Online Exam (Financial Reporting)

This document provides solutions to an online exam on financial reporting. It includes calculations, accounting treatments, and advice on currency utilization. The exam covers topics such as group structure, consideration transferred, fair value of net assets, post acquisition profit, goodwill, statement of cash flows, income statement analysis, contract accounting, performance obligations, and depreciation. The exam is relevant to the subject of financial reporting and is suitable for students studying finance or accounting courses.

Feedback: Please see question 4 in section 2. Please go over
every calculation for every question so that they are all correct
and non is missing. Many Thanks
Online Exam (Financial
Reporting)

Table of Contents
SECTION A.....................................................................................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................6
SECTION B.....................................................................................................................................8
Question 4....................................................................................................................................8
Question 5..................................................................................................................................10

SECTION A
Question 1
a.
Solution to Question 1
Step 1
Group structure
Parent 70%
NCI 30%
Step 2
Calculate the consideration transferred
Cash 220,000
Contingent consideration
Deferred consideration (200m x 0.83)
Consideration transferred
Dr Investment 186,000
Cr Deferred consideration
Cr Contingent consideration
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
,00
0
Retained earnings 24,000 55,
000

Fair value adjustment for land (4000 - 5000) (1,000)
Fair value adjustment-buildings (10,000 -12,000) (2,000)
Reduced depreciation for buildings (-
2000/20)
Fair value adjustment-plant (30000-20000) 10,000
Additional
depreciation
(2,0
00)
131,000 160,100
Calculate the post acquisition profit of Mane
Fair value of Mane assets at the reporting
date
Fair value of Mane assets at the date of acquisition
Post acquisition profit/loss
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
Fair value of NCI (30% x 200m x 2)
526,000
Fair value of net assets at acquisition date (from step 2)
Goodwill arising on acquisition
Step 5
Calculate the NCI at the reporting date
Fair value of NCI at the date of acquisition
Add NCI' share of the post acquisition profit of Beta
NCI at the reporting date
Step 6

Calculate the consolidated retained earnings
Alpha's retained earnings
Unrealised profit on goods sold to Trent (30% x 5m x
20%)
Add group's share of Associate's profit (30% x(55000-30000)
Add group's share of the post acquisition loss of Mane
Decrease in contingent consideration
Interest on deferred consideration (10% x166,000)
168,970
Step 7: Investment in Associate
Cost of investment in Associate (Note 4)
Share of Associate's post acquisition profit
Less unrealised profit on goods sold to Associate
47,200
Alpha group
Consolidated Statement of Financial Position at 31 March 2016 £000
Non current assets
Goodwill 395,000
Property plant and equipment(224000+130000+10000-1000-3000+100)
Investment in Associate
Other investment (140000-200000-40000)
702,300
Current assets
Inventory(57000+30000) 87,000
Trade receivable(30000+26000) 56,000
Cash and cash equivalents (18000+4000+5000) 27,000
872,300
Equity and liabilities
Share capital 120
,00
0

Consolidated retained earnings
288,970
Non-controlling interest 128
,73
0
417,700
Non-current liabilities
Long term borrowings (150000+10000) 160,000
Contingent consideration 15,000
Deferred tax (10000+8000) 18,000
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.
The new control model according to IFRS 10 relies on the presence of three control components.
Once these three control components are available, a speculator is considered to be in control of
an owner and confirmation is required. When at least one of the components is absent, a financial
expert will only confirm but the idea of its relationship with the owner must be decided instead
(eg high impact, joint control) and account adjustment under IFRS required
IFRS 10 Consolidated financial statements reflect the need to prepare and submit unitary
financial statements, while the materials consolidate the elements that govern it. Control requires
openness or rights to variable yields and the ability to influence those profits through owner
control.
Control elements:
1. Strengths come from rights. These rights can be direct (e.g. through democratic rights) or
invisible (e.g. installed in authoritative game plans). A speculator who has only protection rights
cannot control an owner, and therefore cannot control an owner [IFRS 10:11, IFRS 10:14].

2. A speculator should be found, or have the rights, to retrieve a variable from an owner's
acquisition to control the owner. This result should be different due to the owner's presentation
and can be positive, negative, or both. [IFRS 10:15]
3. A parent should not only have control over an owner and with open or variable rights
recovering from his relationship with the owner, a parent should also exercise control over the
investment person to influence his or her profits from the transfer to the owner. [IFRS 10:17].
4. In examining whether a speculator controls an owner, a financial expert with dynamic rights
decides whether to go around as a boss or as an expert on several collections. Various elements
are considered in making this assessment. For example, the administrator's compensation is taken
into account to determine if he is an expert. [IFRS 10: B58, IFRS 10: B60]
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 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 (4,64
5)
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 201
1
2010 Inflow
/
(outfl
ow)
Bank 50 150 (100)
Overdraft (19
0)
(80) (110)
(14
0)
70 (210)
b) The main issues highlighted in Firmino’s income statement are negative changes in both the
grant and funding years, which usually result in a negative balance from each of the three years.
In this way, both of these exercises are the key issues found in income generation. Because both
exercises lead to an increase in cash from the ratio of the balance sheet of the organization, and is
reflected by a decreasing balance of money and equal cash in the cash register.
c) The main drivers of profit for capital in the year 2020 are labour benefits or cash inflows in
business years. This asset gain was considered to determine the return on capital employed.
Where the capital is used there is a mixture of value and connection. The company's net profit on
interest and valuation is the only factor driving a return to 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 50000.0
0
Carrying amount at 31 December if impairment had not
taken place in 2018
C)
Klopp has two performance obligations: To supply a Solar Equipment and
 To service the equipment over a period of five years.
The net purchase cost is in fact a flat rate of £ 1.8 million and an unexpected feature of £ 100,000
or £ 200,000. Conditions appear to have occurred; factor memory is variable for longer
movement. Therefore, an unexpected feature of £ 100,000 and a total cost of £ 190000 should be
included. In line with solar-based costs, the cost of the contract should be charged to production
obligations. This is £ 1,700,000: £ 300,000 in total over this period. Of these, the procurement
obligation included in the framework and the provision to provide the offices with FIVE years of
operation should be £ 1,615,000 (£ 1,700,000 / 2,000,000) x 1, 900, 00,000.

During the cash flow year ending 31 December 2016, the obligation to enter the framework is
fully satisfied and a payment of £ 1,615,000 may be associated with this investment.
Notice and in the cash flow year Ended December 31, 2016, 7/60 (December 1 to December 31
seven months) was certainly satisfied with a duty obligation, so it would be possible to recognize
an income as a result of these transfers of £ 33,250 (£ 285,000 x 7/60).
As of 1st June 2016, Klopp will recognize the payment of £ 1,900,000 subject to an appropriate
assessment of the situation. Klopp's total benefits of £ 251,750 (€ 1,900,000,000 - £ 1,615,000 -
33250) were written off as of 31 December 2016. The current liability would be £ 57,000 (£ 251,
750 x 12/53). The absent pledge is the balance of £ 194,750 (£ 251,750-57000).
53 = 60 months without seven months (from 1 June 2016 to 31 December 2016 there is a period
of 7 months).
b) As this number is determined in detail, the contracts would be valued and the total income
would be determined at £ 4,320,000 (90% 800x £ 6,000). The trade is known as credits for £
4,800,000 (800 x £ 6,000). How did you get the 800?
The repayment obligation is £ 480,000 (£ 48,000 - £ 4320000). Is the obligation a negative
figure? This appears to be a current commitment. The total cost was £ 2,800,000 for products
sold (800 x £ 3,500). Only £ 2,520,000 of the total will be included as cost of sale (90% x 800x £
3,500). The remaining £ 280,000 is seen as a right to return existing assets (£ 2,800,000 - £
2,520,000). Can you please finalise question4(A) answer as the following: the
above transaction should be accounted for in the financial statements of King
for the financial years ended 31 December 2019 and 2020
………………………….

Can you please label question 4 properly? E.G. Where is question 4(Ci &
Cii)?
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 need to exchange location notes from the above location as they will receive all necessary
material through their UK based parenting initiative. This condition is seen as pragmatic. Since
corporate cash reports are issued in only one cash level, it is important to report contracts or
actions executed in another currency in the primary currency used at the time of publication.
Generally Accepted Accounting Principles (IAS) and Accounting Guidelines provide rules on
the interpretation of unfamiliar forms of liquidity (GAAP). A variety of cash disclosure issues,
including selecting the required neighbourhood currency, adjusting for uncommon currency
exchanges, and transforming uncommon supporting currency ratios into parental element
exchange measures, from reconcile with the horrible decision to choose to invest money for

stocks around the world. (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