ACCT2031 CORPORATE FINANCIAL REPORTING 2022
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ACCT2031-WE01
CORPORATE FINANCIAL REPORTING
2022
SECTION A – COMPULSORY
QUESTIONS 1 – 10
10 Multiple Choice Questions. For each question, choose ONE of the proposed answers. (2 MARKS EACH)
Q1 Mcgregor Plc acquired 75% of the issued share capital and voting rights of Tavernier Ltd on
1 January 2020.
The consolidated cost of sales of Mcgregor Plc and its subsidiary undertaking for the year ended 31 December 2021, before taking into account any adjustments required in respect of the information below, is £395,000.
During the year Mcgregor Plc sold goods to Tavernier Ltd for £130,000. 70% of these goods still remain in inventories at the end of the year. The goods were sold at a mark-up of 25% on cost.
What is the consolidated cost of sales for the year ending 31 December 2021?
A £283,200
B £278,650
C £287,750
D £246,800
Q2 Pattison, a company which sells agricultural equipment, has prepared its draft financial
statements for the year ended 31 December 2021. It has included the following transactions in revenue at the stated amounts below.
Which of these has been correctly included in revenue according to IFRS 15 Revenue from Contracts with Customers?
A Sales proceeds of £18,500 for sales staff motor vehicles which were no longer required by
Pattison.
B Sales of £400,000 on 30 September 2021. The amount invoiced to and received from the
customer was £450,000, which includes £50,000 for ongoing servicing work to be done by Pattison over the next two years.
C Sales of £150,000 on 1 October 2021 to an established customer which (with the agreement
of Pattison) will be paid in full on 30 September 2022. Pattison has a cost of capital of 12%.
D Agency sales of £500,000 on which Pattison is entitled to a commission.
Q3 Goldson Ltd purchased an item of plant for £180,000 on 1 January 2018. The plant is to be
depreciated on a 20% reducing balance basis.
Goldson Ltd sold the plant on 31 December 2021 and made a gain of £12,200 on disposal.
What is the amount of proceeds to be reported in the Statement of Cash Flows of Goldson Ltd for the year ended 31 December 2021?
A £104,360
B £61,528
C £85,928
D £71,182.
Q4 |
Barisic holds three separate inventory lines at the year-end. These are valued as follows: Product FIFO LIFO NRV £ £ £ Q 12,400 13,600 12,800 R 13,700 11,900 13,400 S 18,600 16,300 21,800 44,700 41,800 48,000 |
According to IAS 2 Inventories, what amount of inventories should be recognised in the statement of financial position as at the end of the reporting period?
A £44,700
B £41,800
C £48,000
D £44,400
Q5 Helander obtained a government licence to operate a mine from 1 January 2021. The licence
requires that, at the end of the mine’s useful life, all buildings must be removed from the site and the site landscaped. Helander estimates that the cost of this decommissioning work will be £500,000 in ten years’ time (present value at 1 January 2021 = £254,000) using a discount factor of 7%.
According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets how much should Helander include in provisions in its statement of financial position as at 31 December 2021?
A £500,000
B £254,000
C £535,000
D £271,780
Q6 Kamara Ltd purchased an item of plant at a cost of £15 million on 1 January 2019. Kamara
charged depreciation at 25% per annum (straight line) and received capital (taxation) allowances of 40% (reducing balance) in respect of the purchase. This was the only temporary difference in respect of the years to 31 December 2020 and 2021. The tax rate is 20%.
What is the balance of Deferred Tax for Kamara for the year ended 31 December 2021?
A £450,000 credit
B £420,000 debit
C £420,000 credit
D £102,000 credit
Q7 On 1 January 2021, Lundstram Limited acquired debentures as a financial asset at their
nominal value of £10 million. The debentures carry fixed coupon interest of 8% which is receivable annually in arrears. An additional premium is payable on redemption of the debentures. Transaction costs associated with the acquisition were £96,000. The effective
rate of interest was 9% and the amortised cost method is to be adopted for this asset. What is the carrying value of the financial asset as at 31 December 2021?
A £10,096,000
B £10,204,640
C £10,100,000
D £11,004,640
Q8 |
Defoe Ltd made a profit before tax of £624,000 for the year ended 31 December 2021, after charging depreciation of £96,000. The following information was included in the statement of financial position as at 31 December 2021: 2020 2019 £000 £000 Inventories 520 470 Trade receivables 316 402 Trade payables 294 325 |
What is cash generated from operations for the year ended 31 December 2021?
A £725,000
B £775,000
C £967,000
D £817,000
Q9 Itten made a profit after tax of £976,000 for the year ended 31 December 2021. At
that date, Itten had £2 million of equity shares of 20 pence each in issue. There had been no changes to issued share capital for many years. At 31 December 2021, there were outstanding share options to purchase 5 million equity shares at £1.50 each. The average market value of Itten’s equity shares during the year ended 31 December 2021 was £3.00 per share.
In accordance with IAS 33 Earnings per Share, what is Itten’s diluted earnings per share for the year ended 31 December 2021?
A B C D |
9.8 6.5 7.8 7.5 |
pence pence pence pence |
Q10 Taverner acquired an item of plant at a cost of £900,000 on 1 January 2019. The plant had
an estimated residual value of £60,000 and an estimated life of six years. Taverner uses straight-line depreciation. On 31 December 2021, Taverner performed an impairment calculation in respect of the plant and predicted net cash inflows from operation of the plant as follows:
Year-ended:
31 December 2022
31 December 2023
31 December 2024
£000
160
100
120
On 31 December 2024, the plant was still expected to be sold for its estimated residual value. Taverner has confirmed that there is no market in which to sell the plant at 31 December 2021. Taverner’s appropriate discount rate was 8%.
What is the amount of impairment loss in respect of the item of plant as at 31 December 2021?
A £NIL
B £243,228
C £150,858
D £103,228
QUESTION 11
Glasgow plc has an investment in one company, Dundee Ltd.
Glasgow plc acquired four million ordinary shares in Dundee Ltd on 1 January 2021 in a share exchange. One new ordinary share in Glasgow plc was issued for every two ordinary shares in Dundee Ltd acquired. The market price of one new Glasgow plc share at that date was £4. The share issue transaction has not yet been recorded in the draft financial statements of Glasgow plc. The draft summarised statements of financial position of the two companies at 31 March 2021 are shown below:
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Current assets
Inventories
Trade receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity
Ordinary share capital (£1 shares)
Retained earnings
Total equity
Dundee Ltd
£
6,000,000
–
6,000,000
4,000,000
1,400,000
600,000
8,600,000
14,200,000
8,000,000 (2,600,000) |
6,000,000
12,000,000
5,000,000 4,200,000 |
5,400,000 9,200,000
Non-current liabilities
Provisions
Current liabilities
Trade and other payables
Total equity and liabilities
3,900,000
4,900,000
14,200,000
1,000,000
1,800,000
12,000,000
ADDITIONAL INFORMATION
(1) Dundee Ltd's profit for the year to 31 March 2021 was £3.2 million. Profits accrued evenly over the year. No dividends were paid or proposed during the period.
(2) Glasgow plc prefers to measure goodwill and the non-controlling interest using the fair value method. The fair value of the non-controlling interest at 1 January 2021 was £2,100,000. Following the annual impairment review of goodwill at 31 March 2021 an impairment loss of £100,000 needs to be recognised in respect of Dundee Ltd.
(3) The fair value of the assets and liabilities of Dundee Ltd at 1 January 2021 was the same as their carrying amount with the following exceptions:
The fair value of brands not previously recognised has been quantified at £400,000.
Glasgow plc's management are of the opinion that these brands have an indefinite life. At the year end the recoverable amount of the brands was assessed at £360,000.
The fair value of inventory was £200,000 greater than its carrying amount. One fifth of this
inventory remained on hand at the year end.
The allowance for receivables was understated by £300,000. This allowance was also still
required at the year end.
Equipment had a fair value of £1 million in excess of its carrying amount. The remaining
useful life of this equipment was five years at 1 January 2021.
These fair values have not been recognised in the separate financial statements of Dundee Ltd.
(4) Glasgow plc sold inventory with an invoice value of £900,000 to Dundee Ltd in February 2021. One quarter of the inventory remained in Dundee Ltd's factory at 31 March 2021. Glasgow plc calculates the transfer price of goods using a mark up of 50% on cost.
(5) Glasgow plc has recently reached an agreement with HMRC regarding its tax payable for the year ended 31 March 2021. It has agreed to pay an additional £200,000 income tax. No liability for this amount has been included in the draft statement of financial position at
31 March 2021.
(6) Glasgow plc raised a £250,000 invoice for intra group management fees due from Dundee Ltd on 25 March 2021. This invoice was not received by Dundee Ltd until 3 April 2021 and has not been included in Dundee Ltd's draft financial statements. Glasgow plc has included the amount due of £250,000 in trade receivables. There were no other outstanding balances between the two companies at 31 March 2021.
REQUIRED:
Prepare the consolidated statement of financial position of Glasgow plc as at 31 March 2021. Total 30 marks
SECTION B
ANSWER ANY TWO QUESTIONS
QUESTION 12
An extract from Perth plc's general ledger at 31 December 2021 is as follows.
Revenue
Loan note interest paid (Note 1)
Purchases
Distribution costs
Administrative expenses
Dividend paid (Note 2)
Inventories at 1 January 2021
Trade receivables (Note 4)
Trade payables (Note 3)
Cash and cash equivalents
Ordinary share capital (200m shares)
Share premium
Other distributable reserves
Retained earnings at 1 January 2021
4% loan note repayable 2028 (issued 1 January 2021) Land & Buildings: Cost (including £128m land)
Plant: Cost (Notes 5 and 6)
Accum depreciation at 1 January 2021 Proceeds from sale of equipment
£m
3
1,669
514
345
6
444
545
28
928
258
q
4,740
£m 2,696 |
434
100 244 570 349 150
124
66 7 |
4,740 |
The following additional information is available:
(1) The 4% loan note was issued at its nominal value of £150 million but is to be redeemed at a premium and the effective interest rate has been calculated as 51/3 % pa. Interest is payable six monthly in advance but the second payment was debited to trade payables in error. Apart from recognising the initial receipt of cash and the interest paid no other entries have been made in respect of this loan.
(2) An interim dividend of 3p per share was paid on 30 June 2021.
(3) Included in trade payables is a balance of £5 million relating to an over-provision of income tax re the year ended 31 December 2020. The income tax liability for the year ended
31 December 2021 has been estimated at £27 million. (ignore deferred taxation)
2022-08-09