ACCA 历年真题f7int_2009_jun_a
Fundamentals Level – Skills Module, Paper F7 (INT)
Financial Reporting (International)June 2009 Answers 1Consolidated statement of financial position of Pacemaker as at 31 March 2009:
$million$million Non-current assets
T angible
Property, plant and equipment (w (i))818
Intangible
Goodwill (w (ii)) 23
Brand (25 –5 (25/10 x 2 years post acq amortisation))20
Investments
Investment in associate (w (iii))144
Other available-for-sale investments (82 + 37)119
––––––
1,124 Current assets
Inventory (142 + 160 –16 URP (w (iv)))286
T rade receivables (95 + 88)183
Cash and bank (8 + 22)30499
–––––––––––T otal assets1,623
––––––Equity and liabilities
Equity attributable to the parent
Equity shares (500 + 75 (w (iii)))575
Share premium (100 + 45 (w (iii))145
Retained earnings (w (iv))247392
–––––––––––
967 Non-controlling interest (w (v))91
––––––T otal equity1,058
Non-current liabilities
10% loan notes (180 + 20)200
Current liabilities (200 + 165)365
––––––T otal equity and liabilities 1,623
––––––Workings(all figures in $ million)
The investment in Syclop represents 80% (116/145) of its equity and is likely to give Pacemaker control thus Syclop should be consolidated as a subsidiary. The investment in Vardine represents 30% (30/100) of its equity and is normally treated as an associate that should be equity accounted.
(i)Property, plant and equipment
Pacemaker520
Syclop280
Fair value property (82 – 62)20
Post-acquisition depreciation (2 years) (20 x 2/20 years)(2)
––––
818
––––(ii)Goodwill in Syclop:
Investment at cost –cash210
–loan note (116/200 x $100)58
––––Cost of the controlling interest268
Fair value of non-controlling interest (from question)65
Equity shares145
Pre-acquisition profit 120
Fair value adjustments –property (w (i))20
–brand25
––––
Fair value of net assets at acquisition(310)
––––Goodwill23
––––
(iii)Investment in associate:
$million Investment at cost (75 x $1·60)120
Share of post-acquisition profit (100 –20) x 30%24
––––
144
––––The purchase consideration by way of a share exchange (75 million shares in Pacemaker for 30 million shares in Vardine) would be recorded as an increase in share capital of $75 million ($1 nominal value) and an increase in share premium of $45 million (75 million x $0·60).
(iv)Consolidated retained earnings:
Pacemaker’s retained earnings130
Syclop’s post-acquisition profits (130 x 80% see below)104
Gain on investments – Pacemaker (see below)5
Vardine’s post-acquisition profits (w (iii))24
URP in Inventories (56 x 40/140)(16)
––––
247
––––Syclop’s retained earnings:
Post-acquisition (260 –120)140
Additional depreciation/amortisation (2 + 5)(7)
Loss on available-for-sale investments (40 – 37)(3)
––––Adjusted post-acquisition profits130
––––Gain on the value of Pacemaker’s available-for-sale investments:
Carrying amount at 31 March 2008 (345 – 210 cash – 58 loan note) 77
Carrying amount at 31 March 2009 82
––––Gain to retained earnings (or other components of equity)5
––––(v)Non-controlling interest
Fair value on acquisition (from question)65
Share of adjusted post acquisition profit (130 x 20% (w (iv)))26
–––
91
–––
2(a)Pricewell – Statement of comprehensive income for the year ended 31 March 2009:
$’000 Revenue (310,000 + 22,000 (w (i)) – 6,400 (w (ii)))325,600
Cost of sales (w (iii))(255,100)
–––––––––Gross profit70,500
Distribution costs (19,500)
Administrative expenses (27,500)
Finance costs (4,160 (w (v)) + 1,248 (w (vi)))(5,408)
–––––––––Profit before tax18,092
Income tax expense (4,500 +700 – (8,400 – 5,600 deferred tax)(2,400)
–––––––––Profit for the year 15,692
–––––––––
(b)Pricewell – Statement of financial position as at 31 March 2009:
Assets$’000$’000
Non-current assets
Property, plant and equipment (24,900 + 41,500 w (iv))66,400
Current assets
Inventory28,200
Amount due from customer (w (i))17,100
T rade receivables 33,100
Bank5,50083,900
–––––––––––––––T otal assets150,300
––––––––Equity and liabilities:
Equity shares of 50 cents each40,000
Retained earnings (w (vii)) 12,592
––––––––
52,592 Non-current liabilities
Deferred tax 5,600
Finance lease obligation (w (vi))5,716
6% Redeemable preference shares (41,600 + 1,760 (w (v)))43,36054,676
–––––––
Current liabilities
T rade payables33,400
Finance lease obligation (10,848 –5,716) (w (vi)))5,132
Current tax payable4,50043,032
–––––––––––––––T otal equity and liabilities150,300
––––––––Workings(figures in brackets in $’000)
$'000
(i)Construction contract:
Selling price50,000
Estimated cost
T o date (12,000)
T o complete(10,000)
Plant(8,000)
–––––––Estimated profit20,000
–––––––Work done is agreed at $22 million so the contract is 44% complete (22,000/50,000).
Revenue22,000
Cost of sales (= balance)(13,200)
–––––––Profit to date (44% x 20,000)8,800
–––––––Cost incurred to date materials and labour12,000
Plant depreciation (8,000 x 6/24 months)2,000
Profit to date8,800
–––––––
22,800 Cash received(5,700)
–––––––Amount due from customer17,100
–––––––(ii)Pricewell is acting as an agent (not the principal) for the sales on behalf of T rilby. Therefore the income statement should only include $1·6 million (20% of the sales of $8 million). Therefore $6·4 million (8,000 – 1,600) should be deducted from revenue and cost of sales. It would also be acceptable to show agency sales (of $1·6 million) separately as other income.
(iii)Cost of sales
Per question234,500
Contract (w (i))13,200
Agency cost of sales (w (ii))(6,400)
Depreciation (w (iv))–leasehold property1,800
–owned plant ((46,800 – 12,800) x 25%) 8,500
–leased plant (20,000 x 25%)5,000 Surplus on revaluation of leasehold property (w (iv))(1,500)
––––––––
255,100
––––––––
$'000
(iv)Non-current assets
Leasehold property
valuation at 31 March 200825,200
depreciation for year (14 year life remaining)(1,800)
–––––––carrying amount at date of revaluation23,400
valuation at 31 March 2009(24,900)
–––––––revaluation surplus (to income statement – see below)1,500
–––––––The $1·5 million revaluation surplus is credited to the income statement as this is the partial reversal of the $2·8 million impairment loss recognised in the income statement in the previous period (i.e. year ended 31 March 2008).
Plant and equipment
–owned (46,800 – 12,800 – 8,500)25,500
–leased (20,000 – 5,000 – 5,000)10,000
–contract (8,000 – 2,000 (w (i)))6,000
–––––––Carrying amount at 31 March 200941,500
–––––––
(v)The finance cost of $4,160,000 for the preference shares is based on the effective rate of 10% applied to $41·6 million balance at 1 April 2008. The accrual of $1,760,000 (4,160 – 2,400 dividend paid) is added to the carrying amount of the preference shares in the statement of financial position. As these shares are redeemable they are treated as debt and their dividend is treated as a finance cost.
(vi)Finance lease liability
balance at 31 March 200815,600
interest for year at 8%1,248
lease rental paid 31 March 2009(6,000)
–––––––total liability at 31 March 200910,848
interest next year at 8%868
lease rental due 31 March 2010(6,000)
–––––––total liability at 31 March 20105,716
–––––––
(vii)Retained earnings
balance at 1 April 20084,900
profit for year15,692
equity dividend paid(8,000)
–––––––balance at 31 March 200912,592
–––––––
3(a)Coaltown – Statement of cash flows for the year ended 31 March 2009:
Note: figures in brackets in $’000
Cash flows from operating activities$’000$’000 Profit before tax10,200 Adjustments for:
depreciation of non-current assets (w (i))6,000
loss on disposal of displays (w (i))1,5007,500
––––––––
interest expense600
increase in warranty provision (1,000 – 300)700
increase in inventory (5,200 – 4,400)(800)
increase in receivables (7,800 – 2,800)(5,000)
decrease in payables (4,500 – 4,200)(300)
––––––––Cash generated from operations 12,900 Interest paid(600) Income tax paid (w (ii))(5,500)
––––––––Net cash from operating activities6,800 Cash flows from investing activities (w (i))
Purchase of non-current assets(20,500)
Disposal cost of non-current assets(500)
––––––––
Net cash used in investing activities(21,000)
––––––––
(14,200) Cash flows from financing activities:
Issue of equity shares (8,600 capital + 4,300 premium)12,900
Issue of 10% loan notes1,000
Equity dividends paid(4,000)
––––––––
Net cash from financing activities9,900
––––––––Net decrease in cash and cash equivalents (4,300) Cash and cash equivalents at beginning of period700
––––––––Cash and cash equivalents at end of period(3,600)
––––––––Workings $’000
(i)Non-current assets
Cost
Balance b/f80,000
Revaluation (5,000 –2,000 depreciation)3,000
Disposal(10,000)
Balance c/f(93,500)
–––––––
Cash flow for acquisitions20,500
–––––––
Depreciation
Balance b/f48,000
Revaluation(2,000)
Disposal(9,000)
Balance c/f(43,000)
–––––––
Difference – charge for year6,000
–––––––
Disposal of displays
Cost10,000
Depreciation(9,000)
Cost of disposal500
–––––––
Loss on disposal1,500
–––––––
(ii)Income tax paid:$’000
Provision b/f(5,300)
Income statement tax charge (3,200)
Provision c/f3,000
–––––––
Difference cash paid(5,500)
–––––––
(b)(i)Workings– all monetary figures in $’000
(note: references to 2008 and 2009 should be taken as to the years ended 31 March 2008 and 2009)
The effect of a reduction in purchase costs of 10% combined with a reduction in selling prices of 5%, based on the figures from 2008, would be:
Sales (55,000 x 95%)52,250
Cost of sales (33,000 x 90%) (29,700)
–––––––
Expected gross profit22,550
–––––––
This represents an expected gross profit margin of 43·2% (22,550/52,250 x 100)
The actual gross profit margin for 2009 is 33·4% (22,000/65,800 x 100)
(ii)The directors’ expression of surprise that the gross profit in 2009 has not increased seems misconceived.
A change in the gross profit margin does not necessarily mean there will be an equivalent change in the absolute gross
profit. This is because the gross profit figure is the product of the gross profit margin and the volume of sales and these may vary independently of each other. That said, in this case the expected gross profit margin in 2009 shows an increase over that earned in 2008 (to 43·2% from 40·0% (22,000/55,000 x100)) and the sales have also increased, so it is understandable that the directors expected a higher gross profit. As the actual gross profit margin in 2009 is only 33·4%, something other than the changes described by the directors must have occurred. Possible reasons for the reduction are:
The opening inventory being at old (higher) cost and the closing inventory is at the new (lower) cost will have caused slight distortion.
Inventory write downs due to damage/obsolescence.
A change in the sales mix (i.e. from higher margin sales to lower margin sales).
New (lower margin) products may have been introduced from other new suppliers.
Some selling prices may have been discounted because of sales promotions.
I mport duties (perhaps not allowed for by the directors) or exchange rate fluctuations may have caused the actual
purchase cost to be higher than the trade prices quoted by the new supplier.
Change in cost classification: some costs included as operating expenses in 2008 may have been classified as cost of sales in 2009 (if intentional and material this should be treated as a change in accounting policy) – for example it may be worth checking that depreciation has been properly charged to operating expenses in 2009.
The new supplier may have put his prices up during the year due to market conditions. Coaltown may have felt it could not pass these increases on to its customers.
(iii)Note – all monetary figures in $’000
T rade receivables collection period in 2008:
2,800/28,500 x 365 = 35·9 days
Applying the 35·9 days collection period to the credit sales made in 2009:
53,000 x 35·9/365 = 5,213, the actual receivables are 7,800 thus potentially increasing the bank balance by
2,587.
A similar exercise with the trade payables period in 2008:
4,500/33,000 x 365 = 49·8 days
Note the 33,000 above is the cost of sales for 2008. This was the same as the credit purchases as there was no change in the value of inventory. However, in 2009 the credit purchases will be 44,600 (43,800 + 5,200 closing inventory –4,400 opening inventory).
Applying the 49·8 days payment period to purchases made in 2009 gives:
44,600 x 49·8/365 = 6,085, the actual payables are 4,200 thus potentially increasing the bank balance by
1,885.
Inevitably a shortening of the period of credit offered by suppliers and lengthening the credit offered to customers will put a strain on cash resources. For Coaltown the combination of maintaining the same credit periods for both trade receivables and payables would have led to a reduction in cash outflows of 4,472 (2,587 + 1,885), which would have eliminated the overdraft of 3,600 leaving a balance in hand of 872.
4(a)Events after the reporting period are defined by IAS 10 Events after the Reporting Period as those events, both favourable and unfavourable, that occur between the end of the reporting period and the date that the financial statements are authorised for issue (normally by the Board of directors).
An adjusting event is one that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the entity is not appropriate.
Normally trading results occurring after the end of the reporting period are a matter for the next reporting period, however, if there is an event which would normally be treated as non-adjusting that causes a dramatic downturn in trading (and profitability) such that it is likely that the entity will no longer be a going concern, this should be treated as an adjusting event.
A non-adjusting event is an event after the end of the reporting period that is indicative of a condition that arose after the end
of the reporting period and, subject to the exception noted above, the financial statements would not be adjusted to reflect such events.
The outcome (and values) of many items in the financial statements have a degree of uncertainty at the end of the reporting period. IAS 10 effectively says that where events occurring after the end of the reporting period help to determine what those values were at the end of the reporting period, they should be taken in account (i.e. adjusted for) in preparing the financial statements.
If non-adjusting events, whilst not affecting the financial statements of the current year, are of such importance (i.e. material) that without disclosure of their nature and estimated financial effect, users’ ability to make proper evaluations and decisions about the future of the entity would be affected, then they should be disclosed in the notes to the financial statements.
(b)(i)This is normally classified as a non-adjusting event as there was no reason to doubt that the value of warehouse and
the inventory it contained was worth less than its carrying amount at 31 March 2009 (the last day of the reporting
period). The total loss suffered as a result of the fire is $16 million. The company expects that $9 million of this loss
will be recovered from an insurance policy. Recoveries from third parties should be assessed separately from the related
loss. As this event has caused serious disruption to trading, IAS 10 would require the details of this non-adjusting event
to be disclosed as a note to the financial statements for the year ended 31 March 2009 as a total loss of $16 million
and the effect of the insurance recovery to be disclosed separately.
The severe disruption in Waxwork’s trading operations since the fire, together with the expectation of large trading losses
for some time to come, may call in to question the going concern status of the company. If it is judged that Waxwork is
no longer a going concern, then the fire and its consequences become an adjusting event requiring the financial
statements for the year ended 31 March 2009 to be redrafted on the basis that the company is no longer a going
concern (i.e. they would be prepared on a liquidation basis).
(ii)70% of the inventory amounts to $322,000 (460,000 x 70%) and this was sold for a net amount of $238,000 (280,000 x 85%). Thus a large proportion of a class of inventory was sold at a loss after the reporting period. This
would appear to give evidence of conditions that existed at 31 March 2009 i.e. that the net realisable value of that class
of inventory was below its cost. Inventory is required to be valued at the lower of cost and net realisable value, thus this
is an adjusting event. If it is assumed that the remaining inventory will be sold at similar prices and terms as that already
sold, the net realisable value of the whole of the class of inventory would be calculated as:
$280,000/70% = $400,000, less commission of 15% = $340,000.
Thus the carrying amount of the inventory of $460,000 should be written down by $120,000 to its net realisable value
of $340,000.
In the unlikely event that the fall in the value of the inventory could be attributed to a specific event that occurred after
the date of the statement of financial position then this would be a non-adjusting event.
(iii)The date of the government announcement of the tax change is beyond the period of consideration in IAS 10. Thus this would be neither an adjusting nor a non-adjusting event. The increase in the deferred tax liability will be provided for in
the year to 31 March 2010. Had the announcement been before 6 May 2009, it would have been treated as a
non-adjusting event requiring disclosure of the nature of the event and an estimate of its financial effect in the notes to
the financial statements.
5Flightline – Income statement for the year ended 31 March 2009:$’000Depreciation (w (i))
13,800Loss on write off of engine (w (iii))6,000Repairs –engine
3,000–exterior painting
2,000Statement of financial position as at 31 March 2009Non-current asset – Aircraft
cost accumulated carrying depreciati o n am o
unt $’000$’000$’000Exterior (w (i))
120,00084,00036,000Cabin fittings (w (ii))29,50021,5008,000Engines (w (iii))
19,8003,70016,100–––––––––––––––––––––––169,300109,20060,100––––––––
–––––––––––––––
Workings (figures in brackets in $’000)
(i)The exterior of the aircraft is depreciated at $6 million per annum (120,000/20 years). The cabin is depreciated at $5 million
per annum (25,000/5 years). The engines would be depreciated by $500 ($18 million/36,000 hours) i.e. $250 each, per flying hour.
The carrying amount of the aircraft at 1 April 2008 is:
Cost accumulated carrying depreciati o n am o unt $’000$’000$’000Exterior (13 years old)
120,00078,00042,000Cabin (3 years old)
25,00015,00010,000Engines (used 10,800 hours)
18,0005,40012,600––––––––––––––––––––––163,00098,40064,600––––––––
––––––––––––––
Depreciation for year to 31 March 2009:$’000Exterior (no change)6,000Cabin fittings –six months to 30 September 2008 (5,000 x 6/12)2,500
–six months to 31 March 2009 (w (ii))4,000
Engines –six months to 30 September 2008 (500 x 1,200 hours)600
–six months to 31 March 2009 ((400 + 300) w (iii))700
–––––––13,800–––––––(ii)
Cabin fittings – at 1 October 2008 the carrying amount of the cabin fittings is $7·5 million (10,000 – 2,500). The cost of improving the cabin facilities of $4·5 million should be capitalised as it led to enhanced future economic benefits in the form of substantially higher fares. The cabin fittings would then have a carrying amount of $12 million (7,500 + 4,500) and an unchanged remaining life of 18 months. Thus depreciation for the six months to 31 March 2009 is $4 million (12,000 x 6/18).
(iii)Engines – before the accident the engines (in combination) were being depreciated at a rate of $500 per flying hour. At the
date of the accident each engine had a carrying amount of $6 million ((12,600 – 600)/2). This represents the loss on disposal of the written off engine. The repaired engine’s remaining life was reduced to 15,000 hours. Thus future depreciation on the repaired engine will be $400 per flying hour, resulting in a depreciation charge of $400,000 for the six months to 31 March 2009. The new engine with a cost of $10·8 million and a life of 36,000 hours will be depreciated by $300 per flying hour, resulting in a depreciation charge of $300,000 for the six months to 31 March 2009. Summarising both engines:
cost accumulated carrying depreciati o
n am o
unt $’000$’000$’000Old engine
9,0003,4005,600New engine
10,80030010,500––––––––––––––––––––19,8003,70016,100–––––––
–––––––––––––
Note: marks are awarded for clear calculations rather than for detailed explanations. Full explanations are given for tutorial purposes.
Fundamentals Level – Skills Module, Paper F7 (INT)
Financial Reporting (International) June 2009 Marking Scheme
This marking scheme is given as a guide in the context of the suggested answers. Scope is given to markers to award marks for alternative approaches to a question, including relevant comment, and where well-reasoned conclusions are provided. This is particularly the case for written answers where there may be more than one acceptable solution.
Marks
1property, plant and equipment2
brand1
goodwill 41/
2
investment in associate2
other investments1
inventories2
trade receivables, cash and bank 1
equity shares1
share premium1
retained earnings61/
2
non-controlling interest2
loan notes1/
2
current liabilities1/
2
Total for question25
2(a)Statement of comprehensive income
revenue2
cost of sales5
distribution costs 1/
2
administrative expenses1/
2
finance costs2
income tax expense2
12
(b)Statement of financial position
property, plant and equipment21/
2
inventory1/
2
due on construction contract2
trade receivables1/
2
bank1/
2
equity shares1/
2
retained earnings (1 for dividend)11/
2
deferred tax1
finance lease –non-current liability1/
2
preference shares1
trade payables1/
2
finance lease –current liability1
current tax payable1
13
Total for question25
Marks 3(a)operating activities
profit before tax1/
2 add back interest1/
2 depreciation charge2
loss on disposal 1
warranty adjustment1/
2 working capital items11/
2 finance costs1
income tax paid1
purchase of non-current assets2
disposal cost of non-current assets1
issue of equity shares1
issue of 10% loan notes1
dividend paid 1
cash and cash equivalents b/f and c/f1
15
(b)(i)calculation of expected gross profit margin for 20092
(ii)comments on directors’ surprise and other factors 4
(iii)calculate credit periods (receivables and payables) in 20082 apply to 2009 credit sales/purchases1
calculate ‘savings’ and effect on closing bank balance1
4
Total for question25
4(a)definition1 discussion of adjusting events2
reference to going concern1
discussion of non-adjusting events1
5
(b)(i)to (iv)1 mark per valid point as indicated 10
Total for question15
5Income statement
depreciation–exterior1–cabin fittings 2
–engines2 loss on write off of engine1 repairs1 Statement of financial position
carrying amount at 31 March 20093
Total for question10