F2 Workbook Q PDF

F2 Financial Management Q www.mapitaccountancy.
com
CIMA F2 - Financial
Management
Workbook Questions
F2 Financial Management Q www.mapitaccountancy.com
Group Accounts
2
Illustration 1
Almeria Murcia
Non Current Assets
Tangible 100 100
Investment in Murcia 300
Current Assets
Inventory 40 200
Receivables 60 100
Cash 200 200
700 600
Ordinary Shares 160 100
Accumulated Profits 240 200
Equity 400 300
Non Current Liabilities 100 200
Current Liabilities 200 100
700 600
Additional Information
Almeria today acquired all the shares in Murcia for $300m.
The Fair Value of the NCI at acquisition was 0.
Required
Prepare the consolidated statement of financial position for the Almeria group
3
Pro-Forma
Working 1 - Group Structure
Almeria
Murcia
Date Acquired
Parent Share
NCI
Working 2 - Equity Table

At Acquisition At Year End
Share Capital
Accumulated Profits
Working 3 - Goodwill
Cost of Parent Investment
Fair Value of NCI at acquisition
Less net assets at acquisition (W2)
Goodwill
4
Working 4 - NCI
NCI% of Sub Post-Acq Profits
Value of NCI at Year End
Working 5 - Accumulated Profits
Parent’s Accumulated Profits
Add: Parent % of the subsidiary’s post acquisition profits
5
SFP for Almeria Group
Almeria Murcia Group
Non Current Assets
Goodwill
Tangible 100 100
Investment in Murcia 300
Current Assets
Inventory 40 200
Receivables 60 100
Cash 200 200
700 600
Non Controlling Interest
Equity 400 300
700 600
6
Illustration 2
Ant Dec
Assets 500 500
Investment in Dec 350
850 500
Equity 350 300
Liabilities 500 200
850 500
Ant today acquired 160m of the 200m shares in Dec.
The Fair Value of the NCI was 50.
Required
Prepare the consolidated statement of financial position for the Ant group
7
Illustration 2 Pro-Forma
Working 1- Group Structure
↓
Date Acquired
Parent Share
NCI
Working 2- Equity Table
Share Capital
Accumulated Profits
Goodwill
8
Working 4 - NCI

$
9
Statement of Financial Position for Ant Group
Ant Dec Group
Goodwill
Assets 500 500
Investment in 350
Dec
850 500
Ordinary 100 200

Shares
Accumulated 250 100

Profits
NCI
Equity 350 300
Liabilities 500 200
850 500
10
Illustration 3
Evan Dando
Assets 200 350
Investment in Dando 500
Current Assets 200 300
900 650
Ordinary Shares ($1) 200 200
Equity 450 300
Liabilities 170 150
900 650
Evan acquired 150m shares in Dando one year ago when the reserves of Dando were
$40m. The Fair Value of the NCI on the date of acquisition was $100m.
Required
Prepare the consolidated statement of financial position for the Evan group.
11
Solution
Working 1- Group Structure
↓
Date Acquired
Parent Share
NCI
Working 2 - Equity Table
Share Capital
Accumulated Profits
Goodwill
12
Working 4 - NCI
13
Statement of Financial Position for Evan Group
Evan Dando Group
Goodwill
Assets 200 350
Investment in 500
Dando
900 650
Ordinary 200 200

Shares ($1)
Accumulated 250 100

Profits
NCI
Equity 450 300
Non Current 280 200

Liabilities
Liabilities 170 150
900 650
14
Illustration 4
Virtual Insanity
Assets 1000 800
Investment in Insanity 600
2000 1000
Equity 1550 500
Liabilities 200 200
2000 1000
Virtual acquired 60m shares in Insanity one year ago when the reserves of Insanity were
$60m. The Fair Value of the NCI at that date was $120m.
Required
Prepare the consolidated statement of financial position for the Virtual group
15
Illustration 5
Jabba acquired 100% of the shares in Hutt two years ago.
The consideration was as follows:
1. Cash of $36,000.
2. 2000 Shares in Jabba (the share price is currently $3).
3. $30,000 to be paid four years after the date of acquisition. The relevant
discount rate is 12%
4. If the group meets certain targets there will be a further payment with fair
value of $60,000 at a later date.
Required:
(i) Calculate the fair value of the consideration which Jabba has given in
purchasing the investment in Hutt.
(ii)Show the value of the liability in the Statement of Financial Position
for the deferred consideration at the end of the current year.
(iii)What is the charge to the Statement of Profit or Loss in the current
period related to the deferred consideration?
Illustration 6
On 1 October 2012, Paradigm acquired 75% of Strata’s 20,000 equity shares

by means of a share exchange of two new shares in Paradigm for every five
acquired shares in Strata. In addition, Paradigm issued to the shareholders of
Strata a $100 10% loan note for every 1,000 shares it acquired in Strata. The
share price of Paradigm on the date of acquisition was $2.
Calculate the consideration paid for Strata.
16
Illustration 7
Jimmy acquired 80% of Gent 1 year ago. The following information relates to
Gent at the date of acquisition.
Accumulated Cost of investment Fair Value of NCI

profits at at acquisition
acquisition
$ $ $
150 800 160
An item of plant was valued at $200 in the Gent’s Financial Statements but
had a Fair Value of $300, the plant had a remaining life of 5 yrs at the date of
acquisition. Goodwill is to be calculated gross.
Jimmy Gent
Investment in Gent 800
Assets 700 700
1500 700
Equity 1200 600
Liabilities 300 100
1500 700
17
Illustration 8
Devil acquired 90% of Detail 2 years ago. The following information relates to
Gent at the date of acquisition.
Accumulated
Cost of Fair Value of NCI
profits at
investment at acquisition
acquisition
$ $ $
250 1000 55
An item of plant was valued at $300 in the Gent’s Financial Statements but
had a Fair Value of $200.
The plant subject to the fair value adjustment had a remaining life of 4 yrs at
the date of acquisition. Goodwill is to be calculated Gross.
Devil Detail
Investment in Detail 1000
Assets 600 800
1600 800
Equity 900 600
Liabilities 700 200
1500 700
18
Illustration 9
Evaro Co. Acquired 80% of Stando Co. one year ago and the following detail
is relevant:

$m $m
Share Capital 100 100
At the date of acquisition the following was relevant:
i) An item of plant was valued at $100m in the Gent’s Financial Statements

but had a Fair Value of $50m, the plant had a remaining life of 10 yrs at the
date of acquisition.
ii)Stando Co. owns an internally generated brand worth $20m on the date of
acquisition that has a useful economic life of 20 years.
iii)At the date of acquisition a court case against Stando Co. is in process
which has resulted in a contingent liability of $25m being disclosed in their
financial statements. By the year end Stando Co. had won the court case
resulting with no payment as a result.
Required
Compete the Equity Table (W2) based on the above information for
Stando. Co.
19
Illustration 10
Brad acquires 80% of Angelina’s share capital in a share for share exchange.
Brad gives Angelina 2 shares for every one in Angelina. Angelina has 100
shares in issue with a nominal value of $1 Angelina’s share price is $8. Brad’s
share price is $5. At the date of acquisition the net assets of Angelina are
$600.
Calculate the gross goodwill and the NCI.
Illustration 11
Brad acquires 80% of Angelina’s share capital in a share for share exchange.
Brad gives Angelina 2 shares for every one in Angelina. Angelina has 100
shares in issue with a nominal value of $1. Brad’s share price is $5. At the
date of acquisition the net assets of Angelina are $600.
Calculate the goodwill arising using the proportionate method and the NCI.
20
Illustration 12
(i)
Archie acquires 60% of Mitchell’s share capital with consideration of $900.
Mitchell has 200 shares in issue with a share price is $5. At the date of
acquisition the net assets of Mitchell were $800 and are $950 at the year end.
At the year end the retained earnings of Archie were $1,000.
An impairment review has been carried out on the goodwill at the year end
which has found it to be impaired by $40.
Calculate the gross goodwill, the retained earnings and the NCI at the year
end.
Illustration 12 (ii)
French acquired 75% of Shambles several years ago.
Cost of Fair Value of Net assets at Net assets at Goodwill

Investment NCI at acquisition year end Impairment at
acquisition Y/E
$ $ $ $ $
1,000 300 800 3,000 200
If French has $1500 of retained earnings at the year end, calculate the gross
goodwill, retained earnings for the group and the NCI at the year end.
21
Illustration 12 (iii)
Pinky acquired 80% of Brain 4 years ago. The following information is

relevant:
Net Assets at Net Assets at Cost of Fair Value of

year end acquisition investment NCI at
acquisition
$ $ $ $
150 100 175 25
Goodwill is calculated gross and is subject to an annual impairment review. In

the current year goodwill has been impaired by $20.
Pinky Brain
Investment in Pinky 175
Assets 100 100
Inventory 140 200
Receivables 160 100
Bank 125 200
700 600
Equity 400 150
Non current liabilities 100 250
Liabilities 300 100
700 600
22
Illustration 13
George owns 80% of the subsidiary Bungle. Goodwill has been calculated on a
proportionate basis and at acquisition was $400m.
During the impairment review in the current year it was found that the carrying value of the
goodwill has been impaired by $50m
What is the required treatment to deal with the impairment of goodwill?
23
Illustration 14
A Parent company has recorded an asset of $300 goods receivable with a subsidiary.
The subsidiary had recorded this as an initial liability payable of $300 but has just recorded
and sent a cheque payment to the parent of $50 leaving the payable balance of $250.
How should this be adjusted for on consolidation?
Illustration 15
Parent has been selling goods to subsidiary. The parent has recorded an asset of $500
receivable from the subsidiary.
The $500 includes goods worth $100 sent prior to the year end to the subsidiary who has
not received them. As a result the subsidiary has a balance of $400 recorded as a liability
in payables.
How should this be treated on consolidation?
24
Illustration 16
Arctic is the parent of a subsidiary Monkeys. Extracts of their SFPs are below
Arctic Monkeys
Current Assets
Inventory 300 100
Receivables 200 250
Bank 100 50
600 400
The trade payables of Monkeys includes $35m due to Arctic. This was after the deduction
of $10m in respect of cash sent by Monkeys but not yet received by Arctic.
The receivables of Arctic at the year end include $70m due from Monkeys. $25m of these
goods had been dispatched by Arctic, but were not yet received by Monkeys.
Show the treatment on consolidation.
25
Illustration 17
Sea is the parent of a subsidiary Lion. Extracts of their SFPs are below
Sea Lion
Current Assets
Inventory 400 250
Receivables 100 100
Bank 150 100
650 450
The trade payables of Lion includes $20m due to Arctic. This was after the deduction of
$15m in respect of cash sent by Lion but not yet received by Sea.
The receivables of Sea at the year end include $50m due from Lion. $15m of these goods
had been dispatched by Sea, but were not yet received by Lion.
Show the treatment on consolidation.
Illustration 18
Inter company sales of $400 have occurred in Attila group at a mark up on cost of 25%. At
the year end 1/4 of these goods had been sold on. Attila has an 80% interest in Hun.
I. Calculate the PURP.
II. Show the accounting treatment if the parent company is the seller.
III. Show the accounting treatment if the subsidiary company is the seller.
IV. Do parts I - III if the goods had been sold at a margin of 30%.
26
Illustration 19
Argentina owns an 80% share of Messi which it purchased one year ago.
The information below relates to Messi at the date of acquisition.
Ordinary Reserves Fair Value of Fair value of Cost of the

Share Capital the net assets the NCI investment
$m $m $m $m $m
200 400 800 200 1900
The income statements for both are:
Argentina Messi
Revenue 8000 3000
Cost of Sales -4000 -1000
Gross Profit 4000 2000
Operating Costs -1500 -1500
Finance Costs -1000 -200
Profit Before Tax 1500 300
Tax -700 -100
Profit for the year 800 200
Other information
I. Argentina sold goods to Messi during the year at a margin of 40% and worth $100m.
Half of these goods have been sold on by Messi by the year end.
II. The fair value of Messi’s net assets were equal to their book value at the date of
acquisition, with the exception of some machinery which had a useful life of 5 years.
III. Calculate goodwill using the fair value of the NCI at the date of acquisition. At the year
end an impairment review has found that the goodwill has been impaired by 10%.
Produce a consolidated Income Statement for the Argentina group.
27
Statement of Changes in Equity Pro-forma
Share Share Revaluation Accumulated NCI Total

Capital Premium Reserve Profits
O’Balance X X X X X X
Share Issues X X X
Revaluation X X X
Gains
Profit for X X X
period
Less (X) (X) (X)

Dividends
Cl’Balance X X X X X X
28
Illustration 20
Nadal is a 90% subsidiary of Federer. It was acquired one year ago for $4000m. At that
time the accumulated profits were $800m.
Income Statements
Federer Nadal
Revenue 20000 4000
Cost of Sales -12000 -2000
Distribution Costs -2100 -300
Admin Expenses -1400 -500
Operating Profit 1500 1200
Exceptional Gain Nil 580
Investment Income 90 Nil
Profit Before Tax 3990 1630
Tax -700 -130
Profit for the year 3290 1500
Statements of Financial Position

Federer Nadal
Investment in Nadal 4000
Assets 20000 5000
24000 5000
Share Capital 5000 1000
Equity 20690 3200
Liabilities 3310 1800
24000 5000
29
Federer Statement of changes in Equity

Share Capital Accumulated Total Equity
Profits
Opening Balance 5000 12600 17600
Profits for the year 3290 3290
Less Dividends -200 -200
Closing Balance 5000 15690 20690
Nadal Statement of changes in Equity

Share Capital Accumulated Total Equity
Profits
Opening Balance 1000 800 1800
Profits for the year 1500 1500
Less Dividends -100 -100
Closing Balance 1000 2200 3200
Other Information:
In the year Federer sold goods to Nadal at a margin of 20%. The total amount sold was
$100m, of which a quarter remain in inventory at the year end.
Also during the year Nadal sold $180m of goods to Federer. These goods were sold at a
mark up of 50%. Half of the goods remain in inventory at the year end.
At the date of acquisition the fair values of Nadal’s net assets were equal to their book
value with the exception of an item of plant that had a fair value of $200m in excess of its
carrying value and a remaining useful life of 4 years. Goodwill is to be calculated on a
proportionate basis.
Federer paid a dividend during the year of $200m while Nadal paid a dividend of $100m.
Federer has recognised the dividend received from Nadal as investment income.
Required
Prepare the consolidated Income Statement, consolidated Statement of Changes in Equity

and the consolidated Statement of Financial Position for the Federer group.
30
Associates
(IAS 28)
31
Illustration 1
3 years ago Star Ltd. bought 25% of the share capital of Wars Ltd. for consideration of
$400,000. Since that time Wars Ltd.has had the following results:
Year Profit Dividend Paid By

Associate
1 $200,000 0
2 $160,000 $150,000
3 $30,000 0
Due to poor trading results and customer service issues, Star Ltd feel that in the current
year the investment in Wars Ltd. has been impaired by $20,000.
Show the treatment of War Ltd. in the statement of financial position of Star Group
and in the Income statement for the 3 years of the investment.
Illustration 2
Inter company sales of $1,300 have occurred in Attila group at a mark up on cost of 30%.
At the year end 1/2 of these goods had been sold on. Attila has an 30% interest in Hun.
I. Calculate the PURP.
II. Show the accounting treatment if the parent company is the seller.
III. Show the accounting treatment if the Associate company is the seller.
32
Illustration 3
On 1 April 2009 Picant acquired 75% of Sander’s equity shares in a share exchange of
three shares in Picant for every two shares in Sander. The market prices of Picant’s and
Sander’s shares at the date of acquisition were $3·20 and $4·50 respectively.
In addition to this Picant agreed to pay a further amount on 1 April 2010 that was
contingent upon the post-acquisition performance of Sander. At the date of acquisition
Picant assessed the fair value of this contingent consideration at $4·2 million, but by 31
March 2010 it was clear that the actual amount to be paid would be only $2·7 million
(ignore discounting). Picant has recorded the share exchange and provided for the initial
estimate of $4·2 million for the contingent consideration.
On 1 October 2009 Picant also acquired 40% of the equity shares of Adler paying $4 in
cash per acquired share and issuing at par one $100 7% loan note for every 50 shares
acquired in Adler. This consideration has also been recorded by Picant.
Picant has no other investments. The summarised statements of financial position of the
three companies at 31 March 2010 are:
Picant Sander Alder
Property, plant & equipment 37,500 24,500 21,000
Investments 45,000
82,500 24,500 21,000
Inventory 10,000 9,000 5,000
Receivables 6,500 1,500 3,000
Total Assets 99,000 35,000 29,000
Ordinary Shares 25,000 8,000 5,000
Share Premium 19,800 0 0
Ret. Earnings B/F 16,200 16,500 15,000
For year to 31/3/10 11,000 1,000 6,000
72,000 25500 26000
7% Loan Notes 14,500 2,000 0
Contingent Consideration 4,200 0 0
Current Liabilities 8,300 7,500 3,000
Total Equity & Liabilities 99,000 35000 29000
33
(i) At the date of acquisition the fair values of Sander’s property, plant and equipment was
equal to its carrying amount with the exception of Sander’s factory which had a fair
value of $2 million above its carrying amount. Sander has not adjusted the carrying
amount of the factory as a result of the fair value exercise. This requires additional
annual depreciation of $100,000 in the consolidated financial statements in the post-
acquisition period.
(ii)Also at the date of acquisition, Sander had an intangible asset of $500,000 for software
in its statement of financial position. Picant’s directors believed the software to have no
recoverable value at the date of acquisition and Sander wrote it off shortly after its
acquisition.
(iii)At 31 March 2010 Picant’s current account with Sander was $3·4 million (debit). This
did not agree with the equivalent balance in Sander’s books due to some goods-in-
transit invoiced at $1·8 million that were sent by Picant on 28 March 2010, but had not
been received by Sander until after the year end. Picant sold all these goods at cost
plus 50%.
(iv)Picant’s policy is to value the non-controlling interest at fair value at the date of
acquisition. For this purpose Sander’s share price at that date can be deemed to be
representative of the fair value of the shares held by the non-controlling interest.
(v)Impairment tests were carried out on 31 March 2010 which concluded that the value of
the investment in Adler was not impaired but, due to poor trading performance,
consolidated goodwill was impaired by $3·8 million.
(vi)Assume all profits accrue evenly through the year.
34
Increasing/Decreasing
Holding
35
Illustration 1
Vic purchased 10% of the shares in Bob several years ago. The investment cost $17,000
and Vic currently carries the investment at cost in the accounts. Vic has subsequently
purchased 45% of the shares in Bob for $120,000. The net assets of Bob have a fair value
of $60,000 and the fair value of the original investment is $45,000. The fair value of the
NCI is $90,000.
Calculate the gain or loss arising on the subsequent acquisition of shares
Illustration 2
Vic purchased 10% of the shares in Bob several years ago. The investment cost $17,000
and Vic currently carries the investment at cost in the accounts. Vic has subsequently
purchased 45% of the shares in Bob for $120,000. The net assets of Bob have a fair value
of $60,000 and the fair value of the original investment is $45,000. The fair value of the
NCI is $90,000.
Calculate the gross goodwill arising on the acquisition of Bob.
Illustration 3
Aldo purchased 15% of the shares in Giro several years ago. The investment cost $85,000
and they currently carry it at cost in the accounts. Aldo has subsequently purchased 75%
of the shares in Giro for $700,000. The net assets of Giro have a fair value of $750,000
and the fair value of the original investment is now $145,000. The fair value of the NCI on
acquisition was $180,000.
Calculate the gross goodwill arising on the acquisition of Giro.
Illustration 4
A parent has owned 70% of a subsidiary for a long period of time. The NCI in the
subsidiary is currently measured at $500,000. If the parent buys another 10% what will the
value of the NCI fall to?
36
Illustration 5
A parent has owned 90% of a subsidiary for a long period of time. The NCI in the
subsidiary is currently measured at $300,000.
I. The parent acquires all of the remaining shares for consideration of $250,000.
II. The parent acquires 3% of the shares for $200,000 reducing the NCI to 7%.
What is the difference taken to equity in both situations?
Illustration 6
Inter purchased 70% of the shares in Milan several years ago. At that time goodwill of
$80,000 arose. The net assets of Milan are currently $100,000 and the NCI is $18,000.
I. Calculate the gain arising on disposal if Inter sells it’s entire holding for $350,000.
II. Calculate the gain arising on disposal if Inter sells 30% for $250,000 and the fair value
of the residual value is $30,000
Illustration 7
For several years Jeremy has owned 70% of Richard. The net assets of Richard at this
time are $250,000. The NCI is $68,000 and the gross goodwill is $200,000.
Jeremy has just sold 15% to take the holding to 55% for consideration of $150,000.
Calculate the difference arising that will be taken to equity.
37
Vertical Groups
38
Illustration 1
Consider a group with the following structure and detail:
↓ 80% - 1 Year Ago
↓ 60% - 1 Year Ago
S1
Cost of Net Assets on FV NCI on

Investment Acquisition Acquisition
S 250 200 60
S1 220 150 100
Required
Calculate the Goodwill & the NCI at the acquisition date.
39
Illustration 2
Ozzy acquired a 70% holding in Sharon 2 years ago. Sharon purchased a 60%
shareholding in Jack one year ago. The following financial statements relate to the Ozzy
group.
Statements of Financial Position Ozzy Sharon Jack
$ $ $
Investment in Sharon 50
Investment in Jack 17
Other assets 25 18 20
75 35 20
Ordinary Shares 50 20 8
Accumulated profits 20 12 8
Equity 70 32 16
Liabilities 5 3 4
75 35 20
Income Statements Ozzy Sharon Jack
$ $ $
Revenue 400 60 85
Operating Costs -395 55 -83
Operating Profit 5 5 2
Tax -3 -2 -1
Profit for Year 2 3 1
Accumulated Profits Sharon Jack
One year ago 3 4
Two years ago 2 3
40
Fair Value of NCI based on effective shareholdings Sharon Jack
One year ago 8 10
Two years ago 7 6
Goods worth $8m were sold in the year by Jack to Sharon and by the year end all of these
had been sold to a third party.
An impairment review at the year end found the goodwill of Sharon to be impaired by $3m,
goodwill is to be calculated gross.
Prepare the consolidated statement of financial position and consolidated income

statement for the Ozzy group.
41
Indirect Associates
42
Illustration 1
The parent has an 60% holding in the subsidiary. The subsidiary has an associate in which
it holds 40%. The following information is relevant.
Subsidiary’s cost of investment in associate 200
Fair value of net assets in associate at acquisition 120
Fair value of net assets in associate at year end 300
Show the treatment for the associate in the group financial statements.
43
Mixed Groups
44
Illustration 1
The statements of financial position for 3 companies are as follows:
John Paul Ringo
Investments 675 200
Assets 900 700 400
1575 900 400
Share Capital 300 200 100
Accumulated Profits 700 400 100
Equity 1000 600 200
Liabilities 575 300 200
1575 900 400
Other information:
I. John acquired a 60% holding in Paul for $600
II. Paul acquired a 60% holding in Ringo for $200
III. John acquired a 30% holding in Ringo for $75
IV. All of the investments were made on the same date
V. Goodwill is to be calculated gross and no impairment has been recorded
VI. The carrying value of assets & liabilities were the same as the fair values on the date
of acquisition
VII. On the date of acquisition the following information was correct:
Paul Ringo
Fair value of the effective NCI 100 60
Prepare the consolidated statement of financial position for John Group.
45
IAS 21
Foreign Currency
46
Illustration 1
Which of the following statements relating to IAS 21 The effects of changes in foreign
exchange rates is correct?
A. The functional currency of a foreign subsidiary is the currency that the group financial
statements are presented in.
B. A foreign subsidiary must present it’s financial statements in the presentational currency
of the parent.
C. Consideration will be given to the currency of the costs and sales of the entity when
determining it’s functional currency.
D. The more autonomous a subsidiary, the more likely it’s functional currency is that of the
parent entity.
Illustration 2
Bulldog Ltd has a year end of 31 January.
On 13th October Bulldog Ltd buys goods from Eagle Inc. a US supplier for $250,000.
On 24th November Bulldog settles the transaction in full.
Exchange rates
13th October £1 : $1.45
24th November £1 : $1.55
Show the accounting entries for these transactions.
Illustration 3
Jeff Ltd. purchases an item of plant on 1st June from a foreign supplier on one month’s
credit for €100,000. Jeff is a US company.
Exchange rates
1st June $ = €1.50
21st June $ = €1.40
How will this transaction be dealt with in the accounts for the year to 21st June?
47
Illustration 4
Big Ltd. acquired 80% of Cahoona Inc. on 1st July 20X1.
Cahoona Inc are based in Burgerland where the functional currency is Francs (Fr).
The financial statements for the year to 30 June 20X2 are below.
SFP Big Cahoona

$ Fr
Investment in Cahoonas 5000
Non Current Assets 10,000 3,000
Current Assets 5,000 2,000
20000 5,000
Share Capital 6,000 1,500
Retained Earnings 4,000 2,500
Liabilities 10,000 1,000
20,000 5,000
Income Statement Big Cahoona

$ Fr
Revenue 25,000 35,000
Operating Costs -15,000 -26,250
Profit Before Tax 10,000 8,750
Tax -5,000 -7,450
Profit for the Year 5,000 1,300
There was no other comprehensive income for either entity in the period.
Other information:
I. The fair value of the net assets of Cahoona was Fr6,000 on the date of acquisition with
any increase being attributable to land held at historic cost.
II. Big sold goods to Cahoona during the year for $1,000 cash.
48
III.The NCI is valued using the Fair Value method at FR 2000 at acquisition.
IV. The Goodwill in Cahoona was impairment tested at the year end and was impaired by
FR200. The impairment was deemed to have accrued evenly over the year so the
average rate should be used to treat it.
Exchange rates to $1:
Fr
1 July 2001 1.5
Average rate 1.75
1 June 1.9
30 June 2
Prepare the group statement of financial position and statement of other comprehensive
income.
49
IFRS 2
Share Based Payments
50
Illustration 1
An entity grants 1 share option to each of its 100 employees on 1 January Year 1. Each
grant is conditional upon the employee working for the entity over the next three years.
The fair value of each share option as at 1 January Year 1 is $8
At the end of each year the number of employees expected to take up the options are:
Year 1: 95
Year 2: 97
When the rights are taken up in year 3, 98 employees actually receive the options.
Show the treatment for the employee benefits over the three years.
Illustration 2
An entity grants 1 share option to each of its 500 employees on 1 January Year 1. Each
grant is conditional upon the employee working for the entity over the next three years.
The fair value of each share option as at 1 January Year 1 is $10
On the basis of a weighted average probability, the entity estimates on 1 January that 100
employees will leave during the three-year period and therefore forfeit their rights to share
options.
The following actually occurs:
– 20 employees leave during Year 1 and the estimate of total employee departures over
the three-year period is revised to 70 employees
– 25 employees leave during Year 2 and the estimate of total employee departures over
the three-year period is revised to 60 employees
– 10 employees leave during Year 3
Illustration 3
Same question with additional information of share option price at the end of each year:
Year 1 10
Year 2 12
Year 3 14
51
Financial Instruments I
52
Illustration 1
VB acquired 40,000 shares in another entity, JK, in March 2011 for $2.68 per share. The
investment was classified as available for sale on initial recognition. The shares were
trading at $2.96 per share on 31 July 2011. Commission of 5% of the value of the
transaction is payable on all purchases and disposals of shares.
Calculate the amount recognised in the Financial Statements on initial recognition

of the Financial Asset.
Illustration 2
(i) VB acquired 40,000 shares in another entity, JK, in March 2012 for $2.68 per share.
The investment was classified as available for sale on initial recognition. The shares were
trading at $2.96 per share on 31 July 2012. Commission of 5% of the value of the
transaction is payable on all purchases and disposals of shares.
Show the treatment for the shares at 31 July 2012
(ii) VB subsequently sold the shares on 31 July 2013 when the share price was $3.00.
Show the treatment for the shares at 31 July 2013
53
Financial Instruments II
54
Illustration 1
A company invests $10,000 in a 3 year redeemable 10% bond which is redeemable at a
premium.
The bond consists of interest payments and principle only and the company intends to
hold it until it is redeemed.
The effective interest rate on the bond is 12%.
Show the treatment for the bond over the 3 year period.
Illustration 2
A company issues a $30,000 3 year 7% redeemable bond at a discount of 10% with issue
costs of $1,000.
The bond is redeemable at a premium of $1,297.
The effective interest rate is 14%.
Show the treatment for the bond over the 3 year period.
Illustration 3
Ambush loaned $200,000 to Bromwich on 1 December 2003. The effective and stated
interest rate for this loan was 8 per cent. Interest is payable by Bromwich at the end of
each year and the loan is repayable on 30 November 2007. At 30 November 2005, the
directors of Ambush have heard that Bromwich is in financial difficulties and is undergoing
a financial reorganisation. The directors feel that it is likely that they will only receive
$100,000 on 30 November 2007 and no future interest payment. Interest for the year
ended 30 November 2005 had been received. The financial year end of Ambush is 30
November 2005.
Required:
(i) Outline the requirements of IAS 39 as regards the impairment of financial
assets. (6 marks)
(ii) Explain the accounting treatment under IAS39 of the loan to Bromwich in the
financial statements of Ambush for the year ended 30 November 2005. (4 marks)
55
Financial Instruments III
56
Illustration 1
QWE issued 10 million 5% convertible $1 bonds 2015 on 1 January 2010. The proceeds of
$10 million were credited to non-current liabilities and debited to bank. The 5% interest
paid has been charged to finance costs in the year to 31 December 2010.
The market rate of interest for a similar bond with a five year term but no conversion
terms is 7%. Show the treatment for the bond in year 1.
Illustration 2
Aron issued one million convertible bonds on 1 June 2006. The bonds had a term of three
years and were issued with a total fair value of $100 million which is also the par value.
Interest is paid annually in arrears at a rate of 6% per annum and bonds, without the
conversion option, attracted an interest rate of 9% per annum on 1 June 2006. The
company incurred issue costs of $1 million. If the investor did not convert to shares they
would have been redeemed at par. At maturity all of the bonds were converted into 25
million ordinary shares of $1 of Aron. No bonds could be converted before that date. The
directors are uncertain how the bonds should have been accounted for up to the date of
the conversion on 31 May 2009 and have been told that the impact of the issue costs is to
increase the effective interest rate to 9·38%.
57
IAS 33 EPS
58
Illustration 1
An entity issued 300,000 shares at full market price on 1st July 2009. The year end of the
entity is 31st December.
There were 900,000 shares in issue on 1st Jan 2009 and the profit for the year to 31st
December 2009 was $1,000,000.
Calculate the EPS at 31st December 2009.
Illustration 2
ABC Ltd. makes a bonus issue of 1 for 6 on 1st July 2009. The year end of the entity is
31st December.
December 2009 was $1,000,000.
Calculate the EPS at 31st December 2009.
Illustration 3
ABC Ltd. makes a rights issue of 1 for 3 on 1st July 2009. The current share price is $4
and the rights issue is at a price of $3 The year end of the entity is 31st December.
December 2009 was $1,000,000.
Last year’s earnings were $900,000
Calculate the EPS at 31st December 2009 and the new EPS for 2008.
59
Illustration 4
An entity issued a bonus issue of 1 for 5 of it’s shares on 1st July 2009. The year end of
the entity is 31st December.
There were 1,000,000 shares in issue on 1st Jan 2009 and the profit for the year to 31st
December 2009 was $1,000,000.
The entity also has convertible loan stock that if converted would create 100,000 new
shares.
The interest paid on the loan each year is $90,000 with tax benefits associated of $20,000
Calculate the EPS at 31st December 2009 and the Diluted EPS.
Illustration 5
An entity has a basic weighted average number of shares of 2m and earnings of $1.5m. It
also has in issue 300,000 share options with an exercise price of $5. The average market
value of the shares in the year was $6.
Calculate the basic EPS for the entity and the diluted EPS.
60
IAS 17
Leases
61
Illustration 1
An asset is leased by a company on the 01/01/X0 over a 3 year period. They pay 3 annual
payments of $2,500, the first of which is payable on 31/12/X0.
The actuarial interest rate is 12% (annuity rate for 3 years 2.402) and the fair value of the
asset was $6,500.
Show the treatment in the lessees financial statements over the life of the asset.
Illustration 2
An asset is leased by a company on the 01/01/X0 over a 3 year period. They pay 3 annual
payments of $2,500, the first of which is payable on 31/12/X0.
The actuarial interest rate is 12% (annuity rate for 3 years 2.402) and the fair value of the
asset was $6,500.
Calculate the interest payable each year over the term of the lease using the sum of digits
method.
Illustration 3
A company takes out a 6 year operating lease.
They pay $1,500 deposit up front on the first day of year one and $2,000 in arrears on the
last day of years 1, 2, 3, 4, 5 and 6.
How much will be recognised in the Income Statement and the SFP at the end of year 1 of
the lease?
62
Illustration 4
Arbie Co. has sold some plant and leased it back on a 5 year finance lease. The sale took
place at the beginning of the current accounting period.
Details were as follows:
Proceeds of Sale 200,000
Fair Value of Machine at date of sale 200,000
Carrying Value of plant at date of sale 150,000
Annual Lease Payments (in arrears) 52,760
UEL of machine 5 years
Annuity 5yrs at 10% 3.791
Implicit rate of Interest 10%
Show the treatment for the above in the financial statements in year 1.
63
Illustration 5
How would the following be treated in the financial statements for the next year?
Company A has sold 6 assets with the intention of leasing them back on 5 year operating
leases.
Item Carrying Value Proceeds Fair Value Annual Lease

Payments
1 360 300 400 50
2 400 300 360 50
3 300 360 400 66
4 300 400 360 70
5 360 400 300 70
6 400 360 300 66
64
Substance over form
65
Illustration 1
Slick Tony sells cars from his car dealership. The car manufacturer supplies him with cars
on which the purchase price is set on delivery. An element of finance is included in the
purchase price.
If the car is not sold within 4 months then it must be purchased by Tony. If Tony sells a car
he must pay the manufacturer the next day. Tony has to insure and maintain the cars and
has no right to return them.
Who should recognise the cars on their statement of financial position and when?
Illustration 2
Pinky Social Club has sold it’s building to an investment company for $300,000. They have
signed an agreement that they can buy back the building at any stage over the next 5
years for the original price plus interest accrued and paid at the end of the 5 years charged
at an effective rate of 5%.
The building’s current market value is $500,000.
How should Pinky show this transaction in their financial statements?
66
Related Parties
67
Revenue Recognition
68
Illustration 1
ABC Co. has sold a large item of plant to CD Co. for $10m on the first day of their
accounting period. They do not expect to receive payment for the plant for 24 months.
The relevant discount rate is 10% with rates:
Year Rate
1 0.909
2 0.826
How should ABC Co treat the revenue on the plant over the next 2 years?
Illustration 2
A company sells an IT system to a customer on the first day of a new accounting period.
The package includes hardware delivered immediately and a contract for support over the
next 3 years with that support worth $50,000 p/a.
The total cost of the contract is paid up front and is $300,000.
How much should the company recognise as revenue from the transaction in the current
year?
69
IAS 37
Provisions
70
Illustration 1
ABC Co. does not offer warranties with the radio’s it sells to customers, however if a
customer is dissatisfied with the product for any reason they provide a refund with ‘no
questions asked’. This policy is generally known by customers to be the case.
Should any provision for refunds be made at the year end?
Illustration 2
A company has entered into a contract to pay for specialist engineering support over the
next 3 years for annual payments with a present value of £100,000. Unfortunately due to a
change in the trading environment the support is no longer needed but the contract
cannot be changed. The directors feel they may be able to sell the contract to another
business for $50,000 but are unsure whether this is possible.
How should this be treated in the financial statements?
Illustration 3
A company with a year end of 30th April has decided to re-organise trading in it’s UK
division closing several outlets. It made the decision on the 30th April 2010 at a board
meeting where the directors decided that a detailed plan for the re-structuring would be
created as soon as possible. Employees affected by the re-structuring were sent notice on
the 31st May 2010.
Should a provision for re-structuring be created in the financial statements at the

year ended 31 April 2010?
Illustration 4
A company sells radios with a warranty offering instant replacement of any defective goods
for the first year.
Sales in the year to date were $4,000,000 and past experience suggests that 1.7% of the
radios sold will be replaced in the first year by the company.
What provision should be included in the financial statements?
71
Illustration 5
A power generating company has just won a contract to build a new power station at a
cost of $12m. The terms of the contract state that the company is not responsible for any
environmental damage caused around the site such as pollution to the local environment.
It is estimated by the company that by the end of the useful economic life of the power
station in 25 years time it will cost $2m to rectify any environmental impact of the plant.
The company has a very clear environmental charter that has targets for limiting
environmental impact and a policy of rectifying any environmental damage caused by their
operations.
The company has a cost of capital of 10%
What entries should be included in the financial statements to deal with the above in
the first year?
72
Inventories & Construction

Contracts
73
Illustration 1
ABC Co. has the following items in inventory:
i) Goods purchased for resale at a cost of $40,000. The recent downturn in the economy
has meant that these goods will now sell for $42,000 with costs to sell of $2,500.
ii)Materials purchased at a cost of $30,000 per tonne which will be sold at a profit. The
manufacturer of the materials has just announced that from now on they will sell these
materials to you at a lower price of $28,000 per tonne.
iii)Plant constructed for a specific customer at a cost of $50,000 and an agreed price to the
customer of $60,000. New health and safety requirements mean that the plant will need
to be modified at a cost to ABC Co. of $4,000 before it can be delivered to the customer.
At what value should each of the above be included in the inventory of ABC Co.
Illustration 2
ABC Co. is building a football stadium under a construction contract.
The estimated costs to complete the stadium are $400,000.
The costs to date have been $350,000.
The total estimated revenue is $1,000,000.
It is estimated that the contract is 50% complete.
(i) What amounts of revenue, costs and profit will be recognised in the income
statement?
(ii) If the expected revenue from the contract was $500,000 show the amounts of
revenue, costs and profit that would be recognised in the income statement?
74
Illustration 3
ABC Co. is building a football stadium under a construction contract.
The estimated costs to complete the stadium are $400,000.
The costs to date have been $350,000.
It is estimated that the contract is 50% complete.
The company is not able to reliably estimate the outcome of the contract but believes it will
recover all costs from the customer.
What amounts of revenue, costs and profit will be recognised in the income
statement?
Illustration 4
A construction company has the following contracts in progress:
X Y Z
Costs Incurred to Date 300 200 600
Costs to complete 100 800 900
Work Certified to date 400 300 1000
Contract Price 500 600 2000
Progress billings 25 80 90
Profit is accrued on the contracts as a percentage of completion derived by comparing

work certified to the total sales value.
Calculate the figures to be included in the financial statements in relation to the

above contracts.
75
Illustration 5
On 1 October 2009 Mocca entered into a construction contract that was expected to take
27 months and therefore be completed on 31 December 2011.
Details of the contract are:

$’000
Agreed contract price 12,500
Estimated total cost of contract (excluding plant) 5,500
Plant for use on the contract was purchased on 1 January 2010 (three months into the
contract as it was not required at the start) at a cost of $8 million. The plant has a four-year
life and after two years, when the contract is complete, it will be transferred to another
contract at its carrying amount. Annual depreciation is calculated using the straight-line
method (assuming a nil residual value) and charged to the contract on a monthly basis at
1/12 of the annual charge.
The correctly reported income statement results for the contract for the year ended 31
March 2010 were:
$‘000
Revenue recognised 3,500
Contract expenses recognised (2,660)
Profit recognised 840
Details of the progress of the contract at 31 March 2011 are:

$’000
Contract costs incurred to date (excluding depreciation) 4,800
Agreed value of work completed and billed to date 8,125
Total cash received to date (payments on account) 7,725
The percentage of completion is calculated as the agreed value of work completed as a

percentage of the agreed contract price.
Required:
Calculate the amounts which would appear in the income statement and statement
of financial position of Mocca, including the disclosure note of amounts due to/from
customers, for the year ended/as at 31 March 2011 in respect of the above contract.
(10 marks)
76
IAS 12
Deferred Tax
77
Illustration 1
An entity has profit before tax of $10,000 in it’s financial statements in each of years 1, 2, 3
and 4.
Tax allowances are allowed on an item of plant purchased for $1,000 at the start of year 1
over 3 years straight line.
The company charges depreciation on the asset at a rate of 25% straight line.
The tax rate is 30%
Illustration 2
At the year end ABC Co. has non current assets that have a carrying amount of
$2,000,000 but a tax base of $1,400,000.
There is currently a deferred tax liability carried forward of $250,000 and the tax rate is
30%.
Tax for the year has been estimated as $500,000.
Show the treatment for deferred tax in the period and the effect this has on the
financial statements.
78
Interpretation of Financial
Statements
79
Illustration 1
2011 2010
ASSETS $‘000 $‘000
Non Current Assets 1000 1000
Inventory 300 400
Receivables 200 300
Cash 300 200
1800 1900
LIABILITIES
Reserves 200 100
Long term Liabilities 700 900
Payables 100 100
Overdraft -
1800 1900
$‘000 $‘000
Revenue 1000 1200
COS 800 1100
Other Costs 100 90
Net Profit 100 10
All sales are made on credit.
Required:
Calculate the Inventory, Receivables and Payables days for Inter Ltd. in each of the
2 years
80
Illustration 2
X1 X2 X3
Non Current Assets 500 700 1000
Current Assets 150 200 300
650 900 1300
Ordinary Shares ($1) 300 300 300
Reserves 100 280 430
Loan Notes 150 200 300
Payables 100 120 270
650 900 1300
Revenue 3000 3500 4200
COS 2000 2400 3200
Gross Profit 1000 1100 1000
Admin Costs 300 350 400
Distribution Costs 200 250 300
PBIT 500 500 300
Interest 100 150 220
Tax 120 90 50
Profit After Tax 280 260 30
Dividends 100 110 30
Retained Earnings 180 150 0
Share Price $3.30 $4.00 $2.20
81
Using the information on the previous page calculate and comment on the following
Ratios:
I. Return on Capital Employed

II. Return on Equity
III. Gross Margin
IV. Net Margin
V. Operating Margin
VI. Revenue Growth
VII. Gearing
VIII. Interest Cover
IX. Dividend Cover
X. Dividend Yield
XI. P/E Ratio
82
Cash Flow Statements I
83
Illustration 1
An entity has the following results in their financial statements:
2011 2010
ASSETS $‘000 $‘000
Non Current Assets 1000 1000
Inventory 300 400
Receivables 200 300
Cash 300 200
1800 1900
LIABILITIES
Reserves 200 199
Long term Liabilities 700 801
Payables 100 100
1800 1900
$‘000 $‘000
Revenue 1000 1200
COS 800 1100
Profit on Sale of Non Current Asset 30 0
Other Costs 70 90
PBIT 100 10
Interest Cost 10 7
PBT 90 3
Tax 30 2
PAT 60 1
84
Other Information:
I. Within cost of sales is depreciation of $40,000 and amortisation of an intangible asset

of $30,000.
II. Within other costs is an increase in accrued admin expenses of $5,000.
Perform the reconciliation of Profit Before Tax to Cash Generated From Operations
for 2011.
Illustration 2
An entity has the following information in their financial statements:
2011 2010
PPE 2,000 1,100
Intangible Assets 500 400
Other information:
I. The entity disposed of a piece of plant during the year with a carrying value of $300
for a profit of $50.
II. Intangible assets are made up of qualifying development expenditure on a product
currently being sold, with amortisation in 2011 of $100.
What cash flows will appear in the statement of cash flows for the entity in the year
2011?
85
Illustration 3
Statement of Financial Position 2011 2010
Non Current Assets
PPE (note (i)) 32,600 24,100
Financial Assets (note (ii)) 4,500 7,000
37,100 31,100
Current Assets
Inventory 10,200 7,200
Receivables 3,500 3,700
Bank 1,400
13,700 12,300
Total Assets 50,800 43,400
Equity & Liabilities
Ordinary Shares of $1 (note (iii)) 14,000 8,000
Share Premium (note (iii)) 2,000
Revaluation Reserve (note (iii)) 2,000 3,600
Retained Earnings 13,000 10,100
Non Current Liabilities
Finance Lease Obligations 7,000 6,900
Deferred Tax 1,300 900
Current Liabilities
Tax 1,000 1,200
Bank Overdraft 2,900
Prov’n for warranties (note (iv)) 1,600 4,000
Finance Lease Obligations 4,800 2,100
Trade Payables 3,200 4,600
Total Equity & Liabilities 50,800 43,400
86
Income Statement 2011 2010
$‘000 $‘000
Revenue 58,500 41,000
Cost of Sales -46,500 -30,000
Gross Profit 12,000 11,000
Operating Activities -8,700 -4,500
Investment Income (note (ii)) 1,100 700
Profit Before Tax 3,900 6,800
Income Tax -1,000 -1,800
Profit For the year 2,900 5,000
Note (i) - Property Plant & Equipment
Cost Accumulated Carrying

Depreciation Amount
$‘000 $‘000 $‘000
At 30 September 2010 33,600 -9,500 24,100
New finance lease additions 6,700 6,700
Purchase of new plant 8,300 8,300
Disposal of property -5,000 1,000 -4,000
Depreciation for the year -2,500 -2,500
At 30 September 2011 43,600 -11,000 32,600
The property disposed of was sold for $8.1 million.
Note (ii) - Investments/Investment Income
During the year an investment that had a carrying amount of $3 million was sold for $3.4
million. No investments were purchased during the year.
Investment income consists of:
87
Year to 30 September 2011 2010
$‘000 $‘000
Dividends received 200 250
Profit on sale of investment 400 0
Increases in fair value 500 450
1100 700
Note (iii)
On 1 April 2011 there was a bonus issue of shares that was funded from the share
premium and some of the revaluation reserve. This was followed on 30 April 2011 by an
issue of shares for cash at par.
Note (iv)
The movement in the product warranty provision has been included in cost of sales.
Required:
Prepare a statement of cash flows for Mocha for the year ended 30 September 2011,
in accordance with IAS 7 Statement of cash flows, using the indirect method.
(19 marks)
88
Cash Flow Statements II
89
Illustration 1
The group financial statements for Nasser Ltd. show the following information:
X1 X0
NCI on Statement of Financial Position 820 700
NCI share of Profit after Tax 220 130
What was the dividend paid to the NCI in the year X1?
90
Illustration 2
Indigo Ltd, took up a 40% holding in Violet Ltg. for consideration of $120 in 20X1. The
group financial statements for Indigo Ltd. show the following information:
X1 X0
Post tax Income from Associate (Income Statement) 50 0
Investment in Associate (SFP) 150 0
Loan to Associate 20 0
What amounts will be included in the group cash flow statement in the year X1?
91
Illustration 3
Extracts from the group SFP of Express Ltd are outlined below:
X1 X0
Property Plant & Equipment 50,600 44,050
Inventory 33,500 28,700
Receivables 27,130 26,300
Trade Payables 33,340 32,810
During the period Express Ltd purchased 75% of Delivery Ltd. At the date of acquisition
the fair value of the following assets and liabilities were determined:
Property Plant & Equipment 4,200
Inventory 1,650
Receivables 1,300
Payables 1,950
Show the movements in cash for the 4 items outlined above.
Illustration 4
Using the information in illustration 3 show the movements in cash if Express Ltd. Had
already owned the subsidiary and sold it during the period.
92
Illustration 5
A Group has a foreign subsidiary which had the following FX Gains & Losses on
translation into the Group presentational currency:
$m
PPE 30
Inventory 5
Receivables 18
Payables (7)
The Balances on these accounts in the Group Financial Statements were:
2011 2010
PPE 335 240
Inventory 70 50
Receivables 72 40
Payables -35 -25
Depreciation in the period was $25m.
Show the cash flows arising from the above information to be included in the Group
Statement of Cash-flows.
93
Illustration 6
Consolidated Financial Statements for Group.
Group Income Statement $m
Revenue 4,000
COS -2,200
Gross Profit 1,800
Other Expenses -789
Profit from operations 1011
Gain on sale of sub (Note i) 50
Finance cost (Note ii) -200
PBT 861
Tax -180
Profit after tax 681
Foreign Currency Translations 62
Total Comprehensive Income 743
Attributable to Parent 600
Attributable to NCI 143
Group Statement of Changes in Equity $m
Balance B/F 3,307
Profit Attributable to Parent 600
Dividends Paid -240
Issue of Shares 1000
Balance C/F 4667
94
20X2 20X1
Goodwill 52 72
Property Plant & Equipment 5,900 4,100
Inventories 950 800
Receivables 1,000 900
Cash 80 98
7982 5970
Share Capital 3,500 2,500
Retained Earnings 1,167 807
NCI 543 500
Non-Current Liabilities
Obligations under Finance Leases 225 140
Long term borrowings 1,554 1,200
Deferred Tax 278 218
Current Liabilities
Trade Payables 450 400
Accrued Interest 25 20
Income Tax 130 120
Obligations under Finance Leases 45 25
Overdraft 65 40
7982 5970
(i) On 1 April 20X2 the parent disposed of a 75% subsidiary for $250m in cash which had
the following net assets at the time:
$m
Property Plant & Equipment 200
Inventory 100
95
Receivables 110
Cash 10
Payables (80)
Income Tax (25)
Interest bearing borrowings (75)
240
The subsidiary had been purchased several years ago for a cash payment of $110m when
it’s net assets had been $120m.
(ii) Goodwill is measured using the proportionate method
(iii)The following currency differences occurred
Total Parent Share

$m $m
On retranslation of net assets:
Property Plant & Equipment 25 20
Inventories 20 15
Receivables 20 16
Payables -9 -6
56 45
Retranslation of Profit for period 16 12
Offset exchange losses on borrowings (see -10 -10

below)
62 47
The exchange losses on borrowings relate to foreign loans taken out to finance
investments in subsidiaries. The accounts assistant has offset these against the
retranslation of the net investments in the subsidiaries. The exchange gain on retranslation
of the income statement (from average rate for the year to the closing rate) relates to
operating profit excluding depreciation.
(iv) Depreciation for the year was $320m and the group disposed of PPE with a net book
value of $190m for cash of $198m. the profit on this disposal has been credited to ‘Other
operating expenses’.
The group entered into a significant number of new finance leases in the period of which
$250m related to additions to property, plant & equipment.
Prepare the consolidated cash flow statement for the period.
96
Sources of Finance I
97
Illustration 1
XYZ Ltd. intends to raise capital via a rights issue.
The current share price is $8.
They are offering a 1 for 4 issue at a price of $6.
Calculate the Theoretical Ex-rights Price.
Illustration 2
ABC Ltd. has decided to raise capital via a rights issue.
The share price is currently $5.50 and ABC intends to raise $5m.
There are currently 6.25m shares in issue and ABC is offering a 1 for 5 rights issue.
Calculate the Theoretical Ex-Rights Price.
98
Sources of Finance II
99
Weighted Average Cost of

Capital
100
Illustration 1
ABC Company has just paid a dividend of 35c.
The current share price is $3.25.
Calculate the Cost of Equity (Ke) using DVM.
Illustration 2
ABC Company has just paid a dividend of 35c.
The dividend paid has grown by 4% per year for the past 5 years.
Calculate the Cost of Equity (Ke) using DVM.
Illustration 3
A company has issued 10% irredeemable debt.
The market value of the debt is $90.
The tax rate is 30%
Calculate the cost of debt (Kd).
Illustration 4
A company has a bank loan of $2m at an interest rate of 10%.
The tax rate is 30%.
Calculate the cost of debt (Kd).
101
Illustration 5
A Company has issued debt which is redeemable in 5 years time.
Interest is payable at 8%.
The current market value of the debt is $102.
Ignore taxation.
Calculate the Cost of Debt (Kd).
Illustration 6
A Company has issued debt which is redeemable in 5 years time.
Tax is payable at 30%.
102
Illustration 7
A Company has issued debt which is convertible in 5 years time.
On conversion, investors will have a choice of either:
I. Cash at a 15% premium; or
II. 18 shares per loan note.
The current share price is $6 and it is expected to grow in value by 4% per year.
Tax is payable at 30%.
Illustration 8
Company A is funded as follows:
Item Capital Structure Cost
Equity 85% 15%
Debt 15% 7%
Calculate the Weighted Average Cost of Capital.
103
Illustration 9
Balance Sheet Extract
Ordinary Shares (50c) 3000
Loan Notes 2000
Bank Loan 1000
The cost to the company of each of the above items has been calculated as:
Ordinary Shares 13%
Loan Notes 8%
Bank Loan 5%
The Loan notes are currently trading at $94.
The current share price is $1.50
104
Illustration 10
Balance Sheet Extract
Ordinary Shares (50c) 2000
12% Redeemable Loan Notes 1500
8% Irredeemable Loan Notes 500
Bank Loan 750
Details on these are as follows.
They have just paid a dividend of 15c and the dividend has grown by 5% per year for the
past 5 years.
The redeemable loan notes are currently trading at $106 and are redeemable at par in 5
years time.
The irredeemable loan notes are currently trading at $92
The bank loan has an interest rate of 10%.
The tax rate is 30%.
105

F2 Workbook Q PDF

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

F2 Workbook Q PDF

Hochgeladen von

Copyright:

Verfügbare Formate

F2 Financial Management Q www.mapitaccountancy.

Non Current Assets

Tangible 100 100

Investment in Murcia 300

Cash 200 200

Ordinary Shares 160 100

Accumulated Profits 240 200

Equity 400 300

Non Current Liabilities 100 200

Current Liabilities 200 100

Almeria today acquired all the shares in Murcia for $300m.

The Fair Value of the NCI at acquisition was 0.

Working 1 - Group Structure

Working 2 - Equity Table

Cost of Parent Investment

Fair Value of NCI at acquisition

Less net assets at acquisition (W2)

Fair Value of NCI at acquisition

NCI% of Sub Post-Acq Profits

Value of NCI at Year End

Working 5 - Accumulated Profits

Parent’s Accumulated Profits

Add: Parent % of the subsidiary’s post acquisition profits

SFP for Almeria Group

Almeria Murcia Group

Non Current Assets

Tangible 100 100

Investment in Murcia 300

Cash 200 200

Ordinary Shares 160 100

Accumulated Profits 240 200

Non Controlling Interest

Equity 400 300

Non Current Liabilities 100 200

Current Liabilities 200 100

Assets 500 500

Investment in Dec 350

Ordinary Shares 100 200

Accumulated Profits 250 100

Equity 350 300

Liabilities 500 200

Ant today acquired 160m of the 200m shares in Dec.

The Fair Value of the NCI was 50.

Working 1- Group Structure

Working 2- Equity Table

At Acquisition At Year End

Cost of Parent Investment

Fair Value of NCI at acquisition

Less net assets at acquisition (W2)

Fair Value of NCI at acquisition

NCI% of Sub Post-Acq Profits

Value of NCI at Year End

Working 5 - Accumulated Profits

Parent’s Accumulated Profits

Add: Parent % of the subsidiary’s post acquisition profits

Statement of Financial Position for Ant Group

Ant Dec Group

Assets 500 500

Ordinary 100 200

Accumulated 250 100

Equity 350 300

Liabilities 500 200

Assets 200 350

Investment in Dando 500