REVISION May 2012: FINAL session

Question 1 A company has a single piece of manufacturing plant which has a carrying amount of 200,000 at 31st December 2011. The remaining useful life of the plant is four years. Unfortunately, the product produced by the plant has dropped in popularity, and cash flow forecasts derived budgets/forecasts for the next four years approved by management (excluding the effects of general price inflation), as follows: Year ended 31st December: Future cash flows from plant (including disposal proceeds) 2012 '000 80 2013 '000 70 2014 '000 60 2015 '000 40

If the plant was sold now it would realise 180,000, excluding selling costs of 5,000. The company estimates the pre-tax discount rate specific to the plant to be 8%, incorporating general price inflation. Required: Calculate the recoverable amount of the plant and any impairment loss. Note: PV factors at 8% are as follows: Year: 1 2 3 4 PV factor (8%): 0.926 0.857 0.794 0.735

Question 2 On 1st January 2012 Bobby, a car dealer, made the following transactions: (i) sold a new car, together with 40 litres of fuel per month for six months and 3 years of free services (one each year), for 21,000 cash. The fair values of these components are: car 20,500 fuel 700 and servicing 1,200. (ii) As part of a promotion, Bobby offered a 0% finance deal to a customer for the sale of a new car for 18,000. The car was delivered on 1st January 2012, when the customer paid a deposit of 3,000. No further payments are then due until the full balance is payable in three years time. Peters plc has an 8% cost of capital. Required Explain, with supporting calculations, how the revenue should be recognised in the year ended 31st December 2012, and what amounts should appear under deferred income and/or customer receivables at that date.

Question 3 XYZ plc acquired a building for 500,000 on 1st January 2005. Its year end is 31st December, and it depreciated the building on a straight-line basis over an expected useful life of 25 years. The value of land can be ignored. On 31st December 2005, the company revalued the building to 600,000; the useful life was still considered unchanged. On 31st December 2011 the building was disposed of for proceeds of 380,000, after accounting for depreciation in the year to 31st December 2011. Required: i. Show how the revaluation would be accounted for at 31st December 2005, ii. Calculate the gain or loss on disposal that would be shown in the income statement for the year-ended 31st December 2011. iii. Work out the transfer required to eliminate the revaluation surplus as a result of the disposal on 31st December 2011.

REVISION May 2012: FINAL session

Question 4 On 1st January 2012 ABC plc rented a new piece of specialist machinery under a contract period of 4 years. The useful life of the machinery was 10 years, and its fair value at the time was 180,000. The terms were that ABC would pay annual rental of 20,000 in advance, and a non-refundable deposit of 15,000 on the first day of rental. The lessor is responsible for repairs. ABC uses a borrowing rate of 6% to account for the time value of money. Required: a) Explain how ABC would account for the lease for the year ended 31st December 2012 under existing accounting standards for leases (IAS 17) b) Explain, using calculations to support your explanation, how ABC would be required to account for the lease (and use of the machine) for the year ended 31st December 2012 under the IASB Exposure Draft. The discount table (below) may assist in your calculations. 6% 6% Discount Cumulative Factor: 0.943 0.943 0.890 1.833 0.840 2.673 0.792 3.465

Year: 1 2 3 4

Question 5 Ahmed Ltd is a UK-based company which records its transactions in UK sterling, but had the following foreign currency transactions for the year ended 31st July 2011: Date: Transaction details: 1st June 2011 Buys machinery for $ 120,000 from Chicago Inc on credit 21st June 2011 Pays Chicago Inc $30,000 on account The exchange rates at the relevant dates were: 1st June 2011: 1 = $2.50; 21st June 2011: 1 = $2.40; 31st July 2011: 1 = $2.35 Required: Explain, with appropriate workings, how the above transactions will be recorded in the financial statements for the year ended 31st July 2011, including extracts for payables, gains/loss on exchange, and plant property and equipment (the machine is depreciated at 20% straight line, with no residual value. Allow depreciation for the part of the years use in 2011.).