PROFESSIONAL STAGE APPLICATION EXAMINATION

MONDAY 18 MARCH 2013

(2 hours)

FINANCIAL ACCOUNTING
This paper consists of FIFTEEN objective test (OT) questions (20 marks) and FOUR written
test questions (80 marks).
1.

Ensure your candidate details are on the front of your answer booklet.

2.

Answer each question in black ball point pen only.

Objective Test Questions (1 15)

3.

Record your OT responses on the separate answer sheet provided: this must not be
folded or creased. Your candidate details are printed on the sheet.

4.

For each of the FIFTEEN OT questions there are four options: A, B, C, D. Choose the
response that appears to be the best and indicate your choice in the correct box, as
shown on the answer sheet.

5.

Attempt all questions; you will score equally for each correct response. There will be no
deductions for incorrect responses or omissions.

Written Test Questions (1 4)

6.

Answers to each written test question must begin on a new page and must be clearly
numbered. Use both sides of the paper in your answer booklet.

7.

The examiner will take account of the way in which answers are presented.

Unless otherwise stated, make all calculations to the nearest month and the nearest .
All references to IFRS are to International Financial Reporting Standards and International
Accounting Standards.

IMPORTANT
Question papers contain confidential
information and must NOT be removed
from the examination hall.

You MUST enter your candidate number in this

box.

DO NOT TURN OVER UNTIL YOU

ARE INSTRUCTED TO BEGIN WORK

Copyright ICAEW 2013. All rights reserved.

ICAEW\246\M13

167362

1.

The following balances have been extracted from the nominal ledger of Bouvardia Ltd at
30 September 2012.

Sales
1,057,000
Purchases
344,000
Administrative expenses
216,200
Other operating costs
86,900
Ordinary dividend (Note 1)
168,150
Land at cost
400,000
Plant and machinery (Note 2)
cost
385,000
accumulated depreciation at 30 September 2011
144,375
Freehold buildings (Note 3)
valuation
1,644,000
accumulated depreciation at 30 September 2011
192,000
Lease payment (Note 5)
18,000
Retained earnings at 30 September 2011
576,875
Ordinary share capital (1 shares)
672,600
Revaluation surplus at 30 September 2011
518,000
Inventories at 30 September 2011
31,800
Trade and other receivables
61,500
Trade and other payables
199,800
Cash at bank
5,100
The following additional information is available:
(1)

The ordinary dividend of 168,150 was paid during the current year in respect of the
year ended 30 September 2011.

(2)

On 1 April 2012 Bouvardia Ltd decided to sell one of its machines which had a carrying
amount of 8,200 on 30 September 2011. On 1 April 2012 the machine had a fair value
of 6,500 and met the held for sale criteria of IFRS 5, Non-current Assets Held for
Sale and Discontinued Operations. The machine was still held by Bouvardia Ltd at the
year end, although a buyer had been found. No adjustment to the above balances has
been made in respect of this machine. There have been no other changes to plant and
machinery in the current year.
Plant and machinery is depreciated using the reducing balance method at a rate of
20% pa. Depreciation on plant and machinery should be presented in cost of sales.

(3)

Bouvardia Ltd carries its freehold buildings (Property A and Property B) under the
revaluation model. The latest revaluations were on 1 October 2011 but these have not
yet been reflected in the above balances. The following information is available with
regard to these properties:
Property A
Property B
Date of purchase
Useful life at purchase
Cost
Revaluation surplus at 30 September 2011
Carrying amount at 30 September 2011
Valuation at 1 October 2011

ICAEW\246\M13

Page 2 of 9

1 October 2002
40 years
400,000
62,000
372,000
449,500

1 October 1991
50 years
1,000,000
456,000
1,080,000
600,000

The useful lives of both properties are unchanged. Where possible, Bouvardia Ltd
makes an annual transfer between the revaluation surplus and retained earnings in
accordance with best practice. Depreciation on buildings should be presented in
administrative expenses.
(4)

On 1 October 2011 Bouvardia Ltd moved its head office operations to a different
location, vacating its previous premises on the same date. The previous head office had
been leased under a ten-year non-cancellable operating lease at a cost of 3,000 per
month. At 30 September 2012 Bouvardia Ltd had four years remaining to pay on this
lease. Bouvardia Ltd has found a tenant to rent the building for 2,300 per month for the
remaining four year term commencing on 1 October 2012. The current year rental
payments have correctly been included in other operating costs.

(5)

Bouvardia Ltd moved into its newly rented head office building on 1 October 2011. The
building is being leased for 15 years and has a useful life of 50 years. The lease
payment schedule has been negotiated so that Bouvardia Ltd pays less in the early
years and more in the later years to help with cash flow: 18,000 pa is payable for the
first seven years; this will then increase to 36,000 pa for the remaining eight years. At
30 September 2012 the first years rental payment had been made and is included in
the list of balances above.

(6)

At 30 September 2012 inventories were valued at 27,300.

(7)

The income tax liability for the year has been estimated at 56,000.

Requirements
Prepare the following for Bouvardia Ltd, in a form suitable for publication:
(i)

an income statement for the year ended 30 September 2012;

(ii)

a statement of financial position as at 30 September 2012;

(iii)

an extract from the statement of changes in equity for the year ended 30 September
2012 showing the retained earnings and revaluation surplus columns only.
(25 marks)

NOTES: Notes to the financial statements are not required.

Expenses should be analysed by function.

ICAEW\246\M13

Page 3 of 9

2.

Eremurus plc has a number of subsidiary companies and is preparing its consolidated
financial statements for the year ended 30 September 2012. On 1 October 2011
Eremurus plc acquired 75% of Genistra Ltd and 30% of Ixia Ltd. There were no other
changes in the composition of the group during the year ended 30 September 2012.
The following information has been prepared.
Consolidated income statement for the year ended 30 September 2012 (extract)

601,440
24,700
626,140
(154,700)
471,440

Profit from operations

Share of profit of associate
Profit before tax
Income tax expense
Profit for the year
Attributable to:
Owners of Eremurus plc
Non-controlling interest

415,640
55,800
471,440

Consolidated statement of financial position as at 30 September

ASSETS
Non-current assets
Property, plant and equipment
Intangibles
Investment in associate
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity
Ordinary share capital (1 shares)
Share premium account
Retained earnings
Attributable to the equity holders of Eremurus plc
Non-controlling interest
Non-current liabilities
Finance lease liabilities
Current liabilities
Trade and other payables
Finance lease liabilities
Income tax payable
Total equity and liabilities

ICAEW\246\M13

Page 4 of 9

2012

2011

805,300
28,800
55,700
889,800

791,500
33,450

824,950

57,300
75,900
27,370
160,570
1,050,370

46,900
51,930
4,400
103,230
928,180

245,000
259,000
163,920
667,920
180,600
848,520

170,000
227,500
238,280
635,780
144,800
780,580

6,419

48,792
2,939
143,700
195,431
1,050,370

82,600

65,000
147,600
928,180

Additional information:
(1)

Eremurus plcs shares had a market value of 1.40 on 1 October 2011, the date of
acquisition of Genistra Ltd and Ixia Ltd.

(2)

The consideration to acquire the shares in Genistra Ltd consisted of 58,800 cash and
35,000 1 ordinary shares in Eremurus plc.

(3)

At the date of acquisition, the statement of financial position of Genistra Ltd showed the
following assets and liabilities. The carrying amounts of all assets and liabilities were
equal to their fair values.

105,000
6,450
8,700
(9,950)
110,200

Property, plant and equipment

Trade and other receivables
Cash and cash equivalents
Trade and other payables
(4)

The consideration to acquire the shares in Ixia Ltd consisted of 10,000 cash and
15,000 1 ordinary shares in Eremurus plc. The 30% holding in Ixia Ltd gives
Eremurus plc significant influence over that company.

(5)

In addition to the issue of shares to acquire Genistra Ltd and Ixia Ltd, a subsequent
share issue was made for cash.

(6)

The intangibles balance at 1 October 2011 relates to intangible assets on which

amortisation of 8,200 has been recognised during the year ended 30 September 2012.
The only addition to intangible assets during the year was the goodwill arising on the
acquisition of Genistra Ltd. Eremurus plc sold a licence during the year, at its carrying
amount, for cash.

(7)

During the year Eremurus plc acquired plant and equipment for cash of 50,000 but
made no disposals.
In addition, on 1 October 2011 a piece of equipment with a fair value of 12,130 was
acquired under a finance lease. The first of four annual payments of 3,500 was made
on 30 September 2012 and this included interest of 728. The lease liabilities were
correctly recognised at the year-end but the interest charge was recognised as part of
operating costs.

(8)

Eremurus plc and Genistra Ltd both paid interim dividends during the year. However,
Ixia Ltd has not paid any dividends since its acquisition by Eremurus plc.

Requirement
Prepare a consolidated statement of cash flows for Eremurus plc for the year ended
30 September 2012, including a note reconciling profit before tax to cash generated from
operations, using the indirect method. A note showing the effects of the acquisition of
Genistra Ltd is not required.
(21 marks)

ICAEW\246\M13

Page 5 of 9

3.

Caribea Ltd is a publishing company and retailer of magazines and is preparing its draft
financial statements for the year ended 30 September 2012. The following extracts from the
draft financial statements have been prepared.
Caribea Ltd used the cash basis of accounting in error for revenue when preparing these
draft figures.
Draft income statement for the year ended 30 September 2012 (extract)

Revenue
1,160,800
Profit for the year
549,700
Draft statement of financial position as at 30 September 2012 (extract)
Current assets
Other receivables

8,400

Current liabilities
Provisions

145,000

Additional information is as follows:

(1)

Caribea Ltd has five customers who advertise regularly in its publications for a fixed
price. These customers each paid 6,600 on 1 January 2012 to reserve advertising
space in monthly publications over the calendar year to 31 December 2012.

(2)

Caribea Ltd acts as an agent for other publishers, with commission of 15% earned on all
agency sales. Cash is forwarded to the principals (ie, the third party publishers) one
month after the sale has taken place. The gross amount of cash from agency sales
received in September 2012 amounted to 9,300, all of which had been recognised as
revenue by Caribea Ltd as at 30 September 2012.

(3)

Caribea Ltd sells its magazines via kiosks (small stands from which newspapers are
sold) in busy cities across the UK. These kiosks are operated on a franchise basis. The
franchise agreement is such that there is a one-off fee of 5,000 to cover initial set-up
costs and then an annual fee of 12,000 to cover rent, wear and tear and delivery costs
over the year. All fees for the first year are paid in full on the date the franchise
agreement is entered into. The following franchise agreements exist at 30 September
2012:

(4)

Franchise agreement
commencing on

Number of
agreements

1 January 2012
1 September 2012

6
4

Caribea Ltd disclosed a contingent asset of 8,000 in its financial statements at

30 September 2011 in respect of a potential refund for paper that had been returned to
a supplier. The amount disclosed represented the full invoice value that Caribea Ltd
paid in June 2011. The latest correspondence from the supplier confirms that a refund
will be paid for 75% of the invoice amount.

ICAEW\246\M13

Page 6 of 9

(5)

At 30 September 2012 Caribea Ltd had an outstanding court case against an employee
who claimed to have been unfairly dismissed. Caribea Ltds lawyers estimated that it will
cost Caribea Ltd 100,000 to settle the case, and therefore this amount was provided
for at 30 September 2012. On 20 October 2012 the case was settled at 115,000.

Requirements
(a)

Recalculate the figures included in the draft extracts above to reflect the additional
information given and in accordance with the accrual basis.
(7 marks)

(b)

Identify and explain the inherent limitations of financial statements to users for decision
making purposes with reference to the two fundamental qualitative characteristics.
(6 marks)
(13 marks)
PLEASE TURN OVER

ICAEW\246\M13

Page 7 of 9

4.

Tritoma plc has a number of investments which include a subsidiary, Scabiosa Ltd, and an
associate, Anemone Ltd. Tritoma plc has always prepared consolidated financial statements.
The draft summarised statements of financial position of the three companies at
30 September 2012 are shown below:
Tritoma plc

Scabiosa Ltd

Anemone Ltd

1,174,000
878,000
2,052,000

216,200

216,200

175,600

175,600

121,600
41,600
24,800
188,000

78,800
49,600
1,900
130,300

21,000
17,800
3,400
42,200

2,240,000

346,500

217,800

620,000
405,000
410,800
593,200
2,029,000

80,000
40,000
120,000
90,750
330,750

100,000

84,050
184,050

148,300
62,700
211,000

11,700
4,050
15,750

30,950
2,800
33,750

Total equity and liabilities

2,240,000

346,500

217,800

ICAEW\246\M13

Page 8 of 9

ASSETS
Non-current assets
Property, plant and equipment
Investments
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity
Ordinary share capital (1 shares)
Share premium account
Revaluation surplus
Retained earnings
Current liabilities
Trade and other payables
Taxation

Additional information:
(1)

Details relating to the subsidiary and associate are set out below:
Date of acquisition
Percentage holding acquired
Consideration
Retained earnings at the date of acquisition
Revaluation surplus at the date of acquisition

(2)

Scabiosa Ltd
1 Oct 2011
85%
300,000
31,600
70,000

Anemone Ltd
1 Oct 2002
35%
78,000
52,250

The fair values of the assets, liabilities and contingent liabilities of both Scabiosa Ltd
and Anemone Ltd at the date of acquisition were equal to their carrying amounts, with
the exception of the following two assets:

Scabiosa Ltd at acquisition the replacement cost of inventories was 62,000

but their carrying amount was 53,500. At 30 September 2012 15% of these
inventories were still held by Scabiosa Ltd.

Anemone Ltd at acquisition a property had a fair value 50,000 in excess of its
carrying amount. The property had a remaining useful life of 20 years on
1 October 2002.

(3)

On 1 October 2011 Tritoma plc sold a machine to Scabiosa Ltd for 90,000. The
machine had a carrying amount in Tritoma plcs books of 78,000. The estimated
remaining useful life of the machine was reassessed on the date of sale at six years.

(4)

During the year Tritoma plc sold goods to Anemone Ltd for 10,000 on which its gross
profit margin was 30%. At the year end Anemone Ltd held a third of these goods in its
inventories.

(5)

Physical inventory counts were carried out on 30 September 2012 by all three
companies to determine the inventory figures included in their draft financial statements
set out above. On 10 October 2012 Scabiosa Ltd received an inventory report from one
of its customers showing that at 30 September 2012 that customer held 11,800 (cost to
the customer) of inventories on a sale or return basis. Scabiosa Ltd makes a gross profit
margin of 25% on all sales but has not yet raised any invoices for this transaction.

Requirement
Prepare the consolidated statement of financial position of Tritoma plc as at 30 September
2012.
(21 marks)

ICAEW\246\M13

Page 9 of 9

IJ

FSC
wwwfilc.org

MIX
Paper from
responsible soLl ~es

FSC"' C020438