BF3302: Advanced International financial Reporting: JJ Victory Plc. Group - Financial statements for the year ended 30 September 2025

Task 3
To: Michael
From: Head of Finance
Date: 5 January 2026
Subject: Explanatory Notes on IFRS Revenue Recognition and Consolidation Principles
Dear Michael,
I would like to thank you for your questions about the latest changes in JJ Victory financial statements. Explanatory notes addressing each of your questions are provided in detail below, in a format that would be useful in a team training. These notes are based on the corresponding International Financial Reporting Standards (IFRS) and have illustrative examples where necessary.
Part 1: Revenue Recognition IFRS 15.
i) Sales to Franchise Retailers Revenue.
The recognition of revenue under IFRS 15 applies when a good is transferred and a performance obligation is achieved by relinquishing control over the good to the customer (Deloitte, 2024). In the case of normal sales of bikes, it is generally transferred at the time of delivery, as long as the retailer has taken possession of the bikes and JJ Victory does not have any substantial risks or liabilities. Nevertheless, when the control transfer is postponed by commercial practices, e.g., by implicit rights of return or consignment-like structures, then revenue should not be recognised until such requirements are fulfilled. The modifications that you mentioned fixed cases of delivery being made (the signed notes proved that), but the revenue was not recognised, which is against the very essence of IFRS 15 (Kabir & Su, 2022).
ii) Build-to-order (custom) bikes.
Under custom-build contracts, IFRS 15 indicates that there is a need to determine whether the revenue was to be recognised either in time or at a point in time. Paragraph 35 of the standard defines that revenue should be recognised over time in case three conditions are fulfilled. In our situation, the critical criterion is that the asset (the custom bike) does not have any other use to JJ Victory since it is designed to the customer's unique specifications, and we have a legal right to pay the money received to date on the work. This means that the recognition of revenue should be done during the period of the contract according to the progress made in the completion process, which in many cases is the number of costs that have been incurred against the total estimated costs (Deloitte, 2024).
Suppose that in Contract 1, the following is the case:
Agreed price: 600,000
Costs incurred to date: 224,000
All estimated costs: 400,000 (assuming)
Progress = 224,000 / 400,000 = 56%
Revenue to recognise = 56% 600,000 = 336,000
A contract asset of 36,000 is recognised since the amount of the invoiced amount was 300,000, which is revenue that has been earned but not yet billed. The treatment is more compatible with the revenue and the performance and prevents the recognition of revenue only after invoicing.
iii) Lease Income of Xander Plc.
The arrangement with Xander Plc is not a mere rental; it qualifies as a finance lease according to IFRS 16, as the term of the lease occupies most of the economic life of the assets, the present value of lease payments is significantly lower than the fair value of the bikes, and at the expiry of the lease, legal title passes at a low nominal value (Lopes & Penela, 2024). As a result, we not only do not remove lease payments as operating income. Instead, we:
Derecognise the bikes (1.8 million) and recognise a lease receivable.
Recognise the income of the lease as income of finance with the effective method of interest.
An example would be, at a present lease value of a total of 2 million, payable both in Mr 100,000 upfront and at a rate of three payments per year, a total of three payments would take place every year, with the amount paid at that time being calculated as interest on the outstanding balance of the lease. This approach is the time value of money and the financing nature of the transaction, which is in line with the conceptual framework accrual basis.
Part 2: Consolidated Financial Statements.
iv) Intention of Consolidated Financial Statements.
Under IFRS 10, consolidated statements are to be prepared in case an entity exercises control over one or more other entities (IFRS, 2025). This is in order to give the financial position, performance, and cash flows of the group as one economic entity. This will get rid of intra-group transactions and balances and double-counting and give a full picture of resources in control of JJ Victory, including those of its subsidiaries. Lack of consolidation would mean that investors would not have a clear picture of the total assets, liabilities, and outcomes of the group, which would result in incomplete information that is useful in decision-making (Russo, 2025).
v) DAC Enviro Ltd Adjustments of Fair Value.
Under the provisions of IFRS 3 of acquiring control of DAC, all identifiable assets and liabilities should be recorded at their fair values on the acquisition date in the consolidated statements, which is usually not the same as the carrying amount in the own IFRS-compliant accounts of the DAC (ACCA Global, 2025; Masadeh et al., 2017). The outcomes of this fair value exercise can be:
Re-evaluation of property, plant and equipment.
The identification of intangible assets that were not recorded before (e.g., in-process R&D, customer relationships).
Reclassifying liabilities to fair value (e.g., onerous contracts).
These adjustments are made to have the consolidated balance sheet record what the real economic resources obtained are. The disparity between the consideration paid and the net fair value of identifiable assets and liabilities is recognised as goodwill.
vi) Investment in B2V Accounting.
JJ Victory has a 45% stake in B2V and joint control with Blast! but they are under contractual arrangement. Such a structure is a joint venture according to IFRS 11. We do not fully consolidate (which would necessitate control) and measure at cost, but instead we use the equity method (Sarquis et al., 2022). This means:
The investment is first recognised at cost.
This is further adjusted with the 45 per cent share of B2V post-acquisition profits or losses to JJ Victory.
The amount of dividends received decreases the carrying amount.
The equity method also gives a better representation of the economic interest of JJ Victory in the net assets and performance of B2V as opposed to the use of the cost method alone.
These notes are my hope that the IFRS principles that have been applied are made clear. Please consider them in advance of our meeting.
Best regards,
Head of Finance

Task 4
BRIEFING NOTE
Dear Jin Xu, Non-Executive Director, To: Chen, Chief Executive Officer.
From: Head of Finance
Date: 5 January 2026
Speaker: Mark Scott, director, human capital accounting and reporting
Sunject: This presentation includes information about human capital accounting, integrated reporting, and the future of corporate disclosure.

a) Accounting of Human Capital in Financial Statements.
According to the Conceptual Framework on the International Financial Reporting Standards (IFRS) and the IASB, an asset is defined as a resource that is under the control of the entity due to the past occurrence and is expected to generate economic benefits to the entity in the future ((Savina et al., 2021). The workforce of an entity does not fit this definition to be recognised on the statement of financial position, since:
Lack of Control: The entity does not have control over the skills and knowledge of the employees; the employees can quit (Savina et al., 2021).
Measurement Reliability: The future economic benefits of human capital are enormously immeasurable with enough reliability, which is a primary qualitative property of helpful financial information.
Accordingly, spending on employees (salaries, training) is considered as an expense in the period incurred and not as an asset. The contract with Jasmine Rai that B2V is aware of and amounts to 3 million pounds is an intangible asset of IAS 38, which is the right to her services in the contract, rather than the capitalisation of her natural value as a human being (Ebe et al., 2023). This is a detachable property of B2V, which is not the overall expertise base of our employees. Thus, although our human capital is the most important resource, its worth cannot be directly identified in the primary financial statements in IFRS.

b) Integrated Reporting: A Comprehensive Reporting Solution.
i) Shortcomings of General-Purpose Financial Statements.
The opinion of the director regarding the restrictions of the financial statements is justified. The main purpose of these statements is to avail information concerning financial capital to the current and prospective investors, lenders and other creditors (Devarapalli & Mohapatra, 2024). Such emphasis inevitably leaves out other kinds of value creation and maintenance. They are historical, monetised and bounded by the recognition criteria and measurement uncertainty, as in the case of human capital. They fail to fully reflect on the critical value drivers like innovation, brand reputation, employee morale or environmental impact, which are core to the long-term strategy of JJ Victory.
ii) Nature, Purpose and Value of Integrated Reporting.
Integrated Reporting, which is led by the International Integrated Reporting Framework (IIRF), eliminates these limitations. It is intended to inform the providers of financial capital how an organisation can bring value as time goes by. It does so by providing a succinct, tactical report that links the strategy, governance, performance and prospects of an organisation in its external environment (ODwyer et al., 2024).
The Framework recognises six capitals, stocks of value, which are inputs to the business model of the organisation and are augmented, curtailed, or changed through the activities and outputs of the organisation. The JJ Victory Integrated Report would show performance against each of the six:
Financial: Profits reported, investment in research and development, and finances spent on acquiring the DAC.
Assembled: Our assembly plant, the new production assembly line and hand-built motorcycles.
Intellectual: Clean-engine technology, JJ Victory brand and custom-built designs.
Human: The experience of our engineers, the mastery of our craftspeople and the genius of Jasmine Rai.
Social & Relationship: Phantom Rider films' reputation, as well as relationship with Blast! in the B2V joint venture.
Natural: We plan on minimising engine emissions, environmental impacts of our operation and the creation of 100% electric motorcycles.
Such a multi-capital perspective offers more comprehensive performance and resiliency in the future than financial statements. It depicts the way our investment in natural (electric R&D through DAC) and human (engineering talent) capital leads to long-term financial and intellectual capital expansions.
Conformity to Sustainability Standards: The latest IFRS Sustainability Disclosure Standards (S1 and S2) are concerned with climate and other risks and opportunities related to sustainability. The Integrated Report is very complementary. The multi-capital model of the IIRF gives the most suitable connective structure that can incorporate these mandatory sustainability disclosures in a larger story of value creation. These standards would be met by reporting directly on our natural capital (e.g., emissions data under IFRS S2) and social capital and the process of explaining how our sustainability is built into our strategy.
Recommendation: Integrated reporting should be taken as a strategic move that would go a long way in boosting our corporate reporting. It would be a better means of expressing the entire worth of JJ Victory Group, fulfilling the emerging investor interests in ESG data, and a solid platform for adhering to new sustainability guidelines.

References

ACCA Global. (2025). IFRS 13, Fair Value Measurement |. Retrieved January 2, 2026, from https://www.accaglobal.com/in/en/student/exam-support-resources/dipifr-study-resources/technical-articles/ifrs13.html
Deloitte. (2024). IFRS 15 Revenue from contracts with customers. IAS Plus. Retrieved January 2, 2026, from https://www.iasplus.com/en/standards/ifrs/ifrs15
Devarapalli, S., & Mohapatra, L. M. (2024). Impact of Corporate Governance Characteristics on Integrated Reporting Quality: An Empirical Analysis, Evidence from India. Indian Journal of Corporate Governance, 17(1), 932. https://doi.org/10.1177/09746862241236546
Ebe, C. O., Salawu, R. O., & Aguguom, T. A. (2023). IAS 38 intangible assets and firm performance: Empirical evidence from selected consumer goods manufacturing companies listed in Nigeria. International Journal of Innovative Research and Scientific Studies, 6(3), 570577. https://doi.org/10.53894/ijirss.v6i3.1607
IFRS. (2025). IFRS 10 Consolidated Financial Statements. Retrieved January 2, 2026, from https://www.ifrs.org/issued-standards/list-of-standards/ifrs-10-consolidated-financial-statements/
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Lopes, A. I., & Penela, D. (2024). The impact of IFRS 16 on lessees financial information: A single-industry study. Advances in Accounting, 68, 100803. https://doi.org/10.1016/j.adiac.2024.100803
Masadeh, W., Mansour, E., & Salamat, W. A. (2017). CHANGES IN IFRS 3 ACCOUNTING FOR BUSINESS COMBINATIONS: A FEEDBACK AND EFFECTS ANALYSIS. SSRN Electronic Journal. https://autopapers.ssrn.com/sol3/papers.cfm?abstract_id=3025744
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Sarquis, R. W., Santos, A. D., Loureno, I., & Braunbeck, G. O. (2022). The impact of the adoption of IFRS 11 on the comparability of accounting information. Accounting and Business Research, 52(6), 690726. https://doi.org/10.1080/00014788.2022.2050171
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