F7 MORCK ANSWER MAR 2016

1. A

2. B

3. C

4. D

5. B

6. C

7. B

8. C

9. B

10. D

11. C
Year Bal b/d Interest 10% Dividend Bal c/d
2014 98,000 9,800 (8,000) 99,800
2015 99,800 9,980 (8,000) 101,780

12. D

13. C
28.1 cents ($25.2m +1.2m)/(84m +10m)
On conversion, $1.2m Interest would be saved ($20m x 8% x 75%) and a further 10 million shares would be
issued ($20m/$100 x 50).

14. D

15. A

16. D

17. C

18. A

19. D

20. C

Section B
1. (a)

$’000

Cash flows from operating activities

1/12
 Profit before tax 300

Finance cost 50

Loss on disposal of property, plant and equipment (note b) 45-32 13

Depreciation charge (W1) 90

Profit on sale of investments (note a) (5)

Working capital adjustments:

Inventory 150-102 (48)

Trade receivable 390-315 (75)

Trade payables 127-119 8

Tax paid(W5) (130)

Interest paid (50)

153

Cash flows from investing activities

Purchase of property, plant and equipment (W1) (201)

Proceed from disposal of property, plant and equipment(note b) 32

Purchase of intangible assets(W2) (50)

Proceed from sale of long-term investments(note a) 30

Purchase of short-term investments (50)

(239)

Cash flows from financing activities

Issue of ordinary shares(W3) 60

Dividend paid(W4) (80)

Issue of loan note 120

100

Net increase in cash and cash equivalents 14

Cash and cash equivalents bal b/d (97)

Cash and cash equivalents bal c/d (83)

Workings:
(1)
Property, plant and equipment

Bal b/d 305 Disposal 45

Revaluation 9 Depreciation(340-290+85-45) 90

Purchase 201 Bal c/d 380

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(2)
Intangible assets

Bal b/d 200

Purchase 50 Bal c/d 250

(3)
Share capital+share premium

Bal b/d 300

Bal c/d 360 Cash issue 60

(4)
Retained earning

Dividend paid 80 Bal b/d 180

Bal c/d 260 Profit for the year 160

(5)
Tax

Tax paid 130 Bal b/d 110

Bal c/d 120 Tax expense 140

(b)
- Survival in business largely depends on its ability to generate cash flow.

- Cash flow is more comprehensive than profit which is dependent on accounting conventions and concepts.

- Creditors are more interested in an entity’s ability to repay them than its profitability. Cash flow is a more direct

message.
- Some information users find accrual accounting confusing. Meanwhile cash flow information is easier to

understand.
- Cash flow accounting should be both retrospective, and also include a forecast for the future. This is of great

information value to all users of accounting information.

2.a)
Statement of profit or loss and other comprehensive income for the year ended 31 March 2015

3/12
Revenue (387,500 – 2,000 (W1)) 385,500
Cost of sales (W7) (308,897)
Gross profit 76,603
Distribution costs (24,375)
Admin expenses (34,370)
Profit from operations 17,858
Investment income 4,500
Finance costs (3,000 + 694 + 2,200 (W5)) (5,894)
Profit before tax 16,464
Income tax (W8) (3,075)
Profit for the year 13,389
Other comprehensive income:
Revaluation gain (W2) 5,000
Total comprehensive income 18,389

Statement of financial position as at 31 March 2015

$000 $000
Non-current assets
Leasehold property 62,000
60,000 – 3,000 (W2) + 5,000 (W2))
Intangible asset (W4) 7,333
69,333
Current assets
Inventory (35,250 + 1,400 (W1)) 36,650
Trade receivables (41,375 – 2,000 39,375
(W1))
Bank 20,350
96,375
Asset held for sale (60,000 – 22,000 28,500
– 9,500 (W2))
Total asset 194,208

Equity
Ordinary 50c shares 50,000
Convertible option (SOCIE) 1,324

4/12
Revaluation reserve (SOCIE) 14,000
Retained earnings (SOCIE) 11,014
76,338

Non-current liabilities
6% preference shares (W5) 54,200
Convertible loan (W3) 8,970
Deferred tax (W9) 7,000
70,170
Current liabilities
Income tax payable 5,700
Trade payables 42,000 47,700
Total equity and liability 194,208

(W1) Sale and return

Dr Revenue 2,000
CR Receivables 2000
Dr Inventory 1400
Cr Cost of sales (W7) 1400

(W2) Non-current assets

Depreciation:
Dr Cost of sales (W7) (60,000/20 years) 3000
Cr Accumulated depreciation – leasehold property 3000

Revaluation:
Carrying amount at 31 March 2015 (60,000 – 3,000 (above)) 57,000
Valuation at 31 March 2015 62,000
Gain on revaluation 5,000

Dr Leasehold property 5000

CR R.R.5000

Plant
Cost b/fwd 60,000
Accumulated depreciation b/fwd (22,000)
Carrying value b/fwd 38,000
5/12
Dr Cost of sales (W7) (38,000 × 25%) 9,500
Cr Accumulated depreciation 9500

Plant carrying value at 31 March 2015 28,500

(W5) Preference shares

Year b/f Int – 10% Payment c/f
31.3.14 52,000 5,200 (3,000) 54,200

(W7) Cost of sales

Per trial balance 293,130

Sale & return (W1) (1,400)
Depreciation – Leasehold property (W2) 3,000
 – Plant (W3) 9,500
Research costs (W4) 6,000
Amortisation (W4) 667
Inventory adjustment (W6) (2,000)
Total: 308,897

(W8) Income tax

Year end estimate 5,700
Under provision 875
Decrease in deferred tax (W9) (3,500)
Total: 3,075

(W9) Deferred tax

Deferred tax b/fwd 10,500
Deferred tax c/fwd (NC Liability on SOFP) 7,000
Decrease in deferred tax 3,500
Dr Deferred tax 3500
Cr SPorL tax expense 3500

6/12
3.(a)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME FOR THE YEAR ENDED 30 SEPTEMBER 20X4
$’000

Revenue (62,600 + (30,000 × 9/12) – 2,700 (W8)) 82,400

Cost of sales (45,800 + (24,000 × 9/12) – 2,580 (W8) + 100 (W7)) (61,320)

Gross profit 21,080

Distribution costs (2,000 + (1,200 × 9/12)) (2,900)

Administrative expenses (3,500 + (1,800 × 9/12) + 500 (W3)) (5,350)

Finance costs (200 + 135 (W4)) (335)

Profit before tax 12,495

Income tax (3,100 + (1,000 × 9/12)) (3,850)

8,645

Other comprehensive income

Gain on revaluation of property (1,500 + 600) 2,100

Total comprehensive income 10,745

Profit for the year attributable to:

Owners of the parent (β) 8,465

Non-controlling interest (W2) 180

8,645

Total comprehensive income attributable to:

Owners of the parent (β) 10,445

Non-controlling interest (W2) 300

10,745

(b) CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 20X4

$’000 $’000

ASSETS

Non-current assets
Property, plant and equipment (18,700 + 13,900 + 3,900 (W7) + 600) 37,100

Goodwill (W3) 5,200

42,300

Current assets

Inventory (4,300 + 1,200 – 120 (W8)) 5,380

Trade receivables (4,700 + 2,500 – 1,200 (W8)) 6,000

Bank 300

11,680

Total assets 53,980

EQUITY AND LIABILITIES

Equity

Equity attributable to owners of the parent

Equity shares of $1 each (W6) 14,800

Share premium (W6) 9,600

Revaluation surplus (2,000 + (600 × 80%)) 2,480

Retained earnings (W4) 6,765

33,645

Non-controlling interest (W5) 4,800

38,445

Non-current liabilities

10% loan note 2,500

Current liabilities

Trade payables (3,400 + 3,600 – 800 (W8)) 6,200

Tax payable (2,800 + 800) 3,600

Deferred consideration (1,800 + 135 (W4)) 1,935

Overdraft (1,700 – 400 (W8)) 1,300

13,035
 53,980

Workings

1 Group structure 80%

2 Non-controlling interests (SPLOCI)

Profit for year Total comprehensive income

$’000 $’000

Per question (2,000 × 9/12) 1,500 1,500

Fair value depreciation (100) (100)

Goodwill impairment (500) (500)

Gain on property revaluation ____ 600

900 1,500

NCI 20% 180 300

3 Goodwill

$’000 $’000

Consideration transferred - 4.8m shares @ $3 14,400

Deferred consideration (7.2m × $0.275 × 1/1.1) 1,800

16,200

Fair value of NCI (1.8m shares @ $2.50) 4,500

20,700

Fair value of net assets:

Shares 9,000

Retained earnings (3,500 – 1,500) 2,000

Fair value adjustment - property 4,000

(15,000)

Goodwill at acquisition 5,700

Impairment (500)
Carrying amount 30 September 20X4 5,200

4 Retained earnings

Parenti Stopple

$’000 $’000

Per question 6,300 3,500

Less pre-acquisition (1,500 + (2,000 × 3/12)) (2,000)

Goodwill impairment (500)

Unwinding of discount on deferred consideration (1,800

(W3) × 10% × 9/12) (135)

Depreciation on FVA (100)

PURP (600,000 × 25/125) (120) _____

6,045 900

Share of Stopple (900 × 80%) 720

6,765

5 Non-controlling interest (SOFP)

$’000

NCI at acquisition (W3) 4,500

Share of post-acquisition retained earnings (900 (W4) × 20%) 180

Share of property revaluation gain (600 × 20%) 120

4,800

6 Purchase of Stopple

Share capital Share premium

$’000 $’000

Per question 10,000 -

Shares issued (9m × 80% × 2/3 × $3) 4,800 9,600

14,800 9,600
7 Fair value adjustment

Acquisition Movement Year end

$’000 $’000 $’000

Property 4,000 (100) 3,900

8 Intra group trading

$’000 $’000

(1) Cancel intra group sales/purchases

DEBIT Group revenue (300,000 × 9) 2,700

CREDIT Group cost of sales 2,700

(2) Eliminate unrealised profit

DEBIT Cost of sales (600,000 × 25/125) 120

CREDIT Group inventories 120

(3) Cancel intra group balances

DEBIT Trade payables 800

DEBIT Cash (cash in transit) 400

CREDIT Trade receivables 1,200

(c) In accordance with IAS 38 Intangible Assets neither the research costs not the customer list

can be recognised as assets in the individual entity financial statements of Dilemma. However,

when a business combination takes place IAS 38 states that an acquirer recognises at the

acquisition date, separately from goodwill, an intangible asset of the acquiree, irrespective of

whether the asset had been recognised by the acquiree before the business combination. The

intangible asset should be recognised at its fair value.

In this case, both of these assets can be identified separately from goodwill, so both should be

recognised, the research costs at $1.2 million and the customer list at $3 million.In this case,

both of these assets can be identified separately from goodwill, so both should be recognised,
the research costs at $1.2 million and the customer list at $3 million.