The following issues have arisen during the preparation of Skeptic’s draft financial state

第1题

(a) A director of Enca, a public listed company, has expressed concerns about the accounti

ng treatment of some of the company’s items of property, plant and equipment which have increased in value. His main concern is that the statement of financial position does not show the true value of assets which have increased in value and that this ‘undervaluation’ is compounded by having to charge depreciation on these assets, which also reduces reported profit. He argues that this does not make economic sense.

Required:

Respond to the director’s concerns by summarising the principal requirements of IAS 16 Property, Plant and Equipment in relation to the revaluation of property, plant and equipment, including its subsequent treatment.

(b) The following details relate to two items of property, plant and equipment (A and B) owned by Delta which are depreciated on a straight-line basis with no estimated residual value:

At 31 March 2014 item A was still in use, but item B was sold (on that date) for $70 million.

Note: Delta makes an annual transfer from its revaluation surplus to retained earnings in respect of excess depreciation.

Required:

Prepare extracts from:

(i) Delta’s statements of profit or loss for the years ended 31 March 2013 and 2014 in respect of charges (expenses) related to property, plant and equipment;

(ii) Delta’s statements of financial position as at 31 March 2013 and 2014 for the carrying amount of property, plant and equipment and the revaluation surplus.

The following mark allocation is provided as guidance for this requirement:

(i) 5 marks

(ii) 5 marks (10 marks)

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第2题

Shown below are the financial statements of Woodbank for its most recent two years:Stateme

Shown below are the financial statements of Woodbank for its most recent two years:

Statements of profit or loss for the year ended 31 March:

The following information is available:

(i) On 1 January 2014, Woodbank purchased the trading assets and operations of Shaw for $50 million and, on the same date, issued additional 10% loan notes to finance the purchase. Shaw was an unincorporated entity and its results (for three months from 1 January 2014 to 31 March 2014) and net assets (including goodwill not subject to any impairment) are included in Woodbank’s financial statements for the year ended 31 March 2014 .There were no other purchases or sales of non-current assets during the year ended 31 March 2014.

(ii) Extracts of the results (for three months) of the previously separate business of Shaw, which are included in Woodbank’s statement of profit or loss for the year ended 31 March 2014, are:

(iii) The following six ratios have been correctly calculated for Woodbank for the year ended 31 March 2013:

Required:

(a) Calculate for the year ended 31 March 2014:

(i) equivalent ratios (all six) to the above for Woodbank based on its reported figures; and

(ii) equivalent ratios to the first FOUR only for Woodbank excluding the effects of the purchase of Shaw.

Note: Assume the capital employed for Shaw is equal to its purchase price of $50 million. (10 marks)

(b) Assess the comparative financial performance and position of Woodbank for the year ended 31 March 2014. Your answer should refer to the effects of the purchase of Shaw. (15 marks)

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第3题

The following trial balance relates to Xtol at 31 March 2014:The following notes are relev

The following trial balance relates to Xtol at 31 March 2014:

The following notes are relevant:

(i) Revenue includes an amount of $20 million for cash sales made through Xtol’s retail outlets during the year on behalf of Francais. Xtol, acting as agent, is entitled to a commission of 10% of the selling price of these goods. By 31 March 2014, Xtol had remitted to Francais $15 million (of the $20 million sales) and recorded this amount in cost of sales.

(ii) Plant and equipment is depreciated at 12?% per annum on the reducing balance basis. All amortisation/depreciation of non-current assets is charged to cost of sales.

(iii) On 1 August 2013, Xtol made a fully subscribed rights issue of equity share capital based on two new shares at 60 cents each for every five shares held. The market price of Xtol’s shares before the issue was $1·02 each. The issue has been fully recorded in the trial balance figures.

(iv) On 1 April 2013, Xtol issued a 5% $50 million convertible loan note at par. Interest is payable annually in arrears on 31 March each year. The loan note is redeemable at par or convertible into equity shares at the option of the loan note holders on 31 March 2016.

The interest on an equivalent loan note without the conversion rights would be 8% per annum. The present values of $1 receivable at the end of each year, based on discount rates of 5% and 8%, are:

(v) An equity dividend of 4 cents per share was paid on 30 May 2013 and, after the rights issue, a further dividend of 2 cents per share was paid on 30 November 2013.

(vi) The balance on current tax represents the under/over provision of the tax liability for the year ended 31 March 2013. A provision of $28 million is required for current tax for the year ended 31 March 2014 and at this date the deferred tax liability was assessed at $8·3 million.

Required:

(a) Prepare the statement of profit or loss for Xtol for the year ended 31 March 2014.

(b) Prepare the statement of changes in equity for Xtol for the year ended 31 March 2014.

(c) Prepare the statement of financial position for Xtol as at 31 March 2014.

(d) Calculate the basic earnings per share (EPS) for Xtol for the year ended 31 March 2014.

Note: Answers and workings (for parts (a) to (c)) should be presented to the nearest $1,000; notes to the financial statements are not required.

The following mark allocation is provided as guidance for this question:

(a) 8 marks

(b) 6 marks

(c) 8 marks

(d) 3 marks

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第4题

On 1 October 2013, Penketh acquired 90 million of Sphere’s 150 million $1 equity shares. T

he acquisition was achieved through a share exchange of one share in Penketh for every three shares in Sphere. At that date the stock market prices of Penketh’s and Sphere’s shares were $4 and $2·50 per share respectively. Additionally, Penketh will pay $1·54 cash on 30 September 2014 for each share acquired. Penketh’s finance cost is 10% per annum.

The retained earnings of Sphere brought forward at 1 April 2013 were $120 million.

The summarised statements of profit or loss and other comprehensive income for the companies for the year ended 31 March 2014 are:

The following information is relevant:

(i) A fair value exercise conducted on 1 October 2013 concluded that the carrying amounts of Sphere’s net assets were equal to their fair values with the following exceptions:

– the fair value of Sphere’s land was $2 million in excess of its carrying amount

– an item of plant had a fair value of $6 million in excess of its carrying amount. The plant had a remaining life of two years at the date of acquisition. Plant depreciation is charged to cost of sales.

– Penketh placed a value of $5 million on Sphere’s good trading relationships with its customers. Penketh expected, on average, a customer relationship to last for a further five years. Amortisation of intangible assets is charged to administrative expenses.

(ii) Penketh’s group policy is to revalue land to market value at the end of each accounting period. Prior to its acquisition, Sphere’s land had been valued at historical cost, but it has adopted the group policy since its acquisition. In addition to the fair value increase in Sphere’s land of $2 million (see note (i)), it had increased by a further $1 million since the acquisition.

(iii) On 1 October 2013, Penketh also acquired 30% of Ventor’s equity shares. Ventor’s profit after tax for the year ended 31 March 2014 was $10 million and during March 2014 Ventor paid a dividend of $6 million. Penketh uses equity accounting in its consolidated financial statements for its investment in Ventor.

Sphere did not pay any dividends in the year ended 31 March 2014.

(iv) After the acquisition Penketh sold goods to Sphere for $20 million. Sphere had one fifth of these goods still in inventory at 31 March 2014. In March 2014 Penketh sold goods to Ventor for $15 million, all of which were still in inventory at 31 March 2014. All sales to Sphere and Ventor had a mark-up on cost of 25%.

(v) Penketh’s policy is to value the non-controlling interest at the date of acquisition at its fair value. For this purpose, the share price of Sphere at that date (1 October 2013) is representative of the fair value of the shares held by the non-controlling interest.

(vi) All items in the above statements of profit or loss and other comprehensive income are deemed to accrue evenly over the year unless otherwise indicated.

Required:

(a) Calculate the consolidated goodwill as at 1 October 2013.

(b) Prepare the consolidated statement of profit or loss and other comprehensive income of Penketh for the year ended 31 March 2014.

The following mark allocation is provided as guidance for this question:

(a) 6 marks

(b) 19 marks

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第5题

(a) Shawler is a small manufacturing company specialising in making alloy castings. Its ma

in item of plant is a furnace which was purchased on 1 October 2009. The furnace has two components: the main body (cost $60,000 including the environmental provision – see below) which has a ten-year life, and a replaceable liner (cost $10,000) with a five-year life.

The manufacturing process produces toxic chemicals which pollute the nearby environment. Legislation requires that a clean-up operation must be undertaken by Shawler on 30 September 2019 at the latest.

Shawler received a government grant of $12,000 relating to the cost of the main body of the furnace only.

The following are extracts from Shawler’s statement of financial position as at 30 September 2011 (two years after the acquisition of the furnace):

Required:

(i) Prepare equivalent extracts from Shawler’s statement of financial position as at 30 September 2012; (3 marks)

(ii) Prepare extracts from Shawler’s income statement for the year ended 30 September 2012 relating to the items in the statement of financial position. (3 marks)

(b) On 1 April 2012, the government introduced further environmental legislation which had the effect of requiring Shawler to fit anti-pollution filters to its furnace within two years. An environmental consultant has calculated that fitting the filters will reduce Shawler’s required environmental costs (and therefore its provision) by 33%. At 30 September 2012 Shawler had not yet fitted the filters.

Required:

Advise Shawler as to whether they need to provide for the cost of the filters as at 30 September 2012 and whether they should reduce the environmental provision at this date. (4 marks)

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第6题

(a) Two of the qualitative characteristics of information contained in the IASB’s Conceptu

al Framework for Financial Reporting are understandability and comparability

Required:

Explain the meaning and purpose of the above characteristics in the context of financial reporting and discuss the role of consistency within the characteristic of comparability in relation to changes in accounting policy. (6 marks)

(b) Lobden is a construction contract company involved in building commercial properties. Its current policy for determining the percentage of completion of its contracts is based on the proportion of cost incurred to date compared to the total expected cost of the contract.

One of Lobden’s contracts has an agreed price of $250 million and estimated total costs of $200 million.

The cumulative progress of this contract is:

Based on the above, Lobden prepared and published its financial statements for the year ended 30 September 2011. Relevant extracts are:

Lobden has received some adverse publicity in the financial press for taking its profit too early in the contract process, leading to disappointing profits in the later stages of contracts. Most of Lobden’s competitors take profit based on the percentage of completion as determined by the work certified compared to the contract price.

Required:

(i) Assuming Lobden changes its method of determining the percentage of completion of contracts to that used by its competitors, and that this would represent a change in an accounting estimate, calculate equivalent extracts to the above for the year ended 30 September 2012; (7 marks)

(ii) Explain why the above represents a change in accounting estimate rather than a change in accounting policy. (2 marks)

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第7题

Quartile sells jewellery through stores in retail shopping centres throughout the country.

Over the last two years it has experienced declining profitability and is wondering if this is related to the sector as whole. It has recently subscribed to an agency that produces average ratios across many businesses. Below are the ratios that have been provided by the agency for Quartile’s business sector based on a year end of 30 June 2012.

Statement of financial position

Note: The deferred development expenditure relates to an investment in a process to manufacture artificial precious gems for future sale by Quartile in the retail jewellery market.

Required:

(a) Prepare for Quartile the equivalent ratios that have been provided by the agency. (9 marks)

(b) Assess the financial and operating performance of Quartile in comparison to its sector averages. (12 marks)

(c) Explain four possible limitations of the usefulness of the above comparison. (4 marks)

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第8题

The following trial balance relates to Quincy as at 30 September 2012:The following notes

The following trial balance relates to Quincy as at 30 September 2012:

The following notes are relevant:

(i) On 1 October 2011, Quincy sold one of its products for $10 million (included in revenue in the trial balance). As part of the sale agreement, Quincy is committed to the ongoing servicing of this product until 30 September 2014 (i.e. three years from the date of sale). The value of this service has been included in the selling price of $10 million. The estimated cost to Quincy of the servicing is $600,000 per annum and Quincy’s normal gross profit margin on this type of servicing is 25%. Ignore discounting.

(ii) Quincy issued a $25 million 6% loan note on 1 October 2011. Issue costs were $1 million and these have been charged to administrative expenses. The loan will be redeemed on 30 September 2014 at a premium which gives an effective interest rate on the loan of 8%.

(iii) Quincy paid an equity dividend of 8 cents per share during the year ended 30 September 2012.

(iv) Non-current assets:

Quincy had been carrying land and buildings at depreciated cost, but due to a recent rise in property prices, it decided to revalue its property on 1 October 2011 to market value. An independent valuer confirmed the value of the property at $60 million (land element $12 million) as at that date and the directors accepted this valuation. The property had a remaining life of 16 years at the date of its revaluation. Quincy will make a transfer from the revaluation reserve to retained earnings in respect of the realisation of the revaluation reserve. Ignore deferred tax on the revaluation.

Plant and equipment is depreciated at 15% per annum using the reducing balance method.

No depreciation has yet been charged on any non-current asset for the year ended 30 September 2012. All depreciation is charged to cost of sales.

(v) The investments had a fair value of $15·7 million as at 30 September 2012. There were no acquisitions or disposals of these investments during the year ended 30 September 2012.

(vi) The balance on current tax represents the under/over provision of the tax liability for the year ended 30 September 2011. A provision for income tax for the year ended 30 September 2012 of $7·4 million is required. At 30 September 2012, Quincy had taxable temporary differences of $5 million, requiring a provision for deferred tax. Any deferred tax adjustment should be reported in the income statement. The income tax rate of Quincy is 20%.

Required:

(a) Prepare the statement of comprehensive income for Quincy for the year ended 30 September 2012.

(b) Prepare the statement of changes in equity for Quincy for the year ended 30 September 2012.

(c) Prepare the statement of financial position for Quincy as at 30 September 2012. Notes to the financial statements are not required.

The following mark allocation is provided as guidance for this question:

(a) 11 marks

(b) 4 marks

(c) 10 marks

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第9题

On 1 January 2012, Viagem acquired 90% of the equity share capital of Greca in a share exc

hange in which Viagem issued two new shares for every three shares it acquired in Greca. Additionally, on 31 December 2012, Viagem will pay the shareholders of Greca $1·76 per share acquired. Viagem’s cost of capital is 10% per annum.

At the date of acquisition, shares in Viagem and Greca had a stock market value of $6·50 and $2·50 each, respectively.

Income statements for the year ended 30 September 2012

The following information is relevant:

(i) At the date of acquisition, the fair values of Greca’s assets were equal to their carrying amounts with the exception of two items:

– An item of plant had a fair value of $1·8 million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to cost of sales.

– Greca had a contingent liability which Viagem estimated to have a fair value of $450,000. This has not changed as at 30 September 2012.

Greca has not incorporated these fair value changes into its financial statements.

(ii) Viagem’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, Greca’s share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.

(iii) Sales from Viagem to Greca throughout the year ended 30 September 2012 had consistently been $800,000 per month. Viagem made a mark-up on cost of 25% on these sales. Greca had $1·5 million of these goods in inventory as at 30 September 2012.

(iv) Viagem’s investment income is a dividend received from its investment in a 40% owned associate which it has held for several years. The underlying earnings for the associate for the year ended 30 September 2012 were $2 million.

(v) Although Greca has been profitable since its acquisition by Viagem, the market for Greca’s products has been badly hit in recent months and Viagem has calculated that the goodwill has been impaired by $2 million as at 30 September 2012.

Required:

(a) Calculate the consolidated goodwill at the date of acquisition of Greca.

(b) Prepare the consolidated income statement for Viagem for the year ended 30 September 2012. The following mark allocation is provided as guidance for these requirements:

(a) 7 marks

(b) 14 marks

(c) The carrying amount of a subsidiary’s leased property will be subject to review as part of the fair value exercise on acquisition and may be subject to review in subsequent periods.

Required:

Explain how a fair value increase of a subsidiary’s leased property on acquisition should be treated in the consolidated financial statements; and how any subsequent increase in the carrying amount of the leased property might be treated in the consolidated financial statements.

Note: Ignore taxation. (4 marks)

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第10题

(a) The methods by which Accounting Standards are developed differ considerably throughout

the world. It is often argued that there are two main systems of regulation that determine the nature of Accounting Standards: a rules-based system and a principles-based system.

Required:

Briefly explain the difference between the two systems and state which system you believe is most descriptive of International Financial Reporting Standards (IFRS). (4 marks)

(b) Baxen is a public listed company that currently uses local Accounting Standards for its financial reporting. The board of directors of Baxen is considering the adoption of International Financial Reporting Standards (IFRS) in the near future. The company has ambitious growth plans which involve extensive trading with many foreign companies and the possibility of acquiring at least one of its trading partners as a subsidiary in the near future.

Required:

Identify the advantages that Baxen could gain by adopting IFRS for its financial reporting purposes. (6 marks)

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