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FINANCIAL ACCOUNTING
Professional Stage Application Level
Question Bank
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Financial accounting
The Institute of Chartered Accountants of Bangladesh Professional Stage
These learning materials have been prepared by the Institute of Chartered Accountants in England and Wales
ISBN: 978-1-84152-838-0
First edition 2009
Time Page
allocation
Title Marks Mins Question Answer
The Institute of Chartered Accountants in England and Wales, March 2009 iii
Time Page
allocation
Title Marks Mins Question Answer
Question Bank
Your exam will consist of
1 Howells Ltd
The trial balance of Howells Ltd as at 31 December 20X8 is as follows.
CU CU
Share capital
CU1 ordinary shares 100,000
CU1 5% preference shares (irredeemable) 50,000
Retained earnings 56,015
General reserve as at 31 December 20X8 20,000
Intangible assets 20,500
Land and buildings
Cost 450,000
Accumulated depreciation 81,000
Plant and machinery
Cost 82,000
Accumulated depreciation 18,000
Inventories at 1 January 20X8 58,045
Sundry net current assets 261,349
Revenue 1,600,047
Purchases 907,989
Debenture interest paid 6,260
Royalties received 14,005
Administrative salaries 126,232
Salesmen's salaries and commission 24,291
Factory wages 54,117
Operating lease rentals 6,002
Gain on sale of property 25,040
Administrative expenses 18,822
Selling and distribution expenses 9,600
Dividend received from Morgans Ltd 11,000
10% Debentures (issued and redeemable at par) 62,600
20X7 final dividend paid 12,500
2,037,707 2,037,707
You are provided with the following information in respect of 20X8.
(1) The gain on sale of the property is not expected to recur.
(2) Depreciation is to be provided on the basis of the following policies.
Buildings Straight line over 50 years
Plant and machinery Straight line over 10 years
The land originally cost CU115,000. In previous years the policy in respect of plant and machinery had
been to depreciate on a reducing balance basis. All the plant was acquired on 1 January 20X5 with the
exception of a machine acquired for CU22,000 at the start of 20X8.
(3) The intangible asset is a brand arising on the purchase of a sole trader which is held in the books at
original cost. Following an impairment review, fair value less costs to sell has been estimated at
CU10,000 and value in use at CU12,000.
(4) Howells Ltd wishes to propose an ordinary dividend of CU25,000 which will be paid on 25 March
20X9. The 20X8 preference dividends have been declared but not yet paid.
(5) Tax of CU22,500 is to be charged for the current year.
(6) During the year the directors transferred CU10,000 to the general reserve.
(7) Inventories held at 31 December 20X8 are valued at cost of CU68,000. Within this amount there are
1,000 units of finished goods valued at CU20 each. These units are now expected to sell at a
discounted price of CU18 each and incur CU1 selling costs per unit.
Requirements
(a) Prepare the income statement, statement of changes in equity and notes thereto for the year ended
31 December 20X8 in a form suitable for publication to the extent the information is available. You
should classify expenses by function. (20 marks)
(b) Explain the concept of 'fair presentation'. (4 marks)
(24 marks)
2 Berwick Ltd
Berwick Ltd has produced the following trial balance as at 31 January 20X5.
CU CU
Profit before tax 370,000
Interim dividends paid 22,000
Final dividends paid 66,000
Development expenditure capitalised 70,000
Land and buildings
Revalued 1,500,000
Plant and machinery
Cost 650,000
Accumulated depreciation 160,000
Motor vehicles
Cost 250,000
Accumulated depreciation 90,000
Inventories and work in progress 370,000
Trade receivables and trade payables 420,000 380,000
Prepayments and accruals 97,000 100,000
Value added tax 50,000
Bank balance in hand and overdrawn 249,000 110,000
Bank loan 200,000
Share capital ordinary shares of CU1 each 850,000
Retained earnings 770,000
Revaluation reserve 564,000
Share premium account 50,000
3,694,000 3,694,000
Additional information
(1) The companys land and buildings were revalued on 1 February 20X4 at CU1.5 million (land element
CU300,000). The remaining useful life of the buildings at that date was estimated at 40 years. The
property originally cost CU1 million on 1 February 20X0 (land element CU200,000) and was being
depreciated over 50 years.
The company intends to transfer to retained earnings that element of the revaluation reserve realised
by depreciation but has not yet done so for the year ended 31 January 20X5.
(2) No adjustments have been made for the depreciation charges for the year ended 31 January 20X5.
Depreciation rates are as follows.
Land and buildings see (1) above
Plant and machinery 10% straight line
Motor vehicles 20% reducing balance
(3) The bank loan is repayable over five years in equal annual instalments starting on 30 June 20X5.
(4) Tax on profits for the year has been estimated at CU135,000 and has yet to be provided for in the
trial balance.
(5) The development expenditure was incurred during the year and relates to a single product.
Development will be completed in 20X6. The company believes it has a reasonable expectation of
future benefits but has been unable to demonstrate this.
(6) One of Berwick Ltd's customers was declared insolvent on 15 February 20X5. The customer owed
Berwick Ltd CU20,000 at 31 January 20X5.
Requirement
Prepare the balance sheet of Berwick Ltd as at 31 January 20X5 and the statement of changes in equity for
the year ended 31 January 20X5 in a form suitable for publication to the extent the information is available.
You are not required to prepare any notes to the financial statements. (20 marks)
Note: Work to the nearest CU'000.
3 Angus Ltd
An extract from Angus Ltd's nominal ledger at 28 February 20X7 is as follows.
CU'000
Freehold land and buildings
Cost 16,000
Accumulated depreciation at 29 February 20X6 2,800
Revenue 200,000
Operating expenses 180,000
Income tax charge for period 6,000
Ordinary share capital 200,000
Retained earnings at 29 February 20X6 300,000
The following additional information is available. This information is not reflected in the balances above.
(1) On 1 March 20X6 the company commissioned a valuation of its freehold land and buildings for the
first time. This valuation showed an open market value of CU20 million (land element CU4 million)
and an existing use value of CU15 million (land CU3 million). The accounting records have not yet
been adjusted to reflect this valuation. Depreciation for the year ended 28 February 20X7 has not yet
been charged and is to be based on a 40-year useful life. Previously, annual depreciation of CU280,000
had been charged.
(2) The company announced the intended sale of its European operations on 31 January 20X7, when a
formal disposal plan was approved and adopted for full implementation by 30 June 20X7. Plant and
equipment with a carrying amount of CU3 million was classified as held for sale, its fair value at the
date of classification being estimated at CU2.85 million and the costs to sell it at CU50,000. On
10 February 20X7 the company contracted to terminate various operating leases for a payment of
CU50,000. Other costs flowing from this disposal decision were estimated at CU100,000. The
European operations contributed 10% of the revenue and 20% of the expenses shown above. The
company uses the cost model as its accounting policy for plant and equipment.
(3) As a result of the sale in (2) above the company will need to carry out a reorganisation of its other
activities at a cost of CU1.25 million. This reorganisation was announced to the workforce and the
public at the same time as the above.
(4) Prior to the year end the company declared an ordinary dividend of CU2 million.
(5) During April 20X6 a major project on inventory valuation had revealed that inventories in America on
28 February 20X6 had been overvalued by CU355,000 due to a compilation error. No adjustment has
been made for this error, which is considered material but not fundamental.
Requirements
(a) Prepare, as far as the information permits, the following statements, in a form suitable for publication,
for Angus Ltd for the year ended 28 February 20X7.
(i) Income statement
(ii) Statement of changes in equity (15 marks)
(b) Explain the objectives of financial statements, giving appropriate examples. (6 marks)
(21 marks)
4 Goblins Ltd
Goblins Ltd is a computer games manufacturer based in the East End of London. At 31 December 20X4 the
following balances have been extracted.
CU
Patent rights 60,000
Work in progress, 1 January 20X4 125,500
Leasehold buildings 300,000
Ordinary share capital CU1 nominal value 500,000
5% Preference share capital (redeemable 20X8) CU1 nominal value 120,000
Revenue 1,740,600
Staff costs 260,400
Accumulated depreciation on buildings, 1 January 20X4 60,000
Inventories of finished games, 1 January 20X4 155,600
Consultancy fees paid 44,000
Directors' emoluments 360,000
Computers used on site 50,000
Accumulated depreciation on computers, 1 January 20X4 20,000
Income tax 12,400
Ordinary dividend paid, 30 September 20X4 50,000
Bank account 515,200
Trade and other receivables 420,300
Trade and other payables 80,200
Raw materials 294,500
Retained earnings, 1 January 20X4 102,300
The following additional information is available.
(1) Closing finished inventories are valued at cost of CU180,000 whilst work in progress has increased to
CU140,000. These valuations do not take into account the fact that, at the year end physical inventory
count, it was discovered that ten computer games consoles with a cost CU500 each had been badly
damaged. These items have a scrap value of CU50 each.
(2) The patent rights were acquired on 1 January 20X4 in respect of a program with a three-year lifespan.
If the company chose to do so it could sell these rights on without there being a significant impact on
the remainder of the business.
(3) Buildings are depreciated over 30 years. At 1 January 20X4 they were revalued to CU360,000. This
has not been reflected in the accounts. Computers are depreciated over five years. Goblins Ltd makes
a transfer between the revaluation reserve and retained earnings each period as a result of the
revaluation in accordance with best practice.
(4) A final dividend of 15p per ordinary share was declared on 15 December 20X4 and was paid shortly
after the year end. The preference dividend has not yet been paid.
(5) A necessary provision for specific receivables amounting to 5% of year-end receivables is to be
created. In addition, Goblins Ltd received notice on 15 January 20X5 that one of its customers had
gone into liquidation. This customer owed CU45,000 at the year end.
(6) There is an estimated income tax bill in relation to 20X4 of CU120,000. The income tax figure in the
trial balance (a credit balance) represents the difference between the opening provision and the income
tax paid in the year.
Requirements
(a) Prepare the income statement for Goblins Ltd for the year ended 31 December 20X4 and the balance
sheet at that date in a form suitable for publication to the extent the information is available. You
should classify expenses according to their nature. (22 marks)
(b) Explain briefly how assets and liabilities are recorded/carried under each of the four different
measurement bases referred to in BFRS Framework for the Preparation and Presentation of Financial
Statements. (4 marks)
(26 marks)
5 Harry Ltd
Harry Ltd is a company which makes exclusive furniture to customers precise specifications. An extract
from Harry Ltds nominal ledger at 31 December 20X5 is as follows.
CU
Raw materials and consumables 1,570,000
Salaries and wages 1,250,500
Work in progress at 1 January 20X5 45,600
Finished inventories at 1 January 20X5 13,400
Freehold land and buildings
Cost (land CU2 million) 3,600,000
Accumulated depreciation at 1 January 20X5 640,000
Plant and machinery
Cost 520,000
Accumulated depreciation at 1 January 20X5 375,000
Office furniture
Cost 32,000
Accumulated depreciation at 1 January 20X5 28,500
Intangible assets 15,000
Lease payment 10,000
Trade and other receivables 37,500
Trade and other payables 25,400
Retained earnings at 1 January 20X5 1,968,600
Ordinary share capital CU1 nominal value 500,000
Preference share capital 4% redeemable CU1 shares 120,000
Share premium account 200,000
Cash and cash equivalents 263,500
Revenue 3,500,000
The following additional information is relevant.
(1) During the year the company used employees idle time to produce new furniture for the companys
offices. The old furniture was all scrapped. Raw materials costing CU54,000 were used. The
employees time amounted to a cost to the company of CU20,500. No adjustment has been made for
this in the above.
(2) On 1 January 20X5 Harry Ltd entered into a lease agreement for a new machine. The fair value of this
machine was CU53,000. The lease agreement provides for six annual payments of CU10,000 on
31 December each year. Interest is to be allocated on the sum-of-the-digits basis. No other plant was
purchased or sold during the year.
(3) Freehold land and buildings were revalued for the first time on 1 January 20X5. The surveyor
performing the valuation estimated an alternative use valuation of CU5 million (including CU4 million
for the land) and an existing use valuation of CU3.5 million (including CU3 million for the land).
Buildings are to continue to be depreciated on a straight-line basis at a rate of 4% but Harry Ltd makes
no transfer between the revaluation reserve and retained earnings in respect of this.
Plant is depreciated on a reducing balance basis at a rate of 20%. Office furniture is depreciated on a
15% straight line basis.
(4) During the year the company made a 1 for 5 bonus issue of its ordinary shares. No entries have been
made in respect of this. Transaction costs amounted to legal costs of CU5,000 and an estimate of
directors time amounting to a cost of CU10,000. Both of these costs have been charged against the
share premium account.
(5) The preference shares are redeemable in 20X9. Dividends of 10p per share on the ordinary shares
and at the coupon rate on the preference shares were declared on 15 December 20X5 and paid early
in 20X6. The income tax charge for the period has been estimated at CU250,000.
(6) The intangible asset relates to a patent acquired on the purchase of a sole trader on 1 January 20X5.
This patent is considered to have a useful life of 20 years. The annual impairment review has indicated
that the patent has a recoverable value at 31 December 20X5 of CU14,000.
(7) Closing inventories at cost amounted to work in progress of CU50,200 and finished goods of
CU15,000. The latter included a table with a cost of CU5,000. The customer who had ordered this
table has been declared bankrupt. He had paid a CU1,000 deposit (which has been credited to
revenue) and owed CU10,000 at the year end in respect of other items. It is estimated that the table
can be sold for CU4,000.
Requirement
Prepare an income statement for Harry Ltd for the year ended 31 December 20X5 and a balance sheet as
at that date in a form suitable for publication. You should classify expenses according to their nature.
(25 marks)
6 Frodo Ltd
Frodo Ltd is a company which publishes a single textbook and provides tuition courses relating to that text.
An extract from Frodo Ltds nominal ledger at 31 March 20X6 is as follows.
CU
Manufacturing costs 4,450,000
Administrative salaries 410,500
Selling and distribution costs 375,000
Inventories at 1 April 20X5 113,400
Freehold land and buildings
Cost (land CU1,750,000) 2,550,000
Accumulated depreciation at 1 April 20X5 480,000
Plant and machinery
Cost 620,000
Accumulated depreciation at 1 April 20X5 337,000
Borrowings 200,000
Trade and other receivables 37,500
Trade and other payables 25,400
Retained earnings at 1 April 20X5 212,500
Ordinary share capital 50p nominal value 500,000
Preference share capital 5% irredeemable CU1 shares 200,000
Cash and cash equivalents 63,500
Revenue 6,700,000
Finance costs 35,000
The following additional information is relevant.
(1) The borrowings are repayable in ten equal instalments, commencing on 1 April 20X6.
(2) Revenue is made up of the following.
CU
Tuition fees 1,500,000
Book sales 5,100,000
Advances 100,000
6,700,000
The tuition fees all relate to courses held during the year except for fees of CU300,000 which relate
to a ten-week course. Five weeks of this course had already been held by the year end. The remainder
is to be held in June 20X6. The advances relate to a new publication which Frodo Ltd has
commissioned and advertised heavily but which is not yet in production.
(3) There were no movements of non-current assets during the year. However, on 28 February 20X6,
Frodo Ltd decided to sell a major item of plant for which it no longer has any use. This plant cost
CU120,000 on 1 April 20X1 and was advertised for sale on 1 March 20X6 at a price of CU5,000. In
April 20X6 a buyer was identified at the advertised price. The sale is expected to be completed in May
20X6.
Plant is depreciated on a 10% straight line basis, taking into account the month of sale or purchase.
Freehold buildings are depreciated over their useful life of 40 years. Depreciation on plant is charged
to cost of sales. Depreciation on freehold land and buildings is charged to administrative expenses.
(4) At the year end the company was in the throes of a legal action by one of its competitors which claims
that Frodos textbook has breached copyright. The case is not due to be decided until June 20X6 but
Frodo Ltds legal advisors think that the company has a 60% chance of losing the case and estimates
that this would cost Frodo Ltd CU100,000.
(5) One of Frodo Ltds customers who owed CU10,000 at the year end was declared bankrupt on 1 May
20X6.
(6) Closing inventories at cost amounted to CU120,000. Within this valuation is an amount of CU50,000
relating to fixed overheads, being a share of total fixed overheads of CU1 million. Frodo Ltd had
expected to produce one million books during the year but, due to production difficulties only in fact
produced 800,000. Overheads have been allocated on the basis of CU1.25 per book.
(7) The following should be provided for at the year end.
Income tax of CU350,000
An ordinary dividend of 20p per share
The preference dividend
Requirements
(a) Prepare an income statement for Frodo Ltd for the year ended 31 March 20X6 and a balance sheet as
at that date in a form suitable for publication. You should classify expenses by function. (21 marks)
(b) Explain the considerations underlying the accounting requirements for not-for-profit entities, including
the possible relevance of BFRSs and IPSASs. (5 marks)
(26 marks)
7 Plodder Ltd
As at 30 November 20X0 and 30 November 20W9 Plodder Ltd had the following summarised balance
sheets.
20X0 20W9
CU CU CU CU
ASSETS
Non-current assets
Property, plant and equipment 2,918,000 2,401,000
Intangibles 550,000 584,000
Investments 406,000
3,874,000 2,985,000
Current assets
Inventories 685,000 598,000
Trade and other receivables 480,000 465,000
Prepayments 96,000 126,000
Cash and cash equivalents 226,000 200,000
1,487,000 1,389,000
20X0 20W9
CU CU CU CU
Total assets 5,361,000 4,374,000
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 1,100,000 1,000,000
Share premium account 342,000 200,000
Revaluation reserve 375,000
Retained earnings 1,785,000 1,311,000
3,602,000 2,511,000
Non-current liabilities
Borrowings 500,000 1,000,000
Current liabilities
Trade and other payables 749,000 427,000
Accruals 108,000 131,000
Taxation 282,000 165,000
Provisions 120,000 140,000
1,259,000 863,000
Total equity and liabilities 5,361,000 4,374,000
Plodder Ltd's income statement for the year ended 30 November 20X0 was as follows.
CU
Revenue 5,762,000
Cost of sales (4,630,000)
Gross profit 1,132,000
Distribution costs (236,000)
Administrative expenses (127,000)
Profit from operations 769,000
Finance charge (68,000)
Investment income 55,000
Profit before tax 756,000
Income tax expense (232,000)
Profit for the period 524,000
The following additional information is relevant.
(1) Included within trade and other payables at 30 November 20X0 is CU351,000 (20W9 CU106,000)
relating to purchases of property, plant and equipment.
(2) Included within accruals at 30 November 20X0 is CU25,000 (20W9 CU50,000) in respect of interest
payable.
(3) Property, plant and equipment and intangible assets can be analysed as follows.
20X0 20W9
CU CU
Property, plant and equipment
Cost or valuation 7,839,000 6,375,000
Accumulated depreciation (4,921,000) (3,974,000)
2,918,000 2,401,000
Intangibles
Cost 883,000 938,000
Accumulated amortisation (333,000) (354,000)
550,000 584,000
(4) During the year, plant with an original cost of CU479,000 and a carrying amount at the date of
disposal of CU326,000 was sold for CU424,000 which was received in cash. Intangible assets with
accumulated amortisation at the date of disposal of CU40,000 were sold for CU12,000.
(5) On 30 November 20X0 freehold land which originally cost CU175,000 (and had not been
depreciated) was revalued to CU550,000.
Requirement
Prepare a cash flow statement and note reconciling profit before tax to cash generated from operations in
accordance with BAS 7 Cash Flow Statements for Plodder Ltd for the year ended 30 November 20X0, using
the indirect method.
(22 marks)
8 Copeland Ltd
As at 31 May 20X1 and 31 May 20X2 Copeland Ltd had the following summarised balance sheets.
20X2 20X1
CU CU CU CU
ASSETS
Non-current assets
Property, plant and equipment
Cost or valuation 5,164,000 4,347,000
Accumulated depreciation (2,198,000) (2,001,000)
2,966,000 2,346,000
Intangibles
Cost 9,360,000 8,645,000
Accumulated amortisation (3,690,000) (2,715,000)
5,670,000 5,930,000
Investments 2,145,000 127,000
10,781,000 8,403,000
Current assets
Inventories 1,112,000 1,086,000
Trade and other receivables 948,000 840,000
Prepayments 95,000 108,000
Cash and cash equivalents 489,000 322,000
2,644,000 2,356,000
Total assets 13,425,000 10,759,000
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 1,800,000 1,000,000
Share premium account 1,543,000 1,421,000
Revaluation reserve 1,880,000 1,256,000
Retained earnings 2,739,000 746,000
7,962,000 4,423,000
Non-current liabilities
15% debenture loan 3,000,000 4,500,000
Current liabilities
Trade and other payables 1,417,000 896,000
Interest payable 225,000 337,000
Taxation 641,000 503,000
Dividends payable 180,000 100,000
2,463,000 1,836,000
Total equity and liabilities 13,425,000 10,759,000
Copeland's income statement for the year ended 31 May 20X2 was as follows.
CU
Revenue 8,646,000
Cost of sales (3,705,000)
Gross profit 4,941,000
Distribution costs (465,000)
Administrative expenses (571,000)
Profit from operations 3,905,000
Finance cost (563,000)
Investment income 78,000
Profit before tax 3,420,000
Income tax expense (684,000)
Profit for the period 2,736,000
The following additional information is relevant.
(1) On 31 May 20X2 property which was originally purchased for CU734,000 (and which had not
previously been revalued) was revalued to CU1,000,000. There were no other movements on the
revaluation reserve during the year.
(2) During the year plant and equipment with an original cost of CU1,201,000 and a carrying amount at
the date of disposal of CU496,000 was sold at a loss of CU189,000. As at 31 May 20X2 CU165,000 of
the sale proceeds had yet to be received and is included within trade and other receivables. As at
31 May 20X1 the corresponding figure in respect of disposals made during the year then ended was
CU79,000, which was received in full in June 20X1.
(3) As in the previous year, all acquisitions of property, plant and equipment made during the year were
paid for in cash at the date of acquisition. However, included within trade and other payables as at 31
May 20X2 is CU376,000 (20X1 CUnil) relating to the acquisition of intangible assets.
(4) There were no disposals of intangible assets or investments during the year. Trade and other
receivables as at 31 May 20X2 include CU10,000 (20X1 CU8,000) in respect of interest receivable
on investments.
(5) As at 31 May 20X1 the ordinary share capital of Copeland Ltd consisted of 1 million shares, each with
a CU1 nominal value. The following day the company made a 1 for 2 bonus issue of 500,000 shares
(utilising available profits).
(6) The dividend payable at both balance sheet dates represents a 10p per share dividend on the
companys ordinary shares. Dividends of CU243,000 were charged to retained earnings in the year
ended 31 May 20X2.
(7) Copeland Ltd has not yet prepared its statement of changes in equity for the year ended 31 May 20X2.
Requirement
Prepare a cash flow statement and a note reconciling profit before tax to cash generated from operations in
accordance with BAS 7 Cash Flow Statements for Copeland Ltd for the year ended 31 May 20X2, using the
indirect method. (24 marks)
9 Pippin Ltd
The following are the draft financial statements for Pippin Ltd for the year ended 31 December 20X7.
Income statement for the year ended 31 December 20X7
CU
Revenue 7,350,500
Cost of sales (4,560,600)
Gross profit 2,789,900
Administrative expenses (1,060,800)
Distribution costs (768,000)
Profit from operations 961,100
Finance charge (75,000)
Profit before tax 886,100
Income tax expense (350,000)
Profit for the period 536,100
Balance sheet as at 31 December 20X7
20X7 20X6
CU CU CU CU
ASSETS
Non-current assets
Property, plant and equipment 7,500,400 6,950,300
Intangibles 350,700 300,500
7,851,100 7,250,800
Current assets
Inventories 560,500 765,100
Trade and other receivables 169,000 144,500
Investments 25,000 12,400
Cash and cash equivalents 10,700 20,200
765,200 942,200
Total assets 8,616,300 8,193,000
Current liabilities
Trade and other payables 148,500 139,500
Taxation 410,000 360,000
Ordinary dividend payable 500,000 400,000
1,058,500 899,500
Total equity and liabilities 8,616,300 8,193,000
Statement of changes in equity for the year ended 31 December 20X7 (extract)
Retained
earnings
CU
Transfer from revaluation reserve 15,000
Profit for the period 536,100
Dividends on ordinary shares (1,400,000)
Balance brought forward 2,206,700
Balance carried forward 1,357,800
Requirement
Prepare a cash flow statement and note reconciling profit before tax to cash generated from operations in
accordance with BAS 7 Cash Flow Statements for Pippin Ltd for the year ended 31 December 20X7, using
the indirect method. (18 marks)
10 Merry Ltd
The following are the draft financial statements for Merry Ltd for the year ended 31 March 20X5.
Income statement for the year ended 31 March 20X5
CU
Revenue 5,650,500
Cost of sales (3,460,600)
Gross profit 2,189,900
Administrative expenses (978,800)
Distribution costs (256,000)
Profit from operations 955,100
Finance charge (89,000)
Profit before tax 866,100
Income tax expense (297,600)
Profit for the period 568,500
Balance sheet as at 31 March 20X5
20X5 20X4
CU CU CU CU
ASSETS
Non-current assets
Property, plant and equipment 4,360,400 2,950,300
Investments 172,000 156,000
4,532,400 3,106,300
Current assets
Inventories 460,600 365,100
Trade and other receivables 269,000 244,500
Cash and cash equivalents 135,000 120,200
864,600 729,800
Total assets 5,397,000 3,836,100
20X5 20X4
CU CU CU CU
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 3,000,000 1,800,000
Share premium account 1,050,000 850,000
Retained earnings 142,500 74,500
4,192,500 2,724,500
Non-current liabilities
Finance lease liabilities 500,000 400,000
Current liabilities
Trade and other payables 348,500 289,600
Taxation 300,000 350,000
Finance lease liabilities 56,000 72,000
704,500 711,600
Total equity and liabilities 5,397,000 3,836,100
The following additional information is relevant.
(1) Merry Ltd has not yet prepared its statement of changes in equity.
(2) During the year Merry Ltd made a 1 for 10 bonus issue of its ordinary shares. It subsequently issued
further shares at the market price. No dividends were payable as at 31 March 20X5 or 20X4.
(3) Cash paid to and on behalf of employees during the year amounted to CU2,650,000.
(4) An impairment review at 31 March 20X5 identified a fall in the recoverable amount of certain
investments. As a result, an impairment loss of CU12,000 was identified and written off to
administrative expenses.
(5) During the year Merry Ltd acquired plant and equipment for cash of CU2,057,000. In addition, plant
and equipment with a fair value of CU600,000 was acquired under a finance lease. All finance costs
relate to finance leases. The depreciation charge for the year, charged to cost of sales, was
CU750,600. A loss on sale of plant of CU55,000 was made during the year.
Requirements
(a) Prepare a cash flow statement in accordance with BAS 7 Cash Flow Statements using the direct method
and a note of gross operating cash flows for Merry Ltd for the year ended 31 March 20X5.
(21 marks)
(b) Prepare the note reconciling profit before tax to cash generated from operations for Merry Ltd for
the year ended 31 March 20X5 as it would appear under the indirect method. (4 marks)
(25 marks)
11 Montrose Ltd
Montrose Ltd has various outstanding matters to resolve regarding inventories in preparing its financial
statements for the year ended 30 September 20X4.
(1) Overheads relating to finished goods and work in progress have yet to be included in the final
inventory valuation. An analysis of the company's costing records shows the following.
CU
Direct labour 1,000,000
Production overheads 660,000
General administration overheads 300,000
Distribution overheads 200,000
Design and marketing overheads 150,000
The company's production activity has been as follows.
Year ended Actual units Budget units
30 September 20X3 650,000 650,000
30 September 20X4 500,000 700,000
30 September 20X5 (projected) 800,000
Full capacity of the plant is 900,000 units.
A new production process will be introduced in 20X5.
(2) The supply of raw materials in the year ended 30 September 20X4 was interrupted, due to a fire at a
supplier's premises. As compensation for production delays, the supplier agreed to a one-off payment
of CU100,000, which was received on 31 August 20X4, and this was credited to production
overheads.
(3) Raw materials are imported at a purchase cost of CU5.00 per unit. Other costs arising are as follows.
CU per unit
Import duty 1.00
Transport to factory 0.50
Storage and handling costs 1.00
(4) Half of the work in progress is 75% complete, and the remainder is 50% complete as to labour and
overheads, all raw materials having been issued.
(5) The company manufactures to customers' requirements for all orders. The final selling price is
determined on a cost plus standard mark-up basis for the majority of orders.
(6) Inventory at 30 September 20X4 amounted to the following.
Units
Raw materials 100,000
Work in progress 50,000
Finished goods 50,000
(7) The total net realisable value (NRV) of finished goods is CU560,000. The following is an analysis of
major orders in finished goods at the year end.
Units NRV
CU
Order M147 1,800 22,000
Order M293 5,555 55,000
Order M467 6,500 60,000
Order M364 4,630 54,000
Order M191 3,240 40,000
21,725 231,000
Requirements
(a) Calculate the amount to be included in the financial statements of Montrose Ltd for the year ended
30 September 20X4 in respect of inventories, preparing all relevant extracts from the financial
statements excluding accounting policy notes. (12 marks)
(b) Explain the different concepts of capital and capital maintenance used in accrual basis accounting,
illustrating your explanation with appropriate examples. (6 marks)
(18 marks)
12 Gandalf Ltd
At 1 July 20X5 the capital and reserves section of Gandalf Ltd's balance sheet showed the following.
CU
Ordinary share capital (CU1 shares) 500,000
Share premium account 120,000
Revaluation reserve 420,000
Retained earnings 347,500
1,387,500
The accountant of Gandalf Ltd has prepared a draft income statement for the year ended 30 June 20X6
which shows a profit for the period of CU135,500. However, there are certain matters which he is unsure
how to deal with and these are set out below. He has also asked for your assistance in preparing the
statement of changes in equity for that year. It is Gandalf Ltd's policy to maintain as high a possible balance
on retained earnings, whilst following BFRS.
(1) During the year Gandalf Ltd issued a further 300,000 ordinary shares at a price of CU1.25 per share. It
also issued 200,000 7% 50p irredeemable preference shares at par and 100,000 5% 50p redeemable
preference shares at a price of 70p per share. Transaction costs in relation to these share issues were
CU5,000, CU3,000 and CU1,000 respectively.
(2) During the year an ordinary interim dividend of CU30,000 was paid. The accountant has debited this
to finance charges. A further ordinary dividend of CU25,000 was declared on 15 June 20X6 and is
expected to be paid shortly. The accountant has made no entries in respect of this dividend or the
two preference dividends which had been declared by the year end and are due to be paid shortly.
(3) On 1 July 20X5 Gandalf Ltd revalued its freehold land and buildings which were carried in the books at
that date at a cost of CU500,000 (land CU300,000 and buildings CU200,000) and accumulated
depreciation of CU50,000. Depreciation is charged on a straight-line basis over an original estimated
useful life of 40 years. The valuation showed a fair value for the land of CU600,000 and for the
buildings of CU400,000. The estimated remaining useful life of the buildings was reassessed at the
same date and is believed to be 50 years. Depreciation for the year on freehold land and buildings has
not yet been charged.
(4) On 1 July 20X5 Gandalf Ltd decided to change its depreciation policy for plant and machinery from
20% straight-line to 25% reducing balance. Prior to charging depreciation for the year ended 30 June
20X6 the plant and machinery account showed a cost of CU357,800 and accumulated depreciation of
CU125,700. There were no movements on the plant and machinery account during the year. The
accountant has not yet calculated the depreciation charge for the year as he is unsure how to do this.
(5) Whilst preparing the draft financial statements the accountant discovered an error in the previous
year's financial statements. Expenditure of CU42,500 had been capitalised as an intangible asset
whereas in fact this was in contravention of BAS 38. This expenditure has been subject to an
amortisation charge of 10% in the current year.
Requirements
(a) Calculate a revised profit for the period reflecting the above matters. (4 marks)
(b) Prepare the statement of changes in equity for Gandalf Ltd for the year ended 30 June 20X6.
(11 marks)
(c) Explain the difference between financial statements prepared using the accrual basis and those
prepared using the cash accounting or break-up bases, illustrating your answers with simple
calculations. (8 marks)
(23 marks)
13 Cagreg Ltd
Cagreg Ltd manufactures and sells heavy plant. The company also hires out plant for monthly periods (or
multiples thereof).
You ascertain the following details.
(1) Freehold land
Freehold land was acquired on 1 February 20X8 for CU100,000 to build a new factory. Due to
planning difficulties, building has not yet been started. The directors wish to revalue the land to its fair
value of CU130,000 at 30 September 20X9.
(2) Buildings
On 1 October 20X8 the directors reviewed the useful life of the buildings and determined that the
remaining life was 56 years. The buildings were acquired for CU200,000 on 1 October 20X4, when
their useful life was estimated at 40 years.
(3) Plant and machinery
Plant and machinery is accounted for under the cost model accounting policy and is depreciated at the
rate of 40% per annum based on carrying amount. Such plant has an estimated life of five years.
(i) Plant which cost CU20,000 on 1 October 20X6 was classified as held for sale on 1 February
20X9. The sale was agreed at CU5,600 and completed on 31 March 20X9.
(ii) New plant acquired cost CU60,000 on 1 January 20X9.
At 1 October 20X8 the cost of plant and machinery (not leased) was CU200,000, with accumulated
depreciation of CU72,000.
(4) Computer
Previously this has been depreciated on a straight-line basis at the rate of 10% per annum on cost. The
computer was acquired on 1 January 20X7 for CU60,000, and by the beginning of this accounting year
CU10,500 of depreciation had been charged. In an effort to charge out computer time to departments,
a record is now kept of computer time used. Management wish to depreciate the computer on a
usage basis. The manufacturer's estimate of total usage time of the computer's life is 40,000 hours. The
data processing manager estimates that some 10,000 hours have been worked prior to the current
accounting period. During the current year the record shows 4,800 hours worked. The computer will
have a scrap value of CU4,500 at the end of its useful life.
Requirements
(a) Prepare the schedule of non-current assets which will form the note to the company's published
balance sheet at 30 September 20X9. (16 marks)
(b) Briefly explain the qualitative characteristics contained in BFRS Framework for the Preparation and
Presentation of Financial Statements illustrating your answer with reference to the provisions of BAS 16
Property, Plant and Equipment. (6 marks)
(22 marks)
14 Roberts Ltd
Roberts Ltd is a pharmaceutical company owning significant non-current tangible assets which are all initially
recorded at cost. Subsequently, land and buildings are remeasured at fair value when this differs materially
from the carrying amount. Roberts Ltd adopts the policy of transferring the revaluation surplus included in
equity to retained earnings as it is realised.
During the year ended 31 December 20X4 the following events have occurred.
(1) On 30 September 20X4 a fire occurred in the Newcastle factory. All of the inventories and the
majority of the non-current assets located at the site were fully insured and therefore the company
has suffered no loss in respect of those assets. However, one item of specialised machinery had been
transferred into the Newcastle factory on 1 June 20X4 to help the company fulfil a special order.
Unfortunately the insurance company was not notified about this and has refused any compensation.
The specialised machinery originally cost CU2.8 million on 1 February 20X0 and was being depreciated
over eight years. Following the damage caused by the fire, Roberts Ltd has identified two options.
(i) Sell the machine. A prospective purchaser has been identified and has indicated that he would pay
65% of the carrying amount at the date of the fire. However, before the sale takes place, the
purchaser expects Roberts Ltd to carry out repairs to the asset. This work can be done by
employees of Roberts Ltd and will take approximately 600 hours of skilled labour. Such labour is
routinely charged out to customers at an hourly rate of CU38.40 (including a profit margin of
20% on cost). In addition Roberts Ltd will have to pay for the machinery to be moved to its new
location. An estimate of CU21,000 has been obtained from a transport company, and there will
also be a one-off insurance cost for the journey of CU2,000.
(ii) Repair the asset, transfer it to a factory in Belgium and use it there for approximately three years.
The local accountant in Belgium has prepared detailed cash flow projections (which include the
repair costs) and estimates the value in use to be CU600,000.
(2) On 1 April 20X1 Roberts Ltd acquired a plot of land in Cardiff at a cost of CU2.6 million. During
20X1 a factory was built on the land at a cost of CU1.7 million. Additional architects' fees of
CU80,000 were also incurred. The building work was finished on 1 May 20X2, when the factory was
occupied and brought into use.
On 31 December 20X3 the land and buildings were revalued to their fair value of CU7.8 million (with
60% of the value relating to the land). At this date the directors also reassessed the total useful life of
the building, increasing it from 30 to 40 years.
On 31 December 20X4 it was discovered that toxic chemicals had been leaking from the factory into
the land. The building can no longer be used. However, a waste disposal company has offered CU1.5
million for the site (the purchaser intends to demolish the building and use the site for landfill).
Requirements
(a) Calculate the carrying amounts of the land and the buildings (separately) at 31 December 20X3 and
31 December 20X4 and the balance on the revaluation reserve at 31 December 20X4. (6 marks)
(b) Calculate the impairment charges to the income statement for the year ended 31 December 20X4 and
show how they would be disclosed. (7 marks)
Note: Work to the nearest CU'000.
(13 marks)
15 Dumfries Ltd
Dumfries Ltd, which uses the straight-line method of depreciation, entered into leasing contracts on
1 May 20X4 for certain items of plant and machinery and office equipment. The following information is
relevant.
(1) Plant and machinery with a fair value of CU109,140 was leased under an agreement which required
annual payments of CU31,300 payable in advance. The primary period of the lease is four years, after
which the company can continue to lease the plant and machinery at a nominal rent and is likely to do
so.
Dumfries Ltd has estimated the useful life of the plant and machinery at five years and its residual value
as CUnil. Using the interest rate implicit in the lease of 10%, the present value of the minimum lease
payments is CU109,143. The company is fully responsible for the insurance and maintenance of the
plant and machinery.
(2) Office equipment with a fair value of CU60,510 was leased under an agreement which required annual
payments of CU15,000 payable in advance. The company is committed to the lease for three years but
the lessor is responsible for the insurance and maintenance of the equipment. The lessor has
estimated the useful life of the office equipment at 12 years. Using the interest rate implicit in the lease
of 10%, the present value of the minimum lease payments is CU41,040.
Requirements
(a) Indicate how the accounting treatment of assets acquired under finance leases reflects the definition of
elements, the recognition criteria and the measurement bases set out in BFRS Framework.
(6 marks)
(b) For leases (1) and (2) above, using the actuarial method, calculate the amounts to be included in the
income statement for each year of the leases and in the balance sheet as at 30 April 20X5, preparing
the reconciliation note for property, plant and equipment and the other notes specifically required by
BAS 17 Leases. (14 marks)
(20 marks)
16 Crieff Ltd
Crieff Ltd had the following transactions in the year ended 30 June 20X8.
(1) A computer-controlled cutting machine was leased at a cost of CU40,000 per annum payable in
advance. The primary lease term is for five years from 1 July 20X7 and the machine is expected to
have a useful life of five years, with no residual value. The machine would have cost CU175,000 if
bought outright. Crieff Ltd is responsible for the maintenance and insurance of the asset. The interest
rate implicit in the agreement is 8% per annum and the present value of the minimum lease payments
is CU172,480.
(2) Items of office equipment were leased at a cost of CU7,500 per month payable in advance. The lease
term is for two years from 1 September 20X7 and can be cancelled at any time by either party to the
lease. Any maintenance is carried out by the lessor. The office equipment would have cost CU300,000
if bought outright, and is expected to have a useful life of six years.
(3) An agreement was entered into on 1 July 20X7 for the lease of an automatic packing machine at an
annual cost of CU30,000 payable in arrears on 30 June each year. The agreement is for five years and
Crieff Ltd has the option to purchase the asset at the end of the five years at a nominal cost. The asset
is expected to have a useful life of eight years. The machine would have cost CU120,000 if bought
outright. The interest rate implicit in the agreement is 8% per annum and the present value of the
minimum lease payments is CU119,790.
(4) A long-term lease of 40 years for land and buildings with lease payments of CU60,000 per annum in
advance was entered into on 1 July 20X7. The fair value of the leasehold interests has been estimated
at CU600,000 of which CU60,000 relates to land and CU540,000 to buildings.
The useful life of the buildings has been professionally assessed at 45 years. The interest rate implicit in
the lease is 10% and the present value of the minimum lease payments attributable to the buildings is
CU528,120.
Requirements
(a) Briefly explain the concepts underlying the accounting treatments required by BAS 17 Leases with
reference to BFRS Framework. (3 marks)
(b) Calculate the appropriate amounts to be disclosed in the financial statements for the year ended
30 June 20X8, preparing all relevant disclosure notes. You should use the actuarial method to
apportion any finance charges. You are not required to produce any notes relevant to the cash flow
statement or accounting policies notes. (20 marks)
(23 marks)
(16 marks)
18 Withington Ltd
Withington Ltd is organised into several divisions. The following events relate to the year ended
31 December 20X0.
(1) A number of customers have initiated legal proceedings relating to the supply of electrical transformer
units during 20X0. Two thousand units were installed during the year. A number proved to be faulty.
Following adverse publicity substantially all of the customers are claiming the units are faulty.
Withington Ltd's lawyers have confirmed that they believe 25% of the claims are defendable at no cost.
The average level of damages per successful claim is estimated at CU1,000. A similar provision was in
place at 31 December 20W9 disclosed in the balance sheet at CU1 million. CU800,000 was paid out in
such claims during 20X0.
(2) A mechanical transformer unit supplied to Swithin Ltd during the year exploded, causing a fire. Swithin
Ltd has initiated legal proceedings for damages of CU10 million against Withington Ltd. A legal expert
has advised Withington Ltd that there is only a 30% chance of defending the claim successfully. The
present value of this claim has been estimated at CU9 million. The expert has investigated the cause of
the problem with a team of accident consultants. Together they have concluded that parts supplied by
George Ltd to Withington Ltd for inclusion in the transformer unit were defective and contributed to
the explosion. They have estimated that George Ltd's contributory negligence is 40% of any final
settlement. Negotiations have commenced with George Ltd and the legal expert believes that this
claim is likely to succeed.
(3) On 1 January 20X0 Withington Ltd installed a new electric machine. The electric machine cost
CU200,000 and has an expected life of 20 years. The machine is lined with a special compound. The
lining needs replacing every four years. The cost of the lining included within the machine cost is
CU40,000. The financial controller proposes to capitalise the machine at CU200,000 and depreciate
over 20 years, while building up a replacement provision over four years for the relining of the
machine.
(4) Withington Ltd has begun the extraction of metal ore in an overseas country, Didland. On 1 January
20X0 Withington Ltd erected some infrastructure on the site at a cost of CU200,000. Withington Ltd
has a five year operating licence issued by Didland government for the site. Didland has no
environmental clean-up law enacted. Withington Ltd made public statements during the licence
negotiations that as a responsible company it would restore the environment at the end of the licence.
At the end of five years the cost of removing the infrastructure has been estimated at CU100,000. In
addition, further clean-up costs will be progressively created as the ore is extracted. On the basis of
the planned extraction, the total cost of cleaning up the extracted ore hole will be CU400,000 at the
end of five years. Extraction commenced on 1 January 20X0 and is currently at planned levels.
(5) On 1 July 20X0 Withington Ltd entered into a two-year, fixed price, long run manufacturing contract
with Franklin Ltd. Withington Ltd is manufacturing 1,000 processor units per month. The forecast
profit per unit was CU10 but, due to unforeseen cost increases and production problems, each unit is
anticipated to make a loss of CU7. The compensation payable for not fulfilling the contract is CU2
million.
(6) During the year a restructuring of the Chuckholder division began. The aim of the plan was to reduce
costs and improve business efficiency. The division has not been separately reported as a business
segment, and accounts for only 2% of group revenue. The plan was implemented on 1 September
20X0, when the main attributes were announced to the workforce.
At 31 December 20X0 the anticipated further costs to be incurred are as follows.
CU'000
Redundancy costs 1,000
Lease termination 2,300
Retraining 1,100
Relocation 2,100
Marketing relaunch 1,400
Investment in new systems 1,000
8,900
Requirements
(a) Prepare the provisions and contingencies note for the financial statements for the year ended
31 December 20X0, including narrative commentary. (15 marks)
(b) Calculate the annual depreciation charge for 20X0 arising from the above transactions. (3 marks)
(18 marks)
19 Islay Ltd
Islay Ltd has acquired the following businesses.
(1) Savalight, a business specialising in the production of low-cost, energy-efficient light bulbs, acquired on
1 June 20X6 for CU580,000. The identifiable assets, liabilities and contingent liabilities of the business
had a net carrying amount of CU550,000, and were valued at CU500,000 on 1 June 20X6. An
impairment loss of CU20,000 in relation to the goodwill acquired in this business combination was
recognised in the year ended 31 May 20X8.
(2) Green Goods, a business specialising in the distribution of a range of environmentally-friendly
products, acquired on 1 June 20X7 for CU1.8 million. The assets, liabilities and contingent liabilities of
the business had a net carrying amount of CU1.1 million and were valued at CU1.3 million on
1 June 20X7, including goodwill of the business of CU150,000 and a patent of CU70,000 allowing Islay
Ltd sole use of unique distribution systems for ten years. An impairment loss of CU50,000 in relation
to the goodwill acquired in this business combination is to be recognised in the year ended 31 May
20X9.
(3) 70% of Smart IT Ltd, a business specialising in the distribution of computers, acquired on 1 June 20X8
for CU1.1 million cash. The identifiable assets, liabilities and contingent liabilities of the business had a
net carrying amount of CU1 million and were valued at CU1.2 million on 1 June 20X8. In addition, the
directors of Smart IT Ltd believe that they have built up goodwill within the company and that it is
worth CU200,000.
Islay Ltd revalued one class of its property, plant and equipment on 1 June 20X8, and created a revaluation
reserve of CU600,000. The revalued assets have a remaining useful life of ten years.
The group's capital and reserves (before reflecting any goodwill impairment or amortisation of intangibles
arising from the above acquisitions) in the draft consolidated financial statements as at 31 May 20X9 are as
follows.
CU'000
Capital and reserves
Called up share capital (5,000,000 ordinary shares of CU1 each) 5,000
Revaluation reserve (before any 20X9 transfer to retained earnings) 600
Retained earnings (CU175,500 for the year ended 31 May 20X9) 700
6,300
Requirement
Calculate and disclose the amounts for intangible assets to be included in the consolidated financial
statements for Islay Ltd for the year ended 31 May 20X9, providing the following disclosures.
Balance sheet extracts
Disclosure note for intangibles (a schedule showing the movements in the year)
Statement of changes in equity attributable to the equity holders of Islay Ltd. (11 marks)
20 Greenstones Ltd
Greenstones Ltd is a large international company operating in high-tech industries and it incurs significant
costs in researching and developing new products. During the year to 31 December 20X8 its Rajshahi
division has been working on three key projects.
Project Alpha Development of a new microchip on behalf of Codack Ltd (costs plus 40% to be
reimbursed by Codack Ltd).
Project Beta Research into the next generation of digital cameras.
Project Gamma Development of a new and improved nylon substitute for material currently used in
the casings for digital cameras.
At 1 January 20X8 the following costs had been capitalised.
Project Project Project
Alpha Beta Gamma
CU CU CU
Specialised equipment 500,000
Accumulated depreciation (useful life 60 months) (200,000)
Research and development 160,000 650,000
At 31 December 20X8 Project Alpha was held up awaiting supply of a suitable electronic microscope. It is
envisaged that commercial production by Codack Ltd will start in 20Y0.
Project Beta shows great promise but significant production problems still remain.
Project Gamma was completed on 1 October 20X8 with the start of production of the new product. On 1
April 20X7, when the accumulated research and development costs stood at CU470,000, the final technical
problems were overcome. On 1 October 20X8 the specialised equipment was transferred to other
projects at a carrying amount of CU140,000.
During the year the following costs were incurred.
Project
Gamma
(to 1
Project Project October
Alpha Beta 20X8)
CU CU CU
Materials 22,000 15,000 98,000
Labour 45,000 65,000 75,000
In the three months to 31 December 20X8 sales of the new camera casings exceeded expectations and
profit margins were above forecast. It is estimated that the product will have a life of five years.
Requirements
(a) Explain the qualitative characteristics of relevance and reliability and the potential for conflict between
them, giving an appropriate example. (3 marks)
(b) Evaluate the treatment of development expenditure set out in BAS 38 Intangible Assets against the
characteristics of relevance and reliability. (4 marks)
(c) Prepare extracts from the financial statements for the year ended 31 December 20X8 reflecting the
above. The only note required is that relating to charges against operating profits. (10 marks)
(17 marks)
21 Okehampton Ltd
Okehampton Ltd carries land and buildings under the revaluation model allowed by BAS 16 Property, Plant
and Equipment and plant and equipment under the cost model.
On 30 June 20X6 Okehampton Ltd decided to sell four of its non-current assets, all of which met the held
for sale criteria under BFRS 5 Non-current Assets Held for Sale and Discontinued Operations on that date.
Details of these four assets are as follows.
(1) The George House land and buildings had a carrying amount of CU300,000 at 31 December 20X5 and
as it had originally cost CU200,000, a surplus of CU100,000 stood in the revaluation reserve in respect
of it at that date. Depreciation on the buildings element is charged at the rate of CU6,000 per annum;
on historical cost the annual charge would have been CU4,000. On 30 June 20X6 and 31 December
20X6 its fair value was estimated as CU320,000 and the costs to sell at CU9,000. It was sold in 20X7
for CU350,000 net of selling expenses.
(2) The Elizabeth House land and buildings had a carrying amount of CU400,000 at 31 December 20X5
and as it had originally cost CU350,000, a surplus of CU50,000 stood in the revaluation reserve in
respect of it at that date. Depreciation on the buildings element is charged at the rate of CU12,000
per annum; on historical cost the annual charge would have been CU8,000. On 30 June 20X6 and 31
December 20X6 its fair value was estimated as CU360,000 and the costs to sell at CU8,000. It was
sold in 20X7 for CU310,000 net of selling expenses.
(3) The Axford item of plant had a carrying amount of CU200,000 at 31 December 20X5. Depreciation is
charged at the rate of CU20,000 per annum. On 30 June 20X6 and 31 December 20X6 its fair value
was estimated as CU140,000 and the costs to sell at CU9,000. It was sold in 20X7 for CU120,000 net
of selling expenses.
(4) The Waterman item of plant had a carrying amount of CU600,000 at 31 December 20X5.
Depreciation is charged at the rate of CU90,000 per annum. On 30 June 20X6 and 31 December
20X6 its fair value was estimated as CU620,000 and the costs to sell at CU15,000. It was sold in 20X7
for CU635,000 net of selling expenses.
The balance on Okehampton Ltd's revaluation reserve at 31 December 20X5 was CU370,000 and there
were no movements on that reserve other than those in respect of George House and Elizabeth House.
Requirements
Prepare detailed calculations of:
(a) The carrying amounts of these four assets at 31 December 20X6 and the balance on the revaluation
reserve on that date. (9 marks)
(b) The amounts to be recognised in respect of these assets in the income statement for the year ended
31 December 20X6. (4 marks)
(c) The amounts to be recognised in respect of these assets in the income statement for the year ended
31 December 20X7 and the balance on the revaluation reserve on that date. (4 marks)
(17 marks)
22 Banchory Ltd
You have been approached by the financial controller of Banchory Ltd. She has asked you to prepare some
information in relation to the company's draft financial statements for the year ended 30 April 20X0 which
show a draft consolidated profit before tax of CU2,665,000. Details are as follows.
(1) Banchory Ltd has lodged a claim of CU500,000 against one of its suppliers for faulty materials supplied
and the consequential loss arising from their use. The supplier has contested the validity of this claim
and the legal costs arising from this dispute amounted to CU40,000 by 30 April 20X0. The companys
solicitors have advised the directors that, although the outcome is not clear, they have a good case,
and the draft accounts show a receivable for CU500,000 due from the supplier with the corresponding
credit to cost of sales. No adjustment has been made for the legal costs which have not yet been paid.
On 31 May 20X0 Banchory Ltds quality control staff obtained independent evidence which shows that
the materials were faulty. The companys solicitors advise that it is now probable that the claim will be
settled in full.
(2) Banchory Ltd issues one-year warranties to customers on the supply of some of its products. The
company has experienced a significant rise in the incidence of claims by customers since 1 May 20W9.
Agreed claims now amount to 10% of the sales of these products. Claims tend to arise two months
after the date of sale of the products. Sales subject to warranty in the last six months of the year
amounted to CU6 million. No adjustments have been made to the financial statements in respect of
this matter.
(3) Banchory Ltds solicitors have advised the directors about correspondence from a past employee
claiming unfair dismissal with effect from 4 May 20X0. The claim, which has been provided for in the
draft financial statements, amounts to CU300,000 and the solicitors consider that it is highly unlikely
the company will have to pay any amount.
(4) The companys issued share capital on 1 May 20W9 was 2,000,000 ordinary shares of CU1 each, with
an authorised share capital of 4,000,000 ordinary CU1 shares. There was also an opening balance on
the share premium account of CU450,000. Retained earnings on 1 May 20W9 were CU3,672,000.
This figure is before any retrospective adjustments posted in the year ended 30 April 20X0.
On 31 March 20X0 the company made a 1 for 10 bonus issue. This was followed by a rights issue of 1
for 4 ordinary shares at CU1.75 on 15 April 20X0, when the current market price of each share was
CU2.00.
The entire proceeds of the rights issue were immediately used to acquire the share capital of a
company whose net assets at the date of acquisition had a carrying amount of CU850,000 and a fair
value of CU950,000. The acquired business has not performed to expectations and an impairment
write-down to CUnil is required.
(5) During the year the decision was taken to close down one of the companys two factories, completing
the process, including the sale of the factory unit, prior to the year end. The only gain or loss relating
to this closure was that on the disposal of the factory unit and this has been reflected in the draft
results. At the time this decision was taken, the fair value of the factory was estimated at CU3.05
million and the costs to sell it at CU50,000. The factory was eventually sold for CU3.1 million, net of
selling expenses. At the time of classification as held for sale the factory had a carrying amount of
CU2.1 million. The factory had been included in the balance sheet at valuation and the profit on
disposal, which has been included in the draft results, is based on the historical cost carrying amount of
CU1.3 million. The opening balance on the revaluation reserve was CU800,000.
(6) A machine bought on 1 May 20W7 for CU1,800,000 was then thought to have a useful life of ten
years. However, as at 1 May 20W9 it was discovered that the total useful life of this asset is actually
only six years. The revision of the useful life has been dealt with as a change in accounting policy. This
asset is being depreciated on a straight-line basis with an estimated residual value of CUnil.
(7) On 30 October 20W9 Banchory Ltd revalued a freehold building, which had a remaining life of 50
years. The revaluation surplus of CU500,000 has not been recognised in the financial statements but
the depreciation charge for the period, which has been included in the draft profit, has been based on
the revalued amount.
Requirements
(a) Prepare the provisions and contingencies notes for the financial statements for the year ended
30 April 20X0. (4 marks)
(b) Calculate a revised consolidated profit before tax figure for the year ended 30 April 20X0. (6 marks)
(c) Prepare the consolidated statement of changes in equity for the year ended 30 April 20X0. (8 marks)
(18 marks)
23 Banff Ltd
Banff Ltd sells computer hardware, with or without support services, and also develops unique software.
The following matters are outstanding in the preparation of the published financial statements for the year
ended 30 April 20X1.
(1) The company has drawn up a detailed formal plan for the closure of its distribution division, which has
operated as a separate cost centre, intending to sub-contract this work in the future. This plan has
been approved by the board of directors and announced to employees by the year end. The plan
identified the following costs.
CU
Redundancy costs 250,000
Costs of early termination of existing contracts 100,000
Anticipated future operating losses 1 May 20X1 to date of closure in June 20X1 190,000
The company expects to realise a profit of CU90,000 on disposal of the non-current assets in the
division to be closed. These assets are accounted for under the cost model accounting policy.
(2) The company has been constructing a specialised item of plant and machinery for its own use. The
item had been completed by the year end, and the construction director has summarised the costs
which his department was charged.
CU
Materials 100,000
Labour costs
Factory staff 100,000
Supervision staff (one additional supervisor employed for this project) 15,000
Professional fees sub-contracted designers 22,000
Installation costs 13,000
Administration costs recharged by other departments payroll, personnel,
purchasing (no additional staff required) 11,000
Labour costs include CU20,000 relating to delays in the delivery of components. These arose through
Banff Ltd mis-scheduling deliveries.
The plant is expected to have a useful life of ten years with no residual value. Major overhauls will
need to be carried out every four years at a cost of CU80,000. The company intends to provide
CU20,000 annually to meet this cost.
(3) Banff Ltd entered into a six-year finance lease for plant and machinery on 1 May 20X0, paying a
deposit of CU100,000 to be followed by five equal annual instalments of CU150,000 on 1 May in each
subsequent year. The purchase price of the asset if bought outright would be CU780,000. The
company uses the sum-of-the-digits method to allocate finance charges. Apart from recording the
payment of the deposit on 1 May 20X0, no other accounting entry has been made for this finance
lease.
(4) The hardware division made a sale of a computer on 1 May 20X0. The proceeds of CU4 million were
received on 1 July 20X0 and recognised as revenue. The fee included the supply of hardware and a
four year maintenance contract covering maintenance support. The costs of providing that support on
similar contracts have been CU500,000 per annum, and the mark-up on those maintenance contracts
was 50% on cost.
(5) The software division entered into a CU3 million contract on 1 May 20W9 to develop a unique
product for a customer. At 30 April 20X0 the contract was estimated at 25% complete. However, as
the costs to complete could not be estimated reliably, only the costs incurred of CU200,000 were
recognised as revenue. During the year to 30 April 20X1 a further CU2 million of costs have been
incurred and included within inventory. The contract is now thought to be 75% complete, something
confirmed by an independent expert assessor who has also estimated the costs to complete as
CU400,000 and has confirmed the feasibility of the product. No invoice has yet been rendered to the
customer.
(6) On 1 May 20W9 Banff Ltd acquired an item of plant for CU1 million. The useful life was estimated as
eight years. The carrying amount in the financial statements at 30 April 20X1 is CU750,000 under the
cost model accounting policy. On 1 February 20X1 the plant was considered to be surplus to
requirements and the management concluded that the carrying amount would be principally recovered
through sale. A professional agent estimated its fair value as CU900,000 and it was advertised for sale
on 1 February 20X1 at that price. The agent charges a 3% commission. While the plant is available for
immediate sale, Banff Ltd has continued to use it for training and incidental production purposes. The
other activities undertaken on the machine have been transferred to other items of plant. A third
party has made an offer at the asking price and it is expected that the sale will be completed during
20X1.
Requirements
(a) Prepare relevant extracts from the income statement for Banff Ltd for the year ended 30 April 20X1
and the balance sheet as at that date. You are not required to prepare any disclosure notes.
(21 marks)
(b) Calculate the values for the six-year lease which would have appeared in the income statement and
balance sheet if the lease had been classified as an operating lease. (2 marks)
(23 marks)
24 Skinner Ltd
You have been asked to help the directors of Skinner Ltd complete the financial statements for the year
ended 30 June 20X3. You have been asked to provide draft information to the board of directors based on
the following information provided by the assistant accountant of Skinner Ltd.
(1) Property, plant and equipment as at 30 June 20X2 was as follows.
Cost Depreciation Carrying
amount
CU CU CU
Freehold land and buildings 1,620,000 148,800 1,471,200
Plant and machinery 1,278,000 539,600 738,400
2,898,000 688,400 2,209,600
The freehold land and buildings relate to the factory site, of which the land cost CU1 million. On 1 July
20X2 the site was revalued to CU2.36 million, of which CU1.6 million relates to the land.
The annual review of the expected lives of the property, plant and equipment has revealed that a
machine purchased for CU150,000 on 1 July 20X0 now has a remaining useful life of only five years.
Plant and machinery costing CU430,000 was purchased on 1 January 20X3. There were no disposals.
Depreciation is provided on cost on a straight-line basis. The rates used are 2% per annum for
buildings and 10% per annum for plant and machinery.
(2) On 1 July 20X2 the company leased a grinding machine under an eight year contract. Lease payments
are CU65,000 per annum payable in arrears, commencing on 30 June 20X3. The only entry made in
the accounts has been to recognise this years lease payment as an expense in the income statement as
part of administrative expenses.
The lease agreement shows that the rate of interest implicit in the lease is approximately 5%, and the
lessee is responsible for the maintenance of the machine. The present value of the minimum lease
payments is CU419,900.
Other working papers show that the cash price of the machine was CU450,000, and it has an
expected useful life of ten years.
(3) Skinner Ltd manufactures one product, a food processor. The costs of making a processor have been
established as follows.
CU
Variable cost per unit
Raw materials 10.00
Import duties on above 1.00
Direct labour 15.00
26.00
The normal activity level is 5,000 units produced per month. The selling price is CU32 per unit.
Inventory at 30 June 20X3 comprises the 4,000 units produced in June.
Requirements
(a) Prepare the note analysing the movement on property, plant and equipment for the year ended
30 June 20X3 and any other narrative notes required in respect of property, plant and equipment as a
result of the above information. (10 marks)
(b) Prepare a note analysing future lease payments on the gross basis and show how the above lease will
be reflected in the financial statements for the year ended 30 June 20X3 (including the cash flow
statement). No other notes to the financial statements are required. (6 marks)
(c) Calculate the carrying amount of inventory at 30 June 20X3. (3 marks)
(19 marks)
25 Rosetta Ltd
Rosetta Ltd, a listed group, is a multinational enterprise that focuses on developing and delivering
psychometric tests for recruitment purposes and a wide range of training courses/products.
The group is currently finalising its consolidated financial statements for the year ended 31 December 20X2.
These were prepared by the CEO in the absence of a financial controller. The draft income statement
shows profit before tax of CU17 million, which represents a 16% increase on the previous year.
As the newly-appointed financial controller you have been asked to review the following matters.
(1) At the start of the year an extensive review was carried out on all the property, plant and equipment
held by the group. Following advice from an independent industry expert, the following changes were
made with effect from 1 January 20X2.
The method of depreciation used on certain items of printing equipment was changed. The
equipment was originally purchased on 1 January 20X1 for CU12 million and was initially
depreciated using a 15% reducing-balance method. This is to be changed to straight-line over a
total useful life of five years.
The total useful life of some property originally purchased on 1 January 20X0 for CU40 million
was reduced from 25 to 20 years.
In the draft accounts both of the above items have been dealt with as adjustments to the retained
earnings brought forward at 1 January 20X2. Retained earnings as restated are shown as CU35 million
in the draft accounts.
(2) During the current year the group has expanded into the computer-based training market. This has
been achieved in two ways.
(i) Via the acquisition on 1 January 20X2 of 60% of Newtrain Ltd, a company which already had a
portfolio of CD-Rom training products. To integrate Newtrain Ltd into the group, Rosetta Ltd
planned substantially to reorganise its operations over the first three months of ownership, so at
the acquisition date a reorganisation provision of CU1.2 million was recognised. Goodwill arising
in the business combination was then measured at CU6 million.
In the draft accounts the goodwill has been amortised over its estimated useful life of twenty
years. An impairment review at 31 December 20X2 revealed its recoverable amount to be
CU4.1 million.
(ii) Via the internal development of new IT technology which allows for close monitoring of trainees
progression through the learning material. The project was started in early February 20X2 and
the final product was successfully launched on 30 November 20X2. At that date the following
costs were capitalised as an intangible non-current asset.
CU
IT hardware (purchased 1 February 20X2, useful life 48 months) 600,000
Employment costs of those developing the product 1,800,000
Costs incurred in training staff to deliver the new product 480,000
2,880,000
This total cost is being amortised over the product's expected useful life of 72 months.
60% of the employment costs were incurred prior to 31 August 20X2, the date on which the
technical feasibility and financial viability of the product were confirmed. A competitor has
recently approached Rosetta Ltd and offered CU6 million for the know-how embodied in the
product. As a result, the intangible asset has been revalued to CU6 million in the draft financial
statements, and a gain of CU3,160,000 recognised in the income statement.
Intangible assets at 1 January 20X2 comprised goodwill in respect of an earlier acquisition of
CU2,100,000. Accumulated impairment losses in relation to that goodwill at 1 January 20X2 were
CU300,000. A further CU200,000 still needs to be recognised in the current year.
Requirements
(a) Prepare the note analysing the movement on intangible assets which would appear in the financial
statements of Rosetta Ltd for the year ended 31 December 20X2. (6 marks)
(b) Calculate a revised pre-tax profit for the year ended 31 December 20X2 and the correct retained
earnings brought forward. (11 marks)
(17 marks)
26 Arran Ltd
The board of directors of Arran Ltd have asked you, as financial controller, to prepare some information in
relation to the companys draft financial statements for the year ended 31 May 20X1. Details are as follows.
(1) On 1 June 20W8 Arran Ltd acquired 75% of the ordinary share capital of Jura Ltd and 80% of the
ordinary share capital of Islay Ltd. On 1 December 20X0 Arran Ltd purchased 30% of the ordinary
share capital of Millport Ltd. On 31 January 20X1 Arran Ltd disposed of its entire holding in Islay Ltd
for CU2.5 million.
The draft income statements of the four companies for the year ended 31 May 20X1 were as follows.
Arran Ltd Jura Ltd Islay Ltd Millport Ltd
CU CU CU CU
Revenue 10,000,000 6,500,000 3,900,000 14,500,000
Cost of sales (7,400,000) (4,500,000) (2,700,000) (10,000,000)
2,600,000 2,000,000 1,200,000 4,500,000
Operating expenses (1,100,000) (650,000) (390,000) (1,700,000)
Profit before tax 1,500,000 1,350,000 810,000 2,800,000
Tax (450,000) (400,000) (240,000) (840,000)
Profit for the period 1,050,000 950,000 570,000 1,960,000
Arran Ltd acquired its holding in Islay Ltd for CU1,600,000 when the fair value of the net assets
of Islay Ltd was CU1,400,000. The net assets of Islay Ltd on 1 June 20X0 were CU1,700,000.
Goodwill impairment reviews to the start of the current year revealed cumulative impairments of
CU96,000 in relation to the acquisition of Islay Ltd.
Millport Ltd sold goods to Arran Ltd on 1 January 20X1 for CU480,000, at a mark-up on cost of
331/3%. Arran Ltd still had half of these goods in inventory at the year end.
Arran Ltd has not yet accounted for the disposal of Islay Ltd.
(2) Property, plant and equipment in the draft financial statements is currently stated as follows.
CU
Arran Ltd 5,500,000
Jura Ltd 3,400,000
Islay Ltd 1,200,000
Millport Ltd 200,000
The directors had planned to carry out an impairment review of certain items of plant at 31 May
20X1. However, they were too busy to do this and the review was therefore carried out in June
20X1. It revealed the following in respect of machines owned by Jura Ltd and Millport Ltd.
(b) Calculate the carrying amount of property, plant and equipment for inclusion in the consolidated
balance sheet of Arran Ltd as at 31 May 20X1 and prepare any relevant extracts from the financial
statements arising from (2) above. (3 marks)
(c) Explain the rationale for the required treatment of each of the items in (a) above. (6 marks)
(21 marks)
27 Elie Ltd
The directors of Elie Ltd are in the process of preparing financial statements for the year ended 30 June
20X2. They have asked you to assist them with certain calculations, details of which are set out below.
(1) On 1 July 20X1 Elie Ltd acquired 80% of the CU1 million ordinary share capital of Monans Ltd by
issuing 200,000 CU1 ordinary shares. Elie Ltds ordinary shares were quoted at CU17 on 1 July 20X1.
Professional fees to support the acquisition process amounted to CU90,000. A further amount of
CU92,000 is payable in cash on 1 July 20X2.
An issue of a further 24,000 shares is contingent on Monans Ltd achieving a 10% increase in revenue in
the year ended 31 October 20X2. These extra shares would be issued on 1 July 20X3. Monans Ltd has
achieved increases in revenue over the past five years of 11%, 8%, 10%, 11% and 12% (from the
earliest to the most recent year).
The net assets of Monans Ltd in its accounts as at 1 July 20X1 were CU3 million, with fair value CU1
million higher than carrying amount.
Elie Ltd has identified the following matters not recognised in the financial statements of Monans Ltd
as at 1 July 20X1.
A legal claim had been made by Monans Ltd against a supplier for damages suffered as a result of
faulty goods supplied to Monans Ltd. At the acquisition date the companys lawyers considered it
virtually certain that the claim would succeed. The fair value of the claim was assessed as
CU200,000 and this amount was received in December 20X1. Monans Ltd disclosed CU200,000
as a contingent asset at the acquisition date.
Operating losses of CU300,000 were expected to be incurred in the 6 months after acquisition.
Reorganisation costs of CU100,000 were to be incurred to bring Monans Ltds systems into line
with those of the group. A detailed plan for these changes was not yet in existence and no
announcement for such changes had been made.
A fall of CU50,000 in the value of inventories held on 30 June 20X1 due to a fire at a warehouse
on 5 July 20X1. The inventories now have a net realisable value of CU5,000. All inventories in the
group at 30 June 20X2 were correctly valued.
The goodwill impairment review at 30 June 20X2 revealed a loss of CU70,000 in relation to this
acquisition.
(2) The consolidated income statement currently shows a profit for the period of CU1,456,500 but has
not yet been adjusted to reflect any adjustments required as a result of matter (1) above.
In addition to the ordinary shares issued on acquisition of Monans Ltd Elie Ltd also issued 300,000
redeemable and 200,000 irredeemable preference shares during the year. All preference shares were
issued at a premium of CU0.20p over their nominal value of CU1 per share and have a coupon rate of
5%.
The following ordinary dividends were declared by Elie Ltd.
15 July 20X1 10p per share
10 July 20X2 15p per share
All of the preference dividends were declared before the end of the year.
No adjustments to the draft financial statements have been made in respect of these dividends.
On 1 July 20X1 Elie Ltd had the following balances on its consolidated capital and reserves.
CU
Ordinary shares 1,000,000
Share premium 500,000
Revaluation reserve 250,000
Retained earnings 5,678,500
7,428,500
(3) The revaluation reserve arose in 20X0 when the companys plant and machinery was revalued. One
item of plant, which was purchased on 1 July 20W8 for CU100,000 and was revalued to CU120,000
on 1 July 20X0, was subjected to an impairment review on 30 June 20X2. The review revealed that
this asset now has a recoverable amount of CU50,000.
Elie Ltds depreciation policy is to depreciate all plant on a 10% straight-line basis, whether based on
cost or on revalued amount. Elie Ltd makes an annual transfer between the revaluation reserve and
retained earnings as a result of its revaluations in accordance with best practice.
Depreciation for the year ended 30 June 20X2 has already been correctly charged to the income
statement and includes depreciation on the above impaired asset. No adjustment has been made as yet
in respect of the above impairment. If total depreciation had been calculated on cost as opposed to on
revalued amounts, the charge would have been CU45,000 lower.
Requirements
(a) Calculate the amount of goodwill acquired in the business combination with Monans Ltd that would be
carried in the group accounts of Elie Ltd for the year ended 30 June 20X2. (6 marks)
(b) Prepare the following columns only from the consolidated statement of changes in equity for Elie Ltd
for the year ended 30 June 20X2: ordinary share capital, irredeemable preference share capital, share
premium and revaluation reserve.
(10 marks)
(16 marks)
29 Shadowlands Ltd
You are the newly-appointed financial controller of Shadowlands Ltd. The directors have asked you to
prepare certain items of information for the financial statements for the year ended 31 December 20X7.
The following information is relevant.
(1) The directors have prepared the following summarised consolidated income statement.
CU
Operating profit 3,500,000
Investment income 950,000
Interest payable (50,000)
Profit before taxation 4,400,000
Income tax (1,700,000)
Profit after taxation 2,700,000
Current assets and liabilities at 31 December 20X7 and 31 December 20X6 and the depreciation
charges for those years were as follows.
20X7 20X6
CU CU
Inventories 350,600 460,700
Trade and other receivables 279,600 256,900
Cash and cash equivalents 10,500 7,850
Trade and other payables 178,500 182,300
Depreciation charges 356,000 372,000
(2) On 1 January 20X7 Shadowlands Ltd entered into a finance lease for a machine with a fair value of
CU105,000. On that date the company paid a deposit of CU10,000. On 31 December 20X7 the
company paid the first instalment of CU30,000. Three other instalments of CU30,000 each are due.
The directors have debited the payments to date to cost of sales.
(3) In 20X3 Shadowlands Ltd had purchased 30% of the ordinary share capital of Bacardi Ltd for
CU300,000 and has treated Bacardi Ltd as an associated undertaking since that date. Bacardi Ltds
capital and reserves have been as follows.
At 31 December
At acquisition 20X7
CU CU
Ordinary share capital 500,000 500,000
Retained earnings 200,000 650,300
In the year to 31 December 20X7 Bacardi Ltd took CU110,200 to retained earnings. Shadowlands Ltd
disposed of its holding in Bacardi Ltd on 30 June 20X7 for CU750,000. The directors have credited
this amount to investment income. Up until 31 December 20X6 Shadowlands Ltd had recognised
impairments in respect of Bacardi Ltd of CU20,000 in both its individual and its group accounts.
Requirements
(a) Prepare the note to the consolidated cash flow statement for the year ended 31 December 20X7
which reconciles profit before tax to cash generated from operations. (6 marks)
(b) Calculate the liability in respect of the finance lease at 31 December 20X7 and show how this would
be disclosed in the financial statements. Use the sum-of-the-digits basis to allocate interest. Notes to
the accounts are not required. (4 marks)
(c) Calculate the profit or loss on the disposal of Shadowlands Ltds interest in Bacardi Ltd in both the
group accounts and Shadowlands Ltds individual accounts. (5 marks)
(15 marks)
Note: Ignore taxation.
30 Scribo Ltd
Scribo Ltd is a large publishing company which is organised into several divisions. The financial controller
has asked you, as assistant accountant, to prepare certain items of information for the financial statements
for the year ended 30 June 20X6. The following information is relevant.
(1) The financial controller has calculated a preliminary figure for revenue for the year ended 30 June
20X6. This is made up of the following.
Division Revenue
CU
Magazine subscriptions 356,700
Magazines sold via newsagents 789,400
Book sales 3,450,800
Advances for books yet to be published 367,700
4,964,600
The company publishes one magazine, sales of which commenced on 1 March 20X6. Magazine
subscriptions are purchased on an annual basis for CU30 each and magazines are despatched on the
first working day of the month. 50% of the above revenue from magazine subscriptions arose prior to
the first issue, 25% in March and 25% in April.
Magazines are also sold via newsagents on a sale or return basis for CU3 each. When they receive the
next months delivery newsagents are required to return any unsold magazines for the previous
month, together with a returns note detailing how many copies are being returned. Within the next
week they are invoiced by Scribo Ltd for the previous months purchases. Returns notes received by
Scribo Ltd on 5 July 20X6 showed returns of 10,500 copies.
(2) The financial statements for the previous year showed that Scribo Ltd had the following recorded
within non-current assets at 30 June 20X5 in respect of intangible assets.
Cost Accumulated
amortisation/impairments
CU CU
Goodwill 450,000 120,000
Publishing titles 120,000 12,000
Technical know-how 300,000 90,000
The goodwill was acquired on the purchase of a sole trader on 1 July 20X2. At that time it was
estimated that the goodwill had a useful life of ten years. The technical know-how, which relates to
Scribo Ltds printing methods, is protected by a legal right which has a life of ten years.
On the last day of the year Scribo Ltd purchased the assets of one of its competitors, including
customer lists valued at CU30,000, publishing titles valued at CU45,000 and goodwill of CU100,000.
Impairments to be recognised in the current year amount to CU50,000 in respect of goodwill.
Publishing titles and customer lists are considered to have useful lives of five years.
Requirements
(a) Calculate revenue for inclusion in the income statement for the year ended 30 June 20X6. (3 marks)
(b) Prepare the note showing the movements on intangible assets which would appear in the financial
statements for the year ended 30 June 20X6. (4 marks)
(7 marks)
31 Hemmingway Ltd
Hemmingway Ltd has investments in Steinbeck Ltd which is a subsidiary and Innes Ltd which is an investment.
The draft balance sheets of Hemmingway Ltd and Steinbeck Ltd at 30 June 20X4 are shown below.
Hemmingway Ltd Steinbeck Ltd
ASSETS CU'000 CU'000 CU'000 CU'000
Non-current assets
Property, plant and equipment 6,720 820
Investment in Steinbeck Ltd 1,540
Investment in Innes Ltd 1,200
9,460 820
Current assets
Inventories 360 170
Trade and other receivables 370 230
Amount due from Steinbeck Ltd 75
Cash and cash equivalents 15 10
820 410
Total assets 10,280 1,230
EQUITY AND LIABILITIES
Capital and reserves
Issued CU1 ordinary shares 5,000 600
Revaluation reserve 200 40
Retained earnings 1,210 220
Equity 6,410 860
Non-current liabilities
Borrowings 3,200 50
Current liabilities
Trade and other payables 670 270
Amount due to Hemmingway Ltd 50
670 320
Total equity and liabilities 10,280 1,230
Additional information
(1) Hemmingway Ltd acquired 450,000 CU1 ordinary shares in Steinbeck Ltd on 1 July 20X2 for CU1.54
million. At that date the balance on Steinbeck Ltd's retained earnings was a credit of CU140,000 and the
balance on the revaluation reserve was a credit of CU28,000.
(2) Innes Ltd is not an associate of Hemmingway Ltd.
(3) The fair value of the plant of Steinbeck Ltd was CU200,000 in excess of its carrying amount at 1 July
20X2. This plant is to be depreciated over five years from the acquisition date on a straight-line basis, with
no residual value.
(4) Hemmingway Ltd sold plant to Steinbeck Ltd on 1 July 20X3 for CU96,000; the plant had cost CU100,000
on 1 July 20X2 and had a carrying amount of CU80,000. The plant is to be depreciated over its estimated
remaining useful life of four years.
(5) Hemmingway Ltd sold goods to Steinbeck Ltd at a price of CU25,000 on 30 June 20X4, which were not
received by Steinbeck Ltd until 5 July 20X4. Hemmingway Ltd calculates selling price at a mark-up of 25%
on cost.
Requirements
(a) Prepare the consolidated balance sheet of Hemmingway Ltd at 30 June 20X4.
Note: Work to the nearest CU'000. (15 marks)
(b) Hemmingway Ltd is considering the purchase of more shares in Innes Ltd which will make Innes Ltd an
associate of Hemmingway Ltd. State briefly and justify the appropriate accounting treatment in the
consolidated balance sheet of Hemmingway Ltd if Innes Ltd becomes an associate. (3 marks)
(18 marks)
32 Highland Ltd
The draft summarised balance sheets of Highland Ltd and Lowland Ltd at 31 December 20X2 are set out
below. On 31 March 20X2 Highland Ltd acquired for cash 75% of the CU1 ordinary shares in Lowland Ltd. The
retained earnings of the two companies at 1 January 20X2 were CU2,800,000 and CU1,500,000 respectively.
Highland Ltd Lowland Ltd
ASSETS CU'000 CU'000 CU'000 CU'000
Non-current assets
Property, plant and equipment 3,560 2,800
Investment in Lowland Ltd 2,940
6,500 2,800
Current assets
Inventories 1,150 550
Trade receivables group 400
Trade receivables other 1,500 800
Cash and cash equivalents 100 50
3,150 1,400
Total assets 9,650 4,200
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 3,500 900
Share premium account 700 170
Retained earnings 3,500 2,300
Equity 7,700 3,370
Non-current liabilities
Borrowings 1,100 110
Current liabilities
Trade payables group 400
Trade payables other 700 240
Dividends 150 80
850 720
Total equity and liabilities 9,650 4,200
Additional information
(1) The fair value of Lowland Ltd's property on 31 March 20X2 was CU200,000 above its carrying amount. All
of this relates to the buildings element of the property, which is being depreciated at 4% per annum.
(2) At the date of acquisition the replacement cost of raw material inventories was CU400,000. The carrying
amount was CU300,000. At 31 December 20X2 30% of these raw materials remained in inventory. The
rest had been converted to finished goods and sold to third parties.
(3) Highland Ltd has not yet recognised in its draft balance sheet the dividend receivable from Lowland Ltd,
which was declared out of post-acquisition profits.
(4) Since the date of acquisition Highland Ltd has sold to Lowland Ltd inventories valued at CU800,000; half
of these goods remained in the inventories of Lowland Ltd at 31 December 20X2. Highland Ltd calculated
the transfer price of the goods at cost plus a mark-up of 25%.
(5) It is the accounting policy of Highland Ltd to undertake annual reviews for goodwill impairment. At
31 December 20X2 an impairment of CU20,000 was identified in respect of Lowland Ltd.
Requirements
(a) Prepare the consolidated balance sheet of Highland Ltd as at 31 December 20X2.
Note: Work to the nearest CU'000. (18 marks)
(b) Explain the purpose of group financial statements and the concepts underlying their preparation.
(6 marks)
(24 marks)
33 Ullapool Ltd
Ullapool Ltd acquired 70% of the ordinary share capital of Kyle Ltd on 1 May 20X7. The consideration
comprised CU500,000 cash payable 1 May 20X7 and 3 million 25p ordinary shares issued on 1 May 20X7
(market value 50p). Professional advisers' fees on the acquisition amounted to CU250,000.
On 31 August 20X7 Ullapool Ltd acquired 30% of the ordinary share capital of Portree Ltd (incorporated on
1 November 20X6) for CU590,000 cash. Portree Ltd should be accounted for as an associate.
The draft summarised balance sheets of the three companies at 31 October 20X7 showed the following.
Ullapool Ltd Kyle Ltd Portree Ltd
ASSETS CU'000 CU'000 CU'000 CU'000 CU'000 CU'000
Non-current assets
Property, plant and
equipment 6,500 2,900 1,800
Investments 2,840
9,340 2,900 1,800
Current assets
Inventories 900 830 420
Trade receivables 430 350 130
Cash and cash equivalents 330 120 150
1,660 1,300 700
Total assets 11,000 4,200 2,500
EQUITY AND LIABILITIES
Capital and reserves
Issued CU1 ordinary 1,700 800
shares
Issued 25p ordinary shares 4,750
Share premium 1,250
Retained earnings 2,200 1,850 1,200
Equity 8,200 3,550 2,000
Current liabilities
Trade payables 2,800 650 500
Total equity and liabilities 11,000 4,200 2,500
Additional information
(1) The CU2,840,000 investments in the balance sheet of Ullapool Ltd comprise CU2,250,000 in respect of
Kyle Ltd and CU590,000 in respect of Portree Ltd.
(2) The company estimates that a further cost of the acquisition of Kyle Ltd was CU50,000 for its own staff
time. This has been charged to the income statement in the year ended 31 October 20X7.
(3) At the date of acquisition land held by Kyle Ltd had a market value of CU290,000 in excess of its carrying
amount. In addition inventories included raw materials at an original cost of CU150,000, which had a
replacement cost of CU182,000. These inventories had all been sold by the year end.
(4) As at 31 October 20X7 the impairment review indicated losses of CU1,000 in relation to the acquisition
of Portree Ltd.
(5) At the dates of acquisition the retained earnings of Kyle Ltd and Portree Ltd were CU1.25 million and
CU1 million respectively.
(6) The inventories of Ullapool Ltd include goods purchased from Kyle Ltd for CU51,000 on 10 October
20X7. Kyle Ltd applies a mark-up of 50% on the cost of its goods. Ullapool Ltd had paid for CU31,000 of
these goods on 20 October. The final CU20,000 was paid on 30 October 20X7, but Kyle Ltd did not
receive and account for the CU20,000 cheque until 3 November 20X7.
Requirement
Prepare the consolidated balance sheet of Ullapool Ltd as at 31 October 20X7. (14 marks)
Note: Work to the nearest CU'000.
34 Law Ltd
Law Ltd acquired holdings in Balgay Ltd and Newtyle Ltd as follows.
Balgay Ltd 70% of the ordinary share capital on 1 July 20X0 for CU5.5 million cash.
Newtyle Ltd 40% of the ordinary share capital on 10 May 20W7 for CU1 million cash.
The summarised balance sheets of the companies as at 31 August 20X1 were as follows.
Law Ltd Balgay Ltd Newtyle Ltd
CU'000 CU'000 CU'000
ASSETS
Non-current assets
Property, plant and equipment 7,500 6,000 2,500
Investments 6,500
Intangibles 100 120
Current assets
Inventories 1,000 500 200
Trade and other receivables 1,100 450 190
Cash and cash equivalents 200 50 90
Total assets 16,400 7,120 2,980
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 10,000 6,000 1,000
Preference share capital (irredeemable) 2,000
Revaluation reserve 500
Retained earnings/(losses) 3,000 (280) 1,820
15,000 6,220 2,820
Current liabilities
Trade and other payables 700 720 110
Dividends 700 180 50
Total equity and liabilities 16,400 7,120 2,980
Additional information
(1) The intangibles carried by Balgay Ltd are CU70,000 goodwill acquired on the acquisition of the net assets
and trade of an unincorporated business in 20W9, and CU50,000 relating to legal rights acquired in the
same year over specialised machinery, without which Balgay Ltd cannot operate.
(2) The reserves of the companies on the dates of acquisition of share capital were as follows.
Revaluation Retained
reserve earnings
CU'000 CU'000
Newtyle Ltd 10 May 20W7 900
Balgay Ltd 1 July 20X0 500 600
(3) There have been no changes in the share capitals of the companies since Law Ltd acquired the shares.
(4) As at 31 August 20X1 the impairment reviews revealed cumulative losses of CU116,000 relating to the
goodwill arising in the business combination with Balgay Ltd and CU120,000 in respect of the investment
in Newtyle Ltd. Goodwill in respect of Balgay Ltd was originally estimated to have a useful life of five
years.
(5) Balgay Ltd sold a property to Law Ltd on 1 September 20X0 for CU400,000. The property had a carrying
amount of CU300,000 in the accounts of Balgay Ltd as at 1 September 20X0, with an original cost of
CU600,000 in September 20W5 and an estimated useful life of ten years from that date.
(6) Current liabilities of the companies include the following amounts for dividends declared before the year
end.
Ordinary Preference
shares shares
CU'000 CU'000
Law Ltd 500 200
Balgay Ltd 180
Newtyle Ltd 50
Law Ltd has not yet accounted for any dividends receivable.
Requirement
Prepare the consolidated balance sheet of Law Ltd as at 31 August 20X1.
Note: Work to the nearest CU'000. (17 marks)
35 Heeley Ltd
Heeley Ltd, a listed company, has investments in two companies, Sothall Ltd and Aughton Ltd. The draft
summarised balance sheets of the three companies at 31 December 20X3 are shown below.
Heeley Ltd Sothall Ltd Aughton Ltd
CU'000 CU'000 CU'000 CU'000 CU'000 CU'000
ASSETS
Non-current assets
Property, plant and
equipment 5,200 4,000 8,000
Investments 18,600
23,800 4,000 8,000
Current assets
Inventories 2,300 1,600 4,500
Trade and other
receivables 4,800 2,400 3,700
Amount due from
Sothall Ltd 500
Cash and cash equivalents 1,100 300 400
8,700 4,300 8,600
32,500 8,300 16,600
Additional information
(1) Heeley Ltd acquired 3 million CU1 ordinary shares in Sothall Ltd on 1 April 20X1 for CU3 cash per share.
At that date the credit balance on Sothall Ltd's retained earnings was CU4 million.
(2) On 1 April 20X3 Heeley Ltd acquired 2.4 million CU1 ordinary shares in Aughton Ltd for CU4 cash per
share. Aughton Ltd should be accounted for as an associate. The draft profit of Aughton Ltd for the year
ended 31 December 20X3 was CU6 million, which accrued evenly over the year.
(3) Professional fees of CU500,000 incurred by Heeley Ltd, which are directly attributable to the acquisition
of Aughton Ltd, have been charged in the income statement of Heeley Ltd.
(4) The fair value of the freehold land of Sothall Ltd was CU1 million in excess of its carrying amount at the
date of acquisition.
(5) Impairment reviews carried out since acquisition have revealed the following losses in relation to goodwill
and the investment in the associate.
For year ended 31 December Sothall Ltd Aughton Ltd
CU'000 CU'000
20X1 300
20X2 800
20X3 700 1,500
(6) On 27 December 20X3 Sothall Ltd sent a cash payment of CU200,000 to Heeley Ltd. Heeley Ltd received
the cash on 5 January 20X4.
(7) Heeley Ltd sold goods at a transfer price of CU1 million to Sothall Ltd during the year; three quarters of
these goods remained in the inventory of Sothall Ltd at the year end. Heeley Ltd calculates the price of
the goods using a gross profit of 20% on the transfer price.
(8) After Aughton Ltd's draft balance sheet was prepared, it was discovered that no revenue had been
recognised for sales totalling CU200,000 made on the last three days of the accounting period, even
though the relevant goods had been despatched to customers and excluded from Aughton Ltd's
inventories at 31 December 20X3.
Requirement
Prepare the consolidated balance sheet of Heeley Ltd as at 31 December 20X3. (16 marks)
Note: Work to the nearest CU'000.
36 Harris Ltd
Harris Ltd has investments in two companies, Scalpay Ltd and Auskerry Ltd. The draft, summarised balance
sheets of the three companies at 31 December 20X5 are shown below.
Harris Ltd Scalpay Ltd Auskerry Ltd
ASSETS
Non-current assets CU'000 CU'000 CU'000
Property, plant and equipment 20,200 15,100 8,600
Investment in Scalpay Ltd 20,000
Investment in Auskerry Ltd 4,000
Current assets
Inventories 3,500 2,700 1,400
Trade receivables 2,300 1,600 900
Cash and cash equivalents 200 300 100
Total assets 50,200 19,700 11,000
Capital and reserves
Issued CU1 ordinary shares 35,000 15,000 8,000
Retained earnings 6,000 2,300 1,900
Non-current liabilities
Debentures 6,000 1,000 500
Current liabilities
Trade payables 3,200 1,200 600
Dividends 200
Total equity and liabilities 50,200 19,700 11,000
Additional information
(1) Harris Ltd acquired 75% of the CU1 ordinary shares in Scalpay Ltd on 1 October 20X3. At that date the
balance on Scalpay Ltd's retained earnings was CU1,800,000.
(2) On 1 October 20X5 Harris Ltd acquired 30% of the CU1 ordinary shares in Auskerry Ltd. The profit for
Auskerry Ltd for the year ended 31 December 20X5 was CU600,000, and this profit accumulated evenly
over the year. Auskerry Ltd paid no dividends in the year ended 31 December 20X5. Auskerry Ltd should
be accounted for as an associated company of Harris Ltd.
(3) Harris Ltd has calculated that the costs incurred in acquiring Auskerry Ltd were CU200,000 and this sum
has been charged to the income statement of Harris Ltd. This comprises CU120,000 allocated overheads
from the acquisitions department and CU80,000 of directly attributable costs.
(4) The fair value of the land in Scalpay Ltd was CU1 million in excess of carrying amount at the date of
acquisition.
(5) Harris Ltd has not recognised the dividend receivable from Scalpay Ltd in its draft balance sheet at
31 December 20X5.
(6) At 1 October 20X3 Scalpay Ltd had a contingent liability relating to a legal claim against the company of
CU400,000, for which the fair value was estimated at CU300,000. An out of court settlement was agreed
on 30 June 20X5 and CU300,000 was paid to settle the case.
(7) Harris Ltd has carried out annual impairment reviews on goodwill. On 31 December 20X4 an impairment
loss of CU100,000 was recognised on the goodwill relating to Scalpay Ltd, but there have been no further
impairment losses identified.
(8) Scalpay Ltd sold goods to Harris Ltd valued at CU800,000 during the year ended 31 December 20X5 and
a quarter of these goods have been re-sold by Harris Ltd. Scalpay Ltd calculated the transfer price of the
goods at cost plus a mark-up of 25%.
(9) Harris Ltd's draft financial statements at 31 December 20X5 included a note explaining a contingent asset
of CU200,000. This sum was received on 31 January 20X6. This should now be accounted for as an
adjusting event after the balance sheet date.
Requirements
(a) Prepare the consolidated balance sheet of Harris Ltd at 31 December 20X5. (15 marks)
Note: Work to the nearest CU'000.
(b) Explain in what circumstances, if any, Auskerry Ltd could have been considered to be an associated
company of Harris Ltd if the shareholding had been 15%, rather than 30%. (4 marks)
(19 marks)
37 Lowland Ltd
Lowland Ltd acquired two subsidiaries as follows.
1 July 20X1 80% of Aviemore Ltd for CU5 million when the carrying amount of the net assets of
Aviemore Ltd was CU4 million (represented by share capital of CU3,800,000 and
retained earnings of CU200,000).
30 November 20X7 65% of Buchan Ltd for CU2 million when the carrying amount of the net assets of
Buchan Ltd was CU1.6 million (represented by share capital of CU1,200,000 and
retained earnings of CU400,000).
The income statements of the companies for the year ended 31 March 20X8 were as follows.
Lowland Aviemore Buchan
Ltd Ltd Ltd
CU'000 CU'000 CU'000
Revenue 5,000 3,000 2,910
Cost of sales (3,000) (2,300) (2,820)
Gross profit 2,000 700 90
Net operating expenses (1,000) (500) (150)
Finance cost (50) (210)
Investment income 230
Profit/(loss) before tax 1,230 150 (270)
Income tax expense (300) (50)
Profit/(loss) for the year 930 100 (270)
Extracts from the statements of changes in equity of the companies (all relating to retained earnings) for the
year ended 31 March 20X8 were as follows.
Lowland Aviemore Buchan
Ltd Ltd Ltd
CU'000 CU'000 CU'000
Net profit/(loss) for the year 930 100 (270)
Interim dividends on ordinary shares (200) (50)
730 50 (270)
Balance brought forward 1,500 240 580
Balance carried forward 2,230 290 310
Additional information
(1) On 1 April 20X7 Buchan Ltd issued CU2.1 million 10% loan stock to Lowland Ltd. Interest is payable
twice yearly on 1 October and 1 April. Lowland Ltd has accounted only for the interest received on
1 October 20X7.
(2) On 1 April 20X7 Aviemore Ltd sold a freehold property to Lowland Ltd for CU800,000 (land element
CU300,000). The property originally cost CU900,000 (land element CU100,000) on 1 April 20W7. The
property's total useful life was 50 years on 1 April 20W7 and there has been no change in the useful life
since that time. Aviemore Ltd has credited the profit on disposal to 'Net operating expenses'.
(3) The property, plant and equipment of Buchan Ltd on 30 November 20X7 was valued at CU500,000
(carrying amount CU350,000) and was all acquired in April 20X7. Those assets have a total useful life of
ten years. Buchan Ltd has not adjusted its accounting records to reflect fair values.
(4) Lowland Ltd charges Aviemore Ltd an annual fee of CU85,000 for management services. This has been
recognised by Lowland Ltd in 'Investment income'.
(5) Lowland Ltd has recognised its dividend received from Aviemore Ltd in 'Investment income'.
(6) In 20X2 the impairment review revealed a loss of CU1,080,000 in relation to Aviemore Ltd. A further
loss of CU180,000 has been identified in the current year. In addition, the impairment review in relation
to the acquisition of Buchan Ltd has revealed a loss of CU102,000.
Requirement
Prepare the consolidated income statement for Lowland Ltd for the year ended 31 March 20X8 and the
movement on retained earnings and minority interest as they would appear in the consolidated statement of
changes in equity for the year ended 31 March 20X8. (22 marks)
Note: Work to the nearest CU'000.
38 Vanguard Ltd
Vanguard Ltd owns 75% of the ordinary share capital of Formidable Ltd and 45% of the ordinary share capital
of Albion Ltd. The draft income statements of the three companies for the year ended 31 March 20X4 were as
follows.
Vanguard Formidable Albion
Ltd Ltd Ltd
CU CU CU
Revenue 346,932 289,028 75,201
Cost of sales (261,023) (202,319) (55,342)
Gross profit 85,909 86,709 19,859
Net operating expenses (53,811) (55,606) (9,765)
Profit from operations 32,098 31,103 10,094
Finance cost (2,301) (1,500) (1,121)
Investment income 24,244 3,242
Profit before tax 54,041 32,845 8,973
Income tax expense (15,753) (6,982) (1,863)
Profit for the period 38,288 25,863 7,110
Extracts from the statements of changes in equity of the companies (all relating to retained earnings) for the
year ended 31 March 20X4 were as follows.
Vanguard Formidable Albion
Ltd Ltd Ltd
CU CU CU
Net profit for the year 38,288 25,863 7,110
Interim dividends on ordinary shares (9,000) (20,500) (5,500)
29,288 5,363 1,610
Balance brought forward 539,260 327,530 25,850
Balance carried forward 568,548 332,893 27,460
Additional information
(1) Details of intra-group trading are as follows.
CU
Sales by Vanguard Ltd to Formidable Ltd 35,908
Cost to Formidable Ltd of inventory items purchased from Vanguard Ltd
At 31 March 20X3 5,600
At 31 March 20X4 8,350
Vanguard Ltd has a standard mark-up on cost of 25% for sales to Formidable Ltd. Vanguard Ltd held no
inventories purchased from Albion Ltd at either the start or the end of the year.
(2) All dividends have been fully accounted for in the draft figures given.
(3) Formidable Ltd was acquired on 1 April 20X0 for CU415,000 when the carrying amount of its net assets
was CU485,000. Retained earnings of Formidable Ltd were CU150,000 at this date.
(4) During the acquisition process the management of Vanguard Ltd identified a number of intangible assets
which were not recognised in the financial statements of Formidable Ltd. The fair values were measured
reliably at CU15,000. The useful life of these intangible assets was estimated at 20 years. No other fair
value adjustments were identified.
(5) Albion Ltd was acquired in April 20X2 for CU53,000 when its retained earnings were CU3,500 and the
carrying amount of its net assets was CU90,000. There was no material difference between the carrying
amount and fair value of Albion Ltd's net assets.
(6) An impairment loss in respect of the goodwill acquired in the business combination with Formidable Ltd
of CU12,000 was recognised in the financial statements for the year ended 31 March 20X3. A further loss
of CU4,000 still needs to be recognised in the current year financial statements. A current year
impairment loss of CU1,250 still needs to be recognised in the financial statements in respect of the
investment in Albion Ltd. No previous impairment losses had been identified in respect of Albion Ltd.
Requirements
(a) Prepare the consolidated income statement of Vanguard Ltd for the year ended 31 March 20X4, and the
movement on retained earnings as it would appear in the consolidated statement of changes in equity for
the year ended 31 March 20X4. (16 marks)
(b) Calculate the carrying amount of goodwill in respect of Formidable Ltd that would appear in the
consolidated balance sheet of Vanguard Ltd as at 31 March 20X4. (2 marks)
(18 marks)
39 Heaton Ltd
Heaton Ltd has investments in two companies, Sharston Ltd and Ardwick Ltd. Extracts from the draft financial
statements of the three companies for the year ended 31 March 20X4 are shown below.
Income statements
Heaton Sharston Ardwick
Ltd Ltd Ltd
CU'000 CU'000 CU'000
Revenue 23,700 12,500 5,200
Cost of sales (17,580) (9,770) (3,350)
Gross profit 6,120 2,730 1,850
Expenses (2,870) (700) (430)
Profit from operations 3,250 2,030 1,420
Finance cost (220) (50) (40)
Dividend received 320
Profit before tax 3,350 1,980 1,380
Income tax expense (1,230) (650) (480)
Profit for the period 2,120 1,330 900
Extracts from statement of changes in equity (retained earnings)
Heaton Sharston Ardwick
Ltd Ltd Ltd
CU'000 CU'000 CU'000
Net profit for period 2,120 1,330 900
Ordinary share dividends (1,000) (400)
1,120 930 900
Balance brought forward 4,250 2,200 1,450
Balance carried forward 5,370 3,130 2,350
The only equity reserve of each company is retained earnings.
Additional information
(1) The issued share capital of each company is
CU1 ordinary shares
Heaton Ltd 6 million
Sharston Ltd 5 million
Ardwick Ltd 4 million
(7) Heaton Ltd sold goods at a transfer price of CU2 million to Ardwick Ltd in January 20X4; one half of
these goods remained in Ardwick Ltd's inventories at the year end. Heaton Ltd calculates the price of the
goods using a mark up of 25% on cost.
Requirements
(a) Prepare the consolidated income statement of Heaton Ltd for the year ended 31 March 20X4.(8 marks)
(b) Prepare the retained earnings and minority interest sections of the consolidated statement of changes in
equity of Heaton Ltd for the year ended 31 March 20X4. (5 marks)
(c) Explain the single entity concept. (2 marks)
(15 marks)
Note: Work to the nearest CU'000.
40 Jerome Ltd
Jerome Ltd acquired 400,000 ordinary shares of George Ltd ten years ago for CU1,820,000. The share capital
of George Ltd was 500,000 CU1 ordinary shares. Goodwill acquired in the business combination was
CU800,000.
On 1 July 20X7 Jerome Ltd acquired 40,000 of Harris Ltd's 100,000 CU1 ordinary share capital for CU4
million. The carrying amount of the assets at acquisition was CU8,500,000. No fair value adjustments were
identified.
The results for these companies for the year ended 31 December 20X7 are as follows.
Jerome Ltd George Ltd Harris Ltd
CU'000 CU'000 CU'000
Revenue 3,268 2,500 1,500
Cost of sales (1,840) (1,375) (1,050)
Gross profit 1,428 1,125 450
Distribution costs (115) (190) (25)
Administrative expenses (93) (245) (45)
Profit from operations 1,220 690 380
Finance cost (50) (15) (20)
Investment income 335
Profit before tax 1,505 675 360
Income tax expense (315) (175) (100)
Profit after tax 1,190 500 260
Extracts from the statement of changes in equity (all relating to retained earnings) for the year ended
31 December 20X7 are as follows.
Jerome Ltd George Ltd Harris Ltd
CU'000 CU'000 CU'000
Profit for the year 1,190 500 260
Dividends on ordinary shares (declared on
1 April 20X7 and paid on 1 May 20X7) (200) (300) (80)
990 200 180
Balance brought forward 5,310 12,520 340
Balance carried forward 6,300 12,720 520
Requirements
(a) Prepare the consolidated income statement for Jerome Ltd for the year ended 31 December 20X7.
(9 marks)
(b) Prepare the movement on retained earnings as it would appear in the consolidated statement of changes
in equity for the year ended 31 December 20X7. (6 marks)
(c) Calculate the carrying amount of the investment in Harris Ltd that would be presented in the
consolidated balance sheet of Jerome Ltd at 31 December 20X7. (2 marks)
(17 marks)
Note: Work to the nearest CU'000.
41 Hardmead Ltd
Hardmead Ltd prepares its consolidated financial statements in accordance with BFRS. Hardmead Ltd has
investments in two companies, Stony Ltd and Stratford Ltd.
Extracts from the draft financial statements of the three companies at 30 September 20X5 are shown below:
Income statements Hardmead Stony Ltd Stratford Ltd
Ltd
CU'000 CU'000 CU'000
Revenue 10,040 7,500 4,600
Cost of sales (8,760) (6,900) (3,000)
Gross profit 1,280 600 1,600
Operating expenses (400) (420) (1,120)
Profit from operations 880 180 480
Dividends received 80
Profit before taxation 960 180 480
Income tax expense (400) (60) (160)
Net profit for year 560 120 320
Extracts from statements of changes in equity
Retained earnings
Hardmead Stony Ltd Stratford Ltd
Ltd
CU'000 CU'000 CU'000
Balance brought forward 2,500 6,400 2,000
Net profit for period 560 120 320
Ordinary share dividends (600) (100)
Balance carried forward 2,460 6,420 2,320
Additional information
(1) The issued share capital of each company is:
CU1 ordinary shares
Hardmead Ltd 2 million
Stony Ltd 1 million
Stratford Ltd 3 million
(2) Hardmead Ltd acquired 80% of the CU1 ordinary shares in Stony Ltd on 30 September 20X1 for CU6
million. The retained earnings of Stony Ltd on that date were CU6 million.
(3) On 1 November 20X2, Hardmead Ltd acquired 60% of the CU1 ordinary shares in Stratford Ltd for CU4
million. The retained earnings of Stratford Ltd at that date were CU3 million.
(4) Hardmead Ltd disposed of its entire holding in Stratford Ltd for CU3 million on 31 March 20X5. It has
not yet accounted for this disposal. Profits in Stratford Ltd have accrued evenly throughout the year.
(5) The fair value of the plant and equipment of Stony Ltd was CU200,000 in excess of its carrying amount at
the date of acquisition. The remaining useful life of the plant and equipment was assessed at four years
from that date.
(6) Stony Ltd sold goods to Hardmead Ltd at a transfer price of CU180,000 during the year ended 30
September 20X5. The transfer price was based on a mark-up of 50% on cost. One third of the goods
remained in the inventory of Hardmead Ltd at the year end.
(7) Hardmead Ltd's inventory includes 5,000 finished goods items with a carrying amount of CU100 each. The
normal selling price of these items is CU120 per item and selling commissions are CU30 per item.
Hardmead Ltd had a contract in place to sell 2,000 items to a customer at CU70 per item in October
20X5. No selling commissions will be incurred under this contract.
(8) Hardmead Ltd has undertaken annual impairment reviews of goodwill. At 30 September 20X4 impairment
losses of CU120,000 and CU50,000 for Stony Ltd and Stratford Ltd respectively needed to be recognised.
A further impairment loss of CU30,000 has been identified in respect of Stony Ltd for the year ended 30
September 20X5.
Requirements
(a) Prepare the consolidated income statement of Hardmead Ltd for the year ended 30 September 20X5.(14
marks)
Note: You should assume that the disposal of Stratford Ltd constitutes a discontinued operation in
accordance with BFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
(b) Prepare the movements on retained earnings and minority interest that would appear in the consolidated
statement of changes in equity for the year ended 30 September 20X5. (7 marks)
(c) Set out the principles you have applied in accounting for the disposal of Stratford Ltd. (2 marks)
(23 marks)
Note: Work to the nearest CU'000.
42 Tain Ltd
Tain Ltd acquired holdings in other companies as follows.
Banchory Ltd
55% of the ordinary share capital was purchased for CU2.5 million on 1 November 20X4.
Dornoch Ltd
Tain Ltd holds 75% of the ordinary share capital acquired in 20X6. No goodwill was acquired in this business
combination. Retained earnings at the date of acquisition were CU80,000.
Nairn Ltd
30% of the ordinary share capital was purchased for CU1 million on 1 May 20X9. The net assets of Nairn Ltd
had a carrying amount of CU3 million and a fair value of CU2.7 million at 1 May 20X9.
The income statements of the companies for the year ended 31 October 20X9 were as follows.
Tain Ltd Banchory Ltd Dornoch Ltd Nairn Ltd
CU'000 CU'000 CU'000 CU'000
Revenue 10,600 5,500 4,700 5,900
Cost of sales (7,400) (3,700) (3,520) (4,130)
3,200 1,800 1,180 1,770
Operating expenses (1,700) (900) (700) (880)
Dividends received 375
Profit before tax 1,875 900 480 890
Income tax expense (460) (280) (140) (290)
Profit after tax 1,415 620 340 600
Additional information
(1) Banchory Ltd had the following balances on its reserves.
Retained Revaluation
earnings reserve
CU'000 CU'000
1 November 20X4 1,600 300
31 October 20X8 2,000 400
There has been no change to the revaluation reserve since 31 October 20X8.
(2) The issued share capitals of Tain Ltd and Banchory Ltd have remained for many years at 5 million and
2 million CU1 ordinary shares respectively.
(3) On 31 October 20X9 Tain Ltd disposed of its entire holding in Banchory Ltd for CU3.5 million. Tain Ltd
has not yet accounted for this disposal.
(4) On 1 July 20X9 Dornoch Ltd sold goods to Tain Ltd for CU500,000 on the basis of cost plus a mark-up of
one third. Tain Ltd had CU200,000 of these goods in its inventory at 31 October 20X9.
(5) The goodwill impairment review in relation to the acquisition of Banchory Ltd revealed cumulative
impairments of CU142,000 at 31 October 20X8. In addition, the 20X9 review in relation to the
investment in Nairn Ltd revealed that an impairment loss of CU19,000 should be recognised.
(6) During the year Tain Ltd and Dornoch Ltd declared total dividends of CU700,000 and CU500,000
respectively.
(7) Retained earnings at 31 October 20X8 for the other group companies were as follows.
CU'000
Tain Ltd 2,356
Dornoch Ltd 152
Nairn Ltd 562
These companies have no other equity reserves.
Requirement
Prepare the consolidated income statement and consolidated statement of changes in equity of Tain Ltd for the
year ended 31 October 20X9 (excluding the section relating to the minority interest).
Note: You should assume that the disposal of Banchory Ltd constitutes a discontinued operation in
accordance with BFRS 5 Non-current Assets Held for Sale and Discontinued Operations. You are not required to
provide any additional disclosure notes required by BAS 28 Investments in Associates. Work to the nearest
CU'000. (18 marks)
43 Glencoe Ltd
Glencoe Ltd acquired holdings in other companies as follows.
Rannoch Ltd Leven Ltd
Date of acquisition 1 September 20X7 1 May 20X6
Cost of acquisition CU3 million CU10 million
Percentage of ordinary share capital acquired 75% 80%
Carrying amount of net assets at date of acquisition
(equal to fair value) CU4 million CU11.7 million
The companies' draft income statements for the year ended 31 August 20Y0 and draft balance sheets as at that
date were as follows.
Income statements for the year ended 31 August 20Y0
Glencoe Ltd Rannoch Ltd Leven Ltd
CU'000 CU'000 CU'000
Revenue 50,000 11,000 35,000
Cost of sales (32,000) (7,000) (23,000)
18,000 4,000 12,000
Operating expenses (10,000) (2,000) (7,000)
Profit before tax 8,000 2,000 5,000
Income tax expense (2,500) (600) (1,500)
Profit after tax 5,500 1,400 3,500
Balance sheets as at 31 August 20Y0
ASSETS CU'000 CU'000 CU'000
Non-current assets
Property, plant and equipment 29,500 3,500 10,000
Investments (3,000)
Current assets 36,000 5,900 8,000
Total assets 62,500 9,400 18,000
44 Herdings Ltd
Herdings Ltd acquired 8,000,000 CU1 ordinary shares in Sandygate Ltd on 1 April 20X1 for CU2.50 cash per
share. At that date the balance on Sandygate Ltd's retained earnings was CU5,000,000. On 1 October 20X2
Herdings Ltd acquired 1,500,000 CU1 ordinary shares in Abbeydale Ltd for CU4 cash per share. Abbeydale Ltd
should be accounted for as an associate.
The draft summarised balance sheets of the three companies at 31 March 20X3 are shown below.
Herdings Ltd Sandygate Ltd Abbeydale Ltd
CU'000 CU'000 CU'000 CU'000 CU'000 CU'000
ASSETS
Non-current assets
Property, plant and
equipment 13,100 16,400 12,200
Investments 23,500
36,600 16,400 12,200
Current assets
Inventories 8,100 5,230 3,000
Trade receivables 6,850 4,950 4,140
Cash and cash equivalents 3,750 150 50
18,700 10,330 7,190
Total assets 55,300 26,730 19,390
Additional information
(1) The fair value of the plant of Sandygate Ltd was CU2,000,000 in excess of its carrying amount at the date
of acquisition. The group policy is to depreciate plant over ten years.
(2) At the acquisition date the financial statements of Sandygate Ltd disclosed a contingent liability for an
environmental damages claim. An independent expert quantified the fair value of the claim as CU100,000
at that date.
(3) Herdings Ltd has not recognised the dividend receivable from Sandygate Ltd in its draft balance sheet.
(4) Herdings Ltd has undertaken annual reviews of goodwill for impairment. At 31 March 20X2 an
impairment loss of CU1,680,000 was recognised in respect of Sandygate Ltd.
(5) Sandygate Ltd sold goods valued at CU3,300,000 to Herdings Ltd during the year; half of these goods
remained in the inventories of Herdings Ltd at the year end. Sandygate Ltd calculated the transfer price of
the goods at cost plus a mark-up of 10%.
(6) On 30 September 20X2 Herdings Ltd sold 1,000,000 of its 8,000,000 shares in Sandygate Ltd for
CU3,500,000. Herdings Ltd recorded the profit on sale correctly in its own financial statements.
(7) The profits of Sandygate Ltd and Abbeydale Ltd for the year of CU3,000,000 and CU4,000,000
respectively accrued evenly over the year.
Requirements
(a) Calculate the group profit on the disposal of the shares in Sandygate Ltd. (3 marks)
(b) Prepare the consolidated balance sheet of Herdings Ltd as at 31 March 20X3. (18 marks)
(c) A third party controls 60% of the ordinary shares in Abbeydale Ltd. Discuss whether Herdings Ltd should
continue to classify its investment in Abbeydale Ltd as an associate. (2 marks)
(23 marks)
Note: Work to the nearest CU'000.
45 Camden Ltd
Camden Ltd holds 72% of the ordinary share capital of Kentish Ltd (acquired on 1 March 20X5) and 60% of the
ordinary share capital of Tufnell Ltd (acquired on 1 October 20X3). Camden Ltd paid CU2 million and
CU3 million respectively for these investments. Retained earnings of Tufnell Ltd on acquisition were
CU450,000.
Camden Ltd has no other investments and none of the companies has any preference share capital. Kentish Ltd
has share capital of CU1 million and Tufnell Ltd of CU1.5 million.
The income statements for the year ended 30 September 20X5 are set out below.
Camden Ltd Kentish Ltd Tufnell Ltd
CU'000 CU'000 CU'000
Revenue 151,360 32,400 95,040
Cost of sales and expenses (after crediting
dividends received from Kentish Ltd and Tufnell Ltd) (134,904) (28,750) (83,750)
Profit from operations 16,456 3,650 11,290
Income tax expense (5,436) (1,250) (3,820)
Profit for the period 11,020 2,400 7,470
Additional information
(1) The three companies paid interim dividends of CU2,820,000, CU336,000 and CU2,460,000 respectively
on 1 May 20X5. Retained earnings at 1 October 20X4 were as follows.
CU'000
Camden Ltd 11,820
Kentish Ltd 5,430
Tufnell Ltd 8,210
(2) On 30 June 20X5 Camden Ltd sold half of its shares in Tufnell Ltd for CU5 million but retained significant
influence over that company. No impairments in the value of the investment have ever been identified.
Camden Ltd has credited the sales proceeds to a suspense account.
(3) Included in the inventories of Kentish Ltd at 30 September 20X5 was CU240,000 for goods purchased in
June 20X5 from Camden Ltd, which the latter company had invoiced at a 20% gross profit margin. These
were the only goods sold by Camden Ltd to Kentish Ltd. During the year, prior to the sale of shares in
Tufnell Ltd, Camden Ltd made sales of CU345,000 to Tufnell Ltd, none of which were included in
inventory at the year end.
Requirements
(a) Prepare a consolidated income statement and extracts from the statement of changes in equity for
Camden Ltd (retained earnings and minority interests columns only) for the year ended 30 September
20X5. You should assume that the partial disposal of Tufnell Ltd does not constitute a discontinued
operation in accordance with BFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
(22 marks)
(b) Calculate the carrying amount of Tufnell Ltd in the consolidated balance sheet of Camden Ltd as at
30 September 20X5. (2 marks)
(c) Explain your accounting treatment of the following items in the consolidated income statement of
Camden Ltd, referring to the principles underlying the preparation of group accounts.
(i) Consolidation of Kentish Ltd
(ii) Dividends received by Camden Ltd
(iii) Intra-group trading
(iv) Unrealised profits in inventories (6 marks)
(30 marks)
Note: Work to the nearest CU'000.
46 Gallant Ltd
Gallant Ltd has a number of subsidiary companies and one associated company. There have been no changes in
the holdings of any of these investments for a number of years. The following are the draft consolidated
financial statements for Gallant Ltd for the year ended 31 December 20X7. Gallant Ltd has not yet prepared its
consolidated statement of changes in equity.
Consolidated income statement for the year ended 31 December 20X7
CU
Revenue 5,680,500
Cost of sales (3,120,600)
Gross profit 2,559,900
Administrative expenses (987,800)
Distribution costs (458,000)
Profit from operations 1,114,100
Finance cost (75,000)
Share of profits of associate 345,600
Profit before tax 1,384,700
Income tax expense (420,000)
Profit for the period 964,700
Attributable to
Equity holders of Gallant Ltd 617,900
Minority interest 346,800
964,700
Balance sheet as at 31 December 20X7
20X7 20X6
CU CU CU CU
ASSETS
Non-current assets
Property, plant and equipment 8,396,200 7,078,400
Intangibles 420,000 540,500
Investments in associates 1,795,800 1,678,900
10,612,000 9,297,800
Current assets
Inventories 670,500 865,100
Trade and other receivables 269,000 244,500
Cash and cash equivalents 30,700 20,200
970,200 1,129,800
Total assets 11,582,200 10,427,600
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital (CU1 shares) 4,000,000 2,400,000
Share premium account 1,300,000 2,050,000
Revaluation reserve 400,000 236,800
Retained earnings 1,357,800 1,393,100
Attributable to the equity holders of Gallant Ltd 7,057,800 6,079,900
Minority interest 2,345,900 2,948,200
Equity 9,403,700 9,028,100
Non-current liabilities
Finance lease liabilities 376,000
Current liabilities
Trade and other payables 768,500 639,500
Taxation 410,000 360,000
Finance lease liabilities 124,000
Ordinary dividend payable 500,000 400,000
1,802,500 1,399,500
Total equity and liabilities 11,582,200 10,427,600
Additional information
(1) The intangibles balance relates to goodwill arising on acquisition of subsidiaries, in respect of which certain
impairment losses have been written off during the year.
(2) On 1 January 20X7 Gallant Ltd made a 1 for 3 bonus issue of ordinary shares. This was followed, later in
the year, by an issue at full market price.
(3) An analysis of the movement on group property, plant and equipment during the year showed that plant
with a carrying amount of CU760,500 was sold for CU800,000. Total depreciation charges for the year
were CU970,600.
(4) The finance cost in the consolidated income statement relates to the group's only finance lease, which was
taken out at the start of the year, with the first instalment of CU100,000 being paid on the last day of the
year. This lease has been correctly accounted for in accordance with BAS 17 Leases.
Requirement
Prepare a consolidated cash flow statement and note reconciling profit before tax to cash generated from
operations for Gallant Ltd for the year ended 31 December 20X7, in accordance with BAS 7 Cash Flow
Statements, using the indirect method. (17 marks)
47 Slick Ltd
Slick Ltd has a number of subsidiary companies, one of which, Kay Ltd, was acquired during the current year,
the year ended 30 June 20X7. The following are the draft consolidated financial statements for Slick Ltd for the
year ended 30 June 20X7 and the balance sheet of Kay Ltd as at the date of acquisition. Slick Ltd has not yet
prepared its consolidated statement of changes in equity.
Consolidated income statement for the year ended 30 June 20X7 (extract)
CU'000
Loss from operations (611)
Finance cost (25)
Loss before tax (636)
Income tax expense (20)
Loss for the period (656)
Attributable to
Equity holders of Slick Ltd (686)
Minority interest 30
(656)
Balance sheets
Slick Ltd consolidated Kay Ltd
30 June 20X7 30 June 20X6 at acquisition
CU'000 CU'000 CU'000
ASSETS
Non-current assets
Property, plant and equipment 2,145 1,980 500
Intangibles 215 130
2,360 2,110 500
Current assets
Inventories 670 590 130
Trade and other receivables 520 610 200
Cash and cash equivalents 10 35 50
Total assets 3,560 3,345 880
Additional information
(1) Slick Ltd issued 500,000 CU1 ordinary shares at a premium of 25p and paid a substantial cash sum, in
consideration for 80% of Kay Ltd's shares. At the date of acquisition all of Kay Ltd's assets and liabilities were
recorded at their fair values, with the exception of property, plant and equipment which had a fair value of
CU100,000 in excess of its carrying amount. Goodwill arising on the acquisition was CU100,000.
(2) During the year Slick Ltd made a further issue of ordinary shares, again, at a premium over nominal value.
(3) An analysis of the movement on group property, plant and equipment during the year showed that plant
with a carrying amount of CU500,000 was sold for CU420,000. Total depreciation charges for the year
were CU657,000.
(4) Intangibles comprise the goodwill arising on the acquisition of Kay Ltd, which has suffered no subsequent
impairment, and research and development expenditure capitalised in accordance with BAS 38 Intangible
Assets. The costs relate to a single project which is now complete and in respect of which amortisation
commenced during the year.
Requirement
Prepare a consolidated cash flow statement, note reconciling profit/loss before tax to cash generated from
operations and note showing the effects of the acquisition of Kay Ltd for Slick Ltd for the year ended 30 June
20X7, in accordance with BAS 7 Cash Flow Statements, using the indirect method.
Note: Work to the nearest CU'000. (20 marks)
48 Senorita Ltd
Senorita Ltd has two subsidiary companies, both of which were acquired several years ago. On 1 April 20X5
Senorita Ltd sold its 75% interest in Amigo Ltd for cash of CU500,000. The following are the draft consolidated
financial statements for Senorita Ltd for the year ended 31 December 20X5. Senorita Ltd has not yet prepared
its consolidated statement of changes in equity.
Consolidated income statement for the year ended 31 December 20X5 (extract)
CU'000
Continuing operations
Profit before tax 950
Income tax expense (130)
Profit for the period from continuing operations 820
Discontinued operations
Profit for the period from discontinued operations 100
Profit for the period 920
Attributable to
Equity holders of Senorita Ltd 770
Minority interest 150
920
Additional information
(1) The net assets of Amigo Ltd on 1 April 20X5 were as follows.
CU'000
Property, plant and equipment 450
Inventories 120
Trade and other receivables 145
Cash and cash equivalents 12
Trade and other payables (132)
Taxation (15)
580
(2) An analysis of the movement on group property, plant and equipment during the year showed that new
plant was purchased for cash of CU1,350,000 and old plant was sold for cash of CU600,000. Total
depreciation charges for the year were CU257,000.
(3) The profit for the period from discontinued operations, all of which is attributable to the disposal of
Amigo Ltd, can be analysed as follows.
CU'000
Profit before tax 45
Income tax expense (10)
Profit on disposal 65
100
Requirement
Prepare a consolidated cash flow statement, note reconciling profit before tax to cash generated from
operations and note showing the effects of the disposal of Amigo Ltd for Senorita Ltd for the year ended
31 December 20X5, in accordance with BAS 7 Cash Flow Statements using the indirect method.
(18 marks)
Note: Work to the nearest CU'000.
2 Which two of the following, per BFRS Framework for the Preparation and Presentation of Financial
Statements, represent the underlying assumptions relating to financial statements?
(1) The accounts have been prepared on an accrual basis
(2) Users are assumed to have sufficient knowledge to be able to understand the financial statements
(3) The accounting policies used have been disclosed
(4) The business is expected to continue in operation for the foreseeable future
(5) The information presented is free from material error or bias
A (1) and (3)
B (2) and (3)
C (1) and (4)
D (3) and (5)
3 Which of the following are the four principal qualitative characteristics of financial information as set
out in BFRS Framework for the Preparation and Presentation of Financial Statements?
A Fair presentation, relevance, reliability and comparability
B Relevance, comparability, materiality and understandability
C Relevance, reliability, comparability and understandability
D Materiality, comparability, reliability and fair presentation
4 According to BFRS Framework for the Preparation and Presentation of Financial Statements which of the
following does an entitys income statement, balance sheet and cash flow statement primarily measure?
Income statement Balance sheet Cash flow statement
A Financial position Financial performance Financial adaptability
B Financial performance Financial adaptability Financial position
C Financial adaptability Financial position Financial position
D Financial performance Financial position Financial adaptability
5 Which of the following does BFRS Framework for the Preparation and Presentation of Financial Statements
regard as the essential features of an asset?
(1) The item is acquired at a cost which can be reliably measured
(2) Rights to future economic benefits from the item must be legally enforceable
(3) Rights to future economic benefits from the item must be controlled by the entity
A (1) and (2)
B (2) only
C (3) only
D All of the above
6 Which of the following does BFRS Framework for the Preparation and Presentation of Financial Statements
regard as the essential features of a liability?
(1) The amount of the obligation must be certain
(2) The obligation must be legally enforceable
(3) Settlement of the obligation must involve an outflow of cash
(4) The obligation must arise from past events
A (1) and (3)
B (2) only
C (4) only
D (3) and (4)
7 According to BFRS Framework for the Preparation and Presentation of Financial Statements, which of the
following characteristics should make financial information relevant to users?
(1) Materiality
(2) Predictive value and confirmatory value
(3) Completeness
(4) Faithful representation
(5) Comparability
A (1), (2) and (3)
B (2) and (4)
C (1) and (2)
D (4) and (5)
8 Which of the following are roles of the International Accounting Standards Committee Foundation
(IASCF)?
(1) To issue IFRS
(2) To examine any identified or alleged departures from IFRS
(3) To guide the International Accounting Standards Board (IASB)
(4) To secure finance
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
9 Which of the following capital maintenance concepts is most closely associated with historic cost
accounting?
A Real financial capital maintenance
B Money financial capital maintenance
C Operating capital maintenance
D Physical capital maintenance
10 Brodie Ltd has been in business for one year, making all sales at a constant margin of 50%.
During the year, Brodie Ltd sold goods with a total selling price of CU210,000. CU130,000 of these
sales were made to credit customers, of which CU100,000 had been received by the end of the year.
The remaining CU80,000 were cash sales. Expenses paid during the year amounted to CU20,000 with
CU2,000 accrued expenses at the year end.
How much profit did Brodie Ltd make for the year under the accrual basis and under the cash
accounting basis?
Accrual basis Cash accounting basis
A CU85,000 CU68,000
B CU83,000 CU70,000
C CU83,000 CUnil
D CU48,000 CU40,000
11 Doyle Ltd made a profit of CU100,000 for 20X4 based on historic cost accounting principles. General
price indices during the year have increased by 5% and specific price indices by 10%.
How much profit should Doyle Ltd record for 20X4 under three different capital maintenance concepts?
A CU100,000 under real financial capital maintenance, CU95,000 under money financial capital
maintenance, and CU90,000 under physical capital maintenance
B CU100,000 under money financial capital maintenance, CU90,000 under real financial capital
maintenance, and CU95,000 under physical capital maintenance
C CU100,000 under money financial capital maintenance, CU95,000 under real financial capital
maintenance, and CU90,000 under physical capital maintenance
D CU90,000 under money financial capital maintenance, CU100,000 under real financial capital
maintenance, and CU95,000 under physical capital maintenance
12 Gene Ltd has the following assets and liabilities at 31 December 20X5.
Note CU
Fixtures and fittings at carrying amount (1) 10,000
Receivables (2) 8,000
Cash and cash equivalents 1,000
Payables (5,000)
14,000
Notes
(1) The fixtures and fittings have been held for three years and had an estimated useful life of six years.
If the fixtures and fittings were to be sold on 31 December 20X5 they would realise CU14,000.
(2) If Gene Ltd was to cease trading it is estimated that an allowance against receivables of CU500
would need to be made.
At what amount would the net assets be stated in the balance sheet of Gene Ltd at 31 December
20X5 under the break-up basis and under the cash accounting basis?
Break-up basis Cash accounting basis
A CU17,500 CU21,000
B CU15,000 CU11,000
C CU17,500 CU11,000
D CU15,000 CU21,000
14 Sam Ltd owns a building with a fair value and carrying amount on 30 June 20X3 of CU500,000. On 1
July 20X3 Sam Ltd sold this building to Tyler Ltd for CU400,000. The sale agreement provides for Sam
Ltd to repurchase the building in four years time for CU600,000, when the fair value of the building is
estimated to be at least CU700,000.
How should the above transaction be accounted for in the financial statements of Sam Ltd for the year
ended 30 June 20X4?
A A loss on disposal of a non-current asset of CU100,000
B A profit on disposal of a non-current asset of CU100,000
C A loan of CU500,000
D A loan of CU400,000 and accrued interest
15 Which of the following shows the meaning of the term GAAP in the UK?
A Generally accepted accounting procedures
B General accounting and audit practice
C Generally agreed accounting practice
D Generally accepted accounting practice
16 The BFRS Framework for the Preparation and Presentation of Financial Statements defines a number of
elements of financial statements.
Which of the following represents those elements of the financial statements directly related to the
measurement of financial position?
A Assets, liabilities and cash flows
B Assets, liabilities and equity
C Income, expenses and equity
D Income, expenses and cash flows
2 According to BAS 1 Presentation of Financial Statements which of the following items can appear in a
companys statement of changes in equity?
(1) Net profit or loss for the period
(2) Dividends paid
(3) Surplus on revaluation of properties
(4) Proceeds of issue of share capital
A All of the above
B (1), (2) and (3)
C (1), (3) and (4)
D (2) and (4)
3 BAS 1 Presentation of Financial Statements requires certain items to be disclosed on the face of the
financial statements and others to be disclosed in the notes.
Which two of the following items must be shown on the face of the income statement?
(1) Depreciation
(2) Revenue
(3) Closing inventory
(4) Finance cost
(5) Dividends
A (1) and (4)
B (3) and (5)
C (2) and (3)
D (2) and (4)
4 BAS 1 Presentation of Financial Statements suggests two possible formats for the income statement, the
difference between them being whether expenses are classified by their nature or by their function.
Which of the following items will be disclosed on the face of the income statement if a manufacturing
entity classifies expenses by their function?
(1) Raw materials and consumables used
(2) Distribution costs
(3) Employee benefit costs
(4) Cost of sales
(5) Depreciation and amortisation expense
A (1), (3) and (4)
B (2) and (4)
C (1) and (5)
D (2), (3) and (5)
5 Bromyard Ltd had a balance of CU700,000 on its retained earnings at 1 January 20X7. During the year
ended 31 December 20X7 the company:
Revalued property with a cost of CU1 million and accumulated depreciation of CU600,000 to
CU1.2 million. No annual transfers between reserves are to be made
Issued shares at a premium of CU100,000
Made a profit for the year of CU400,000
On 1 December 20X7 the directors proposed a dividend of CU250,000 for the year ended
31 December 20X7.
In accordance with BAS 1 Presentation of Financial Statements, what is the closing balance on retained
earnings in Bromyard Ltds statement of changes in equity for the year ended 31 December 20X7?
A CU750,000
B CU850,000
C CU1,100,000
D CU1,650,000
6 Worcester Ltd had a balance of CU2 million as its total equity at 1 January 20X2. During the year
ended 31 December 20X2 the company:
Revalued property with a cost of CU2 million and accumulated depreciation of CU1,600,000 to
CU1.5 million
Issued shares with a nominal value of CU500,000 at a premium of CU100,000
Made a profit for the year of CU750,000
On 1 February 20X3 the directors declared a dividend of CU250,000 for the year ended 31
December 20X2.
In accordance with BAS 1 Presentation of Financial Statements, what is the closing balance on total equity
in Worcester Ltds statement of changes in equity for the year ended 31 December 20X2?
A CU4,350,000
B CU4,450,000
C CU4,200,000
D CU3,850,000
7 Finstock Ltd, a company which builds houses, has a normal operating cycle of 18 months and a year
end of 30 June 20X5.
According to BAS 1 Presentation of Financial Statements, which of the following assets should be
classified as current in Finstock Ltds balance sheet as at 30 June 20X5?
(1) Inventory which is expected to be realised in September 20X6
(2) A house constructed by Finstock Ltd which is expected to be sold in December 20X5
(3) Marketable securities which are expected to be realised in September 20X6
A (1) and (2)
B (2) and (3)
C (1) and (3)
D All of the above
51 BAS 2 Inventories
1 In accordance with BAS 2 Inventories, the cost of interchangeable inventories must be arrived at using
cost formulas.
Which of the following statements is correct?
(1) As long as the formula used is disclosed, any reasonable formula may be used
(2) First-in, first-out (FIFO) is the only acceptable formula
(3) Last-in, first-out (LIFO) is not an acceptable method
(4) An entity must use the same cost formula for all inventories having a similar nature
A (1), (3) and (4)
B (1) and (4)
C (2) only
D (3) and (4)
2 Which of the following items should be included in arriving at the cost of the inventory of finished
goods held by a manufacturing company, according to BAS 2 Inventories?
(1) Carriage inwards on raw materials delivered to the factory
(2) Carriage outwards on goods delivered to customers
(3) Factory supervisors salaries
(4) Factory heating and lighting
(5) Cost of abnormally high idle time in the factory
(6) Import duties on raw materials
A (1), (3), (4) and (6)
B (1), (2), (4), (5) and (6)
C (3), (4) and (6)
D (2), (3) and (5)
3 During the year ended 30 September 20X6, Kidderminster Ltd produced 10,000 widgets, compared to
a normal production level of 12,000 widgets. 1,000 finished widgets were held at the year end.
Production costs incurred for the year were as follows.
CU
Raw materials 100,000
Direct labour 50,000
Variable overheads 40,000
Fixed overheads 120,000
In accordance with BAS 2 Inventories, what is the value of Kidderminster Ltds finished goods at
30 September 20X6?
A CU19,000
B CU25,000
C CU29,000
D CU31,000
4 Which of the following items would be classified as inventories in accordance with BAS 2 Inventories?
(1) Finished tables held at the year end by a furniture manufacturing company
(2) Shares held at the year end by a company dealing in shares
(3) A construction contract in progress at the year end at a company which designs and builds
motorway bridges
A (1) only
B (1) and (2)
C (1) and (3)
D All of the above
5 Tintagel Ltd commenced business on 1 October 20X5. During its first year of trading the company
produced 10,000 widgets, compared to an anticipated normal production level of 15,000 widgets. At
30 September 20X6 there were 1,000 finished widgets in closing inventory.
Production costs incurred for the year were as follows.
CU
Raw materials 100,000
Direct labour 50,000
Variable overheads 40,000
Fixed overheads 120,000
In accordance with BAS 2 Inventories, how much of the above costs will be carried forward in
inventory at 30 September 20X6 and how much will have been recognised in the income statement
for the year ended 30 September 20X6?
In closing inventory In income statement
A CU27,000 CU279,000
B CU31,000 CU279,000
C CU27,000 CU283,000
D CU31,000 CU283,000
6 Wythenshawe Ltd commenced business on 1 June 20X4 manufacturing a single type of widget, which
had a selling price throughout that year of CU45. During the year the company made 10,000 widgets
and incurred the following costs.
CU
Materials 150,000
Labour 75,000
Variable production overheads 50,000
Fixed production overheads 37,500
Administrative, selling and distribution costs 40,000
Towards the end of Wythenshawe Ltds first year of trading, market conditions deteriorated and the
company was left with 3,000 finished widgets in inventory at its year end. These widgets can be sold
for CU35 each but only after incurring CU6 per unit selling costs.
In accordance with BAS 2 Inventories, what was Wythenshawe Ltds net profit for the year ended
30 June 20X5?
A CU49,500
B CU56,250
C CU74,250
D CU67,500
7 Newcastle Ltd has the following units in inventory at the end of 20X5.
Units Cost per unit
CU
Raw materials 7,000 20
Work in progress 2,500 25
Finished goods 1,000 30
Finished items usually sell for CU35 per unit. However, difficult trading conditions have meant that the
company expects to have to discount its finished items by 20% and to incur selling costs of CU2 per
item. A further CU2.50 per unit is still to be incurred to finish off the items of work in progress.
In accordance with BAS 2 Inventories, at what amount should inventories be stated in the balance sheet
of Newcastle Ltd as at the end of 20X6?
A CU232,500
B CU233,500
C CU224,750
D CU230,500
2 Parrot Ltd had the following balances in its accounts at 30 April 20X6 and 30 April 20X7.
30 April 20X6 30 April 20X7
CU CU
Cash in hand 1,000 1,100
Bank overdraft 41,627
Cash at bank 21,932
Long-term bank loan 50,000 25,000
In accordance with BAS 7 Cash Flow Statements, what amount should be shown under net change in
cash and cash equivalents in the companys cash flow statement for the year ended 30 April 20X7?
A CU16,695 decrease
B CU63,659 increase
C CU63,559 increase
D CU20,295 decrease
Assume that no interest, tax or dividends were paid or charged during the year, and that no non-
current assets were sold.
What is the cash generated from or used in operations in accordance with BAS 7 Cash Flow Statements
which would appear in Anteater Ltds cash flow statement for the year ended 31 December 20X7?
A CU6,000 generated
B CU8,000 generated
C CU(6,000) used
D CU(8,000) used
4 Which of the following items would appear in the reconciliation of profit before tax to cash generated
from operations in a cash flow statement prepared in accordance with BAS 7 Cash Flow Statements?
(1) Increase in provision for warranty costs
(2) Decrease in income tax payable
(3) Depreciation charge
(4) Change in dividends payable
A (1) and (2)
B (1) and (3)
C (2) and (3)
D (2) and (4)
5 The proposed final dividend for Zebra Ltd for the year ended 30 April 20X2 was CU25,000. This was
paid in May 20X2. The interim dividend for the year ended 30 April 20X3 was CU15,000 and the
declared final dividend for the year then ended was CU30,000. The final dividend for 30 April 20X3
was declared on 25 April 20X3.
In accordance with BAS 7 Cash Flow Statements, what is the figure for dividends paid which will appear
in the cash flow statement for Zebra Ltd for the year ended 30 April 20X3?
A CU25,000
B CU30,000
C CU40,000
D CU70,000
6 The accounting records of Tiger Ltd for 20X6 show the following amounts.
CU
Carrying amount of property, plant and equipment at 31 December 20X5 330,000
Proceeds of sales of property, plant and equipment 60,000
Depreciation charged on property, plant and equipment 90,000
Profit on sale of property, plant and equipment 15,000
Carrying amount of property, plant and equipment at 31 December 20X6 270,000
In accordance with BAS 7 Cash Flow Statements, what amount would appear in Tiger Ltds cash flow
statement for 20X6 for purchase of property, plant and equipment?
A CU90,000
B CU75,000
C CU60,000
D CU30,000
7 During 20X1 Lion Ltd issued 200,000 ordinary CU1 shares at CU1.20 per share and 100,000
redeemable CU1 preference shares at CU1.10 per share. During 20X1 Lion Ltd also made a 1 for 4
bonus issue of the ordinary shares held at the start of the year by the existing 200,000 shareholders.
In accordance with BAS 7 Cash Flow Statements, how much should be shown in Lion Ltds cash flow
statement for 20X1 in respect of proceeds from the issue of equity share capital in respect of the
above share issues?
A CU200,000
B CU240,000
C CU350,000
D CU550,000
8 Gazelle Ltds balance sheets at 31 December 20X6 and 20X7 showed income tax payable of
CU10,000 and CU15,500 respectively. Income tax charges in the relevant income statements were
CU11,000 and CU16,000 respectively.
How will income tax be reflected in Gazelle Ltds cash flow statement and reconciliation of profit
before tax to cash generated from operations for 20X7 in accordance with BAS 7 Cash Flow
Statements?
Cash flow statement Reconciliation
A Income taxes paid CU10,000 Income tax charge CU16,000
B Income taxes paid CU10,000 Does not appear
C Income taxes paid CU10,500 Does not appear
D Income taxes paid CU10,500 Income tax charge CU16,000
10 Animalus Ltd has a profit before tax for 20X1 of CU52,000 after charging depreciation of CU21,600.
Its trade receivables have increased by CU15,500 during 20X1 and its trade payables by CU14,600.
In accordance with BAS 7 Cash Flow Statements, what is Animalus Ltds cash generated from operations
for 20X1?
A CU29,500
B CU31,300
C CU72,700
D CU74,500
On 1 January 20X7 the company made a 1 for 10 bonus issue, and on 1 July 20X7 it issued shares for
cash.
How much should appear in Magi Ltds cash flow statement for the year ended 30 September 20X7 in
respect of these transactions?
A CU8,300
B CU10,000
C CU12,300
D CU16,300
12 In a companys cash flow statement how would the payment of VAT to NBR be shown?
A An operating cash outflow
B A decrease in creditors
C An adjustment between profit before tax and cash generated from operating activities
D It would not feature in the statement at all
13 Golden Ltds balance sheets at 30 June 20X6 and 20X7 showed carrying amounts of property, plant
and equipment of CU225,600 and CU301,700 respectively.
During the year ended 30 June 20X7 Golden Ltd revalued an asset with a carrying amount of
CU16,500 to CU31,000. It disposed of assets for a price of CU40,000, making a profit of CU10,100 on
the transactions.
What should appear in Golden Ltds cash flow statement for the year ended 30 June 20X7 in respect
of purchase of property, plant and equipment?
A CU91,500
B CU101,600
C CU106,000
D CU116,100
14 The schedule of accruals and prepayments for Metallic Ltd for the years ended 30 April 20X7 and
20X8 show the following.
30 April 20X8 30 April 20X7
CU CU
Accrued interest 610 590
Other accruals 1,560 1,670
Prepayments 2,550 2,300
In accordance with BAS 7 Cash Flow Statements, what is the net effect of the above on Metallic Ltds
reconciliation of profit before tax to cash generated from operations for the year ended 30 April
20X8?
A Deduct CU340
B Deduct CU360
C Add back CU340
D Add back CU360
15 During the year ended 31 December 20X6 Tara Ltd undertook the following transactions.
(1) Issued 100,000 CU1 ordinary shares at a price of CU1.20 per share
(2) Sold property, plant and equipment for CU10,000
(3) Purchased property, plant and equipment for CU109,000
(4) Paid CU25,000 off long-term borrowings
What total amounts in respect of the above will appear in cash flows from investing activities and cash
flows from financing activities in the cash flow statement of Tara Ltd for 20X6 in accordance with
BAS 7 Cash Flow Statements?
Cash inflow/(outflow)
Investing Financing
activities activities
CU CU
A 21,000 (25,000)
B (99,000) 95,000
C (99,000) 145,000
D (124,000) 120,000
16 On 1 July 20X5 Verity Ltd entered into a finance lease agreement. The terms of the agreement
provided for annual payments of CU5,000 on 1 July each year. The asset had a fair value at the
inception of the lease of CU25,000. CU750 of interest in relation to this agreement was paid and
charged to the income statement in the year ended 30 June 20X6.
In addition to the above transaction, on 1 October 20X5 Verity Ltd purchased a machine for cash of
CU6,500.
In accordance with BAS 7 Cash Flow Statements, how should the above be reflected in Verity Ltds cash
flow statement for the year ended 30 June 20X6?
A CU31,500 as investing outflows
B CU6,500 as an investing outflow, CU5,000 as a financing outflow
C CU6,500 as an investing outflow, CU4,250 as a financing outflow, CU750 as an operating outflow
D CU10,750 as investing outflows, CU750 as an operating outflow
17 Veronica Ltd prepares its financial statements to 31 December. During 20X8 Veronica Ltd made sales
of CU850,000 and incurred costs of CU610,500. At the beginning of 20X8 customers owed
CU125,500 and at the end of the year they owed CU135,400. At the beginning of 20X8 Veronica Ltd
owed CU45,500 to its suppliers and employees and at the end of the year it owed CU35,700.
During 20X8 Veronica Ltd received interest of CU14,500 and paid interest of CU500.
In accordance with BAS 7 Cash Flow Statements, what was Veronica Ltds net cash from operating
activities under the direct method for the year ended 31 December 20X8?
A CU258,700
B CU233,800
C CU219,800
D CU219,300
2 According to BAS 8 Accounting Policies, Changes in Accounting Estimates and Errors which of the following
items would qualify for treatment as a change in accounting estimate?
(1) Provision for obsolescence of inventory
(2) Correction necessitated by a material error
(3) A change as a result of the adoption of a new International Accounting Standard
(4) A change in the useful life of a non-current asset
A All of the above
B (2) and (3)
C (1) and (3)
D (1) and (4)
3 In accordance with BAS 8 Accounting Policies, Changes in Accounting Estimates and Errors how is a change
in accounting policy accounted for?
A By changing the current year figures but not the previous years figures
B Via retrospective application
C No alteration of any figures but disclosure in the notes
D No alteration of any figures nor disclosure in the notes
4 Which one of the following would be regarded as a change of accounting policy under BAS 8
Accounting Policies, Changes in Accounting Estimates and Errors?
A An entity changes its method of depreciation of machinery from straight line to reducing balance
B An entity has started capitalising borrowing costs for non-current assets whereas it previously
wrote those costs off to its income statement as incurred
C An entity changes its method of calculating the provision for warranty claims on its products sold
D An entity disclosed a contingent liability for a legal claim in the previous years accounts. In the
current year, a provision has been made for the same legal claim
5 According to BAS 8 Accounting Policies, Changes in Accounting Estimates and Errors how are each of the
following types of transactions dealt with?
(1) Change in accounting policy
(2) Change in accounting estimate
(3) Correction of a material prior period error
A (1) and (2) are dealt with retrospectively, (3) is dealt with prospectively
B (1) and (3) are dealt with retrospectively, (2) is dealt with prospectively
C (2) and (3) are dealt with retrospectively, (1) is dealt with prospectively
D All are dealt with retrospectively
6 From the years ended 31 December 20X6 to 31 December 20X8 Zorro Ltd capitalised CU10,000 of
finance costs in relation to self-constructed plant. By 31 December 20X8 these costs had been 50%
depreciated.
During 20X9 Zorro Ltd capitalised a further CU2,000 of such costs. On the last day of the year, just
prior to calculating the annual depreciation charge, when the carrying amount of plant stood at
CU250,000, Zorro Ltd decided to change its accounting policy to write-off such finance costs as
incurred. Retained earnings at 1 January 20X9 were CU350,000. Draft profit for 20X9 was CU45,000,
after charging the correct figure for depreciation of CU30,000.
In accordance with BAS 8 Accounting Policies, Changes in Accounting Estimates and Errors what should the
following figures be stated at in Zorro Ltds financial statements for the year ended 31 December
20X9?
Profit for the year Retained earnings brought forward Carrying amount of plant
CU CU CU
A 43,000 340,000 208,000
B 47,000 340,000 208,000
C 43,000 345,000 213,000
D 47,000 345,000 213,000
7 Harriet Ltd has proposed the following changes to its current accounting practices to be used in its
next financial statements.
(1) Motor vehicles have always been depreciated on a straight-line basis. The company has now
decided to change to the reducing balance basis as it now believes that this better reflects the
consumption of economic benefits.
(2) In preparing its income statements, Harriet Ltd has previously classified depreciation on
directors motor vehicles as administrative expenses. These depreciation charges are now to be
classified as distribution costs as the company now believes that this gives a more reliable and
relevant presentation.
According to BAS 8 Accounting Policies, Changes in Accounting Estimates and Errors which, if any, of these
changes represent a change in accounting policy?
A (1) only
B (2) only
C Neither of the above
D Both of the above
2 Georgina Ltds income statement for 20X3 showed a profit before tax of CU1,800,000. Early in 20X4,
before the financial statements were authorised for issue, the following events took place.
(1) The value of an investment held at the balance sheet date fell by CU85,000 due to a fire at that
companys premises early in 20X4
(2) A customer who owed CU116,000 at the balance sheet date went bankrupt owing a total of
CU138,000
(3) Inventory valued at a cost of CU161,000 in the balance sheet was sold for CU141,000
(4) Assets with a carrying amount at the balance sheet date of CU240,000 were unexpectedly
expropriated by the Government
In accordance with BAS 10 Events After the Balance Sheet Date what is Georgina Ltds profit for 20X3
after making the necessary adjustments for the above events?
A CU1,399,000
B CU1,579,000
C CU1,664,000
D CU1,557,000
3 The financial statements of Anna Ltd for the year ended 31 January 20X5 were approved for
publication on 15 May 20X5.
According to BAS 10 Events After the Balance Sheet Date which of the following would be treated as a
non-adjusting event in the financial statements for the year ended 31 January 20X5?
A Notice was received on 31 March 20X5 that a major customer of Anna Ltds had ceased trading
and was unlikely to make any further payments
B Inventory items at 31 January 20X5, with an original cost of CU30,000, were sold in April 20X5
for CU20,000
C During 20X4, a customer commenced legal action against Anna Ltd. At 31 January 20X5, Anna
Ltds legal advisers were of the opinion that Anna Ltd would lose the case, so Anna Ltd created a
provision of CU200,000 for the damages claimed by the customer. On 27 April 20X5, the court
awarded damages of CU250,000 to the customer
D On 2 May 20X5 there was a fire in Anna Ltds main warehouse which destroyed 50% of Anna
Ltds total inventory
4 The financial statements of Louise Ltd for the year ended 31 December 20X1 were approved for
publication on 20 May 20X2. The following events occurred after the year end.
(1) The directors declared a dividend of 50p per ordinary share on 17 February 20X2. Louise Ltd has
200,000 CU1 ordinary shares in issue.
(2) An insurance claim for storm damage to property, caused by unusually high winds, was under
negotiation at the balance sheet date. The claim was settled with the insurers in March 20X2
leaving uninsured damage amounting to CU75,000.
What liabilities should be recognised in the financial statements of Louise Ltd for the year ended
31 December 20X1 in accordance with BAS 10 Events After the Balance Sheet Date?
Dividend Storm damage
A CU100,000 CUNil
B CU100,000 CU75,000
C CUNil CUNil
D CUNil CU75,000
5 According to BAS 10 Events After the Balance Sheet Date, which of the following would be a non-
adjusting post balance sheet event when preparing Gawain Ltds group financial statements as at
31 March 20X5?
A A decision is made on 9 April 20X5 to sell Gawain Ltds major trading activities in Kenya
B The financial statements of Knight Ltd, an unlisted company, in which Gawain Ltd owns 8% of the
share capital, are received on 9 April 20X5 and state that Knight Ltd is going into liquidation
C A customer, against whose debt a provision had been made at 31 March 20X5, was declared
bankrupt on 8 April 20X5
D An insurance claim is agreed on 10 June 20X5 for compensation for a fire in March which
destroyed part of Gawain Ltds inventory
In accordance with BAS 16 Property, Plant and Equipment what amount should be recognised as the cost
of the asset?
A CU956,000
B CU1,055,000
C CU1,073,000
D CU1,201,000
2 According to BAS 16 Property, Plant and Equipment, which, if any, of the following statements about
depreciation are correct?
(1) The main purpose of depreciation is to reflect the fall in value of an asset over its useful life
(2) When an asset is revalued, subsequent depreciation relating to the revaluation surplus should be
debited to the revaluation reserve rather than to the income statement
(3) The provision for depreciation ensures that there are funds available to replace an asset when
this becomes necessary, though in times of inflation additional amounts may need to be set aside
(4) A change in depreciation method constitutes a change in accounting policy and must be
accounted for as such
A (1) and (4)
B (2) and (3)
C (4) only
D None of the statements is correct
3 Mario Ltd purchased a machine for CU50,000 on 1 January 20X1. The machine was judged to have a
five-year life with a residual value of CU5,000. On 31 December 20X2 CU15,000 was spent on an
upgrade to the machine. This extended its remaining useful life to five years, with the same residual
value. During 20X3, the market for the product declined and the machine was sold on 1 January 20X4
for CU7,000.
According to BAS 16 Property, Plant and Equipment, what was the loss on disposal?
A CU31,000
B CU35,000
C CU31,600
D CU35,600
4 Gray Ltd purchased a machine on 1 April 20X2 for CU16,000. In the years ended 31 March 20X3 and
31 March 20X4 Gray Ltd depreciated the machine at 25% per annum on a straight-line basis. On
1 April 20X4 the machine was revalued to CU12,000 with its estimated useful life being unchanged.
In accordance with BAS 16 Property, Plant and Equipment what was the effect of this revaluation on
Gray Ltds profit for the year ended 31 March 20X5?
A An increase of CU1,000
B An increase of CU2,000
C A decrease of CU1,000
D A decrease of CU2,000
5 White Ltd owns many items of property, plant and equipment and accounts for them on a revaluation
basis.
In the year ended 31 March 20X2 White Ltd revalued three of its assets, all of which are in current
use, as set out below.
Carrying amount Valuation
CU CU
Turning machine (asset number 1001) 10,000 7,500
Turning machine (asset number 1007) 12,000 9,000
Finishing machine (asset number 1012) 8,000 6,500
The company had a revaluation reserve of CU6,500 at 1 April 20X1 due to previous revaluations. This
balance of CU6,500 relates to the following assets.
Turning machine (asset number 1001) CU3,000
Turning machine (asset number 1008) CU1,500
Finishing machine (asset number 1015) CU2,000
In accordance with BAS 16 Property, Plant and Equipment what amount should be charged to the
income statement for the year ended 31 March 20X2 in respect of the above revaluations?
A CU500
B CU2,500
C CU4,000
D CU4,500
6 On 1 July 20X7 Brown Ltd bought a machine for CU48,000. The machine was depreciated at 25% per
annum on a straight-line basis until 30 June 20X9.
On 1 July 20X9 the machine was revalued to CU30,000. Brown Ltd considers that its remaining useful
life is now three years.
According to BAS 16 Property, Plant and Equipment, what should the depreciation charge for the year
ended 30 June 20Y0 and the minimum balance on the revaluation reserve as at 30 June 20Y0 be?
7 Captain Ltd purchased a piece of land during the year ended 30 June 20X5 for CU1 million and
revalued this land on 30 June 20X5 to CU1.3 million. On 1 March 20X6 the land was sold for CU1.4
million.
In accordance with BAS 16 Property, Plant and Equipment what is the net amount in respect of this land
which will appear in Captain Ltds statement of changes in equity for the year ended 30 June 20X5 and
year ended 30 June 20X6?
Year ended 30 June
20X5 20X6
A CU300,000 CU400,000
B CUNil CU400,000
C CU300,000 CU100,000
D CUNil CU100,000
8 On 1 January 20X1, Barbosa Ltd purchased an item of plant for CU300,000 which was to be
depreciated over its useful life of 10 years.
On 1 January 20X5, the plant was revalued to its fair value of CU600,000, with no revision to its
remaining useful life.
On 1 January 20X6, the plant was sold for CU700,000.
In accordance with BAS 16 Property, Plant and Equipment, what was the profit on disposal to be
included in Barbosa Ltds income statement for the year ended 31 December 20X6?
A CU200,000
B CU260,000
C CU300,000
D CU400,000
9 Sparrow Ltd owns a building, currently carried in its accounting records at CU800,000. It has agreed
to exchange this building for a building owned by Turner Ltd. The building currently owned by
Sparrow Ltd has a fair value of CU1 million. The building currently owned by Turner Ltd has a fair
value of CU1.1 million. Sparrow Ltd has agreed to pay the legal costs of the transfer which amount to
CU10,000.
According to BAS 16 Property, Plant and Equipment at what value should the building currently owned
by Turner Ltd be recorded at initially in Sparrow Ltds accounting records?
A CU800,000
B CU1 million
C CU1.1 million
D CU990,000
10 With regard to BAS 16 Property, Plant and Equipment which of the following statements is true?
A Any assets where management believe the carrying amounts and market values are materially
different may be revalued
B Assets which are carried under the revaluation model must be revalued every five years
C Increases in value on an initial revaluation are always credited directly to equity
D The fair value of land and buildings must be determined on an existing use basis
56 BAS 17 Leases
1 Obi Ltd purchased a machine via a finance lease. The terms of the agreement provided for a primary
period of four years and a secondary period of two years. Payments are CU20,000 per annum over
the primary period. The cash price of the plant is CU60,000 and its expected life is five years. Under
normal circumstances there is an expectation that the secondary period will be used. Residual value is
expected to be insignificant.
According to BAS 17 Leases on what value should the depreciation charge on the machine be based
and over what period should depreciation be charged?
Value Period
A CU80,000 4 years
B CU80,000 6 years
C CU60,000 4 years
D CU60,000 5 years
2 On 1 January 20X4 Jedi Ltd entered into a finance lease for a machine with a fair value of CU2,050.
Lease payments of CU500 are payable annually in advance for five years, starting on 1 January 20X4.
Jedi Ltd allocates finance charges on a sum-of-the-digits basis.
According to BAS 17 Leases what is Jedi Ltds non-current liability in respect of this finance lease as at
31 December 20X4?
A CU1,200
B CU1,230
C CU1,365
D CU1,500
3 At what amount does BAS 17 Leases require a lessee to capitalise a finance lease at?
A The assets fair value
B The cash price of the asset
C The minimum lease payments less the residual value of the asset
D The lower of the assets fair value and the present value of the minimum lease payments
4 On 1 June 20X5 Aretoo Ltd acquired a machine under a finance lease. The machine would have had a
cash price of CU24,000 but Aretoo Ltd agreed to pay a deposit of CU6,000 and ten quarterly
repayments of CU2,600 each, starting on 31 August 20X5. The charge for interest is to be spread
over the period of the lease on the sum-of-digits basis.
In accordance with BAS 17 Leases how much interest would be allocated to the fourth quarterly
repayment?
A CU1,067
B CU1,018
C CU800
D CU582
5 On 1 January 20X4 Luke Ltd entered into a finance lease for a machine with a fair value of CU2,050.
Lease payments of CU500 are payable annually in arrears for five years, starting on 31 December
20X4. Luke Ltd allocates finance charges on a sum-of-the-digits basis.
According to BAS 17 Leases what is Luke Ltds liability in respect of this finance lease as at
31 December 20X4?
A CU1,550
B CU1,230
C CU1,320
D CU1,700
6 In respect of an operating lease BAS 17 Leases requires which of the following to be disclosed in a
companys financial statements?
(1) The period-end liability
(2) The amount charged to the income statement for the period
(3) The total lease payments the company is committed to making over the coming years
A (1) and (2)
B (2) only
C (2) and (3)
D (3) only
7 In accordance with BAS 17 Leases which of the following is true with regard to leases of land and
buildings?
A Leases of land will always be treated as operating leases; leases of buildings will always be treated
as finance leases
B Leases of buildings will always be treated as operating leases; leases of land will always be treated
as finance leases
C Leases of land and buildings should be split and classified according to their substance
D Leases of land and buildings should be treated as a combined lease and classified according to its
substance.
8 On 1 January 20X5, the first day of its accounting year, Anakin Ltd entered into an operating lease.
The terms of the lease provided for an initial non-returnable deposit of CU60,000 and then three
annual rentals of CU30,000, payable on the last day of each year.
According to BAS 17 Leases what is the charge to the income statement for the year ended 31
December 20X5 and what balance is reflected in the balance sheet as at 31 December 20X5 in respect
of this lease?
Income statement charge Balance sheet
A CU30,000 CUNil
B CU90,000 CUNil
C CU50,000 Asset of CU40,000
D CU50,000 Liability of CU40,000
9 The treatment of leases in accordance with BAS 17 Leases follows which of the qualitative
characteristics of the BFRS Framework for the Preparation and Presentation of Financial Statements?
A Reliability
B Relevance
C Comparability
D Understandability
10 On 1 January 20X7 Darth Ltd entered into a finance lease agreement. The terms of the lease were as
follows.
CU
Cash price 36,000
Less: Deposit payable on 1 January 20X7 (12,000)
24,000
Interest at 9% for two years 4,320
Balance payable on 31 December 20X7 and 20X8 28,320
57 BAS 18 Revenue
1 Northanger Ltds draft balance sheet at 30 June 20X7 includes inventories of CU110,000 and trade
receivables of CU190,000. Trade receivables include goods sent out on sale or return at a selling price
of CU20,000. These goods remained unsold at 30 June 20X7 and had a cost of CU15,000.
In accordance with BAS 18 Revenue at what amounts should Northanger Ltds inventories and trade
receivables be stated on 30 June 20X7?
2 On 1 July 20X7 Mansfield Ltd entered into a CU5 million contract for the supply of computer
software and five years of after-sales support. The cost of providing after-sales support is estimated at
CU500,000 per annum and the mark-up on similar after-sales only contracts is 30% on cost.
In accordance with BAS 18 Revenue how much revenue should be included in Mansfield Ltds income
statement for the year ended 30 June 20X8 in respect of the above contract?
A CU1.75 million
B CU2.4 million
C CU2.5 million
D CU5 million
3 On 1 July 20X5 Price Ltd entered into a CU3 million contract for the supply of computer hardware.
An additional CU1 million was agreed for the provision of after-sales support until 30 June 20X9.
In accordance with BAS 18 Revenue how much revenue should be included in Price Ltds income
statement for the year ended 30 June 20X6 in respect of the above contract?
A CU4 million
B CU3 million
C CU3.25 million
D CU2.25 million
4 On 31 December 20X7 Darcy Ltd sold goods to Willoughby Ltd for CU300,000. These goods had a
cost of CU250,000. Willoughby Ltd has been granted interest-free credit and will pay for these goods
in full on 31 December 20X9. At the date of sale the fair value of the CU300,000 receivable was
CU290,000.
In accordance with BAS 18 Revenue how much revenue should be included in Darcy Ltds income
statement for the year ended 31 December 20X7 in respect of the above sale?
A CUNil
B CU250,000
C CU290,000
D CU300,000
5 Lydia Ltd has entered into a fixed-price contract for the provision of services to Jane Ltd. The contract
commenced in July 20X1 and will be completed in 20X2. The contract price is CU1 million and costs
are recoverable as incurred.
At 31 December 20X1, Lydia Ltds year end, costs of CU300,000 had been incurred and the contract
has been assessed as 40% complete. Costs to complete are estimated at CU500,000. All figures are
reliable estimates.
In accordance with BAS 18 Revenue how much revenue should be included in Lydia Ltds income
statement for the year ended 31 December 20X1 in respect of this contract?
A CUNil
B CU300,000
C CU400,000
D CU1 million
6 Rochester Ltd has entered into a fixed-price contract for the provision of services to Adele Ltd. The
contract commenced in September 20X2 and will be completed in 20X3. The contract price is CU2
million and costs are recoverable as incurred.
At 31 December 20X2, Rochester Ltds year end, costs of CU500,000 have been incurred. The
contract has been assessed as 30% complete, however, costs to complete cannot be estimated reliably.
In accordance with BAS 18 Revenue how much revenue should be included in Rochester Ltds income
statement for the year ended 31 December 20X2 in respect of this contract?
A CUNil
B CU500,000
C CU600,000
D CU2 million
7 Rainorshine Ltd produces a series of outdoor theatre productions each spring/summer. The
companys year end is 30 June. For the 20X6 season, five productions are planned, one in each month
from May through to September. A season ticket covering all five events costs CU100. Due to adverse
weather conditions, Junes production was delayed until 2 July.
In accordance with BAS 18 Revenue how much revenue should be included from each ticket sold for
the 20X6 season in Rainorshine Ltds income statement for the year ended 30 June 20X6?
A CUNil
B CU100
C CU40
D CU20
2 On 5 March 20X7 Marchant Ltd issued 200,000 5% irredeemable CU1 preference shares.
In accordance with BAS 32 Financial Instruments: Presentation how will these shares and their related
dividend be shown in Marchant Ltds financial statements for the year ended 31 March 20X7?
Shares Dividend
A Non-current liabilities Income statement
B Non-current liabilities Statement of changes in equity
C Equity Income statement
D Equity Statement of changes in equity
3 According to BAS 32 Financial Instruments: Presentation which of the following could be classified as
financial assets?
(1) Bank overdraft
(2) Cash at bank
(3) Inventories
(4) A current asset investment
(5) A forward contract
A (1), (2) and (5)
B (2), (4) and (5)
C (2) and (4)
D (3), (4) and (5)
4 According to BAS 39 Financial Instruments: Recognition and Measurement at what amount should a
financial instrument initially be measured?
A Cost
B Fair value of consideration given
C Fair value of consideration given plus directly attributable transaction costs
D Fair value of consideration given less directly attributable transaction costs
2 A non-current asset has a carrying amount of CU20,000. It could be sold for CU18,500 with selling
costs of CU500. Its value in use is CU22,000 and its replacement cost CU50,000.
According to BAS 36 Impairment of Assets what is the recoverable amount of this asset?
A CU18,000
B CU20,000
C CU22,000
D CU50,000
3 Chloe Ltd purchased equipment on 1 April 20X2 for CU100,000. The equipment was depreciated
using the reducing balance method at 25% per annum. Chloe Ltd prepares accounts to 31 March
annually.
Depreciation was charged up to and including 31 March 20X6. At that date, the recoverable amount
of this equipment was CU22,000.
According to BAS 36 Impairment of Assets what was the impairment loss on this equipment calculated
on 31 March 20X6?
A CUNil
B CU3,000
C CU9,640
D CU20,187
4 Lauren Ltd bought some land on 1 January 20X4 for CU500,000. On 31 December 20X5 this land was
revalued to CU700,000. On 31 December 20X7 the fair value less costs to sell of this land was
estimated at CU400,000 and its value in use at CU450,000.
According to BAS 36 Impairment of Assets what amount will be included in the income statement of
Lauren Ltd for the year ended 31 December 20X7 in respect of the impairment loss on this land?
A CUNil
B CU50,000
C CU200,000
D CU250,000
5 Alayna Ltd bought a machine on 1 January 20X2 for CU50,000. The useful life of this machine was
assessed as 10 years and it was depreciated on a straight-line basis.
On 31 December 20X3 the machine was revalued to a fair value of CU80,000 with no change to its
remaining useful life. On 31 December 20X6 the machine was identified as impaired and revalued to
CU20,000.
Alayna Ltd makes a transfer between the revaluation reserve and retained earnings each year as a
result of the revaluation in accordance with best practice.
According to BAS 36 Impairment of Assets what amount will be included in the income statement of
Alayna Ltd for the year ended 31 December 20X6 in respect of this impairment loss?
A CUNil
B CU5,000
C CU25,000
D CU30,000
6 In accordance with BAS 36 Impairment of Assets which of the following assets must be tested for
impairment annually?
(1) All assets
(2) Any assets where there is an indication of a potential impairment
(3) All intangible assets with indefinite useful lives
(4) Goodwill acquired in a business combination
A (1) only
B (2) only
C (2) and (3)
D (2), (3) and (4)
2 According to BAS 37 Provisions, Contingent Liabilities and Contingent Assets which of the following criteria
must be present in order for a company to recognise a provision?
(1) There is a present obligation as a result of past events
(2) It is probable that a transfer of economic benefits will be required to settle the obligation
(3) A reliable estimate of the obligation can be made
A (1), (2) and (3)
B (1) and (2)
C (1) and (3)
D (2) and (3)
3 Which of the following statements about contingencies, if any, are correct according to BAS 37
Provisions, Contingent Liabilities and Contingent Assets?
(1) A contingent liability should be disclosed by note if it is probable that an obligation will arise and
its amount can be estimated reliably
(2) A contingent asset should be disclosed by note if it is probable that it will arise
(3) An entity should not recognise a contingent asset
A None of the statements is correct
B (1) and (2)
C (2) and (3)
D All of the statements are correct
4 In which of the following circumstances would a provision be recognised under BAS 37 Provisions,
Contingent Liabilities and Contingent Assets in the financial statements for the year ending 31 March
20X6?
(1) A board decision was made on 15 March 20X6 to close down a division. Potential costs are
CU100,000. At 31 March 20X6 the decision had not been communicated to managers,
employees or customers
(2) There are anticipated costs from returns of a defective product in the next few months of
CU60,000. In the past all returns of defective products have always been refunded to customers
(3) It is anticipated that a major refurbishment of the companys head office will take place from June
20X6 onwards costing CU85,000
A (1) and (2)
B (2) and (3)
C (2) only
D (3) only
6 In accordance with BAS 37 Provisions, Contingent Liabilities and Contingent Assets which one of the following
would require a provision to be created by Wally Ltd at its balance sheet date of 31 October 20X5?
A The government introduced new laws on data protection which come into force on 1 January
20X6. Wally Ltds directors have agreed that this will require a large number of staff to be
retrained. At 31 October 20X5, the directors were waiting on a report they had commissioned
that would identify the actual training requirements
B At the balance sheet date, Wally Ltd was negotiating with its insurance provider about the
amount of an insurance claim that it had filed. On 20 November 20X5, the insurance provider
agreed to pay CU200,000
C Although it has no legal obligation to do so, Wally Ltd makes refunds to customers for any goods
returned within 30 days of sale, and has done so for many years
D A customer is suing Wally Ltd for damages alleged to have been caused by a product sold to it by
Wally Ltd. Wally Ltd is contesting the claim and, at 31 October 20X5, the directors have been
advised by the companys legal advisers that the company is very unlikely to lose the case
7 Flyaway Ltd operates a low-cost airline. One of its aircraft will require a major refit in 20X6, at a cost
of CU500,000, to upgrade the on-board facilities. At the same time, the aircraft will also have
additional safety equipment fitted, at a cost of CU200,000, to allow the company to comply with new
legislation which has been passed and which will come into force in 20X7.
Under BAS 37 Provisions, Contingent Liabilities and Contingent Assets, which of the following is the correct
treatment in the financial statements for the year ended 31 December 20X5 for each of the above?
Refit Safety equipment
A Provision Provision
B No provision Provision
C Provision No provision
D No provision No provision
8 Charlotte Ltd has been awarded a contract to build an office block for Kylie Ltd. The site preparation
work was sub-contracted to George Ltd. George Ltds work was sub-standard and this has caused a
delay in contract completion.
As a result of the delay the client is claiming CU10 million in damages from Charlotte Ltd who has
commenced legal action against George Ltd for CU8 million. Charlotte Ltds lawyers have advised that
it is probable that both actions will be successful.
In accordance with BAS 37 Provisions, Contingent Liabilities and Contingent Assets how should Charlotte
Ltd account for these legal actions in its financial statements?
Claim against Charlotte Ltd Claim by Charlotte Ltd
A Provide Recognise asset
B Provide Disclose
C Disclose Ignore
D Ignore Disclose
2 During the year ended 30 June 20X3, Emily Ltd spent CU300,000 on the development of a new range
of garden machinery. In order to carry out this work, Emily Ltd purchase some highly specialised
equipment, on 1 July 20X2 at a cost of CU100,000. The equipment is expected to have a useful life of
five years and is to be depreciated over that period by the straight-line method.
According to BAS 38 Intangible Assets, what is the maximum amount that Emily Ltd can carry forward
as development expenditure as at 30 June 20X3?
A CU100,000
B CU300,000
C CU320,000
D CU400,000
3 According to BAS 38 Intangible Assets which of the following conditions would preclude any part of the
development expenditure from being capitalised as an intangible asset?
A The development is incomplete
B The benefits flowing from the completed development are expected to be at least equal to its
cost
C Funds are unlikely to be available to complete the development
D The development is expected to give rise to more than one product
4 According to BAS 38 Intangible Assets which of the following types of research and development
expenditure must be written off in the year it is incurred?
A Costs of designing a pre-production prototype
B Legal costs in connection with registration of a patent
C Costs of searching for possible alternative products
D Costs of research work which are to be reimbursed by a customer
5 In accordance with BAS 38 Intangible Assets which, if any, of the following statements is correct?
(1) Any intangible asset may be carried at its fair value, as opposed to being carried at cost
(2) Once an intangible asset has been revalued, further revaluations should be carried out annually to
ensure that the carrying amount does not differ from the fair value at the balance sheet date
A (1) only
B (2) only
C (1) and (2)
D Neither of the above
6 During the current accounting period Jack Ltd considered the recognition of the following costs as
intangible assets.
(1) CU40,000 spent on evaluating research findings
(2) CU60,000 spent on acquiring a brand name from a competitor
(3) CU50,000 spent on acquiring the legal rights to a production process, without which Jack Ltds
business cannot function
In accordance with BAS 38 Intangible Assets what is the maximum amount that Jack Ltd could recognise
as intangible assets?
A CU60,000
B CU100,000
C CU110,000
D CU150,000
7 During the current accounting period Silver Ltd considered the recognition of the following costs as
intangible assets.
(1) CU50,000 spent on development expenditure on Project X. The directors are confident of the
financial, commercial and technical viability of the project
(2) CU6,000 spent on developing a brand internally
(3) CU30,000 spent on acquiring goodwill in Gold Ltds books when Silver Ltd acquired the net
assets of Gold Ltd
What is the maximum amount that Silver Ltd could recognise as intangible assets in its consolidated
financial statements in accordance with BAS 38 Intangible Assets?
A CU50,000
B CU56,000
C CU86,000
D CU30,000
8 In order for an asset to be recognised as an intangible asset in accordance with BAS 38 Intangible Assets
which of the following recognition criteria must be met?
(1) The asset must be identifiable
(2) The asset must be separable
(3) The cost of the asset must be able to be measured reliably
(4) It must be possible that future benefits from the asset will flow to the entity
A (1) and (3)
B (2) and (3)
C (1), (2) and (3)
D (2), (3) and (4)
9 In accordance with BAS 38 Intangible Assets which of the following statements is correct?
A All intangible assets should be amortised over their expected useful lives
B When intangible assets are amortised a residual value should always be calculated
C Provided a reliable value can be placed upon them, employees skills may be capitalised as an
intangible asset
D Intangible assets should initially be recognised at cost
2 In accordance with BFRS 5 Non-current Assets Held for Sale and Discontinued Operations what is the
minimum disclosure which must be made on the face of the income statement in respect of
discontinued operations?
A Post-tax profit or loss on operations and any post-tax gain or loss on related assets
B A combined figure for the post-tax profit or loss on operations and any post-tax gain or loss on
related assets
C Revenue, expenses, pre-tax profit or loss and tax on operations and any post-tax gain or loss on
related assets
D Revenue, expenses, pre-tax profit or loss and tax on operations, any pre-tax gain or loss on
related assets and tax on that gain or loss
3 In accordance with BFRS 5 Non-current Assets Held for Sale and Discontinued Operations what is the
minimum disclosure which must be made on the face of the cash flow statement in respect of
discontinued operations?
A Cash flows attributable to the operating, investing and financing activities of the discontinued
operations
B Net cash flows arising from the operation of the discontinued operations and the sale of related
assets
C Cash flows arising from the sale of the assets of the discontinued operations
D No separate disclosure is required
4 Gary Ltd operates a number of divisions and has a year end of 30 June. On 30 June 20X7 the board
made and announced the decision to sell Gary Ltds retail division. The sale is expected to be
completed within six months.
In accordance with BFRS 5 Non-current Assets Held for Sale and Discontinued Operations, how should the
retail divisions property, plant and equipment be classified in the balance sheets as at 30 June 20X6
and 30 June 20X7?
A As non-current assets at 30 June 20X6 and 30 June 20X7
B As non-current assets held for sale at 30 June 20X6 and 30 June 20X7
C As non-current assets at 30 June 20X6 and as non-current assets held for sale at 30 June 20X7
D As non-current assets at 30 June 20X6 and as current assets at 30 June 20X7
6 At a board meeting held on 30 October 20X7 Rosa Ltd made the decision to sell a major division. The
actual closure took place on 12 February 20X8. In the year ended 31 December 20X7 the division
reported a loss of CU100,000. Costs of redundancies relating to the division to be incurred in 20X8
are expected to be CU30,000.
In accordance with BFRS 5 Non-current Assets Held for Sale and Discontinued Operations, what will be
reported in Rosa Ltds income statement for the year ended 31 December 20X7 in respect of this
division?
A CU100,000 loss from continuing operations
B CU130,000 loss from continuing operations
C CU100,000 loss from discontinued operations
D CU130,000 loss from discontinued operations
7 On 30 September 20X1 the directors of Guido Ltd decided to sell the companys services division and
the division was classified as held for sale. The sale is expected to be completed, along with the sales
of related assets, in early December 20X1.
One item of plant within this division had originally cost CU30,000 and had a carrying amount of
CU15,000 on 1 November 20X0. Guido Ltd will carry on using this plant until it is sold.
Guido Ltd has a year end of 30 October and depreciates all plant on a monthly straight-line basis using
a monthly rate of 1%.
In accordance with BFRS 5 Non-current Assets Held for Sale and Discontinued Operations what amount
will be recognised in the balance sheet of Guido Ltd as at 30 October 20X1 in respect of this plant?
A CU11,400 in non-current assets held for sale
B CU11,400 in current assets
C CU11,700 in non-current assets held for sale
D CU11,700 in non-current assets
8 Valerie Ltd acquired a machine on 1 January 20X2 for CU70,000. On 1 January 20X5, when the
carrying amount of the machine was CU40,000, the machine was classified as held for sale. Its fair
value was estimated at CU30,000 and costs to sell at CU500. The asset was sold on 30 June 20X5 for
CU32,000.
In accordance with BFRS 5 Non-current Assets Held for Sale and Discontinued Operations what amounts
will be recognised in respect of this asset in Valerie Ltds income statement for the year ended
31 December 20X5?
Impairment loss Profit on sale
A CU8,000 CUNil
B CU10,500 CU2,500
C CUNil CU8,000
D CU10,000 CU2,000
9 Paul Ltd acquired a building on 1 January 20W7 for CU800,000. The building had a useful life of 50
years and was being depreciated on a straight-line basis. On 1 January 20X9 the building was classified
as held for sale. Its fair value was estimated at CU600,000 and costs to sell at CU10,000. The building
was sold on 30 June 20X9 for CU580,000.
In accordance with BFRS 5 Non-current Assets Held for Sale and Discontinued Operations what amounts
will be recognised in respect of this building in Paul Ltds income statement for the year ended
31 December 20X9?
Impairment loss Loss on sale
A CU28,000 CUNil
B CU18,000 CU2,000
C CUNil CU28,000
D CU18,000 CU10,000
10 Michael Ltd bought a piece of land on 1 January 20X5 for CU1 million. The company revalued this land
on 31 December 20X6 to CU1.5 million. On 1 September 20X7 the land was classified as held for
sale. Its fair value was estimated at CU1.7 million and costs to sell at CU20,000. The land was sold on
15 February 20X8 for CU1.8 million.
In accordance with BFRS 5 Non-current Assets Held for Sale and Discontinued Operations, what amounts
will be recognised in respect of this land in Michael Ltds income statement and revaluation reserve for
the year ended 31 December 20X7?
Debit in income statement Credit to revaluation reserve
A CUNil CU180,000
B CU20,000 CU200,000
C CUNil CUNil
D CU20,000 CU300,000
11 Harry Ltd revalued a machine on 1 January 20X6 to CU280,000. The machine had cost CU200,000 on
1 January 20X5 and was being depreciated on a reducing balance basis at a rate of 25%. The
depreciation policy was unchanged after revaluation. On 1 January 20X8 the machine was classified as
held for sale. Its fair value was estimated at CU80,000 and costs to sell at CU5,000. The machine was
sold on 30 June 20X8 for CU75,000.
In accordance with BFRS 5 Non-current Assets Held for Sale and Discontinued Operations, what amounts
will be recognised in respect of this machine in Harry Ltds income statement and revaluation reserve
for the year ended 31 December 20X8?
Debit in income statement Debit to revaluation reserve
A CUNil CU130,000
B CU5,000 CU130,000
C CU82,500 CUNil
D CU82,500 CU130,000
100 The Institute of Chartered Accountants in England and Wales, March 2009
QUESTION BANK
2 Ploughshare Ltd acquired 80% of the ordinary share capital of Sword Ltd on 30 September 20X1. On
31 December 20X1, the share capital and retained earnings of Sword Ltd were as follows.
CU'000
Ordinary shares of 50p each 300
Retained earnings at 1 January 20X1 80
Retained profit for the year ended 31 December 20X1 40
420
The profits of Sword Ltd have accrued evenly throughout 20X1. Goodwill arising on the acquisition of
Sword Ltd was CU20,000.
What was the cost of the investment in Sword Ltd?
A CU356,000
B CU328,000
C CU348,000
D CU430,000
The Institute of Chartered Accountants in England and Wales, March 2009 101
Consolidated financial statements: objective test questions
3 Xanthe Ltd owns 75% of the ordinary share capital of QED Ltd. At the group's year end, Xanthe Ltd
held inventories valued at CU160,000 and QED Ltd held inventories valued at CU90,000. The
inventories held by Xanthe Ltd included CU20,000 of goods purchased from QED Ltd at a profit
margin of 30%. There were also inventories in transit between the two entities; this amounted to a
further CU10,000 at selling price.
To the nearest CU'000, at what value should inventories appear in the year end consolidated balance
sheet?
A CU251,000
B CU253,000
C CU254,000
D CU255,000
4 Xiao Ltd owns 80% of Yacht Ltd and 75% of Zebra Ltd. At 31 December 20X5, the three companies
had declared the following dividends for the year ended on that date.
CU
Xiao Ltd 60,000
Yacht Ltd 30,000
Zebra Ltd 20,000
Xiao Ltd had also paid an interim dividend of CU15,000. What is the total liability for dividends
payable in the consolidated balance sheet of Xiao Ltd as at 31 December 20X5?
A CU56,000
B CU60,000
C CU71,000
D CU110,000
5 Woolf Ltd acquired 80% of the ordinary share capital of Stephen Ltd on the incorporation of that
company many years ago. No goodwill arose on the acquisition.
At 31 December 20X9, the retained earnings of Woolf Ltd were CU202,000 and the consolidated
retained earnings of the Woolf Ltd group were CU230,000.
During the year ended 31 December 20X9, Stephen Ltd had sold goods to Woolf Ltd for CU25,000.
The goods originally cost CU20,000.
What were the retained earnings of Stephen Ltd as at 31 December 20X9?
A CU30,000
B CU32,000
C CU33,000
D CU40,000
102 The Institute of Chartered Accountants in England and Wales, March 2009
QUESTION BANK
6 Outlook Ltd has one subsidiary. On 1 January 20X7 Outlook Ltd purchased 30% of the ordinary share
capital of View Ltd for CU12 million. The summarised balance sheet of View Ltd as at 31 December
20X7 was as follows.
CUm
Net assets (at carrying amount) 30
7 On 1 January 20X2 Alfie Ltd purchased 40% of the equity share capital of Bailey Ltd for CU60,000. At
this date the retained earnings of Bailey Ltd stood at CU30,000. During the year ended 31 December
20X4 Alfie Ltd sold goods to Bailey Ltd for CU10,000. These goods were still in inventory at the year
end. Alfie Ltd makes a gross profit margin of 25% on intra-group sales.
At 31 December 20X4 the balance sheet of Bailey Ltd showed the following.
CU'000
Net assets 320
At what amount should Alfie Ltd's interest in Bailey Ltd be stated in its consolidated balance sheet at
31 December 20X4?
A CU135,000
B CU135,200
C CU136,000
D CU147,000
The Institute of Chartered Accountants in England and Wales, March 2009 103
Consolidated financial statements: objective test questions
8 On 1 January 20X4, Geranium Ltd acquired 60% of the equity share capital of Rose Ltd for CU5
million. At that date, the net assets of Rose Ltd were CU8 million. On 1 July 20X9 Geranium Ltd sold
three quarters of its holding in Rose Ltd for CU6.5 million.
The capital and reserves of Rose Ltd at 31 December 20X9 are shown below.
CU'000
Ordinary share capital (CU1 shares) 5,000
Retained earnings at 1 January 20X9 6,500
Retained profit for the year ended 31 December 20X9 2,000
13,500
At what amount should the investment in Rose Ltd be shown in Geranium Ltd's consolidated balance
sheet as at 31 December 20X9?
A CU750,000
B CU1,725,000
C CU1,875,000
D CU1,925,000
9 Aster Ltd owns a controlling interest in Chrysanthemum Ltd and exerts significant influence over
Flower Ltd, an entity in which it holds 30% of the ordinary share capital.
During the year ended 30 April 20X5, Flower Ltd sold goods to Aster Ltd for CU80,000. The cost of
the goods to Flower Ltd was CU60,000. 25% of the goods remained in Aster Ltd's inventories at 30
April 20X5.
Which of the following is the correct consolidation adjustment in respect of these inventories?
A Dr Consolidated retained earnings CU5,000 Cr Consolidated inventories CU5,000
B Dr Consolidated retained earnings CU1,500 Cr Consolidated inventories CU1,500
C Dr Consolidated inventories CU5,000 Cr Consolidated retained earningsCU5,000
D Dr Consolidated inventories CU1,500 Cr Consolidated retained earningsCU1,500
10 Dartmoor Ltd controls another entity, Clydesdale Ltd, owning 60% of that company's ordinary share
capital. At the group's year end, 31 December 20X5, Clydesdale Ltd included CU6,000 in its
receivables in respect of goods supplied to Dartmoor Ltd. However, the payables of Dartmoor Ltd
included only CU4,000 in respect of amounts due to Clydesdale Ltd. The difference arose because, on
31 December 20X5, Dartmoor Ltd sent a cheque for CU2,000 to Clydesdale Ltd, which was not
received by Clydesdale Ltd until 3 January 20X6.
Which of the following sets of consolidation adjustments to current assets and current liabilities is
correct?
A Deduct CU6,000 from both consolidated receivables and consolidated payables
B Deduct CU3,600 from both consolidated receivables and consolidated payables
C Deduct CU6,000 from consolidated receivables and CU4,000 from consolidated payables, and
include cash in transit of CU2,000
D Deduct CU6,000 from consolidated receivables and CU4,000 from consolidated payables, and
include inventories in transit of CU2,000
104 The Institute of Chartered Accountants in England and Wales, March 2009
QUESTION BANK
11 Ella Ltd acquired 75% of the ordinary shares in Frances Ltd on 1 April 20X2. Ella Ltd has prepared a
consolidated balance sheet at 31 March 20X3, which shows goodwill of CU200,000 and consolidated
retained earnings of CU400,000. However, this consolidated balance sheet has ignored the fair value
of an item of plant held by Frances Ltd which at the date of acquisition was CU120,000 in excess of its
carrying amount. The asset has a remaining useful life of five years.
After adjusting for the above fair value, what amounts should be shown for goodwill and retained
earnings in Ella Ltd's consolidated balance sheet as at 31 March 20X3?
Goodwill Retained earnings
CU'000 CU'000
A 80 376
B 110 382
C 110 376
D 200 382
12 Zara Ltd is the sole subsidiary of Anne Ltd. Zara Ltd's balance sheet at 31 December 20X1 can be
summarised as follows.
CU'000
Total assets 1,000
Anne Ltd holds 70% of Zara Ltd's ordinary shares and 60% of Zara Ltd's redeemable preference
shares. All shares were acquired when Zara Ltd's retained earnings were CU100,000. What is the
minority interest in Anne Ltd's consolidated balance sheet as at 31 December 20X1?
A CU180,000
B CU210,000
C CU300,000
D CU330,000
The Institute of Chartered Accountants in England and Wales, March 2009 105
Consolidated financial statements: objective test questions
13 Sandra Ltd has a number of subsidiary companies. On 1 January 20X5 Sandra Ltd acquired 30% of the
10,000 CU1 ordinary shares of Fiona Ltd for CU14,000. The balance on Fiona Ltd's retained earnings
on that date was CU30,000. Sandra Ltd exerts significant influence over Fiona Ltd.
The balance sheet of Fiona Ltd at 31 December 20X9 is as follows.
CU'000
Total assets 68,000
14 The summarised balance sheets of Mandy Ltd and Len Ltd at 31 December 20X7 are shown below.
Mandy Ltd Len Ltd
CU CU
Total assets 349,600 140,000
106 The Institute of Chartered Accountants in England and Wales, March 2009
QUESTION BANK
2 Pumpkin Ltd has held 90% of the equity share capital of Squash Ltd for many years. Cost of sales for
each company for the year ended 31 December 20X3 was as follows.
CU
Pumpkin Ltd 100,000
Squash Ltd 80,000
During the year, Squash Ltd sold goods costing CU5,000 to Pumpkin Ltd for CU8,000. At the year
end, all of these goods remained in inventories.
What figure should be shown as cost of sales in the consolidated income statement of Pumpkin Ltd for
the year ended 31 December 20X3?
A CU169,000
B CU172,000
C CU175,000
D CU176,000
3 Zante Ltd purchased 80% of Corfu Ltd's ordinary shares on 1 July 20X0 for CU2,360,000 when the
fair value of Corfu Ltd's net assets was CU2,240,000. As at 30 June 20X2 Zante Ltd had recognised
impairments in respect of goodwill arising on the acquisition of Corfu Ltd amounting to CU100,000.
On 30 June 20X3, Zante Ltd sold all its shares in Corfu Ltd for CU3,600,000. The net assets of Corfu
Ltd were CU3,310,000 at the date of disposal.
What is the profit on disposal of the shares in Corfu Ltd which should be included in the consolidated
income statement of Zante Ltd for the year ended 30 June 20X3?
A CU384,000
B CU484,000
C CU952,000
D CU270,000
The Institute of Chartered Accountants in England and Wales, March 2009 107
Consolidated financial statements: objective test questions
4 On 1 January 20X4, Geranium Ltd acquired 60% of ordinary shares of Rose Ltd for CU5 million. At
that date, the fair value of the net assets of Rose Ltd was CU8 million. On 1 July 20X9 Geranium Ltd
sold three quarters of its holding in Rose Ltd for CU6.5 million.
The capital and reserves of Rose Ltd at 31 December 20X9 are shown below.
CU'000
Share capital (CU1 ordinary shares) 5,000
Retained earnings at 1 January 20X9 6,500
Retained profit for the year ended 31 December 20X9 2,000
13,500
What is the profit or loss on disposal of the shares in Rose Ltd which should be included in the
consolidated income statement of Geranium Ltd for the year ended 31 December 20X9?
A CU675,000 profit
B CU725,000 loss
C CU725,000 profit
D CU3,025,000 loss
5 Magic Ltd acquired 90% of the ordinary share capital of Wizard Ltd many years ago. On 1 April 20X4
Magic Ltd sold one-third of its investment in Wizard Ltd. Wizard Ltd's profit for the year ended
31 December 20X4, which accrued evenly over that year, was CU576,000.
What amount of profit for the year is attributable to the minority interest in Wizard Ltd for the year
ended 31 December 20X4?
A CU14,400
B CU187,200
C CU192,000
D CU230,400
6 On 1 April 20X3, Bibury Ltd acquired 70% of the ordinary shares of Barnsley Ltd. The following
figures relate to the year ended 31 December 20X3.
Bibury Ltd Barnsley Ltd
CU CU
Revenue 769,000 600,000
Cost of sales (568,500) (420,000)
Gross profit 200,500 180,000
On 15 November 20X3 Barnsley Ltd sold goods which cost it CU5,000 to Bibury Ltd for CU7,000.
These goods were still held by Bibury Ltd at 31 December 20X3.
What are the amounts for revenue and gross profit in the consolidated income statement of Bibury
Ltd for the year ended 31 December 20X3?
Revenue Gross profit
CU CU
A 1,212,000 335,500
B 1,212,000 333,500
C 1,362,000 983,500
D 1,362,000 985,500
108 The Institute of Chartered Accountants in England and Wales, March 2009
QUESTION BANK
7 Alexander Ltd acquired 30% of Bucephalus Ltd's ordinary shares in 20X5 for CU450,000 when the fair
value of Bucephalus Ltd's net assets was CU1 million. No impairment in the value of the investment
has been identified since that date.
On 30 June 20X9 Alexander Ltd disposed of all of its shares in Bucephalus Ltd for CU600,000 when
Bucephalus Ltd's net assets amounted to CU1.2 million. Bucephalus Ltd's profit for the year to
31 December 20X9, which accrued evenly over the year, was CU120,000.
What are the amounts for the share of associate's profits and profit on disposal of associate in
Alexander Ltd's consolidated income statement for the year ended 31 December 20X9?
Share of Profit on
associate's profits disposal of associate
CU CU
A 18,000 90,000
B 36,000 90,000
C 18,000 240,000
D 36,000 240,000
8 Chloe Ltd, which has many subsidiaries, acquired 90% of the ordinary shares of Charlotte Ltd in 20X5.
On 31 December 20X8 Charlotte Ltd's net assets amounted to CU300,000. On 30 September 20X9
Chloe Ltd sold all of its shares in Charlotte Ltd. Charlotte Ltd's profit for the year to 31 December
20X9 was CU60,000, which accrued evenly over that year.
What amount will appear as a deduction from the minority interest column in Chloe Ltd's
consolidated statement of changes in equity for the year ended 31 December 20X9 in respect of
Charlotte Ltd?
A CU4,500
B CU30,000
C CU34,500
D CU36,000
9 Shadow Ltd acquired 80% of the ordinary shares of Pip Ltd in 20X6. On 31 December 20X8 Pip Ltd's
net assets amounted to CU400,000. On 30 September 20X9 Shadow Ltd sold one quarter of its
shares in Pip Ltd. Pip Ltd's profit for the year to 31 December 20X9 was CU120,000, which accrued
evenly over that year.
What amount will be added to the minority interest column in Shadow Ltd's consolidated statement
of changes in equity for the year ended 31 December 20X9 in respect of Shadow Ltd's decrease in
holding in Pip Ltd?
A CU30,000
B CU80,000
C CU98,000
D CU104,000
The Institute of Chartered Accountants in England and Wales, March 2009 109
Consolidated financial statements: objective test questions
10 Alayna Ltd owns 75% of the ordinary shares in Ellen Ltd and 30% of the ordinary shares in Lauren Ltd,
over which it exercises significant influence. In the year ended 30 June 20X8 the companies paid the
following dividends.
CU
Alayna Ltd 500,000
Ellen Ltd 200,000
Lauren Ltd 100,000
What will be the total amount shown in Alayna Ltd's consolidated statement of changes in equity for
the year ended 30 June 20X8 in respect of dividends paid?
A CU500,000
B CU550,000
C CU580,000
D CU700,000
11 Parent Ltd owns 80% of the issued ordinary share capital of Subsidiary Ltd. For the year ended
31 December 20X6 Subsidiary Ltd reported a net profit of CU55 million. During 20X6, Subsidiary Ltd
sold goods to Parent Ltd for CU15 million at cost plus 20%. At the year end half these goods are still
held by Parent Ltd.
In the consolidated income statement for the year ended 31 December 20X6 what will be the amount
for profit attributable to the minority interest?
A CU8 million
B CU10.7 million
C CU10.75 million
D CU11 million
110 The Institute of Chartered Accountants in England and Wales, March 2009
QUESTION BANK
2 Nigel Ltd acquired 30% of the shares of Nick Ltd a number of years ago and the investment has since
been accounted for as an associate in Nigel Ltd's consolidated financial statements. Both Nigel Ltd and
Nick Ltd have an accounting year end of 31 October. Nigel Ltd has no other investments in associates.
Nick Ltd's income statement for the year ended 31 October 20X4 showed a net profit for the year of
CU230,000. Nigel Ltd's consolidated balance sheet at 31 October 20X4 showed investments in
associates of CU700,000 (20X3 CU635,000).
In accordance with BAS 7 Cash Flow Statements what amount will be shown as dividends received from
associates in the consolidated cash flow statement of Nigel Ltd for the year ended 31 October 20X4?
A CU165,000
B CU765,000
C CU4,000
D CU295,000
3 Julie Ltd has one associated company, Andrew Ltd, in which Julie Ltd holds 40% of the issued 100,000
CU1 ordinary shares. The financial controller of Julie Ltd is unsure how the following transactions
should be reflected in the consolidated cash flow statement and has asked you to confirm the overall
impact.
(1) In the previous accounting period, Julie Ltd had made a cash advance of CU100,000 to Andrew
Ltd. During the current accounting period, Andrew Ltd repaid CU30,000 of this cash advance.
(2) During the current accounting period, Andrew Ltd sold an item of property, plant and machinery
at its carrying amount for CU20,000 cash.
(3) During the current accounting period, Andrew Ltd paid a dividend of 20p per share.
In accordance with BAS 7 Cash Flow Statements what is the impact of the above cash transactions on
Julie Ltd's consolidated cash flow statement for the current accounting period?
A Cash from sale of associate's plant CU20,000; dividend paid by associate CU20,000
B Cash from repayment of cash advance from associate CU30,000; cash from sale of associate's
plant CU20,000
C Cash from repayment of cash advance from associate CU30,000; dividend received from
associate CU8,000
D Dividend received from associate CU8,000
The Institute of Chartered Accountants in England and Wales, March 2009 111
Consolidated financial statements: objective test questions
4 On 1 June 20X5 Faraday Ltd sold its wholly owned subsidiary, Electric Ltd. Faraday Ltd received cash
of CU2 million in respect of this sale on 1 July 20X5. A further CU500,000 is payable in cash on 1
January 20X6 if Electric Ltd exceeds certain profit targets.
On 1 June 20X5 the net assets of Electric Ltd were as follows.
CU
Property, plant and equipment 650,000
Inventories 450,000
Receivables 200,000
Cash and cash equivalents 20,000
Liabilities (130,000)
Net assets acquired 1,190,000
In accordance with BAS 7 Cash Flow Statements what amount should be shown in the investing
activities section of the consolidated cash flow statement of Faraday Ltd for the year ended 31
December 20X5?
A CU2,000,000
B CU2,480,000
C CU2,500,000
D CU1,980,000
5 On 30 September 20X8 Dougal Ltd acquired 80% of the ordinary shares of Lucy Ltd. The
consideration was made up of 100,000 of Dougal Ltd's ordinary shares, issued at a price of CU1.25 per
share and cash of CU400,000.
In accordance with BAS 7 Cash Flow Statements what amount should be shown in the investing
activities section of the consolidated cash flow statement of Dougal Ltd for the year ended 31
December 20X8?
A CU360,000
B CU440,000
C CU432,000
D CU565,000
112 The Institute of Chartered Accountants in England and Wales, March 2009
QUESTION BANK
6 On 1 January 20X3 Judith Ltd's consolidated balance sheet showed property, plant and equipment of
CU257,900. By 31 December 20X3 this figure was CU578,900. The following transactions in relation
to the property, plant and equipment of the group took place during 20X3.
(1) Total additions to property, plant and equipment, as shown in the notes to the consolidated
financial statements for 20X3, included CU40,000 in relation to assets acquired under finance
leases and CU35,000 in relation to assets acquired on the acquisition of a subsidiary during the
year.
(2) Plant with a carrying amount of CU32,000 was sold for CU38,000 during the year.
(3) Total depreciation for the year was CU135,000.
In accordance with BAS 7 Cash Flow Statements what amount will be shown in Judith Ltd's consolidated
cash flow statement for 20X3 as a cash outflow under investing activities in respect of transactions in
property, plant and equipment?
A CU375,000
B CU413,000
C CU448,000
D CU488,000
7 The financial controller of Judith Ltd is drafting the note to the consolidated cash flow statement
reconciling group profit before tax to cash generated from operations for the year ended
31 December 20X8. He has asked you to assist him with calculating the movement on receivables and
payables.
The following information is available.
Consolidated Acquired with
31 December 31 December subsidiary on
20X8 20X7 1 June 20X8
CU'000 CU'000 CU'000
Receivables 340 235 90
Payables (275) (135) (165)
In accordance with BAS 7 Cash Flow Statements what amount will be shown in Judith Ltd's
reconciliation of profit before tax to cash generated from operations for 20X8 in respect of
receivables and payables?
Receivables Payables
A Increase of CU195,000 Increase of CU305,000
B Increase of CU105,000 Increase of CU140,000
C Increase of CU15,000 Decrease of CU25,000
D Decrease of CU195,000 Decrease of CU305,000
The Institute of Chartered Accountants in England and Wales, March 2009 113
Consolidated financial statements: objective test questions
8 On 30 June 20X8, Parry Ltd sold its investment in its only associate, Sasha Ltd, for a cash sum of
CU460,000. Parry Ltd has held 30% of Sasha Ltd's ordinary shares since its incorporation.
In the year ended 31 December 20X8 Sasha Ltd made a profit after tax of CU700,000. The net assets
of Sasha Ltd on 30 June 20X8 were as follows.
CU
Property, plant and equipment 357,000
Inventories 170,000
Receivables 45,000
Cash and cash equivalents 5,000
Other liabilities (87,000)
490,000
Parry Ltd's consolidated balance sheet at 31 December 20X7 reflected investments in associates of
CU120,600.
In accordance with BAS 7 Cash Flow Statements what amount will be shown as an investing inflow in
Parry Ltd's consolidated cash flow statement for the year ended 31 December 20X8 in respect of its
investment in Sasha Ltd?
A CU460,000
B CU455,000
C CU225,600
D CU685,600
114 The Institute of Chartered Accountants in England and Wales, March 2009
QUESTION BANK
2 Consul Ltd owns the following equity shareholdings in the following companies and has a seat on the
board of each of those companies.
Admiral Ltd 25%
Sultan Ltd 20%
Warrior Ltd 25%
Consul Ltd holds the largest shareholding in Admiral Ltd, where no other shareholdings are larger
than 10%. Another entity owns 25% of the equity shares in Sultan Ltd and also has a seat on its board.
No other individual or entity owns more than 5% of the equity shares of Sultan Ltd. A single entity
holds the remaining 75% of Warrior Ltd's equity shares and has a seat on its board. In accordance with
BAS 28 Investments in Associates, which entities are likely to be associates of Consul Ltd?
A Admiral Ltd only
B Admiral Ltd and Sultan Ltd
C Admiral Ltd and Warrior Ltd
D Admiral Ltd, Sultan Ltd and Warrior Ltd
3 On 1 January 20X5 Plane Ltd acquired 60% of the ordinary shares of Sycamore Ltd. Goodwill of
CU100,000 arose on the acquisition.
Sycamore Ltd's performance for the years ended 31 December 20X5 and 31 December 20X6 slightly
exceeded budget. However, in the year ended 31 December 20X7 it made substantial losses that had
not been forecast.
According to BFRS 3 Business Combinations when should the goodwill arising on the acquisition of
Sycamore Ltd be reviewed for impairment?
A Annually
B In 20X5 only
C In 20X7 only
D In 20X5 and in 20X7
4 The following statements refer to a situation where an investing entity (Kyle Ltd) seeks to exert
control or influence over another entity (Lyle Ltd). Assume that Kyle Ltd is required to prepare
consolidated accounts because of other investments.
(1) If Kyle Ltd owns more than 20%, but less than 50% of the equity shares in Lyle Ltd, then Lyle Ltd
is bound to be an associate of Kyle Ltd
(2) If Kyle Ltd controls the operating and financial policies of Lyle Ltd, then Lyle Ltd cannot be an
associate of Kyle Ltd
(3) If Lyle Ltd is an associate of Kyle Ltd, then any amounts payable by Lyle Ltd to Kyle Ltd are not
eliminated on preparation of the consolidated balance sheet of Kyle Ltd
Which of the above statements are true?
A (1) and (2) only
B (2) only
C (2) and (3) only
D (1) and (3) only
The Institute of Chartered Accountants in England and Wales, March 2009 115
Consolidated financial statements: objective test questions
5 On 1 March 20X5, Pompadour Ltd, a listed entity, acquired 80% of the three million issued ordinary
shares of Madame Ltd. The consideration for each share acquired comprised a cash payment of
CU1.20, plus two ordinary shares in Pompadour Ltd.
The market value of a CU1 ordinary share in Pompadour Ltd on 1 March 20X5 was CU1.50, rising to
CU1.60 by the company's year end on 31 March 20X5. Professional fees paid to Pompadour Ltd's
external accountants and legal advisers in respect of the acquisition were CU400,000.
According to BFRS 3 Business Combinations what is the fair value of consideration in respect of this
acquisition, for inclusion in Pompadour Ltd's own financial statements for the year ended 31 March
20X5?
A CU10,080,000
B CU10,480,000
C CU10,560,000
D CU10,960,000
6 On 30 September 20X5, Gary Ltd purchased 80% of the ordinary share capital of Jerry Ltd for CU1.45
million. The carrying amount of Jerry Ltd's net assets at the date of acquisition was CU1.35 million. A
valuation exercise showed that the fair value of Jerry Ltd's property, plant and equipment at that date was
CU100,000 greater than carrying amount, and Jerry Ltd immediately incorporated this revaluation into its
own books.
Jerry Ltd's financial statements at 30 September 20X5 contained notes referring to a contingent
liability (which had a fair value of CU200,000).
Gary Ltd acquired Jerry Ltd with the intention of restructuring the latter's production facilities. The
estimated costs of the restructuring plan totalled CU115,000.
According to BFRS 3 Business Combinations what is the amount of goodwill arising on the acquisition of
Jerry Ltd?
A CU290,000
B CU450,000
C CU530,000
D CU542,000
116 The Institute of Chartered Accountants in England and Wales, March 2009
Answer Bank
1 Howells Ltd
Marking guide
Marks
The Institute of Chartered Accountants in England and Wales, March 2009 119
Preparation of full single entity financial statements
120 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
(1) Allocation of costs
Cost of Admin Distrib
sales expenses costs
CU CU CU
Opening inventories 58,045
Purchases 907,989
Administrative salaries 126,232
Salesmen's salaries 24,291
Factory wages 54,117
Operating lease rentals 6,002
Administrative expenses 18,822
Selling and distribution costs 9,600
Closing inventories (68,000 (1,000 CU3)) (65,000)
Depreciation
Buildings ((450,000 115,000) 50) 6,700
Plant ((22,000 10) + ((60,000 18,000) 7)) 8,200
Impairment of brand (20,500 12,000) 8,500
963,351 166,256 33,891
(2) Other operating income
CU
Royalties 14,005
Gain on sale of property 25,040
39,045
The Institute of Chartered Accountants in England and Wales, March 2009 121
Preparation of full single entity financial statements
2 Berwick Ltd
Marking guide
Marks
Balance sheet
PPE 5
Inventories
Receivables 1
Cash
Ordinary share capital
Share premium
Revaluation reserve
Retained earnings
Non-current borrowings
Payables 1
Taxation
Current borrowings
Presentation 1
Statement of changes in equity
Gain on revaluation 1
Transfer 2
Profit 2
Ordinary dividends
Preference dividends
Balances brought forward 1
Presentation 1
Total available 22
Maximum 20
CU CU
ASSETS
Non-current assets
Property, plant and equipment (W1) 2,023,000
Current assets
Inventories 370,000
Trade and other receivables (W4) 497,000
Cash and cash equivalents 249,000
1,116,000
Total assets 3,139,000
122 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
(1) Property, plant and equipment
Land and Plant and Motor Total
buildings machinery vehicles
CU CU CU CU
Per TB
Value 1,500,000 650,000 250,000
Depreciation b/f (160,000) (90,000)
Depreciation for year
((1,500 300) 40) (30,000)
(650 10%) (65,000)
((250 90) 20%) (32,000)
1,470,000 425,000 128,000 2,023,000
The Institute of Chartered Accountants in England and Wales, March 2009 123
Preparation of full single entity financial statements
Note: We are not told of any right of set-off between the bank balance and the overdraft, so it would be
wrong to offset them in the balance sheet and show only a net figure.
3 Angus Ltd
Marking guide
Marks
124 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
The Institute of Chartered Accountants in England and Wales, March 2009 125
Preparation of full single entity financial statements
Tutorial note
Under para 17 BAS 8 Accounting Policies, Changes in Accounting Estimates and Errors the initial application of a
policy to revalue assets is to be dealt with as a revaluation under BAS 16 Property, Plant and Equipment,
rather than as a change of accounting policy under BAS 8.
126 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
4 Goblins Ltd
Marking guide
Marks
(a) Income statement
Revenue
Change in inventories 1
Raw materials and consumables
Employee benefits 1
Depreciation 3
Other expenses 1
Finance costs
Income tax expense 1
Presentation 1
Balance sheet
PPE 3
Intangibles 1
Inventories 1
Receivables 1
Cash
Ordinary share capital
Revaluation reserve 1
Retained earnings 1
Redeemable preference share capital
Payables 1
Dividend
Presentation 1
Total available 24
Maximum 22
(b) Each explanation of asset for each measurement basis
Each explanation of liability for each measurement basis
Total available 4
Maximum 4
26
The Institute of Chartered Accountants in England and Wales, March 2009 127
Preparation of full single entity financial statements
Historical cost The amount of cash or cash The amount of the proceeds
equivalents paid, or the fair received in exchange for the
value of the consideration obligations or the amount expected
given, at the time of to be paid to settle the liabilities in
acquisition. the ordinary course of business.
Current cost The amount of cash or cash The undiscounted amount that
equivalents payable if the would be required to settle the
same or equivalent assets obligations currently.
were acquired currently.
Realisable The amount of cash or cash The undiscounted amount
(settlement) value equivalents currently expected to be paid to settle the
obtainable by selling assets liabilities in the normal course of
in an orderly disposal. business.
Present value The discounted present The discounted present value of
value of the future net cash the future net cash outflows
inflows expected to be expected to be required to settle
generated by the assets in the liabilities in the normal course
the normal course of of business.
business.
128 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
(1) Property, plant and equipment
Leasehold Computers Total
CU CU CU
Cost 300,000 50,000
Revaluation 60,000
360,000 50,000
Depreciation
B/f 60,000 20,000
Revaluation (60,000)
Charge (W2 & W3) 15,000 10,000
C/f 15,000 30,000
NBV c/f 345,000 20,000 365,000
(2) Allocation of costs
Depn and Raw Employee Changes in Other
amortn materials benefits inventories expenses
CU CU CU CU CU
Staff costs 260,400
Leasehold (W3) 15,000
Computers (50,000 5) 10,000
Patents (60,000 3) 20,000
Directors' emoluments 360,000
Raw materials 294,500
Bad and doubtful debts
(45,000 + 18,765 (W7)) 63,765
Finished games (180,000
(10 CU450) 155,600) (19,900)
Work in progress
(140,000 125,500) (14,500)
Consultancy fees 44,000
45,000 294,500 620,400 (34,400) 107,765
(3) Depreciation on leasehold
Carrying amount
=
Remaining useful life
Total of 30 years. At 1 January 20X4 CU60,000 depreciation
CU360,000 charged based on (CU300,000 30) CU10,000 per year. Therefore
= buildings have 24 years remaining.
24 years
= CU15,000
The Institute of Chartered Accountants in England and Wales, March 2009 129
Preparation of full single entity financial statements
(6) Inventories
CU
Finished games (180,000 (10 CU450)) 175,500
WIP 140,000
315,500
(7) Trade and other receivables
CU
Per TB 420,300
Less Bad debt write off (45,000)
375,300
Less Specific allowance @ 5% (18,765)
356,535
(8) Trade and other payables
CU
Per TB 80,200
Accrued interest on preference shares (120,000 5%) 6,000
86,200
(9) Reserves
Retained Revaluation
earnings reserve
CU CU
B/f 102,300
Profit for the period 593,735
Revaluation (360,000 (300,000 60,000)) 120,000
Ordinary dividends (50,000 + (15p 500,000)) (125,000)
Depreciation transfer (W3) 5,000 (5,000)
C/f 576,035 115,000
130 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
5 Harry Ltd
Marking guide
Marks
Income statement
Revenue 1
Change in inventories
Work capitalised
Raw materials and consumables
Employee benefits 1
Depreciation/amortisation 3
Other expenses
Impairment 1
Finance costs 1
Income tax expense
Presentation 1
Balance sheet
PPE 3
Intangibles
Inventories 1
Receivables 1
Cash
Ordinary share capital
Share premium 1
Revaluation reserve 1
Retained earnings 1
Redeemable preference share capital
Non-current finance lease liabilities 1
Dividend 1
Payables
Taxation
Current finance lease liabilities 2
Presentation 1
Total available 27
Maximum 25
The Institute of Chartered Accountants in England and Wales, March 2009 131
Preparation of full single entity financial statements
132 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
The Institute of Chartered Accountants in England and Wales, March 2009 133
Preparation of full single entity financial statements
6 Frodo Ltd
Marking guide
Marks
134 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
Current assets
Inventories (W1) 110,000
Trade and other receivables (37,500 10,000) 27,500
Cash and cash equivalents 63,500
201,000
Non-current assets held for sale 5,000
206,000
Total assets 2,417,000
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 500,000
Preference share capital (irredeemable) 200,000
Retained earnings (W4) 581,600
1,281,600
Non-current liabilities
Borrowings (200,000 9/10) 180,000
Current liabilities
Trade and other payables (W3) 275,400
Taxation 350,000
Dividend payable (W4) 210,000
Borrowings (200,000 1/10) 20,000
Provisions 100,000
955,400
Total equity and liabilities 2,417,000
(b) Accounting requirements for not-for-profit entities
The objective of most company directors is to make a profit in order to maximise return on the
shareholders' investment in that company. However, not-for-profit entities have other considerations.
For example, not-for-profit entities might include the following:
NGOs whose objective will be to maximise revenue and minimise running costs in order to pay
as much out as a 'cost' of charitable awards
Public sector schools whose objective will be to add as much value as possible to their pupils
whilst operating within their means (i.e. not to make a profit but to achieve good results whilst
not making a loss)
Public sector hospitals whose objective will be to provide a high quality of patient care, again,
whilst operating within their means.
The 'success' of such entities will often be subject to non-profit measures such as their position in
league tables (exam results for schools, patient survival rates for hospitals).
The Institute of Chartered Accountants in England and Wales, March 2009 135
Preparation of full single entity financial statements
136 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(5) Revenue
CU
Per TB 6,700,000
Less Fees in advance (300,000 5/10) (150,000)
Advances (100,000)
6,450,000
7 Plodder Ltd
Marking guide
Marks
The Institute of Chartered Accountants in England and Wales, March 2009 137
Preparation of full single entity financial statements
WORKINGS
(1) SHARE CAPITAL AND PREMIUM
CU CU
B/d (1,000,000 + 200,000) 1,200,000
C/d (1,100,000 + 342,000) 1,442,000 Cash () 242,000
1,442,000 1,442,000
138 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
The Institute of Chartered Accountants in England and Wales, March 2009 139
Preparation of full single entity financial statements
8 Copeland Ltd
Marking guide
Marks
140 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
(1) PPE COST OR VALUATION
CU CU
B/d 4,347,000
Cash () 1,752,000 PPE disposals 1,201,000
Revaluation reserve (W9) 266,000 C/d 5,164,000
6,365,000 6,365,000
(2) PPE ACCUMULATED DEPRECIATION
CU CU
PPE disposals B/d 2,001,000
(1,201,000 496,000) 705,000 Income statement () 1,260,000
Revaluation reserve (W9) 358,000
C/d 2,198,000
3,261,000 3,261,000
The Institute of Chartered Accountants in England and Wales, March 2009 141
Preparation of full single entity financial statements
142 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
Tutorial note
The retained earnings T account, which was not needed as a working, is as follows.
RETAINED EARNINGS
CU CU
Share capital and premium (W8) 500,000 B/d 746,000
Income statement 2,736,000
Dividends payable () 243,000
C/d 2,739,000
3,482,000 3,482,000
9 Pippin Ltd
Marking guide
Marks
The Institute of Chartered Accountants in England and Wales, March 2009 143
Preparation of full single entity financial statements
144 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(4) INTANGIBLES
CU CU
B/d 300,500 Income statement () 27,300
Cash 77,500 C/d 350,700
378,000 378,000
(5) REVALUATION RESERVE
CU CU
Retained earnings 15,000 B/d 236,800
C/d 500,000 PPE () 278,200
515,000 515,000
(6) Trade and other payables
CU
Opening (139,500 7,000) 132,500
Closing (148,500 5,000)) 143,500
Increase 11,000
(7) ORDINARY DIVIDENDS
CU CU
Cash () 1,300,000 B/d 400,000
C/d 500,000 Retained earnings 1,400,000
1,800,000 1,800,000
10 Merry Ltd
Marking guide
Marks
The Institute of Chartered Accountants in England and Wales, March 2009 145
Preparation of full single entity financial statements
(a) Cash flow statement for the year ended 31 March 20X5
CU CU
Cash flows from operating activities
Cash generated from operations 1,711,600
Interest paid (89,000)
Income tax paid (W4) (347,600)
Net cash from operating activities 1,275,000
Cash flows from investing activities
Purchase of property, plant and equipment (2,057,000)
Purchase of investments (172,000 156,000 + 12,000) (28,000)
Proceeds from sale of property, plant
and equipment (496,300 (W6) 55,000) 441,300
Net cash used in investing activities (1,643,700)
Cash flows from financing activities
Proceeds from issue of ordinary share capital
(1,020,000 (W7) + 380,000 (W8)) 1,400,000
Payment of finance lease liabilities (W3) (516,000)
Dividends paid (W5) (500,500)
Net cash from financing activities 383,500
Net increase in cash and cash equivalents 14,800
Cash and cash equivalents at beginning of period 120,200
Cash and cash equivalents at end of period 135,000
Note: Gross operating cash flows
CU
Cash received from customers (W1) 5,626,000
Cash paid to suppliers (W9) (1,264,400)
Cash paid to and on behalf of employees (2,650,000)
Cash generated from operations 1,711,600
(b) Note: Reconciliation of profit before tax to cash generated from operations
CU
Profit before tax 866,100
Finance charge 89,000
Depreciation charge 750,600
Impairment write off 12,000
Loss on disposal of property, plant and equipment 55,000
Increase in inventories (460,600 365,100) (95,500)
Increase in trade and other receivables (269,000 244,500) (24,500)
Increase in trade and other payables (348,500 289,600) 58,900
Cash generated from operations 1,711,600
WORKINGS
(1) TRADE RECEIVABLES
CU CU
B/d 244,500 Cash () 5,626,000
Income statement 5,650,500 C/d 269,000
5,895,000 5,895,000
146 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(2) Purchases
CU
Cost of sales 3,460,600
Administrative expenses 978,800
Distribution costs 256,000
Adjustments: Impairment write off (12,000)
Opening inventory (365,100)
Depreciation (750,600)
Loss on sale (55,000)
Closing inventory 460,600
3,973,300
(3) FINANCE LEASE LIABILITIES
CU CU
Cash () 516,000 B/d 472,000
C/d 556,000 PPE 600,000
1,072,000 1,072,000
(4) INCOME TAX
CU CU
Cash () 347,600 B/d 350,000
C/d 300,000 Income statement 297,600
647,600 647,600
(5) RETAINED EARNINGS
CU CU
Cash dividends paid () 500,500 B/d 74,500
C/d 142,500 Income statement 568,500
643,000 643,000
(6) PPE
CU CU
B/d 2,950,300 Income statement 750,600
Cash 2,057,000 Disposals () 496,300
Finance lease liabilities 600,000 C/d 4,360,400
5,607,300 5,607,300
(7) SHARE CAPITAL
CU CU
B/d 1,800,000
Bonus issue 180,000
C/d 3,000,000 Cash () 1,020,000
3,000,000 3,000,000
(8) SHARE PREMIUM
CU CU
Bonus issue (W7) 180,000 B/d 850,000
C/d 1,050,000 Cash () 380,000
1,230,000 1,230,000
(9) TRADE PAYABLES
CU CU
Cash to suppliers () 1,264,400 B/d 289,600
Cash to employees 2,650,000 Income statement (W2) 3,973,300
C/d 348,500
4,262,900 4,262,900
The Institute of Chartered Accountants in England and Wales, March 2009 147
Preparation of full single entity financial statements
148 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
11 Montrose Ltd
Marking guide
Marks
(a) Extracts from the financial statements for the year ended 30 September 20X4
Note to balance sheet inventories
CU
Raw materials and consumables (100,000 units @ CU7.50 (W1)) 750,000
Work in progress (W2) 460,312
Finished goods and goods for resale (W4) 503,177
1,713,489
The Institute of Chartered Accountants in England and Wales, March 2009 149
Preparation of extracts from financial statements
For example, say a business commenced on 1 January 20X1 with a contribution of CU1,000 from its
owners. During the year, this cash was used to purchase 100 units for CU10 each. These units were
then sold for CU1,100 cash.
Opening capital is CU1,000 and closing capital is CU1,100. Profit for the year would therefore be
measured as CU100.
However, the constant purchasing power variation of this system would also look at adjusting opening
capital in order to maintain the general purchasing power of the business. In the above example, say
that the increase in RPI over the year was 5%. An adjustment would be made to the opening capital of
CU50 (5% CU1,000) reducing profit for the year to CU50. This would ensure that even if the entity
paid out all of its profits it would retain sufficient funds in order to be able to continue in business. So,
assuming that units now cost CU10.50 each (CU10 105%), the business still has sufficient cash of
CU1,050 (CU1,100 minus the CU50 paid out) to purchase a further 100 units to sell.
However, the problem with this approach is that general price changes may not be appropriate to that
particular entity (or industry). The physical capital maintenance concept therefore looks at
adjusting opening capital in order to maintain the physical productive capacity of the business. It uses
specific as opposed to general price changes.
In the example, it may therefore be that these units actually now cost CU10.75 each to buy. Therefore
an adjustment of CU75 would be made to the opening capital, reducing profit for the year to CU25.
Even if all of that profit was paid out the entity would then still be left with sufficient cash of CU1,075
(CU1,100 minus the CU25 paid out) so that it can purchase a further 100 units to sell.
WORKINGS
(1) Raw materials
Cost per
unit
CU
Purchase cost 5.00
Import duty 1.00
Transport to factory 0.50
Storage and handling costs 1.00
7.50
(2) Work in progress
CU
25,000 units @ (7.50 (W1) + (75% 2.73) (W3)) 238,687
25,000 units @ (7.50 (W1) + (50% 2.73) (W3)) 221,625
50,000 units 460,312
(3) Cost of conversion and of bringing inventories to present location/condition
CU
Direct labour 1,000,000
Production overheads (660,000 + 100,000) 760,000
Design and marketing overheads 150,000
1,910,000
150 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
The Institute of Chartered Accountants in England and Wales, March 2009 151
Preparation of extracts from financial statements
12 Gandalf Ltd
Marking guide
Marks
152 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(b) Statement of changes in equity for the year ended 30 June 20X6
Attributable to the equity holders of Gandalf Ltd
Preference
Ordinary share
share capital Share Revaluation
capital (irredeemable) premium reserve Retained earnings Total
CU CU CU CU CU CU CU
Recognised directly in equity
Revaluation of
non-current assets (W) 550,000 550,000
Transfer between
reserves (W) (5,000) 5,000
Total recognised directly
in equity 545,000 5,000 550,000
Profit for the period 101,225 101,225
Total recognised income
and expenditure for
the period 545,000 106,225 651,225
Final dividends on
ordinary shares (25,000) (25,000)
Interim dividends on
ordinary shares (30,000) (30,000)
Dividends on irredeemable
preference shares
(100,000 7%) (7,000) (7,000)
Issue of share capital
(75,000 5,000 3,000) 300,000 100,000 67,000 467,000
300,000 100,000 67,000 545,000 44,225 1,056,225
Balance brought forward
as reported 500,000 120,000 420,000 347,500 1,387,500
Adjustment to correct prior
year error (42,500) (42,500)
As restated 305,000
Balance carried forward 800,000 100,000 187,000 965,000 349,225 2,401,225
The Institute of Chartered Accountants in England and Wales, March 2009 153
Preparation of extracts from financial statements
Accrual Cash
basis basis
CU CU
Income statement
Revenue (400 + 500) 900 500
Purchases (400 + 300) (700) (400)
Closing inventory 50
Depreciation charge/purchase of non-current asset (200 4) (50) (200)
Profit/(loss) 200 (100)
Balance sheet
Non-current asset (200 50) 150
Inventory 50
Trade receivables 400
Cash (1,000 400 200 + 500) 900 900
Trade payable (300)
1,200 900
Capital 1,000 1,000
Retained earnings 200 (100)
1,200 900
The break-up basis is primarily relevant to the balance sheet. It reflects the fact that the business is no
longer a going concern. Under the break-up basis:
All assets and liabilities are classified as current.
Assets are valued on the basis of recoverable amounts rather than at cost. In the case of a forced
sale such values are likely to be less than cost.
WORKING
Revaluation
CU
Fair value (600,000 + 400,000) 1,000,000
Less Carrying amount (500,000 50,000) (450,000)
Revaluation surplus arising 550,000
CU
Revaluation surplus due to building (400,000 (200,000 50,000)) 250,000
Therefore annual reserve transfer = CU250,000 / 50 years
= CU5,000 pa
154 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
13 Cagreg Ltd
Marking guide
Marks
(a) Cost
Brought forward 1
Additions
Revaluation 1
Held for sale
Accumulated depreciation
Brought forward 1
Held for sale
Depreciation charges for year
Buildings 2
Held for sale plant 3
Plant held throughout year 3
Addition 1
Computer 2
Presentation 1
Total available 17
Maximum 16
(b) Each valid point
Max for any one qualitative characteristic 3
Total available 8
Maximum 6
22
The Institute of Chartered Accountants in England and Wales, March 2009 155
Preparation of extracts from financial statements
156 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
Cost Depn
CU CU
Total at 1 October 20X8 200,000 72,000
Less Disposal (20,000) (12,800)
Plant held throughout year 180,000 59,200
Charge for year (40% (180,000 59,200)) 48,320 48,320
107,520
(c) Addition
Cost 1 January 20X9 60,000
Charge for year (40% 9/12 60,000) (18,000) 18,000
42,000
Total charge for year 67,280
(3) Computer
CU
Cost 60,000
Depreciation to 1 October 20X8 (10,500)
Carrying amount at 1 October 20X8 49,500
Less Estimated residual value (4,500)
Amount to be depreciated 45,000
Remaining useful life (40,000 10,000) = 30,000 hours
Current usage = 4,800 hours
4,800
Charge for year = ( 45,000) =
30,000
CU7,200
14 Roberts Ltd
Marking guide
Marks
The Institute of Chartered Accountants in England and Wales, March 2009 157
Preparation of extracts from financial statements
WORKINGS
(1) Impairment of land and buildings
CU'000
Carrying amount at 31 December 20X4 (4,680 + 3,039) 7,719
Recoverable amount (1,500)
6,219
Charged to revaluation reserve (3,482)
Charge to income statement 2,737
(2) Impairment of specialised machinery
CU'000 CU'000
Carrying amount (2,800,000 40/96) 1,167
Fair value less costs to sell
Gross selling price (1,167 65%) 759
Less Repair costs (CU38.40 100/120 600) (19)
Transport costs (21)
Insurance (2)
717
Value in use (given) 600
Impairment (1,167 717) 450
158 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
15 Dumfries Ltd
Marking guide
Marks
The Institute of Chartered Accountants in England and Wales, March 2009 159
Preparation of extracts from financial statements
Measurement
The two main bases of measurement are historical cost and current cost. Leased assets are basically
included at historical cost, i.e. the minimum lease payments, although these are discounted to show
cost in 'today's pounds'.
(b) Extracts from the income statements for the years ended 30 April
20X5 20X6 20X7 20X8 20X9
Profit from operations is stated CU CU CU CU CU
after charging
Operating lease payments 15,000 15,000 15,000
Depreciation (109,1405) 21,828 21,828 21,828 21,828 21,828
Finance cost
Finance charges re finance
lease (W) 7,784 5,432 2,844
CU
Non-current liabilities
Finance lease liabilities (W) 54,324
Current liabilities
Finance lease liabilities (W) 31,300
160 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
Net basis
Finance lease liabilities include
CU
Amounts due within
One year 31,300
Two to five years 54,324
85,624
(3) Commitments
The minimum lease payments under non-cancellable operating leases are as follows.
CU
Within one year 15,000
Within two to five years 15,000
30,000
WORKING
Finance charges
Year to 30 April Interest
accrued
B/f Payment Capital @ 10% C/f
CU CU CU CU CU
20X5 109,140 (31,300) 77,840 7,784 85,624
20X6 85,624 (31,300) 54,324 5,432 59,756
20X7 59,756 (31,300) 28,456 2,844 31,300
20X8 31,300 (31,300)
Total
CU85,624
Non-current Current ()
CU54,324 CU31,300
The Institute of Chartered Accountants in England and Wales, March 2009 161
Preparation of extracts from financial statements
16 Crieff Ltd
Marking guide
Marks
162 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
The Institute of Chartered Accountants in England and Wales, March 2009 163
Preparation of extracts from financial statements
Gross basis
Finance lease liabilities include
CU
Gross payments due within
One year (40,000 + 30,000 + 54,000) 124,000
Two to five years ((40,000 3) + (30,000 3) + (54,000 4)) 426,000
Over five years (34 54,000) 1,836,000
2,386,000
Less Finance charges allocated to future periods () (1,622,017)
(143,078 + 99,373 + 521,532) 763,983
WORKINGS
(1) Cutting machine (finance lease)
Payment table
Year ended B/f Payment Capital Interest C/f
@ 8%
CU CU CU CU CU
30 June 20X8 172,480 (40,000) 132,480 10,598 143,078
30 June 20X9 143,078 (40,000) 103,078 8,246 111,324
Total liability
CU143,078
Non-current Current
CU103,078 CU40,000 ()
Total liability
CU99,373
Non-current Current
CU77,323 CU22,050 ()
164 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
Total liability
CU521,532
Non-current Current
CU467,532 CU54,000 ()
Tutorial notes
(1) As the office equipment operating lease is cancellable at any time by either party, no operating lease
commitment disclosure is required.
(2) Useful life is taken to be eight years for agreement (3) rather than the agreement term of five years.
This is because the option to acquire at the end of the agreement is assumed to take place from the
outset of the agreement, given the nominal cost involved.
(3) Assets held under finance leases should be capitalised at the lower of fair value (normally cash price)
and the present value of minimum lease payments.
The Institute of Chartered Accountants in England and Wales, March 2009 165
Preparation of extracts from financial statements
Marking guide
Marks
166 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
18 Withington Ltd
Marking guide
Marks
(a) Presentation 1
Opening provision
Utilised in year
Income statement charge 1
Closing provision 4
Faulty goods narrative 1
Compensation claim narrative 1
Rectification costs narrative 1
Onerous contract narrative 1
Restructuring narrative 1
Contingent asset note 1
Total available 15
Maximum 15
(b) 1 mark each calculation 3
Maximum 3
18
The Institute of Chartered Accountants in England and Wales, March 2009 167
Preparation of extracts from financial statements
WORKING
Closing provisions
CU
Provision re faulty goods (75% 2,000 CU1,000) 1,500,000
Provision for rectification costs (400,000 5 years + 100,000) 180,000
Onerous contract (18 months 1,000 per month CU7) 126,000
Restructuring (1,000,000 + 2,300,000) 3,300,000
168 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
Tutorial notes
(1) Installation of new machine
The proposed treatment of building up a replacement provision does not fall within the BAS 37
definition of a provision, as it is not a legal or constructive obligation at the balance sheet date. No
obligation to replace the lining exists independent of the company's future actions, because the
company could sell the asset before the replacement became necessary.
(2) Onerous contract
A provision for this should be recognised at the lower of the cost of fulfilling the contract and the
compensation payable for not fulfilling it. At 31 December 20X0 the contract has a further 18 months
to run, so the cost of fulfilling it is CU126,000 (18 months 1,000 per month CU7). This is the
amount of the provision to be made, as it is lower than the CU2m cost of not fulfilling the contract.
(3) Restructuring of the Chuckholder division
The Chuckholder division programme of restructuring meets the BAS 37 requirements for recognition
the announcements and implementation before the year end means the company is demonstrably
committed.
However, the only provisions which should be made are those for the direct expenditure necessarily
entailed in the reorganisation and not associated with ongoing activities. Redundancy costs and lease
terminations match this definition, but the other expenditures listed will benefit ongoing operations
and do not qualify for recognition in 20X0.
19 Islay Ltd
Marking guide
Marks
Balance sheet
Intangibles
Share capital
Revaluation reserve
Retained earnings
Intangibles note
Opening cost 1
Additions
Opening impairment/amortisation 1
Charge for year
SOCIE
Headings 1
Revaluation
Transfer
Profit 1
Brought forward balances 2
Total available 11
Maximum 11
The Institute of Chartered Accountants in England and Wales, March 2009 169
Preparation of extracts from financial statements
WORKINGS
(1) Goodwill
Green Smart IT
Savalight Goods Ltd Total
(W2) (W3) (W4)
CU CU CU CU
Goodwill 80,000 650,000 260,000 990,000
Impairment b/f (20,000) (20,000)
Impairment in the year (50,000) (50,000)
C/f 60,000 600,000 260,000 920,000
170 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(2) Savalight
CU
Cost 580,000
Less Net assets acquired at fair value (500,000)
Goodwill 80,000
Impairment at 1 June 20X8 (20,000)
Carrying amount b/f and c/f 60,000
(4) Smart IT
CU
Cost 1,100,000
Less Net assets acquired at fair value (1,200,000 70%) (840,000)
Goodwill carrying amount c/f 260,000
The Institute of Chartered Accountants in England and Wales, March 2009 171
Preparation of extracts from financial statements
20 Greenstones Ltd
Marking guide
Marks
172 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
The most reliable information would be provided if the costs are recognised in the income statement
as they are incurred (indeed this is the approach to be taken to research expenditure and to
development expenditure where the recognition criteria are not met).
However, this does not provide relevant information where benefits from the expenditure will flow
into the entity over several accounting periods. However, the reliability of this more relevant
information can be seriously compromised where there are uncertainties surrounding the future
outcome of the project.
Hence, BAS 38 adopts the relevance approach but only where the information backing up that
approach is reliable, i.e. there is sufficient certainty surrounding the viability/profitability of the project.
(c) Extracts from the financial statements for the year ended 31 December 20X8
Income statement
CU
Revenue (67,000 (W1) 140%) 93,800
Cost of sales (W1) (257,150)
Balance sheet
CU
Non-current assets
Property, plant and equipment 140,000
Intangibles (W2) 477,850
WORKINGS
(1) Cost of sales
CU
Project Alpha write off (22,000 + 45,000) 67,000
Project Beta write off (15,000 + 65,000) 80,000
147,000
Project Gamma amortisation (W2) 25,150
Impairment (W3) 85,000
257,150
The Institute of Chartered Accountants in England and Wales, March 2009 173
Preparation of extracts from financial statements
Tutorial note
Research and development costs written off or amortised in the year and the impairment of the specialised
equipment have all been charged to cost of sales. Other classifications would also be marked as correct.
21 Okehampton Ltd
Marking guide
Marks
174 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
Elizabeth House
Carrying amount as non-current asset at 30 June 20X6 (400,000 (12,000 50%)) 394,000
Fair value at 30 June 20X6 360,000
Decrease in revaluation surplus charged to revaluation reserve as balance re this
asset is sufficient (50,000 2,000 excess deprecation, per below) (34,000)
Carrying amount at 31 December 20X6 (360,000 8,000 costs to sell) 352,000
Axford plant
Carrying amount as non-current asset at 30 June 20X6 (200,000 (20,000 50%)) 190,000
Fair value less costs to sell at 30 June 20X6 (140,000 9,000) 131,000
Impairment loss to income statement (59,000)
Carrying amount at 31 December 20X6 131,000
Waterman plant
Carrying amount as non-current asset at 30 June 20X6 (600,000 (90,000 50%)) 555,000
Fair value less costs to sell at 30 June 20X6 (620,000 15,000) 605,000
No change to carrying amount
Carrying amount at 31 December 20X6 555,000
Revaluation reserve
Balance at 1 January 20X6 370,000
Transfer to retained earnings of excess of depreciation over that calculated on
historical cost for 6 months to 30 June 20X6:
George House (6,000 4,000) 50% (1,000)
Elizabeth House (12,000 8,000) 50% (2,000)
Revaluation surplus/(deficit) at 30 June 20X6:
George House (as above) 23,000
Elizabeth House (as above) (34,000)
Balance at 31 December 20X6 356,000
(b) Income statement for year ended 31 December 20X6
CU
Depreciation ((6,000 + 12,000 + 20,000 + 90,000) 50%) (64,000)
Impairment loss
(9,000 + 8,000 costs to sell re land and buildings and 59,000 re Axford) (76,000)
(c) Income statement and revaluation reserve in 20X7
CU
Income statement
Profit on sale of non-current assets held for sale
George House (350,000 311,000) 39,000
Elizabeth House (310,000 352,000) (42,000)
Axford plant (120,000 131,000) (11,000)
Waterman plant (635,000 555,000) 80,000
66,000
Revaluation reserve
Balance at 1 January 20X7 356,000
Transfer to retained earnings of surpluses re assets now disposed of
George House (100,000 1,000 + 23,000) (122,000)
Elizabeth House (50,000 2,000 34,000) (14,000)
Balance at 31 December 20X7 220,000
The Institute of Chartered Accountants in England and Wales, March 2009 175
Preparation of extracts from financial statements
22 Banchory Ltd
Marking guide
Marks
176 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(c) Consolidated statement of changes in equity for the year ended 30 April 20X0
Ordinary Share Revaluation Retained Total
share capital premium reserve earnings
CU CU CU CU CU
Recognised directly in equity
Revaluation of non-current assets 500,000 500,000
Revaluation on classification as
held for sale
(3,050,000 2,100,000) 950,000 950,000
Transfer between reserves (W2) 200,000 (200,000) (1,755,000) 1,755,000
Total recognised directly in equity 200,000 (200,000) (305,000) 1,755,000 1,450,000
Profit for the period 402,500 402,500
Total recognised income and expense
for the period 200,000 (200,000) (305,000) 2,157,500 1,852,500
Issue of share capital (W3) 550,000 412,500 962,500
Balance brought forward 2,000,000 450,000 800,000 3,672,000 6,922,000
Balance carried forward 2,750,000 662,500 495,000 5,829,500 9,737,000
WORKINGS
(1) Depreciation on machine
CU
Charge per draft income statement (1/6 1,800,000) 300,000
Charge needed ( 1,440,000) (360,000)
Adjustment (60,000)
(2) Transfer between reserves
CU
Extra depreciation re revalued asset since date of revaluation
(500,000 50 6/12) 5,000
Balance re revalued asset sold in the year (800,000 + 950,000) 1,750,000
1,755,000
(3) Share issues
Ordinary Share
shares premium
CU CU
B/f 2,000,000 450,000
Bonus issue (2,000,000 10) 200,000 (200,000)
2,200,000 250,000
Rights issue (2,200,000 4) 550,000 CU0.75 412,500
2,750,000 662,500
The Institute of Chartered Accountants in England and Wales, March 2009 177
Preparation of extracts from financial statements
Tutorial note
The fact that the carrying amount of property at the date of sale is based on cost means that a
measurement adjustment under BFRS 5 at the time of the decision to sell would only have been made if fair
value less costs to sell had been below the then carrying amount. With the ultimate selling price so much in
excess of cost, it was unlikely that any such adjustment would have been necessary. This is the reason why
the question did not contain any information about values at the time the decision to sell was made.
23 Banff Ltd
Marking guide
Marks
178 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
(1) Specialised plant carrying amount
CU CU
Materials 100,000
Labour costs
Factory staff 100,000
Less Abnormal costs (should be expensed in the year) (20,000)
80,000
Factory supervision incremental costs 15,000
Professional fees 22,000
Installation costs 13,000
230,000
Less Depreciation of component re overhauls (80,000 4) (20,000)
Depreciation of remainder (230,000 80,000) 10) (15,000)
195,000
The Institute of Chartered Accountants in England and Wales, March 2009 179
Preparation of extracts from financial statements
Inventories CU
Costs incurred to date (200,000 + 2,000,000) 2,200,000
Recognised in income statement (1,950,000)
250,000
180 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
24 Skinner Ltd
Marking guide
Marks
(a) Cost
Brought forward
Revaluation
Additions 1
Depreciation
Brought forward
Revaluation
Charge 5
Notes
Valuation 1
Leased assets
Presentation 1
Total available 10
Maximum 10
(b) Current liabilities 1
Non-current liabilities 1
Analysis of gross lease payments 2
Finance cost
Financing activities
Operating activities
Presentation 1
Total available 6
Maximum 6
(c) Cost 2
NRV 1
Total available 4
Maximum 3
19
The Institute of Chartered Accountants in England and Wales, March 2009 181
Preparation of extracts from financial statements
The freehold land and buildings were valued for the purposes of the 20X3 financial statements at open
market valuation. This valuation was made by . . The historical cost of the land and
buildings was CU1,620,000 and the related depreciation is CU161,200.
Of the total carrying amount of plant and machinery of CU1,377,512, CU367,412 (419,900 52,488
(W1)) relates to assets held under finance leases.
Cash flow statement for the year ended 30 June 20X3 (extracts)
Cash flows from operating activities CU
Finance costs paid (20,995)
Cash flows from financing activities
Payment of finance lease liabilities (65,000 20,995) (44,005)
182 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
(1) Depreciation charge
Buildings
CU
Valuation 2,360,000
Land element (1,600,000)
Buildings 760,000
Years
Original useful life 50
Elapsed ( 148,800 50) (12)
620,000
Remaining useful life 38
760,000
Depreciation charge = = CU20,000 per annum
38 years
(3) Additions
CU
Plant and machinery purchases 430,000
Leased machine 419,900
849,900
The Institute of Chartered Accountants in England and Wales, March 2009 183
Preparation of extracts from financial statements
25 Rosetta Ltd
Marking guide
Marks
(a) Cost
Brought forward
Additions 3
Amortisation/impairment
Brought forward
Charge 2
Presentation 1
Total available 7
Maximum 6
(b) Revised pre-tax profit
Adjustments re depreciation 4
Adjustments re goodwill 2
Adjustments re development costs 4
Retained earnings brought forward 1
Total available 11
Maximum 11
17
(a) Notes to the financial statements for the year ended 31 December 20X2 (extracts)
Development
Intangibles Goodwill costs Total
CU CU CU
Cost
At 1 January 20X2 2,100,000 2,100,000
Additions 4,800,000 (W2) 757,500 (W3) 5,557,500
At 31 December 20X2 6,900,000 757,500 7,657,500
Amortisation/impairment
At 1 January 20X2 300,000 300,000
Charge for year 900,000 (W2) 10,521 (W3) 910,521
At 31 December 20X2 1,200,000 10,521 1,210,521
Carrying amount
At 31 December 20X2 5,700,000 746,979 6,446,979
At 31 December 20X1 1,800,000 1,800,000
184 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
(1) Depreciation charges
Carrying amount at 1 January 20X2 Equipment Property
CU CU
Cost 12,000,000 40,000,000
Acc depn
15% 12,000,000 (1,800,000)
40,000,000 2 years (3,200,000)
25
10,200,000 36,800,000
The Institute of Chartered Accountants in England and Wales, March 2009 185
Preparation of extracts from financial statements
Tutorial note
In the draft financial statements the excess reorganisation provision of CU400,000 has been correctly
released to the income statement but the original provision set up of CU1.2 million was not charged. Once
the adjustment of CU1.2 million has been actioned (Dr Income statement, Cr Goodwill) the income
statement will have borne the true post-acquisition cost of CU0.8 million.
26 Arran Ltd
Marking guide
Marks
186 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(a) Calculation of amounts for the consolidated income statement for the year ended 31 May
20X1
(i) Cost of sales
CU
Arran Ltd 7,400,000
Jura Ltd
Per question 4,500,000
Impairment of PPE (500,000 390,000) 110,000
Islay Ltd (2,700,000 8/12) 1,800,000
13,810,000
(ii) Profit on disposal of Islay Ltd
CU CU
Sales proceeds 2,500,000
Less Share of net assets at disposal
Net assets at 1 June 20X0 1,700,000
Profit to 31 January 20X1 (8/12 570,000) 380,000
2,080,000 80% (1,664,000)
Less Carrying amount of goodwill at disposal (W3) (384,000)
452,000
(iii) Share of profits of associates
CU
Share of profit after tax ((1,960,000 6/12) (100,000 - 70,000) 30%) 285,000
Less Share of PURP (60,000 (W2) 30%) (18,000)
267,000
(iv) Tax charge
CU
Arran Ltd 450,000
Jura Ltd 400,000
Islay Ltd (240 8/12) 160,000
1,010,000
(b) Calculation of property, plant and equipment for the consolidated balance sheet as at
31 May 20X1
CU
Arran Ltd 5,500,000
Jura Ltd (3,400,000 110,000 (a)) 3,290,000
8,790,000
Notes to the financial statements for the year ended 31 May 20X1 (extracts)
(1) Operating profit is stated after charging
CU
Impairment of property, plant and equipment 110,000
The Institute of Chartered Accountants in England and Wales, March 2009 187
Preparation of extracts from financial statements
Arran Ltd
75% 80%
30%
Islay Ltd
Jura Ltd
Disposed of Millport Ltd
31 Jan 20X1
8/12 incl Acquired
1 Dec 20X0
6/12 incl
(2) PURP
% CU
SP 1331/3 240,000 ( 480)
Cost (100) (180,000)
GP 331/3 60,000
188 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
27 Elie Ltd
Marking guide
Marks
The Institute of Chartered Accountants in England and Wales, March 2009 189
Preparation of extracts from financial statements
(b) Statement of changes in equity for the year ended 30 June 20X2 (extract)
Attributable to the Equity Holders of Elie Ltd
Ordinary Preference
share share capital Share Revaluation
capital (irredeemable) premium reserve
CU CU CU CU
Recognised directly in equity
Impairment of
non-current asset
previously revalued (W3) (38,000)
Transfer between
reserves (45,000
2,000 (W2)) (43,000)
Total recognised income
and expense for the period (81,000)
Issue of share capital (W1) 200,000 200,000 3,240,000
200,000 200,000 3,240,000 (81,000)
Balance brought forward 1,000,000 500,000 250,000
Balance carried forward 1,200,000 200,000 3,740,000 169,000
WORKINGS
(1) Share issues
Ordinary Irredeemable Share
shares preference shares premium
CU CU CU
B/f 1,000,000
Acquisition of Monans Ltd 200,000 ( 3,200,000
CU16)
Irredeemable preference shares 200,000 ( 20p) 40,000
1,200,000 200,000 3,240,000
190 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
Marking guide
Marks
(a) Goodwill 4
Investments in associates 2
Retained earnings 5
Total available 11
Maximum 11
(b) Cash flow extracts
Acquisition 1
Dividends from associates 1
Dividends paid 1
Note
Narrative 1
Minority interest 1
Current liabilities 1
All other amounts (not totals or sub-totals) 3
Total available 9
Maximum 9
(c) Purpose 2
Key concepts 1
Discussion of single entity concept 1
Discussion of substance over form 1
Total available 5
Maximum 5
25
The Institute of Chartered Accountants in England and Wales, March 2009 191
Preparation of extracts from financial statements
(b) Consolidated cash flow statement for the year ended 31 October 20X0 (extracts)
Cash flows from investing activities CU'000
Acquisition of Ullapool Ltd net of cash acquired (Note 1) (6,700)
Dividends received from associate (W3) 90
Cash flows from financing activities
Dividends paid (W3) (4,000)
CU'000
Goodwill ((a) (i)) 6,815
Property, plant and equipment 17,000
Inventories (2,000 + 12 ((a) (i))) 2,012
Trade and other receivables 1,500
Cash 300
Non-current liabilities (800)
Current liabilities (1,000 + 98) (1,098)
Minority interest (18,914 (a) (i) 25%) (4,729)
Total purchase price 21,000
Less Non cash consideration (14,000)
Cash consideration 7,000
Less Cash acquired (300)
Cash flow on acquisition 6,700
192 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
(1) Post-acquisition retained earnings of Ullapool Ltd
CU'000
Per individual company balance sheet 2,600
Less Reduction in profit re inventories (12)
NCA PURP (W2) (225)
Pre-acquisition profits (2,000)
363
(3) Dividends
CU'000
Wester Ross Ltd paid ordinary (10p 40,000,000) 4,000
Glenelg Ltd paid to Wester Ross Ltd ordinary (20p 1,500,000 30%) 90
The Institute of Chartered Accountants in England and Wales, March 2009 193
Preparation of extracts from financial statements
29 Shadowlands Ltd
Marking guide
Marks
(a) Note reconciling profit before tax to cash generated from operations
CU
Profit before tax (4,400,000 + 40,000 10,000 (b) 750,000) 3,680,000
Finance cost (50,000 + 10,000 (b)) 60,000
Investment income (950,000 750,000) (200,000)
Depreciation charge 356,000
Profit on disposal of associate (c) (351,440)
Decrease in inventories (460,700 350,600) 110,100
Increase in trade and other receivables (279,600 256,900) (22,700)
Decrease in trade and other payables (182,300 178,500) (3,800)
Cash generated from operations 3,628,160
n (n 1) 45
SOD = = = 10
2 2
Year ended B/f Interest Payment C/f
CU CU CU CU
10,000 ( /10 25,000)
4
31 December 20X7 105,000 (40,000) 75,000
7,500 ( /10 25,000)
3
31 December 20X8 75,000 (30,000) 52,500
194 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
Disclosed as
Current liabilities CU
Finance lease liability (75,000 52,500) 22,500
Non-current liabilities
Finance lease liability 52,500
(c) Disposal of Bacardi Ltd
In the individual accounts of Shadowlands Ltd CU
Cost 300,000
Less Impairments to date of sale (20,000)
Carrying amount at disposal 280,000
Proceeds 750,000
Profit on disposal 470,000
In the group accounts CU CU
Proceeds 750,000
Less Share of net assets to date of sale
Share capital 500,000
Retained earnings (650,300 ( 110,200)) 595,200
1,095,200
30% (328,560)
Less Goodwill not yet impaired
Original cost 300,000
Less Share of net assets acquired
(30% (500,000 + 200,000)) (210,000)
90,000
Less Impaired to date (20,000)
(70,000)
Profit on disposal 351,440
30 Scribo Ltd
Marking guide
Marks
The Institute of Chartered Accountants in England and Wales, March 2009 195
Preparation of extracts from financial statements
WORKINGS
(1) Magazine subscriptions revenue
CU
Pre March (50% CU356,700 4/12) 59,450
March (25% CU356,700 3/12) 22,294
April (25% CU356,700 2/12) 14,863
96,607
(2) Magazines on sale or return revenue
CU
Total 789,400
Less June returns (10,500 CU3) (31,500)
757,900
196 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
31 Hemmingway Ltd
Marking guide
Marks
(a) CBS
PPE 1
Intangibles/goodwill 1
Investment
Inventories 1
Trade and other receivables
Cash and cash equivalents
Share capital
Revaluation reserve 1
Retained earnings 1
Minority interest
Borrowings
Trade and other payables
Other workings
Group structure (W1)
Net assets (W2) 2
PPE PURP (W8) 2
Presentation 1
Total available 15
Maximum 15
(b) Carried at cost plus share of post-acquisition profits 1
Increase consolidated earnings by share of post-acquisition profits
less impairments 1
Equity method used where significant influence
Do not add assets and liabilities to those of parent as no control
No minority interest
Total available 3
Maximum 3
18
The Institute of Chartered Accountants in England and Wales, March 2009 197
Preparation of full consolidated financial statements
WORKINGS
(1) Group structure
Hemmingway Ltd
75%
Steinbeck Ltd
198 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
The Institute of Chartered Accountants in England and Wales, March 2009 199
Preparation of full consolidated financial statements
32 Highland Ltd
Marking guide
Marks
(a) CBS
PPE 1
Intangibles/goodwill 1
Inventories 1
Trade receivables
Cash and cash equivalents
Share capital
Share premium
Retained earnings 2
Minority interest
Borrowings
Trade payables
Dividends payable 1
Other workings
Net assets (W2) 6
Presentation 1
Total available 18
Maximum 18
(b) Purpose
Comprehensive information
Ability of management to produce acceptable return
Only post-acquisition profits allowed
Therefore managers assessed on only post-acquisition performance
Concepts
Single entity and explanation of how accounts would differ without this 2
Explanation of calculation of intra-group items 1
Substance over form and explanation 1
Total available 7
Maximum 6
24
200 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
The Institute of Chartered Accountants in England and Wales, March 2009 201
Preparation of full consolidated financial statements
WORKINGS
(1) Group structure
Highland Ltd
75%
Lowland Ltd
(6) PURP
% CU'000
SP (800 ) 125 400
Cost (100) (320)
GP 25 80
202 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(7) Dividends
CU'000
Highland Ltd 150
Lowland Ltd minority interest (80 25%) 20
170
33 Ullapool Ltd
Marking guide
Marks
CBS
PPE 1
Investments in associates 1
Inventories 1
Trade receivables 1
Cash and cash equivalents 1
Share capital
Share premium
Retained earnings 2
Minority interest
Trade payables
Other workings
Net assets (W2) 3
Presentation 1
Total available 15
Maximum 14
The Institute of Chartered Accountants in England and Wales, March 2009 203
Preparation of full consolidated financial statements
CU'000 CU'000
ASSETS
Non-current assets
Property, plant and equipment (6,500 + 2,900 + 290) 9,690
Investments in associates (W7) 649
10,339
Current assets
Inventories (900 + 830 17 (W6)) 1,713
Trade receivables (430 + 350 20) 760
Cash and cash equivalents (330 + 120 + 20) 470
2,943
Total assets 13,282
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 4,750
Share premium 1,250
Retained earnings (W5) 2,685
Attributable to the equity holders of Ullapool Ltd 8,685
Minority interest (W4) 1,147
Equity 9,832
Current liabilities
Trade payables (2,800 + 650) 3,450
Total equity and liabilities 13,282
WORKINGS
(1) Group structure
Ullapool Ltd
70%
30%
Kyle Ltd
Portree Ltd
204 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(6) PURP
% CU'000
SP 150 51
Cost (100) (34)
GP 50 17
Tutorial note
In accordance with BFRS 3 the staff costs re acquisition should be included in cost of investment only if
directly attributable to the acquisition. As the staff would have been paid irrespective of whether the
acquisition was made, the cost is recognised in profit or loss.
The Institute of Chartered Accountants in England and Wales, March 2009 205
Preparation of full consolidated financial statements
34 Law Ltd
Marking guide
Marks
CBS
PPE 2
Intangibles 2
Investments in associates 1
Inventories
Trade and other receivables 1
Cash and cash equivalents
Ordinary share capital
Preference
Retained earnings 3
Minority interest
Trade and other payables
Dividends payable 1
Other workings
Net assets (W2) 3
Presentation 1
Total available 18
Maximum 17
206 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
Law Ltd
40%
70%
Newtyle Ltd
Balgay Ltd
(3) Goodwill
Balgay Ltd CU'000
Cost of investment 5,500
Less Share of net assets acquired (70% 7,030) (W2)) (4,921)
579
Less Impairment to date (116)
Balance c/f 463
The Institute of Chartered Accountants in England and Wales, March 2009 207
Preparation of full consolidated financial statements
35 Heeley Ltd
Marking guide
Marks
CBS
PPE 1
Intangibles 1
Investment in associates 2
Inventories 1
Trade and other receivables
Cash and cash equivalents 1
Share capital
Retained earnings 3
Minority interest
Borrowings
Trade and other payables
Taxation
Other workings
Group structure (W1)
Net assets (W2) 3
Presentation 1
Total available 17
Maximum 16
208 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
(1) Group structure
Heeley Ltd
40%
60%
Aughton Ltd
Sothall Ltd
The Institute of Chartered Accountants in England and Wales, March 2009 209
Preparation of full consolidated financial statements
(3) Goodwill
Sothall Ltd CU'000
Cost of investment (3,000 CU3) 9,000
Less Share of net assets acquired (60% 10,000 (W2)) (6,000)
3,000
Impairment to date (300 + 800 + 700) (1,800)
Balance c/f 1,200
(6) PURP
% CU'000
SP (1,000 ) 100 750
Cost (80) (600)
GP 20 150
210 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
36 Harris Ltd
Marking guide
Marks
(a) CBS
PPE 1
Intangibles 1
Investment in associates 2
Inventories 1
Trade receivables
Cash and cash equivalents
Share capital
Retained earnings 3
Minority interest
Debentures
Trade payables
Dividends payable
Other workings
Net assets (W2) 2
Presentation 1
Total available 16
Maximum 15
(b) Significant influence presumed at 20%, so 15% not usually associated 1
Only if exercised significant influence
Via mark each (max 2)
Majority/substantial holding of remaining 85% would not preclude
significant influence
Total available 4
Maximum 4
19
The Institute of Chartered Accountants in England and Wales, March 2009 211
Preparation of full consolidated financial statements
Harris Ltd
75% 30%
Auskerry Ltd
Scalpay Ltd
212 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(6) PURP
% CU'000
SP (800 ) 125 600
Cost (100) (480)
GP 25 120
The Institute of Chartered Accountants in England and Wales, March 2009 213
Preparation of full consolidated financial statements
37 Lowland Ltd
Marking guide
Marks
CIS
Revenue 1
Cost of sales 1
Operating expenses 3
Finance cost 1
Investment income 2
Tax
Minority interest 1
Presentation 1
CSCE
Profit for period
Dividends 1
Arising on acquisition 2
Brought forward 3
Presentation 1
Other workings
Freehold PURP (W4) 2
Depreciation adjustment (W5) 1
Interest on loan stock (W6) 1
Total available 23
Maximum 22
214 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
Consolidated statement of changes in equity for the year ended 31 March 20X8 (extract)
Retained Minority
earnings interest
CU'000 CU'000
Profit/(loss) for the period 680 (26)
Interim dividends on ordinary shares (50 20%) (200) (10)
480 (36)
Arising on acquisition of subsidiary (W9) 613
Balance brought forward (W7 and W8) 452 808
Balance carried forward 932 1,385
WORKINGS
(1) Group structure
Lowland Ltd
Tutorial note
A share of the loss for the year in Buchan Ltd can be allocated to the minority only because overall Buchan
Ltd has net assets. If Buchan Ltd were to have net liabilities overall, the minority could only be allocated
their share of those net liabilities if they were to have a binding obligation to make an additional investment
over the losses, and are able to do so.
The Institute of Chartered Accountants in England and Wales, March 2009 215
Preparation of full consolidated financial statements
216 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
Tutorial note
It would be possible to accrue two months' loan stock interest for Lowland Ltd (CU35,000) for pre-
acquisition interest, instead of per W6.
38 Vanguard Ltd
Marking guide
Marks
(a) CIS
Revenue 1
Cost of sales 2
Operating expenses 1
Finance cost
Investment income 1
Share of profits of associates 1
Tax
Minority interest
Presentation 1
CSCE
Profit for period
Dividends
Brought forward 4
Presentation
Other workings
PURP (W4) 2
Intangible amortisation (W5) 1
Total available 17
Maximum 16
(b) Cost of acquisition
Share of fair value of net assets acquired 1
Accumulated impairment losses
Total available 2
Maximum 2
18
The Institute of Chartered Accountants in England and Wales, March 2009 217
Preparation of full consolidated financial statements
(a) Consolidated income statement for the year ended 31 March 20X4
CU
Revenue (W2) 600,052
Cost of sales (W2) (428,734)
Gross profit 171,318
Net operating expenses (W2) (113,417)
Profit from operations 57,901
Finance cost (W2) (3,801)
Investment income (W2) 9,636
Share of profit of associates (W6) 1,950
Profit before tax 65,686
Income tax expense (W2) (22,735)
Profit for period 42,951
Attributable to equity holders of Vanguard Ltd () 36,673
Minority interest (W3) 6,278
42,951
Consolidated statement of changes in equity for the year ended 31 March 20X4 (extract)
Retained
earnings
CU
Profit for the period 36,673
Interim dividends on ordinary shares (9,000)
27,673
Balance brought forward (W7) 667,657
Balance carried forward (W9) 695,330
(b) Carrying amount of goodwill re Formidable Ltd
CU
Cost of acquisition 415,000
Less Share of fair value of net assets acquired (75% (485,000 + 15,000)) (375,000)
40,000
Less Accumulated impairment losses (12,000 + 4,000) (16,000)
Goodwill in consolidated balance sheet 24,000
WORKINGS
(1) Group structure
Vanguard Ltd
75% 45%
218 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(4) PURP
Opening Closing
inventories inventories Movement
% CU CU CU
SP 125 5,600 8,350
Cost (100) (4,480) (6,680)
GP 25 1,120 1,670 550
(5) Intangible amortisation
CU
Intangible FV adjustment 15,000
Amortisation b/f (15,000 3/20) (2,250)
12,750
Amortisation in current year (15,000 1/20) (750)
Intangible c/f 12,000
(6) Share of profit of associates
CU
Share of profit after tax (45% 7,110) 3,200
Less Current year impairment loss (1,250)
1,950
(7) Retained earnings b/f
CU
Vanguard Ltd 539,260
Formidable Ltd (75% (327,530 150,000 2,250 (W5))) 131,460
Albion Ltd (45% (25,850 3,500)) 10,057
Less Impairment losses (12,000)
PURP on opening inventories (W4) (1,120)
667,657
(8) Non-group investment income in Vanguard Ltd
CU
Total per income statement 24,244
Less From Formidable Ltd (20,500 75%) (15,375)
From Albion Ltd (5,500 45%) (2,475)
6,394
The Institute of Chartered Accountants in England and Wales, March 2009 219
Preparation of full consolidated financial statements
39 Heaton Ltd
Marking guide
Marks
(a) Revenue 1
Cost of sales 3
Expenses
Finance cost
Share of profit of associates 1
Tax
Minority interest
Presentation 1
Total available 9
Maximum 8
(b) Profit for period
Dividends 1
Brought forward 4
Total available 5
Maximum 5
(c) Consolidation as if single entity 1
Represents substance not legal form 1
Substance is that shareholders invest in subsidiaries via parent
therefore interested in whole group 1
Total available 3
Maximum 2
15
(a) Consolidated income statement for the year ended 31 March 20X4
CU'000
Revenue (W2) 35,900
Cost of sales (W2) (27,510)
Gross profit 8,390
Expenses (W2) (3,570)
Profit from operations 4,820
Finance cost (W2) (270)
Share of profits of associates (W5) 115
Profit before tax 4,665
Income tax expense (W2) (1,880)
Profit for period 2,785
Attributable to equity holders of Heaton Ltd () 2,539
Minority interest (W3) 246
2,785
220 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(b) Statement of changes in equity for the year ended 31 March 20X4 (extract)
Retained Minority
earnings interest
CU'000 CU'000
Profit for the period (part (a)) 2,539 246
Dividends (400 20%) (1,000) (80)
1,539 166
Balance brought forward (W6 and W7) 5,130 1,520
Balance carried forward (W9) and (20% 8,430 (W8)) 6,669 1,686
Heaton Ltd
80%
30% (6/12 incl)
The Institute of Chartered Accountants in England and Wales, March 2009 221
Preparation of full consolidated financial statements
20% 1,520
222 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
40 Jerome Ltd
Marking guide
Marks
(a) Revenue
Cost of sales
Distribution cost
Administrative expenses 2
Finance cost 1
Investment income 1
Share of profit of associates 1
Tax
Minority interest
Presentation 1
Group structure (W1)
Total available 10
Maximum 9
(b) Profit for period
Dividends
Brought forward 5
Presentation
Total available 6
Maximum 6
(c) Cost of investment
Share of post acquisition change in net assets 1
Impairment to date
Total available 2
Maximum 2
17
(a) Consolidated income statement for the year ended 31 December 20X7
CU'000
Revenue (W2) 5,768
Cost of sales (W2) (3,215)
Gross profit 2,553
Distribution costs (W2) (305)
Administrative expenses (W2) (337)
Profit from operations 1,911
Finance cost (W2) (55)
Investment income (W2) 85
Share of profit of associates (W5) 21
Profit before tax 1,962
Income tax expense (W2) (490)
Profit for period 1,472
The Institute of Chartered Accountants in England and Wales, March 2009 223
Preparation of full consolidated financial statements
(b) Consolidated statement of changes in equity for the year ended 31 December 20X7
(extract)
Retained
earnings
CU'000
Profit for the period (from (a)) 1,372
Final dividends on ordinary shares (200)
1,172
Balance brought forward (W8) 14,701
Balance carried forward (W10) 15,873
WORKINGS
(1) Group structure
Jerome plc
400
400 40
= 80%
= 80% = 40% on 1 July 20X7 /12 incl
6
500
500 100
224 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
The Institute of Chartered Accountants in England and Wales, March 2009 225
Preparation of full consolidated financial statements
41 Hardmead Ltd
Marking guide
Marks
(a) Revenue 1
Cost of sales 5
Operating expenses 1
Tax
Loss from discontinued operations 5
Minority interest 1
Profit split
Presentation 1
Total available 15
Maximum 14
(b) Profit for period
Dividends 1
Eliminated on disposal 1
Brought forward 5
Presentation
Total available 8
Maximum 7
(c) Mark each point per answer
Total available 2
Maximum 2
23
(a) Consolidated income statement for the year ended 30 September 20X5
Continuing operations CU'000
Revenue (W2) 17,360
Cost of sales (W2) (15,640)
Gross profit 1,720
Operating expenses (W2) (850)
Profit before tax 870
Income tax expense (W2) (460)
Profit for period from continuing operations 410
Discontinued operations
Loss for the period from discontinued operations (160 (W4) 446 (W6)) (286)
Profit for the period 124
Attributable to
Equity holders of Hardmead Ltd () 50
Minority interest (W3) 74
124
226 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(b) Consolidated statement of changes in equity for the year ended 30 September 20X5
(extracts)
Retained Minority
earnings interest
CU'000 CU'000
Profit for the period 50 74
Dividends on ordinary shares (100 20%) (600) (20)
Eliminated on disposal of subsidiary (W12) (2,064)
(550) (2,010)
Balance brought forward (W9 & W11) 2,090 3,490
Balance carried forward (W10 & W13) 1,540 1,480
(c) Underlying principles re disposal
The concept of control is an example of the substance over form concept. The subsidiary is
consolidated whilst it is under the control of the parent.
Therefore 100% of the results of Stratford Ltd are consolidated until the date on which control is
relinquished.
40% of the results for the first six months are acknowledged as belonging to the minority interest
which is consistent with the concept of ownership.
The loss on disposal is based upon the net assets of Stratford Ltd at the date of disposal.
The loss on disposal includes any unimpaired goodwill, since this asset is also disposed of even
though it is not recognised in Stratford Ltd's own balance sheet.
WORKINGS
(1) Group structure
Hardmead Ltd
The Institute of Chartered Accountants in England and Wales, March 2009 227
Preparation of full consolidated financial statements
228 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
42 Tain Ltd
Marking guide
Marks
CIS
Revenue 1
Cost of sales 2
Operating expenses
Share of profits of associate 1
Tax
Profit from discontinued operations 5
Minority interest 1
Profit split
Presentation 1
Group structure
CSCE
Profit for period
Dividends
Brought forward 3
Presentation
Total available 19
Maximum 18
The Institute of Chartered Accountants in England and Wales, March 2009 229
Preparation of full consolidated financial statements
Tain Ltd
55%
75% 30%
230 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(5) Goodwill
Banchory Ltd CU'000 CU'000
Cost of investment 2,500
Less Share of fair value of net assets acquired
Share capital 2,000
Retained earnings 1,600
Revaluation reserve 300
3,900 55% (2,145)
Goodwill 355
Impairment brought forward (142)
Goodwill at date of disposal 213
(6) Group profit on disposal of Banchory Ltd
CU'000 CU'000
Sales proceeds 3,500
Less Share of net assets at disposal
Share capital 2,000
Revaluation reserve 400
Retained earnings (2,000 + 620) 2,620
5,020 55% (2,761)
739
Less Carrying amount of goodwill at disposal (W5) (213)
Profit on disposal 526
(7) PURP
% CU'000
SP 1331/3 200
Cost (100) (150)
GP 331/3 50
(8) Retained earnings b/f
CU'000
Tain Ltd 2,356
Banchory Ltd ((2,000 1,600) 55%) 220
Dornoch Ltd ((152 80) 75%) 54
Less Goodwill impairment to date (Banchory Ltd) (142)
2,488
The Institute of Chartered Accountants in England and Wales, March 2009 231
Preparation of full consolidated financial statements
43 Glencoe Ltd
Marking guide
Marks
CIS
Revenue
Cost of sales
Operating expenses 1
Profit on sale of interest in subsidiary 2
Tax
Profit from discontinued operations 4
Minority interest 1
Presentation 1
Group structure
CBS
PPE
Current assets
Share capital
Retained earnings 3
Minority interest
Current liabilities
Presentation 1
Total available 18
Maximum 17
232 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
(1) Group structure
Glencoe Ltd
(15% sold 31 August 20Y0) 75% 60% 80% Sold 1 June 20Y0 (9/12 incl)
The Institute of Chartered Accountants in England and Wales, March 2009 233
Preparation of full consolidated financial statements
234 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
44 Herdings Ltd
Marking guide
Marks
The Institute of Chartered Accountants in England and Wales, March 2009 235
Preparation of full consolidated financial statements
236 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
(1) Group structure
Herdings Ltd
8,000
80%
10,000 1,500
30% = on 1 October 20X2 (6/12 incl)
5,000
7,000
70%
10,000
Abbeydale Ltd
Sandygate Ltd
The Institute of Chartered Accountants in England and Wales, March 2009 237
Preparation of full consolidated financial statements
(6) PURP
% CU'000
SP (3,300 ) 110 1,650
Cost (100) (1,500)
GP 10 150
(7) Fair value adjustment PPE
At acquisition the PPE needs revaluing upwards by CU2,000,000. The additional depreciation to date
will be for two years.
CU'000
Accumulated depreciation = 2/10 2,000,000 400
Net adjustment to PPE 1,600
(8) Investments in associates
CU'000
Cost 6,000
Share of post acquisition change in net assets (30% 2,000 (W2)) 600
6,600
45 Camden Ltd
Marking guide
Marks
(a) CIS
Revenue 1
Cost of sales and expenses 3
Profit on sale of interest in subsidiary 4
Share of profits of associate 1
Tax 1
Minority interest 1
Split of profit
Presentation 1
Group structure
CSCE
Profit for period
Dividends 1
Added on acquisition 1
Eliminated on disposal 2
Brought forward 1
Presentation 1
Total available 23
Maximum 22
(b) Cost
Share of post-acquisition change in net assets 1
Total available 2
Maximum 2
(c) Consolidation of Kentish Ltd 1
Dividends received by Camden Ltd 2
Intra group trading 1
Unrealised profit in inventories 2
Total available 7
Maximum 6
30
238 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
(a) Consolidated income statement for the year ended 30 September 20X5
CU'000
Revenue (W2) 240,955
Cost of sales and expenses (W2) (215,668)
Profit on sale of interest in subsidiary (W10) 229
Share of profits of associate (W7) 560
Profit before tax 26,076
Income tax expense (W2) (9,030)
Profit for the period 17,046
Attributable to equity holders of Camden Ltd () 14,413
Minority interest (W4) 2,633
17,046
Consolidated statement of changes in equity for the year ended 30 September 20X5
(extracts)
Retained Minority
earnings interest
CU'000 CU'000
Net profit for the period 14,413 2,633
Interim dividends on ordinary shares (W5) (2,820) (1,078)
Added on acquisition of subsidiary (W6) 2,080
Eliminated on disposal of subsidiary (W8) (5,141)
11,593 (1,506)
Balance brought forward (11,820 + (60% (8,210 450))) (W8) 16,476 3,884
Balance carried forward 28,069 2,378
(b) Carrying amount of Tufnell Ltd in consolidated balance sheet as at 30 September 20X5
CU'000
Cost (3,000 30/60) 1,500
Share of post acquisition change in net assets (30% (8,210 + 7,470 2,460 450)) 3,831
5,331
The Institute of Chartered Accountants in England and Wales, March 2009 239
Preparation of full consolidated financial statements
WORKINGS
(1) Group structure
Camden Ltd
(Acq 1 March 20X5 7/12 incl) 72% 60% 30% (on 30 June 20X5 9/12 incl)
(3) PURP
% CU'000
SP 100 240
Cost (80) (192)
GP 20 48
240 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
The Institute of Chartered Accountants in England and Wales, March 2009 241
Preparation of full consolidated financial statements
46 Gallant Ltd
Marking guide
Marks
Cash flow statement
Interest paid
Income tax paid 1
Purchase of PPE 3
Proceeds from sales of PPE
Dividends from associates 1
Proceeds from issue of ordinary shares 2
Payment of finance lease liabilities
Dividends paid to MI 1
Dividends paid 1
Opening and closing cash
Presentation 1
Reconciliation
Each item mark (max 4) 4
Total available 18
Maximum 17
Consolidated cash flow statement for the year ended 31 December 20X7
CU CU
Cash flows from operating activities
Cash generated from operations (see Note) 2,464,800
Interest paid (75,000)
Income tax paid (W2) (370,000)
Net cash from operating activities 2,019,800
Cash flows from investing activities
Purchase of property, plant and equipment (W5) (2,360,700)
Proceeds from sale of property, plant and equipment 800,000
Dividends received from associates (W1) 228,700
Net cash used in investing activities (1,332,000)
Cash flows from financing activities
Proceeds from issue of ordinary share capital (W8) 850,000
Payment of finance lease liabilities (100,000 75,000) (25,000)
Dividends paid to minority interests (W4) (949,100)
Dividends paid (W7) (553,200)
Net cash used in financing activities (677,300)
Net increase in cash and cash equivalents 10,500
Cash and cash equivalents at beginning of period 20,200
Cash and cash equivalents at end of period 30,700
242 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
WORKINGS
(1) INVESTMENTS IN ASSOCIATES
CU CU
B/d 1,678,900 Cash () 228,700
Share of profits (IS) 345,600 C/d 1,795,800
2,024,500 2,024,500
(5) PPE
CU CU
B/d 7,078,400 Disposals 760,500
Leased assets IS Depn charges 970,600
(376,000 + 124,000 + 25,000) 525,000
Additions () 2,360,700 C/d 8,396,200
Revaluation (W6) 163,200
10,127,300 10,127,300
The Institute of Chartered Accountants in England and Wales, March 2009 243
Preparation of full consolidated financial statements
47 Slick Ltd
Marking guide
Marks
244 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
Consolidated cash flow statement for the year ended 30 June 20X7
CU'000 CU'000
Cash flows from operating activities
Cash generated from operations (Note (1)) 413
Interest paid (25)
Income tax paid (W4) (79)
Net cash from operating activities 309
Cash flows from investing activities
Acquisition of subsidiary Kay Ltd net of cash acquired (Note (2)) (89)
Purchase of property, plant and equipment (W1) (722)
Proceeds from sale of property, plant and equipment 420
Net cash used in investing activities (391)
Cash flows from financing activities
Proceeds from issue of ordinary share capital (W2) 275
Dividends paid to minority interests (W3) (207)
Dividends paid (W5) (11)
Net cash from financing activities 57
Net decrease in cash and cash equivalents (25)
Cash and cash equivalents at beginning of period 35
Cash and cash equivalents at end of period 10
The Institute of Chartered Accountants in England and Wales, March 2009 245
Preparation of full consolidated financial statements
WORKINGS
(1) PPE
CU'000 CU'000
B/d 1,980 IS Depn 657
On acq of sub (500 + 100) 600 Disposals 500
Additions () 722 C/d 2,145
3,302 3,302
(2) SHARE CAPITAL AND PREMIUM
CU'000 CU'000
B/d (800 + 500) 1,300
Acq of sub 625
C/d (1,500 + 700) 2,200 Cash () 275
2,200 2,200
(3) MINORITY INTEREST
CU'000 CU'000
B/d 352
Dividends to MI () 207 Acq of sub ((880 + 100 150) 20%) 166
C/d 341 IS 30
548 548
(4) INCOME TAX
CU'000 CU'000
B/d 140
Cash () 79 IS 20
C/d 131 Acq of sub 50
210 210
(5) RETAINED EARNINGS
CU'000 CU'000
Dividends () 11 B/d 1,064
IS 686
C/d 367
1,064 1,064
246 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
48 Senorita Ltd
Marking guide
Marks
Consolidated cash flow statement for the year ended 31 December 20X5
CU'000 CU'000
Cash flows from operating activities
Cash generated from operations (Note (1)) 442
Income tax paid (W1) (108)
Net cash from operating activities 334
Cash flows from investing activities
Disposal of subsidiary Amigo Ltd net of cash disposed of (Note (2)) 488
Purchase of property, plant and equipment (1,350)
Proceeds from sale of property, plant and equipment 600
Net cash used in investing activities (262)
Cash flows from financing activities
Proceeds from issue of ordinary share capital ((1,000 + 600) (800 + 300)) 500
Dividends paid to minority interests (W3) (367)
Dividends paid (W2) (125)
Net cash from financing activities 8
Net increase in cash and cash equivalents 80
Cash and cash equivalents at beginning of period (35)
Cash and cash equivalents at end of period 45
The Institute of Chartered Accountants in England and Wales, March 2009 247
Preparation of full consolidated financial statements
248 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
The Institute of Chartered Accountants in England and Wales, March 2009 249
Single entity financial statements: objective test questions
16 B The elements of the financial statements are assets, liabilities, equity, income and expenses.
Assets, liabilities and equity are directly related to the measurement of financial position. Income
and expenses are directly related to the measurement of profit.
51 BAS 2 Inventories
1 D Only two cost formulas are allowed by BAS 2: FIFO and WAC (Weighted Average Cost)
therefore (1) and (2) are incorrect and (3) is correct. (4) is correct although if inventories do
not have a similar nature different cost formulas may be used.
2 A Carriage outwards on goods delivered to customers will be relevant to the calculation of NRV,
but not cost. BAS 2 specifies that abnormal costs should not be carried forward in inventory.
3 C
Cost per widget
CU
Raw materials (CU100,000 10,000) 10
Direct labour (CU50,000 10,000) 5
Variable overheads (CU40,000 10,000) 4
Fixed overheads (CU120,000 12,000) 10
29 1,000 widgets = CU29,000
4 A BAS 2 applies to all inventories except work-in-progress under construction contracts, financial
instruments (e.g. shares, bonds) and biological assets.
250 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
5 C Costs applicable to normal levels of production = 100,000 + 50,000 + 40,000 + (120,000 2/3)
= 270,000
Closing inventory 1,000/10,000 270,000 = CU27,000
Charged to IS in year (270,000 27,000) + (120,000 1/3) = CU283,000
6 A
CU
Revenue ((10,000 3,000) CU45) 315,000
Costs (352,500)
Closing inventory at NRV* (3,000 CU29) 87,000
Net profit 49,500
*Cost per unit = 312,500/10,000 = CU31.25 therefore NRV of CU29 (35 6) is lower
7 C
CU
Raw materials (7,000 CU20) 140,000
Work in progress at NRV (2,500 ((35 80%) 2 2.50)) 58,750
Finished goods at NRV (1,000 ((35 80%) 2)) 26,000
224,750
2 B
CU
Increase in cash in hand (1,100 1,000) 100
Increase in cash at bank (21,932 + 41,627) 63,559
Net increase 63,659
3 C
CU
Profit before tax (30,000 25,000) 5,000
Increase in inventories and trade receivables (55,000 48,000) (7,000)
Decrease in trade payables (20,000 14,000) (6,000)
Depreciation charge (10,000 8,000) 2,000
Cash used in operations (6,000)
4 B Tax and dividends appear below profit before tax and hence do not appear in the reconciliation.
Depreciation and an increase in a provision are charged before arriving at profit before tax and
hence are adjusted for in the reconciliation.
The Institute of Chartered Accountants in England and Wales, March 2009 251
Single entity financial statements: objective test questions
5 C
DIVIDENDS PAYABLE
CU CU
Cash () 40,000 B/d Final for 20X2 25,000
C/d Final for 20X3 30,000 Income statement
Interim for 20X3 15,000
Final for 20X3 30,000
70,000 70,000
6 B
PROPERTY, PLANT AND EQUIPMENT NBV
CU CU
B/d 330,000 Depn 90,000
Cash () 75,000 Disposals (W) 45,000
C/d 270,000
405,000 405,000
WORKING
DISPOSALS
CU CU
Income statement 15,000 Cash 60,000
NBV () 45,000
60,000 60,000
7 B Only the fresh issue of ordinary shares generates cash = 200,000 CU1.20 = CU240,000
The redeemable preference shares are classified as borrowings so the CU110,000 received will
be classified as proceeds from issue of borrowing, not proceeds from issue of equity share
capital.
8 C The reconciliation starts with profit before tax so tax does not appear within it. Income taxes
paid were CU10,500.
WORKING
INCOME TAX PAID
CU CU
Cash () 10,500 B/d 10,000
C/d 15,500 Income statement 16,000
26,000 26,000
9 B Issue of non-current interest-bearing borrowings of (30,000 25,000) CU5,000 shown as an
inflow under financing activities. Interest paid of (700 + 600 500) CU800 shown as an outflow
under operating activities. The finance cost of CU600 is added back to profit before tax in the
reconciliation.
10 C
CU
Profit before tax 52,000
Depreciation charge 21,600
Increase in trade receivables (15,500)
Increase in trade payables 14,600
Cash generated from operations 72,700
252 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
11 C
SHARE CAPITAL
CU CU
B/d 40,000
Bonus issue (40,000 10) 4,000
C/d 50,000 Cash () 6,000
50,000 50,000
SHARE PREMIUM
CU CU
Bonus issue 4,000 B/d 25,200
C/d 27,500 Cash () 6,300
31,500 31,500
Therefore, total cash received for shares (6,000 + 6,300) 12,300
12 D It would not feature in the statement at all, but would appear in the reconciliation note.
13 A
PROPERTY, PLANT AND EQUIPMENT NBV
CU CU
B/d 225,600 Disposals (40,000 10,100) 29,900
Revaluation (31,000 16,500) 14,500
Additions () 91,500 C/d 301,700
331,600 331,600
14 B
CU
Profit before tax X
Increase in prepayments (2,550 2,300) (250)
Decrease in accruals* (1,670 1,560) (110)
Deduct (360)
* other than accrued interest which is adjusted for in arriving at interest paid.
15 B Investing activities
CU
Sale of property, plant and equipment 10,000
Purchase of property, plant and equipment (109,000)
(99,000)
Financing activities
CU
Share issue (100,000 CU1.20) 120,000
Repay loan (25,000)
95,000
16 C CU6,500 will be shown as purchase of PPE (an investing outflow), CU4,250 (the capital element
of the finance lease repayment) will be shown as a financing outflow, and the interest of CU750
will be shown as an operating outflow.
17 D
CU
Cash receipts from customers (850,000 + 125,500 135,400) 840,100
Cash paid to suppliers and employees (610,500 + 45,500 35,700) (620,300)
Interest paid (500)
219,300
The Institute of Chartered Accountants in England and Wales, March 2009 253
Single entity financial statements: objective test questions
254 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
3 C
CU
Original purchase price 50,000
Depreciation for 20X1 ((50,000 5,000) 5) (9,000)
Depreciation for 20X2 (9,000)
Upgrade 31 December 20X2 15,000
NBV at end of 20X2 47,000
Depreciation for 20X3 ((47,000 5,000) 5) (8,400)
NBV 1 January 20X4 38,600
Disposal proceeds (7,000)
Loss on disposal 31,600
4 D
CU
Depreciation based on original cost (16,000 25%) 4,000
Depreciation based on revalued amount (12,000 2) 6,000
Decrease in profit 2,000
5 D Only asset 1001 has a balance in respect of it in the revaluation reserve. Since its revaluation loss
of CU2,500 is less than its balance on the revaluation reserve of CU3,000 the whole of this loss
can be charged to the revaluation reserve. The losses on the other two (CU3,000 and CU1,500)
must be charged to the income statement.
6 C
CU
Cost 48,000
Depreciation to 30 June 20X9 (48,000 25% 2) (24,000)
Carrying amount at revaluation 24,000
Revaluation 30,000
Revaluation reserve 6,000
Excess depreciation charged to revaluation reserve
in y/e 30 June 20Y0* (2,000)
Revaluation reserve at 30 June 20Y0 4,000
*Historic cost depreciation charge (24,000 3) 8,000
Depreciation charge on revalued amount (30,000 3) (10,000)
Excess depreciation 2,000
7 C CU
Year ended 30 June 20X5 on revaluation (1.3m 1m) 300,000
Year ended 30 June 20X6 on disposal (1.4m 1.3m) 100,000
8 A
CU
Revalued on 1 January 20X5 to 600,000
Accumulated depreciation to 31 December 20X5 (600,000 6) (100,000)
NBV on 1 January 20X6 500,000
Sale proceeds 700,000
Profit on disposal 200,000
9 B BAS 16 states that where there is an exchange of items of PPE such that there is no cash price,
cost should be measured at fair value. Here, instead of paying cash, Sparrow Ltd has given up an
asset with a fair value of CU1 million, in order to acquire the building previously owned by
Turner Ltd. Hence this building should be recorded in Sparrow Ltds books at that amount.
The Institute of Chartered Accountants in England and Wales, March 2009 255
Single entity financial statements: objective test questions
10 C This is true for initial revaluations upwards. For a subsequent revaluation upwards which
reverses a previous revaluation loss which was recognised in the income statement this will not
necessarily hold true. Re A, whole classes of assets must be carried under either the revaluation
model or the cost model it is not permissible to revalue just those assets where carrying
amounts and market values are materially different. Re B, assets must be revalued with sufficient
regularity such that carrying amounts never differ materially from fair values. Although BAS 16
mentions five years, longer could be justified if fair value movements are small and slow. Re D,
the fair value of land and buildings is based on market values, which will take into account
alternative uses.
56 BAS 17 Leases
1 D Assets held under finance leases are recorded at their fair value (here, the cash price) and
depreciated over the shorter of the lease term and the assets useful life. Here, the lease term is
six years (the primary period plus the secondary period, since this is expected to be taken up)
and the useful life is five years.
2 B
Year ended B/f Payment Capital Interest C/f
CU CU CU CU CU
31 Dec 20X4 2,050 (500) 1,550 (4/10) 180 1,730
31 Dec 20X5 1,730 (500) 1,230 (3/10) 135 1,365
Borrowing over four periods (since paying in advance)
Therefore SOTD = (4 5) 2 = 10
Total interest = (5 500) 2,050 = CU450
3 D
4 B Borrowing over ten quarters (since paying in arrears)
Therefore SOTD = (10 11) 2 = 55
CU
Deposit 6,000
Instalments (10 CU2,600) 26,000
Cash price (24,000)
Total interest 8,000
256 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
8 C
CU
Cash paid (60,000 + 30,000) 90,000
Income statement charge ((60,000 + (3 30,000)) 3)) (50,000)
Prepayment 40,000
9 A The underlying concept of the treatment of leases is substance over form. This is a consequence
of the requirement to present transactions faithfully, part of the qualitative characteristic of
reliability.
10 B CU24,000 (the cash price less the deposit) is owed on 1 January 20X7. This is subject to interest
at 12% for 20X7, as no further payment is made until the last day of 20X7. Therefore CU24,000
12% = CU2,880.
57 BAS 18 Revenue
1 B Because the risk and rewards of ownership have not yet passed (the goods are unsold at the year
end) revenue should not be recognised. Hence the CU20,000 selling price should be removed
from revenue and trade receivables and the CU15,000 cost added in to closing inventories (and
hence be removed from cost of sales).
Inventories = 110,000 + 15,000 = CU125,000
Trade receivables = 190,000 20,000 = CU170,000
2 B
CUm
Total contract price 5.00
Less: After-sales support (500,000 5 years 130%) (3.25)
Revenue for year re supply of software 1.75
Revenue for year re after-sales support (500,000 130%) 0.65
2.4
3 C
CUm
Supply of hardware 3.00
One year of after-sales support at additional fixed fee
(1m 4 years) 0.25
3.25
4 C Once a sale has been made, the revenue should be measured at the fair value of the
consideration receivable, i.e. CU290,000.
5 C For the rendering of services, BAS 18 requires that revenue is recognised by reference to the
stage of completion of the contract (provided revenue, stage of completion and costs can be
measured reliably and it is probable that economic benefits will flow to the seller). We are told
that all figures are reliable and that the contract is expected to make a profit hence economic
benefits will flow to the seller. Therefore 40% of the revenue is recognised this year.
6 B Where costs cannot be measured reliably in respect of a contract for the rendering of services
(see answer 5 above) and the outcome of the contract is uncertain, revenue should be restricted
to the extent of the costs which are recoverable.
7 D BAS 18 requires revenue from artistic performances to be recognised when the event takes place
(Appendix para 15). Since the June production was delayed until July only Mays proportion of the
season ticket (1/5 CU100) should be recognised by 30 June 20X6.
The Institute of Chartered Accountants in England and Wales, March 2009 257
Single entity financial statements: objective test questions
258 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
6 D In addition to intangible assets with indefinite useful lives and goodwill acquired in a business
combination, which must be tested for impairment annually, other assets are only required to be
tested for impairment if there are indications of a possible impairment (such as a fall in market
values or evidence of physical damage).
The Institute of Chartered Accountants in England and Wales, March 2009 259
Single entity financial statements: objective test questions
4 C C is given as an example of research activities in BAS 38 (para 56 (c)). Research costs are written
off as incurred. A is given as an example of development activities in BAS 38 (para 59 (a)) and
may therefore be carried forward if certain conditions (para 57) are met. B the cost of the
patent, including these legal costs, will be capitalised as a separately acquired intangible. D
recoverable costs will be an asset in their own right (a receivable from the customer).
5 D (1) Whilst there is a choice to measure all intangibles after initial recognition at cost or fair value,
in order for fair value to be used it must be possible to measure fair values reliably with
reference to an active market. This is unlikely to be possible for most (unique) intangibles.
Also for one intangible to be revalued, the whole class of intangibles must be revalued. (2)
Revaluations must be carried out with sufficient regularity to ensure that the carrying amount
does not differ from the fair value. This is not necessarily annually.
6 C (1) is given as an example of research activities in BAS 38 (para 56 (b)). Research costs are
written off as incurred. (2) is an acquired intangible and will therefore automatically meet BAS
38s recognition criteria. Although (3) is not a separable intangible it arises from legal rights and is
therefore identifiable and may be recognised provided its cost can be measured reliably (and it
can, at CU50,000). Therefore a total of CU110,000 is recognised (CU60,000 plus CU50,000).
7 A (1) can be capitalised as the BAS 38 para 57 criteria appear to be met. (2) cannot be capitalised as
BAS 38 prohibits the recognition of internally generated brands. Regarding (3) although
goodwill acquired on a business combination is recognised under BFRS 3 Business Combinations as
an intangible asset, per BAS 38 any goodwill recorded in the acquirees books cannot be
recognised. Therefore only CU50,000 (1) is recognised.
8 A For an asset to be recognised as an intangible asset in accordance with BAS 38 it must be
identifiable (1). Identifiable means the asset is either separable or arises from contractual or
other legal rights therefore (2) is not correct. Once an asset had met the identifiability test it is
only recognised if it is probable (not just 'possible' per (4)) that future benefits from the asset
will flow to the entity and the cost of the asset must be able to be measured reliably (3).
9 D Having been initially recognised at cost, the entity then has a choice of the cost model or the
revaluation model for each class of intangibles. A is false intangible assets with indefinite useful
lives are not amortised but reviewed for impairment annually. B is false residual values are
assumed to be zero unless a third party is committed to buying the asset at the end of its useful
life or there is an active market for that type of asset (which would be unusual for an intangible).
C is false intangible assets must meet the basic definition of an asset, which includes the fact
that the asset must be under the control of the entity. Employees skills are not controlled by the
entity as the employees could decide to leave.
260 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
5 D Both meet the definition of a component as they have both been reported separately. The
closure of Division A does not represent the discontinuance of a separate major line of business
as its operations have been moved to another division. Division B does represent this type of
discontinuance as its operations have been outsourced.
6 D Since the sale was completed within one year of classification this is a discontinued operation in
the year ended 31 December 20X7. The original loss of CU100,000 will be increased by a
provision for the redundancy costs in accordance with BAS 37.
7 C Once the division is classified as held for sale any non-current assets are reclassified as non-
current assets held for sale and depreciation on them ceases.
CU
Carrying amount on 1 November 20X0 15,000
Depreciation up to classification as held for sale (30,000 1% 11) (3,300)
11,700
8 B On classification as held for sale an asset held under the cost model is measured at the lower of
its carrying amount and its fair value less costs to sell. On ultimate disposal any difference
between carrying amount and disposal proceeds is treated as a loss or gain under BAS 16.
CU
Carrying amount on classification as held for sale 40,000
Fair value less costs to sell (30,000 500) (29,500)
Impairment loss 10,500
Profit on sale (32,000 29,500) 2,500
9 D
CU
Cost 800,000
Depreciation to 31 December 20X8 (800,000 50 12) (192,000)
Carrying amount on classification as held for sale 608,000
Fair value less costs to sell (600,000 10,000) (590,000)
Impairment loss 18,000
Loss on sale (590,000 580,000) 10,000
10 B Assets held under the revaluation model are revalued to fair value immediately prior to
classification as held for sale. Costs to sell are immediately recognised in the income statement as
an impairment loss.
CUm
Immediately before classification as held for sale:
Carrying amount 1.5
Revaluation 1.7
Credit to revaluation reserve 0.2
On classification as held for sale:
Costs to sell recognised in income statement CU20,000
Sale is in the year ended 31 December 20X8 so final profit of CU100,000 (1.8m 1.7m) will be
recognised in the income statement then and the balance in the revaluation reserve in respect of
this asset transferred to retained earnings.
The Institute of Chartered Accountants in England and Wales, March 2009 261
Single entity financial statements: objective test questions
11 B
CU
Cost 200,000
Depreciation to 31 December 20X5 (200,000 25%) (50,000)
Carrying amount on revaluation 150,000
Revalued to 280,000
Original balance on revaluation reserve 130,000
Carrying amount on revaluation on 1 January 20X6 280,000
Depreciation for 20X6 @ 25% (70,000)
210,000
Depreciation for 20X7 @ 25% (52,500)
Carrying amount immediately before classification as held for sale 157,500
Immediately prior to classification as held for sale the asset will be revalued to its fair value of
CU80,000, and this fall in value of CU77,500 will be debited to the revaluation reserve. The
remaining CU52,500 in the revaluation reserve will be transferred out to retained earnings on
sale. The classification as held for sale at below carrying amount brings forward the debit to the
revaluation reserve.
On classification as held for sale the costs to sell of CU5,000 are recognised in the income
statement.
262 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
The Institute of Chartered Accountants in England and Wales, March 2009 263
Consolidated financial statements: objective test questions
6 B
CUm
Cost of investment 12.0
Group share of post-acquisition retained earnings (30% 5) 1.5
13.5
7 A
CU'000
Cost of investment 60
Group share of post-acquisition retained earnings (40% (220 30)) 76
Less: PURP (40% 10 25%) (1)
135
8 D After the disposal, Geranium Ltd retains a 15% holding in Rose Ltd. This is treated as a simple
non-current asset investment and valued at the date of disposal using the equity method.
CU'000
Net assets (15% (5,000 + 6,500 + 6/12 2,000)) 1,875
Goodwill remaining (1/4 (5,000 60% 8,000)) 50
1,925
9 B The unrealised profit is CU5,000 and the inventories are still held by Aster Ltd. Therefore the
adjustment must be to Cr consolidated inventories. However as Flower Ltd is an associate the
amount is only the group share of the unrealised profit i.e. 30% 5,000 = CU1,500.
10 C
11 B
CU'000
Consolidated retained earnings per question 400
Less: Group share of depreciation of fair value adjustment ((120 5) 75%) (18)
382
Goodwill per question 200
Less: Group share of fair value adjustment (120 75%) (90)
110
12 B The redeemable preference shares are debt, not equity, so do not feature in the calculation of
minority interest.
Minority interest = 700,000 30% = CU210,000
13 B
CU
Cost of investment 14,000
Group share of post-acquisition retained earnings (30% 8,000) 2,400
Less: Goodwill impairment to date (40% 2,000) (800)
15,600
CU
Cost of investment 14,000
Less: Fair value of net assets acquired (30% 40,000) (12,000)
Goodwill 2,000
264 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
14 B
CU
Mandy Ltd 244,800
Len Ltd (96,000 (96,000 24,000)) 24,000
Less: Goodwill impairment (48,000 20%) (9,600)
259,200
CU
Cost of investment 144,000
Less: Fair value of net assets acquired (96,000)
Goodwill 48,000
3 B
CU'000
Sale proceeds 3,600
Less: Share of net assets at disposal (80% 3,310) (2,648)
Less: Carrying amount of goodwill at date of disposal
(2,360 (80% 2,240) 100) (468)
484
4 C
CU'000
Sale proceeds 6,500
Less: Share of net assets at disposal (45% 12,500) (5,625)
Less: Carrying amount of goodwill at date of disposal
((5,000 (60% 8,000)) 3/4) (150)
Profit on disposal 725
5 B
CU'000
Pre-disposal (3/12 576,000 10%) 14,400
Post-disposal (9/12 576,000 40%) 172,800
187,200
6 B
CU
Revenue (769,000 + (9/12 600,000) 7,000) 1,212,000
Cost of sales (568,500 + (9/12 420,000) 7,000 + 2,000) (878,500)
Gross profit 333,500
The Institute of Chartered Accountants in England and Wales, March 2009 265
Consolidated financial statements: objective test questions
7 A
CU
Share of associate's profits (30% 120,000 6/12) 18,000
Sales proceeds 600,000
Less: Share of net assets at disposal (30% 1,200,000) (360,000)
Less: Carrying amount of goodwill at date of disposal
(450,000 (30% 1,000,000)) (150,000)
Profit on disposal of associate 90,000
8 C
CU
Minority interest at start of year (10% 300,000) 30,000
Minority interest in profits of year (10% 60,000 9/12) 4,500
34,500
9 C An adjustment representing the increase in the minority interest on the decrease in holding must
be made. This will be the increase in the minority interest in the net assets of Pip Ltd at disposal.
CU
Net assets at disposal (400,000 + (9/12 120,000)) 490,000
increase in minority interest % (was 20% now 40% therefore 20%) 98,000
10 B
CU
Alayna Ltd paid to group shareholders 500,000
Ellen Ltd paid to minority interest (200,000 25%) 50,000
550,000
11 C
CU'000
Subsidiary Ltd 55,000
Less: PURP (15,000 20/120 ) (1,250)
53,750
MI share ( 20%) 10,750
266 The Institute of Chartered Accountants in England and Wales, March 2009
ANSWER BANK
2 C
INVESTMENTS IN ASSOCIATES
CU'000 CU'000
B/d 635 Dividends from associates () 4
IS (230 30%) 69 C/d 700
704 704
3 C Transactions between associates and the group are not cancelled on consolidation, hence the
repayment of the advance of CU30,000 will appear in the consolidated cash flow statement. The
cash from sale of the plant will be reflected in the associate's own cash flow statement, but not in
the consolidated cash flow statement all that is shown in the consolidated cash flow statement
is dividends received by the parent from associates (100,000 20p 40% = CU8,000).
4 D The net cash effect of the disposal is shown (i.e. CU2 million cash proceeds less the CU20,000
cash and cash equivalents disposed of = CU1,980,000).
5 B The net cash effect of the acquisition is shown. This will usually be the cash consideration less
the cash and cash equivalents acquired. However, in this case, Dougal Ltd has acquired Lucy Ltd's
overdraft so the net cash effect is the cash consideration of CU400,000 plus the overdraft of
CU40,000 = CU440,000.
6 B The cash outflow will be in respect of cash paid for purchases of PPE. In calculating this figure
the PPE acquired under finance leases and the PPE acquired with the subsidiary need to be
excluded. The former because the purchase was not for cash, the latter because any cash effect
will have already been included in the consolidated cash flow statement as part of the figure for
acquisition of subsidiary. The cash from the disposals of CU38,000 will be shown as a cash inflow
the two are not netted off.
PROPERTY, PLANT AND EQUIPMENT
CU CU
B/d 257,900 Disposals 32,000
Finance leases 40,000 IS - Depreciation 135,000
On acquisition of subsidiary 35,000
Cash additions () 413,000 C/d 578,900
745,900 745,900
8 D Cash received from the sale of CU460,000 will be shown as an investing inflow, along with any
dividends received from the associate which in this case were CU225,600 (see working below).
INVESTMENTS IN ASSOCIATES
CU CU
B/d 120,600 Dividends from associates () 225,600
IS (30% 350,000) 105,000 C/d
225,600 225,600
The Institute of Chartered Accountants in England and Wales, March 2009 267
Consolidated financial statements: objective test questions
6 B In accordance with BFRS 3, restructuring provisions can only be included in the goodwill
calculation if there is an existing liability for the restructuring in accordance with BAS 37
Provisions, Contingent Liabilities and Contingent Assets. In this case Jerry Ltd has no such existing
liability and therefore the provision is excluded.
CU CU
Cost of investment 1,450,000
Less: Share of fair value of net assets acquired
Carrying amount of net assets 1,350,000
Fair value adjustment to PPE 100,000
Contingent liability (200,000)
1,250,000
Group share 80% (1,000,000)
Goodwill 450,000
268 The Institute of Chartered Accountants in England and Wales, March 2009
REVIEW FORM FINANCIAL ACCOUNTING
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