Online Exam (Financial Reporting)

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Online Exam (Financial
Reporting)
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Table of Contents
SECTION A.....................................................................................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................3
SECTION B.....................................................................................................................................3
Question 4....................................................................................................................................3
Question 5....................................................................................................................................4
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SECTION A
Question 1
A).
Step 1
Group structure
Parent 70%
NCI 30%
Step 2
Calculate the consideration transferred £000
Cash 220,000
Contingent consideration 20,000
Deferred consideration (200m x 0.83) 166,000
Consideration transferred 406,000
Dr Investment 186,000
Cr Deferred consideration 166,000
Cr Contingent consideration 20,000
Step 3
Calculate Fair value of net assets at the date of acquisition and at the reporting date.
FV of Net Assets FV of Net Assets
01-04-19 31-03-20
£000 £000
Share capital 100,000 100,000
Retained earnings 24,000 55,000
Fair value adjustment for land (4000 - 5000) (1,000) (1,000)
Fair value adjustment-buildings (10,000 -12,000) (2,000) (2,000)
Reduced depreciation for buildings (-
2000/20) 100
Fair value adjustment-plant (30000-20000) 10,000 10,000
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Additional
depreciation (2,000)
131,000 160,100
Calculate the post acquisition profit of
Mane £000
Fair value of Mane assets at the reporting
date 160,100
Fair value of Mane assets at the date of acquisition (131,000)
Post acquisition profit/loss 29,100
This will be shared between the group and the NCI as follows:
£000
Group (70%) 20,370
NCI
(30%) 8,730
29,100
Step 4: Calculate the goodwill at the date of acquisition and at the
reporting date
£000
Consideration transferred 406,000
Fair value of NCI (30% x 200m x 2) 120,000
526,000
Fair value of net assets at acquisition date (from step
2) (131,000)
Goodwill arising on acquisition 395,000
Goodwill impairment (400,750)
Goodwill at reporting date (5,750)
Step 5
Calculate the NCI at the reporting date £000
Fair value of NCI at the date of acquisition 120,000
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Add NCI' share of the post acquisition profit of Mane 8,730
NCI at the reporting date 128,730
Step 6
Calculate the consolidated retained
earnings £000
Klopp's retained earnings 153,000
Unrealized profit on goods sold to Trent (30% x 5m x
20%) (300)
Add group's share of Associate's profit (30% x(55000-30000) 7,500
Add group's share of the post acquisition loss of Mane 20,370
Decrease in contingent consideration 5,000
Interest on deferred consideration (10% x166,000) (16,600)
168,970
Step 7: Investment in Associate £000
Cost of investment in Associate (Note 4) 40,000
Share of Associate's post acquisition profit 7,500
Less unrealised profit on goods sold to Associate (300)
47,200
Klopp group
Consolidated Statement of Financial Position at 31
March 2016 £000 £000
Non current assets
Goodwill (5,750)
Property plant and equipment(224000+130000+10000-1000-3000+100) 360,100
Investment in Associate 47,200
Other investment (140000-200000-40000) (100,000)
301,550
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Current assets
Inventory(57000+30000) 87,000
Trade receivable(30000+26000) 56,000
Cash and cash equivalents (18000+4000+5000) 27,000 170,000
471,550
Equity and
liabilities
Share capital 120,000
Consolidated retained earnings 168,970
288,970
Non-controlling
interest 128,730
417,700
Non-current
liabilities
Long term borrowings (150000+10000) 160,000
Contingent consideration 15,000
Deferred tax (10000+8000) 18,000 193,000
Current liabilities
Trade payables (30000+22000) 52,000
Deferred consideration (166000+16600) 182,600
Short-term borrowings (6000+6000) 12,000
246,600
857,300
B).
For every one of the 3 important controls listed above, IFRS 10 corresponds to the directions.
This is really a comprehensive tutorial. The part guide separately through feel that every "link" to
several other material requires a definite control evaluation. Bear in mind, though, that all 3
systems are present and then all components must be monitored.
Strength
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IFRS 10 specifies which privileges are the root of power. The rights represent the force to allow
the investor to arrange "appropriate exercises" in a specific way, as applicable (see below). "total
capacity" in this situation may not need the privilege to be automatically enforced.
With that being said, it is necessary to ensure that rights could be practiced before selecting
proper exercises. Variable profit access or privileges to still be in charge of a financial specialist,
in return for the operator, he must have open or adjustable privileges. Variable rewards are
increasingly recognized and go far beyond profitability property investment profits.
The willingness of a hedge fund manager of using power to manipulate performance was its third
aspect of the test (in some cases referred to as a "link"). This relation refers to the capacity of the
finance specialist to organise the simulations (dynamic rights). It is up to a larger percentage of
possession to link a power to an impossible transition to a regular parent-helper partnership.
Similarly, in these situations no qualitative study is appropriate. In any situation, the third
component of the regulation is necessary where, for example, the management of the company or
service holds dynamic privileges as a result of an organizational arrangement or comparative
strategy.
Question 2
A) Statement of Cash Flows for Firmino for the year ended 31 March 2020 in accordance
with IAS 7
Profit before tax 2950
Interest payable (250)
Interest receivable 0
Amortization of government grants 0
Depreciation of buildings 150
Profit on the sale of plant 120
Depreciation of plant 340
Operating profit before working capital adjustments
Increase in inventory 3000
Increase in trade receivables 800
Decrease in accounts payable 1550
Cash generated from operations 4,530
Interest paid 350
Tax paid 480
Net cash inflow from operating activities 3,835
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Investing activities
Cash paid for investments
Cash paid for plant 250
Cash received from the sale of plant 120
Cash paid for buildings (870)
Government grants received 250
Interest received 440
Net cash outflow for investing activities 190
Financing activities
Dividends paid (4,645
)
Finance lease obligations -340
Cash from issue of shares 1,600
-3585
Decrease in cash (210)
Cash and bank at the beginning of the year 70
Cash and bank at the end of the year (140)
Reconciliation of cash and cash equivalents 2011 2010 Inflow/
(outflo
w)
Bank 50 150 (100)
Overdraft (190) (80) (110)
(140) 70 (210)
B)
The primary issues found in the financial statement through Firmino are indeed the negative
balance between all spending and funding operations, which in total makes the 3 groups a
negative amount. Such two operations are thus the key problems revealed by income statement.
Since both efforts resulted in an income statement again from accounting records and are
represented in the decline in cash equivalents.
c)
Operating benefit or net profits in operations are the key factors of revenues and profits
throughout 2020. The activities benefit has been taken into account in determining the return on
the employed money. Where workforce capital is mixed into debt and equity financing. The only
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factor contributing to the corporation's profit is gross income before depreciation and
amortization.
SECTION B
Question 4
A) Price of contract = £600,000
Interest rate = 10%
The accounting treatment for the contract between king and customers is as follows:
01/01/2019 Cash a/c £600,000
01/01/2019 Contract Liability £600,000
31/12/2020 Contract liability £660,000
31/12/2020 Revenue to king £600,000
Interest received £60000
B) Rate of commission = 10% of sales price
Total sales for computer4u in year 2020 = £500,000.
Carrying amount before impairment
500,000.0
0
Rate of commission 50000.00
Carrying amount at 31 December if impairment had not taken place in
2018 450000
C)
Klopp has two performance obligations:
To supply a Solar Equipment and To service the equipment over a period of five years.
The net price for purchases is really a fixed component of £1.8 million and a contingent factor of
£100.000 or £200.000. Terms of the probability that it happened, the variable factor is included
in the maximum throughput. Thus, a contingent factor of £100,000 and a cumulative price for the
deal of £190000 should have been included. In line with their solar prices the sale price must be
assigned to the output responsibilities. This is £1,700,000: £300,000 throughout this event.
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Hence, the duty to supply installed in the system and the provision to provide FIVE years of
operation to the facilities must be £1,615,000 (£ 1,700,000/2,000,000) x 1,900,00,000.
During the year financial year Ending 31 december 2016, the duty to provide the installed in the
system is entirely fulfilled and income of £1,615.000 can also be remembered for this supply.
Notice and in the year financial year Ending 31 december 2016, indeed 7/60 (1 December to 31
December is seven months) of duty responsibility was fulfilled, and revenues can thus be
accepted as a result of these deliveries of £33,250 (£285,000 x 7/60).
Effective 1 June 2016, Klopp would accept a £1,900,000 payable depending on the appropriate
value of the deal. Klopp's accumulated profits of £251.750 (€1,900,000,000 – £1,615,000 –
33250) is remembered on December 31, 2016. The present debt would be £ 57,000 (£ 251, 750 x
12/53). Non-current obligation is the remaining £194,750 (£251,750-57000).
53= 60 months minus seven months (1 June 2016 to 31 Dexcember 2016 is a period of 7
months).
(b) The rates of transaction include a concentrations of various whether the consumer is entitled
to return items. As this number will be calculated accurately, sales would be estimated and
revenue overall £4,320,000 (90 per cent 800x £6,000) would be calculated. The exchange is
known as receivables for £4,800,000 (800 x £6,000).
The reimbursement duty is £480,000 (£48,000 – £4320000). This is seen to be an existing
obligation. The gross prices was £2,800,000 for the products sold (800 x £3,500). Just
£2,520,000 of the total will be included as an expense for selling (90 percent x 800x £3,500).
The residual £280,000 is seen as a Return Asset Right on existing investments (£2,800,000 -
£2,520,000).
Question 5
(A)
The accounting treatment for the building on 31 December 2020
Purchasing of building: £20 million
Useful economic life: 50 Years
F.V of building: £24 million
F.V of the building: £14 million
Calculation of depreciation (Straight line method): Cost of assets-Salvage value/useful
life
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Cost of assets £20 million
Salvage value £14 million
Useful life 50 Years
Calculation of depreciation (20-14)/50
Depreciation 120000
(B) Advice about which currency need to utilize:
They have to trade in pounds in the context from the above situation as they get all the requisite
material through their parent corporation based in the UK. This condition is regarded as a
practical currency. Since the financial reports of a business are issued in only once currencies, it
is necessary to return the sales or actions performed in another currency to the main currency
used during financial reporting. The Accounting Standards (IAS) and the Generally Accepted
Accounting Guidelines provide guidelines on translating foreign currencies (GAAP). A variety
of financial reporting issues, including the selection of the required local currency, the
adjustment for foreign currency transactions and the conversion of the foreign subsidiary
financial reports into the exchange rates of the parent entity, must be resolved by the daunting
choice of selecting a practical currency for international operations.
(C) Advise the directors of Jack on to how to account for the above transactions.
Date Particulars DR CR
1 January
2020
Patent account DR
To cash a/c
40
40
1 January
2020
Land a/c DR
Depreciation a/c DR
To cash a/c
16
4
20
1 January
2020
Accounts receivables a/c DR (3*2)
To sales
6
6
1 November
2020
Land a/c DR
Depreciation a/c DR
To cash a/c
100
50
150
1 January
2020
Accounts receivables a/c DR (9*1.5)
To sales
13.5
13.5
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