LUBS229001 INTERMEDIATE FINANCIAL ACCOUNTING
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LUBS229001
May/June 2013/2014
Examination for the degree of BA and BSc
INTERMEDIATE FINANCIAL ACCOUNTING
SECTION A
Question 1 – You must answer this Question
On 1 October 2012, Pandora secured a shareholding in Sky by acquiring 8 million shares at £4 each. Subsequently, on 1 February 2013, Pandora also acquired 25% of the equity shares of Acta, paying £10 million in cash.
The summarised statements of financial position of the three companies at 30 September 2013 are:
Assets
Non current assets
Property, plant and equipment
Intangible assets
Investments
Current assets
Inventory
Trade receivables
Bank
Total assets
Pandora £,000
40,000
7,500
42,000
|
89,500 11,200 7,400 3,400 |
|
111,500 |
Sky £’000
31,000
0
0
|
31,000 8,400 5,300 0 |
|
44,700 |
Acta £’000
30,000
0
0
|
30,000 10,000 5,000 2,000 |
|
47,000 |
Equity and liabilities
Equity
Equity shares of £1 each
Retained earnings:
- At 1 October 2012
- For year ended 30 September 2013
Non current liabilities
Deferred tax
Current liabilities
Bank
Trade payables
Total equity and liabilities
50,000
25,700
9,200
|
84,900 15,000
0 11,600 |
|
111,500 |
10,000
12,000
6,000
|
28,000 8,000
2,500 6,200 |
|
44,700 |
10,000
31,800
1,200
|
43,000 1,000
0 3,000 |
|
47,000 |
The following information is relevant:
1) Pandora’s policy is to value the non controlling interest at fair value at the date of acquisition. For this purpose the directors of Pandora considered a share price for Sky of £3.50 per share to be appropriate.
2) At the date of acquisition, the fair values of Sky’s property, plant and equipment was equal to its carrying amount with the exception of Sky’s plant which had a fair value of £4 million above its carrying amount. At that date the plant had a remaining life of four years. Sky uses straight line depreciation for plant assuming a nil residual value.
3) Also at the date of acquisition, Pandora valued Sky’s customer relationships as a customer base intangible asset at fair value of £3 million. Sky has not accounted for this asset. Trading relationships with Sky’s customers last on average for six years.
4) At 30 September 2013, Sky’s inventory included goods bought from Pandora on
15 September 2013. The inventory is included at cost to Sky, of £2.6 million. Pandora had marked up these goods by 30% on cost and no goods had been sold by Sky at the year end. Pandora’s agreed current account balance owed
by Sky at 30 September 2013 was £1.3 million.
5) Impairment tests were carried out on 30 September 2013 which concluded that consolidated goodwill was not impaired, but, due to disappointing earnings, the value of the investment in Acta was impaired by £2.5 million.
6) Assume all profits accrue evenly throughout the year.
REQUIRED:
a) Prepare the consolidated Statement of Financial Position for the Pandora group as at 30 September 2013. (40 Marks)
b) The IASB currently gives companies two options on how to account for purchased goodwill. Explain the two methods and critically discuss whether you believe this enhances or reduces the qualitative characteristics of financial statements, giving reasons for your opinion. (10 Marks)
Total 50 Marks
SECTION B – An swer TWO Questions from Section B
Question 2
The financial statements of Highlander Ltd at 30 June were as follows.
Balance sheets as at 30 June:
2013 £
Non-current assets
Property, plant and equipment
2013
£
41,500
2012
£
2012 £
28,000
|
Current assets |
|
|
|
|
|
Inventories |
32,000 |
|
22,000 |
|
|
Trade and other receivables |
19,900 |
|
5,400 |
|
|
Cash and cash equivalents |
- |
51,900 |
2,600 |
30,000 |
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
(16,000) |
|
(22,000) |
|
|
Accruals |
(1,400) |
|
(400) |
|
|
Tax liability |
(3,600) |
|
(2,000) |
|
|
Bank overdraft |
(22,000) |
(43,000) |
- |
(24,400) |
|
Non-current liabilities |
|
|
|
|
|
Borrowings |
|
(12,000) 38,400 |
|
(20,000) 13,600 |
|
Equity |
|
|
|
|
|
Ordinary share capital |
|
6,000 |
|
6,000 |
|
Retained earnings |
|
32,400 38,400 |
|
7,600 13,600 |
|
Income statements (extracts) |
|
|
|
|
|
|
|
2013 £ |
|
2012 £ |
|
Profit from operations |
|
30,800 |
|
11,800 |
|
Finance cost |
|
(2,000) |
|
(2,800) |
|
Profit before tax |
|
28,800 |
|
9,000 |
|
Tax |
|
(4,000) |
|
(3,000) |
|
Net profit for the year |
|
24,800 |
|
6,000 |
Additional information
1. An analysis of property, plant and equipment at 30 June shows the following:
Building
Cost
Accumulated
Depreciation
Plant and machinery
Cost
Accumulated
Depreciation
2013
£
44,000
(8,000)
10,000
(4,500)
£
36,000
5,500
41,500
2012
£
24,000
(2,000)
10,000
(4,000)
£
22,000
6,000
28,000
2 Machinery with a net book value of £500 was sold at the beginning of 2013 for £700. This machinery had originally cost £2,000.
3. The accruals are in respect of interest payable.
4. No dividends have been declared or paid in recent years.
2022-08-23