F7 Workbook PDF
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Dipak GhimireF7 Workbook PDF
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Dipak GhimireF7 Workbook Q & A www.mapitaccountancy.
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ACCA F7 - Financial
Reporting
Workbook
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Group Accounts
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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
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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
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Working 4 - NCI
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
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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
Ordinary Shares 160 100
Accumulated Profits 240 200
Non Controlling Interest
Equity 400 300
Non Current Liabilities 100 200
Current Liabilities 200 100
700 600
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Solution
Working 1 - Group Structure
Almeria
↓ 100%
Murcia
Date Acquired TODAY
Parent Share 100%
NCI 0%
Working 2 - Equity Table
At Acquisition At Year End
Share Capital 100 100
Accumulated Profits 200 200
300 300
Working 3 - Goodwill
Cost of Parent Investment 300
Fair Value of NCI 0
Less net assets at acquisition (W2) -300
Goodwill 0
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Working 4 - NCI
Fair Value of NCI at acquisition 0
NCI% of Sub Post-Acq Profits 0
Value of NCI at Year End 0
Working 5 - Accumulated Profits
Parent’s Accumulated Profits 240
Add: Parent % of the subsidiary’s post acquisition profits Nil
240
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SFP for Almeria Group
Almeria Murcia Group
Non Current Assets
Goodwill None (W3) Nil
Tangible 100 100 100 + 100 200
Investment in Murcia 300 Cancel out Nil
Current Assets
Inventory 40 200 40 + 200 240
Receivables 60 100 60 +100 160
Cash 200 200 200 + 200 400
700 600 1000
Ordinary Shares 160 100 Parent 160
Accumulated Profits 240 200 W5 240
Non Controlling Interest W4 Nil
Equity 400 300 400
Non Current Liabilities 100 200 100 + 200 300
Current Liabilities 200 100 200 + 100 300
700 600 1000
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Illustration 2
Ant Dec
Assets 500 500
Investment in Dec 350
850 500
Ordinary Shares 100 200
Accumulated Profits 250 100
Equity 350 300
Liabilities 500 200
850 500
Additional Information
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
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Illustration 2 Pro-Forma
Working 1- Group Structure
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
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Working 4 - NCI
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
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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
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Illustration 2 Solution
Working 1- Group Structure
Ant
↓ 80%
Dec
Date Acquired TODAY
Parent Share 80%
NCI 20%
100%
Working 2- Equity Table
At Acquisition At Year End
Share Capital 200 200
Accumulated Profits 100 100
300 300
Working 3 - Goodwill
Cost of Parent Investment 350
Fair Value of NCI at acquisition 50
Less net assets at acquisition (W2) -300
Goodwill 100
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Working 4 - NCI
Fair Value of NCI at acquisition 50
NCI% of Sub Post-Acq Profits 0
Value of NCI at Year End 50
Working 5 - Accumulated Profits
$
Parent’s Accumulated Profits 250
Add: Parent % of the subsidiary’s post acquisition profits Nil
250
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Statement of Financial Position for Ant Group
Ant Dec Group
Goodwill W3 100
Assets 500 500 500 + 500 1000
Investment in 350 Cancelled in Nil
Dec Goodwill W3
850 500 1100
Ordinary 100 200 Parent Only 100
Shares
Accumulated 250 100 W5 250
Profits
NCI W4 50
Liabilities 500 200 500 +200 700
850 500 1100
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Illustration 3
Evan Dando
Assets 200 350
Investment in Dando 500
Current Assets 200 300
900 650
Ordinary Shares ($1) 200 200
Accumulated Profits 250 100
Equity 450 300
Non Current Liabilities 280 200
Liabilities 170 150
900 650
Additional Information
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.
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Solution
Working 1- Group Structure
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
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Working 4 - NCI
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
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Statement of Financial Position for Evan Group
Evan Dando Group
Goodwill
Assets 200 350
Investment in 500
Dando
Current Assets 200 300
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
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Solution
Working 1- Group Structure
Evan
↓ 75%
Dando
Date Acquired 1 Year Ago
Parent Share 75%
NCI 25%
100%
Working 2 - Equity Table
At Acquisition At Year End
Share Capital 200 200
Accumulated Profits 40 100
240 300
Working 3 - Goodwill
Cost of Parent Investment 500
Fair Value of NCI at acquisition 100
Less net assets at acquisition (W2) -240
Goodwill 360
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Working 4 - NCI
Fair Value of NCI at acquisition 100
NCI% of Sub Post-Acq Profits (25% x 60m) 15
Value of NCI at Year End 115
Working 5 - Accumulated Profits
Parent’s Accumulated Profits 250
Add: Parent % of the subsidiary’s post acquisition profits (75% x 60m) 45
295
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Statement of Financial Position for Evan Group
Evan Dando Group
Goodwill W3 360
Assets 200 350 200 + 350 550
Investment in 500 Cancelled out Nil
Dando in W3.
Current Assets 200 300 200 + 300 500
1410
Ordinary Parent Only 200
Shares ($1)
Accumulated W5 295
Profits
NCI W4 115
610
Non Current 280 200 280 + 200 480
Liabilities
Liabilities 170 150 170 + 150 320
1410
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Illustration 4
Virtual Insanity
Assets 1000 800
Investment in Insanity 600
Current Assets 400 200
2000 1000
Ordinary Shares ($1) 800 100
Accumulated Profits 750 400
Equity 1550 500
Non Current Liabilities 250 300
Liabilities 200 200
2000 1000
Additional Information
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
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Solution
Working 1- Group Structure
Virtual
↓ 60%
Insanity
Date Acquired 1 Year Ago
Parent Share 60%
NCI 40%
100%
Working 2 - Equity Table
At Acquisition At Year End
Share Capital 100 100
Accumulated Profits 60 400
160 500
Working 3 - Goodwill
Cost of Parent Investment 600
Fair Value of NCI at acquisition 120
Less net assets at acquisition (W2) -160
Goodwill 560
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Working 4 - NCI
Fair Value of NCI at acquisition 120
NCI% of Sub Post-Acq Profits (40% x (500 - 136
160))
Value of NCI at Year End 256
Working 5 - Accumulated Profits
Parent’s Accumulated Profits 750
Add: Parent % of the subsidiary’s post acquisition profits (60% x (500 - 204
160)
954
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Statement of Financial Position for Virtual Group
Virtual Insanity Group
Goodwill W3 560
Assets 1000 800 1000 + 800 1800
Investment in 600 Cancelled in Nil
Insanity W3
Current Assets 400 200 400 + 200 600
2000 1000 2960
Ordinary 800 100 Parent Only 800
Shares ($1)
Accumulated 750 400 W5 954
Profits
NCI W4 256
Equity 1550 500 1954
Non Current 250 300 250 + 300 550
Liabilities
Liabilities 200 200 200 + 200 400
2000 1000 2960
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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?
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Illustration 5 Solution
Cash Amount 36,000
Shares Market Value (2000 x 3) 6,000
Deferred Consideration 30,000 x (1 / (1.124) 19080
Contingent Consideration Fair Value 60,000
Total 121080
Year O’Bal Unwind (12%) C’Bal
1 19,080 2,290 21,370
2 21,370 2,564 23,934
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.
Solution
Share exchange ((20,000 x 75%) x 2/5 x $2) $12,000
10% loan notes (15,000 x 100/1,000) $1,500
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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
Ordinary Shares ($1) 700 250
Accumulated Profits 500 350
Equity 1200 600
Liabilities 300 100
1500 700
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Solution
Working 1- Group Structure
Jimmy
↓ 80%
Gent
Date Acquired 1 Year Ago
Parent Share 80%
NCI 20%
100%
Working 2 - Equity Table
At Acquisition At Year End
Share Capital 250 250
Accumulated Profits 150 350
Fair Value Adjustment 100 100
Additional Depreciation -20
500 680
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Working 3 - Goodwill
Cost of Parent’s investment 800
Fair value of NCI at acquisition (Market Value) 160
960
Less 100% net assets at acquisition in W2 -500
Gross Goodwill 460
Working 4 - NCI
Fair Value of NCI at acquisition 160
Plus NCI share of post acquisition profits (680 - 500) x 20% 36
196
Working 5 - Group Accumulated Profit
Parent’s Accumulated Profits 500
Add: Parent % of the subsidiary’s post acquisition profits 80% x (680 - 144
500) (W2)
644
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Statement of Financial Position for Jimmy Group
Jimmy Gent Group
Goodwill W3 460
Investment in 800 Cancelled Nil
Gent
Assets 700 700 700 + 700 + 1480
100 - 20
1500 700 1940
Ordinary 700 250 Parent only 700
Shares ($1)
Accumulated 500 350 W5 644
Profits
NCI W4 196
Equity 1200 600 1540
Liabilities 300 100 300 + 100 400
1500 700 1940
Illustration 8
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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
Ordinary Shares ($1) 650 100
Accumulated Profits 250 500
Equity 900 600
Liabilities 700 200
1500 700
Solution
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Working 1- Group Structure
Devil
↓ 90%
Detail
Date Acquired 2 Years Ago
Parent Share 90%
NCI 10%
100%
Working 2 - Net Assets Subsidiary
At Acquisition At Year End
Share Capital 100 100
Accumulated Profits 250 500
Fair Value Adjustment -100 -100
Additional Depreciation (2yrs) 50
250 550
300
Working 3 - Goodwill
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Cost of Parent’s investment 1000
Fair value of NCI at acquisition (Market Value) 55
1055
Less 100% net assets at acquisition in W2 -250
Gross Goodwill 805
Working 4 - NCI
Fair Value of NCI at acquisition 55
Plus NCI share of post acquisition profits 10% x 300 (W2) 30
85
Working 5 - Group Accumulated Profit
Parent’s Accumulated Profits 250
Add: Parent % of the subsidiary’s post acquisition profits 90% x 300 270
(W2)
520
Statement of Financial Position for Devil Group
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Devil Detail
Goodwill 1000 W3 805
Assets 600 800 600 + 800 - 100 1350
+ 50
1600 800 2155
Ordinary 650 100 Parent 650
Shares ($1)
Accumulated 250 500 W5 520
Profits
NCI W4 85
Equity 900 600
Liabilities 700 200 700 + 200 900
1500 700 2155
Illustration 9
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Evaro Co. Acquired 80% of Stando Co. one year ago and the following detail
is relevant:
At Acquisition At Year End
$m $m
Share Capital 100 100
Accumulated Profits 250 500
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.
Solution
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At Acquisition At Year End
$m $m
Share Capital 100 100
Accumulated Profits 250 500
Fair Value of Plant -50 -50
Remove Depreciation (50/10) 5
Brand 20 20
Amortization on Brand -1
Contingent Liability -25 0
295 574
Illustration 10
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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.
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Solution
Consideration
Brad is purchasing 80% of 100 shares = 80 shares
He is issuing 2 shares for each of the 80 he is purchasing (80 x 2) = 160
Each of the 160 shares is worth $5 so consideration is (160 x 5) = $800
Goodwill
Cost of Parent’s investment 800
Fair value of NCI at acquisition (Market Value) 160
960
Less 100% net assets at acquisition in W2 -600
Gross Goodwill 360
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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, by the year end the
net assets are $800.
Calculate the goodwill arising using the proportionate method and the NCI at
the year end.
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Illustration 11 Solution
Consideration
Brad is purchasing 80% of 100 shares = 80 shares
He is issuing 2 shares for each of the 80 he is purchasing (80 x 2) = 160
Each of the 160 shares is worth $5 so consideration is (160 x 5) = $800
Goodwill
Cost of Parent Investment 800
Value of NCI (600 x 20%) 120
Net assets at acquisition (W2) -600
Goodwill 320
NCI
NCI Value at Acquisition 600 x 20% 120
Share of Post Acquisition Profit (800-600) x 20% 40
160
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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.
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Solution
Goodwill
Cost of Parent’s investment 900
Fair value of NCI at acquisition (200 x 40% x $5) 400
1300
Less 100% net assets at acquisition in W2 -800
Gross Goodwill 500
Impairment -40
Post Impairment Goodwill 460
Dr W4 16
Dr W5 24
NCI
Fair Value of NCI at Acquisition 400
NCI% Post Acquisition Profit (950 - 800) x 40% 60
NCI Share of Impairment -16
444
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Retained Earnings
Parent 1000
NCI% Post Acquisition Profit (950 - 800) x 60% 90
Parent Share of Impairment -24
1066
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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.
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Solution
Goodwill
Cost of Parent’s investment 1,000
Fair value of NCI at acquisition (Market Value) 300
1300
Less 100% net assets at acquisition in W2 -800
Gross Goodwill 500
Impairment -200
Post Impairment Goodwill 300
DR W4 50
DR W5 150
NCI
Fair Value of NCI at acquisition 300
Plus NCI share of post acquisition profits 2200 x 25% 550
Impairment -50
800
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Retained Earnings
Parent 1500
NCI% Post Acquisition Profit 2200 x 75% 1650
Parent Share of Impairment -150
3000
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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
Ordinary Shares ($1) 160 50
Accumulated Profits 240 100
Equity 400 150
Non current liabilities 100 250
Liabilities 300 100
700 600
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Solution
Working 1- Group Structure
Pinky
↓ 80%
Brain
Date Acquired 4 Years Ago
Parent Share 80%
NCI 20%
100%
Working 2 - Net Assets Subsidiary
At Acquisition At Year End
Share Capital 50 50
Accumulated Profits 50 100
100 150
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Working 3 - Goodwill
Cost of Parent’s investment 175
Fair value of NCI at acquisition (Market Value) 25
200
Less 100% net assets at acquisition in W2 -100
Gross Goodwill 100
Impairment -20
Post Impairment Goodwill 80
Dr W4 (20%) 4
Dr W5 (80%) 16
Working 4 - NCI
Fair Value of NCI at acquisition 25
Plus NCI share of post acquisition profits 50 x 20% 10
Less Goodwill Impairment 20 x 20% -4
31
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Working 5 - Group Accumulated Profit
Parent’s Accumulated Profits 240
Less Goodwill Impairment 20 x 80% -16
Add: Parent % of the subsidiary’s post acquisition profits 80% x (100 - 40
150) (W2)
264
Statement of Financial Position for Pinky Group
Pinky Brain Group
Goodwill W3 80
Assets 100 100 100 + 100 200
Inventory 140 200 140 + 200 340
Receivables 160 100 160 + 100 260
Bank 125 200 125 + 200 325
700 600 1205
Ordinary 160 50 Parent Only 160
Shares ($1)
Accumulated 240 100 W5 264
Profits
NCI W4 31
Equity 400 150 455
Non current 100 250 100 + 250 350
liabilities
Liabilities 300 100 300 + 100 400
700 600 1205
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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?
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Solution
Goodwill on Balance Sheet
Proportionate goodwill 400
Impairment -50
Goodwill after impairment 350
Treatment
DR Retained Earnings (W5) 50
CR Goodwill 50
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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?
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Solution
When cross casting assets & liabilities:
Less Payables $250 (DR)
Plus Cash at bank $50 (DR)
Less Receivables $300 (CR)
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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?
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Solution
When cross casting assets & liabilities:
Less Payables $400 (DR)
Plus Inventory $100 (DR)
Less Receivables $500 (CR)
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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
Current Liabilities 420 220
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.
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Solution
Remember!
Add the goods/cash in transit
Subtract the inter company current accounts
+/- Item Where? $m
+ Cash in transit Cash at Bank 10
+ Goods in transit Inventory 25
- Inter Company Current Account Payables 35
- inter Company Current Account Receivables 70
Arctic Monkeys Group
Current Assets
Inventory 300 100 300 + 100 + Goods in 425
transit of 25
Receivables 200 250 200 + 250 - 70 inter 380
company current account
Bank 100 50 100 + 50 + cash in transit 160
10
600 400 965
Current Liabilities 420 220 420 + 220 - inter company 605
current account 35
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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
Current Liabilities 90 140
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.
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Solution
Remember!
Add the goods/cash in transit
Subtract the inter company current accounts
+/- Item Where? $m
+ Cash in transit Cash at Bank 15
+ Goods in transit Inventory 15
- Inter Company Current Account Payables 20
- inter Company Current Account Receivables 50
Sea Lion Group
Current Assets
Inventory 400 250 400 + 250 + Goods in 665
transit of 15
Receivables 100 100 100 + 100 - 50 inter 150
company current account
Bank 150 100 150 + 100 + cash in transit 265
15
650 450 965
Current Liabilities 90 140 90 + 140 - inter company 210
current account 20
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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%.
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Solution (Mark-up)
Unsold Inventory Mark-up PURP
(400 x 3/4) = 300 25/125 60
Parent is seller
DR/CR Account $ $
DR Accumulated Profits (W5) to decrease 60
CR Inventory to decrease 60
Subsidiary is seller
DR/CR Account $ $
DR Accumulated Profits (W5) with parent share to 48
decrease (60 x 80%)
DR NCI (W4) with subsidiary share to decrease 12
CR Inventory to decrease 60
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Solution (Margin)
Unsold Inventory Margin PURP
(400 x 3/4) = 300 30% 90
Parent is seller
DR/CR Account $ $
DR Accumulated Profits (W5) to decrease 90
CR Inventory to decrease 90
Subsidiary is seller
DR/CR Account $ $
DR Accumulated Profits (W5) with parent share to 72
decrease (90 x 80%)
DR NCI (W4) with subsidiary share to decrease 18
CR Inventory to decrease 90
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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.
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Illustration 19 Solution
Working 1- Group Structure
Argentina
↓ 80%
Messi
Date Acquired 1 Year Ago (No time apportionment)
Parent Share 80%
NCI 20%
100%
Working 2 - Inter Company
PURP
Unsold Inventory Margin PURP
(100 x 1/2) = 50 40% 20
As the Parent is seller
DR/CR Account $ $
DR Cost of sales to increase 20
CR Inventory to decrease 20
Remember to remove the total amount of the sales also from sales and cost of sales
DR/CR Account $ $
DR Revenue to decrease 100
CR Cost of sales to decrease 100
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Working 3 - Goodwill
We don’t need the net assets at the year end, but we do need them at acquisition to
calculate goodwill. Be careful - we are given the total and told that the difference is
machinery - this will lead to an additional depreciation expense.
At Acquisition At Year End
Share Capital 200 N/A
Accumulated Profits 400 N/A
Fair Value Adjustment (Balancing 200 N/A
figure)
800 N/A
The $200m asset has a useful life of 5 years so the extra depreciation will be $200m x 1/5
= $40m. The treatment for this is:
DR/CR Account $ $
DR Cost of sales to increase 40
CR Non current assets to decrease 40
We can then use this to calculate the goodwill on acquisition
Cost of Parent’s investment 1900
Fair value of NCI at acquisition (Market Value) 200
Less 100% net assets at acquisition in W2 -800
Gross Goodwill 1300
Goodwill impairment
Gross Goodwill 1300
Impairment Loss (1300 x 10%) 130
The treatment for this is:
DR/CR Account $ $
DR Cost of sales to increase 130
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DR/CR Account $ $
CR Goodwill Intangible Asset to decrease 130
Working 4 - Cost of Sales
$m
Parent 4000
Subsidiary 1000
Less Inter Company Sales -100
Plus the PURP 20
Plus additional depreciation 40
Plus impairment loss 130
5090
Working 5 - NCI
NCI % of the subsidiary’s profits in question 200 x 20% 40
Less NCI share of additional depreciation 40 x 20% -8
Less NCI share of Impairment of goodwill 130 x 20% -26
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Income statement for Argentina Group
Argentina Messi Group
Revenue 8000 3000 8000 + 3000 - 100 inter 10900
company sales
Cost of Sales -4000 -1000 W4 -5090
Gross Profit 4000 2000 5810
Operating Costs -1500 -1500 1500 + 1500 -3000
Finance Costs -1000 -200 1000 + 200 -1200
Profit Before Tax 1500 300 1610
Tax -700 -100 700 + 100 -800
Profit for the year 800 200 810
Attributable to Parent (Balancing Figure) 804
Attributable to NCI (W5) 6
810
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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
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Associates
(IAS 28)
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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.
Solution
Year 1 Investment In Associate (SFP)
Initial Investment 400,000
Parent Share of Post Acquisition
(200,000) x 25% 50,000
Profit
Investment in Associate 450,000
Year 1 Income From Associate (Income Statement)
Parent share of Current Year Income (200,000 x 25%) 50,000
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Year 2 Investment In Associate (SFP)
Initial Investment 400,000
Parent Share of Post Acquisition
(200,000 + 160,000) x 25% 90,000
Profit
Share of Dividend (150,000 x 25%) -37,500
Investment in Associate 452,500
Year 2 Income From Associate (Income Statement)
Parent share of Current Year Income (160,000 x 25%) 40,000
Year 3 Investment In Associate (SFP)
Initial Investment 400,000
Parent Share of Post Acquisition
(200,000 + 160,000 + 30,000) x 25% 97,500
Profit
Share of Dividend (150,000 x 25%) -37,500
Impairment -20,000
Investment in Associate 440,000
Year 3 Income From Associate (Income Statement)
Parent share of Current Year Income (30,000 x 25%) 7500
Impairment -20,000
Loss From Associate -12500
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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.
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Solution (Mark-up)
Unsold Inventory Mark-up PURP Group %
(1300 x 1/2) = 650 30/130 150 45
Parent is seller
DR/CR Account $ $
DR Accumulated Profits (W5) to decrease 45
CR Investment in Associate 45
Subsidiary is seller
DR/CR Account $ $
DR Accumulated Profits (W5) to decrease 45
CR Group Inventory 45
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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
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Picant Sander Alder
Total Equity & Liabilities 99,000 35000 29000
(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.
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Working 1- Group Structure
Picant
↓ 75% ↓ 40%
Sander Alder
Sander
Date Acquired 1 April 2009 (1 Yr ago)
Parent Share 75
NCI 25
100
Consideration for Sander
Item $‘000
Share Exchange No. Shares Purchased (8000 x 75%) = 6000
Picant Shares Issued ((6000 / 2) x 3) = 9000
Total Value (9000 x 3.20) = $28,800 28,800
Contingent Consideration Fair Value 4,200
Total Consideration 33,000
Consideration for Alder
Item $‘000
Cash Fair Value (4 x (5000 x 40%)) 8,000
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Item $‘000
Loan Notes (5000 x 40%) / 50 x 100 4,000
Total Consideration 12,000
Working 2 - Net Assets Subsidiary
At Acquisition At Year End
Share Capital 8,000 8,000
Accumulated Profits 16,500 17,500
Fair Value of Factory 2,000 2,000
Additional Dep’n -100
Software -500
26000 27400
Working 3 - Goodwill in Sander
$‘000 $‘000
Cost of Parent Investment 33,000
Fair Value of NCI at acquisition (8,000 x 25%) x 9,000
$4.5
Less NCI% of the net assets at acquisition -26,000
(W2)
Gross Goodwill on Acquisition 16,000
Impairment -3,800
Goodwill at year end 12,200
Impairment to Parent in W5 (3,800 x 75%) 2,850
Impairment to NCI in W4 (3,800 x 25%) 950
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Working 4 - NCI
Fair Value of NCI at Acquisition 9,000
NCI Share of Post Acq. Profit (25% x 1,400) 350
Goodwill Impairment to NCI (W3) -950
8400
Working 5 - PURP & Group Accumulated Profit
PURP
Total Unsold Goods Profit on Goods PURP
1,800 1,800 /150 x 50 600
DR Retained Earnings (W5) 600
CR Inventory (SFP) 600
Group Accumulated Profit
Parent’s Accumulated Profits 27,200
Add: Parent % of Sub’s post acquisition profits (W2) (27,400 - 26,000) x 1050
75%
Add: Parent % of Associate post acquisition profits (6,000 x 6/12) x 40% 1,200
PURP -600
Parent Share of goodwill impairment W3 -2850
Gain on contingent consideration 4,200 - 2,700 1,500
27500
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Working 6 - Associate
$‘000
Cost of Parent’s Investment (W1) 12,000
Post Acquisition Profits ((6000 x 6/12) x 40%) 1,200
13,200
SFP
Picant Sander Group
Goodwill W3 12,200
Property, plant & 37,500 24,500 37,500 + 24,500 + 63,900
equipment 2,000 - 100
Associate Investment W6 13,200
Investments 45,000 0
82,500 24,500 89,300
Inventory 10,000 9,000 10,000 + 9,000 - 600 20,200
+1,800
Receivables 6,500 1,500 6,500 + 1,500 - 3,400 4,600
Total Assets 99,000 35,000 114,100
Ordinary Shares 25,000 8,000 Parent Only 25,000
Share Premium 19,800 0 19,800
Ret. Earnings B/F 16,200 16,500
For year to 31/3/10 11,000 1,000 W5 27,500
NCI W4 8,400
72,000 25500 80,700
7% Loan Notes 14,500 2,000 14,500 + 2,000 16,500
Contingent 4,200 0 4,200 - 1,500 2,700
Consideration
Current Liabilities 8,300 7,500 8,300 + 7,500 - 1,600 14,200
Total Equity & Liabilities 99,000 35000 114,100
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Groups Multiple Choice Test
1. Consolidated financial statements are presented on the basis that the companies within
the group are treated as if they are a single (economic) entity.
Which of the following are requirements of preparing group accounts?
(i) All subsidiaries must adopt the accounting policies of the parent
(ii) Subsidiaries with activities which are substantially different to the activities of other
members of the group should not be consolidated
(iii)All entity financial statements within a group should (normally) be prepared to the same
accounting year end prior to consolidation
(iv)Unrealised profits within the group must be eliminated from the consolidated financial
statements
A All four
B (i) and (ii) only
C (i), (iii) and (iv)
D (iii) and (iv)
Answer D
2. An associate is an entity in which an investor has significant influence over the investee.
Which of the following indicate(s) the presence of significant influence?
(i) The investor owns 330,000 of the 1,500,000 equity voting shares of the investee
(ii) The investor has representation on the board of directors of the investee
(iii)The investor is able to insist that all of the sales of the investee are made to a
subsidiary of the investor
(iv)The investor controls the votes of a majority of the board members
A (i) and (ii) only
B (i), (ii) and (iii)
C (ii) and (iii) only
D All four
Answer A
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3. On 1 January 2014, Viagem acquired 80% of the equity share capital of Greca. Extracts
of their statements of profit or loss for the year ended 30 September 2014 are:
Viagem Greca
‘000 ‘000
Revenue 64,600 38,000
COS -51,200 -26,000
Sales from Viagem to Greca throughout the year ended 30 September 2014 had
consistently been $800,000 per month. Viagem made a mark-up on cost of 25% on these
sales. Greca had $1·5 million of these goods in inventory as at 30 September 2014.
What would be the cost of sales in Viagem’s consolidated statement of profit or loss for the
year ended 30 September 2014?
A $59·9 million
B $61·4 million
C $63·8 million
D $67·9 million
Answer C
Solution
Parent 51,200
Sub (26,000 x 9/12) 19500
Inter-Co Sales (800 x 9) -7,200
PURP (1,500 x 25/125) 300
63800
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4. The Caddy group acquired 240,000 of August’s 800,000 equity shares for $6 per share
on 1 April 2014. August’s profit after tax for the year ended 30 September 2014 was
$400,000 and it paid an equity dividend on 20 September 2014 of $150,000.
On the assumption that August is an associate of Caddy, what would be the carrying
amount of the investment in August in the consolidated statement of financial position of
Caddy as at 30 September 2014?
A $1,455,000
B $1,500,000
C $1,515,000
D $1,395,000
Answer A
Solution
Parent Investment (240 x 6) 1,440
Share Profit (400 x 30% x 6/12) 60
Dividend Received (150 x 30%) -45
1455
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5. The HC group acquired 30% of the equity share capital of AF on 1 April 2010 paying
$25,000.
At 1 April 2010 the equity of AF comprised:
$1 equity shares 50,000
Share premium 12,500
Retained earnings 10,000
AF made a profit for the year to 31 March 2011 (prior to dividend distribution) of $6,500
and paid a dividend of $3,500 to its equity shareholders.
What is the value of HC’s investment in AF for inclusion in HC’s statement of financial
position at 31 March 2011.
A $26,950
B $31,500
C $28,000
D $25,900
Answer D
Solution
Parent Investment 25,000
Share Profit (6,500 x 30%) 1,950
Dividend Received (3,500 x 30%) -1,050
25,900
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6. HB sold goods to S2, its 100% owned subsidiary, on 1 November 2010. The goods
were sold to S2 for $33,000. HB made a profit of 25% on the original cost of the goods.
At the year end, 31 March 2011, 50% of the goods had been sold by S2. The remaining
goods were included in inventory.
What is the amount of the adjustment required to inventory in the consolidated statement
of financial position at 31 March 2011.
A. $6,600
B. $4,125
C. $8,250
D. $3,300
Answer D
Solution
Unsold Mark up PURP
16,500 25/125 3,300
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7. PRT acquired 80% of SUB’s ordinary shares on 1 January 2011 for $1,136,000 when
SUB’s retained earnings were $260,000. At 1 January 2011 the fair value of the net assets
of SUB exceeded their carrying value by $110,000 and the fair value of the Non-
Controlling Interest was $300,000. The remaining useful life of the assets was 11 years
from acquisition.
SUB has not issued any new shares since acquisition by PRT. SUB is PRT’s only
subsidiary. PRT calculated that goodwill in its subsidiary was impaired by 20% at 31
December 2013. The equity of SUB as at 31 December 2013:
$000
Ordinary share capital 430
Share premium 86
Retained earnings 324
840
The retained earnings of PRT were $2,100,000 at 31 December 2013.
What is the amount that PRT should include in its consolidated statement of financial
position as at 31 December 2013 for Goodwill?
A. $250,000
B. $200,000
C. $440,000
D. $528,000
Answer C
Solution
Working 2 - Net Assets Subsidiary
At Acquisition At Year End
Share Capital 430 430
Share Premium 86 86
Accumulated Profits 260 324
Fair Value Adjustment 110 110
Additional Depreciation (3yrs) (110/11 x 3) -30
886 920
Post Acq Profit 34
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Working 3 - Goodwill
Cost of Parent’s investment 1,136
Fair value of NCI at acquisition (Market Value) 300
1436
Less 100% net assets at acquisition in W2 -886
Gross Goodwill 550
Impairment -110
440
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8. PRT acquired 90% of SUB’s ordinary shares on 1 January 2012 for $1,250,000 when
SUB’s retained earnings were $300,000. At 1 January 2011 the fair value of the net assets
of SUB exceeded their carrying value by $90,000 and the fair value of the Non-Controlling
Interest was $200,000. The remaining useful life of the assets was 9 years from
acquisition.
The equity of SUB as at 31 December 2013:
$000
Ordinary share capital 430
Share premium 86
Retained earnings 324
840
The retained earnings of PRT were $2,100,000 at 31 December 2013.
What is the amount that PRT should include in its consolidated statement of financial
position as at 31 December 2013 for the Non-Controlling Interest?
A. $250,000
B. $204,600
C. $205,000
D. $204,400
Answer D
Solution
Net Assets Subsidiary
At Acquisition At Year End
Share Capital 430 430
Share Premium 86 86
Accumulated Profits 260 324
Fair Value Adjustment 90 90
Additional Depreciation (2yrs) (90/9 x 2) -20
866 910
Post Acq Profit 44
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NCI
Fair Value of NCI at acquisition 200
Plus NCI share of post acquisition profits 10% x 44 4.4
204.4
9. PRT acquired 80% of SUB’s ordinary shares on 1 January 2011 for $1,500,000 when
SUB’s retained earnings were $254,000. At 1 January 2011 the carrying value of the net
assets of SUB exceeded their fair value by $110,000 and the fair value of the Non-
Controlling Interest was $300,000. The remaining useful life of the assets was 11 years
from acquisition.
SUB has not issued any new shares since acquisition by PRT. SUB is PRT’s only
subsidiary.
$000
Ordinary share capital 400
Share premium 26
Retained earnings 424
850
The retained earnings of PRT were $2,100,000 at 31 December 2013.
What is the amount that PRT should include in its consolidated statement of financial
position as at 31 December 2013 for Retained Earnings?
A. $2,260,000
B. $2,212,000
C. $2,236,000
D. $2,620,000
Answer A
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Solution
Net Assets Subsidiary
At Acquisition At Year End
Share Capital 400 400
Share Premium 26 26
Accumulated Profits 254 424
Fair Value Adjustment -110 -110
Additional Depreciation (3yrs) (110/11 x 3) 30
570 770
Post Acq Profit 200
Group Accumulated Profit
Parent’s Accumulated Profits 2,100
Add: Parent % of the subsidiary’s post acquisition profits 80% x 200 160
2260
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10. HX acquired 70% of SA’s equity shares on 1 July 2010 for $342,000.
On 1 July 2010 the property plant and equipment of SA had a fair value of $325,000 and a
book value of $350,000. On the acquisition date SA also has an internally generated brand
name worth $50,000 and disclosed a contingent liability with a value of $20,000. The fair
value of the NCI on the 1 July 2010 was 50,000
SA has $200,000 $1 equity shares in issue and at 1 July 2010 its reserves comprised
share premium of $40,000 and retained earnings of $62,000.
What is the value of the goodwill arising on the acquisition of SA?
A. $35,000
B. $85,000
C. $45,000
D. $135,000
Answer B
Solution
Working 2 - Net Assets Subsidiary
At Acquisition At Year End
Share Capital 200,000 N/A
Share Premium 40,000
Accumulated Profits 62,000
Fair Value Adjustment -25,000
Brand 50,000
Contingent Liability -20,000
307,000
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Working 3 - Goodwill
Cost of Parent’s investment 342,000
Fair value of NCI at acquisition (Market Value) 50,000
392,000
Less 100% net assets at acquisition in W2 -307,000
Gross Goodwill 85,000
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The following information relates to questions 11, 12 & 13:
NOV acquired 80% of PA’s equity shares on 1 July 2010 for $550,000.
On 1 July 2010 the property plant and equipment of PA had a fair value of $400,000 and a
book value of $325,000. The property plant and equipment had a useful economic life of 5
years at that time. On the acquisition date PA also has an internally generated brand name
worth $30,000 which was assessed to have a useful economic life of 30 years. The fair
value of the NCI on the 1 July 2010 was $80,000
On 30 June 2013 the goodwill arising on acquisition was impairment tested and found to
be impaired by 20%.
PA has $300,000 $1 equity shares in issue at 1 July 2010 and had retained earnings of
$162,000. By 30 June 2013 PA had retained earnings of $260,000 and NOV had retained
earnings of $827,000
10. What is the value of the goodwill arising on the acquisition of SA?
A. $134,400
B. $74,400
C. $63,000
D. $50,400
Answer D
11. What is the value of the NCI at 30 June 2013?
A. $87,480
B. $92,520
C. $90,000
D. $127,480
Answer A
12. What is the value of the Group retained earnings at 30 June 2013?
A. $877,080
B. $867,000
C. $856,920
D. $866,920
Answer C
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Solution
Working 2 - Net Assets Subsidiary
At Acquisition At Year End
Share Capital 300,000 300,000
Accumulated Profits 162,000 260,000
Fair Value Adjustment 75,000 75,000
Depreciation (75,000 / 5 x 3) -45,000
Brand 30,000 30,000
Amortisation (30,000 / 30 x 3) -3,000
567,000 617,000
Post Acquisition Profit 50,000
Working 3 - Goodwill
Cost of Parent’s investment 550,000
Fair value of NCI at acquisition 80,000
630,000
Less 100% net assets at acquisition in W2 -567,000
Gross Goodwill 63,000
Impairment -12,600
Post Impairment 50,400
DR NCI (20%) -2,520
DR Ret Earnings (80% -10,080
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NCI
Fair Value of NCI at acquisition 80,000
Plus NCI share of post acquisition profits 20% x 50,000 10000
Goodwill Impairment -2,520
87480
Group Accumulated Profit
Parent’s Accumulated Profits 827,000
Add: Parent % of the subsidiary’s post acquisition profits 80% x 50,000 40000
Goodwill Impairment -10,080
856920
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14. On 1 November 2013, Fonula acquired 65% of Astuta 50,000 equity shares by means
of a share exchange of three new shares in Fonula for every five acquired shares in
Astuta. In addition, Fonula issued to the shareholders of Astuta two $100 10% loan note
for every 2,500 shares it acquired in Astuta. The share price of Fonula on the date of
acquisition was $5 whilst the share price of Astuta was $2.
What was the value of the consideration paid for Strata?
A. $152,600
B. $41,600
C. $100,100
D. $98,800
Answer C
Solution
Share exchange ((50,000 x 65%) x 3/5 x $5) $97,500
10% loan notes (32,500 / 2,500) x 2 x $100 $2,600
Total = $100,100
15. On 1 July 2014, Walter acquired 70% of the equity share capital of White. Extracts of
their statements of profit or loss for the year ended 30 September 2014 are:
Walter White
‘000 ‘000
Revenue 35,000 26,000
COS -23,000 -14,000
Sales from Walter to White throughout the year ended 30 September 2014 had
consistently been $500,000 per month. Walter made a mark-up on cost of 30% on these
sales. White had $260,000 of these goods in inventory as at 30 September 2014.
What would be the cost of sales in Walter’s consolidated statement of profit or loss for the
year ended 30 September 2014?
A $27.00 million
B $28.56 million
C $35.56 million
D $27.06 million
Answer D
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Solution
Parent 23,000
Sub (14,000 x 3/12) 5,500
Inter-Co Sales (500 x 3) -1,500
PURP (260 x 30/130) 60
27060
16. On 1 January 2014, Jesse acquired 70% of the equity share capital of Pinkman.
Extracts of their statements of profit or loss for the year ended 30 September 2014 are:
Jesse Pinkman
‘000 ‘000
Revenue 50,000 23,000
COS -32,000 -11,000
Sales from Jesse to Pinkman throughout the year ended 30 September 2014 had
consistently been $200,000 per month. At the date of acquisition some plant that was
valued at $30m in the Financial Statements of Pinkman had a fair value of $33m and a
remaining useful economic life of 10 years.
What would be the cost of sales in Jesse’s consolidated statement of profit or loss for the
year ended 30 September 2014?
A $38.450 million
B $38.675 million
C $41.425 million
D $40.250 million
Answer B
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Solution
Parent 32,000
Sub (11,000 x 9/12) 8,250
Inter-Co Sales (200 x 9) -1,800
Depreciation (3,000 / 10 x 9/12) 225
38675
17. On 1 July 2014, Doug acquired 70% of the equity share capital of Carrie. Extracts of
the Group statements of profit or loss for the year ended 30 September 2014 are:
Revenue 700,000
Cost of Sales 465,000
Distribution Costs 64,000
Taxation 32,000
At the date of acquisition some plant that was valued at $80,000 in the Financial
Statements of Carrie had a fair value of $100,000 and a remaining useful economic life of
5 years. Sales from Carrie to Doug were $134,000 at a margin of 20% since the
acquisition of which 40% has been sold on by Doug. These adjustments have already
been reflected in the above figures.
What is the Profit attributable to the NCI in the consolidated Statement of Profit or Loss to
30 September 2014?
A $41,700
B $35,876
C $38,184
D $36,576
Answer D
Solution
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Revenue 700,000
Cost of Sales 465,000
Distribution Costs 64,000
Taxation 32,000
Group Profit 139,000
NCI Share (139,000 x 30%) 41,700
Extra Dep’n (20,000 / 5 x 3/12) x 30% -300
PURP (134,000 x 60% x 20%) x 30% -4,824
36576
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18. HW sold goods to SD, its 100% owned subsidiary on 1 February 2011. The goods
were sold to SD for $48,000. HW made a profit of 33.33% on the original cost of the
goods.
At the year end, 30 June 2011, 40% of the goods had been sold by SD, the balance were
still in SD’s inventory and SD had not paid for any of the goods.
Which ONE of the following states the correct adjustments required in the HW group’s
consolidated statement of financial position at 30 June 2011?
A. Reduce inventory and retained earnings by $7,200 and Reduce payables and
receivables by $7,200
B. Reduce inventory and retained earnings by $9,600 and Reduce payables and
receivables by $9,600
C. Reduce inventory and retained earnings by $7,200 and Reduce payables and
receivables by $48,000
D. Reduce inventory and retained earnings by $9,600 and Reduce payables and
receivables by $48,000
Answer C
Solution
Unsold Mark up PURP
48,000 x 60% = 28,800 33.33/133.33 7,200
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19. DW sold goods to PR. DW is PR’s 80% owned subsidiary on 1 February 2011. The
goods were sold to PR for $90,000. HW made a profit of 25% on the original cost of
the goods.
At the year end, 30 June 2011, 30% of the goods had been sold by PR, the balance were
still in PR’s inventory and PR had not paid for any of the goods.
Which ONE of the following states the correct adjustments required in the HW group’s
consolidated statement of financial position at 30 June 2011?
A. Reduce inventory and retained earnings by $12,600 and Reduce payables and
receivables by $12,600.
B. Reduce inventory by $12,600, the NCI by $2,520, retained earnings by $10,080 and
Reduce payables and receivables by $90,000.
C. Reduce inventory and retained earnings by $15,750 and Reduce payables and
receivables by $15,750.
D. Reduce inventory by $15,750, the NCI by $3,150, retained earnings by $12,600 and
Reduce payables and receivables by $90,000.
Answer C
Solution
Unsold Mark up PURP
90,000 x 70% = 63,000 25/125 12,600
CR Inventory 12,600
DR NCI (20%) 2,520
DR Ret. Earnings (80%) 10,080
DR Payables 90,000
CR Payables 90,000
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20. Which of the following statements relating to the method of consolidation are true?
A. All subsidiaries of the parent are consolidated using equity accounting.
B. All associates of the parent are consolidated using equity accounting.
C. The only way to gain control of a subsidiary is to purchase 50% or more of the share
capital.
D. If a company buys some shares but owns less than 50% of another entity it is
accounted for as a subsidiary.
Answer B
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Presentation of Financial
Statements
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Statement of Financial Position Pro-Forma
YZ Group Statement of Financial Position as at 31 December 20X5
Assets
Non-Current Assets
Property Plant & Equipment X
Investments X
Intangibles X
Current Assets
Inventories X
Trade Receivables X
Cash & Cash Equivalents X
Total Assets X
Equity & Liabilities
Share Capital & Reserves
Ordinary Shares X
Share Premium Account X
Retained Earnings X
Other Components of Equity X
Total Equity X
Non-Current Liabilities X
Long Term borrowings X
Deferred Tax X
Current Liabilities X
Trade Payables X
Short Term Borrowings X
Current Tax Payable X
Short Term Provisions X X
Total Equity & Liabilities X
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Statement of Changes in Equity Pro-Forma
Share Share Revaluation Retained Total
Capital Premium Reserve Earnings Equity
$ $ $ $ $
Balance B/F X X X X X
Change in
Accounting
(X) (X)
Policy/prior year
error
Restated
X X X X X
Balance
Dividends (X) (X)
Shares Issued X X X
Profit for the
X X
Period
Revaluation
X X
gain/loss
Transfer to
Retained (X) X -
Earnings
Balance C/F X X X X X
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Statement of Comprehensive Income Pro-Forma
$
Revenue X
Cost of Sales (X)
Gross Profit X
Distribution Costs (X)
Admin Expenses (X)
Profit from Operations X
Finance Cost (X)
Investment Income X
Profit Before Tax X
Income Tax Expense (X)
Profit For the Year X
Other Comprehensive Income
Gain/Loss on Revaluation X
Gain/Loss on Financial Instruments Through Comprehensive Income X
Total Comprehensive Income for the Year X
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IAS 8 Accounting Policies,
Estimates & Errors
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Illustration 1
I. A change in the IFRS relating to leases means that an entity that used to recognise a
lease on an item of plant as an operating lease must now recognise it as a finance
lease.
II. Depreciation has previously been charged by the entity at 25% straight line but has
decided to change this to 30% reducing balance.
III. The entity had previously charged certain overheads within administration expenses
but now has decided to show them within cost of sales.
IV. The method used by the entity to measure the value of it’s inventory has been
changed.
For each of the above is it a change in accounting policy or a change in accounting
estimate?
Solution
The recognition and presentation of the lease has changed meaning this is a change in
accounting policy.
There is no change in recognition, measurement or the basis of measurement so this is
a change in an accounting estimate.
The presentation of the overheads has changed so this is a change in policy.
The measurement basis of inventory has changed so this is a change in accounting
policy.
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Illustration 2
A company discovers that items of inventory with a value of £1m were included in the
Statement of Financial Position as at 31 December 20X0 even though they were in fact
sold prior to the year end.
The figures reported in the year to December 20X0 and the figures for the current year
were:
20X1 20X0
$‘000 $‘000
Sales 10,000 9,000
Cost of Sales 5,000 3,000
Gross Profit 5,000 6,000
Tax 300 250
Net Profit 4700 5750
Retained Earnings B/F 1st Jan 20X0 $12m
Show the retained earnings for each year and the revised 20X1 Income Statement with
comparatives (ignore any tax effects).
112
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Solution
Income Statement
20X1 20X0
$‘000 $‘000
Sales 10,000 9,000
Cost of Sales
20X1 (5,000 - 1,000) 4,000
20X0 (3,000 + 1,000) 4,000
Gross Profit 6,000 5,000
Tax 300 250
Net Profit 5700 4750
Retained Earnings
20X1 20X0
$‘000 $‘000
Retained Earnings B/F 17,750 12,000
Prior Period Adjustment -1,000
As Restated 16,750 12,000
Net Profit for Period 5,700 4,750
Retained Earnings C/F 22,450 16,750
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Multiple Choice Questions
Which of the following would be a change in accounting policy in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors?
A. Adjusting the financial statements of a subsidiary prior to consolidation as its accounting
policies differ from those of its parent
B. A change in reporting depreciation charges as cost of sales rather than as
administrative expenses
C. Depreciation charged on reducing balance method rather than straight line
D. Reducing the value of inventory from cost to net realisable value due to a valid
adjusting event after the reporting
Answer B
Although the objectives and purposes of not-for-profit entities are different from those of
commercial entities, the accounting requirements of not-for-profit entities are moving
closer to those entities to which IFRSs apply.
Which of the following IFRS requirements would NOT be relevant to a not-for-profit entity?
A. Preparation of a statement of cash flows
B. Requirement to capitalise a finance lease
C. Disclosure of earnings per share
D. Disclosure of non-adjusting events after the reporting date
Answer C
According to IAS 8 Accounting policies, changes in accounting estimates and errors, which
ONE of the following is a change in accounting policy requiring a retrospective adjustment
in financial statements for the year ended 31 December 2010?
A. The depreciation of the production facility has been reclassified from administration
expenses to cost of sales in the current and future years.
B. The depreciation method of vehicles was changed from straight line depreciation to
reducing balance.
C. The provision for warranty claims was changed from 10% of sales revenue to 5%.
D. Based on information that became available in the current period a provision was made
for an injury compensation claim relating to an incident in a previous year.
Answer A
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The Framework
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Illustration 1
An important requirement of the IASB’s Framework for the Preparation and Presentation of
Financial Statements (Framework) is that in order to be reliable, an entity’s financial
statements should represent faithfully the transactions and events that it has undertaken.
Required: Explain what is meant by faithful representation and how it enhances
reliability.
(5 marks)
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Multiple Choice Questions
Which of the following is NOT a purpose of the IASB’s Conceptual Framework?
A. To assist the IASB in the preparation and review of IFRS
B. To assist auditors in forming an opinion on whether financial statements comply with
IFRS
C. To assist in determining the treatment of items not covered by an existing IFRS
D. To be authoritative where a specific IFRS conflicts with the Conceptual Framework
Answer D
Which of the following criticisms does NOT apply to historical cost accounts during a
period of rising prices?
A. They contain mixed values; some items are at current values, some at out of date
values
B. They are difficult to verify as transactions could have happened many years ago
C. They understate assets and overstate profit
D. They overstate gearing in the statement of financial position
Answer B
Which ONE of the following is NOT listed as an element of financial statements by the
IASB Framework?
A Asset
B Equity
C Profit
D Expenses
Answer C
The IASB’s Framework for the preparation and presentation of financial statements lists
four qualitative characteristics of financial statements, one of which is reliability.
Which ONE of the following lists three characteristics of reliability?
A. Neutrality, prudence and comparability.
B. Prudence, faithful representation and relevance.
C. Comparability, relevance and completeness.
D. Neutrality, faithful representation and prudence.
Answer D
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The following are possible methods of measuring assets and liabilities other than historical
cost:
(i) Current cost
(ii) Realisable value
(iii) Present value
(iv) Replacement cost
According to the IASB’s Conceptual Framework for Financial Reporting (2010)
(Framework) which of the measurement bases above can be used by an entity for
measuring assets and liabilities shown in its statement of financial position?
A (i) and (ii)
B (i), (ii) and (iii)
C (ii) and (iii)
D (i), (ii) (iii) and (iv)
Answer D
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IAS 16 & 36
Non Current Assets and
Impairment
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Illustration 1
ABC Co. has carried out the annual servicing of it’s plant and equipment at a cost of $2m
and has also decided that one of the machines should have it’s computer hard drive
replaced to increase production by 10% per year at a cost of $50,000.
Is this expenditure revenue expenditure or should it be capitalised?
Solution
The servicing cost of $2m should be expensed in the year as it does not increase the
economic benefit derived from the plant.
The cost of the computer hard drive should be capitalised as it enhances the future
economic benefit of the asset.
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Illustration 2
ABC Co. had land and buildings shown at cost less depreciation. The cost was $20m 5
years ago when purchased (land element $5m) and it had a useful economic life of 30
years at that time.
They have decided at the start of the year to revalue the land and buildings to their
current value of $30m (land element $7m). It is the company’s policy to make an annual
transfer in reserves for excess depreciation.
Solution
Land & Buildings at Cost 20
Accumulated Depreciation ((20 - 5) / 30) x 5 -2.5
Carrying Value 17.5
New Value 30
Revaluation Reserve 12.5
Land & Buildings at Revalued Amount 30
Accumulated Depreciation ((30 - 7) / 25 -0.92
29.08
Depreciation in Year -0.92
Transfer in Reserves
Depreciation on Revalued Amount 0.92
Depreciation on Cost (20 - 5) / 30 0.5
Transfer in Reserves 0.42
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Illustration 3
Property, plant & equipment with a total cost of $1m has components of a structure valued
at $700,000 with a useful economic life of 20 years and plant worth $300,000 with a useful
economic life of 10 years.
Show the depreciation charges in the financial statements in year 1.
Solution
Structure Plant Total
Cost 700,000 300,000 1,000,000
Depreciation (700,000 / 20) = 35,000 (300,000 /10) = 30,000 65,000
NBV 665,000 270,000 935,000
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Illustration 4
The carrying value of an item of plant in the financial statements is $400,000. By operating
the plant the business expects to earn discounted cash-flows of $350,000 over the rest of
it’s useful life. The could sell the plant now for $300,000 with costs to sell of $25,000.
What is the recoverable amount?
Is the plant impaired?
Solution
$m
Value in Use 350,000
Fair Value less cost to sell (300,000 - 25,000) 275,000
Recoverable amount is the higher of these two which is the Value in Use of $350,000.
Carrying Value 400,000
Recoverable Amount 350,000
Impairment 50,000
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Illustration 5
A company has an asset for which the following information is relevant:
$‘000
Carrying amount 400
Fair Value 350
Cost to sell 25
Cash flows expected in each of the next 5 years 90
Discount rate 10%
Annuity rate for 10% over 5 years 3.791
Carry out the impairment review for the asset.
Solution
$‘000
Value in Use (90 x 3.791) 341.19
Fair Value less cost to sell (350,000 - 25,000) 325
Recoverable amount is the higher of these two which is the Value in Use of $341,190.
Carrying Value 400
Recoverable Amount 341.19
Impairment 58.81
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Illustration 6
A cash generating unit has the assets outlined below. It’s recoverable amount has been
assessed as $1,000. Show the treatment for any impairment.
Assets Carrying Value
Goodwill 100
PPE 800
Intangible 400
1300
Solution
Impairment Test
Carrying Value of Assets 1,300
Recoverable Amount 1,000
Impairment 300
Assets Carrying Value Impairment Post
Impairment
Goodwill 100 -100 Nil
PPE 800 (200 x 800/1,200) = -133 667
Intangible 400 (200 x 400/1,200) = -67 333
1300 Total Impairment = 300 1000
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Multiple Choice Questions
Which of the following items should be capitalised within the initial carrying amount of an
item of plant?
(i) Cost of transporting the plant to the factory
(ii) Cost of installing a new power supply required to operate the plant
(iii) A deduction to reflect the estimated realisable value
(iv) Cost of a three-year maintenance agreement
(v) Cost of a three-week training course for staff to operate the plant
A (i) and (ii) only
B (i), (ii) and (iii)
C (ii), (iii) and (iv)
D (i), (iv) and (v)
Answer A
Riley acquired a non-current asset on 1 October 2009 at a cost of $100,000 which had a
useful economic life of ten years and a nil residual value. The asset had been correctly
depreciated up to 30 September 2014. At that date the asset was damaged and an
impairment review was performed. On 30 September 2014, the fair value of the asset less
costs to sell was $30,000 and the expected future cash flows were $8,500 per annum for
the next five years. The current cost of capital is 10% and a five year annuity of $1 per
annum at 10% would have a present value of $3·79
What amount would be charged to profit or loss for the impairment of this asset for the
year ended 30 September 2014?
A $17,785
B $20,000
C $30,000
D $32,215
Answer A
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IAS 40 - Investment Property
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Illustration 1
Which of the following are Investment Property?
• Building used as accommodation for staff.
• Land purchased as an investment. No planning consent yet.
• New office building purchased for capital appreciation.
Solution
Building used as accommodation for staff. NO
Land purchased as an investment. No planning consent yet. YES
New office building purchased for capital appreciation. YES
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Illustration 2
A company has purchased a building for investment purposes on 1st Jan 20X0. The
building cost a total of $1.5m with the land element being estimated at $500,000.
The building has a useful life of 30 years. At the 31st December 20X0 the fair value of the
building (including the land) was $2m.
Show the treatment of the property for the two methods possible under IAS 40.
Solution
Cost Model
Cost of the Property $1,500,000
Depreciation in Period (1,500,000 - 500,000) / 30 $33,333
Carrying Value at 31 December 20X0 $1,466,667
Fair Value Model
Cost of the Property $1,500,000
Depreciation in Period Not Depreciated $0
Fair Value Adjustment to Income ($2m - $1.5m) $500,000
Carrying Value at 31 December 20X0 $2,000,000
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IAS 38 - Intangible Assets
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Illustration 1
Which of the following should be classified as development?
1. Lion Ltd has spent $200,000 investigating whether a particular substance, drefite, found
in the Arctic Circle is resistant to heat.
2. Hoey Ltd has incurred $250,000 expenses in the course of making new material for ski-
equipment which will be more durable.
3. Ryan Ltd has found that a chemical compound, mallerite, is harmful to the human body.
4. Lion Ltd has incurred a further $300,000 using drefite in creating prototypes of a new
heat-resistant body-suit for humans.
Solution
2 & 4 are development
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Illustration 2
Coddy Ltd is developing a new product, the fold-up bicycle. Forecasts are as follows:
Expense Costs
20X5 20X6 20X7 20X8
$ $ $ $
Revenue from other activities 500 700 800 800
Revenue from Fold-up Bicycle 500 700 900
Development costs -600
Show how the development costs should be treated if:
1. the costs do not qualify for capitalisation
2. the costs do qualify for capitalisation.
Solution
1. Expense Costs
20X5 20X6 20X7 20X8 Total
Revenue from other 500 700 800 800 2800
activities
Revenue from other widgets 500 700 900 2100
Development costs -600 -600
Net Profit/Loss -100 1200 1500 1700 4300
2. Amortise Development Costs
20X5 20X6 20X7 20X8 Total
Revenue from other 500 700 800 800 2800
activities
Revenue from other widgets 500 700 900 2100
Development costs 0 -143 -200 -257 -600
Net Profit/Loss 500 1057 1300 1443 4300
600 x 600 x 600 x
Working for Costs
500/2100 700/2100 900/2100
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Illustration 3
A company has 3 projects in development:
Project A is in development and testing of the product has proved successful. Production
has begun and some sales have been made to date. The costs have been measured
accurately and the project looks likely to be profitable. All costs incurred so far meet the
criteria to be capitalised under IAS 38.
Project B is also in development and testing of the product has proved successful. The
costs have been measured accurately and the company expects to begin production and
sales next year. All costs incurred so far meet the criteria to be capitalised under IAS 38.
Project C was begun in the current period and to date there has been a feasibility study
carried out which was inconclusive.
Other Information:
A B C
Total Costs to the start of the year 600 500
Costs incurred in the period 200 100 150
Total Anticipated Revenues 20,000 30,000 Unknown
Revenue in Period 5,000 0 0
Show how the above will be treated in the current period accounts discussing each project
individually.
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Solution
Project A
Project A is in production and meets the criteria for capitalisation. All costs to date will
be capitalised and amortisation based on sales during the period will be charged
Costs Capitalised to Date 600
Costs in the period 200
Total costs to be capitalised 800
Ammortisation in Period (800 x 5,000/20,000) 200
Intangible Asset Carried Forward 600
Project B
Project B meets the criteria for capitalisation. All costs to date will be capitalised but
production has not begun meaning that no amortisation will occur.
Costs Capitalised to Date 500
Costs in the period 100
Total costs to be capitalised 600
Intangible Asset Carried Forward 600
Project C
Project C does not meet the criteria for capitalisation as it is purely research into the
feasibility of the project and the outcome was uncertain. All costs to date will be
written off to the income statement in the period incurred.
Costs in the period 150
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Multiple Choice Questions
Dempsey’s year end is 30 September 2014. Dempsey commenced the development stage
of a project to produce a new pharmaceutical drug on 1 January 2014. Expenditure of
$40,000 per month was incurred until the project was completed on 30 June 2014 when
the drug went into immediate production. The directors became confident of the project’s
success on 1 March 2014. The drug has an estimated life span of five years; time
apportionment is used by Dempsey where applicable.
What amount will Dempsey charge to profit or loss for development costs, including any
amortisation, for the year ended 30 September 2014?
A $12,000
B $98,667
C $48,000
D $88,000
Answer D
Which ONE of the following events would result in an asset being recognised in KJH’s
statement of financial position at 31 January 2012?
A. KJH spent $50,000 on an advertising campaign in January 2012. KJH expects the
advertising to generate additional sales of $100,000 over the period February to April
2012.
B. KJH is taking legal action against a contractor for faulty work. Advice from its legal team
is that it is likely that KJH will receive $250,000 in settlement of its claim within the next
12 months.
C. KJH purchased the copyright and film rights to the next book to be written by a famous
author for $75,000 on 1 March 2011.
D. KJH has developed a new brand name internally. The directors value the brand name at
$150,000.
Answer C
Which ONE of the following CANNOT be recognised as an intangible non-current asset in
GHK’s statement of financial position at 30 September 2011?
A. GHK spent $12,000 researching a new type of product. The research is expected to
lead to a new product line in 3 years’ time.
B. GHK purchased another entity, BN on 1 October 2010. Goodwill arising on the
acquisition was $15,000.
C. GHK purchased a brand name from a competitor on 1 November 2010, for $65,000.
D. GHK spent $21,000 during the year on the development of a new product. The product
is being launched on the market on 1 December 2011 and is expected to be profitable.
Answer A
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Which one of the following could be classified as deferred development expenditure in M’s
statement of financial position as at 31 March 2010 according to IAS 38 Intangible assets?
A. $120,000 spent on developing a prototype and testing a new type of propulsion system
for trains. The project needs further work on it as the propulsion system is currently not
viable.
B. A payment of $50,000 to a local university’s engineering faculty to research new
environmentally friendly building techniques.
C. $35,000 spent on consumer testing a new type of electric bicycle. The project is near
completion and the product will probably be launched in the next twelve months. As this
project is the first of its kind for M it is expected to make a loss.
D. $65,000 spent on developing a special type of new packaging for a new energy efficient
light bulb. The packaging is expected to be used by M for many years and is expected
to reduce M’s distribution costs by $35,000 a year.
Answer D
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IAS 20 - Government Grants
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Illustration 1
A company purchases an item of plant on which it receives a government grant of 30% of
the purchase price. The plant cost $2m and has no residual value.
The plant is to be depreciated on a straight line basis over it’s 10 year life.
Show the possible accounting treatments for the government grant in the first year.
Solution
DR CR
Plant at Cost 2,000,000
Cash 2,000,000
Income Statement Depreciation 200,000
Accumulated Depreciation 200,000
Cash for Government Grant 600,000
Deferred Income 600,000
Deferred Income Recognition in Year (600,000 / 10) 60,000
Income Statement 60,000
Total charge to Income Statement (200,000 - 60,000) = $140,000
DR CR
Plant at Cost 2,000,000
Cash 2,000,000
Cash 600,000
Plant at Cost 600,000
Income Statement Depreciation ((2m - 600k) /10) 140,000
Accumulated Depreciation 140,000
Total Charge to Income Statement = $140,000
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IAS 23 - Borrowing Costs
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Illustration 1
A company is building a qualifying asset worth $2.5m and has issued a bond of the same
value to do so with an effective interest rate of 6%.
The asset will take 9 months to build and for the first 3 months the company invests the
proceeds of the bond and earns interest at 3%.
What borrowing costs should be capitalised?
Solution
Total Interest for the Year (2.5m x 6%) 150,000
For 9 months x 9/12 112,500
Temporary Investment Income (2.5m x 3%) x 3/12 -18,750
93,750
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Illustration 2
A company has a £1m 6% loan and a £2m 8% loan. It builds a building costing £600,000
and it takes 8 months.
What borrowing costs should be capitalised?
Solution
Total Borrowing Cost Total Cost
$1m 6% 6
$2m 8% 16
$3m At total cost 22
Average Rate therefore is (22/3) = 7.33%
We can capitalise 600,000 x 7.33% x 8/12 = $29,320
Illustration 3
Company buys land on 1/12, a planning application is prepared during December and
January. Permission is obtained at the end of January. Payment for the land is made on
1/2. On this date a loan is taken out to pay for the land and building construction
Adverse weather conditions meant a delay in the commencement of work until 15/3.
When should interest be capitalised from?
Solution
Expenses start being incurred 1 December
Borrowing costs incurred 1 February
Activities started 15 March
Start Capitalising on 15 March
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Illustration 4
Davos is building an office block and issued a $10 million unsecured loan with a coupon
(nominal) interest rate of 6% on 1 April 20X9. The loan is redeemable at a premium which
means the loan has an effective finance cost of 7·5% per annum.
The loan was specifically issued to finance the building of the new block which meets the
definition of a qualifying asset in IAS 23. Construction of the block commenced on 1 May
20X9 and it was completed and ready for use on 28 February 2010, but did not open for
trading until 1 April 20X0.
During the year trading at Davos’ was below expectations so they suspended the
construction of the new block for a two-month period during July and August 20X9. The
proceeds of the loan were temporarily invested for the month of May 20X9 and earned
interest of $40,000.
Calculate the borrowing costs that can be capitalised under IAS 23
Solution
The effective interest rate is 7.5% which should be used to capitalise the interest as this is
a qualifying asset.
The interest cost for the year to 31/03/20X0 would therefore be ($10m x 7.5%) =
$750,000.
However the building only began on 1/05/20X9 and was completed on 28/02/20X0 so one
month at the start and one month at the end can’t be capitalised.
In addition there were 2 months during which construction was suspended.
8 months interest ($750,000 x 8/12) = $500,000 less the temporary investment income of
$40,000 should be caplitalised.
Total = $460,000
The rest of the cost should be written off to the Income statement.
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IFRS 5 - Assets Held For Sale
and Discontinued Operations
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Illustration 1
Archie Co. committed itself at the beginning of the financial year to selling a property that
is being under-utilised following the economic downturn. As a result of the economic
downturn, the property was not sold by the end of the year. The asset was actively
marketed but there were no reasonable offers to purchase the asset. Archie is hoping that
the economic downturn will change in the future and therefore has not reduced the price of
the asset.
Can Archie Co. classify the property as available for sale under IFRS 5?
Solution
Although Archie has a plan to sell, it is available immediately and they are trying to locate a
buyer it would appear that they are not marketing the property at a reasonable price.
They have not reduced the price even though there has been a downturn that has
presumably reduced prices in general so cannot classify the property under IFRS 5.
Illustration 2
A company has a machine that cost $300,000 to buy two years ago. At the time of
purchase the machine had a useful economic life of 30 years and they apply the cost
model under IAS 16 (Cost less depreciation).
The company has decided to sell the machine and it’s fair value at this time is $220,000
with additional costs to sell being estimated at $5,000.
Although the machine has not been sold at the year end as the decision was taken that
day the company is confident that it will be sold quickly and is committed to selling it
having begun to market the machine to potential purchasers.
How should the machine be treated at the year end in the financial statements and
at what value will it be included?
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Solution
(a)
Cost $300,000
Depreciation Year 1 (300,000 / 30) $10,000
Depreciation Year 2 (300,000 / 30) $10,000
Carrying Value of Machine $280,000
Fair Value $220,000
Cost to Sell $5,000
Fair Value less Cost to Sell $215,000
Impairment (280,000 - 215,000) $65,000
The impairment will reduce the carrying value of the machine to $215,000 and the charge will be written
off to the income statement.
The machine will no longer be depreciated.
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Illustration 3
A company has two divisions each of which form a major line of business, Division A and
Division B.
Mid way through the current period Division A was shut down with losses of $50,000 on
the sale of the fixed assets of the business and redundancy costs of $100,000.
Division B was restructured incurring losses of $85,000.
Results in the period included the following information:
Div A Div B
$‘000 $‘000
Revenue 1,000 2,000
Cost of Sales 750 1,250
Distribution 250 300
Administration 100 50
Finance costs for the business were $40,000 in the period and the tax charge was
$32,000.
Prepare a note to the accounts showing the analysis of the discontinued operation
and draft the income statement for the company for the period.
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Solution
Discontinued Operations Analysis
$‘000
Revenue 1,000
Cost of Sales 750
Gross Profit 250
Admin Expenses 100
Distribution Costs 250
Operating Loss -100
Loss on Disposal of Fixed Assets -50
Redundancy Costs -100
Total Loss -250
Income Statement for Company
$‘000
Revenue 2,000
Cost of Sales 1,250
Gross Profit 750
Admin Expenses 50
Distribution Costs 300
Operating Profit 400
Re-organisation Costs -85
PBIT 315
Finance Costs -40
PBT 275
Tax -32
Profit for Period from Continuing Operations 243
Loss for Period from Discontinued Operations -250
Loss for Period from Total Operations -7
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Multiple Choice Questions
BN has an asset that was classified as held for sale at 31 March 2012. The asset had a
carrying value of $900 and a fair value of $800. The cost of disposal was estimated to be
$50. The useful economic life of the asset was 10 years.
According to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which
ONE of the following values should be used for the asset in BN’s statement of financial
position as at 31 March 2012?
A. $750
B. $800
C. $810
D. $720
Answer A
PQ has ceased operations overseas in the current accounting period. This resulted in the
closure of a number of small retail outlets.
Which one of the following costs would be excluded from the loss on discontinued
operations?
A Loss on the disposal of the retail outlets
B Redundancy costs for overseas staff
C Cost of restructuring head office as a result of closing the overseas operations
D Trading losses of the overseas retail outlets up to the date of closure
Answer C
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IFRS 15 - Revenue I
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Illustration 1
Fresco sells an IT system to Dining 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 Fresco recognise as revenue from the transaction in the current year?
Solution
Step 1 - Identify the Contract
Fresco has agreed to supply Dining with goods and services.
Step 2 - Identify the performance obligations
Fresco has promised to do two things:
- Supply the hardware
- Supply the support
Step 3 - Determine the transaction price
The total price is $300,000
Step 4 - Allocate price to obligations
Based on the individual prices the support is worth (50,000 x 3) $150,000 leaving the rest
of the $300,000 to be for the hardware (300,000 - 150,000) = $150,000.
Step 5 - Recognise the revenue when (or as) the performance obligation is satisfied
The supply of the hardware happens immediately so the revenue for it should be
recognised now.
The support is provided over time so should be recognised on that basis i.e. $50,000 per
year over the 3 years.
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Illustration 2
Jumbo has agreed to sell a piece of complex machinery with two years free servicing to
Jet for $441,000. The machine usually sells for $420,000.
The servicing will cost Jumbo $50,000 to provide and they generally include a mark-up of
40% when setting the price to charge customers for servicing.
The two year servicing contract is not available as a stand-alone product.
How should the transaction price be allocated to the machine and servicing?
Solution
We can see that the machine generally sells for $420,000 but there is no comparable price
for the servicing contract.
Based on the cost + mark-up the servicing would be worth (50,000 x 140%) $70,000.
Therefore the total value of the performance obligations is (420,000 + 70,000) $490,000.
The fact that Jumbo is selling these for $441,000 would imply that a 10% discount has
been applied.
This should be allocated proportionally to the machine and servicing so the amounts
recognised should be:
Goods (420,000 x 90%) $378,000
Services (70,000 x 90%) $63,000 (Recognised over 2 years)
Total (378,000 + 63,000) $441,000
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Illustration 3
Jumbo has agreed to sell a piece of complex machinery with two years free servicing to
Jet for $700,000. The machine usually sells for $600,000 although a 5% discount is often
applied to machines of this specification.
The servicing will cost Jumbo $100,000 to provide and they generally include a mark-up of
30% when setting the price to charge customers for servicing.
The two year servicing contract is not available as a stand-alone product but Jumbo has a
policy of not offering discounts on servicing contracts.
How should the transaction price be allocated to the machine and servicing?
Solution
We can see that the machine generally sells for $600,000 but there is no comparable price
for the servicing contract.
Based on the cost + mark-up the servicing would be worth (100,000 x 130%) $130,000.
Therefore the total value of the performance obligations is (600,000 + 130,000) $730,000.
The fact that Jumbo is selling these for $700,000 would imply that a $30,000 discount has
been applied.
However rather than be allocated proportionally to the machine and servicing the discount
should be applied to the machine only because:
- The discount amounts to 5% of the $600,000 for the machine which is the standard
discount for this item given generally.
- There is not generally a discount on servicing.
…so the amounts recognised should be:
Goods (600,000 x 95%) $570,000
Services (130,000 x 100%) $130,000 (Recognised over 2 years)
Total (570,000 + 130,000) $700,000
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Illustration 4
Placo obtained a contract to sell Davo $3m worth of services over a 3 year period. Specific
costs that would not have been incurred otherwise amounted to $120,000.
How should the revenue and costs be recognised?
Solution
The revenue should be recognised in line with the contract terms over 3 years so ($3m / 3)
$1m per year.
The costs should be capitalised as they are specific to the contract so…
DR Asset (Costs) $120,000
CR Cash $120,000
…then recognised in line with the revenue over 3 years
DR Profit/Loss (120,000 / 3) $40,000
CR Asset (Costs) $40,000
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Multiple Choice Questions
LP received an order to supply 10,000 units of product A every month for 2 years. The
customer had negotiated a low price of $200 per 1,000 units and agreed to pay $12,000 in
advance every 6 months.
The customer made the first payment on 1 July 2012 and LP supplied the goods each
month from 1 July 2012.
LP’s year end is 30 September.
In addition to recording the cash received, how should LP record this order, in its financial
statements for the year ended 30 September 2012, in accordance with IFRS 15?
A Include $6,000 in revenue for the year and create a trade receivable for $36,000
B Include $6,000 in revenue for the year and create a current liability for $6,000
C Include $12,000 in revenue for the year and create a trade receivable for $36,000
D Include $12,000 in revenue for the year but do not create a trade receivable or current
liability
Answer B
CF, a contract cleaning entity, signed a contract to provide 12 months cleaning of an office
block. The contract for $12,000 commenced on 1 June 2012. The terms of the contract
provided for payment six monthly in advance on 1 June and 1 December 2012. CF
received $6,000 and started work on 1 June 2012.
How should CF account for the contract in its financial statements for the year ended 30
June 2012?
A Debit cash $6,000 and credit revenue $6,000
B Debit cash $6,000, credit revenue $1,000 and credit deferred income $5,000
C Debit cash $6,000, debit receivables $6,000 and credit revenue $12,000
D Debit cash $6,000 and credit deferred income $6,000
Answer B
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On 28 September 2011, GY received an order from a new customer, ZZ, for products with
a sales value of $750,000. ZZ enclosed a deposit with the order of $75,000.
On 30 September 2011, GY had not completed the credit referencing of ZZ and had not
despatched any goods.
Which ONE of the following will correctly record this transaction in GY’s financial
statements for the year ended 30 September 2011 according to IFRS 15:
A Debit Cash $75,000; Credit Revenue $75,000
B Debit Cash $75,000; Debit Trade Receivables $675,000; Credit Revenue $750,000
C Debit Cash $75,000; Credit Deferred Revenue $75,000
D Debit Trade Receivables $750,000; Credit Revenue $750,000
Answer C
OC signed a contract to provide office cleaning services for an entity for a period of one
year from 1 October 2009 for a fee of $500 per month.
The contract required the entity to make one payment to OC covering all twelve months’
service in advance. The contract cost to OC was estimated at $300 per month for wages,
materials and administration costs.
OC received $6,000 on 1 October 2009.
How much profit/loss should OC recognise in its statement of comprehensive income for
the year ended 31 March 2010?
A. $600 loss
B. $1,200 profit
C. $2,400 profit
D. $4,200 profit
Answer B
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IFRS 15 - Revenue II
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Illustration 1
Badger Co. manufactures smart phones and sells them through a contractual relationship
with Bodger Co. Badger provides Bodger with the phones for a price of $150 payable once
the phone is sold on to a customer.
Bodger has also agreed to a clause in the contract of sale that they cannot sell the phone
for less than $200.
How should the goods and revenue be treated in the financial statements of Badger and
Bodger?
Solution
When the goods are provided to Bodger initially they still remain the property of Badger as
they have retained control of them by stipulating the price at which they should be soldr
They will stay as part of Badger’s inventory and no revenue recognised until it is sold to an
end customer.
Once the goods are sold to the customer for $200 Bodger should only recognise the
commission they have received on selling the goods i.e. $50.
The other $150 is paid to Badger and should be recognised as their revenue on the sale.
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Illustration 2
Johnston enters into a contract to sell a piece of plant to Paints on 01 Jan 20X6 and
delivers the plant on that date for Paints to begin to use. The price agreed in the contract is
$400,000 to be paid on 01 Jan 20X8.
The market rate of interest available to this customer is 10%.
How should this transaction be accounted for in the accounts of Johnston?
Solution
Discount the Revenue and recognise a receivable on the discounted amount
DR Receivable ($400,000 x 1 / 1.12) 330,578
CR Revenue 330,578
Unwind the discount over the two years
Year 1
DR Receivable (330,578 x 10%) 33,058
CR Finance Income 33,058
Year 2
DR Receivable ((330,578 + 33,058) x 10%) 36,364
CR Finance Income 36,364
Final Receivable (330,578 + 33,058 + 36,364) 400,000
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Illustration 3
Gerry has just completed a contract to supply Roses with 200 pineapple trees over the
next 2 years for a set price of $40,000.
As part of the contract Gerry agreed to pay $2,000 to increase the height of the doors at
Roses in order to get the trees into the store.
How much revenue should be recognised in year 1 of the contract?
Solution
The consideration paid to Roses should be treated as a reduction in the transaction price.
The price therefore will be reduced to (40,000 - 2,000) $38,000.
This will be recognised over the term of the contract so in year 1 ($38,000 / 2) $19,000 will
be recognised.
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Illustration 4
Avon has sold goods to 1000 customers at a price of $400 each. The goods are delivered
and control passed to the customer immediately and they are paid for up front. Each good
is currently in inventory at a value of $200.
The customers have the option to return the goods to Avon if they are not sold in the next
60 days for a full refund at which stage Avon will be able to sell them on at a profit.
Based on prior experience Avon estimates that 95% of the goods will not be returned.
Solution
Based on the amount of expected revenue Avon should recognise ((1000 x $400) x 95%)
$380,000.
A refund liability for the rest ((1000 x $400) x 5%) $20,000 should be created.
The entries for this will be:
DR Cash $400,000
CR Revenue $380,000
CR Liability $20,000
The inventory will have been derecognised when transferred to customers but an asset
should be created for the goods expected to be returned
DR Asset ((1000 x $200) x 5%) $10,000
CR COS $10,000
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IAS 17
Leases
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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.
Solution
Recognition of the Asset
Fair Value 6,500
PV minimum lease payments 2,500 x 2.402 6005
Recognise at lower of the two so..... 6,005
DR Asset 6,005
CR Lease Liability 6,005
Period Opening Interest Charge(12%) Lease Payment Closing Bal
Bal DR Income Statement DR Lease Liability
CR Lease Liability CR Cash
1 6,005 721 -2,500 4,226
2 4,226 507 -2,500 2,233
3 2,233 268 -2,500 0
The asset will be depreciated over the 3 year period at (6,005 x 1/3) = 2,002
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Illustration 2
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?
Solution
Total Amount Due Under Lease (1,500 + (2,000 x 6) 13,500
Number of Years 6
Amount to Income Statement each year (13,500 / 6) 2250
Cash Paid in Period 1 (1,500 + 2,000) 3,500
Difference between Income Statement amount
(3,500 - 2,250) 1250
and actually paid is a Prepayment
Income Statement Amount 2250
Prepayment on SFP 1250
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Illustration 3
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?
Solution
Risks Faced By Dealer
Theft
Insurance
Maintenance
Slow moving stock (Tony has to buy the car!)
Therefore Tony should recognise the cars on his SFP on delivery.
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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.
Solution
W1 - Profit on Disposal
Carrying Value of Asset 150,000
Proceeds 200,000
Profit on Disposal (200,000 - 150,000) 50,000
This profit is deferred over the length of the lease
Released in Year 1 (50,000 / 5) 10,000
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W2 - Recognise New Asset
Recognition of the Asset
Fair Value 200,000
PV minimum lease payments (52,760 x 3.791) 200,013
Recognise at lower of the two so..... 200,000
DR Asset 200,000
CR Lease Liability 200,000
W3 - Depreciation
Value UEL Depreciation
200,000 5 40000
W4 - Lease Workings
Period Opening Interest Charge(10%) Lease Payment Closing Bal
Bal DR Income Statement DR Lease Liability
CR Lease Liability CR Cash
1 200,000 20,000 -52,760 167,240
2 167,240 16,724 -52,760 131,204
3 131,204 13,120 -52,760 91,564
4 91,564 9,156 -52,760 47,961
5 47,961 4,796 -52,760 -3
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Financial Statement Extracts
Income Statement
Depreciation 40,000
Finance Lease 20,000
Deferred Profit Released 10,000
Statement of Financial Position
Non Current Assets
Asset Under Finance Lease (200,000 - 40,000) 160,000
Non Current Liabilities
Finance Lease (More than 1yr) (167,240 - (52,760 - 131204
16,724)
Deferred Income (More than 1yr) (40,000 - 10,000) 30,000
Current Liabilities
Finance Lease (Less than 1yr) (52,760 - 16,724) 36,036
Deferred Income (Less than 1yr) 10,000
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Illustration 5
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 monthly interest charged at 5%.
The building’s current market value is $500,000.
How should Pinky show this transaction in their financial statements?
Solution
The substance of this transaction is a loan secured on the building as the expectation is
that Pinky would re-purchase using the negotiated option.
A loan should be recognised in the financial statements.
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Multiple Choice Questions
Financial statements represent transactions in words and numbers. To be useful, financial
information must represent faithfully these transactions in terms of how they are reported.
Which of the following accounting treatments would be an example of faithful
representation?
A. Charging the rental payments for an item of plant to the statement of profit or loss
where the rental agreement meets the criteria for a finance lease
B. Including a convertible loan note in equity on the basis that the holders are likely to
choose the equity option on conversion
C. Derecognising factored trade receivables sold without recourse
D. Treating redeemable preference shares as part of equity in the statement of financial
position
Answer C
On 1 October 2013, Fresco acquired an item of plant under a five-year finance lease
agreement. The plant had a cash purchase cost of $25 million. The agreement had an
implicit finance cost of 10% per annum and required an immediate deposit of $2 million
and annual rentals of $6 million paid on 30 September each year for five years.
What would be the current liability for the leased plant in Fresco’s statement of financial
position as at 30 September 2014?
A $19,300,000
B $4,070,000
C $5,000,000
D $3,850,000
Answer B
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The objective of IAS 17 Leases is to prescribe the appropriate accounting treatment and
required disclosures in relation to leases.
Which TWO of the following situations would normally lead to a lease being classified as a
finance lease?
(i) The lease transfers ownership of the asset to the lessee by the end of the lease term
(ii)The lease term is for approximately half of the economic life of the asset
(iii)The lease assets are of a specialised nature such that only the lessee can use them
without major modifications being made
(iv)At the inception of the lease, the present value of the minimum lease payments is 60%
of what the leased asset would cost to purchase
A (i) and (ii)
B (i) and (iii)
C (ii) and (iii)
D (iii) and (iv)
Answer B
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Financial Instruments I
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Illustrations
Examples of Amortised Cost Financial Assets
Stated maturity date with fixed, variable or mixed interest cash flows
Stated maturity date where principle and interest are linked to the same currency
inflation index.
Stated maturity date which pays a variable market rate of interest subject to a cap.
A full recourse loan secured by collateral.
NOT!!!
Convertible Debt
FInancial Asset Classification
Amortised Cost FVPL FVOCI
Business Model Test Result
Hold to get interest and capital rather Both Hold &
than sell.....and..... Sell for
Debt Any Other
Business
Contractual Cash Flows Test Model Test
Only Interest and Capital repaid
Held For
Equity Never Any Other
Trading
FInancial Liability Classification
Amortised Cost FVPL FVOCI
Held For
All All Others Never
Trading
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Financial Instruments II
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Illustration 1
A company invests $100,000 in a 3 year redeemable 12% bond.
The bond consists of interest payments and principle only and the company intends to
hold it until it is redeemed.
Show the treatment for the bond over the 3 year period.
Solution
O’Bal Interest (12%) Cash Rec’d Cl’bal
DR Financial Asset (12% x 100,000)
CR Income Statement DR Cash
CR Financial Asset
100,000 12,000 -12,000 100,000
100,000 12,000 -12,000 100,000
100,000 12,000 -12,000 100,000
At the end of the term the bond is repaid and the company receives $100,000.
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Illustration 2
A company invests $10,000 in a 3 year redeemable 10% bond which is redeemable at a
premium of $675.
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.
Solution
O’Bal Interest (12%) Cash Rec’d Cl’bal
DR Financial Asset (10% x 10,000)
CR Income Statement DR Cash
CR Financial Asset
10,000 1,200 -1,000 10,200
10,200 1,224 -1,000 10,424
10,424 1,251 -1,000 10,675
The Premium payable at the end of the term means that the company receives $10,675.
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Illustration 3
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.
Issue Proceeds 30,000
Discount -3,000
Issue Costs -1,000
Net Proceeds 26,000
O’Bal Interest (14%) Cash Paid (7% x 30,000) Cl’bal
DR Income Statement DR Financial Liability
CR Financial Liability CR Cash
26,000 3,640 -2,100 27,540
27,540 3,856 -2,100 29,296
29,296 4,101 -2,100 31,297
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Illustration 4
VB acquired 40,000 shares in another entity, JK, in March 2012 for $2.68 per share. The
investment was held for trading purposes on initial recognition. The shares were trading at
$2.96 per share on 31 July 2012.
Show the treatment to record the initial recognition of this financial asset and its
subsequent measurement at 31 July 2012
Solution
As the shares are held for trading they will be classified as Fair Value through Profit &
Loss
Recognition of Financial Asset (40,000 x $2.68) 107200
Fair Value on 31 July 2012 (40,000 x $2.96) 118400
Movement to Income Statement (Gain) 11200
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Illustration 5
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%. (The annuity rate for 5 years at 7% is 4.100 with the discount rate in
year 5 being 0.713).
Show the split of the compound instrument between debt and equity and the
treatment of the debt portion in the first year.
Solution
First Step is to calculate debt value (Present Value of interest & Capital)
Interest for 5 Years at 5% ($10m x 5%) 500,000
Discounted Cash Flows
Discount Interest Payment at effective rate (500,000 x 4.100) 2,050,000
Discount Capital Repayment ($10m x 0.713) 7130000
Total Debt Portion 9180000
The difference between the issued value of the convertible debt and the present value
of the interest and capital is the EQUITY portion of the debt
Total Convertible Debt 10,000,000
Present Value of Interest and capital from above 9180000
Total Equity Portion 820000
O’Bal Interest (7%) Cash Paid Cl’bal
DR Income Statement (5% x 10m)
CR Financial Liability DR Financial Liability
CR Cash
9,180,000 642,600 -500,000 9,322,600
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Multiple Choice Questions
TS purchased 100,000 of its own equity shares in the market and classified them as
treasury shares. At the end of the accounting period TS still held the treasury shares.
Which ONE of the following is the correct presentation of the treasury shares in TS’s
closing statement of financial position in accordance with IAS 32 Financial Instruments –
Presentation?
A As a current asset investment
B As a non-current liability
C As a non-current asset
D As a deduction from equity
Answer D
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IAS 2 - Inventories
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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.
Solution
Goods at $40,000
Cost 40,000
Net Realisable Value ($42,000 - 2,500) 39,500
Use Lower so value at... 39,500
The value of inventory will be reduced by $500 and this will be written off to the income
statement.
Materials at $30,000 per tonne
The fact that the manufacturer has changed the cost price is irrelevant.
The goods will be sold at a profit and thus will be valued at $30,000 per tonne cost.
Plant at $50,000
Cost 50,000
Net Realisable Value ($60,000 - 4,000) 56,000
Use Lower so value at... 50,000
The value of the inventory will remain at $50,000.
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Construction Contracts Under
IFRS 15
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Illustration 1
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?
Solution
Expected Profit
Total Expected Revenue 1,000,000
Total Expected Costs (400,000 + 350,000) 750,000
Total Expected Profit 250,000
Recognised this year (250,000 x 50%) 125,000
Revenue (1,000,000 x 50%) 500,000
Costs (750,000 x 50%) 375,000
125,000
Total Loss expected to be recognised immediately
Total Expected Revenue 500,000
Costs (400,000 + 350,000) 750,000
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Total Loss expected to be recognised immediately
Loss -250,000
Revenue (500,000 x 50%) 250,000
Costs (750,000 x 50%) 375,000
Provision for loss -125,000
-250,000
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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.
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?
Solution
Costs to date 350,000
Revenue (Costs to be recovered) 350,000
Profit 0
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Illustration 3
A construction company has the following contracts in progress:
X Y Z
Costs Incurred to Date 350 200 600
Costs to complete 50 800 900
Work Certified to date 400 300 1000
Contract Price 500 600 2000
Cash Received on Contract 300 200 1200
Profit is accrued on the contracts as a percentage of completion derived by comparing
work certified to the total sales value.
Contracts X and Z have been in progress for several years and the following amounts
have been recognised to date:
X Z
Revenue 100 300
Costs 80 250
Calculate the figures to be included in the financial statements in relation to the
above contracts.
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Solution
Step 1 - Calculate the expected profit on each contract
X Y Z
Costs Incurred to Date 350 200 600
Costs to complete 50 800 900
Total Costs Expected 400 1000 1500
Contract Price 500 600 2000
Profit Expected 100 -400 500
Step 2 - Percentage completion
X Y Z
Work Certified to date 400 300 1000
Contract Price 500 600 2000
Percentage complete 80% 50% 50%
Step 3 - Profit to be recognised
X Y Z
Profit Expected 100 -400 500
Percentage Completion 80% 50% 50%
Profit/Loss 80 -400 250
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Step 4 - Income Statement Figures
X Y Z Total
Sales by % 400 300 1000 1700
Recognised to Date -100 0 -300 -400
Recognise this Year 300 300 700 1300
Costs by % 320 500 750 1570
Recognised to Date -80 0 -250
Recognise this Year 240 500 500
Provision For Loss 200
Profit/Loss 60 -400 200 -70
Step 5 - Bal. Sheet Figures
X Y Z
Revenue Recognised to Date 400 300 1000
Cash Received 300 200 1200
Receivable/(Payable) 100 100 -200
Costs Recognised to Date (COS) 320 500 750
Costs Incurred to Date 350 200 600
Balance (WIP if Incurred Greater) 30 - -
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Illustration 4
On 1 October 20X9 Mocca entered into a construction contract that was expected to take
27 months and therefore be completed on 31 December 20X1.
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 20X0 (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 20X0 were:
$‘000
Revenue recognised 3,500
Contract expenses recognised (2,660)
Profit recognised 840
Details of the progress of the contract at 31 March 20X1 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 for the year ended/as at 31 March 20X1 in respect of
the above contract.
(10 marks)
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Solution
Percentage Completion
Value of Work Completed to date 8,125
Contract Value 12,500
Percentage Completion (8,125 / 12,500) 65%
Expected Total Profit
Total Costs Expected 5,500
Depreciation (8/48 x 24) 4000
Total Costs 9,500
Total Revenue 12,500
Expected Total Profit (12,500 - 9,500) 3,000
Recognise to date (3,000 x 65%) 1,950
Recognised Last Year 840
Recognise this year (1,950 - 840) 1,110
Income Statement Extracts
Revenue (12,500 x 65%) - 3,500 4,625
Costs (9,500 x 65%) - 2,660 3,515
Gross Profit Recognised 1,110
SFP Amounts
Revenue Recognised to Date (12,500 x 65%) 8,125
Cash Received to Date 7,725
Receivable due from customers 400
Costs Recognised to Date (9500 x 65%) 6,175
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SFP Amounts
Costs Incurred to Date (8000/48 x 15) + 4800 7,300
Work In Progress 1,125
SFP Extracts
Non Current Asset (8,000 - 2,500) 5500
Receivables (8,125 - 7,725) 400
Work In Progress 1,125
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Multiple Choice Questions
TY has a construction contract in progress. The contract commenced on 1 April 2011 and
is scheduled to run for two years. The contract has a fixed price of $9,000,000. TY uses
the value of work completed method to recognise attributable profit for the year.
At 31 March 2012 the proportion of work certified as completed was 35%.
$000
Cost incurred during year to 31 March 2012 4,000
Estimated cost to complete contract 6,000
Cash received on account from contract client 3,250
Which of the following would appear in the financial statements of TY (all figures in $‘000)?
A. Revenue $3,150, COS $3,500 and Payable to customers $250
B. Revenue $3,150, COS $4,150 and Payable to Customers $100
C. Revenue $4,500, COS $3,500 and Receivable from Customers $360
D. Revenue $6,000, COS $3,250 and Receivable from customers $650
Answer B
Total Expected Revenue 9,000
Costs (4,000 + 6,000) -10,000
Loss -1,000
Revenue (9,000 x 35%) 3,150
Costs (10,000 x 35%) -3,500
Provision for loss (Include in COS) Bal -650
Total For COS -4150
From
-1,000
Above
SFP Amounts
Revenue Recognised to Date 3,150
Cash Received to Date 3,250
Payable due from customers -100
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SFP Amounts
Costs Recognised to Date 4,150
Costs Incurred to Date 4,000
Work In Progress -
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IAS 37
Provisions
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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?
Solution
There is no legal obligation to refund customers.
However:
This looks like a constructive obligation as the customers know of the policy creating a
valid expectation.
We could estimate the returns based on past experience.
There will probably be some refunds made.
Therefore a provision should be created.
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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?
Solution
The onerous contract means that a provision should be recognised for the $100,000.
It would need to be assessed if the $50,000 was probable or virtually certain.
If virtually certain create an asset.
If only possible then disclose a contingent asset.
If neither then no action is required for the $50,000.
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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?
Solution
There is no detailed plan available at 30th April 2010.
Employees were not informed until 31st May 2010.
No constructive obligation therefore exists and no provision should be made.
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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?
Solution
A provision of (4m x 1.7%) $68,000 should be made.
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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?
Solution
Journal Entries
DR CR
Non Current Asset (12m + (2m x 1 / 1.125)) 12,184,592
Cash 12,000,000
Environmental Provision (2m x 1 / 1.125) 184,592
Depreciation (12,184,592 / 25) 487,383
Accumulated Depreciation 487,383
Finance Cost (Unwind Discount) (184,592 x 10%) 18,459
Environmental Provision 18,459
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Multiple Choice Questions
TY has recently completed a contract replacing a roof on the local school. Despite this, the
roof has been leaking and some sections are now unsafe. The school is suing TY for
$20,000 to repair the roof.
TY used a sub-contractor to install the roof and regards the sub-contractor’s work as faulty.
TY has raised a court action against the sub-contractor claiming the cost of the school’s
action plus legal fees, a total of $22,000.
TY has been informed by legal advisers that it will probably lose the case brought against
it by the school and will probably win the case against the sub-contractor.
How should these items be treated in TY’s financial statements?
A. A provision should be made for the $20,000 liability and the case against the sub-
contractor ignored.
B. A provision should be made for the $20,000 liability and the probable receipt of cash
from the case against the sub-contractor disclosed as a note.
C. No provisions should be made but the $20,000 liability should be disclosed as a note.
D. A provision should be made for the $20,000 liability and the probable receipt of cash
from the case against the sub-contractor recognised as a current asset.
Answer B
MN obtained a government licence to operate a mine from 1 April 2011. The licence
requires that at the end of the mine’s useful life, all buildings must be removed from the
site and the site landscaped. MN estimates that the cost of this decommissioning work will
be $1,000,000 in ten years’ time (present value at 1 April 2011 $463,000) using a discount
factor of 8%.
According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets how much
should MN include in provisions in its statement of financial position as at 31 March 2012?
A. $100,000
B. $463,000
C. $500,000
D. $1,000,000
Answer C
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IAS 12
Deferred Tax
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Illustration 1
An entity has profit before tax of $1,000 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%
Solution
Net Book Value in FInancial Statements
Year 1 2 3 4
Cost 1,000 1,000 1,000 1,000
Depreciation 250 250 250 250
Accumulated Depreciation 250 500 750 1,000
Net Book Value 750 500 250 0
Tax Base
Year 1 2 3 4
Cost 1,000 1,000 1,000 1,000
WDAs 333 333 333 0
Total WDAs 333 667 1,000 1,000
Net Book Value 667 333 0 0
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Compare
Year 1 2 3 4
Financial Statements NBV 750 500 250 0
Tax Base 667 333 0 0
Difference (More Asset) 83 167 250 0
Deferred Tax Liability (30%) on SFP 25 50 75 0
Movement to I/S in year
DR Income Statement Tax Chg.
25 25 25 -75
CR Deferred Tax Liability...
or opposite to reduce...
Tax Computation
Year 1 2 3 4
Profit Before Tax 1,000 1,000 1,000 1,000
Add Back Depreciation 250 250 250 250
WDAs -333 -333 -333
Taxable Profit 917 917 917 1,250
Tax at 30% 275 275 275 375
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Income Statement Comparison
Ignoring Deferred Tax
Year 1 2 3 4 Total
Profit Before Tax 1,000 1,000 1,000 1,000 4,000
Tax (W1) 275 275 275 375 1,200
Profit After Tax 725 725 725 625 2,800
With Deferred Tax
Profit Before Tax 1,000 1,000 1,000 1,000 4,000
Tax (W1) 275 275 275 375 1,200
Deferred Tax 25 25 25 -75 0
Profit After Tax 700 700 700 700 2,800
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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.
Solution
Carrying Value of Asset 2,000,000
Tax Base 1,400,000
Difference (More Asset) 600,000
Deferred Tax Liability Required (600,000 x 30%) 180,000
Current Deferred Tax Liability 250,000
Movement Required -70,000
Treatment DR CR
Deferred Tax Liability (To reduce) 70,000
Income Statement (Income Tax Charge) 70,000
Amounts in Financial Statements
Income Statement Tax Charge (500,000 - 70,000) 430,000
Deferred Tax Liability 180,000
Income Tax Due 500,000
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Multiple Choice Questions
DF, a small entity resident in Country X, purchased its only item of plant on 1 October
2011 for $200,000.
DF charges depreciation on a straight line basis over 5 years and receives a first year
WDA of 50% with 25% WDAs available from then on a reducing balance basis. The tax
rate is 25%.
DF’s deferred tax balance as at 30 September 2013, in accordance with IAS 12 Income
Taxes is:
A $3,750
B $11,250
C $18,750
D $45,000
Answer B
F. Statements Tax Base
Cost 200,000 200,000
Dep’n 2012 (200/5) -40,000
FYA -100,000
Dep’n 2013 (200/5) -40,000
Annual WDA -25,000
Balance 120,000 75,000
Deferred Tax 45,000 x 25% = $11,250
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IAS 33 EPS
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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.
Solution
Date Shares Months Fraction Ave
1/01/09 900,000 6/12 - 450,000
1/07/09 1,200,000 6/12 - 600,000
1,050,000
EPS = 1,000,000 / 1,050,000 = 95.24c
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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.
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.
Solution
Date Shares Months Fraction Ave
1/01/09 900,000 6/12 7/6 525,000
1/07/09 1,050,000 6/12 525,000
1,050,000
EPS = 1,000,000 / 1,050,000 = 95.24c
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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.
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.
Last year’s earnings were $900,000
Calculate the EPS at 31st December 2009 and the new EPS for 2008.
Solution
No. Shares Price Total
3 4 12
1 3 3
4 15
THERP = (15 / 4) = $3.75 so rights fraction is: 4/3.75
Date Shares Months Fraction Ave
1/01/09 900,000 6/12 4/3.75 480,000
1/07/09 1,200,000 6/12 600,000
1,080,000
December 2009 EPS = 1,000,000 / 1,080,000 = 92.59c
December 2008 EPS (900,000 / 900,000) 100
Inverted Fraction 3.75/4
Comparable EPS 93.75
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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.
Solution
Date Shares Months Fraction Ave
1/01/09 1,000,000 6/12 6/5 600,000
1/07/09 1,200,000 6/12 - 600,000
1,200,000
EPS = 1,000,000 / 1,200,000 = 83.33c
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Diluted EPS
Earnings
Basic Earnings 1,000,000
Interest Saved on Loan 90,000
Tax Benefit Lost -20,000
1,070,000
No. Shares
Basic number of shares 1,200,000
New shares created on conversion 100,000
1,300,000
Diluted EPS
Diluted Earnings 1,070,000
Diluted No. Shares 1,300,000
Diluted EPS 82.31c
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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.
Solution
Basic EPS (1,500,000 / 2,000,000) 75c
Cash Inflow (Number of Share Options x (300,000 x $5) $1,500,000
Exercise Price)
Non Dilutive Shares (Cash Inflow / Average (1,500,000 / $6) 250,000
Market Value of Share)
Dilutive Shares (No. Options - Non Dilutive (300,000 - 250,000) 50,000
Shares)
Basic Number of Shares 2,000,000
Total Shares for diluted EPS 2,050,000
Diluted EPS (1,500,000 / 2,050,000 73.2c
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Multiple Choice Questions
Which TWO of the following events which occur after the reporting date of a company but
before the financial statements are authorised for issue are classified as ADJUSTING
events in accordance with IAS 10 Events after the Reporting Period?
(i) A change in tax rate announced after the reporting date, but affecting the current tax
liability
(ii)The discovery of a fraud which had occurred during the year
(iii)The determination of the sale proceeds of an item of plant sold before the year end
(iv)The destruction of a factory by fire
A (i) and (ii)
B (i) and (iii)
C (ii) and (iii)
D (iii) and (iv)
Answer C
IAS 10 Events after the reporting period distinguishes between adjusting and non-
adjusting events.
Which ONE of the following is an adjusting event in XS’s financial statements?
A. A dispute with workers caused all production to cease six weeks after the year end.
B. A month after the year end XS’s directors decided to cease production of one of its
three product lines and to close the production facility.
C. One month after the year end a court determined a case against XS and awarded
damages of $50,000 to one of XS’s customers. XS had expected to lose the case and
had set up a provision of $30,000 at the year end.
D. Three weeks after the year end a fire destroyed XS’s main warehouse facility and most
of its inventory.
Answer C
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Which ONE of the following would be classified by WDC as a non-adjusting event
according to IAS 10 Events After The Reporting Period? WDC’s year end is 30 September
2011.
A. WDC was notified on 5 November 2011 that one of its customers was insolvent and
was unlikely to repay any of its debts. The balance outstanding at 30 September 2011
was $42,000.
B. On 30 September WDC had an outstanding court action against it. WDC had made a
provision in its financial statements for the year ended 30 September 2011 for damages
awarded against it of $22,000. On 29 October 2011 the court awarded damages of
$18,000.
C. On 5 October 2011 a serious fire occurred in WDC’s main production centre and
severely damaged the production facility.
D. The year end inventory balance included $50,000 of goods from a discontinued product
line. On 1 November 2011 these goods were sold for a net total of $20,000.
Answer C
On 1 October 2013, Hoy had $2·5 million of equity shares of 50 cents each in issue.
No new shares were issued during the year ended 30 September 2014, but on that date
there were outstanding share options to purchase 2 million equity shares at $1·20 each.
The average market value of Hoy’s equity shares during the year ended 30 September
2014 was $3 per share.
Hoy’s profit after tax for the year ended 30 September 2014 was $1,550,000.
In accordance with IAS 33 Earnings per Share, what is Hoy’s diluted earnings per share
for the year ended 30 September 2014?
A 25·0 cents
B 22·1 cents
C 31·0 cents
D 41·9 cents
Answer A
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Interpretation of Financial
Statements
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Illustration 1
2011 2010
ASSETS $‘000 $‘000
Non Current Assets 1000 1000
Inventory 300 400
Receivables 200 300
Cash 300 200
1800 1900
LIABILITIES
Ordinary Shares 800 800
Reserves 200 100
Long term Liabilities 700 900
Payables 100 100
Overdraft -
1800 1900
$‘000 $‘000
Revenue 1000 1200
COS 800 1100
Gross Profit 200 100
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 as well as the current and quick ratios.
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Solution
Item Working 2011 Working 2010
Inventory Period 300/800 x 137 400/1100 x 133
365 365
Collection Period 200/1000 x 73 300/1200 x 92
365 365
Payables Period 100/800 x
365
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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
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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
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Solution
ROCE
X1 X2 X3
Equity + LT Shares 300 300 300
Liabilities
Reserves 100 280 430
LT Loan Notes 150 200 300
Capital Employed 550 780 1030
Non Current Assets Non Current Assets 500 700 1000
+ Net Current
Assets
Net Current Assets (150 - 100) = 50 (200 - 120) = 80 (300 - 270) = 30
(Current Assets -
Current Liabilities)
Capital Employed 550 780 1030
Total Assets - Total Assets 650 900 1300
Current Liabilities
Current Liabilities 100 120 270
Capital Employed 550 780 1030
PBIT 500 500 300
Return on Capital PBIT / Capital (500 / 550) = (500 / 780) = (300 / 1030) =
Employed Employed 90.91% 64.10% 29.13%
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X1 X2 X3
Return on Capital Employed (ROCE) 90.91% 64.1% 29.13%
In the first year the ROCE was 90.91%. At first glance this would appear to be a good return, however
without industry averages or prior period information we are unable to tell if this is the case.
In year X2 the ROCE is 64.10%. This is a fall of 29.5% from the previous year indicating that the business
in not able to make the same return on it’s assets that it has previously been able to do.
In the year X3 the ROCE is 29.13%. This is a fall of 54.55% indicating that there may be some serious
underlying problems which are affecting the ability of the business to generate the return on capital
previously generated.
ROE
X1 X2 X3
Profit After Tax 280 260 30
Ordinary Shares 300 300 300
Reserves 100 280 430
Total 400 580 730
Return on Equity (PAT / Ord Shares + (280 / 400) = (260 / 580) = (30 / 730) = 4.1%
Reserves) 70% 44.8%
In the first year the ROE was 70%. At first glance this would appear to be a good return, however without
industry averages or prior period information we are unable to tell if this is the case.
In year X2 the ROE is 44.8%. This is a fall of 36% from the previous year indicating that the business in
not able to make the same return on the shareholders funds that it has previously been able to do.
In the year X3 the ROE is 41%. This is a fall of 8.4% indicating that the business may be having difficulty
generating the returns it was able to do previously.
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Margins
X1 X2 X3
Revenue 3000 3500 4200
Gross Profit 1000 1100 1000
PAT 280 260 30
PBIT 500 500 300
Gross Margin (Gross Profit / Revenue) (1000 / 3000) = (1100 / 3500) = (1000 / 4200) =
33.33% 31.42% 23.89%
Net Margin (PAT / Revenue) (280 / 3000) = (260 / 3500) = (30 / 4200) =
9.3% 7.4% 0.7%
Operating Margin (PBIT / Revenue) (500 / 3000) = (500 / 3500) = (300 / 4200) =
16.66% 14.28% 7.1%
The Gross Margin is 33.33% in X1 and holds reasonably steady in X2 at 31.42%. However in X3 the
Gross Margin falls to 23.89% indicating that the business has either had to cut prices to sell the greater
volume it has, or the cost of it’s purchases have gone up.
The Net Margin is 9.3% in X1 but begins to fall in X2 with 7.4% achieved, before falling dramatically to
0.7% in X3. The main reason for this is the fall in Gross Profit as other costs have risen in line with
expectations given the increase in sales. However another point to note is that interest costs have risen
with the increase in long term loans. The extra interest costs have put pressure on the business.
The Operating Margin dropped slightly in X2 to 14.28% from 16.66% the previous year - a fall of almost
15%. In X3 the Operating Margin fell away to 7.1%, a decrease of over 50%. This is due to the decreasing
Gross Margin achieved as well as rises in the other expenses.
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Gearing
X1 X2 X3
Debt 150 200 300
Equity Number of 300 300 300
Shares
Share Price 3.3 4 2.2
Market Value (300 x 3.30) = (300 x 4) = (300 x 2.20) =
990 1200 660
Gearing (Debt / Equity) (150 / 990) = (200 / 1200) = (300 / 660) =
15% 16.66% 45.45%
Gearing levels in year X1 are 15%. Without industry averages or prior year data we are unable to assess
this level although at first glance it does not seem excessive.
In year X2 gearing increases slightly to 16.66%, an increase of 11% from year X1. This is due to debt
levels increasing to 200 from 150, although this is offset by the increase in the share price from $3.30 to
$4.
In year X3 gearing increases dramatically to 45%, an increase of over 180%. This is due to debt levels
rising to 300 from 200 and the share price dropping to $2.20 due to the deteriorating results of the
business.
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Interest Cover
X1 X2 X3
PBIT 500 500 300
Interest 100 150 220
Interest Cover (PBIT / Interest) (500 / 100) = 5 (500 / 150) = 3.33 (300 / 220) = 1.36
times times times
Interest coverage in year X1 is 5 times. Without industry averages or prior year data we are unable to
assess this level although at first glance it does not seem unreasonable.
In year X2 interest coverage falls to 3.33 times. This has occurred due to the interest charge increasing in
the period while PBIT has remained constant.
In year X3 interest coverage has decreased again to 1.36 times. This is caused by the PBIT achieved
decreasing to 300 combined with the increase in the interest charge to 220. The increase in interest is
caused by the increase in the long term debt of the company as shown by the gearing ratios calculated
above.
Dividend Cover
X1 X2 X3
PAT 280 260 30
Dividends 100 110 30
Dividend Cover (PAT / Dividends) (280 / 100) = 2.8 (260 / 110) = 2.36 (30 / 30) = 1 time
times times
Dividend coverage in year X1 is 2.8 times. Without industry averages or prior year data we are unable to
assess this level although at first glance it does not seem unreasonable.
In year X2 dividend coverage falls to 2.36 times. This would not concern investors as although coverage
has gone down slightly, the dividend paid this year is greater than last.
In year X3 dividend coverage has decreased to 1 time. This is caused by the decrease in profit achieved
by the company restricting the level of dividend payable. This will be of concern to investors and their
concern is reflected in the fall in the share price from $4 in year X2 to $2.20 in year X3.
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Dividend Yield
X1 X2 X3
Number of Shares (300 / 1) 300 300 300
Dividends 100 110 30
Dividends Per Share (100 / 300) = 33c (110 / 300) = 36c (30 / 300) = 10c
Dividend Yield (Dividends Per Share / (33 / 330) = 10% (36 / 400) = 9% (10 / 220) = 4.5%
Share Price)
The Dividend Yield is 10% in year X1. Whilst we do not have comparatives, this seems a reasonable
return.
In year X2 the Dividend Yield falls to 9%. This will not be overly concerning to investors as the increase in
share price over the year will have more than made up for the slightly lower yield.
In year X3 the Dividend Yield has fallen to 4.5% which is 50% lower than the previous year. This,
combined with the fall in share price and reduced profitability will be a major concern to investors.
P/E Ratio
X1 X2 X3
Share Price $3.30 $4 $2.20
Profit After Tax 280 260 30
No. Ordinary Shares 300 300 300
EPS (280 / 300) = 93c (260 / 300) = 86c (30 / 300) = 10c
P/E Ratio (Share Price / EPS) (330 / 93) = 3.54 (400 / 86) = 4.65 (220 / 10) = 22
The P/E Ratio in year X1 is 3.54. We do not have industry comparatives or prior year information with
which to compare this.
In year X2 the P/E Ratio increases to 4.65. This indicates that the market expectations for this share have
risen since X1 and that investors are now willing to pay 4.65 times what the business earns in a year to
own the share.
In year X4 the P/E ratio has increased dramatically to 22. This is unusual as the earnings have decreased
to 12% of the previous year. The share price has fallen to reflect this, but not by as much as would be
expected. This may indicate that the market feels that the results in year X3 were perhaps a one-off and
that next years results will improve.
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Multiple Choice Questions
1. Quartile is in the jewellery retail business which can be assumed to be highly seasonal.
For the year ended 30 September 2014, Quartile assessed its operating performance by
comparing selected accounting ratios with those of its business sector average as
provided by an agency. You may assume that the business sector used by the agency is
an accurate representation of Quartile’s business.
Which of the following circumstances may invalidate the comparison of Quartile’s ratios
with those of the sector average?
(i) In the current year, Quartile has experienced significant rising costs for its purchases
(ii)The sector average figures are complied from companies whose year end is between 1
July 2014 and 30 September 2014
(iii)Quartile does not revalue its properties, but is aware that other entities in this sector do
(iv)During the year, Quartile discovered an error relating to the inventory count at 30
September 2013. This error was correctly accounted for in the financial statements for
the current year ended 30 September 2014
A All four
B (i), (ii) and (iii)
C (ii) and (iii) only
D (ii), (iii) and (iv)
Answer C
2. The following information has been taken or calculated from Fowler’s financial
statements for the year ended 30 September 2014.
Fowler’s cash cycle at 30 September 2014 is 70 days.
Its inventory turnover is six times.
Year-end trade payables are $230,000.
Purchases on credit for the year were $2 million.
Cost of sales for the year was $1·8 million.
What is Fowler’s trade receivables collection period as at 30 September 2014?
All calculations should be made to the nearest full day. The trading year is 365 days.
A 106 days
B 89 days
C 56 days
D 51 days
Answer D
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3. Trent uses the formula:
(trade receivables at its year end/revenue for the year) x 365
to calculate how long on average (in days) its customers take to pay.
Which of the following would NOT affect the correctness of the above calculation of the
average number of days a customer takes to pay?
A Trent experiences considerable seasonal trading
B Trent makes a number of cash sales through retail outlets
C Reported revenue does not include a 15% sales tax whereas the receivables do include
the tax
D Trent factors with recourse the receivable of its largest customer
Answer D
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Cash Flow Statements
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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
Ordinary Shares 800 800
Reserves 200 199
Long term Liabilities 700 801
Payables 100 100
1800 1900
$‘000 $‘000
Revenue 1000 1200
COS 800 1100
Gross Profit 200 100
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
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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.
Solution
Profit Before Tax 90,000
Finance Costs (Often accrued - not cash so 10,000
add back)
Depreciation (Not Cash - add back) 40,000
Ammortisation (Not Cash - add back) 30,000
Profit On Sale of NCA (Not Cash - exclude) -30,000
Increase in Accruals (Not Cash Expenses - add 5,000 55,000
back)
Operating cash flow before working capital changes 145,000
Decrease in Inventory (Sold more so cash in) 100,000
(400 - 300)
Decrease in Receivables (Collecting cash more quickly 100,000
= cash in)
(300 - 200)
No Change in Payables - - 200000
Cash Generated from Operations 345000
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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?
Solution
Property Plant & Equipment
Opening Balance 1,100
Closing Balance -2,000
Disposal (Remove Carrying Amount) -300
Balance -1200
This difference needs to increase the amount of PPE from 800 to 2000 to balance the
account so must be additions - A CASH FLOW
We have also sold some PPE & so received cash.
The amount received will be the carrying value plus (300 + 50) 350
the profit made.
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Intangible Assets
Opening Balance 400
Closing Balance -500
Amortisation (Reduces the balance) -100
Balance -200
This difference needs to increase the amount of Intangible Asset by 200 to balance the
account so must be development expenditure - A CASH FLOW
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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
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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
Finance Costs -500 -400
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:
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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)
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Solution
$‘000 $’000
Profit Before Tax 3,900
Finance Costs 500
Finance Income -1,100
Depreciation Note (i) 2,500
Profit On Sale of NCA (8,100 - 4,000) -4,100
Increase in Warranty (4,000 - 1,600) -2,400 -4600
Provision
Operating cash flow before working capital changes -700
Increase in Inventory (10,200 - 7,200) -3,000
Decrease in Receivables (3,700 - 3,500) 200
Decrease in Payables (4,600 - 3,200) -1,400 -4200
Cash Generated from Operations -4900
$‘000 $’000
Profit Before Tax 3,900
Finance Costs 500
Finance Income -1,100
Depreciation Note (i) 2,500
Profit On Sale of NCA (8,100 - 4,000) -4,100
Increase in Warranty (4,000 - 1,600) -2,400 -4600
Provision
Operating cash flow before working capital changes -700
Increase in Inventory (10,200 - 7,200) -3,000
Decrease in Receivables (3,700 - 3,500) 200
Decrease in Payables (4,600 - 1,600) -1,400 -4200
Cash Generated from Operations -4900
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$‘000 $’000
Interest Paid -500
Income Tax Paid (W4) -800
Net Cash Deficit from operating activities -6200
Cash flows from investing activities
Purchase of Property Plant & Equipment -8,300
Disposal of Property Plant & Equipment 8,100
Disposal of Investment 3,400
Dividends Received 200
Net cash from investing activities 3400
Cash flows from financing activities
Shares Issued (W2) 2,400
Payment of Finance Lease obligations (W3) -3,900
Net cash from financing activities -1,500
Net decrease in cash and cash equivalents -4300
Cash and cash equivalents brought forward 1,400
Cash and cash equivalents carried forward -2900
W1 - Financial Assets
Financial Assets
Opening Balance 7,000
Closing Balance -4,500
Sale of Asset -3,000
Increase in Fair Value 500
Total 0
No Cash flows to deal with in Financial Assets
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W2 - Shares Issued
Ordinary Shares of $1 (note (iii)) 8,000
Share Premium (note (iii)) 2,000
Revaluation Reserve (note (iii)) 3,600
Ordinary Shares of $1 (note (iii)) -14,000
Share Premium (note (iii)) 0
Revaluation Reserve (note (iii)) -2,000
Balance -2400
The difference is the shares issued for cash in the year which is a cash flow
W3 - Finance Leases
Opening Balance (Current Leases) 2,100
Opening Balance (Non Current Leases) 6,900
Closing Balance (Current Leases) -4,800
Closing Balance (Non Current Leases) -7,000
New Leases in Year 6,700
Balance 3,900
The difference is the leases REPAID in the year which is a cash flow
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W4 - Income Tax
Opening Balance (Income Tax) 1,200
Opening Balance (Deferred Tax) 900
Closing Balance (Income Tax) -1,000
Closing Balance (Deferred Tax) -1,300
Income Statement Charge (Increase tax due) 1000
Balance 800
The difference is the tax PAID in the year which is a cash flow
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Agriculture (IAS 41)
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Illustration 1
A farmer purchased a flock of 50 5 year old sheep on 1 February 20X4 and on 31 July
20X4 purchased another flock of 20 5.5 year old sheep.
The following fair values less estimated ‘point of sale’ costs were applicable:
- 5 year old sheep at 1 February 20X4 $70.
- 5.5 year old sheep at 31 July 20X4 $77.
- 6 year old sheep at 31 January 20X5 $80.
Required:
Calculate the amount that will be taken to the statement of profit or loss for the year
ended 31 January 20X5.
Solution
Purchase of 50 sheep on 1 Feb 20X4 (50 x $70) 3500
Purchase of 20 sheep on 31 July 20X4 (20 x $77) 1540
Total Purchased Value 5040
Value at 31 January 20X5 (70 x $80) 5600
Increase in FV to P/L (5,600 - 5,040) 560
242
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Illustration 2
Jimmy owns a farm with a herd of 300 goats worth $40 each on 1 January 20X4. At 31
December 20X4 the goats have reproduced and he now has 345 goats worth $42 each. At
the local market the goats are sold with a commission of 3% on each sale. In addition
Jimmy sold 3000 litres of goats milk at an average selling price of $1.20 per litre.
Required:
Calculate the amounts that will be taken to the statement of profit or loss for the
year ended 31 December 20X4 and extracts from the Statement of Financial
position.
Solution
Value of Goats at 1 Jan 20X4 (300 x $40) 12000
Estimated ‘point of sale’ costs (12,000 x 3%) -360
11640
Value of Goats at 31 Dec 20X4 (345 x $42) 14490
Estimated ‘point of sale’ costs (14,490 x 3%) -435
14,055
Increase in FV to P/L (14,055 - 11,640) 2,415
Sale of Milk (3,000 x $1.20) 3,600
Total to P/L 6,015
Non Current Assets
Herd of Goats 14,055
243
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IAS 21
Foreign Currency
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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.
Answer C
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.
245
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Illustration 2 Solution
Agreeing Transaction Working £
On date of agreeing the transaction use the spot 250,000 / 172,414
rate to record it 1.45
DR Purchases 172,414
CR Payables 172,414
On Settlement Working £
On date of agreeing the transaction use the spot 250,000 / 161,290
rate to record it 1.55
DR Payables 172,414
CR Cash with amount actually paid 161,290
CR FX Gain with the difference 11,124
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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?
247
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Solution to Illustration 3
At Purchase Date Working $
The rate at the time of purchase is $ : €1.50 €100,000 / 1.50 66,666
DR Asset 66,666
CR Payables 66,666
At 21st June Working $
The rate at this time is $ : €1.40 €100,000 / 1.40 71,429
The payable must be retranslated at the year end as it is a monetary balance.
So........
DR FX Loss (71,429 - 66,666) 4,763
CR Payables (71,429 - 66,666) 4,763
The $4,763 is unrealised so is included in Other Comprehensive Income.
248
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Disposal of Subsidiary
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Illustration 1
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 it’s entire holding for $550,000.
250
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Solution 1
I.
Sale Proceeds 350,000
Less net assets of sub at date of disposal -100,000
Less all goodwill remaining at disposal -80,000
Plus all NCI at date of disposal 18,000
Gain to group 188,000
II.
Sale Proceeds 550,000
Less net assets of sub at date of disposal -100,000
Less all goodwill remaining at disposal -80,000
Plus all NCI at date of disposal 18,000
Gain to group 388,000
251
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