Académique Documents
Professionnel Documents
Culture Documents
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CIMA F2 - Financial
Management
Workbook Questions
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Group Accounts
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Illustration 1
Almeria
Murcia
Tangible
100
100
Investment in Murcia
300
Current Assets
Inventory
40
200
Receivables
60
100
Cash
200
200
700
600
Ordinary Shares
160
100
Accumulated Profits
240
200
Equity
400
300
100
200
Current Liabilities
200
100
700
600
Additional Information
Almeria today acquired all the shares in Murcia for $300m
Required
Prepare the consolidated statement of financial position for the Almeria group
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Pro-Forma
Working 1 - Group Structure
Almeria
Murcia
Date Acquired
Parent Share
NCI
At Year End
Share Capital
Accumulated Profits
!
Working 3 - Goodwill
Goodwill
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Working 4 - NCI
$
NCI % of the subsidiarys net assets at the year end (W2)
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Murcia
Tangible
100
100
Investment in Murcia
300
Group
Current Assets
Inventory
40
200
Receivables
60
100
Cash
200
200
700
600
Ordinary Shares
160
100
Accumulated Profits
240
200
Equity
400
300
100
200
Current Liabilities
200
100
700
600
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Illustration 2
Ant
Dec
Assets
500
500
Investment in Dec
350
850
500
Ordinary Shares
100
200
Accumulated Profits
250
100
Equity
350
300
Liabilities
500
200
850
500
Additional Information
Ant today acquired 160m of the 200m shares in Dec.
Required
Prepare the consolidated statement of financial position for the Ant group
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Illustration 2 Pro-Forma
Working 1- Group Structure
Date Acquired
Parent Share
NCI
At Year End
Share Capital
Accumulated Profits
Working 3 - Goodwill
Goodwill
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Working 4 NCI
$
NCI % of the subsidiarys net assets at the year end (W2)
!
Working 5 - Accumulated Profits
$
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Dec
Assets
500
500
Investment in
Dec
350
Group
Goodwill
850
500
Ordinary
Shares
100
200
Accumulated
Profits
250
100
Equity
350
300
Liabilities
500
200
850
500
NCI
10
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Illustration 4
Evan
Dando
Assets
200
350
Investment in Dando
500
Current Assets
200
300
900
650
200
200
Accumulated Profits
250
100
Equity
450
300
280
200
Liabilities
170
150
900
650
Additional Information
Evan acquired 150m shares in Dando one year ago when the reserves of Dando were
$40m.
Required
Prepare the consolidated statement of financial position for the Evan group and show the
journal entries for accumulated profits.
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Solution
Working 1- Group Structure
Date Acquired
Parent Share
NCI
At Year End
Share Capital
Accumulated Profits
!
Working 3 - Goodwill
Goodwill
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Working 4 - NCI
$
NCI % of the subsidiarys net assets at the year end (W2)
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Dando
Assets
200
350
Investment in
Dando
500
Current Assets
200
300
900
650
Ordinary
Shares ($1)
200
200
Accumulated
Profits
250
100
Equity
450
300
Non Current
Liabilities
280
200
Liabilities
170
150
900
650
Group
Goodwill
NCI
CR
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Illustration 5
Virtual
Insanity
Assets
1000
800
Investment in Insanity
600
Current Assets
400
200
2000
1000
800
100
Accumulated Profits
750
400
Equity
1550
500
250
300
Liabilities
200
200
2000
1000
Additional Information
Virtual acquired 60m shares in Insanity one year ago when the reserves of Insanity were
$60m.
Required
Prepare the consolidated statement of financial position for the Virtual group
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Illustration 6
Jabba has acquired 100% of the shares in Hutt.
The consideration was as follows:
1. Cash of $36,000.
2. 2000 Shares in Jabba (the share price is currently $3).
3. $30,000 to be paid three years after the date of acquisition. The relevant
discount rate is 10%
4. If the group meets certain targets there will be a further payment with fair
value of $60,000 at a later date.
Required:
Calculate the fair value of the consideration which Jabba has given in
purchasing the investment in Hutt.
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Illustration 7
Brad acquires 80% of Angelinas share capital in a share for share exchange.
Brad gives Angelina 2 shares for every one in Angelina. Angelina has 100
shares in issue with a nominal value of $1. Brads share price is $5. At the
date of acquisition the net assets of Angelina are $600.
Calculate the goodwill arising using the proportionate method and the NCI.
Illustration 8
Brad acquires 80% of Angelinas share capital in a share for share exchange.
Brad gives Angelina 2 shares for every one in Angelina. Angelina has 100
shares in issue with a nominal value of $1 and a current share price of $8.
Brads share price is $5. At the date of acquisition the net assets of Angelina
are $600.
Calculate the gross goodwill and the NCI.
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Net assets at
acquisition
1,000
300
800
3,000
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Illustration 10
Jimmy acquired 80% of Gent 1 year ago. The following information relates to
Gent at the date of acquisition.
Accumulated
profits at
acquisition
Fair Value
adjustment of
plant at
acquisition
Cost of investment
150
100
800
160
The plant subject to the fair value adjustment had a remaining life of 5 yrs at
the date of acquisition. Goodwill is to be calculated gross.
Jimmy
Gent
Investment in Gent
800
Assets
700
700
1500
700
700
250
Accumulated Profits
500
350
Equity
1200
600
Liabilities
300
100
1500
700
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Illustration 11
Devil acquired 90% of Detail 2 years ago. The following information relates to
Gent at the date of acquisition.
Accumulated profits
at acquisition
Cost of investment
250
100
1000
The plant subject to the fair value adjustment had a remaining life of 4 yrs at
the date of acquisition. Goodwill is to be calculated using the proportionate
method.
Devil
Detail
Investment in Detail
1000
Assets
600
800
1600
800
650
100
Accumulated Profits
250
500
Equity
900
600
Liabilities
700
200
1500
700
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Illustration 12
Pinky acquired 80% of Brain 4 years ago. The following information is
relevant:
Net Assets at
year end
Net Assets at
acquisition
Cost of
investment
Fair Value of
NCI at
acquisition
Recoverable
amount at
year end
150
100
175
25
230
Brain
Investment in Pinky
175
Assets
100
100
Inventory
140
200
Receivables
160
100
Bank
125
200
700
600
160
50
Accumulated Profits
240
100
Equity
400
150
100
250
Liabilities
300
100
700
600
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Illustration 13
George owns 80% of the subsidiary Bungle. During the impairment review it was found
that the carrying value of Bungles net assets were $250 and the goodwill $300. The
recoverable amount of the subsidiary is $500 and goodwill is calculated on a proportionate
basis.
What amount of goodwill will appear on the group SFP?
Illustration 14
A Parent company has recorded an asset of $300 goods receivable with a subsidiary.
The subsidiary had recorded this as an initial liability payable of $300 but has just recorded
and sent a cheque payment to the parent of $50 leaving the payable balance of $250.
How should this be adjusted for on consolidation?
Illustration 15
Parent has been selling goods to subsidiary. The parent has recorded an asset of $500
receivable from the subsidiary.
The $500 includes goods worth $100 sent prior to the year end to the subsidiary who has
not received them. As a result the subsidiary has a balance of $400 recorded as a liability
in payables.
How should this be treated on consolidation?
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Illustration 16
Arctic is the parent of a subsidiary Monkeys. Extracts of their SFPs are below
Arctic
Monkeys
Inventory
300
100
Receivables
200
250
Bank
100
50
600
400
420
220
Current Assets
Current Liabilities
The trade payables of Monkeys includes $35m due to Arctic. This was after the deduction
of $10m in respect of cash sent by Monkeys but not yet received by Arctic.
The receivables of Arctic at the year end include $70m due from Monkeys. $25m of these
goods had been dispatched by Arctic, but were not yet received by Monkeys.
Show the treatment on consolidation.
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Illustration 17
Sea is the parent of a subsidiary Lion. Extracts of their SFPs are below
Sea
Lion
Inventory
400
250
Receivables
100
100
Bank
150
100
650
450
90
140
Current Assets
Current Liabilities
The trade payables of Lion includes $20m due to Arctic. This was after the deduction of
$15m in respect of cash sent by Lion but not yet received by Sea.
The receivables of Sea at the year end include $50m due from Lion. $15m of these goods
had been dispatched by Sea, but were not yet received by Lion.
Show the treatment on consolidation.
Illustration 18
Inter company sales of $400 have occurred in Attila group at a mark up on cost of 25%. At
the year end 1/4 of these goods had been sold on. Attila has an 80% interest in Hun.
I.
II.
III. Show the accounting treatment if the subsidiary company is the seller.
IV. Do parts I - III if the goods had been sold at a margin of 30%.
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Illustration 19
Argentina owns an 80% share of Messi which it purchased one year ago.
The information below relates to Messi at the date of acquisition.
Ordinary
Share Capital
Reserves
Fair Value of
the net assets
Fair value of
the NCI
Cost of the
investment
$m
$m
$m
$m
$m
200
400
800
200
1900
Messi
Revenue
8000
3000
Cost of Sales
-4000
-1000
Gross Profit
4000
2000
Operating Costs
-1500
-1500
Finance Costs
-1000
-200
1500
300
Tax
-700
-100
800
200
Other information
I.
Argentina sold goods to Messi during the year at a margin of 40% and worth $100m.
Half of these goods have been sold on by Messi by the year end.
II.
The fair value of Messis net assets were equal to their book value at the date of
acquisition, with the exception of some machinery which had a useful life of 5 years.
III. Calculate goodwill using the fair value of the NCI at the date of acquisition. At the year
end an impairment review has found that the goodwill has been impaired by 10%.
Produce a consolidated Income Statement for the Argentina group.
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Illustration 20
Nadal is a 90% subsidiary of Federer. It was acquired one year ago for $4000m. At that
time the accumulated profits were $800m.
Income Statements
Federer
Nadal
Revenue
20000
4000
Cost of Sales
-12000
-2000
Gross Profit
8000
2000
Distribution Costs
-2100
-300
Admin Expenses
-1400
-500
Operating Profit
1500
1200
Exceptional Gain
Nil
580
Investment Income
90
Nil
Finance Costs
-600
-150
3990
1630
Tax
-700
-130
3290
1500
Federer
Nadal
Investment in Nadal
4000
Assets
20000
5000
24000
5000
Share Capital
5000
1000
Accumulated Profits
15690
2200
Equity
20690
3200
Liabilities
3310
1800
24000
5000
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Accumulated
Profits
Total Equity
5000
12600
17600
3290
3290
Less Dividends
-200
-200
15690
20690
Share Capital
Accumulated
Profits
Total Equity
1000
800
1800
1500
1500
Less Dividends
-100
-100
2200
3200
Opening Balance
Closing Balance
5000
Opening Balance
Closing Balance
1000
Other Information:
In the year Federer sold goods to Nadal at a margin of 20%. The total amount sold was
$100m, of which a quarter remain in inventory at the year end.
Also during the year Nadal sold $180m of goods to Federer. These goods were sold at a
mark up of 50%. Half of the goods remain in inventory at the year end.
At the date of acquisition the fair values of Nadals net assets were equal to their book
value with the exception of an item of plant that had a fair value of $200m in excess of its
carrying value and a remaining useful life of 4 years. Goodwill is to be calculated on a
proportionate basis.
Federer paid a dividend during the year of $200m while Nadal paid a dividend of $100m.
Federer has recognised the dividend received from Nadal as investment income.
Required
Prepare the consolidated Income Statement, consolidated Statement of Changes in Equity
and the consolidated Statement of Financial Position for the Federer group.
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Illustration 21
3 years ago Star Ltd. bought 25% of the share capital of Wars Ltd. for consideration of
$400,000. Since that time Wars Ltd.has had the following results:
Year
Profit
$200,000
$160,000
$30,000
Due to poor trading results and customer service issues, Star Ltd feel that in the current
year the investment in Wars Ltd. has been impaired by $20,000.
Show the treatment of War Ltd. in the current year statement of financial position of
Star Group and in the Income statement.
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Illustration 22
On 1 April 2009 Picant acquired 75% of Sanders equity shares in a share exchange of
three shares in Picant for every two shares in Sander. The market prices of Picants and
Sanders shares at the date of acquisition were $320 and $450 respectively.
In addition to this Picant agreed to pay a further amount on 1 April 2010 that was
contingent upon the post-acquisition performance of Sander. At the date of acquisition
Picant assessed the fair value of this contingent consideration at $42 million, but by 31
March 2010 it was clear that the actual amount to be paid would be only $27 million
(ignore discounting). Picant has recorded the share exchange and provided for the initial
estimate of $42 million for the contingent consideration.
On 1 October 2009 Picant also acquired 40% of the equity shares of Adler paying $4 in
cash per acquired share and issuing at par one $100 7% loan note for every 50 shares
acquired in Adler. This consideration has also been recorded by Picant.
Picant has no other investments. The summarised statements of financial position of the
three companies at 31 March 2010 are:
Picant
Sander
Alder
37,500
24,500
21,000
Investments
45,000
82,500
24,500
21,000
Inventory
10,000
9,000
5,000
Receivables
6,500
1,500
3,000
Total Assets
99,000
35,000
29,000
Ordinary Shares
25,000
8,000
5,000
Share Premium
19,800
16,200
16,500
15,000
11,000
1,000
6,000
72,000
25,500
26,000
7% Loan Notes
14,500
2,000
Contingent Consideration
4,200
Current Liabilities
8,300
7,500
3,000
99,000
35,000
29,000
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(i) At the date of acquisition the fair values of Sanders property, plant and equipment was
equal to its carrying amount with the exception of Sanders factory which had a fair
value of $2 million above its carrying amount. Sander has not adjusted the carrying
amount of the factory as a result of the fair value exercise. This requires additional
annual depreciation of $100,000 in the consolidated financial statements in the postacquisition period.
(ii)Also at the date of acquisition, Sander had an intangible asset of $500,000 for software
in its statement of financial position. Picants directors believed the software to have no
recoverable value at the date of acquisition and Sander wrote it off shortly after its
acquisition.
(iii)At 31 March 2010 Picants current account with Sander was $34 million (debit). This
did not agree with the equivalent balance in Sanders books due to some goods-intransit invoiced at $18 million that were sent by Picant on 28 March 2010, but had not
been received by Sander until after the year end. Picant sold all these goods at cost
plus 50%.
(iv)Picants policy is to value the non-controlling interest at fair value at the date of
acquisition. For this purpose Sanders share price at that date can be deemed to be
representative of the fair value of the shares held by the non-controlling interest.
(v)Impairment tests were carried out on 31 March 2010 which concluded that the value of
the investment in Adler was not impaired but, due to poor trading performance,
consolidated goodwill was impaired by $38 million.
(vi)Assume all profits accrue evenly through the year.
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Illustration 23
Vic purchased 10% of the shares in Bob several years ago. The investment cost $17,000
and Vic currently carries the investment at cost in the accounts. Vic has subsequently
purchased 45% of the shares in Bob for $120,000. The net assets of Bob have a fair value
of $60,000 and the fair value of the original investment is $45,000. The fair value of the
NCI is $90,000.
Calculate the gross goodwill arising on the acquisition of Bob.
Illustration 24
A parent has owned 90% of a subsidiary for a long period of time. The NCI in the
subsidiary is currently measured at $300,000.
I.
The parent acquires all of the remaining shares for consideration of $250,000.
II.
The parent acquires 3% of the shares for $200,000 reducing the NCI to 7%.
Illustration 25
Inter purchased 70% of the shares in Milan several years ago. At that time goodwill of
$80,000 arose. The net assets of Milan are currently $100,000 and the NCI is $18,000.
I.
Calculate the gain arising on disposal if Inter sells its entire holding for $350,000.
II.
Calculate the gain arising on disposal if Inter sells 30% for $250,000 and the fair value
of the residual value is $30,000
Illustration 26
For several years Jeremy has owned 70% of Richard. The net assets of Richard at this
time are $250,000. The NCI is $68,000 and the gross goodwill is $200,000.
Jeremy has just sold 15% to take the holding to 55% for consideration of $150,000.
Calculate the difference arising that will be taken to equity.
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Illustration 27a
P
S1
Cost of
Investment
Net Assets 1
Year Ago
FV NCI
250
200
60
S1
220
150
100
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Illustration 28
Ozzy acquired a 70% holding in Sharon 2 years ago. Sharon purchased a 60%
shareholding in Jack one year ago. The following financial statements relate to the Ozzy
group.
Statements of Financial Position
Investment in Sharon
Ozzy
Sharon
Jack
50
Investment in Jack
Other assets
17
25
18
20
75
35
20
Ordinary Shares
50
20
Accumulated profits
20
12
Equity
70
32
16
Liabilities
75
35
20
Ozzy
Sharon
Jack
Revenue
400
60
85
Operating Costs
-395
55
-83
Operating Profit
Tax
-3
-2
-1
Income Statements
Accumulated Profits
Sharon
Jack
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Sharon
Jack
10
Goods worth $8m were sold in the year by Jack to Sharon and by the year end all of these
had been sold to a third party.
An impairment review at the year end found the goodwill of Sharon to be impaired by $3m,
goodwill is to be calculated gross.
Prepare the consolidated statement of financial position and consolidated income
statement for the Ozzy group.
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Illustration 29
The parent has an 60% holding in the subsidiary. The subsidiary has an associate in which
it holds 40%. The following information is relevant.
Subsidiarys cost of investment in associate
200
120
300
Show the treatment for the associate in the group financial statements.
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Illustration 30
The statements of financial position for 3 companies are as follows:
John
Paul
Ringo
Investments
675
200
Assets
900
700
400
1575
900
400
Share Capital
300
200
100
Accumulated Profits
700
400
100
Equity
1000
600
200
Liabilities
575
300
200
1575
900
400
Other information:
I.
II.
VI. The carrying value of assets & liabilities were the same as the fair values on the date
of acquisition
VII. On the date of acquisition the following information was correct:
Paul
Ringo
Accumulated Profits
250
60
100
60
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IAS 21
Foreign Currency
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Illustration 1
Zian is located in a foreign country and imports its raw materials at a price which is
normally denominated in dollars. The product is sold locally at selling prices denominated
in dinars, and determined by local competition. All selling and operating expenses are
incurred locally and paid in dinars. Distribution of profits is determined by the parent
company, Ribby. Zian has financed part of its operations through a $4 million loan from
Hall which was raised on 1 June 2007. This is included in the financial assets of Hall and
the non-current liabilities of Zian. Zians management have a considerable degree of
authority and autonomy in carrying out the operations of Zian and other than the loan from
Hall, are not dependent upon group companies for finance.
Required
Discuss and apply the principles set out in IAS 21 The effects of changes in foreign
exchange rates in order to determine the functional currency of Zian.
!
(8 marks)
Illustration 2
Bulldog Ltd has a year end of 31 January.
On 13th October Bulldog Ltd buys goods from Eagle Inc. a US supplier for $250,000.
On 24th November Bulldog settles the transaction in full.
Exchange rates
13th October 1 : $1.45
24th November 1 : $1.55
Show the accounting entries for these transactions.
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Illustration 3
Jeff Ltd. purchases an item of plant from a foreign supplier for cash of 100,000. Jeff is a
US company and the exchange rate at the time was $ = 1.50.
What value in $ will the asset be recorded at?
Illustration 4
Jeff Ltd. purchases an item of plant on 1st June from a foreign supplier on one months
credit for 100,000. Jeff is a US company.
Exchange rates
1st June! !
$ = 1.50
21st June!!
$ = 1.40
How will this transaction be dealt with in the accounts for the year to 21st June?
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(X)
NCI%
(X)
Group %
X
(X)
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Illustration 5
Big Ltd. acquired 80% of Cahoona Inc. on 1st July 2001.
Cahoona Inc are based in Burgerland where the functional currency is Francs (Fr).
The financial statements for the year to 30 June 2002 are below.
SFP
Investment in Cahoonas
Big
$
Cahoona
Fr
5000
10,000
3,000
Current Assets
5,000
2,000
20,000
5,000
Share Capital
6,000
1,500
Retained Earnings
4,000
2,500
Liabilities
10,000
1,000
20,000
5,000
Big
$
Cahoona
Fr
Revenue
25,000
35,000
Operating Costs
-15,000
-26,250
10,000
8,750
Tax
-5,000
-7,450
5,000
1,300
Income Statement
There was no other comprehensive income for either entity in the period.
Other information:
I. The fair value of the net assets of Cahoona was Fr6,000 on the date of acquisition with
any increase being attributable to land held at historic cost.
II. Big sold goods to Cahoona during the year for $1,000 cash.
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III. Big made a short term loan to Cahoona on 1 June 2002. The loan was for $400 and is
recorded as a liability by Cahoona at the historic rate.
IV. The NCI is valued using the proportionate method.
Exchange rates to $1:
!
!
!
1 July 2001!
Average rate!
1 June! !
30 June! !
!
!
!
!
!
Fr
1.5
1.75
1.9
2
Prepare the group statement of financial position, income statement, and statement of
other comprehensive income.
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IFRS 2
Share Based Payments
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Illustration 1
An entity grants 1 share option to each of its 100 employees on 1 January Year 1. Each
grant is conditional upon the employee working for the entity over the next three years.
The fair value of each share option as at 1 January Year 1 is $8
At the end of each year the number of employees expected to take up the options are:
Year 1:!
Year 2:!
95
97
When the rights are taken up in year 3, 98 employees actually receive the options.
Show the treatment for the employee benefits over the three years.
Illustration 2
An entity grants 1 share option to each of its 500 employees on 1 January Year 1. Each
grant is conditional upon the employee working for the entity over the next three years.
The fair value of each share option as at 1 January Year 1 is $10
On the basis of a weighted average probability, the entity estimates on 1 January that 100
employees will leave during the three-year period and therefore forfeit their rights to share
options.
The following actually occurs:
20 employees leave during Year 1 and the estimate of total employee departures over
the three-year period is revised to 70 employees
25 employees leave during Year 2 and the estimate of total employee departures over
the three-year period is revised to 60 employees
10 employees leave during Year 3
Illustration 3
Same question with additional information of share option price at the end of each year:
Year 1!!
Year 2!!
Year 3!!
10
12
14
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IAS 19 (Updated)
Pensions
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Illustration 1
A company maintains a defined benefit pension scheme for its employees. The following
information is relevant:
The pension assets brought forward in 20X0 $1,000 with a closing balance of $2,000.
The Discount Rate is 11%.
Calculate the expected return on Pension Assets.
Illustration 2
A company maintains a defined benefit pension scheme for its employees. The following
information is relevant:
The liabilities of the scheme were $1,400 at the start of the period and $2,600 at the end.
The discount rate is 12%.
Calculate the Interest Cost for the period.
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C/F
Pension Assets
1,000
2,000
Pension Liabilities
1,400
2,600
Illustration 4
A company maintains a defined benefit pension scheme for its employees. The following
information is relevant:
The pension assets brought forward in 20X0 $1,800 with a closing balance of $2,700.
The company contributes $90 per year into the scheme.
Benefits paid out in the period were $100.
The liabilities of the scheme were $1,600 at the start of the period and $2,100 at the end.
The discount rate is 12%.
The terms of the scheme have changed meaning that past service costs have arisen of
$35 and the current service costs for the period are $70.
Required:
Show the treatment for the pension scheme in the financial statements of the
company.
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Financial Instruments I
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Illustration 1
VB acquired 40,000 shares in another entity, JK, in March 2011 for $2.68 per share. The
investment was classified as available for sale on initial recognition. The shares were
trading at $2.96 per share on 31 July 2011. Commission of 5% of the value of the
transaction is payable on all purchases and disposals of shares.
Calculate the amount recognised in the Financial Statements on initial recognition
of the Financial Asset.
Illustration 2
(i) VB acquired 40,000 shares in another entity, JK, in March 2012 for $2.68 per share.
The investment was classified as available for sale on initial recognition. The shares were
trading at $2.96 per share on 31 July 2012. Commission of 5% of the value of the
transaction is payable on all purchases and disposals of shares.
Show the treatment for the shares at 31 July 2012
(ii) VB subsequently sold the shares on 31 July 2013 when the share price was $3.00.
Show the treatment for the shares at 31 July 2013
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Financial Instruments II
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Illustration 1
A company invests $10,000 in a 3 year redeemable 10% bond which is redeemable at a
premium.
The bond consists of interest payments and principle only and the company intends to
hold it until it is redeemed.
The effective interest rate on the bond is 12%.
Show the treatment for the bond over the 3 year period.
Illustration 2
A company issues a $30,000 3 year 7% redeemable bond at a discount of 10% with issue
costs of $1,000.
The bond is redeemable at a premium of $1,297.
The effective interest rate is 14%.
Show the treatment for the bond over the 3 year period.
Illustration 3
Ambush loaned $200,000 to Bromwich on 1 December 2003. The effective and stated
interest rate for this loan was 8 per cent. Interest is payable by Bromwich at the end of
each year and the loan is repayable on 30 November 2007. At 30 November 2005, the
directors of Ambush have heard that Bromwich is in financial difficulties and is undergoing
a financial reorganisation. The directors feel that it is likely that they will only receive
$100,000 on 30 November 2007 and no future interest payment. Interest for the year
ended 30 November 2005 had been received. The financial year end of Ambush is 30
November 2005.
Required:
(i)!
Outline the requirements of IAS 39 as regards the impairment of financial
!
assets.!
!
!
!
!
!
!
!
!
!
(6 marks)
(ii)!
!
Explain the accounting treatment under IAS39 of the loan to Bromwich in the
financial statements of Ambush for the year ended 30 November 2005.! (4 marks)
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Illustration 4
A company purchases a $2 million bond that has a fixed interest rate of 6% per year . The
instrument is classed as a FVPL financial asset. The fair value is $2 million.
The company enters into an interest rate swap (fair value zero) to offset the risk of a
decline in fair value. If the derivative hedging instrument is effective, any decline in the fair
value of the bond should be offset by opposite increases in the fair value of the derivative
instrument. The swap is expected to be 100% effective.
The company designates and documents the swap as a hedging instrument.
Market interest rates increase to 7% and the fair value of the bond decreases to
$1,920,000.
The instrument is a hedged item in a fair value hedge, this change in fair value of the
instrument is recognised in profit or loss, as follows:
Dr Income statement 80,000
Cr Bond 80,000
The fair value of the swap has increased by $80,000. Since the swap is a derivative, it is
measured at fair value with changes in fair value recognised in profit or loss.
Dr Swap 80,000
Cr Income statement 80,000
The changes in fair value of the hedged item and the hedging instrument exactly offset,
the hedge is 100% effective and, the net effect on profit or loss is zero.
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Illustration 1
QWE issued 10 million 5% convertible $1 bonds 2015 on 1 January 2010. The proceeds of
$10 million were credited to non-current liabilities and debited to bank. The 5% interest
paid has been charged to finance costs in the year to 31 December 2010.
The market rate of interest for a similar bond with a five year term but no conversion
terms is 7%. Show the treatment for the bond in year 1.
Illustration 2
Aron issued one million convertible bonds on 1 June 2006. The bonds had a term of three
years and were issued with a total fair value of $100 million which is also the par value.
Interest is paid annually in arrears at a rate of 6% per annum and bonds, without the
conversion option, attracted an interest rate of 9% per annum on 1 June 2006. The
company incurred issue costs of $1 million. If the investor did not convert to shares they
would have been redeemed at par. At maturity all of the bonds were converted into 25
million ordinary shares of $1 of Aron. No bonds could be converted before that date. The
directors are uncertain how the bonds should have been accounted for up to the date of
the conversion on 31 May 2009 and have been told that the impact of the issue costs is to
increase the effective interest rate to 938%.
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Illustration 1
Norman, a public limited company, has three business segments which are currently
reported in its financial statements. Norman is an international hotel group which reports to
management on the basis of region. It does not currently report segmental information
under IFRS8 Operating Segments. The results of the regional segments for the year
ended 31 May 2008 are as follows:
Revenue
External
Internal
Segmental
Profit/Loss
$m
$m
$m
$m
$m
European
200
-10
300
200
300
60
800
300
Other
500
105
2,000
1,400
Region
Segmental
Assets
Segmental
Liabilities
There were no significant inter company balances in the segment assets and liabilities.
The hotels are located in capital cities in the various regions, and the company sets
individual performance indicators for each hotel based on its city location.
Required:
Discuss the principles in IFRS8 Operating Segments for the determination of a
companys reportable operating segments and how these principles would be
applied for Norman plc using the information given above.
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Illustration 2
Slick Tony sells cars from his car dealership. The car manufacturer supplies him with cars
on which the purchase price is set on delivery. An element of finance is included in the
purchase price.
If the car is not sold within 4 months then it must be purchased by Tony. If Tony sells a car
he must pay the manufacturer the next day. Tony has to insure and maintain the cars and
has no right to return them.
Who should recognise the cars on their statement of financial position and when?
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Illustration 4
Arbie Co. has sold some plant and leased it back on a 5 year finance lease. The sale took
place at the beginning of the current accounting period.
Details were as follows:
Proceeds of Sale
200,000
200,000
150,000
52,760
UEL of machine
5 years
3.791
10%
Show the treatment for the above in the financial statements in year 1.
Illustration 5
Pinky Social Club has sold its building to an investment company for $300,000. They have
signed an agreement that they can buy back the building at any stage over the next 5
years for the original price plus monthly interest charged at 5%.
The buildings current market value is $500,000.
How should Pinky show this transaction in their financial statements?
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IAS 33 EPS
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Illustration 1
An entity issued 300,000 shares at full market price on 1st July 2009. The year end of the
entity is 31st December.
There were 900,000 shares in issue on 1st Jan 2009 and the profit for the year to 31st
December 2009 was $1,000,000.
Calculate the EPS at 31st December 2009.
Illustration 2
ABC Ltd. makes a bonus issue of 1 for 6 on 1st July 2009. The year end of the entity is
31st December.
There were 900,000 shares in issue on 1st Jan 2009 and the profit for the year to 31st
December 2009 was $1,000,000.
Calculate the EPS at 31st December 2009.
Illustration 3
ABC Ltd. makes a rights issue of 1 for 3 on 1st July 2009. The current share price is $4
and the rights issue is at a price of $3 The year end of the entity is 31st December.
There were 900,000 shares in issue on 1st Jan 2009 and the profit for the year to 31st
December 2009 was $1,000,000.
Last years earnings were $900,000
Calculate the EPS at 31st December 2009 and the new EPS for 2008.
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Illustration 4
An entity issued a bonus issue of 1 for 5 of its shares on 1st July 2009. The year end of
the entity is 31st December.
There were 1,000,000 shares in issue on 1st Jan 2009 and the profit for the year to 31st
December 2009 was $1,000,000.
The entity also has convertible loan stock that if converted would create 100,000 new
shares.
The interest paid on the loan each year is $90,000 with tax benefits associated of $20,000
Calculate the EPS at 31st December 2009 and the Diluted EPS.
Illustration 5
An entity has a basic weighted average number of shares of 2m and earnings of $1.5m. It
also has in issue 300,000 share options with an exercise price of $5. The average market
value of the shares in the year was $6.
Calculate the basic EPS for the entity and the diluted EPS.
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Interpretation of Financial
Statements
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Illustration 1
2011
2010
ASSETS
$000
$000
1000
1000
Inventory
300
400
Receivables
200
300
Cash
300
200
1800
1900
Ordinary Shares
800
800
Reserves
200
100
700
900
Payables
100
100
Overdraft
LIABILITIES
1800
1900
$000
$000
Revenue
1000
1200
COS
800
1100
Gross Profit
200
100
Other Costs
100
90
Net Profit
100
10
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Illustration 2
X1
X2
X3
500
700
1000
Current Assets
150
200
300
650
900
1300
300
300
300
Reserves
100
280
430
Loan Notes
150
200
300
Payables
100
120
270
650
900
1300
Revenue
3000
3500
4200
COS
2000
2400
3200
Gross Profit
1000
1100
1000
Admin Costs
300
350
400
Distribution Costs
200
250
300
PBIT
500
500
300
Interest
100
150
220
Tax
120
90
50
280
260
30
Dividends
100
110
30
Retained Earnings
180
150
$3.30
$4.00
$2.20
Share Price
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Using the information on the previous page calculate and comment on the following
Ratios:
I. Return on Capital Employed
II. Return on Equity
III. Gross Margin
IV. Net Margin
V. Operating Margin
VI. Revenue Growth
VII. Gearing
VIII. Interest Cover
IX. Dividend Cover
X. Dividend Yield
XI. P/E Ratio
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Illustration 1
An entity has the following results in their financial statements:
2011
2010
ASSETS
$000
$000
1000
1000
Inventory
300
400
Receivables
200
300
Cash
300
200
1800
1900
Ordinary Shares
800
800
Reserves
200
199
700
801
Payables
100
100
1800
1900
$000
$000
Revenue
1000
1200
COS
800
1100
Gross Profit
200
100
30
Other Costs
70
90
PBIT
100
10
Interest Cost
10
PBT
90
Tax
30
PAT
60
LIABILITIES
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Other Information:
I.
II.
Perform the reconciliation of Profit Before Tax to Cash Generated From Operations
for 2011.
Illustration 2
An entity has the following information in their financial statements:
PPE
Intangible Assets
2011
2010
2,000
1,100
500
400
Other information:
I.
II.
The entity disposed of a piece of plant during the year with a carrying value of $300
for a profit of $50.
Intangible assets are made up of qualifying development expenditure on a product
currently being sold, with amortisation in 2011 of $100.
What cash flows will appear in the statement of cash flows for the entity in the year
2011?
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Illustration 3
Statement of Financial Position
2011
2010
32,600
24,100
4,500
7,000
37,100
31,100
Inventory
10,200
7,200
Receivables
3,500
3,700
Current Assets
Bank
Total Assets
1,400
13,700
12,300
50,800
43,400
14,000
8,000
2,000
2,000
3,600
Retained Earnings
13,000
10,100
7,000
6,900
Deferred Tax
1,300
900
Tax
1,000
1,200
Bank Overdraft
2,900
1,600
4,000
4,800
2,100
Trade Payables
3,200
4,600
50,800
43,400
Current Liabilities
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Income Statement
2011
2010
$000
$000
Revenue
58,500
41,000
Cost of Sales
-46,500
-30,000
Gross Profit
12,000
11,000
Operating Activities
-8,700
-4,500
1,100
700
Finance Costs
-500
-400
3,900
6,800
Income Tax
-1,000
-1,800
2,900
5,000
Accumulated
Depreciation
$000
Carrying
Amount
$000
At 30 September 2010
33,600
-9,500
24,100
6,700
6,700
8,300
8,300
Disposal of property
-5,000
43,600
1,000
-4,000
-2,500
-2,500
-11,000
32,600
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Year to 30 September
2011
2010
$000
$000
Dividends received
200
250
400
500
450
1100
700
Note (iii)
On 1 April 2011 there was a bonus issue of shares that was funded from the share
premium and some of the revaluation reserve. This was followed on 30 April 2011 by an
issue of shares for cash at par.
Note (iv)
The movement in the product warranty provision has been included in cost of sales.
Required:
Prepare a statement of cash flows for Mocha for the year ended 30 September 2011,
in accordance with IAS 7 Statement of cash flows, using the indirect method.!
!
(19 marks)
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Illustration 1
The group financial statements for Nasser Ltd. show the following information:
X1
X0
820
700
220
130
What was the dividend paid to the NCI in the year X1?
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Illustration 2
Indigo Ltd, took up a 40% holding in Violet Ltg. for consideration of $120 in 20X1. The
group financial statements for Indigo Ltd. show the following information:
X1
X0
50
150
Loan to Associate
20
What amounts will be included in the group cash flow statement in the year X1?
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Illustration 3
Extracts from the group SFP of Express Ltd are outlined below:
X1
X0
50,600
44,050
Inventory
33,500
28,700
Receivables
27,130
26,300
Trade Payables
33,340
32,810
During the period Express Ltd purchased 75% of Delivery Ltd. At the date of acquisition
the fair value of the following assets and liabilities were determined:
4,200
Inventory
1,650
Receivables
1,300
Payables
1,950
Illustration 4
Using the information in illustration 3 show the movements in cash if Express Ltd. Had
already owned the subsidiary and sold it during the period.
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Illustration 5
A Group has a foreign subsidiary which had the following FX Gains & Losses on
translation into the Group presentational currency:
$m
PPE
30
Inventory
Receivables
18
Payables
(7)
2010
PPE
335
240
Inventory
70
50
Receivables
72
40
Payables
-35
-25
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Illustration 6
Consolidated Financial Statements for Group.
Group Income Statement
$m
Revenue
4,000
COS
-2,200
Gross Profit
1,800
Other Expenses
-789
1,011
50
-200
PBT
861
Tax
-180
681
62
743
Attributable to Parent
600
Attributable to NCI
143
$m
3,307
600
Dividends Paid
-240
Issue of Shares
1000
Balance C/F
4,667
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20X2
20X1
52
72
5,900
4,100
Inventories
950
800
Receivables
1,000
900
80
98
7,982
5,970
Share Capital
3,500
2,500
Retained Earnings
1,167
807
543
500
225
140
1,554
1,200
278
218
Trade Payables
450
400
Accrued Interest
25
20
Income Tax
130
120
45
25
Overdraft
65
40
7,982
5,970
Goodwill
Property Plant & Equipment
Cash
NCI
Non-Current Liabilities
Obligations under Finance Leases
Long term borrowings
Deferred Tax
Current Liabilities
(i) On 1 April 20X2 the parent disposed of a 75% subsidiary for $250m in cash which had
the following net assets at the time:
!
!
!
!
!
!
$m
Property Plant & Equipment!
!
200
Inventory! !
!
!
!
100
78
Receivables! !
!
!
Cash! !
!
!
!
Payables!
!
!
!
Income Tax! !
!
!
Interest bearing borrowings!
!
!
!
!
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!
!
!
!
!
!
110
10
(80)
(25)
(75)
240
The subsidiary had been purchased several years ago for a cash payment of $110m when
its net assets had been $120m.
(ii) Goodwill is measured using the proportionate method
(iii)The following currency differences occurred
Total
$m
Parent Share
$m
25
20
Inventories
20
15
Receivables
20
16
Payables
-9
-6
56
45
16
12
-10
-10
62
47
The exchange losses on borrowings relate to foreign loans taken out to finance
investments in subsidiaries. The accounts assistant has offset these against the
retranslation of the net investments in the subsidiaries. The exchange gain on retranslation
of the income statement (from average rate for the year to the closing rate) relates to
operating profit excluding depreciation.
(iv) Depreciation for the year was $320m and the group disposed of PPE with a net book
value of $190m for cash of $198m. the profit on this disposal has been credited to Other
operating expenses.
The group entered into a significant number of new finance leases in the period of which
$250m related to additions to property, plant & equipment.
Prepare the consolidated cash flow statement for the period.
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