F7 Workbook Q PDF

F7 Financial Reporting Full Course www.mapitaccountancy.
com
ACCA F7 - Financial
Reporting
Workbook
1
F7 Financial Reporting Full Course Q www.mapitaccountancy.com
Group Accounts
2
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
3
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
4
Working 4 - NCI
NCI% of Sub Post-Acq Profits
Value of NCI at Year End
Working 5 - Accumulated Profits
Parents Accumulated Profits
Add: Parent % of the subsidiarys post acquisition profits
5
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
Non Controlling Interest
Equity 400 300
700 600
6
Illustration 2
Ant Dec
Assets 500 500
Investment in Dec 350
850 500
Equity 350 300
Liabilities 500 200
850 500
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
7
Illustration 2 Pro-Forma
Working 1- Group Structure

Date Acquired
Parent Share
NCI
Working 2- Equity Table
Share Capital
Accumulated Profits
Goodwill
8
Working 4 - NCI

$
9
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
10
Illustration 3
Evan Dando
Assets 200 350
Investment in Dando 500
Current Assets 200 300
900 650
Ordinary Shares ($1) 200 200
Equity 450 300
Liabilities 170 150
900 650
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.
Solution
11
Working 1- Group Structure

Date Acquired
Parent Share
NCI
Working 2 - Equity Table
Share Capital
Accumulated Profits
Goodwill
12
Working 4 - NCI
13
Statement of Financial Position for Evan Group
Evan Dando Group
Goodwill
Assets 200 350
Investment in 500
Dando
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
14
Illustration 4
Virtual Insanity
Assets 1000 800
Investment in Insanity 600
2000 1000
Equity 1550 500
Liabilities 200 200
2000 1000
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
15
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?
16
Illustration 6
On 1 October 2012, Paradigm acquired 75% of Stratas 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.
Illustration 7
17
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 Gents 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
Equity 1200 600
Liabilities 300 100
1500 700
18
Illustration 8
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 Gents 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
Equity 900 600
Liabilities 700 200
1500 700
19
Illustration 9
Evaro Co. Acquired 80% of Stando Co. one year ago and the following detail
is relevant:

$m $m
Share Capital 100 100
At the date of acquisition the following was relevant:
i) An item of plant was valued at $100m in the Gents 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.
Illustration 10
20
Brad acquires 80% of Angelinas 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 Angelinas share price is $8. Brads
share price is $5. At the date of acquisition the net assets of Angelina are
$600.
Calculate the gross goodwill and the NCI.
Illustration 11
Brad acquires 80% of Angelinas 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. Brads share price is $5. At the
date of acquisition the net assets of Angelina are $600 and by the year end
they are $800.
Calculate the goodwill arising using the proportionate method and the NCI.
21
Illustration 12 (i)
Archie acquires 60% of Mitchells 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.
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.
Illustration 12 (iii)
22
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
Equity 400 150
Non current liabilities 100 250
Liabilities 300 100
700 600
23
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?
24
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?
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?
Illustration 16
25
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
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.
Illustration 17
Sea is the parent of a subsidiary Lion. Extracts of their SFPs are below
26
Sea Lion
Current Assets
Inventory 400 250
Receivables 100 100
Bank 150 100
650 450
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.
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%.
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.

27
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 Messis 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.
28
Associates
(IAS 28)
Illustration 1
29
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.
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.
Illustration 3
30
On 1 April 2009 Picant acquired 75% of Sanders equity shares in a share exchange of
three shares in Picant for every two shares in Sander. The market prices of Picants and
Sanders shares at the date of acquisition were $320 and $450 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 $42 million, but by 31
March 2010 it was clear that the actual amount to be paid would be only $27 million
(ignore discounting). Picant has recorded the share exchange and provided for the initial
estimate of $42 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
Total Equity & Liabilities 99,000 35000 29000
(i) At the date of acquisition the fair values of Sanders property, plant and equipment was
equal to its carrying amount with the exception of Sanders factory which had a fair
31
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. Picants 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 Picants current account with Sander was $34 million (debit). This
did not agree with the equivalent balance in Sanders books due to some goods-in-
transit invoiced at $18 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)Picants policy is to value the non-controlling interest at fair value at the date of
acquisition. For this purpose Sanders 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 $38 million.
(vi)Assume all profits accrue evenly through the year.
Groups Multiple Choice Test
32
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)
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
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:
33
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 $15 million of these goods in inventory as at 30 September 2014.
What would be the cost of sales in Viagems consolidated statement of profit or loss for the
year ended 30 September 2014?
A $599 million
B $614 million
C $638 million
D $679 million
4. The Caddy group acquired 240,000 of Augusts 800,000 equity shares for $6 per share
on 1 April 2014. Augusts 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
5. The HC group acquired 30% of the equity share capital of AF on 1 April 2010 paying
$25,000.
34
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 HCs investment in AF for inclusion in HCs statement of financial
position at 31 March 2011.
A $26,950
B $31,500
C $28,000
D $25,900
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
7. PRT acquired 80% of SUBs ordinary shares on 1 January 2011 for $1,136,000 when
SUBs retained earnings were $260,000. At 1 January 2011 the fair value of the net assets
35
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 PRTs 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
SUBs 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
Share premium 86
840
position as at 31 December 2013 for the Non-Controlling Interest?
A. $250,000
B. $204,600
C. $205,000
D. $204,400
SUBs retained earnings were $254,000. At 1 January 2011 the carrying value of the net
36
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 PRTs only
subsidiary.
$000
Share premium 26
850
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
10. HX acquired 70% of SAs 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
The following information relates to questions 11, 12 & 13:
37
NOV acquired 80% of PAs 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
11. 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
12. What is the value of the NCI at 30 June 2013?
A. $87,480
B. $92,520
C. $90,000
D. $127,480
13. 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
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
38
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
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 Walters consolidated statement of profit or loss for the
A $27.00 million
B $28.56 million
C $35.56 million
D $27.06 million
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:
39
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 Jesses consolidated statement of profit or loss for the
A $38.450 million
B $38.675 million
C $41.425 million
D $40.250 million
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
40
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 SDs inventory and SD had not paid for any of the goods.
Which ONE of the following states the correct adjustments required in the HW groups
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
C. Reduce inventory and retained earnings by $7,200 and Reduce payables and
D. Reduce inventory and retained earnings by $9,600 and Reduce payables and
19. DW sold goods to PR. DW is PRs 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 PRs inventory and PR had not paid for any of the goods.
Which ONE of the following states the correct adjustments required in the HW groups
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.
20. Which of the following statements relating to the method of consolidation are true?
41
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.
42
Presentation of Financial
Statements
43
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
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
44
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
45
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 X

Income
Total Comprehensive Income for the Year X
46
IAS 8 Accounting Policies,

Estimates & Errors
47
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 its inventory has been
changed.
For each of the above is it a change in accounting policy or a change in accounting

estimate?
48
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).
49
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
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
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.
50
The Framework
51
Illustration 1
An important requirement of the IASBs Framework for the Preparation and Presentation of
Financial Statements (Framework) is that in order to be reliable, an entitys 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)
52
Which of the following is NOT a purpose of the IASBs 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
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
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
The IASBs 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.
53
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 IASBs 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)

C (ii) and (iii)
D (i), (ii) (iii) and (iv)
54
IAS 16 & 36
Non Current Assets and
Impairment
55
Illustration 1
ABC Co. has carried out the annual servicing of its plant and equipment at a cost of $2m
and has also decided that one of the machines should have its 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?
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 companys policy to make an annual
transfer in reserves for excess depreciation.
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.
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
its 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?
56
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.
Illustration 6
A cash generating unit has the assets outlined below. Its recoverable amount has been
assessed as $1,000. Show the treatment for any impairment.
Assets Carrying Value
Goodwill 100
PPE 800
Intangible 400
1300
57
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

C (ii), (iii) and (iv)
D (i), (iv) and (v)
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 $379

What amount would be charged to profit or loss for the impairment of this asset for the
A $17,785
B $20,000
C $30,000
D $32,215
58
IAS 40 - Investment Property
59
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.
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.
60
IAS 38 - Intangible Assets
61
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.
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.
62
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.
63
Dempseys 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 projects
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
Which ONE of the following events would result in an asset being recognised in KJHs
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.
Which ONE of the following CANNOT be recognised as an intangible non-current asset in

GHKs 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.
64
Which one of the following could be classified as deferred development expenditure in Ms

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 universitys 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 Ms distribution costs by $35,000 a year.
65
IAS 20 - Government Grants
66
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 its 10 year life.
Show the possible accounting treatments for the government grant in the first year.
67
IAS 23 - Borrowing Costs
68
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?
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?
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?
69
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 75% 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
70
IFRS 5 - Assets Held For Sale

and Discontinued Operations
71
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?
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 its 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?
72
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.
73
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 BNs statement of financial
position as at 31 March 2012?
A. $750
B. $800
C. $810
D. $720
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
74
IFRS 15 - Revenue I
75
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?
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?
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?
76
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?
77
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.
LPs 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
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
78
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 GYs 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
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
79
IFRS 15 - Revenue II
80
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?
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?
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?
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.
81
IAS 17
Leases
82
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.
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?
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?
83
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.
Illustration 5
Pinky Social Club has sold its 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 buildings current market value is $500,000.
How should Pinky show this transaction in their financial statements?
84
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
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 Frescos 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
85
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)
86
Financial Instruments I
87
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
than sell.....and.....
Debt Any Other Never
Contractual Cash Flows 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
88
Financial Instruments II
89
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.
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%.
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%.
90
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
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.
91
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 TSs
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
92
Inventories & Construction

Contracts
93
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.
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.
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?
94
Illustration 3
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?
95
Illustration 4
A construction company has the following contracts in progress:
X Y Z
Costs Incurred to Date 300 200 600
Costs to complete 100 800 900
Work Certified to date 400 300 1000
Contract Price 500 600 2000
Progress billings 25 80 90
Profit is accrued on the contracts as a percentage of completion derived by comparing

work certified to the total sales value.
Calculate the figures to be included in the financial statements in relation to the

above contracts.
96
Illustration 5
On 1 October 2009 Mocca entered into a construction contract that was expected to take
27 months and therefore be completed on 31 December 2011.
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 2010 (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 2010 were:
$000
Revenue recognised 3,500
Contract expenses recognised (2,660)
Profit recognised 840
Details of the progress of the contract at 31 March 2011 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, including the disclosure note of amounts due to/from
customers, for the year ended/as at 31 March 2011 in respect of the above contract.
(10 marks)
97
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
Work in progress (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 Amount Due to Customers $250

B. Revenue $3,150, COS $4,150 and Amount Due to Customers $250
C. Revenue $4,500, COS $3,500 and Amount Due to Customers $360
D. Revenue $6,000, COS $3,250 and Amount Due to Customers $650
98
IAS 37
Provisions
99
Illustration 1
ABC Co. does not offer warranties with the radios 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?
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?
Illustration 3
A company with a year end of 30th April has decided to re-organise trading in its 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?
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?
100
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?
101
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-contractors work as faulty.
TY has raised a court action against the sub-contractor claiming the cost of the schools
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 TYs 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.
MN obtained a government licence to operate a mine from 1 April 2011. The licence
requires that at the end of the mines 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
102
IAS 12
Deferred Tax
103
Illustration 1
An entity has profit before tax of $10,000 in its 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%
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.
104

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%.
DFs 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
F. Statements Tax Base
Cost 200,000 200,000
Depn 2012 (200/5) -40,000
FYA -100,000
Depn 2013 (200/5) -40,000
Annual WDA -25,000
Balance 120,000 75,000
Deferred Tax 45,000 x 25% = $11,250
105
IAS 10 Subsequent Events &

IAS 33 EPS
106
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.
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.
December 2009 was $1,000,000.
Calculate the EPS at 31st December 2009.
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.
December 2009 was $1,000,000.
Last years earnings were $900,000
Calculate the EPS at 31st December 2009 and the new EPS for 2008.
107
Illustration 4
An entity issued a bonus issue of 1 for 5 of its 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.
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.
108
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)
IAS 10 Events after the reporting period distinguishes between adjusting and non-
adjusting events.
Which ONE of the following is an adjusting event in XSs 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 XSs 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 XSs 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 XSs main warehouse facility and most
of its inventory.
109
Which ONE of the following would be classified by WDC as a non-adjusting event

according to IAS 10 Events After The Reporting Period? WDCs 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 WDCs 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.
On 1 October 2013, Hoy had $25 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 $120 each.
The average market value of Hoys equity shares during the year ended 30 September
2014 was $3 per share.
Hoys profit after tax for the year ended 30 September 2014 was $1,550,000.
In accordance with IAS 33 Earnings per Share, what is Hoys diluted earnings per share
for the year ended 30 September 2014?
A 250 cents
B 221 cents
C 310 cents
D 419 cents
110
Interpretation of Financial
Statements
111
Illustration 1
2011 2010
ASSETS $000 $000
Non Current Assets 1000 1000
Inventory 300 400
Receivables 200 300
Cash 300 200
1800 1900
LIABILITIES
Reserves 200 100
Long term Liabilities 700 900
Payables 100 100
Overdraft -
1800 1900
$000 $000
Revenue 1000 1200
COS 800 1100
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.
112
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
113
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
114
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 Quartiles business.
Which of the following circumstances may invalidate the comparison of Quartiles 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
C (ii) and (iii) only
D (ii), (iii) and (iv)
The following information has been taken or calculated from Fowlers financial statements
for the year ended 30 September 2014.

Fowlers 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 $18 million.
What is Fowlers 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
115
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
116
Cash Flow Statements
117
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
Reserves 200 199
Long term Liabilities 700 801
Payables 100 100
1800 1900
$000 $000
Revenue 1000 1200
COS 800 1100
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
118
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.
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?
119
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
Provn 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
120
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:
121
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)
122
Agriculture (IAS 41)
123
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.
Illustration 2
Jimmy owns a farm with a herd of 300 goats worth $40 each on 1 January 20X4. At 31
December 20X4 he 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.
124

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Non Current Assets

Tangible 100 100

Investment in Murcia 300

Cash 200 200

Ordinary Shares 160 100

Accumulated Profits 240 200

Equity 400 300

Non Current Liabilities 100 200

Current Liabilities 200 100

Almeria today acquired all the shares in Murcia for $300m.

The Fair Value of the NCI at acquisition was 0.

Working 1 - Group Structure

Working 2 - Equity Table

Cost of Parent Investment

Fair Value of NCI at acquisition

Less net assets at acquisition (W2)

Fair Value of NCI at acquisition

NCI% of Sub Post-Acq Profits

Value of NCI at Year End

Working 5 - Accumulated Profits

Parents Accumulated Profits

Add: Parent % of the subsidiarys post acquisition profits

SFP for Almeria Group

Almeria Murcia Group

Non Current Assets

Tangible 100 100

Investment in Murcia 300

Cash 200 200

Ordinary Shares 160 100

Accumulated Profits 240 200

Non Controlling Interest

Equity 400 300

Non Current Liabilities 100 200

Current Liabilities 200 100

Assets 500 500

Investment in Dec 350

Ordinary Shares 100 200

Accumulated Profits 250 100

Equity 350 300

Liabilities 500 200

Ant today acquired 160m of the 200m shares in Dec.

The Fair Value of the NCI was 50.

Working 1- Group Structure

Working 2- Equity Table

At Acquisition At Year End

Cost of Parent Investment

Fair Value of NCI at acquisition

Less net assets at acquisition (W2)

Fair Value of NCI at acquisition

NCI% of Sub Post-Acq Profits

Value of NCI at Year End

Working 5 - Accumulated Profits

Parents Accumulated Profits

Add: Parent % of the subsidiarys post acquisition profits

Statement of Financial Position for Ant Group

Ant Dec Group

Assets 500 500

Ordinary 100 200

Accumulated 250 100

Equity 350 300

Liabilities 500 200

Assets 200 350