purchase) is recognised immediately in profit or loss. Option A treats it as negative goodwill and amortises it — this was the old UK GAAP approach, not IFRS 3. Option B incorrectly uses OCI. Option D reduces asset values — not permitted; the gain goes to P&L.

Answer: D. Goodwill = Consideration + NCI − Fair value of net assets at acquisition. Net assets at acquisition include pre-acquisition retained earnings. If the group also included those pre-acquisition reserves in consolidated retained earnings, the same amount would be counted twice: once in the goodwill calculation (reducing goodwill) and once directly in consolidated reserves. Only POST-acquisition profits represent value created under group ownership and are included in consolidated retained earnings. Option A is partly true (NCI's share exists) but not the reason for exclusion. Options B and C are incorrect.

Answer: A. NCI = 25% of Foxglove's post-adjustment profit = 25% × $480,000 = $120,000. Profit attributable to owners of parent = 75% × $480,000 = $360,000. Total consolidated profit = $480,000. A common error (examiner SD25) is to forget to include the NCI line in the CSPL entirely, losing marks for both the NCI amount and the profit attributable to owners figure. Option B is the parent's share. Option C uses wrong percentage. Option D is the total before attribution.

Answer: B. When a subsidiary is disposed of during the year, its results are included in the consolidated SPLOCI only for the period it was controlled (pre-disposal). Under IFRS 5, if it meets the definition of a discontinued operation, its results are presented as a single line item in the statement of profit or loss ('profit/loss from discontinued operations') separate from continuing operations. Sub Co's results are not excluded entirely (C) — they are included up to disposal. Full year inclusion (A) is incorrect — control ceased at disposal. The results go to a single discontinued line (D), but only for the pre-disposal period.

Answer: C. Consolidated statements present the group as a single economic unit at a single point in time. If a subsidiary had a year end three months after the parent, the consolidated balance sheet would mix the parent's position at March with the subsidiary's position at June — making the consolidated picture meaningless. IFRS 10 requires coterminous year ends (or adjustment to use comparable dates). This is about representational faithfulness, not cost reduction (A) or legal requirements (B). Subsidiaries still prepare their own statements (D).

Answer: D. The discount on deferred consideration unwinds over time as a finance cost. Annual unwinding = opening present value × discount rate = $2,056,800 × 8% = $164,544. The acquisition was on 1 July 20X5 and the year end is 31 March 20X6, so only 9 months fall in the period: $164,544 × 9/12 = $123,408. The examiner (SD25) stressed that this charge appears below operating profit, within finance costs. Option A ($192,000) applies 8% to the undiscounted $2,400,000 for a full year. Option B ($144,000) applies 8% to the undiscounted $2,400,000 for 9 months. Option C ($165,000) is the full-year unwinding on the present value with no time-apportionment.

Answer: A. The examiner (SD25) was explicit: set up the pro forma first. Include the parent's results in full for the year. Include the subsidiary's results in full for the post-acquisition period (time-apportioned if mid-year acquisition). Then work through adjustments note by note. This ensures no lines are omitted and the NCI section is included from the outset. Options B and D are secondary calculations done after the pro forma. Option C would create a partial P&L first, increasing the risk of errors.

Answer: B. IFRS 10 requires uniform accounting policies across the group when preparing consolidated financial statements. If Sub Co uses a different policy, its results must be adjusted to the group policy before consolidation. The group chooses which policy to apply — typically the parent's — and all entities are aligned to it. Option A ignores the uniformity requirement. Option C would require the parent to change, which is possible but less common than adjusting the subsidiary. Option D explicitly contradicts the IFRS 10 requirement for uniform policies.

Answer: C. IFRS 3 requires a gain from a bargain purchase to be recognised immediately in profit or loss after the entity confirms that all identifiable assets and liabilities have been correctly valued. This is a genuine economic gain — the acquirer paid less than fair value for the net assets. It appears in profit or loss, not in equity reserves (A), OCI (B), or as a deferred item (D). The reassessment step is mandatory — if it is omitted and the gain is recognised without checking for errors, this would be a departure from IFRS 3.

Answer: D. Under IFRS 10, control is determined by substance, not just share ownership. Control = power + exposure to variable returns + ability to use power to affect returns. Inverness has power through board appointment rights — it can direct relevant activities by controlling six of ten board members, regardless of its 45% shareholding. This is a subsidiary. Associates (A) require 20–50% with significant influence but without control. A joint venture (B) requires joint control by agreement. Option C ignores the contractual power Inverness exercises.

Answer: A. Proportionate consolidation — including only the parent's ownership % of a subsidiary's results — is a fundamental error under IFRS 10. The group controls 100% of the subsidiary's activities; therefore 100% of the subsidiary's assets, liabilities, income, and expenses are included in the consolidation. The NCI's interest is shown separately at the bottom of the CSPL and in equity. The examiner (SD25) stated explicitly: this is a fundamental accounting error and no marks are awarded for consolidating parent and subsidiary when this mistake is made.

Answer: B. Equity method: Opening carrying amount = cost = $500,000. Add group's share of profit = 30% × $180,000 = $54,000. Less group's share of dividend = 30% × $60,000 = $18,000. Closing carrying amount = $500,000 + $54,000 − $18,000 = $536,000. Note: the fact that net assets included $200,000 retained earnings at acquisition is relevant to goodwill calculation but not to this carrying amount movement. Option C adds profit but doesn't deduct dividends. Option D deducts dividends from cost only. Option A is just the original cost.

Answer: C. When all goods are sold externally by year end, there is no unrealised profit — the profit has been realised through third-party sales. However, the intragroup transaction still needs to be eliminated to avoid double-counting: revenue of $3,000,000 (Parent's sale to Sub) and cost of sales of $3,000,000 (Sub's purchase from Parent) are both eliminated. This reduces both revenue and COS by $3,000,000 — profit is unchanged. Option A only eliminates revenue. Option B uses ownership percentage (wrong). Option D is wrong — even with all goods sold, the gross revenue/COS inflation must be removed.

Answer: D. IAS 28 establishes a rebuttable presumption: if an entity holds 20% or more of the voting rights of another entity, it is presumed to have significant influence unless it can be clearly demonstrated otherwise. At 25% with no other arrangements, the presumption applies and Manor Co is an associate. It is accounted for using the equity method in consolidated statements. Subsidiaries require control (typically >50% — A is wrong). Simple investment (B) applies below 20%. Joint ventures (C) involve joint control by contractual agreement.

Answer: A. Each quarterly payment of $6,000 is made in advance and covers the three months that follow it. The payments on 1 January, 1 April, 1 July and 1 October cover January–March, April–June, July–September and October–December respectively — exactly the twelve months of the year ended 31 December. The full $24,000 therefore relates to the current year, and the 1 October payment is entirely used up by the year end, so there is no prepayment and no accrual. Expense $24,000; no balance sheet entry. Option C is the tempting trap — assuming the last quarterly payment is prepaid, but it covers October to December, all within the year. Option B compounds that by also understating the expense. Option D wrongly recognises an accrual, but the rent is paid in advance, not arrears.

Answer: B. Under IFRS 3 (step acquisitions), when control is obtained in a step acquisition, the previously held interest is remeasured to its fair value at the date control is obtained. Any resulting gain or loss is recognised in profit or loss. This 'deemed disposal' of the old interest at fair value is then included in the total consideration for goodwill calculation. Option A ignores the remeasurement requirement. Option C incorrectly derecognises without proper accounting. Option D would maintain two separate treatments for the same investment after control is obtained.

Answer: A. Prior period errors under IAS 8 are corrected retrospectively: restate the comparative period figures and adjust the opening balance of retained earnings for the earliest period presented. This ensures the financial statements show what they would have shown had the error not occurred. Including in the current year P&L (B) would distort 20X4's results. Disclosure without adjustment (C) is not permitted for material errors. Revaluation surplus (D) is used for asset revaluations, not error corrections.

Answer: C. The consolidated SPLOCI must present total comprehensive income attributable to owners of the parent and to NCI separately — just as profit or loss is split. OCI is included in full in the consolidated SPLOCI, then attributed: Parent's share = 60% × $90,000 = $54,000; NCI's share = 40% × $90,000 = $36,000. Option A includes full OCI without attribution split. Option B is similar to A. Option D incorrectly excludes NCI from OCI attribution. The NCI holds an interest in both profit and OCI of the subsidiary.

Answer: C. Lease liability at inception = $30,000 × 2.723 = $81,690, and the right-of-use asset is recognised at the same $81,690. Year 1 interest = $81,690 × 5% = $4,085. After the $30,000 payment, the closing lease liability = $81,690 + $4,085 − $30,000 = $55,775. The ROU asset is depreciated over the 3-year lease term: $81,690 ÷ 3 = $27,230 per year. So the year-ended 31 March 20X5 statements show depreciation $27,230 and interest $4,085 in profit or loss and a closing lease liability of $55,775 — option C. Option A uses an incorrect closing liability of $51,690. Option B wrongly applies the short-term lease exemption, but a 3-year lease does not qualify. Option D uses undiscounted figures.

Answer: B. Under the full goodwill method, goodwill includes both the parent's and NCI's share. Goodwill impairment is allocated between owners in proportion to their ownership interests. Parent's share = 80% × $80,000 = $64,000 (reduces parent's portion of consolidated retained earnings). NCI's share = 20% × $80,000 = $16,000 (reduces NCI in the consolidated statement of financial position). Under the proportionate method, only the parent's goodwill is recognised, so impairment would be 100% parent's. Options A, C, and D misapply the allocation rule.

Answer: D. Under IAS 1 (now IFRS 18), when a borrower has breached a loan covenant at or before the reporting date and the breach entitles the lender to demand early repayment, the loan is reclassified as current — unless the lender has agreed (before the reporting date) to waive the breach for at least 12 months. The bank has not waived the breach, so the entire $2,000,000 must be reclassified as current. Option A ignores the covenant breach. Option B is inadequate — reclassification is required. Option C has no IFRS basis.

Answer: B. Under IFRS 3, contingent consideration is recognised at its fair value at the acquisition date, regardless of whether the condition has been met. The fair value represents the best estimate of the obligation at acquisition. Total consideration = $3,000,000 + $550,000 = $3,550,000. Option A excludes contingent consideration — incorrect under IFRS 3. Option C uses the undiscounted maximum ($3,800,000). Option D uses an arbitrary probability weighting rather than the fair value provided.

Answer: D. FVTPL financial assets are remeasured to fair value at each reporting date — the carrying amount becomes $235,000. The $35,000 fair value gain is recognised in profit or loss (FVTPL by definition means changes go to P&L). Presentation as current or non-current depends on the entity's intention/holding period. Option A does not remeasure. Option B uses the correct value but incorrectly routes the gain to OCI (FVOCI treatment). Option C does not remeasure and defers the gain.

Answer: C. NCI's share = NCI% × subsidiary's post-acquisition profit = 25% × $120,000 = $30,000. Profit attributable to owners of parent = $800,000 − $30,000 = $770,000. Total = $800,000. ✓ Option A gives all profit to parent. Option B uses 75% × $120,000 = $90,000 for NCI (wrong — NCI is 25%). Option D uses 50% of subsidiary profit for NCI. The key is that NCI's share is always NCI% × subsidiary's profit only — not NCI% of total group profit.

Answer: B. The statement of changes in equity distinguishes transactions with owners in their capacity as owners (e.g. dividends, share issues, share buybacks) from changes arising from performance (profit/OCI). Dividends paid are a transaction with owners — they reduce equity by distributing retained profits. Profit (A) and revaluation surplus (C) are performance-related changes in equity. Actuarial gains on pension plans (D) are recognised in OCI — a performance-related change, not an owner transaction. Share issues and buybacks are also owner transactions but are not listed here.

Answer: A. Under IAS 7 (and consistent with IFRS 18's approach to the cash flow statement), proceeds from the sale of non-current assets are classified as investing activities — they represent receipts from disposal of capital assets. In the indirect method operating section, any gain on disposal is removed from profit (being a non-operating item). The full proceeds then appear as a cash inflow under investing activities. This is a common exam error — candidates often leave the gain in operating activities or show the book value under investing (instead of actual proceeds).

Answer: C. Per the SD25 examiner: Deferred consideration is a financial liability. Its unwinding of discount is a financing cost, classified below operating profit in the finance costs section. The examiner explicitly stated that candidates who included this above operating profit received no marks — it must be in the financing section. Option A misclassifies it as an operating expense. Option B uses OCI incorrectly. Option D puts it above operating profit — a specific error the examiner flagged.

Answer: B. IFRS 18's key innovation over IAS 1 is the mandatory operating profit subtotal. Under IAS 1, entities could define 'operating profit' however they liked — or omit it entirely — leading to inconsistency across entities. IFRS 18 mandates a defined subtotal that clearly separates operating performance from investing and financing activities. Total comprehensive income (A) was already required. EPS (C) is required by IAS 33. Comparatives (D) were required under IAS 1. The operating profit subtotal is the significant new requirement.

Answer: D. Unrealised profit on transfer = $200,000 − $140,000 = $60,000. This profit is unrealised from the group's perspective — the asset is still within the group. However, the subsidiary has been depreciating based on the inflated transfer price: extra depreciation = $60,000 / 5 years = $12,000. After 1 year, the net unrealised profit remaining = $60,000 − $12,000 = $48,000. The $12,000 depreciation has been 'realised' through additional depreciation. In consolidated statements: the $60,000 profit is eliminated and an adjustment is made to add back $12,000 of excess depreciation charged → net elimination = $48,000. Option A ignores depreciation realisation. Option B is just the depreciation adjustment. Option C ($72,000) adds the depreciation adjustment instead of deducting it.

Answer: B. IFRS 10 requires uniform accounting policies across the group. IAS 2 prohibits LIFO for inventory valuation under IFRS. The subsidiary's LIFO inventory must be restated to either FIFO or weighted average cost (both permitted under IAS 2) before the subsidiary's results are included in the consolidated financial statements. Option A perpetuates a non-IFRS policy in the group accounts. Option C would exclude material balance sheet items. Option D only discloses but does not correct — disclosure alone is insufficient when restatement is required.