Online Exam (Financial Reporting)

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Online Exam (Financial
Reporting)

Table of Contents
SECTION A.....................................................................................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................6
SECTION B.....................................................................................................................................8
Question 4....................................................................................................................................8
Question 5....................................................................................................................................9

SECTION A
Question 1
a.
Solution to Question 1
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
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
Step 5
Calculate the NCI at the reporting date £000
Fair value of NCI at the date of acquisition 120,000
Add NCI' share of the post acquisition profit of Beta 8,730
NCI at the reporting date 128,730
Step 6
Calculate the consolidated retained earnings £000
Alpha's retained earnings 153,000
Unrealised 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
Alpha group
Consolidated Statement of Financial Position at 31 March
2016 £000 £000
Non current assets
Goodwill 395,000

Property plant and equipment(224000+130000+10000-1000-3000+100) 360,100
Investment in Associate 47,200
Other investment (140000-200000-40000) (100,000)
702,300
Current assets
Inventory(57000+30000) 87,000
Trade receivable(30000+26000) 56,000
Cash and cash equivalents (18000+4000+5000) 27,000 170,000
872,300
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.
IFRS 10 refers to the instructions for each of the three main control components mentioned
above. This guide is complete. Considering the component guide independently may feel the
need for a definitive control assessment of any "link" to other content. However, keep in mind
that all three components are related and all three should be available for control.
Power
IFRS 10 clarifies that strength comes from rights. Rights reflect the strength, where appropriate,
to give the speculator the current ability to coordinate "relevant exercises" (see below) in a
unique way. In this case, "current capacity" does not require the rights to be exercised
immediately. All in all, the key is whether rights can be exercised before making choices about
appropriate exercises.

Exposure, or rights, to variable returns
In order for a financial expert to be in control, he would have to have opening, or variable rights,
in exchange for the owner. Variable returns are then widely identified and extend far beyond the
real estate gains achieved across the value segments.
Ability to use power to affect returns
The third part of scrutiny is that a speculator can use his ability to influence his profits (in some
cases referred to as a "link"). This link depends on the financial expert's ability to coordinate the
appropriate exercises (dynamic rights).
The link between a force and an unlikely return to a normal parent-helper relationship depends
on ownership of a larger portion. Likewise, a subjective study is not required in these cases. In
any case, this third part of the control is important when a speculator retains dynamic rights due
to an administrative contract or a comparative plan, for example the manager of a business or
facility.
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

Investing activities
Cash paid for investments
Cash paid for plant 300
Cash received from the sale of plant 470
Cash paid for buildings (870)
Government grants received 250
Interest received 440
Net cash outflow for investing activities (560)
Financing activities
Dividends paid
(4,645
)
Finance lease obligations (440)
Cash from issue of shares 1,600
(3,485)
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/
(outflow
)
Bank 50 150 (100)
Overdraft
(190
) (80) (110)
(140
) 70 (210)
b) The main issues revealed by Firmino’s statement of cash flows are negative balances of both
investing activities and financing activities, which overall gives negative balance from all three
activities. Thus these two activities are the main issues revealed from statement of cash flows. As
both activities results into cash outflow from the company’s financial statement, and it is
reflected in the form of declining balance of cash and cash equivalent in balance sheet.
c) The main drivers of return on capital during the year 2020 are operating profit, or cash
inflows into operating activities. This profit from operations has been considered to calculate
returns on capital employed. Where capital employed is combination of both equity and debt
together. Firm’s net profit before interest and tax is the only factor which gives rise to the return
for the company.

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 500,000.00
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.
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
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