On 1 April 2011, Pyramid acquired 80% of Square’s equity shares by means of an immediate share exchange anda cash payment of 88 cents per acquired share, deferred until 1 April 2012. Pyramid has recorded the shareexchange, but not the cash consideration. Pyramid’s cost of capital is 10% per annum.
The summarised statements of financial position of the two companies as at 31 March 2012 are:Assets
Non-current assets
Property, plant and equipment38,100Investments–Square 24,000
–Cube at cost (note (iv))6,000–Loan notes (note (ii))2,500–Other equity (note (v)) 2,000
–––––––72,600
Current assets
Inventory (note (iii))13,900Trade receivables (note (iii))11,400Bank (note (iii))900
–––––––
Total assets98,800
–––––––Equity and liabilitiesEquity
Equity shares of $1 eachShare premium
Retained earnings–at 1 April 2011
–for year ended 31 March 2012Non-current liabilities11% loan notes (note (ii))Deferred tax
PyramidSquare$’000 $’000
28,500
Current liabilities (note (iii))Total equity and liabilities
The following information is relevant: (i)
At the date of acquisition, Pyramid conducted a fair value exercise on Square’s net assets which were equal totheir carrying amounts with the following exceptions:––
An item of plant had a fair value of $3 million above its carrying amount. At the date of acquisition it hada remaining life of five years. Ignore deferred tax relating to this fair value.
Square had an unrecorded deferred tax liability of $1 million, which was unchanged as at 31 March 2012.
Pyramid’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose ashare price for Square of $3·50 each is representative of the fair value of the shares held by the non-controllinginterest.
(ii)Immediately after the acquisition, Square issued $4 million of 11% loan notes, $2·5 million of which were
bought by Pyramid. All interest due on the loan notes as at 31 March 2012 has been paid and received.
顿ac财ca经.gAaoCCduA n.cn10,4005,500600–––––––45,000–––––––
25,00017,60016,20014,000–––––––72,80012,0004,500
10,000
nil18,0008,000–––––––36,0004,000
nil
9,500–––––––98,800–––––––
5,000–––––––45,000–––––––
2
nil–––––––28,500
高(iii)Pyramid sells goods to Square at cost plus 50%. Below is a summary of the recorded activities for the year ended
31 March 2012 and balances as at 31 March 2012:
Pyramid$’00016,0004,400
1,700Square$’00014,500
Sales to Square
Purchases from Pyramid
Included in Pyramid’s receivablesIncluded in Square’s payables
On 26 March 2012, Pyramid sold and despatched goods to Square, which Square did not record until they werereceived on 2 April 2012. Square’s inventory was counted on 31 March 2012 and does not include any goodspurchased from Pyramid.
On 27 March 2012, Square remitted to Pyramid a cash payment which was not received by Pyramid until 4 April 2012. This payment accounted for the remaining difference on the current accounts.
(v)The other equity investments of Pyramid are carried at their fair values on 1 April 2011. At 31 March 2012,
these had increased to $2·8 million.(vi)There were no impairment losses within the group during the year ended 31 March 2012.Required:
Prepare the consolidated statement of financial position for Pyramid as at 31 March 2012.
顿ac财ca经.gAaoCCduA n.cn3
(iv)Pyramid bought 1·5 million shares in Cube on 1 October 2011; this represents a holding of 30% of Cube’s
equity. At 31 March 2012, Cube’s retained profits had increased by $2 million over their value at 1 October2011. Pyramid uses equity accounting in its consolidated financial statements for its investment in Cube.
(25 marks)
高[P.T.O.
2The following trial balance relates to Fresco at 31 March 2012:
$’000
Equity shares of 50 cents each (note (i))Share premium (note (i))
Retained earnings at 1 April 2011
Leased property (12 years) – at cost (note (ii))Plant and equipment – at cost (note (ii))
Accumulated amortisation of leased property at 1 April 2011 Accumulated depreciation of plant and equipment at 1 April 2011Inventory at 31 March 2012 Trade receivables (note (iii))Bank
Deferred tax (note (iv))Trade payablesRevenue
Cost of sales
Lease payments (note (ii))Distribution costs
Administrative expensesBank interest
Current tax (note (iv))
Suspense account (note (i))
$’00045,0005,0005,100
48,00047,500
16,00033,500
25,20028,500
1,4003,20027,300350,000
298,7008,00016,10026,900300800
The following notes are relevant:(i)
The suspense account represents the corresponding credit for cash received for a fully subscribed rights issue ofequity shares made on 1 January 2012. The terms of the share issue were one new share for every five held ata price of 75 cents each. The price of the company’s equity shares immediately before the issue was $1·20 each.
(ii)Non-current assets:
To reflect a marked increase in property prices, Fresco decided to revalue its leased property on 1 April 2011.The Directors accepted the report of an independent surveyor who valued the leased property at $36 million onthat date. Fresco has not yet recorded the revaluation. The remaining life of the leased property is eight years atthe date of the revaluation. Fresco makes an annual transfer to retained profits to reflect the realisation of therevaluation reserve. In Fresco’s tax jurisdiction the revaluation does not give rise to a deferred tax liability.On 1 April 2011, Fresco acquired an item of plant under a finance lease agreement that had an implicit financecost of 10% per annum. The lease payments in the trial balance represent an initial deposit of $2 million paidon 1 April 2011 and the first annual rental of $6 million paid on 31 March 2012. The lease agreement requiresfurther annual payments of $6 million on 31 March each year for the next four years. Had the plant not beenleased it would have cost $25 million to purchase for cash.
Plant and equipment (other than the leased plant) is depreciated at 20% per annum using the reducing balancemethod.
No depreciation/amortisation has yet been charged on any non-current asset for the year ended 31 March 2012.Depreciation and amortisation are charged to cost of sales.
(iii)In March 2012, Fresco’s internal audit department discovered a fraud committed by the company’s credit
controller who did not return from a foreign business trip. The outcome of the fraud is that $4 million of thecompany’s trade receivables have been stolen by the credit controller and are not recoverable. Of this amount, $1 million relates to the year ended 31 March 2011 and the remainder to the current year. Fresco is not insuredagainst this fraud.(iv)Fresco’s income tax calculation for the year ended 31 March 2012 shows a tax refund of $2·4 million. The
balance on current tax in the trial balance represents the under/over provision of the tax liability for the year ended31 March 2011. At 31 March 2012, Fresco had taxable temporary differences of $12 million (requiring adeferred tax liability). The income tax rate of Fresco is 25%.
4
顿ac财ca经.gAaoCCduA n.cn––––––––500,000––––––––
13,500––––––––500,000––––––––
高Required:(a)(i)
Prepare the statement of comprehensive income for Fresco for the year ended 31 March 2012.
(ii)Prepare the statement of changes in equity for Fresco for the year ended 31 March 2012.(iii)Prepare the statement of financial position of Fresco as at 31 March 2012.The following mark allocation is provided as guidance for this requirement:(i)9 marks(ii)5 marks (iii)8 marks
(22 marks)
(b)Calculate the basic earnings per share for Fresco for the year ended 31 March 2012.Notes to the financial statements are not required.
(3 marks)
顿ac财ca经.gAaoCCduA n.cn5
(25 marks)
高[P.T.O.
3
(a)Tangier is a public listed company. Its summarised financial statements for the years ended 31 March 2012 and
the comparative figures are shown below.
Statements of comprehensive income for the year ended 31 March:
2012$ m2,700(1,0)––––––810(230)(345)(40)––––––195(60)––––––13580––––––215––––––
2011$ m1,820(1,092)––––––728(130)(200)(5)––––––393(113)––––––280nil––––––280––––––
RevenueCost of sales
Gross profit
Distribution costs
Administrative expensesFinance costsProfit before taxIncome tax expenseProfit for the year
Other comprehensive incomeTotal comprehensive income
Statements of financial position as at 31 March:
Assets
Non-current assets
Property, plant and equipment
Intangible asset: manufacturing licenceInvestment at cost: shares in RaremetalCurrent assetsInventory
Trade receivablesBankTotal assets
Equity and liabilitiesEquity
Equity shares of $1 eachReservesRevaluation
Retained earnings Non-current liabilities5% loan notes
10% secured loan notesCurrent liabilitiesBank overdraftTrade payablesCurrent tax payable
Total equity and liabilities
顿ac财ca经.gAaoCCduA n.cn2012
2011
$ m
$ m
$ m
$ m
680300230––––––1,210
410200nil––––610
200195nil––––
395––––––1,605––––––
11075120––––
305––––915––––
350
250
80375––––––805
nil295––––545
100300––––
400
100nil––––
100
11021080––––
400––––––1,605––––––
nil160110––––
270––––915––––
6
高The following information is relevant:
Depreciation/amortisation charges for the year ended 31 March 2012 were:Property, plant and equipment
Intangible asset: manufacturing licence
$ m11525
There were no sales of non-current assets during the year, although property has been revalued.Required:
Prepare the statement of cash flows for the year ended 31 March 2012 for Tangier in accordance with theindirect method in accordance with IAS 7 Statement of cash flows. (11 marks)(b)The following additional information has been obtained in relation to the operations of Tangier for the year ended31 March 2012:
(ii)Tangier also decided to invest in Raremetal by acquiring 8% of its equity shares in order to secure supplies
of specialised materials used in the manufacture of the engines. No dividends were received from Raremetalnor had the value of its shares changed since acquisition.(iii)Tangier revalued its property during the year to facilitate the issue of the 10% loan notes.
On seeing the results for the first time, one of the company’s non-executive directors is disappointed by thecurrent year’s performance.Required:
Explain how the new contract and its related costs may have affected Tangier’s operating performance,identifying any further information that may be useful to your answer.
Your answer may be supported by appropriate ratios (up to 4 marks available), but ratios and analysis ofworking capital are not required.(14 marks)
(25 marks)
顿ac财ca经.gAaoCCduA n.cn7
(i)
On 1 June 2011, Tangier won a tender for a new contract to supply Jetside with aircraft engines that Tangiermanufactures under a recently-acquired licence. The bidding process was very competitive and Tangier hadto increase its manufacturing capacity to fulfil the contract.
高[P.T.O.
4
(a)The objective of IAS 36 Impairment of assetsis to prescribe the procedures that an entity applies to ensure that
its assets are not impaired.
Required:
Explain what is meant by an impairment review. Your answer should include reference to assets that mayform a cash generating unit.
Note: you are NOT required to describe the indicators of an impairment or how impairment losses are allocatedagainst assets.(4 marks)(b)(i)
Telepath acquired an item of plant at a cost of $800,000 on 1 April 2010 that is used to produce and
package pharmaceutical pills. The plant had an estimated residual value of $50,000 and an estimated lifeof five years, neither of which has changed. Telepath uses straight-line depreciation. On 31 March 2012,Telepath was informed by a major customer (who buys products produced by the plant) that it would nolonger be placing orders with Telepath. Even before this information was known, Telepath had been havingdifficulty finding work for this plant. It now estimates that net cash inflows earned from the plant for the nextthree years will be:year ended:
31 March 201331 March 201431 March 2015
$’000220180170
(ii)Telepath owned a 100% subsidiary, Tilda, that is treated as a cash generating unit. On 31 March 2012,
there was an industrial accident (a gas explosion) that caused damage to some of Tilda’s plant. The assetsof Tilda immediately before the accident were:
GoodwillPatent
Factory buildingPlant
Receivables and cash
$’0001,8001,2004,0003,5001,500–––––––12,000–––––––
顿ac财ca经.gAaoCCduA n.cnOn 31 March 2015, the plant is still expected to be sold for its estimated realisable value. Telepath has confirmed that there is no market in which to sell the plant at 31 March 2012.Telepath’s cost of capital is 10% and the following values should be used:value of $1 at:end of year 1end of year 2end of year 3
$0·910·830·75
As a result of the accident, the recoverable amount of Tilda is $6·7 million
8
高The explosion destroyed (to the point of no further use) an item of plant that had a carrying amount of$500,000.
Tilda has an open offer from a competitor of $1 million for its patent. The receivables and cash are alreadystated at their fair values less costs to sell (net realisable values).
Required:
Calculate the carrying amounts of the assets in (i) and (ii) above at 31 March 2012 after applying anyimpairment losses.
Calculations should be to the nearest $1,000.
The following mark allocation is provided as guidance for this requirement:(i)4 marks(ii)7 marks
(11 marks)(15 marks)
顿ac财ca经.gAaoCCduA n.cn9
[P.T.O.
高5
(a)The methods by which Accounting Standards are developed differ considerably throughout the world. It is often
argued that there are two main systems of regulation that determine the nature of Accounting Standards: a rules-based system and a principles-based system.
Required:
Briefly explain the difference between the two systems and state which system you believe is mostdescriptive of International Financial Reporting Standards (IFRS).(4 marks)(b)Baxen is a public listed company that currently uses local Accounting Standards for its financial reporting. Theboard of directors of Baxen is considering the adoption of International Financial Reporting Standards (IFRS) inthe near future. The company has ambitious growth plans which involve extensive trading with many foreigncompanies and the possibility of acquiring at least one of its trading partners as a subsidiary in the near future.
Required:
顿ac财ca经.gAaoCCduA n.cnEnd of Question Paper
10
Identify the advantages that Baxen could gain by adopting IFRS for its financial reporting purposes.
(6 marks)
(10 marks)
高
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