Distant Echo

Get your copy at alibris.com

( 4.5/5.0 ★ | 485 downloads )
-- Click the link to download --

https://click.linksynergy.com/link?id=*C/UgjGtUZ8&offerid=1494105.26
539780008279547&type=15&murl=http%3A%2F%2Fwww.alibris.com%2Fsearch%2
Fbooks%2Fisbn%2F9780008279547
Distant Echo

ISBN: 9780008279547
Category: Media > Books
File Fomat: PDF, EPUB, DOC...
File Details: 3.6 MB
Language: English
Website: alibris.com
Short description: Good condition book with a firm cover and clean
readable pages. Shows normal use including some light wear or limited
notes highlighting yet remains a dependable copy overall. Supplemental
items like CDs or access codes may not be included.

DOWNLOAD: https://click.linksynergy.com/link?id=*C/UgjGtUZ8&
offerid=1494105.26539780008279547&type=15&murl=http%3A%2F%2F
www.alibris.com%2Fsearch%2Fbooks%2Fisbn%2F9780008279547
 Distant Echo

• Click the link: https://click.linksynergy.com/link?id=*C/UgjGtUZ8&offerid=1494105.2653978000827954

7&type=15&murl=http%3A%2F%2Fwww.alibris.com%2Fsearch%2Fbooks%2Fisbn%2F9780008279547 to do
latest version of Distant Echo in multiple formats such as PDF, EPUB, and more.

• Don’t miss the chance to explore our extensive collection of high-quality resources, books, and guides on
our website. Visit us regularly to stay updated with new titles and gain access to even more valuable
materials.
.
The text on this page is estimated to be only 25.51%
accurate

Tyson Douglas Frank S'm I'm $'m Revenue 500 150 70 Cost
of sales (270) J80) (30) Gross profit 230 70 40 Other expenses (150)
(20) (15) Finance income 15 10 Finance costs (20) (10) Profit before
tax 75 60 15 Income tax expense J25) J15) m PROFIT FOR THE
YEAR 50 45 10 Other comprehensive income: Gains on property
revaluation, net of tax 20 10 b TOTAL COMPREHENSIVE INCOME
FOR THE YEAR 70 55 1b You are also given the following
information: 1 Tyson acquired 80m shares in Douglas for $188m 3
years ago when Douglas had a credit balance on its reserves of
$40m. Douglas has 100m $1 ordinary shares. 2 Tyson acquired 40m
shares in Frank tor $60 m 2 years ago when that company had a
credit balance on its reserves ot $20m. Frank has 100m $1 ordinary
shares. 3 During the year Douglas sold some goods to Tyson for
$66m (cost $48m). None of the goods had been sold by the year
end. 4 Group policy is to measure non-controlling interests at
acquisition at fair value. The fair value of the noncontrolling interests
in Douglas at acquisition was $40m. An impairment test carried out
at the year end resulted in $15m of the recognised goodwill relating
to Douglas being written off and recognition ot impairment losses of
$2.4m relating to the investment in Frank. Required Prepare the
consolidated statement of comprehensive income for the year ended
31 December 20X8 for Tyson, incorporating its associate.
PROFORMA SOLUTION Tyson Group - Consolidated statement of
comprehensive income for the year ended 31 December 20X8 m
Revenue Cost of sales
The text on this page is estimated to be only 25.56%
accurate

utner expenses Finance income Finance costs Share of

profit of associate Profit before tax Income tax expense PROFIT FOR
THE YEAR Other comprehensive income: Gains on property
revaluation, net of tax Share of other comprehensive income of
associates Other comprehensive income for the year, net of tax
TOTAL COMPREHENSIVE INCOME FOR THE YEAR j^V^' Questions
Profit attributable to: Owners of the parent Non-controlling interests
Total comprehensive income attributable to: Owners of the parent
Non-controlling interests Workings 1 Group structure
The text on this page is estimated to be only 25.52%
accurate

Non-contwtling interests PFY/TCI per question Unrealised

profit (W3) Impairment loss x NCI share Unrealised profit Selling
price Cost Provision for unrealised profit PFY $'m TCI $'m $m 43
Plateau (12/07) 45 mins On 1 October 20X6 Plateau acquired the
following non-current investments: 3 million equity shares in
Savannah by an exchange of one share in Plateau for every two
shares in Savannah plus $1.25 per acquired Savannah share in cash.
The market price of each Plateau share at the date of acquisition
was $6 and the market price of each Savannah share at the date of
acquisition was $3.25. - 30% of the equity shares of Axle at a cost of
$7 50 per share in cash. Only the cash consideration of the above
investments has been recorded by Plateau. In addition $500,000 of
professional costs relating to the acquisition of Savannah are also
included in the cost of the investment. The summarised draft
statements of financial position of the three companies at 30
September 20X7 are Non-current assets Property, plant and
equipment Investments in Savannah and Axle Investments in equity
instruments Plateau Savannah Axle $'000 $'000 $'000 18,400 10,400
18,000 13,250 nil nil 6,500 nil Nil 38,150 10/- 00 18,000 Questions
GE^
The text on this page is estimated to be only 23.78%
accurate

Plateau Savannah Axle $000 S'OOO $000 6,900 6,200

3,600 3,200 1,500 2,400 48,250 18,100 24,000 10,000 4,000 ''.,000
16,000 6,000 11,000 9,250 2,900 5,000 35,250 12,900 20,000 5,000
1,000 1,000 B,0O0 4,200 3,000 48,250 18,100 24,000 Current assets
Inventory Trade receivables Total assets Equity and liabilities Equity
shares ol $1 each Retained earnings -at 30 September 20X6 - for
year ended 30 September 20X7 Non-current liabilities 7% Loan
notes Current liabilities Total equity and liabilities The following
information is relevant: (i) At the date of acquisition Savannah had
five years remaining of an agreement to supply goods to one ot its
major customers. Savannah believes it is highly likely that the
agreement will be renewed when it expires. The directors ot Plateau
estimate that the value of this customer based contract has a fair
value of £1 million and an indefinite lite and has not suffered any
impairment. (ii) On 1 October 20X6, Plateau sold an item of plant to
Savannah at its agreed fair value of $25 million. Its carrying amount
prior to the sale was $2 million. The estimated remaining life of the
plant at the date of sale was five years (straight- line depreciation).
(Hi) During the year ended 30 September 20X7 Savannah sold
goods to Plateau tor $27 million. Savannah had marked up these
goods by 50% on cost Plateau had a third of the goods still in its
inventory at 30 September 20X7. There were no intra-group
payables/receivables at 30 September 20X7. (fv) Impairment tests
on 30 September 20X7 concluded that neither consolidated goodwill
nor the value of the investment in Axle were impaired. (v) The
investments in equity instruments are included in Plateau's
statement of financial position (above) at their fair value on 1
October 20X6, but they have a fair value of $9 million at 30
September 20X7. (vi) No dividends were paid during the year by any
of the companies. fvii) It isthearouD policy to value non-controllina
interest at acauisition at full (or fair! value. For this purpose
The text on this page is estimated to be only 25.09%
accurate

Required (a) Prepare the consolidated statement of

financial position for Plateau as at 30 September 20X7. {20 marks)
(b) A financial assistant has observed that the fair value exercise
means that a subsidiary's net assets are included at acquisition at
their fair (current) values in the consolidated statement of financial
position. The assistant believes that it is inconsistent to aggregate
the subsidiary's net assets with those of the parent because most of
the parent's assets are carried at historical cost. Required Comment
on the assistant's observation and explain why the net assets of
acquired subsidiaries are consolidated at acquisition at their fair
values. (5 marks) [Total- 25 marks) BP^jjy QuftUont luuMiNuu 44
Patronic (6/08) 45 mins On 1 August 20X7 Patronic purchased 18
million of a total of 24 million equity shares in Sardonic. The
acquisition was through a share exchange of two shares in Patronic
tor every three shares in Sardonic. Both companies have shares with
a par value of $1 each. The market price of Patronic's shares at 1
August 20X7 was $5 75 per share. Patronic will also pay in cash on
31 July 20X9 (two years after acquisition) $2-42 per acquired share
of Sardonic. Patronic's cost of capital is 10% per annum. The
reserves of Sardonic on 1 April 20X7 were $69 million. Patronic has
held an investment of 30% ot the equity shares in Acerbic tor many
years. The summarised income statements for the three companies
for the year ended 31 March 20X8 are: Patronic Sardonic Acerbic
$'000 $'000 $'000
The text on this page is estimated to be only 24.74%
accurate

56,000 {7,400) (12,500) (2,000) 27,000 (3,000) (6,000)

(900) 20,000 (6,500) nil 34,100 (10,400) 17,100 (3,600) 10,000
(4,000) 23,700 13,500 6,000 Gross profit Distribution costs
Administrative expenses Finance costs (note (ii)) Profit before tax
Income tax expense Profit for the year The following information is
relevant: (i) The fair values of the net assets of Sardonic at the date
of acquisition were equal to their carrying amounts with the
exception of property and plant. Property and plant had fair values
of $41 million and $24 million respectively in excess of their carrying
amounts. The increase in the fair value of the property would create
additional depreciation of $200,000 in the consolidated financial
statements in the post acquisition period to 31 March 20X8 and the
plant had a remaining life of four years (straight-line depreciation) at
the date of acquisition of Sardonic. All depreciation is treated as part
of cost of sales. The fair values have not been reflected in Sardonic's
financial statements. No fair value adjustments were required on the
acquisition of Acerbic. (ii) The finance costs of Patron ic do not
include the finance cost on the deferred consideration. (iii) Prior to
its acquisition. Sardonic had been a good customer of Patron ic. In
the year to 31 March 20X8, Patron ic sold goods at a selling price of
$1 25 million per month to Sardonic both before and after its
acquisition. Patron ic made a profit of 20% on the cost of these
sales. At 31 March 20X8 Sardonic still held inventory of $3 million (at
cost to Sardonic) of goods purchased in the post acquisition period
from Patron ic. (iv) An impairment test on the goodwill of Sardonic
conducted on 31 March 20X8 concluded that it should be written
down by $2 million. The value of the investment in Acerbic was not
impaired. (v) All items in the above income statements are deemed
to accrue evenly over the year. (vi) Ignore deferred tax. (vii) It is the
group policy to value the non-controlling interest at full fair value. At
the date of acquisition the directors valued the non-controlling
interest in Sardonic at$26m. Required (a) Calculate the goodwill
arising on the acquisition of Sardonic at 1 August 20X7. (6 marks)
(b) Prepare the consolidated income statement for the Patron ic
Group for the year ended 31 March 20X8. Note, assume that the
investment in Acerbic has been accounted for using the equity
method since its acquisition. (15 marks)
The text on this page is estimated to be only 25.70%
accurate

Questions ^r^^JJ Lamm; tail. (c) At 31 March 20X8 the

other equity shares (70%) in Acerbic were owned by many separate
investors. Shortly after this date Spekulate (a company unrelated to
Patronic) accumulated a 60% interest in Acerbic by buying shares
from the other shareholders. In May 20X8 a meeting of the board of
directors of Acerbic was held at which Patronic lost its seat on
Acerbic's board. Required Explain, with reasons, the accounting
treatment Patronic should adopt for its investment in Acerbic when it
prepares its financial statements for the year ending 31 March 20X9.
(4 marks) (Total = 25 marks) 45 Hedra (2.5 1 2/05) 45 mins Hedra,
a public listed company, acquired the following investments: (i) On 1
October 20X4, 72 million shares in Salvador for an immediate cash
payment of $1 95 million. Hedra agreed to pay further consideration
on 30 September 20X5 ot $49 million if the post acquisition profits ot
Salvador exceeded an agreed figure at that date (ignore
discounting). Hedra has not yet accounted for this $49 million which
is regarded as being at fair value. Salvador also accepted a $50
million 8% loan from Hedra at the date of its acquisition. (ii) On 1
April 20X5, 40 million shares in Aragon by way ot a share exchange
of two shares in Hedra tor each acquired share in Aragon. The share
market value of Hedra s shares at the date ot this share exchange
was $2.50. Hedra has not yet recorded the acquisition of the
investment in Aragon. The summarised statements of financial
position of the three companies as at 30 September 20X5 are: Hedra
Salvador Aragon $m $m $m $m $m $m Non-current assets Property,
plant and equipment 358 240 270 Investments -in Salvador 245 nil
ni! - other 45 nil nil 2/0 Current assets
The text on this page is estimated to be only 26.89%
accurate

Cash and bank nil 4 20 272 181 200 Equity and liabilities
920 421 470 Ordinary share capital ($1 each) 400 120 100 Reserves:
Share premium ■'0 50 nl Revaluation surplus 15 nil nil Retained
earnings 240 295 695 60 110 230 300 300 400 Non-current liabilities
8% loan note nil 50 nil Deferred tax ^ 45 nil 50 ml nil Current
liabilities Trade payables 118 141 40 Bank overdraft 12 nil nil Current
tax payable 50 180 nil 141 3d 70 Total equity and liabilities 920 421
470 IumgHdu Questions The following information is relevant. (a)
Fair value adjustments and revaluations (i) Hedra's accounting policy
tor land and buildings is that they should be carried at their fair
values. The fair value of Salvador's land at the date of acquisition
was $20 m ill ion in excess of its carrying value. By 30 September
20X5 this excess had increased by a further $5 million. Salvad or's
buildings did not require any fair value adjustments. The fair value of
Hedra's own land and buildings at 30 September 20X5 was $12
million in excess of its carrying value in the above statement of
financial position. (ii) The fair value of some of Salvad or's plant at
the date of acquisition was $20 mil ion in excess of its carrying value
and had a remain ng life of tour years (straight-line depreciation is
used).
The text on this page is estimated to be only 26.74%
accurate

company would be sufficiently profitable in the near future.

However, the directors of Hedra were confident that these losses
would be utilised and accordingly they should be recognised as a
deferred tax asset. By 30 September 20X5 the group had not yet
utilised any of these losses. The income tax rate Is 25%. (b) The
retained earnings of Salvador and Aragon at 1 October 20X4, as
reported in their separate financial statements, were $20 million and
$200 million respectively. All profits are deemed to accrue evenly
throughout the year. (c) An impairment test on 30 September 20X5
showed that consolidated goodwill should be written down by
$2Qmillion. Hedra has applied IFRS 3 Business combinations since
the acquisition of Salvador. (d) The investment in Aragon has not
suffered any impairment. (e) It is the group policy to value non-
controlling interest at acquisition at full (or fair) value. The directors
valued the non-controlling interest at acquisition at $106m. Required
Prepare the consolidated statement of financial position of Hedra as
at 30 September 20X5. (25 marks) 46 Pacemaker (6/09) 45 mins
Below are the summarised statements of financial position for three
companies as at 31 March 20X9: Pacemaker Syclop Vardine Assets $
million $ million $ million $ million $ million $ million Non-current
assets Property, plant and equipment 520 280 240 Investments 345
865 40 320 nil 240 Current assets Inventory 142 160 120 Trade
receivables 95 88 50 Cash and bank J 245 22 270 10 180 Total
assets 1,110 590 420 Equity and liabilities Equity shares of $1 each
500 145 100 Share premium 100 nil nil Retained earnings 130 230
730 260 260 405 240 240 340 Non-current liabilities 10% loan notes
180 20 nil Current liabilities 200 16b 80 Total equity and liabilities
1,110 590 420
The text on this page is estimated to be only 25.19%
accurate

Questions gj/' Notes Pacemaker is a public listed company

that acquired the following investments: (i) Investment in Syclop On
1 April 20X7 Pacemaker acquired 116 million shares in Syclop for an
immediate cash payment of $210 million and issued at par one 10%
$100 loan note for every 200 shares acquired. Syclop's retained
earnings at the date of acquisition were $120 million. (ii) Investment
in Vardine On 1 October 20X8 Pacemaker acquired 30 million shares
in Vardine in exchange for 75 million ot its own shares. The stock
market value of Pacemaker's shares at the date of this share
exchange was $1 -60 each. Pacemaker has not yet recorded the
investment in Vardine. (iii) Pacemaker's other investments, and
those of Syclop, are investments in equity instruments which are
carried at their fair values as at 31 March 20X8. The fair value of
these investments at 31 March 20X9 is $82 million and $37 million
respectively. Other relevant information: (iv) Pacemaker's policy is to
value non-controlling interests at their fair values. The directors of
Pacemaker assessed the fair value of the non-controlling interest in
Syclop at the date of acquisition to be S65 million. There has been
no impairment to goodwill or the value of the investment in Vardine.
(v) At the date of acquisition ot Syclop owned a recently built
property that was carried at its (depreciated) construction cost of
$62 million. The fair value of this property at the date of acquisition
was $82 million and it had an estimated remaining lite of 20 years.
For many years Syclop has been selling some of its products under
the brand name of 'Kyklop'. At the date of acquisition the directors of
Pacemaker valued this brand at $25 million with a remaining life of
10 years. The brand is not included in Syclop's statement of financial
position. (vi) The inventory of Syclop at 31 March 20X9 includes
goods supplied by Pacemaker tor $56 million (at selling
The text on this page is estimated to be only 23.15%
accurate

(vii) Vardine's profit is subject to seasonal variation. Its

profit for the year ended 31 March 20X9 was $1 00 million. $20
million of this profit was made from 1 April 20X8 to 30 September
20X8. (viii) None of the companies have paid any dividends for many
years. Required Prepare the consolidated statement of financial
position of Pacemaker as at 31 March 20X9. {25 marks) 47 Picant
(6/10) 45mins 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 $320 and $4-50 respectively.
In addition to this Picant agreed to pay a further amount on 1 April
2010 that was contingent upon the postacquisition 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. ^£jjj QuisUons LuuacHuu.
The summarised statements of financial position of the three
companies at 31 March 2010 are: Picant Sander Aider Assets $'000
$'000 $'000 Non-current assets Property, plant and equipment
37,500 24,500 21,000 Investments 45,000 nil nil
The text on this page is estimated to be only 23.73%
accurate

Inventory Trade receivables Total assets Equity and

liabilities Equity Equity shares of $1 each Share premium Retained
earnings - at 1 April 2009 - for the year ended 31 March 201 0 Non-
current liabilities 7% loan notes Current liabilities Contingent
consideration Other current liabilities Total equity and liabilities The
following information is relevant: 10,000 6,500 99,000 72,000
14,500 4,200 8,300 99,000 9,000 1,500 3b. 000 25,500 2,000 nil
7.500 35.000 5,000 3,000 29,000 25,000 8,000 5,000 19,800 nil nil
16,200 16,500 15,000 11,000 1,000 6,000 26,000 nil nil 3,000
29,000 [ii At the date of acquisition the fair values ot Sander's
property, plant and equipment was equal to its carrying amount with
the exception of Sander's factory which had a fair value ot $2 million
above its carrying amount. Sander has not adjusted the carrying
amount of the factory as a result ot the fair value exercise. This
requires additional annual depreciation ot $100,000 in the
consolidated financial statements in the postacquisition period. Also
at the date of acquisition, Sander had an intangible asset of
$500,000 for software in its statement ot 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. (ii) 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%. (iii) Picant's policy is to value
the no n -control ling 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. ( iv) I m pai rm e nt tests were ca rried out o n 3
1 Marc h 20 1 0 whic h co nc lud ed that the value of the inve stme
nt in Adler was not impaired but, due to poor trading performance,
consolidated goodwill was impaired by $3 8 million.
The text on this page is estimated to be only 26.37%
accurate

Required (a) Prepare the consolidated statement ot

financial position for Picant as at 31 March 201 0. (21 marks) (b)
Picant has been approached by a potential new customer, Trilby, to
supply it with a substantial quantity ot goods on three months credit
terms. Picant is concerned at the risk that such a large order
represents in the Questions O J LuDooMm current difficult economic
climate, especially as Picant's normal credit terms are only one
month's credit To support its application for credit. Trilby has sent
Picant a copy of Tradhat's most recent audited consolidated financial
statements. Trilby is a wholly-owned subsidiary within the Tradhat
group. Tradhat's consolidated financial statements show a strong
statement of financial position including healthy liquidity ratios.
Required Comment on the importance that Picant should attach to
Tradhat's consolidated financial statements when deciding on
whether to grant credit terms to Trilby. (4 marks) (Total = 25 marks)
48 Preparation question: Contract The following details are as at the
31 December 20X5. Contract Contract Contract Contract 1 2 3 4
Contract value $120,000 $72,000 $240,000 $500,000 Costs to date
$48,000 $8,000 $103,200 $299,600 Estimated costs to completion
$48,000 $54,000 $160,800 $120,400 Progress payments received
and receivable $50,400 $76,800 $345,200 Date started 1.3.20X5
15.10.20X5 1.7.20X5 1.6.20X4 Estimated completion date 30.6.20X6
15.9.20X6 30.11.20X6 30.7.20X6 % complete 45% 10% 35% 70%
You are to assume that profit accrues evenly over the contract. The
income statement for the previous year showed revenue of $225,000
and expenses ot $189,000 in relation to
The text on this page is estimated to be only 23.42%
accurate

The company considers that the outcome of a contract

cannot be estimated reliably until a contract is 25% complete. It is,
however, probable that the customer will pay for costs incurred so
tar. Required Calculate the amounts to be included in the income
statement for the year ended 31 December 20X5 and the statement
ot financial position as at that date. Contract 1 Contract 2 Contracts
Contract 4 Income statement Revenue Expenses Expected loss
Recognised protit/(loss) Statement of financial position Gross
amount due from/to customers Contract costs incurred Recognised
profits less recognised losses Less: progress billings to date Trade
receivables Progress billings to date Less: cash received f£_^JJJ
Questions luanfiMnu Workings
The text on this page is estimated to be only 23.68%
accurate

49 Linnet (2.5 6/04) 23 mins (a) Linnet is a large public

listed company involved in the construction industry. Revenue on
construction contracts is normally recognised by reference to the
stage of completion ot the contract. However, in certain
circumstances, revenue is only recognised to the extent that it does
not exceed recoverable contract costs. Required Discuss the
principles that underlie each of the two methods and describe the
circumstances in which their use is appropriate. (5 marks) (b) Linnet
is part way through a contract to build a new football stadium at a
contracted price ot $300 million. Details of the progress of this
contract at 1 April 20X3 are shown below: $ million Cumulative sales
revenue recognised 150 Cumulative cost ot sales to date 112 Profit
to date 38 The following information has been extracted from the
accounting records at 31 March 20X4: $ million Total progress
payment received for work certified at 29 February 20X4 1 80 Total
costs incurred to date (excluding rectification costs below) 195
Rectification costs 17 Linnet has received progress payments of 90%
of the work certified at 29 February 20X4. Linnet's surveyor has
estimated the sales value of the further work completed during
March 20X4 was $20 million. At 31 March 20X4 the estimated
remaining costs to complete the contract were $45 million. The
rectification costs are the costs incurred in widening access roads to
the stadium. This was the result of
The text on this page is estimated to be only 24.65%
accurate

Lirintriudiuuidiea ine jjeiteriidge 01 comprciion 01 lib

uorurdtib di irie piopoiuoii ui idles, vaiue edrneu to date compared to
the contract price. All estimates can be taken as being reliable.
Required Prepare extracts of the financial statements for Linnet for
the above contract for the year to 31 March 20X4. (8 marks) (Total
= 13 marks) Questions ^L^ 50 Beetle (pilot paper) is mins IAS 1 1
Construction contracts deals with accounting requirements for
construction contracts whose durations usually span at least two
accounting periods. Required (a) Describe the issues of revenue and
profit recognition relating to construction contracts. (4 marks) (b)
Beetie is a construction company that prepares its financial
statements to 31 March each year. During the year ended 31 March
20X6 the company commenced two construction contracts that are
expected to take more than one year to complete. The position of
each contract at 31 March 20X6 is as follows: Contract Agreed
contract price Estimated total cost of contract at commencement
Estimated total cost at 31 March 20X6 Agreed value of work
completed at 31 March 20X6 Progress billings invoiced and received
at 31 March 20X6 Contract costs incurred to 31 March 20X6 The
agreed value of the work completed at 31 March 20X6 is considered
to be equal to the revenue earned in the year ended 31 March 20X6.
The percentage of completion is calculated as the agreed value of
work completed to the agreed contract price. 1 2 $'000 $'000 5,500
1,200 4.000 900 4.000 1,250 3,300 B40 3,000 880 3,900 /2D
The text on this page is estimated to be only 25.45%
accurate

Beetie at 31 March 20X6 in respect of the above contracts.

(6 marks) (Total = 10 marks) 51 Bodyline (2.5 1 2/03) 45 mins IAS
37 Provisions, contingent liabilities and contingent assets sets out
the principles of accounting for these items and clarifies when
provisions should and should not be made. Prior to its issue, the
inappropriate use of provisions had been an area where companies
had been accused of manipulating the financial statements and of
creative accounting. Required (a) Describe the nature of provisions
and the accounting requirements for them contained in IAS 37. (6
marks) (b) Explain why there is a need for an accounting standard in
this area. Illustrate your answer with three practical examples of
how the standard addresses controversial issues. (6 marks) (c)
Bodyline sells sports goods and clothing through a chain of retail
outlets. It offers customers a full refund facility for any goods
returned within 28 days of their purchase provided they are unused
and in their original packaging. In addition, all goods carry a
warranty against manufacturing defects tor 12 months from their
date of purchase. For most goods the manufacturer underwrites this
warranty such that Bodyline is credited with the cost of the goods
that are returned as faulty. Goods purchased from one manufacturer,
Header, are sold to Bodyline ata negotiated discount which is
designed to compensate Bodyline for manufacturing defects. No
refunds are given by Header, thus Bodyline has to bear the cost of
any manufacturing faults of these goods. Bodyline makes a uniform
mark up on cost of 25% on all goods it sells, except for those
supplied from Header on which it makes a mark up on cost of 40%.
Sales of goods manufactured by Header consistently account for
20% of all Bodyline s sales. Sales in the last 28 days of the trading
year to 30 September 20X3 were $1 750,000. Past trends reliably
indicate that 10% of all goods are returned under the 28-day return
facility. These are not faulty goods. Of B^ Questions
The text on this page is estimated to be only 24.41%
accurate

In addition to the above expected returns, an estimated

$160,000 (at selling price) otthe goods sold during the year will have
manufacturing detects and have yet to be returned by customers.
Goods returned as faulty have no resale value. Required Describe
the nature of the above warranty/return facilities and calculate the
provision Bodyline is required to make at 30 September 20X3: (i) For
goods subject to the 28 day returns policy (ii) For goods that are
likely to be faulty (8 marks) (d) Rockbuster has recently purchased
an item of earth moving plant at a total cost ot $24 million. The
plant has an estimated lite of 10 years with no residual value,
however its engine will need replacing after every 5,000 hours of
use at an estimated cost of $7.5 million. The directors of Rockbuster
intend to depreciate the plant at $2.4 million ($24 million/10 years)
per annum and make a provision of $1 ,500 ($7.5 million/5,000
hours) per hour of use for the replacement of the engine. Required
Explain how the plant should be treated in accordance with
International Financial Reporting Standards and comment on the
Directors' proposed treatment. (5 marks) (Total = 25 marks) 52
Tentacle (2.5 6/07) 27 mins After the end of the reporting period,
prior to authorising for issue the financial statements of Tentacle for
the year ended 31 March 20X7, the following material information
has arisen. (i) The notification of the bankruptcy of a customer The
balance of the trade receivable due from the customer at 31 March
20X7 was $23,000 and at the date of the notification it was $25,000.
No payment is expected from the bankruptcy proceedings. (3 marks)
(ii) Sales of some items of product W32 were made at a price of
$540 each in April and May 20X7. Sales staff receives a commission
of 15% of the sales price on this product. At 31 March 20X7 Tentacle
had 12,000 units of product W32 in inventory included at cost of $6
each. (4 marks) (Hi) Tentacle is being sued by an employee who lost
a limb in an accident wtiile at work on 1 5 March 20X7. The company
is contesting the claim as the employee was not following the safety
procedures that he had been instructed to use. Accordingly the
financial statements include a note of a contingent liability ot
$500,000 for personal injury damages. In a recently decided case
where a similar injury was sustained, a settlement figure of
$750,000 was awarded by the court. Although tfie injury was similar,
the circumstances of the accident in the decided case are different
from those of Tentacle's case. (4 marks) (iv) Tentacle is involved in
the construction ot a residential apartment building. It is being
accounted for using the percentage of completion basis in IAS 11
Construction contracts. The recognised profit at 31 March
The text on this page is estimated to be only 25.21%
accurate

materials will cost $1.5 million more than the estimate of

total cost used in the calculation of the percentage of completion.
Tentacle cannot pass on any additional costs to the customer. (4
marks) Required State and quantify how items (i) to (iv) above
should be treated when finalising the financial statements ot
Tentacle for the year ended 31 March 20X7. Note. The mark
allocation is shown against each of the four items above. (Total = 15
marks) Questions V__^S 53 Promoil (12/08) 27mins (a) The
definition of a liability forms an important element of the
International Accounting Standards Board's Framework for the
Preparation and Presentation of Financial Statements which, in turn,
forms the basis for IAS 37 Provisions, Contingent Liabilities and
Contingent Assets. Required Define a liability and describe the
circumstances under which provisions should be recognised. Give
two examples of how the definition of liabilities enhances the
reliability ot financial statements. (5 marks) (b) On 1 October 20X7,
Promoil acquired a newly constructed oil platform at a cost of $30
million together with the right to extract oil from an offshore oilfield
under a government licence. The terms of the licence are that
Promoil will have to remove the platform (which will then have no
value) and restore the sea bed to an environmentally satisfactory
condition in 10 years' time when the oil reserves have been
exhausted. The estimated cost of this in 10 years time will be $15
million. The present value ot $1 receivable in 10 years at the
appropriate discount rate for Promoil of 8% is $0.46. Required (\)
Explain and quantify how the oil platform should be treated in the
financial statements of Promoil tor the year end ed 30 Se ptember
20X8 ; ( 7 m a rks )
The text on this page is estimated to be only 23.83%
accurate

(Total = 15 marks) 54 Peter lee II (2.5 6/06 part) 22 mins

Peterlee is preparing its financial statements for the year ended 31
March 20X6. The following items have been brought to your
attention: (a) Peterlee acquired the entire share capital of Trantor
during the year. The acquisition was achieved through a share
exchange. The terms of fhe exchange were based on the relative
values of the two companies obtained by capitalising the companies'
estimated future cash flows. When the fair value of Trantor's
identifiable net assets was deducted from the value of the company
as a whole, its goodwill was calculated at $2 5 million. A similar
exercise valued the goodwill of Peterlee at $4 million. The directors
wish to incorporate both the goodwill values in the companies'
consolidated financial statements. (4 marks) (b) During the year
Peterlee acquired an iron ore mine at a cost of $6 million. In
addition, when all the ore has been extracted (estimated in 10 years
time) the company will face estimated costs for landscaping the area
affected by the mining that have a present value of $2 million. These
costs would still have to be incurred even if no further ore was
extracted. The directors have proposed that an accrual of $200,000
per year for the next ten years should be made for the landscaping.
(4 marks) (c) On 1 April 20X5 Peterlee issued an 8% $5 million
convertible loan at par. The loan is convertible in three years time to
ordinary shares or redeemable at par in cash. The directors decided
to issue a convertible loan because a non-convertible loan would
have required an interest rate of 10%. The directors intend to show
the loan at $5 million under non-current liabilities. The following
discount rates are available: Yearl Year 2 •.< ,.• ., r. .., « rt -.rt ... 1,4
marks Year 3 079 075 ' Required Describe (and quantify where
possible) how Peterlee should treat the items in (a) to (c) in its
financial statements tor the year ended 31 March 20X6 commenting
on the directors' views where appropriate. The mark allocation is
shown against each of the three items above. (Total = 12 marks)
8% 10% 093 091 086 083 079 075 &Jy Questions
The text on this page is estimated to be only 25.39%
accurate

55Jedders 27mins Your assistant at Jedders, a small listed

company, has been preparing the financial statements for the year
ended 31 December 20X0 and has raised the following queries. (a)
The company has three long leasehold properties in different parts
of the region. The leases were acquired at different times, and the
lease terms are all tor fifty years. As at 1 January 20X0, their original
cost, accumulated depreciation to date and carrying (book) values
were as follows. Carrying value Cost Depreciation 1.1.20X0 $'000
$000 $000 Property in North 3,000 1,800 1,200 Property in Central
6,000 1,200 4,800 Property in South 3,750 1,500 2,250 On 1
January an independent surveyor provided valuation information to
suggest that the value of the South property was the same as book
value, the North property had fallen against carrying value by 20%
and the Central property had risen by 40% in value against the
carrying value. The directors of the company wish to include the
revaluation of the Central property in the accounts to 31 December
20X0, whilst leaving the other properties at their depreciated
historical cost. The directors believe that this treatment of the North
property is prudent and can be justified because property prices are
expected to recover within the next few years so that this tall in
value will be entirely reversed. Required (i) Advise the directors
whether their proposal is acceptable, assuming they are committed
to the use of current value tor the Central property. (2 marks) (ii)
Assuming that all of the properties are revalued, calculate the
income statement charges and the noncurrent asset statement of
financial position extracts for all the properties tor the year ended 31
December 20X0. You should follow the requirements of IAS 1 6
Property, plant and equipment (3 marks) (b) On 1 October 20X0,
Jedders signed a receivable factoring agreement with a company Fab
Factors. Jedders' trade receivables are to be split into three groups,
as follows. * Group A receivables will not be factored or
administered by Fab Factors under the agreement but instead will be
collected as usual by Jedders. * Group B receivables are to be
factored and collected by Fab Factors on a with recourse' basis. Fab
Factors will charge a 1% per month finance charge on the balance
outstanding at the beginning of the month. Jedders will reimburse in
full any individual balance outstanding after three months.
The text on this page is estimated to be only 24.77%
accurate

Jedders has a policy of making a receivables allowance ot

20% of a trade receivable balance when it becomes three months
old. The receivables groups have been analysed as follows. % of 1
October 20X0 balance collected in: November December 30% 20%
30% 20% 25% 22% Required For the accounts of Jedders, calculate
the finance costs and receivables allowance for each group of trade
receivables for the period 1 October ■ 31 December 20X0 and show
the financial position values for those trade receivables as at 31
December 20X0. (5 marks) Balance &1 Oct 20X0 Octobi $'000 Group
A 1,250 30% Group B 1,500 40% Group C 2,000 50% Questions 5^'
On 1 January 20X0, Jedders issued $1 5m of 7% convertible loan
notes at par. The loan notes are convertible into equity shares in the
company, at the option ot the note holders, five years after the date
of issue (31 December 20X4) on the basis of 25 shares for each
$100 ot loan stock. Alternatively, the loan notes will be redeemed at
par. Jedders has been advised by Fab Factors that, had the company
issued similar loan notes without the conversion rights, then it would
have had to pay interest of 10%; the rate is thus lower because the
conversion rights are favourable. Fab Factors also suggest that, as
some otthe loan note holders will choose to convert, the loan notes
are, in substance, equity and should be treated as such on Jedders'
statement of financial position. Thus, as well as a reduced finance
cost being achieved to boost profitability, Jedders' gearing has been
improved compared to a straight issue of debt. The present value of
$1 receivable at the end of each year, based on discount rates of 7%
and 10% can be taken as: End of year 7% 10% 1 0.93 0.91
The text on this page is estimated to be only 23.00%
accurate

4 0.76 0.68 5 0.71 0.62 Required In relation to the 7%

convertible loan notes, calculate the finance cost to be shown in the
income statement and the statement of financial position extracts for
the year to 31 December 20X0 for Jedders and comment on the
advice from Fab Factors. (5 marks) (Total =15 marks) 56 Pingway
(6/08) 1 8 mins Pingway issued a $10 million 3% convertible loan
note at par on 1 April 20X7 with interest payable annually in arrears.
Three years later, on 31 March 2OY0, the loan note is convertible
into equity shares on the basis of $100 of loan note for 25 equity
shares or it may be redeemed at par in cash at the option of the
loan note holder. One of the company's financial assistants observed
that the use of a convertible loan note was preferable to a non-
convertible loan note as the latter would have required an interest
rate of 8% in order to make it attractive to investors. The assistant
has also commented that the use of a convertible loan note will
improve the profit as a result of lower interest costs and, as it is
likely that the loan note holders will choose the equity option, the
loan note can be classified as equity which will improve the
company's high gearing position. The present value of $1 receivable
at the end of the year, based on discount rates of 3% and 8% can
be taken as: 3% 8% $ $ End of year 1 0 97 0.93 2 094 086 3 092
079 Required Comment on the financial assistant's observations and
show how the convertible loan note should be accounted for in
Pingway's income statement for the year ended 31 March 20X8 and
statement of financial position as at that date. (10 marks) 57
Triangle (2.5 6/05) 45 mins Triangle, a public listed company, is in
the process of preparing its draft financial statements for the year to
31 March 20X5. The following matters have been brought to your
attention: B^ Questions
The text on this page is estimated to be only 25.58%
accurate

(i) On 1 April 20X4 the company brought into use a new

processing plant that had cost $15 million to construct and had an
estimated lite of ten years. The plant uses hazardous chemicals
which are put in containers and shipped abroad for safe disposal
after processing. The chemicals have also contaminated the plant
itself which occurred as soon as the plant was used. It is a legal
requirement that the plant is decontaminated at the end of its life.
The estimated present value of this decontamination, using a
discount rate of 8% per annum, is $5 million. The financial
statements have been charged with $1 -5 million {$15 million/10
years) for plant depreciation and a provision of $500,000 ($5
million/10 years) has been made towards the cost of the
decontamination. (8 marks) (ii) On 15 May 20X5 the company's
auditors discovered a fraud in the material requisitions department.
A senior member of staff who took up employment with Triangle in
August 20X4 had been authorising payments for goods that had
never been received. The payments were made to a fictitious
company that cannot be traced. The member of staff was
immediately dismissed. Calculations show that the total amount of
the fraud to the date of its discovery was $240,000 of which $21
0,000 related to the year to 31 March 20X5. (Assume the fraud is
material). (5 mirks) (iii) The company has contacted its insurers in
respect of the above fraud. Triangle is insured tor theft, but the
insurance company maintains that this is a commercial fraud and is
not covered by the theft clause in the insurance policy. Triangle has
not yet had an opinion from its lawyers. (4 marks) (iv) On 1 April
20X4 Triangle sold maturing inventory that had a carrying value of
$3 million (at cost) to Facto rail, a finance house, tor $5 million. Its
estimated market value at this date was in excess of $5 million. The
inventory will not be ready tor sale until 31 March 20X8 and will
remain on Triangle's premises until this date. The sale contract
includes a clause allowing Triangle to repurchase the inventory at
any time up to 31 March 20X8 at a price of $5 million plus interest at
10% per annum compounded from 1 April 20X4. The inventory will
incur storage costs until maturity. The cost ot storage for the current
year of $300,000 has been included in trade receivables (in the
name of Factorall). If Triangle chooses not to repurchase the
inventory, Factorall will pay the accumulated storage costs on 31
March 20X8. The proceeds ot the sale have been debited to the
bank and the sale has been included in Triangle's sales revenue. (8
marks) Required Explain how the items in (i) to (iv) above should be
treated in Triangle's financial statements for the year to 31 March
20X5 in accordance with current international accounting standards.
Your answer should quantify the amounts where possible. The mark
allocation is shown against each of the four matters above. (Total =
25 marks) 58 Angelino (2.5 12/06] 45 mins
The text on this page is estimated to be only 23.60%
accurate

accounting. Abuse of this principle can lead to profit

manipulation, non-recognition of assets and substantial debt not
being recorded in the statement of financial position. Required
Describe how the use of off balance sheet financing can mislead
users ot financial statements. Note. Your answer should refer to
specific user groups and include examples where recording the legal
form of transactions may mislead them. (9 marks) (b) Angelino has
entered into the following transactions during the year ended 30
September 20X6: (i) In September 20X6 Angelino sold (factored)
some of its trade receivables to Omar, a finance house. On selected
account balances Omar paid Angelino 80% of their book value. The
agreement was that Omar would administer the collection of the
receivables and remit a residual amount to Angelino depending upon
how quickly individual customers paid. Any balance uncollected by
Omar after six months will be refunded to Omar by Angelino. (5
marks) (ii) On 1 October 20X5 Angelino owned a freehold building
that had a carrying amount of $7.5 million and had an estimated
remaining life ot 20 years. On this date it sold the building to Finaid
tor a price of $1 2 million and entered into an agreement with Finaid
to rent back the building for an annual rental Questions UMHuHnu of
$1 .3 million for a period of five years. The auditors of Angelino have
commented that in their opinion the building had a market value of
only $10 million at the date of its sale and to rent an equivalent
building under similar terms to the agreement between Angelino and
Finaid would only cost $800,000 per annum. Assume any finance
costs are 10% per annum. (6 marks) Angelino is a motor car dealer
selling vehicles to the public. Most of its new vehicles are supplied
on consignment by two manufacturers, Monza and Capri, who trade
on different terms. Monza supplies cars on terms that allow Angelino
to display the vehicles tor a period of three months from the date of
delivery or when Angelino sells the cars on to a retail customer if this
is less than three months. Within this period Angelino can return the
cars to Monza or can be asked by Monza to transfer the cars to
another dealership (both at no cost to Angelino). Angelino pays the
manufacturer's list price at the end of the three month period (or at
the date of sale if sooner). In recent years Angelino has returned
several cars to Monza that were not selling very well and has also