BSc (Hons) Accounting with Finance

Cohort: BACF/13B/14A/14B/15A/FT/PT

Examinations for Academic Year 2016 2017

Semester I / Academic Year 2016 Semester II

MODULE: ADVANCED FINANCIAL REPORTING

MODULE CODE: ACCF3114
DURATION: 2 HOURS 30 MINUTES

Instructions to Candidates:

1. This question paper consists of THREE (3) QUESTIONS..

2. ANSWER ALL QUESTIONS.
3. Always start a new question on a fresh page.
4. Total Marks: 100.

This Question Paper contains 3 questions and 8 pages.

This Question Paper is printed on BOTH SIDES.

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 ANSWER ALL QUESTIONS

QUESTION 1: (40 MARKS)

1. On 1 January 2015 P Ltd acquired the following non-current investments:

3 million equity shares in S Ltd by an exchange of one share in P ltd for
every 2 shares in S Ltd plus $1.25 per acquired share in S Ltd. The market
price of each share in P Ltd at the date of acquisition was $6 and the
market price of each share in S Ltd at the date of acquisition was $3.25.

30% of the equity shares of A Ltd at a cost of $7.50 per share in cash.
It should be noted that in the books of P Ltd, only the cash consideration of the
above investments was recorded. In addition, $500,000 of professional costs
relating to the investment in S Ltd was also included as part of the cost of the
investment.
2. On 1st January 2014 S acquired 80% of the share capital in SS Ltd for a cash
consideration of $8,000,000.
3. At the date of acquisition, S Ltd had an intangible asset worth $1,000,000. The
intangible asset has an indefinite life and has not suffered any impairment since
acquisition.
4. On 2 January 2015, P Ltd sold an item of plant to S Ltd at its agreed fair value of
$2.5 million. Its carrying amount prior to sale was $2 million. The estimated
remaining life of the plant at the date of sale was 5 years.
5. During the year ended 31 December 2015, S Ltd sold goods to P Ltd for $2.7
million at a mark up of 50%. P Ltd had a third of the goods still in inventory at 31
December 2015. There were no intra-group receivables and payables at 31
December 2015.
6. The investments in equity instruments (other than those in S Ltd and A Ltd) have
a fair value of $9 million at 31 December 2015.
7. It is group policy to fair value non-controlling interest at the date of acquisition
only when positive goodwill exists. Negative goodwill is expected to arise on the
effective equity share which P Ltd acquired in SS Ltd and as such NCI is to be
valued at its proportionate share of the fair value of identifiable net assets at
acquisition.
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8. The summarised draft statements of financial position of P Ltd, SS Ltd and A Ltd
at 31 December 2015 are given below:
P Ltd S Ltd SS Ltd A Ltd
$000 $000 $000 $000
Non-current assets
Property, Plant and equipment 18,400 10,400 20,000 18,000
Investments in S Ltd and A Ltd
(note 1 and 13,250
Investment in SS Ltd 8,000
Investments in equity
instruments 6,500
38,150 18,400 20,000 18,000
Current assets
Stocks 6,900 3,200 4,000 3,600
Trade receivables 3,200 1,500 1,000 2,400
Total assets 48,250 23,100 25,000 24,000
Equity and Liabilities
Ordinary shares of $1 10,000 4,000 5,000 4,000
Retained earnings: 11,000
At 31.12.2014 16,000 6,000 10,000

Profit for Y/E 31.12.2015 9,250 2,900 5,000 5,000

Total equity 35,250 12,900 20,000 20,000

Non-current Liabilities
7% Loan notes 5,000 1,000 0 1,000
Current Liabilities
Trade payables 8,000 9,200 5,000 3,000
Total equity and Liabilities 48,250 23,100 25,000 24,000

Required:
Prepare the consolidated statement of financial position for the P group as at 31
December 2015.

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QUESTION 2: (30 MARKS)

The following list of balances relates to Wilson Ltd for the year ended 30 June 2015.
Rs Rs
Sales revenue (note 1) 358,450
Cost of sales 185,050
Distribution costs 28,700
Administrative expenses 15,000
Other operating expenses 35,000
Lease rentals (note 2) 20,000
Property at cost (note 3) 700,000
Accumulated depreciation on property at 1 July 2014 60,000
Trade accounts receivable 85,000
Inventories at 30 June 2015 28,240
Cash at bank 37,260
Trade accounts payable 64,400
Equity shares of Rs1 each 400,000
6% debentures 20,000
Retained earnings at 1 July 2014 232,600
Finance costs (interest paid on debentures) 1200
1,135,450 1,135,450

The following notes are relevant:

Note 1
On 1 July 2014, goods with an invoice value of Rs10,000 were sold to a long-
established customer on the following terms: annual instalments of Rs2,000 are due
each year on 30 June for 5 years from date of sale. The normal cash price of the
asset is Rs10,000. Based on the customer's credit rating, the seller believes the
buyer would be able to obtain finance at an interest rate of 10 per cent. As at 30 June
2015, the cash account had been debited with Rs2,000 and sales had been credited
with Rs2,000. No other entries had been made.

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 Note 2
A lease rental of Rs20,000 was paid on 30 June 2015. It is the first of five annual
payments in respect of a leasing contract for the rental of equipment that has a cash
purchase price of Rs75,000 The lease contract was entered on 1 July 2014. The rate
implicit in the lease has been computed to be 12% and the present value of an
annuity of Rs1 for 5 years at a discount rate of 12% is 3.605. At the end of the
lease term, the equipment will be returned to the lessor and the residual value
at that time is not guaranteed by the lessee. The equipment has an economic
life of 6 years.

Note 3
Two years ago the company started the construction of an administrative building
and incurred costs totalling Rs500,000, of which Rs100,000 related to the land. The
new building is an addition to the existing administrative building which had cost
Rs200,000 and on which there exists an accumulated depreciation of Rs60,000.
The new building was brought into use on 1 July 2014. The cost of the building
includes Rs100,000 for the air conditioning system and Rs45,000 for the lifts.

The air conditioning system and the lifts have a useful life of 10 years and 15 years
respectively. However, the air conditioning system will be subject to a major
inspection every 3 years to ensure its continued use. The inspection is expected to
cost Rs15,000 in three years time.

The existing building will be revalued to Rs150,000 as at 1 July 2014. It is the

company policy to depreciate all buildings over a useful life of 50 years.

Note 4
A provision for income tax for the year ended 30 June 2015 is estimated by levying a
15% charge on accounting profits.

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 Note 5
The 6% Rs20,000 debentures were issued on 1st July 2014 at a discount of 10%.
Issue costs amounted to Rs1,000. The debentures will be redeemed at a premium of
Rs1015 above par value. Interest payments (equivalent to 6% of Rs20000) are
effected every 30 June. The effective rate of interest is 12% per annum. The
discount of Rs2000 on issue together with the issue costs have been included in
administrative expenses.

Required:
Prepare the statement of profit or loss and other comprehensive income for the year
ended 30 June 2015 and a statement of financial position as at that date in
accordance with the provisions of relevant international accounting standards.

QUESTION 3: (30 MARKS)

The following information is given regarding the financial statements of Cake Ltd and its
subsidiary, Cream Ltd, the shares in which were acquired on 31 October 2015.
Cake Group Cake Group Cream Ltd
Assets 31.12. 2015 31.12. 2014 31.10.2015
Non-current assets Rs000 Rs000 Rs000
Property, plant and equipment 4,764 3,685 694
Goodwill 42
Investment in Associates 2,195 2,175
Total non-current assets 7,001 5,860 694

Current assets
Inventories 1,735 1,388 306
Receivables 2,658 2,436 185
Bank Balances and Cash 43 77 7
Total current assets 4,436 3,901 498

Total assets 11,437 9,761 1,192

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Equity and Liabilities
Equity
Share capital 4,896 4,776 400
Share premium 216
Retained earnings 2,540 2,063 644
Total equity 7,652 6,839 1,044
Non-current liabilities
Loans 1,348 653 -
Deferred Tax 111 180 -
Total non-current liabilities 1,459 833 -
Current Liabilities
Payables 1,915 1,546 148
Bank Overdraft 176 343 -
Current Tax Payable 235 200 -
Total current liabilities 2,326 2,089 148

Total equity and liabilities 11,437 9,761 1,192

Summary Consolidated Statement of profit or loss and other comprehensive income for
the year ended 31 December 2015.
Rs000
Profit before interest and tax 546
Finance costs -
Share of profit of associates 120
Profit before tax 666
Income tax expense (126)
Profit for the year 540
Attributable to:
Owners of Parent 540
Non-controlling interest 0
540

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Additional information:
a) The amount of depreciation on property, plant and equipment in the consolidated
financial statements during the year ended 31 December 2015 was Rs78,000.
There were no disposals.
b) The cost on 31 October 2015 of the shares in Cream Ltd was Rs1,086,000
comprising the issue of Rs695,000 unsecured loan stock ar par, 120,000
ordinary shares of Rs1 at a value of Rs2.80 and Rs55,000 in cash.
c) No write down of goodwill was required during the year.

Required:
Prepare a statement of cash flows for Cake Ltd and its subsidiary for the year ended 31
December 2015.

***END OF QUESTION PAPER***

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