MBA Financial Accounting Course Guide Template (IFRS 18)
MBA financial accounting course map, 14-session roadmap, key concepts, Northfield mini-case with exhibits and teaching note, rubric, exam plan, self-test
使い方: Use it when you start the core financial accounting course or prepare for its exam. Fill the roadmap from your syllabus first, then work the Northfield mini-case before reading the teaching note. The main pitfall is learning mechanics without practising the profit versus cash and adjusted-measure judgements the exam tests.
プレビュー
Financial Accounting Course Guide: [Your programme and term]
A course guide for the MBA core course in financial accounting and financial statement analysis: what the course is for, the competencies it builds, a 14-session roadmap with the concept card to read before each class, a key concepts table, an original mini-case (Northfield Outdoor Co.) with exhibits, discussion questions and a teaching note, a grading rubric, an exam plan, common struggles, a reading list and a self-test with an answer key. It covers both IFRS and US GAAP and prepares you for the change from IAS 1 to IFRS 18, which applies to annual periods beginning on or after 1 January 2027. Source basis: the IASB Conceptual Framework (2018), the IFRS Accounting Standards and FASB Codification topics named in the text, Pacioli (1494), Ball and Brown (1968), Sloan (1996) and Healy and Wahlen (1999), written up in original words with fictional companies. Replace every [bracketed] value and every row marked Example. Course designs differ between schools: check your own syllabus for the session order, weights and rules. This is a learning aid, not accounting, audit or investment advice.
Document control
| Field | Value |
|---|---|
| Programme and course | [Programme name], [course code and title] |
| Term and dates | [Term], YYYY-MM-DD to YYYY-MM-DD |
| Instructor | [Name] |
| Learner | [Your name] |
| Framework taught | [IFRS / US GAAP / both]; [IAS 1 layout / IFRS 18 layout] |
| Assessment weights | [Participation __%, problem sets __%, case write-up __%, final exam __%] |
| Learning team | [Team number and members] |
| Standards checked on | 2026-10-28 (ifrs.org, fasb.org); check again before you rely on a date |
| Reviewed by | [Study partner, tutor or mentor] |
| Version | [0.1] |
| Last updated | YYYY-MM-DD |
Contents
- 1. What the course is for
- 2. Prerequisites
- 3. Session roadmap
- 4. Key concepts
- 5. Mini-case: Northfield Outdoor Co. and the cash that did not arrive
- 6. Typical assignments and how they are graded
- 7. Exam preparation plan
- 8. Common struggles
- 9. Self-test
- My notes and next steps
- Teaching note: Northfield Outdoor Co.
- Reading list
- Sources and further reading
- Answer key
- Revision history
1. What the course is for
Financial accounting is the language in which companies report to investors, lenders, suppliers, employees and regulators. The MBA course is not a bookkeeping course: you learn enough mechanics (double entry, accruals, adjusting entries) to understand how the numbers are made, and then you spend most of the term on judgement. How is this number measured? (revenue under IFRS 15 and ASC 606, inventory, impairment, leases, provisions, taxes). What does it tell me? (profitability, liquidity, solvency, cash generation). Can I trust it? (estimates, choices, incentives and the quality of earnings). Ball and Brown (1968) showed that reported earnings carry information that markets use; much of the research since then, from the accrual anomaly (Sloan 1996) to the earnings management literature (Healy and Wahlen 1999), asks when that information is reliable.
The table maps the course to the competency list used across this library. As of October 2026 the AACSB accreditation standards in force are the Global Standards for Business Education, ratified by AACSB members on 20 April 2026; each school sets its own learning goals within them, so check your programme's learning goals and the AACSB standards page (aacsb.edu) before you rely on this mapping.
| Competency | What the course builds | Where you practise it |
|---|---|---|
| Analytical and quantitative reasoning | Building and articulating the three statements; ratios; cash flow derivation; sensitivity of profit to estimates | Sessions 2, 11 to 13; mini-case Q1 and Q2 |
| Ethical decision making | Earnings management, aggressive estimates, adjusted measures, auditor and audit committee roles | Sessions 4, 8, 12 and 13; mini-case Q3 |
| Communication | Explaining profit versus cash to a board or a lender in one page | Case write-up, cold calls, mini-case Q5 |
| Leadership and teamwork | Learning-team problem sets; owning a number in a team presentation | Problem sets, session 14 |
| Global perspective | IFRS versus US GAAP; IFRS 18 adoption across jurisdictions | Sessions 7, 11 and 12 |
| Technology, data and AI | Spreadsheet models with checks, XBRL-tagged filings, using AI tools to draft but not to verify numbers | Sessions 2 and 13, every problem set |
Learning outcomes. By the end of the course you should be able to: (1) record transactions and adjusting entries and prepare the three statements that articulate; (2) explain and apply the main recognition and measurement rules for revenue, inventory, receivables, long-lived assets, leases, provisions and income taxes under IFRS and US GAAP; (3) prepare a cash flow statement by the direct and the indirect method, before and after the IFRS 18 amendments to IAS 7; (4) present an income statement in the IFRS 18 form, with operating profit and profit before financing and income taxes, and read a management-defined performance measure reconciliation; (5) analyse performance with ratios and DuPont; (6) identify quality-of-earnings red flags and say what evidence would resolve them; (7) write a short, numerate recommendation from financial statements.
2. Prerequisites
You need comfortable algebra, percentages and spreadsheet skills (SUM, AVERAGE, ROUND, absolute references, simple check cells). You do not need prior accounting, but the course moves fast in the first two weeks.
| Gap | Fix before day one | Template |
|---|---|---|
| Never seen debits and credits | Work through the journal, ledger and trial balance exercises | mba/pre-mba-accounting-primer |
| Slow in spreadsheets | Drills on references, ROUND, lookups and model checks | mba/pre-mba-excel-modeling-drills |
| Weak with percentages and growth rates | Quant refresher | mba/pre-mba-quant-refresher |
| No finance vocabulary | Primer on time value of money and cash flows | mba/pre-mba-finance-primer |
| Unsure how cases work | Case reading method | mba/mba-case-reading-guide |
3. Session roadmap
Example plan for a 14-session core course. Many programmes split the material into a financial reporting course and a financial statement analysis course, or merge it with managerial accounting; adjust the rows, not the logic.
| Session | Topic | Card to read | Case or exercise | Deliverable |
|---|---|---|---|---|
| 1 | Purpose of financial reporting; users; Conceptual Framework (2018); the three statements | mba/mba-three-statements-card (idea and diagram) | Read one retailer's annual report: find the three statements and the notes | One-page map of the report |
| 2 | Accounting equation, double entry, accruals, adjusting entries | mba/pre-mba-accounting-primer, mba/mba-three-statements-card (Worked example B) | Transaction walk of 15 events | Journal, trial balance, three statements that articulate |
| 3 | Revenue recognition (IFRS 15, ASC 606): five steps, gift cards, loyalty, returns | finance/revenue-recognition-memo | Loyalty points and gift card exercise | Revenue and contract liability schedule |
| 4 | Inventory and cost of sales (IAS 2; FIFO, weighted average; LIFO under US GAAP only); write-downs to net realisable value | mba/mba-ratio-analysis-card (efficiency) | Mini-case Exhibits 2 and 3 | DIO calculation and write-down sensitivity |
| 5 | Receivables and expected credit losses (IFRS 9; ASC 326) | mba/mba-ratio-analysis-card (DSO) | Ageing and allowance exercise | Allowance roll-forward |
| 6 | Long-lived assets: PP&E, depreciation, intangibles, impairment (IAS 16, IAS 38, IAS 36; ASC 360, ASC 350) | mba/mba-three-statements-card (roll-forwards) | Store impairment exercise | PP&E and impairment roll-forward |
| 7 | Leases (IFRS 16; ASC 842) | finance/lease-accounting-memo, mba/mba-cash-flow-statement-card (step 5) | Store lease, IFRS 16 versus ASC 842 | Side-by-side income statement and cash flow |
| 8 | Liabilities, provisions and contingencies (IAS 37; ASC 450); debt and covenants | finance/covenant-compliance-certificate | Restructuring provision exercise | Provision roll-forward and covenant test |
| 9 | Income taxes (IAS 12; ASC 740): current and deferred tax intuition | finance/income-tax-provision | Temporary difference exercise | Tax note reconciliation |
| 10 | Equity, earnings per share (IAS 33; ASC 260), investments: equity method (IAS 28; ASC 323) and consolidation (IFRS 10; ASC 810) | mba/mba-three-statements-card (associate roll-forward) | Associate and subsidiary exercise | Equity method schedule |
| 11 | Statement of cash flows: direct and indirect methods; IAS 7 before and after IFRS 18 | mba/mba-cash-flow-statement-card | Northfield FY2025 (Worked example B) | Cash flow statement both ways |
| 12 | Presentation and performance measures: IAS 1 versus IFRS 18, MPMs, non-GAAP measures | mba/mba-three-statements-card (steps 2 and 3), finance/ifrs-18-transition-plan | Restate one income statement into the IFRS 18 form | Restated statement and MPM note |
| 13 | Ratio analysis, DuPont and quality of earnings | mba/mba-ratio-analysis-card | Peer comparison of three retailers | Ratio table with a five-line interpretation |
| 14 | Integration and review | All three cards | Mini-case in section 5 | Case write-up (mba/mba-case-write-up) |
4. Key concepts
| Concept | One-line definition | Standard (IFRS / US GAAP) | Where to learn it | Done |
|---|---|---|---|---|
| Accounting equation and articulation | Assets = liabilities + equity; profit flows to retained earnings; cash flow explains the cash line | Conceptual Framework | mba/mba-three-statements-card | [ ] |
| Accrual basis | Record income when earned and expenses when incurred, not when cash moves | Conceptual Framework | mba/mba-three-statements-card | [ ] |
| Revenue recognition | Five steps; revenue when control transfers | IFRS 15 / ASC 606 | finance/revenue-recognition-memo | [ ] |
| Contract liabilities | Cash received before performance (gift cards, loyalty points) | IFRS 15 / ASC 606 | mba/mba-three-statements-card | [ ] |
| Inventory and write-downs | Lower of cost and net realisable value; LIFO not allowed under IFRS | IAS 2 / ASC 330 | mba/mba-ratio-analysis-card | [ ] |
| Expected credit losses | Allowance for receivables based on expected, not incurred, losses | IFRS 9 / ASC 326 | mba/mba-ratio-analysis-card | [ ] |
| Depreciation and impairment | Allocation of cost over useful life; write-down when recoverable amount is lower | IAS 16, IAS 36 / ASC 360 | mba/mba-three-statements-card | [ ] |
| Leases | Right-of-use asset and lease liability; IFRS single model, US GAAP finance and operating | IFRS 16 / ASC 842 | mba/mba-cash-flow-statement-card | [ ] |
| Provisions | Liability of uncertain timing or amount, recognised when probable and measurable | IAS 37 / ASC 450 | mba/mba-three-statements-card | [ ] |
| Deferred tax | Tax effect of timing differences between accounting and tax bases | IAS 12 / ASC 740 | finance/income-tax-provision | [ ] |
| Equity method | Investor's share of an associate's profit, carrying amount adjusted for dividends | IAS 28 / ASC 323 | mba/mba-three-statements-card | [ ] |
| IFRS 18 categories and subtotals | Operating, investing, financing, income taxes, discontinued; operating profit; profit before financing and income taxes | IFRS 18 (from 2027) | mba/mba-three-statements-card | [ ] |
| Management-defined performance measures | Company-defined subtotals used publicly, disclosed and reconciled in one note | IFRS 18 | mba/mba-three-statements-card, finance/ifrs-18-transition-plan | [ ] |
| Cash flow statement | Operating, investing, financing; direct and indirect methods | IAS 7 / ASC 230 | mba/mba-cash-flow-statement-card | [ ] |
| Free cash flow | Cash after investment (and, by definition, leases, interest or debt flows) | Not defined by standards | mba/mba-cash-flow-statement-card | [ ] |
| DuPont analysis | ROE = margin x turnover x leverage (three or five steps) | Analysis | mba/mba-ratio-analysis-card | [ ] |
| Cash conversion cycle | DIO + DSO - DPO | Analysis | mba/mba-ratio-analysis-card | [ ] |
| Quality of earnings | Whether profit is backed by cash and reasonable estimates | Analysis | mba/mba-ratio-analysis-card, finance/quality-of-earnings-scope | [ ] |
How the three cards connect. The three-statements card builds the statements and the IFRS 18 presentation. The cash flow card explains the gap between profit and cash. The ratio card turns all three into comparable measures and checks whether they can be trusted. The managerial accounting course (mba/mba-managerial-accounting-guide) uses the same cost data for internal decisions, and corporate finance (mba/mba-corporate-finance-guide, mba/mba-dcf-valuation-card) turns the statements into free cash flow forecasts and valuations.
5. Mini-case: Northfield Outdoor Co. and the cash that did not arrive
Situation. In February 2027, Priya Raman, chief financial officer of Northfield Outdoor Co., was preparing for a board meeting that she expected to be uncomfortable. Northfield sold outdoor equipment and clothing through 48 leased stores and a fast-growing online shop. FY2026 had been, on the headline numbers, a good year: revenue rose 9.4% to USD 512.0m, online sales grew 21.8% and now made up 37.1% of revenue, and gross margin edged up to 44.5%. The results presentation that investor relations had drafted led with "adjusted operating profit up 16% to USD 44.0m".
Priya's concern was cash. The company ended the year with USD 22.0m in the bank, down from USD 50.5m. Profit for the year was USD 19.5m, almost the same as the year before. The board had approved a dividend of USD 11.0m in 2026, and management had used surplus cash to prepay USD 10.0m of the USD 80m term loan, which saved interest but reduced flexibility. The bank facility carried two covenants: net debt including lease liabilities of no more than 3.0 times EBITDA, and a minimum cash balance of USD 20.0m at each quarter end.
The merchandising team, led by Tomas Lindqvist, had bought heavily for the 2026 winter season after two years of supply-chain delays, and a mild winter in Northfield's main markets had left more stock than planned. Tomas argued that most of it was "evergreen" product (tents, packs, base layers) that would sell through in 2027 at full price, and that the higher gross margin proved that discounting had not been needed. The auditors had asked for an ageing analysis of inventory and a review of the net realisable value provision, which had not changed in amount since 2024.
Two other items were on the agenda. First, Northfield had closed three underperforming stores in the fourth quarter, booking USD 3.6m of severance (USD 1.2m still unpaid at year end) and a USD 3.0m impairment of the stores' right-of-use assets. Investor relations had added both back to arrive at adjusted operating profit. Grace Mwangi, chair of the audit committee, asked whether store closures were really a one-off for a retailer that reviewed its estate every year.
Second, Northfield reports under IFRS, and FY2027 would be its first year under IFRS 18. The FY2026 figures would be restated as comparatives. Priya's team had found that the IAS 1 "operating profit" Northfield had always published included its share of profit from a 30%-owned trail-tourism associate, so the restated operating profit would be lower, and that under the amended IAS 7 interest paid would move from operating to financing cash flows. The executive bonus plan was based on "operating profit as reported", and the loan agreement defined EBITDA by reference to the financial statements "as prepared from time to time".
Finally, the chief executive wanted the board to approve a dividend of USD 12.0m for FY2027 and six new stores, which would add about USD 30m of lease liabilities. Priya had to recommend what the board should do and how to explain FY2026 to investors and the bank.
Exhibit 1. Income statement summary (USD m). FY2026 shown as published under IAS 1 and as restated under IFRS 18.
| Line | FY2025 IAS 1 | FY2026 IAS 1 | FY2026 IFRS 18 |
|---|---|---|---|
| Revenue (stores / online) | 468.0 (312.0 / 156.0) | 512.0 (322.0 / 190.0) | 512.0 |
| Gross profit | 205.9 | 227.8 | 227.8 |
| Selling, distribution and administrative expenses | (168.0) | (183.8) | (183.8) |
| Restructuring and impairment | 0.0 | (6.6) | (6.6) |
| Share of profit of associate | 1.6 | 2.0 | below operating profit (investing) |
| Operating profit | 39.5 (company-defined) | 39.4 (company-defined) | 37.4 (IFRS 18) |
| Investing category: associate 2.0, interest income 0.8 | 2.8 | ||
| Profit before financing and income taxes | not presented | not presented | 40.2 |
| Finance income / finance costs | 0.7 / (14.6) | 0.8 / (14.9) | financing (14.9) |
| Profit before tax | 25.6 | 25.3 | 25.3 |
| Profit for the year | 19.6 | 19.5 | 19.5 |
| Memo: EBITDA (operating profit IFRS 18 basis + D&A + impairment) | 87.9 | 95.7 | 95.7 |
| Memo: adjusted operating profit as drafted by investor relations (IFRS 18 basis, excludes the associate) | 37.9 | 44.0 | 44.0 |
Exhibit 2. Balance sheet extracts at 31 December (USD m).
| Line | FY2024 | FY2025 | FY2026 |
|---|---|---|---|
| Cash | 45.0 | 50.5 | 22.0 |
| Trade receivables | 14.0 | 15.0 | 17.6 |
| Inventories | 96.0 | 101.0 | 121.0 |
| Total current assets | 161.0 | 172.9 | 167.6 |
| Total assets | 461.0 | 481.5 | 499.7 |
| Trade payables | 52.0 | 55.0 | 56.5 |
| Total current liabilities | 108.0 | 116.9 | 122.6 |
| Lease liabilities (current plus non-current) | 164.0 | 169.0 | 185.0 |
| Bank loan | 80.0 | 80.0 | 70.0 |
| Total equity | 134.0 | 143.6 | 152.1 |
Exhibit 3. Cash flow summary (USD m).
| Line | FY2025 as published (IAS 7, interest in operating) | FY2026 as published | FY2026 restated (IAS 7 as amended by IFRS 18) |
|---|---|---|---|
| Cash generated from operations before interest and tax | 86.8 | 76.9 | 76.9 |
| of which: increase in inventories | (5.0) | (20.0) | (20.0) |
| Interest paid / received | (14.6) / 0.7 | (14.9) / 0.8 | (14.9) in financing / 0.8 in investing |
| Income taxes paid | (5.4) | (6.5) | (6.5) |
| Net cash from operating activities | 67.5 | 56.3 | 70.4 |
| Capex: PP&E and software | (28.0) | (37.0) | (37.0) |
| Dividends received from associate | 1.0 | 1.2 | 1.2 |
| Lease principal paid | (25.0) | (28.0) | (28.0) |
| Loan repayment | 0.0 | (10.0) | (10.0) |
| Dividends paid | (10.0) | (11.0) | (11.0) |
| Net change in cash | 5.5 | (28.5) | (28.5) |
Exhibit 4. Covenant and management information.
| Item | FY2025 | FY2026 |
|---|---|---|
| Net debt including lease liabilities | 198.5 | 233.0 |
| Net debt including leases / EBITDA (covenant: at most 3.0x) | 2.26x | 2.43x |
| Minimum cash covenant (at least 20.0) | 50.5 | 22.0 |
| Inventory net realisable value provision | unchanged since 2024 | unchanged since 2024 |
| Inventory older than 12 months (management estimate, not audited) | not tracked | about 18% |
| New stores proposed for FY2027 (lease liabilities added) | about 30.0 |
Discussion questions.
- Reconcile profit for the year (19.5) to the change in cash (-28.5) in FY2026. Which single item matters most?
- Is the inventory build a timing issue or an accounting and business problem? Compute DIO for both years, the inventory that would have been held if days had stayed at the FY2025 level, and the effect of a 5% write-down of closing inventory on operating profit.
- Evaluate "adjusted operating profit up 16%". Would you accept the add-backs? What must the IFRS 18 note on this management-defined performance measure contain?
- What changes in Northfield's reported numbers on transition to IFRS 18, and what does that mean for the bonus plan and the loan agreement?
- As Priya, what do you recommend to the board on the FY2027 dividend and the six new stores, and how do you present FY2026 to investors and the bank?
6. Typical assignments and how they are graded
Most financial accounting courses combine class participation in case discussions (mba/mba-class-participation-log), weekly problem sets (journal entries, statement preparation, cash flow derivation), a case write-up or financial analysis memo (mba/mba-case-write-up), a mid-term on mechanics and recognition, and a final exam with statement preparation, analysis and short written answers. Some courses add a group project analysing a listed company's annual report against its peers.
Example rubric for a case write-up or exam essay question:
| Criterion | Weight | Excellent | Adequate | Weak |
|---|---|---|---|---|
| Problem framing | 15% | States the decision, the decision maker and the accounting issue in two sentences | Decision clear, accounting issue vague | Restates the case facts |
| Correct accounting | 30% | Right recognition and classification (IFRS or US GAAP named), statements articulate, formulas shown | Minor errors that do not change the conclusion | Wrong treatment (dividends as expense, cash as profit) |
| Analysis | 20% | Ratios and cash flow chosen for the question, benchmarked, quality checks done | Ratios computed without benchmark | Lists ratios without reading them |
| Judgement and ethics | 15% | Questions estimates and adjusted measures, notes incentives, proposes evidence | Mentions judgement without detail | Accepts management numbers at face value |
| Recommendation and communication | 20% | Key number first, clear recommendation, risks and what would change it | Recommendation present but hedged | No recommendation |
7. Exam preparation plan
| Week before exam | Focus | Activity | Evidence of progress |
|---|---|---|---|
| T-3 weeks | Concepts | One-page formula and standards sheet (mba/mba-formula-sheet); redo every Worked example A from a blank spreadsheet | Sheet complete, examples match |
| T-3 weeks | Retrieval | Answer every card's self-test from memory; log misses in mba/mba-error-log | Error log with causes |
| T-2 weeks | Problem types | One timed problem each: transaction walk, adjusting entries, revenue with gift cards, inventory write-down, depreciation and impairment, lease (IFRS 16 and ASC 842), provision, equity method, indirect cash flow, direct cash flow, IFRS 18 restatement, DuPont | Each type in under 15 minutes |
| T-2 weeks | Cases | Write the accounting issue and the key number of each class case in one sentence | One line per case |
| T-1 week | Mixed practice | One practice exam under exam conditions, topics interleaved | Score and list of weak types |
| T-1 week | Fix weaknesses | Two more problems per weak type; flashcards (mba/mba-concept-flashcards) | No repeat errors |
| T-2 days | Light review | Formula sheet, error log, the mini-case teaching note | Calm, no new material |
Spaced retrieval practice and interleaving have the strongest evidence among study methods (Dunlosky et al. 2013); see mba/mba-exam-prep for the routine.
8. Common struggles
- Debits and credits by memory instead of by logic. Start from the accounting equation: which two lines change, and in which direction?
- Confusing profit and cash. Every exam has a question where profit rises and cash falls. Build the indirect bridge.
- Wrong working capital signs. An increase in an operating asset uses cash; an increase in an operating liability provides it.
- Forgetting adjusting entries. Accrued expenses, prepaid expenses, unearned revenue and depreciation at period end.
- Mixing IFRS and US GAAP. Leases (single model versus operating leases), LIFO (US GAAP only), impairment reversals (IFRS only for most assets) and cash flow classification of interest. Name the framework in every answer.
- Treating IFRS 18 as a measurement change. It changes categories, subtotals and disclosures only.
- Reading ratios without a benchmark. Compare with last year, peers or a covenant, and say which.
- Accepting adjusted measures uncritically. Start from the IFRS subtotal; add back only what is truly non-recurring.
- Models that do not balance. Add check cells for every roll-forward instead of plugging the difference.
- Running out of time on long statement questions. Lay out the answer grid first, fill the easy lines, then the derived ones.
9. Self-test
- Name the three primary statements and the one equation that ties the balance sheet together.
- Why does a company with growing gift card sales report operating cash flow above profit, other things equal?
- State the five steps of IFRS 15 and ASC 606.
- Which inventory cost formula is allowed under US GAAP but not under IFRS?
- Under IFRS 16, where do the two parts of the lease cost appear in an IFRS 18 income statement?
- From which date does IFRS 18 apply, and what happens to comparatives?
- Name the two subtotals IFRS 18 requires and Northfield's FY2026 values.
- In the mini-case, why does Northfield's operating cash flow rise from 56.3 to 70.4 on restatement while the change in cash is unchanged?
- Write the three-step DuPont identity and give Northfield's FY2026 ROE.
- Name three quality-of-earnings red flags visible in the mini-case.
- An equity-method associate earns 10.0 and pays a dividend of 4.0; the investor owns 30%. What happens to the investment's carrying amount and to the investor's profit?
- Give one reason a lender's covenant definition of EBITDA may need a "frozen GAAP" clause in 2027.
My notes and next steps
| Session | What I understood | Still unclear | Next step |
|---|---|---|---|
| [1] | [ ] | [ ] | [ ] |
| [2] | [ ] | [ ] | [ ] |
| Example: 11 | The indirect method adjusts profit for non-cash items and working capital | Where interest goes after the IFRS 18 amendments | Redo the cash flow card Step 3 without notes |
Teaching note: Northfield Outdoor Co.
Case objectives. The case trains students to (1) explain the gap between profit and cash with the indirect method, (2) judge working capital and inventory with ratios and estimates, (3) evaluate a management-defined performance measure under IFRS 18, (4) trace the consequences of a presentation change for contracts and incentives, and (5) make a board recommendation under a liquidity constraint.
Q1. Profit to cash. Using the IFRS 18 basis: operating profit 37.4 + depreciation and amortisation 55.3 + impairment 3.0 + provision increase 1.2 - working capital 20.0 - taxes paid 6.5 = operating cash flow 70.4. Investing -35.0 (capex 37.0 less interest received 0.8 and associate dividends 1.2). Financing -63.9 (lease principal 28.0, lease interest 9.3, loan interest 5.6, loan prepayment 10.0, dividends 11.0). Net change -28.5. Starting from profit for the year 19.5 instead, the same total follows. The single most important item is the inventory build of 20.0; the discretionary items (loan prepayment 10.0 and dividend 11.0) together account for another 21.0.
Q2. Inventory. DIO rose from 137.2 days (average inventory 98.5 over cost of sales 262.1) to 142.6 days (111.0 over 284.2). Closing inventory grew 19.8% against revenue growth of 9.4% and cost of sales growth of 8.4%. If DIO had stayed at 137.2 days, average inventory would have been 106.8 and closing inventory 112.6, so about 8.4 of the closing balance is "excess" on that measure; if inventory had grown with revenue, closing inventory would have been 110.5, an excess of about 10.5. On either measure the excess is roughly 8 to 10, close to a third of the fall in cash. The accounting question is IAS 2: inventory is held at the lower of cost and net realisable value. With 18% of stock older than 12 months, a mild season behind it and a provision unchanged since 2024, the rising gross margin is a warning sign, not proof of pricing power (ratio card red flags QE-02 and QE-04). A 5% write-down of closing inventory would be 6.05, cutting FY2026 operating profit from 37.4 to 31.35 (after tax about 4.5 off profit). Strong answers ask for the ageing, sell-through by product line since year end, and the auditors' view before concluding.
Q3. The MPM. Adjusted operating profit rose 16.1% (37.9 to 44.0) while IFRS 18 operating profit fell 1.3% (37.9 to 37.4). Under IFRS 18 the measure must be disclosed in one note with a description, why management thinks it useful, how it is calculated, a reconciliation to operating profit (the most directly comparable subtotal) with the income tax effect of each item (severance 3.6, tax 0.9; impairment 3.0, tax 0.8) and the effect on non-controlling interests (none), and an explanation of any change in definition (the IAS 1-era measure started from 39.4 and included the associate, giving 46.0). Judgement: a retailer that reviews its estate every year has recurring closure costs; if closures recur, the add-back overstates sustainable profit. A good answer accepts the measure only with a multi-year history of closure costs and recommends that investor relations lead with the IFRS 18 subtotal and growth in revenue, not with the adjusted figure.
Q4. IFRS 18 transition. Profit for the year, assets, liabilities and total cash flow are unchanged. Operating profit falls from the published 39.4 to 37.4 (the associate moves to investing), a new subtotal of profit before financing and income taxes (40.2) appears, finance income and costs are split between the investing and financing categories, and operating cash flow rises from 56.3 to 70.4 because interest paid moves to financing and interest received to investing. Consequences: the bonus plan based on "operating profit as reported" would pay less for the same performance unless the remuneration committee fixes the definition; the loan agreement's EBITDA "as prepared from time to time" changes definition automatically, so Priya should agree a frozen-GAAP clause or an amendment with the bank before the first covenant test under IFRS 18. EBITDA built on IFRS 18 operating profit (95.7) is 2.0 lower than one built on the old company-defined subtotal (97.7), so the covenant ratio moves from about 2.38x to 2.43x on the same facts.
Q5. Recommendation. The leverage covenant has headroom (2.43x against 3.0x), but the minimum cash covenant does not (22.0 against 20.0, headroom 2.0). Free cash flow after leases was -8.7 in FY2026 and free cash flow to equity -18.7; the dividend was paid out of the cash balance. Six new stores add about 30.0 of lease liabilities; at FY2026 EBITDA that alone would take the leverage ratio to about 2.75x (263.0 / 95.7) before any new EBITDA from the stores. A defensible recommendation: hold the FY2027 dividend at or below 11.0, or make it conditional on inventory normalising; phase the new stores (two or three, not six) until inventory and cash recover; agree a revolving facility or covenant reset with the bank now rather than after a breach; commission the inventory ageing and net realisable value review before the accounts are signed; and present FY2026 to investors with operating profit (IFRS 18) first, the cash bridge second and the adjusted measure third. Weaker answers approve everything because profit and leverage look fine, or cut the dividend to zero without considering the signal it sends.
Workings. Write the board memo with mba/mba-case-write-up; the full ratio and cash flow workings are in mba/mba-ratio-analysis-card and mba/mba-cash-flow-statement-card.
Reading list
Classic works.
- Pacioli, L. (1494). Summa de arithmetica, geometria, proportioni et proportionalita. Venice.
- Paton, W. A., and Littleton, A. C. (1940). An Introduction to Corporate Accounting Standards. American Accounting Association.
- Ball, R., and Brown, P. (1968). An empirical evaluation of accounting income numbers. Journal of Accounting Research, 6(2), 159-178.
- Sloan, R. G. (1996). Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review, 71(3), 289-315.
- Healy, P. M., and Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365-383.
Textbooks (by name only). Libby, R., Libby, P. A. and Hodge, F., Financial Accounting (McGraw Hill); Penman, S. H., Financial Statement Analysis and Security Valuation (McGraw Hill); Palepu, K. G., Healy, P. M. and Wright, S., Business Analysis and Valuation: IFRS Edition (Cengage); Kieso, D. E., Weygandt, J. J. and Warfield, T. D., Intermediate Accounting: IFRS Edition (Wiley).
Open resource. OpenStax, Principles of Accounting, Volume 1: Financial Accounting (CC BY-NC-SA 4.0), openstax.org.
Sources and further reading
- IFRS Foundation. IFRS 18 Presentation and Disclosure in Financial Statements (issued April 2024; annual periods beginning on or after 1 January 2027, earlier application permitted; replaces IAS 1). https://www.ifrs.org/issued-standards/list-of-standards/ifrs-18-presentation-and-disclosure-in-financial-statements/ (checked 2026-10-28).
- IFRS Foundation. IAS 1, IAS 2, IAS 7, IAS 12, IAS 16, IAS 28, IAS 33, IAS 36, IAS 37, IAS 38, IFRS 9, IFRS 10, IFRS 15 (effective 1 January 2018), IFRS 16 (effective 1 January 2019) and the Conceptual Framework for Financial Reporting (2018). https://www.ifrs.org (checked 2026-10-28).
- FASB Accounting Standards Codification: ASC 230, 260, 323, 326, 330, 350, 360, 450, 606 (ASU 2014-09), 740, 810, 842 (ASU 2016-02); ASU 2024-03 as clarified by ASU 2025-01. https://www.fasb.org (checked 2026-10-28).
- AACSB. Global Standards for Business Education (2026), ratified 20 April 2026; check aacsb.edu.
- Dunlosky, J., Rawson, K. A., Marsh, E. J., Nathan, M. J., and Willingham, D. T. (2013). Improving students' learning with effective learning techniques. Psychological Science in the Public Interest, 14(1), 4-58.
Answer key
- Income statement, balance sheet (statement of financial position), statement of cash flows (plus the statement of changes in equity and notes); assets = liabilities + equity.
- Cash is received when the cards are sold but revenue is recognised only on redemption, so the increase in contract liabilities adds to operating cash flow without adding to profit.
- Identify the contract; identify the performance obligations; determine the transaction price; allocate it to the performance obligations; recognise revenue when (or as) each obligation is satisfied.
- LIFO.
- Depreciation of the right-of-use asset in operating expenses; interest on the lease liability in the financing category.
- Annual periods beginning on or after 1 January 2027; it applies retrospectively, so comparatives (FY2026 for a calendar-year company) are restated.
- Operating profit 37.4; profit before financing and income taxes 40.2.
- Interest paid (14.9) moves to financing and interest received (0.8) to investing: 56.3 + 14.9 - 0.8 = 70.4. The total change in cash (-28.5) is unchanged; only the split between sections moves.
- ROE = net margin x asset turnover x equity multiplier = 3.81% x 1.044 x 3.318 = 13.19%.
- Inventory growing much faster than sales (19.8% against 9.4%); gross margin rising while inventory builds with an unchanged write-down provision; an adjusted measure that adds back costs that may recur; operating cash flow after leases falling (free cash flow after leases -8.7).
- The investor's share of profit is 3.0 (30% of 10.0), recognised in profit; the dividend received of 1.2 (30% of 4.0) reduces the carrying amount; the carrying amount rises by 3.0 - 1.2 = 1.8.
- Because IFRS 18 changes the definition of operating profit, a covenant that refers to the statements "as prepared from time to time" changes automatically; a frozen-GAAP clause keeps the definition the parties agreed.
Revision history
| Version | Date | Author | Change summary |
|---|---|---|---|
| 0.1 | YYYY-MM-DD | [Your name] | Roadmap copied from the syllabus; mini-case attempted |
| 0.2 | YYYY-MM-DD | [Your name] | Example: Added two class cases and the mid-term error log |
Standard and licence note
Based on the IFRS Accounting Standards and FASB Codification topics named above, using standard numbers, concept names and effective dates only, checked on ifrs.org and fasb.org on 2026-10-28, and on the published research named in the reading list. The course map, mini-case, exhibits, teaching note and questions are original; Northfield Outdoor Co. and the people in the case are fictional, and no published case or textbook text is copied or paraphrased. The template is independent and not affiliated with or endorsed by the IFRS Foundation, the FASB, AACSB or any business school. Check the current official versions and your own syllabus before you rely on any date, requirement or course design. Template licence: MIT.
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