P2 Workbook Q PDF

P2 Corporate Reporting
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ACCA P2 - Corporate Reporting Workbook - Questions
Group Accounts
Illustration 1
Almeria Non Current Assets Tangible Investment in Murcia 100 300 100 Murcia
Current Assets Inventory Receivables Cash 40 60 200 700 200 100 200 600
Ordinary Shares Accumulated Prots Equity
160 240 400
100 200 300
Non Current Liabilities Current Liabilities
100 200 700
200 100 600
Additional Information Almeria today acquired all the shares in Murcia for $300m Required Prepare the consolidated statement of nancial position for the Almeria group
Pro-Forma
Working 1 - Group Structure
Almeria
Murcia Date Acquired Parent Share NCI
Working 2 - Equity Table

At Acquisition Share Capital Accumulated Prots At Year End
! Working 3 - Goodwill
Cost of Parent Investment Less Parent % of the net assets at acquisition (W2)
Goodwill
Working 4 - NCI
$ NCI % of the subsidiarys net assets at the year end (W2)
Working 5 - Accumulated Prots

$ Parents Accumulated Prots Add: Parent % of the subsidiarys post acquisition prots
SFP for Almeria Group

Almeria Non Current Assets Goodwill Tangible Investment in Murcia 100 300 100 Murcia Group
Current Assets Inventory Receivables Cash 40 60 200 700 200 100 200 600
Ordinary Shares Accumulated Prots Non Controlling Interest Equity
160 240
100 200
400
300
Non Current Liabilities Current Liabilities
100 200 700
200 100 600
Illustration 2
Ant Dec
Assets Investment in Dec
500 350 850
500
500
Ordinary Shares Accumulated Prots Equity
100 250 350
200 100 300
Liabilities
500 850
200 500
Additional Information Ant today acquired 160m of the 200m shares in Dec. Required Prepare the consolidated statement of nancial position for the Ant group
Illustration 2 Pro-Forma
Working 1- Group Structure
!
Date Acquired Parent Share NCI
Working 2- Equity Table

Working 3 - Goodwill
Goodwill
Working 4 NCI
! Working 5 - Accumulated Prots

$
Parents Accumulated Prots Add: Parent % of the subsidiarys post acquisition prots
Statement of Financial Position for Ant Group

Ant Dec Group
Goodwill Assets Investment in Dec 500 350 850 500 500
Ordinary Shares Accumulated Prots NCI Equity
100 250
200 100
350
300
Liabilities
500 850
200 500
Illustration 4
Evan Dando
Assets Investment in Dando
200 500
350
Current Assets
200 900
300 650
Ordinary Shares ($1) Accumulated Prots Equity
200 250 450
200 100 300
Non Current Liabilities Liabilities
280 170 900
200 150 650
Additional Information Evan acquired 150m shares in Dando one year ago when the reserves of Dando were $40m. Required Prepare the consolidated statement of nancial position for the Evan group and show the journal entries for accumulated prots.
Solution
Working 1- Group Structure
!
Date Acquired Parent Share NCI
Working 2 - Equity Table

! Working 3 - Goodwill
Goodwill
Working 4 - NCI
Working 5 - Accumulated Prots

$ Parents Accumulated Prots Add: Parent % of the subsidiarys post acquisition prots
Statement of Financial Position for Evan Group

Evan Dando Group
Goodwill Assets Investment in Dando 200 500 350
Current Assets
200 900
300 650
Ordinary Shares ($1) Accumulated Prots NCI Equity
200 250
200 100
450
300
280 170 900
200 150 650
Accumulated Prots Double Entry

DR CR
Illustration 5
Virtual Insanity
Assets Investment in Insanity
1000 600
800
Current Assets
400 2000
200 1000
800 750 1550
100 400 500
250 200 2000
300 200 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 nancial position for the Virtual group
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.
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.
Illustration 9 - try this one yourself!

Archie acquires 60% of Mitchells share capital with consideration of $900. Mitchell has 200 shares in issue with a share price is $5. At the date of acquisition the net assets of Mitchell were $800 and are $950 at the year end. Calculate the gross goodwill and the NCI.
Illustration 9a - and another one to try!

French acquired 75% of Shambles several years ago.
Cost of Investment $ 1,000 Fair Value of NCI at acquisition $ 300 Net assets at acquisition $ 800 Net assets at year end $ 3,000
Calculate the gross goodwill and the NCI.
Illustration 10
Jimmy acquired 80% of Gent 1 year ago. The following information relates to Gent at the date of acquisition.
Accumulated prots at acquisition $ 150 Fair Value adjustment of plant at acquisition $ 100 Cost of investment Fair Value of NCI at acquisition
$ 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 Investment in Gent Assets 800 700 1500 700 700 Gent
700 500 1200
250 350 600
Liabilities
300 1500
100 700
Illustration 11
Devil acquired 90% of Detail 2 years ago. The following information relates to Gent at the date of acquisition.
Accumulated prots at acquisition $ 250 Fair Value adjustment of plant at acquisition $ 100 Cost of investment $ 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 Investment in Detail Assets 1000 600 1600 800 800 Detail
650 250 900
100 500 600
Liabilities
700 1500
200 700
Illustration 12
Pinky acquired 80% of Brain 4 years ago. The following information is relevant:
Net Assets at year end $ 150 Net Assets at acquisition $ 100 Cost of investment $ 175 Fair Value of NCI at acquisition $ 25 Recoverable amount at year end $ 230
Goodwill is calculated gross and is subject to an annual impairment review.

Pinky Investment in Pinky Assets 175 100 100 Brain
Inventory Receivables Bank
140 160 125 700
200 100 200 600
160 240 400
50 100 150
Non current liabilities Liabilities
100 300 700
250 100 600
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?
Illustration 16
Arctic is the parent of a subsidiary Monkeys. Extracts of their SFPs are below Arctic Current Assets Inventory Receivables Bank 300 200 100 600 100 250 50 400 Monkeys
Current Liabilities
420
220
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.
Illustration 17
Sea is the parent of a subsidiary Lion. Extracts of their SFPs are below Sea Current Assets Inventory Receivables Bank 400 100 150 650 250 100 100 450 Lion
Current Liabilities
90
140
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. Calculate the PURP. Show the accounting treatment if the parent company is the seller.
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%.
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 $m 200 Reserves $m 400 Fair Value of the net assets $m 800 Fair value of the NCI $m 200 Cost of the investment $m 1900
The income statements for both are: Argentina Revenue Cost of Sales Gross Prot Operating Costs Finance Costs Prot Before Tax Tax Prot for the year Other information I. II. 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. 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. 8000 -4000 4000 -1500 -1000 1500 -700 800 Messi 3000 -1000 2000 -1500 -200 300 -100 200
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.
Illustration 20
Nadal is a 90% subsidiary of Federer. It was acquired one year ago for $4000m. At that time the accumulated prots were $800m. Income Statements Federer Revenue Cost of Sales Gross Prot Distribution Costs Admin Expenses Operating Prot Exceptional Gain Investment Income Finance Costs Prot Before Tax Tax Prot for the year Statements of Financial Position Federer Investment in Nadal Assets 4000 20000 24000 5000 5000 Nadal 20000 -12000 8000 -2100 -1400 1500 Nil 90 -600 3990 -700 3290 Nadal 4000 -2000 2000 -300 -500 1200 580 Nil -150 1630 -130 1500
Share Capital Accumulated Prots Equity
5000 15690 20690
1000 2200 3200
Liabilities
3310 24000
1800 5000
Federer Statement of changes in Equity Share Capital Opening Balance Prots for the year Less Dividends Closing Balance 5000 5000 Accumulated Prots 12600 3290 -200 15690 Total Equity 17600 3290 -200 20690
Nadal Statement of changes in Equity Share Capital Opening Balance Prots for the year Less Dividends Closing Balance 1000 1000 Accumulated Prots 800 1500 -100 2200 Total Equity 1800 1500 -100 3200
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.
Illustration 21 (December 2010 Q3 (b))

Greenie was one of three shareholders in a regional airport Manair. As at 30 November 2010, the majority shareholder held 60!1% of voting shares, the second shareholder held 20% of voting shares and Greenie held 19!9% of the voting shares. The board of directors consisted of ten members. The majority shareholder was represented by six of the board members, while Greenie and the other shareholder were represented by two members each. A shareholders agreement stated that certain board and shareholder resolutions required either unanimous or majority decision. There is no indication that the majority shareholder and the other shareholders act together in a common way. During the financial year, Greenie had provided Manair with maintenance and technical services and had sold the entity a software licence for $5 million. Additionally, Greenie had sent a team of management experts to give business advice to the board of Manair. Greenie did not account for its investment in Manair as an associate, because of a lack of significant influence over the entity. Greenie felt that the majority owner of Manair used its influence as the parent to control and govern its subsidiary. (10 marks) Discuss how the above be accounted for in the financial statements of Greenie.
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 $3!20 and $4!50 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 $4!2 million, but by 31 March 2010 it was clear that the actual amount to be paid would be only $2!7 million (ignore discounting). Picant has recorded the share exchange and provided for the initial estimate of $4!2 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 Property, plant & equipment Investments 37,500 45,000 82,500 Inventory Receivables Total Assets 10,000 6,500 99,000 24,500 9,000 1,500 35,000 21,000 5,000 3,000 29,000 Sander 24,500 Alder 21,000
Ordinary Shares Share Premium Ret. Earnings B/F For year to 31/3/10
25,000 19,800 16,200 11,000 72,000
8,000 0 16,500 1,000 25,500 2,000 0 7,500 35,000
5,000 0 15,000 6,000 26,000 0 0 3,000 29,000
7% Loan Notes Contingent Consideration Current Liabilities Total Equity & Liabilities
14,500 4,200 8,300 99,000
(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 $3!4 million (debit). This did not agree with the equivalent balance in Sanders books due to some goods-intransit invoiced at $1!8 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 $3!8 million. (vi)Assume all profits accrue evenly through the year.
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. II. The parent acquires all of the remaining shares for consideration of $250,000. The parent acquires 3% of the shares for $200,000 reducing the NCI to 7%.
What is the difference taken to equity in both situations?
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. II. Calculate the gain arising on disposal if Inter sells its entire holding for $350,000. 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.
Illustration 27a
P
!
S
80% - 1 Year Ago
!
S1
60% - 1 Year Ago
Cost of Investment S S1 250 220
Net Assets 1 Year Ago 200 150
FV NCI 60 100
Calculate the Goodwill & the NCI at the acquisition date.
Illustration 28
Ozzy acquired a 70% holding in Sharon 2 years ago. Sharon purchased a 60% shareholding in Jack one year ago. The following nancial statements relate to the Ozzy group. Statements of Financial Position Ozzy $ Investment in Sharon Investment in Jack Other assets 25 75 Ordinary Shares Accumulated prots Equity 50 20 70 50 17 18 35 20 12 32 20 20 8 8 16 Sharon $ Jack $
Liabilities
5 75 Income Statements Ozzy $
3 35 Sharon $ 60 55 5 -2 3 Sharon 3 2 Jack 4 3
4 20 Jack $ 85 -83 2 -1 1
Revenue Operating Costs Operating Prot Tax Prot for Year Accumulated Prots One year ago Two years ago
400 -395 5 -3 2
Fair Value of NCI based on effective shareholdings One year ago Two years ago
Sharon 8 7
Jack 10 6
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 nancial position and consolidated income statement for the Ozzy group.
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 Fair value of net assets in associate at acquisition Fair value of net assets in associate at year end Show the treatment for the associate in the group nancial statements. 200 120 300
Illustration 30
The statements of nancial position for 3 companies are as follows: John Investments Assets 675 900 1575 Paul 200 700 900 400 400 Ringo
Share Capital Accumulated Prots Equity
300 700 1000
200 400 600
100 100 200
Liabilities
575 1575
300 900
200 400
Other information: I. II. John acquired a 60% holding in Paul for $600 Paul acquired a 60% holding in Ringo for $200
III. John acquired a 30% holding in Ringo for $75 IV. All of the investments were made on the same date V. Goodwill is to be calculated gross and no impairment has been recorded
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 Accumulated Prots Fair value of the effective NCI 250 100 Ringo 60 60
Prepare the consolidated statement of nancial position for John Group.
IAS 21 Foreign Currency
Illustration 1
June 2008 Q1 (Small section) 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 prots is determined by the parent company, Ribby. Zian has nanced part of its operations through a $4 million loan from Hall which was raised on 1 June 2007. This is included in the nancial 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 nance. 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.
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 ! ! 21st June!! $ = "1.50 $ = "1.40
How will this transaction be dealt with in the accounts for the year to 21st June?
Pro-Forma for FX Differences on SCI

Exchange Difference $ $ Group % NCI%
Opening Net assets at acquisition rate Opening Net assets at closing rate
X (X) X X X
Prot for the year (W2) at average rate Prot for the year (W2) at closing rate
X (X) X X X
Goodwill at acquisition rate Goodwill at closing rate
X (X) X X X X X
Total FX exchange gains & losses
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 nancial statements for the year to 30 June 2002 are below. SFP Investment in Cahoonas Non Current Assets Current Assets Big $ 5000 10,000 5,000 20,000 Share Capital Retained Earnings Liabilities 6,000 4,000 10,000 20,000 3,000 2,000 5,000 1,500 2,500 1,000 5,000 Cahoona Fr
Income Statement Revenue Operating Costs Prot Before Tax Tax Prot for the Year
Big $ 25,000 -15,000 10,000 -5,000 5,000
Cahoona Fr 35,000 -26,250 8,750 -7,450 1,300
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.
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 nancial position, income statement, and statement of other comprehensive income.
Ethics
Illustration 1
December 2010 Q1 (Small section) Jocatt operates in the energy industry and undertakes complex natural gas trading arrangements, which involve exchanges in resources with other companies in the industry. Jocatt is entering into a long-term contract for the supply of gas and is raising a loan on the strength of this contract. The proceeds of the loan are to be received over the year to 30 November 2011 and are to be repaid over four years to 30 November 2015. Jocatt wishes to report the proceeds as operating cash ow because it is related to a long-term purchase contract. The directors of Jocatt receive extra income if the operating cash ow exceeds a predetermined target for the year and feel that the indirect method is more useful and informative to users of nancial statements than the direct method. (i) Comment on the directors view that the indirect method of preparing statements of cash ow is more useful and informative to users than the direct method. (7 marks) (ii) Discuss the reasons why the directors may wish to report the loan proceeds as an operating cash ow rather than a nancing cash ow and whether there are any ethical implications of adopting this treatment.! (6 marks) Professional marks will be awarded in part (b) for the clarity and quality of discussion. ! ! ! ! ! ! ! ! ! ! ! ! ! ! (2 marks)
IFRS 8 & IAS 33 Operating Segments & EPS
Illustration 1 (June 2008 Q2 (a))

Norman, a public limited company, has three business segments which are currently reported in its nancial 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 Region External $m European South East Asia Other 200 300 500 Internal $m 3 2 5 Segmental Prot/Loss $m -10 60 105 Segmental Assets $m 300 800 2,000 Segmental Liabilities $m 200 300 1,400
There were no signicant 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.
Illustration 2
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 prot for the year to 31st December 2009 was $1,000,000. Calculate the EPS at 31st December 2009.
Illustration 3
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 prot for the year to 31st December 2009 was $1,000,000. Calculate the EPS at 31st December 2009.
Illustration 4
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 prot 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.
IFRS 5 & IAS 18 AHFS & Revenue Recognition
Illustration 1 (June 2004 (Adapted))

Rockby, a public limited company, has committed itself before its year-end of 31 March 2004 to a plan of action to sell a subsidiary, Bye. The sale is expected to be completed on 1 July 2004 and the nancial statements of the group were signed on 15 May 2004. The subsidiary, Bye, a public limited company, had net assets at the year end of $5 million and the book value of related goodwill is $1 million. Bye has made a loss of $500,000 from 1 April 2004 to 15 May 2004 and is expected to make a further loss up to the date of sale of $600,000. Rockby was at 15 May 2004 negotiating the consideration for the sale of Bye but no contract has been signed or public announcement made as of that date. Rockby expected to receive $45 million for the company after selling costs. The value-inuse of Bye at 15 May 2004 was estimated at $39 million. Further the non-current assets of Rockby include the following items of plant and head ofce land and buildings: I. Tangible non-current assets held for use in operating leases: at 31 March 2004 the company has at carrying value $10 million of plant which has recently been leased out on operating leases. These leases have now expired. The company is undecided as to whether to sell the plant or lease it to customers under nance leases. The fair value less selling costs of the plant is $9 million and the value-in-use is estimated at $12 million.Plant with a carrying value of $5 million at 31 March 2004 has ceased to be used because of a downturn in the economy. The company had decided at 31 March 2004 to maintain the plant in workable condition in case of a change in economic conditions. Rockby subsequently sold the plant by auction on 14 May 2004 for $3 million net of costs. The Board of Rockby approved the relocation of the head ofce site on 1 March 2003. The head ofce land and buildings were renovated and upgraded in the year to 31 March 2003 with a view to selling the site. During the improvements, subsidence was found in the foundations of the main building. The work to correct the subsidence and the renovations were completed on 1 June 2003. As at 31 March 2003 the renovations had cost $23 million and the cost of correcting the subsidence was $1 million. The carrying value of the head ofce land and buildings was $5 million at 31 March 2003 before accounting for the renovation. Rockby moved its head ofce to the new site in June 2003 and at the same time, the old head ofce property was offered for sale at a price of $10 million. However, the market for commercial property had deteriorated signicantly and as at 31 March 2004, a buyer for the property had not been found. At that time the company did not wish to reduce the price and hoped that market conditions would improve. On 20 April 2004, a bid of $83 million was received for the property and eventually it was sold (net of costs) for $75 million on 1 June 2004. The carrying value of the head ofce land and buildings was $7 million at 31 March 2004.
II.
Non-current assets are shown in the nancial statements at historical cost.
Required: (a) Discuss the way in which the sale of the subsidiary, Bye, would be dealt with in the group nancial statements of Rockby at 31 March 2004 under IFRS 5 Noncurrent assets held for sale and discontinued operations. ! (8 marks) (b) Discuss whether the following non-current assets would be classed as held for sale if IFRS 5 had been applied to: (i) the items of plant in the group nancial statements at 31 March 2004; (7 marks) (ii)the head ofce land and buildings in the group nancial statements at 31 March 2003 and 31 March 2004. ! (5 marks) ! ! ! ! ! ! ! ! ! ! ! (20 marks)
Illustration 2 (December 08 Q3)

Johan purchases telephone handsets from a manufacturer for $200 each, and sells the handsets direct to customers for $150 if they purchase call credit (call card) in advance on what is called a prepaid phone. The costs of selling the handset are estimated at $1 per set. The customers using a prepaid phone pay $21 for each call card at the purchase date. Call cards expire six months from the date of rst sale. There is an average unused call credit of $3 per card after six months and the card is activated when sold. Johan also sells handsets to dealers for $150 and invoices the dealers for those handsets. The dealer can return the handset up to a service contract being signed by a customer. When the customer signs a service contract, the customer receives the handset free of charge. Johan allows the dealer a commission of $280 on the connection of a customer and the transaction with the dealer is settled net by a payment of $130 by Johan to the dealer being the cost of the handset to the dealer ($150) deducted from the commission ($280). The handset cannot be sold separately by the dealer and the service contract lasts for a 12 month period. Dealers do not sell prepaid phones, and Johan receives monthly revenue from the service contract. The chief operating ofcer, a non-accountant, has asked for an explanation of the accounting principles and practices which should be used to account for the above events. Required: Discuss the principles and practices which should be used in the nancial year to 30 November 2008 to account for the purchase of handsets and the recognition of revenue from customers and dealers. ! ! ! ! ! ! ! ! ! ! (8 marks)
IAS 19 (Updated) Pensions
Illustration 1
A company maintains a dened benet 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 dened benet 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.
Illustration 3
The following details refer to Company As pension scheme. B/F Pension Assets Pension Liabilities The discount rate is 11% 1,000 1,400 C/F 2,000 2,600
Calculate the return on assets and the interest cost.
Illustration 4
A company maintains a dened benet 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. Benets 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 nancial statements of the company.
IFRS 2 Share Based Payments
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 benets 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
Illustration 4
At the beginning of year 1, an entity grants 1 share options to each of its 500 employees over a vesting period of 3 years at a fair value of $15 Year 1 40 leave, further 70 expected to leave; Share options now repriced (as market value of shares has fallen) as the Fair Value of the options had fallen to $5. After the repricing they are now worth $8. The modication has therefore increased the Fair Value from $5 to $8. Year 2 35 leave, further 30 expected to leave Year 3 28 leave Hint! The repricing has increased the Fair Value of the Option by $3. This amount is recognised over the remaining two years of the vesting period, along with remuneration expense based on the original option value of $15
IAS 16 & 36 Non Current Assets and Impairment
Illustration 1
A company purchases a crane with a useful economic life of 15 years for $200m with an obligation to decommission at a cost of $50m. The applicable discount rate is 8%. Show the recognition of the asset in the nancial statements and the treatment over the rst accounting period.
Illustration 2
Ashanti owned a piece of property, plant and equipment (PPE) which cost $12 million and was purchased on 1 May 2008. It is being depreciated over 10 years on the straight-line basis with zero residual value. On 30 April 2009, it was revalued to $13 million and on 30 April 2010, the PPE was revalued to $8 million. The whole of the revaluation loss had been posted to the statement of comprehensive income and depreciation has been charged for the year. It is Ashantis company policy to make all necessary transfers for excess depreciation following revaluation.
Illustration 3
Property, plant & equipment with a total cost of $1m has components of a structure valued at $700,000 with a useful economic life of 20 years and plant worth $300,000 with a useful economic life of 10 years. Show the depreciation charges in the nancial statements in year 1.
Illustration 4
The carrying value of an item of plant in the nancial statements is $400,000. By operating the plant the business expects to earn discounted cash-ows of $350,000 over the rest of its useful life. The could sell the plant now for $300,000 with costs to sell of $25,000. What is the recoverable amount?
Illustration 5
A company has an asset for which the following information is relevant: $000 Carrying amount Fair Value Cost to sell Cash ows expected in each of the next 5 years Discount rate Annuity rate for 10% over 5 years Carry out the impairment review for the asset. 400 350 25 90 10% 3.791
Illustration 6
A cash generating unit has the assets outlined below. Its recoverable amount has been assessed as $1,000. Show the treatment for any impairment.
Assets Goodwill PPE Intangible
Carrying Value 100 800 400 1300
IAS 40, 38, 20, 23 Investment Property Intangible Assets Government Grants Borrowing Costs
Illustration 1
Which of the following are Investment Property? Building once used and now held for resale. Land purchased as an investment. No planning consent yet. New ofce building purchased for capital appreciation.
Illustration 2
Lockne has internally developed intangible assets comprising the capitalised expenses of the acquisition and production of electronic map data which indicates the main shing grounds in the world. The intangible assets generate revenue for the company in their use by the shing eet and are a material asset in the statement of nancial position. Lockne had constructed a database of the electronic maps. The costs incurred in bringing the information about a certain region of the world to a higher standard of performance are capitalised. The costs related to maintaining the information about a certain region at that same standard of performance are expensed. Locknes accounting policy states that intangible assets are valued at historical cost. The company considers the database to have an indenite useful life which is reconsidered annually when it is tested for impairment. The reasons supporting the assessment of an indenite useful life were not disclosed in the nancial statements and neither did the company disclose how it satised the criteria for recognising an intangible asset arising from development.! ! ! ! ! ! ! ! ! ! ! ! (6 marks)
Illustration 3
A company purchases an item of plant on which it receives a government grant of 30% of the purchase price. The plant cost $2m and has no residual value. The plant is to be depreciated on a straight line basis over its 10 year life. Show the accounting treatment for the government grant in the rst year if they decide to use the deferred income method.
Illustration 4
Borrow 1m at 7.5% to construct a building. As all was not needed at once, the unused cash was reinvested and interest received was 35,000. What borrowing costs should be capitalised?
Illustration 5
A company has a 1m 6% loan and a 2m 8% loan. It builds a building costing 600,000 and it takes 8 months. What borrowing costs should be capitalised?
Illustration 6
Company buys land on 1/12, a planning application is prepared during December and January. Permission is obtained at the end of January. Payment for the land is made on 1/2. On this date a loan is taken out to pay for the land and building construction Adverse weather conditions meant a delay in the commencement of work until 15/3. When should interest be capitalised from?
IAS 17 Leases
Illustration 1
An asset is leased by a company on the 01/01/X0 over a 3 year period. They pay 3 annual payments of $2,500, the rst of which is payable on 31/12/X0. The actuarial interest rate is 12% (annuity rate for 3 years 2.402) and the fair value of the asset was $6,500. Show the treatment in the lessees nancial statements over the life of the asset.
Illustration 2
A company takes out a 20 year lease on 01/01/X0 the useful life of the building is 20 years. $60,000 is to be paid in advance each year. The interest rate is 6% and the fair value of the land is $70,000 of the $700,000 total value in the land & buildings. The present value of the lease payments to be made is $700,000. Show the treatment in the income statement and the statement of nancial position for the year ended 31/12/X0.
Illustration 3
A Lease term 4 years from 1/1/2010. Annual installments are payable in advance of $10,000. The expected residual value at end of lease is $6,000 . Fair value of the asset $39,366 Interest rate implicit in the lease 10%. Show the treatment for the lease in the nancial statements of the lessor.
Illustration 4
A company hires out plant to other businesses on long term operating leases. On 01/04/X0 it hires out an item of plant on a 6 year lease with an amount payable on that date of $200,000 followed by 5 payments of $100,000 on 01/04/X1 - 01/04/X5. The plant will be returned to the company on 31/03/X6. The cost of the plant to the company was $1,100,000 and it has a 30 year useful economic life with no residual value. i. What is the annual rental income recognised by the company? ii.Show the treatment in the income statement and the statement of nancial position for the years 20X0 and 20X1.
Illustration 5
Company A acquires a new tractor to rent out over 2 years. The tractor cost $30,000 on 01/01/X0 with a residual value of $9,000 in 2 years It immediately rented the tractor out to Company B on a 2 year lease for $1,000 per month payable in advance. $600 negotiation costs were incurred by Company A and an incentive of $300 cash-back given to Company B to encourage them to take up the lease. Show the treatment in the accounts of each Company for the year ended 31/12/X0.
Illustration 6
How would the following be treated in the nancial statements for the next year? Company A has sold 6 assets with the intention of leasing them back on 5 year operating leases. Item 1 2 3 4 5 6 Carrying Value 360 400 300 300 360 400 Proceeds 300 300 360 400 400 360 Fair Value 400 360 400 360 300 300 Annual Lease Payments 50 50 66 70 70 66
Illustration 7
A company enters into a sale and nance leaseback agreement on 1/1/X1 when the Carrying Value of the asset was $70,000. The sale proceeds were $120,000, which was the fair value of the asset, with the remaining useful economic life of the asset being 5 years. The lease was for 5 annual rentals of $30,000 in arrears. Implicit interest rate of 8% (5 year annuity 3.99). What are the journal entries at the date of disposal and show the lease effects in the income statement and SFP for the rst year.
Illustration 8
Sale and leaseback of football stadium (excluding the land element) The football stadium is currently accounted for using the cost model in IAS16, Property, Plant, and Equipment. The carrying value of the stadium will be $12 million at 31 December 2006. The stadium will have a remaining life of 20 years at 31 December 2006, and the club uses straight line depreciation. It is proposed to sell the stadium to a third party institution on 1 January 2007 and lease it back under a 20 year nance lease. The sale price and fair value are $15 million which is the present value of the minimum lease payments. The agreement transfers the title of the stadium back to the football club at the end of the lease at nil cost. The rental is $12 million per annum in advance commencing on 1 January 2007. The directors do not wish to treat this transaction as the raising of a secured loan. The implicit interest rate on the nance in the lease is 56%. ! ! ! ! ! ! ! ! ! ! ! (9 Marks)
IAS 37 Provisions
Illustration 1
Greenie, a public limited company, builds, develops and operates airports. During the nancial year to 30 November 2010, a section of an airport collapsed and as a result several people were hurt. The accident resulted in the closure of the terminal and legal action against Greenie. When the nancial statements for the year ended 30 November 2010 were being prepared, the investigation into the accident and the reconstruction of the section of the airport damaged were still in progress and no legal action had yet been brought in connection with the accident. The expert report that was to be presented to the civil courts in order to determine the cause of the accident and to assess the respective responsibilities of the various parties involved, was expected in 2011. Financial damages arising related to the additional costs and operating losses relating to the unavailability of the building. The nature and extent of the damages, and the details of any compensation payments had yet to be established. The directors of Greenie felt that at present, there was no requirement to record the impact of the accident in the nancial statements. Compensation agreements had been arranged with the victims, and these claims were all covered by Greenies insurance policy. In each case, compensation paid by the insurance company was subject to a waiver of any judicial proceedings against Greenie and its insurers. If any compensation is eventually payable to third parties, this is expected to be covered by the insurance policies. The directors of Greenie felt that the conditions for recognising a provision or disclosing a contingent liability had not been met. Therefore, Greenie did not recognise a provision in respect of the accident nor did it disclose any related contingent liability or a note setting out the nature of the accident and potential claims in its nancial statements for the year ended 30 November 2010.! ! ! ! ! ! ! ! ! ! ! ! ! (6 marks)
Illustration 2
Grange has prepared a plan for reorganising the parent companys own operations. The board of directors has discussed the plan but further work has to be carried out before they can approve it. However, Grange has made a public announcement as regards the reorganisation and wishes to make a reorganisation provision at 30 November 2009 of $30 million. The plan will generate cost savings. The directors have calculated the value in use of the net assets (total equity) of the parent company as being $870 million if the reorganisation takes place and $830 million if the reorganisation does not take place. Grange is concerned that the parent companys property, plant and equipment have lost value during the period because of a decline in property prices in the region and feel that any impairment charge would relate to these assets. There is no reserve within other equity relating to prior revaluation of these non-current assets.
Interim Reporting (IAS 34) & First Time Adoption (IFRS 1)
Illustration 1
In the IFRS opening statement of nancial position at 1 May 2009, Lockne elected to measure its shing eet at fair value and use that fair value as deemed cost in accordance with IFRS 1 First Time Adoption of International Financial Reporting Standards. The fair value was an estimate based on valuations provided by two independent selling agents, both of whom provided a range of values within which the valuation might be considered acceptable. Lockne calculated fair value at the average of the highest amounts in the two ranges provided. One of the agents valuations was not supported by any description of the method adopted or the assumptions underlying the calculation. Valuations were principally based on discussions with various potential buyers. Lockne wished to know the principles behind the use of deemed cost and whether agents estimates were a reliable form of evidence on which to base the fair value calculation of tangible assets to be then adopted as deemed cost.! Lockne was unsure as to whether it could elect to apply IFRS 3 Business Combinations retrospectively to past business combinations on a selective basis, because there was no purchase price allocation available for certain business combinations in its opening IFRS statement of nancial position.
Financial Instruments I
Illustration 1
Aron held 3% holding of the shares in Smart, a public limited company. The investment was classied as available-for-sale and at 31 May 2009 was fair valued at $5 million. The cumulative gain recognised in equity relating to the available-for-sale investment was $400,000. On the same day, the whole of the share capital of Smart was acquired by Given, a public limited company, and as a result, Aron received shares in Given with a fair value of $55 million in exchange for its holding in Smart. Show the treatment for the transaction in the accounts to the 31 May 2009: i) Under IAS 39 ii)If the asset was classied as FVOCI under IFRS 9
Illustration 2
The publication of IFRS 9, Financial Instruments, represents the completion of the rst stage of a three-part project to replace IAS 39 Financial Instruments: Recognition and Measurement with a new standard. The new standard purports to enhance the ability of investors and other users of nancial information to understand the accounting of nancial assets and reduces complexity. Required: Discuss the approach taken by IFRS 9 in measuring and classifying nancial assets and the main effect that IFRS 9 will have on accounting for nancial assets.! (11 marks)
Financial Instruments II
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 nancial difculties and is undergoing a nancial 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 nancial year end of Ambush is 30 November 2005. Required: (i)! Outline the requirements of IAS 39 as regards the impairment of nancial ! assets.! ! ! ! ! ! ! ! ! ! (6 marks) (ii)! ! Explain the accounting treatment under IAS39 of the loan to Bromwich in the nancial statements of Ambush for the year ended 30 November 2005.! (4 marks)
Illustration 4
A company purchases a $2 million bond that has a xed interest rate of 6% per year . The instrument is classed as a FVPL nancial 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 prot 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 prot 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 prot or loss is zero.
Financial Instruments II
Illustration 1
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%.
IAS 12 Deferred Tax
Illustration 1
An entity has the following assets & liabilities recorded in its balance sheet at 31 December 2008: Carrying Value $m Property Plant & Equipment Inventory Trade Receivables Trade Payables Cash 20 10 8 6 12 4 Tax Base $m 14 8 12 8 12 4
The entity had made a provision for inventory obsolescence of $4m that is not allowable for tax purposes until the inventory is sold and an impairment charge against trade receivables of $2m that will not be allowed in the current year for tax purposes but will be in the future. Income tax paid is at 30%. Required: Calculate the deferred tax provision at 31 December 20X8.
Illustration 2
Show the accounting treatment in the following situations: (i) A company treats royalties as income when receivable in accordance with IFRS. The tax regime taxes royalties when they are received. The Income Statement of the company shows $1m of royalties in the period of which $500,000 have been received. (ii)In accordance with IFRS a company has deferred $2m of income on a long term contract. The tax rules state that the income should be recognised immediately. (iii)Depreciation on Plant & Equipment in the period under IFRS is $4m where the tax allowable depreciation is $2m. (iv)Depreciation on Buildings in the period under IFRS is $3m where the tax allowable depreciation is $4m. The tax rate is 30%
Illustration 3
An entity granted 1,000 share options to an employee vesting 3 years later. The fair value of at the grant date was $3 Tax law allows a tax deduction of the intrinsic value at the end of the vesting period. The intrinsic value is $1.20 at the end of year 1 and $3.40 at the end of year 2 Assume a tax rate of 30%.
Entity Reconstructions
Illustration 1
$000 Assets 500 500 Equity & Liabilities Issued Equity Shares @ $1 each Share Premium Retained Earnings Liabilities 600 100 -300 100 500 Dividends cannot be paid while accumulated losses exist. Equity of $600,000 is only backed by assets of $500,000. Loan nance cannot be raised due to the current nancial position. Required Apply a capital reduction and restate the statement of nancial position.
Illustration 2
$000 Intangible Asset (Brand) Non Current Assets 50,000 220,000 270,000
Inventory Receivables
20,000 30,000 320,000
Equity & Liabilities Issued Equity Shares @ $1 each Share Premium Retained Earnings 100,000 75,000 -100,000 75,000
Debenture Loan Overdraft Payables
125,000 20,000 100,000 320,000
A reconstruction scheme is to take place under the following conditions: (i) The equity shares of $1 nominal currently in issue will be written off and will be replaced on a one-for-one basis by new equity shares with nominal value of $0.25. (ii)The debenture loan will be replaced by the issue of new equity shares - four new shares with nominal value of $0.25 each for every $1 debenture loan converted. (iii)New shares with a nominal value of $0.25 will be offered to the existing equity holders in the ratio of three new shares for every one currently held. All current equity holders are expected to take this up. (iv)Share premium account to be eliminated. (v)Brand to be written off as it is impaired. (vi)Decit on the retained earnings to be eliminated. Prepare the revised SFP and show any workings undertaken to achieve this.
IAS 7 Cash Flow Statements
Illustration 1
The group nancial statements for Nasser Ltd. show the following information: X1 NCI on Statement of Financial Position NCI share of Prot after Tax What was the dividend paid to the NCI in the year X1? 820 220 X0 700 130
Illustration 2
Indigo Ltd, took up a 40% holding in Violet Ltg. for consideration of $120 in 20X1. Tthe group nancial statements for Indigo Ltd. show the following information: X1 Post tax Income from Associate (Income Statement) Investment in Associate (SFP) Loan to Associate 50 150 20 X0 0 0 0
What amounts will be included in the group cash ow statement in the year X1?
Illustration 3
Extracts from the group SFP of Express Ltd are outlined below: X1 Property Plant & Equipment Inventory Receivables Trade Payables 50,600 33,500 27,130 33,340 X0 44,050 28,700 26,300 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:
Property Plant & Equipment Inventory Receivables Payables
4,200 1,650 1,300 1,950
Show the movements in cash for the 4 items outlined above.
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.
Illustration 5
Consolidated Financial Statements for Group. Group Income Statement Revenue COS Gross Prot Other Expenses Prot from operations Gain on sale of sub (Note i) Finance cost (Note ii) PBT Tax Prot after tax Foreign Currency Translations Total Comprehensive Income Attributable to Parent Attributable to NCI $m 4,000 -2,200 1,800 -789 1,011 50 -200 861 -180 681 62 743 600 143
Group Statement of Changes in Equity Balance B/F Prot Attributable to Parent Dividends Paid Issue of Shares Balance C/F
$m 3,307 600 -240 1000 4,667
20X2 Goodwill Property Plant & Equipment 52 5,900
20X1 72 4,100
Inventories Receivables Cash
950 1,000 80 7,982
800 900 98 5,970
Share Capital Retained Earnings NCI Non-Current Liabilities Obligations under Finance Leases Long term borrowings Deferred Tax Current Liabilities Trade Payables Accrued Interest Income Tax Obligations under Finance Leases Overdraft
3,500 1,167 543
2,500 807 500
225 1,554 278
140 1,200 218
450 25 130 45 65 7,982
400 20 120 25 40 5,970
(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
Receivables! ! ! ! Cash! ! ! ! ! Payables! ! ! ! Income Tax! ! ! ! Interest bearing borrowings! ! ! ! ! !
! ! ! ! ! !
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 On retranslation of net assets: Property Plant & Equipment Inventories Receivables Payables 25 20 20 -9 56 Retranslation of Prot for period Offset exchange losses on borrowings (see below) 16 -10 62 20 15 16 -6 45 12 -10 47 Parent Share $m
The exchange losses on borrowings relate to foreign loans taken out to nance 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 prot 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 prot on this disposal has been credited to Other operating expenses. The group entered into a signicant number of new nance leases in the period of which $250m related to additions to property, plant & equipment. Prepare the consolidated cash ow statement for the period.

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P2 Corporate Reporting

ACCA P2 - Corporate Reporting Workbook - Questions

Ordinary Shares Accumulated Prots Equity

160 240 400

100 200 300

Non Current Liabilities Current Liabilities

100 200 700

200 100 600

Murcia Date Acquired Parent Share NCI

Working 2 - Equity Table

Working 5 - Accumulated Prots

SFP for Almeria Group

Ordinary Shares Accumulated Prots Non Controlling Interest Equity

Non Current Liabilities Current Liabilities

100 200 700

200 100 600

Assets Investment in Dec

500 350 850

Ordinary Shares Accumulated Prots Equity

100 250 350

200 100 300

Working 2- Equity Table

! Working 5 - Accumulated Prots

Statement of Financial Position for Ant Group

Goodwill Assets Investment in Dec 500 350 850 500 500

Ordinary Shares Accumulated Prots NCI Equity

Assets Investment in Dando

Ordinary Shares ($1) Accumulated Prots Equity

200 250 450

200 100 300

Non Current Liabilities Liabilities

280 170 900

200 150 650

Working 2 - Equity Table

Working 5 - Accumulated Prots

Statement of Financial Position for Evan Group

Goodwill Assets Investment in Dando 200 500 350

Ordinary Shares ($1) Accumulated Prots NCI Equity

Non Current Liabilities Liabilities

280 170 900

200 150 650

Accumulated Prots Double Entry

Assets Investment in Insanity

Ordinary Shares ($1) Accumulated Prots Equity

800 750 1550

100 400 500

Non Current Liabilities Liabilities

250 200 2000

300 200 1000

Illustration 9 - try this one yourself!

Illustration 9a - and another one to try!

Calculate the gross goodwill and the NCI.

Ordinary Shares ($1) Accumulated Prots Equity

700 500 1200

250 350 600

Ordinary Shares ($1) Accumulated Prots Equity

650 250 900

100 500 600

Goodwill is calculated gross and is subject to an annual impairment review.

Inventory Receivables Bank

140 160 125 700

200 100 200 600

Ordinary Shares ($1) Accumulated Prots Equity