CORPORATE REPORTING

PROFESSIONAL 1 EXAMINATION - APRIL 2010

NOTES:

You are required to answer Questions 1, 2 and 3. You are also required to answer either Question 4 or 5.
(If you provide answers to both Questions 4 and 5, you must draw a clearly distinguishable line through the
answer not to be marked. Otherwise, only the first answer to hand for Questions 4 or 5 will be marked.)
PRO-FORMA STATEMENT OF COMPREHENSIVE INCOME BY NATURE,
STATEMENT OF COMPREHENSIVE INCOME BY FUNCTION
AND STATEMENT OF FINANCIAL POSITION ARE PROVIDED.

TIME ALLOWED:

3.5 hours, plus 10 minutes to read the paper.

INSTRUCTIONS:

During the reading time you may write notes on the examination paper but you may not commence
writing in your answer book. Please read each Question carefully.
Marks for each question are shown. The pass mark required is 50% in total over the whole paper.
Start your answer to each question on a new page.

You are reminded that candidates are expected to pay particular attention to their communication skills
and care must be taken regarding the format and literacy of the solutions. The marking system will take
into account the content of the candidates' answers and the extent to which answers are supported with
relevant legislation, case law or examples where appropriate.
List on the cover of each answer booklet, in the space provided, the number of each question(s)
attempted.

The Institute of Certified Public Accountants in Ireland, 17 Harcourt Street, Dublin 2.

THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

CORPORATE REPORTING
PROFESSIONAL 1 EXAMINATION APRIL 2010

Time allowed 3.5 hours, plus 10 minutes to read the paper.

You are required to answer Questions 1, 2 and 3. You are also required to answer either Question 4 or 5.
(If you provide answers to both Questions 4 and 5, you must draw a clearly distinguishable line through the
answer not to be marked. Otherwise, only the first answer to hand for Questions 4 or 5 will be marked.)

1.

(A)

You are required to answer Questions 1, 2 and 3.

Glenview PLC acquired 80% of Valleylave Ltds ordinary shares for 168m cash on 1st January 2009. The draft
statements of financial position of the two companies at 31 December 2009 are shown below:
Non-current assets
Property, plant and equipment
Development costs (note 3)
Investments

Current assets
Inventory
Trade receivables
Bank
Total assets

105
60
-

Glenview PLC
m
610
240
850

Valleylave Ltd
m
m
152
28
10
190

165
1,015

83
273

Equity and Liabilities

Equity
Ordinary shares of 1 each
Retained earnings

500
222
722

Non- current liabilities

12% loan note

Current liabilities
Trade payables
Taxation
Bank overdraft
Total Equity and Liabilities

45
30
8

60
126
186

205

60
21
7

88
1,015

60

18
9
-

27
273

The following information is relevant:

1.

2.
3.

4.

Valleylave Ltds retained earnings at 1st January 2009 amounted to 94m. The share capital at that date
was 60m.

Glenview PLC has a policy of revaluing land and buildings. At the date of acquisition, Valleylave Ltds land
and buildings had a fair value of 20m higher than their carrying value.

Valleylave Ltds development project was completed on 31 December 2008 at a cost of 35m. 7m of this
has been amortised in 2009. Glenview PLCs Directors do not agree with the capitalisation policy adopted
by Valleylave Ltd and are of the opinion that 12m of the remaining development costs, at 31 December
2009, do not meet the criteria of IAS 38 Intangible Assets for recognition as an asset.

Valleylave Ltd sold goods to Glenview PLC during the year at a profit of 9m. One third of these goods are
still in the inventory of Glenview PLC at 31 December 2009.
Page 1

5.
6.
7.
8.

During November 2009, Glenview PLC loaned 10m (interest free) to Valleylave Ltd which is due to be
repaid in March 2010. The amounts are included in the trade receivables and trade payables of the
respective companies.
A cheque for 8m from Glenview PLC sent to Valleylave Ltd before the end of the financial year was not
received until January 2010.
Glenview PLCs draft financial statements at 31 December 2009 included a note explaining a contingent
asset of 300,000. The sum was received on 31 January 2010 and should now be accounted for as an
adjusting event after the reporting period.

In calculating goodwill, Glenview PLCs policy is to value the non-controlling interest using fair value at the
date of acquisition. On this date, the fair value of the non-controlling interest was 42 million.

REQUIREMENTS:
(a)

(b)

(B)

Prepare the consolidated statement of financial position for Glenview PLC as at 31 December 2009.
(18 marks)
(Presentation: 1 mark)

Explain why the fair value of an entitys assets is used in the preparation of consolidated financial
statements.
(4 marks)

The Purchasing Manager of Eco Ltd buys goods from a company based in Botoland, whose currency is the Boto.
The value of the purchases on 31 May 2009 amounted to 600,000 Botos. The transaction was not settled until
30 June, Eco Ltds year end.

REQUIREMENTS:
(a)

(b)

Rate of Exchange
31 May 2009
30 June 2009

1 = 1.5 Botos
1 = 1.9 Botos

Illustrate how this transaction will be reported in the financial statements of Eco Ltd for the year ended 30
June 2009.
(4 marks)
Assume Eco Ltd has a foreign subsidiary which operates as an independent entity. Explain what method
of translation would be used for the purposes of preparing consolidated financial statements for the group.
(3 marks)
[TOTAL: 30 MARKS]

Page 2

2.

After the closing of the ledger accounts for the year ended 31 December 2009, the following balances were
extracted from the nominal ledger of Logan Ltd.
Dr
Cr
000
000
Land (note 1)
Buildings at cost (note 2)
Equipment at cost (note 3)
Accumulated depreciation 1 January 2009:
Buildings
Equipment
Inventory 1 January 2009
Intangible asset (note 10)
Amortisation
Investment property valuation at 1 January 2009 (note 4)
Trade receivables
Trade payables
Amounts receivable from supplier (note 5)
Income tax (note 6)
Deferred taxation
10% loan stock (redeemable 2014)
Revenue
Purchases
Wages and salaries
Administrative expenses
Selling and distribution expenses
Operating expenses
Allowance for doubtful debts
Bank
Interest paid (note 7)
Investment income
Preference share capital-5% irredeemable 1 shares
Ordinary dividends paid
Ordinary share capital
Revaluation reserve
Retained earnings 1 January 2009
The following notes are relevant:

200
240
190
95
38
2
100
90

70
6

796
102
127
116
50

10
6.50
18

2,256.50

60
110

105
12
130
1,500

11.50
12
20

55
25
216
2,256.50

1.

Land is to be revalued at 220,000.

3.

Equipment is depreciated at 25% on the reducing balance basis. Depreciation is to be charged in full to
cost of sales.

2.

4.

5.

Buildings are depreciated over 40 years. Depreciation is to be charged 50% to administration costs and
50% to cost of sales.

Details of the investment property are:

Value 1 January 2009

Value 31 December 2009

100,000
95,000

Logan Ltd has lodged a claim for 70,000 against one of its suppliers for faulty goods supplied. The
supplier has contested the validity of this claim, and at 31 December 2009 the legal costs incurred by
Logan Ltd amounted to 40,000 to date. The companys solicitors have advised the Directors of Logan
Ltd that, although the outcome is unclear, they have a good case. The ledger accounts above, show a
receivable for 70,000 due from the supplier with the corresponding credit being included within
purchases. No adjustment has been made for the legal costs which have not yet been paid at the year end.
On 31 January 2010, Logan Ltds solicitors have advised that it is now probable that the claim will be settled
in full.
Page 3

6.
7.
8.
9.
10.

11.

The income tax balance in the ledger accounts represents an under provision of the previous years
estimate. The estimated income tax liability for the year ended 31 December 2009 is 20,000.
The loan stock was issued on 1 January 2009 and accrued interest at 31 December 2009 has not yet been
accounted for.

Inventories held at 31 December 2009 are valued at a cost of 110,000. This includes 31,000 of slow
moving goods. Logan Ltd is trying to sell these slow moving items to another company, but has not been
successful in obtaining a reasonable offer. The best price that it has been offered to date is 19,000.

Logan Ltd is to make an allowance for doubtful debts amounting to 4% of year-end receivables. On 5
January 2010 the company received notification that one of its customers had gone into receivership. This
customer owed Logan Ltd 30,000 at 31 December 2009.
Whilst preparing the ledger accounts, the accountant discovered an error in the previous years financial
statements. Expenditure amounting to 40,000 in relation to a brand had been capitalised as an intangible
asset whereas in fact this was in contravention of IAS38 Intangible Assets. This expenditure has been
subject to an amortisation charge of 5% which has been included in the ledger accounts above.
Provision has not yet been made for the preference dividend.

REQUIREMENTS:
(a)

(b)

Prepare Logan Ltds statement of comprehensive income for the year ended 31 December 2009 and a
statement of financial position as at that date. Your answer should be presented in accordance with IAS1
(revised) Presentation of Financial Statements. (Notes to the financial statements are not required but you
should show any workings).
(21 marks)
(1 mark presentation)
Prepare a memorandum for the Financial Accountant of Logan Ltd which:

(i)

(ii)

Explains your accounting treatment of the items referred to in notes 5, 8 and 10 above. (6 marks)

Describes the purpose of a statement of changes in equity. (You are not required to prepare the
SOCE).
(2 marks)
[TOTAL: 30 MARKS]

Page 4

3.

The following multiple choice questions contains eight sections, each of which are followed by a choice
of answers. Only one of each set of answers is strictly correct.
REQUIREMENTS:

[TOTAL: 20 MARKS]

Give your answer to each section in the answer sheet provided.

1.

The proposed final dividend for CAT Ltd for the year ended 30 September 2008 was 40,000. This was paid in
October 2008. The final dividend for the year ended 30 September 2009 was 60,000, which was declared on
the 25 September 2009. An interim dividend for the year ended 30 September 2009 of 22,000 was paid.

In accordance with IAS 7 Statement of Cash Flows what is the figure for dividends paid which will appear in the
statement of cash flows for CAT Ltd for the year ended 30 September 2009?

2.

(a)
(b)
(c)
(d)

62,000
82,000
100,000
60,000

Peter Ltd has the following products in inventory at the end of 2009:

Units

Bentub (completed)
Jontub (part complete)

8,400
2,800

Cost per unit

22
16

Each product normally sells at 34 per unit. Due to the difficult trading conditions Peter Ltd intends to offer a
discount of 15% per unit and expects to incur 4 per unit in selling costs. 10 per unit is expected to be incurred
to complete each unit of Jontub.

In accordance with IAS 2 Inventories, at what amount should inventory be stated in the financial statements of
Peter Ltd at 31 December 2009?
(a)
(b)
(c)
(d)

3.

The financial statements of Pot PLC were approved by the Board of Directors on 1 February 2010. As per IAS
10 Events after the Reporting Period, which of the following would be a non-adjusting item in the financial
statements at 31 December 2009?
(i)
(ii)
(iii)
(iv)

4.

257,600
278,900
254,520
281,820

(a)
(b)
(c)
(d)

Identification of a material error in the valuation of inventory.

An increase in the market value of investments.
The disposal of equipment, which was surplus to the businesss requirements.
Receipt of notification of bankruptcy of a customer with a balance outstanding at year end.
(ii) and (iii)
(i) and (iii)
(i) and (iv)
All of the above.

Which of the following is not a condition that must be met in order to record revenue from the rendering of
services?
(a)
(b)
(c)
(d)

The amount can be measured reliably.

Stage of completion of the work can be measured reliably.
Costs incurred for the transaction can be measured reliably.
The seller has passed on effective control of the service being performed.
Page 5

5.

6.

On 1 May 2009, Batman PLC entered into a finance lease agreement. Batman PLC paid a deposit of 11,000
on that date. The cash price of the leased asset at 1 May 2009 was 35,000. Batman PLC pays interest of 7%
on its borrowings. The rate of interest implied in the lease was approximately 10%. Under IAS17 Leases, what is
the finance charge in Batman PLCs statement of comprehensive income for the year ended 30 April 2010?
(a)
(b)
(c)
(d)

3,500
2,300
2,450
2,400

At a board meeting held on 1 November 2009, Marcus PLC made the decision to sell a major division. The actual
closure took place on 10 February 2010. In the year ended 31 December 2009 the division reported a loss of
150,000. Costs of redundancies relating to the division to be incurred in 2010 are expected to amount to
40,000.
In accordance with IFRS5 Non-current Assets Held for Sale and Discontinued Operations, what will be reported
in Marcus PLCs statement of comprehensive income for the year ended 31 December 2009 in respect of the
division?

7.

(a) 150,000 loss from continuing operations

(b) 190,000 loss from continuing operations
(c) 150,000 loss from discontinued operations
(d) 190,000 loss from discontinued operations

The IASBs Framework for the Preparation and Presentation of Financial Statement includes the four qualitative
characteristics of financial information.
Which one of the following statements includes the four qualitative characteristics of financial information?
(a)
(b)
(c)
(d)

8.

Materiality, reliability, understandable and going concern.

Relevance, reliability, comparable and understandable.
Prudence, comparable, understandable and accuracy.
Relevance, materiality, accuracy and going concern.

The following is an extract from the financial statements of Honey Ltd as at 31 December 2009 and 2008:
Revenue
Cost of sales

Inventory
Trade receivables

2009
000
3,400
1,800
820
650

2008
000
2,900
1,500
760
510

Calculate the inventory turnover and the average collection period for trade receivables.
(a)
(b)
(c)
(d)

Inventory Turnover
2009
2008
166 days
185 days
70 days
64 days
89 days
96 days
180 days
172 days

Average collection period for trade receivables

2009
2008
70 days
64 days
166 days
180 days
132 days
124 days
70 days
64 days

Page 6

4.

IAS 38 Intangible Assets sets out the principles for accounting for intangible assets.
REQUIREMENTS:
(a)

(b)
(c)

Identify the criteria that must be satisfied before an intangible asset can be recognised in the financial
statements.
(5 marks)

What criteria must be satisfied before expenditure on internally generated research and development can
be capitalised?
(3 marks)

Smith PLC, a developer and manufacturer of household and commercial cleaning products, prepares its
financial statements to 31 December 2009. The Board of Directors are finalising the financial statements
and need assistance on the treatment of the following issues:
(i)

(ii)

On 1 January 2008, Smith PLC acquired a six year patent to manufacture and distribute a product
called Clean Line Fluid. The fluid is for use in restaurants and public houses. The patent cost 12m
and it is to be amortised on a straight line basis. In January 2010 a review of the sales of Clean Line
Fluid indicated a very disappointing level of sales. The decision was taken that production would
cease at 31 December 2010 despite the product delivering a net profit.

Research and Development expenditure in the year to 31 December 2009 totalled 4m. Half of this
was incurred on research costs and the remaining amounts were incurred on the development costs
of the following three products:
Products:

(iii)

(d)

Wash and Go
Wipe Clear
Soft and Clean

1,000,000
400,000
600,000

The Wash and Go product is expected to generate high levels of sales and matching profits over the
next 4 years, after which it will be replaced. The Wipe Clear product is experiencing difficulties in the
final stage of product testing and there is uncertainty within the product development team of the
length of time or costs needed to complete the product prior to its launch. Smith PLC registered a 6
year patent for the Soft and Clean product effective from 1 January 2009.

During the year ended 31 December 2009, a staff training programme was carried out at a cost of
200,000. The external training provider has demonstrated to the Directors of Smith PLC that the
training should result in additional profits of 380,000.
Advise the Directors of Smith PLC on the treatment of the above issues in the financial statements
for the year ended 31 December 2009.
(9 marks)

What information needs to be disclosed for each class or type of intangible asset?

Page 7

(3 marks)

[TOTAL: 20 MARKS]

5.

IAS11 Construction Contracts defines a construction contract and provides guidance on how it should be
recognised and measured in the financial statements.

Ashridge Ltd has three contracts in progress to build new bridges in Dublin, Cork and Drogheda. The companys
first accounting period ended on 30 September 2008 and during that period the company tendered for and won
a contract to build a large bridge in Dublin. During the year ended 30 September 2009, Ashridge secured two
other contracts in Cork and Drogheda. The following information as at 30 September 2009 is available for each
of the three contracts:
Contract

Contract value
Certified value of work completed:
To 30 September 2008
Year to 30 September 2009
To date

Payments received:
To 30 September 2008
Year to 30 September 2009
To date
Costs incurred:
To 30 September 2008
Year to 30 September 2009
To date

Estimated future costs to complete:

As at 30 September 2008
As at 30 September 2009
Additional information:
(ii)

(iii)

Cork
m
20.00

Drogheda
m
25.50

11.00
6.40
17.40

1.20
1.20

11.40
11.40

10.50
3.84
14.34

8.20
8.20

14.08
7.68
21.76

3.10
3.10

24.68
24.68

12.00
3.20

10.50

4.40

12.00
7.50
19.50

Value of work invoiced:

To 30 September 2008
Year to 30 September 2009
To date

(i)

Dublin
m
32.00

1.50
1.50

11.50
11.50

The Drogheda contract has experienced some difficulties. These have not affected costs, but the
customer has agreed to increase the value of the contract by 1.0m by way of compensation.
There have been some labour problems at the Dublin site in 2009 but Ashridge Ltd believes these
have now been resolved and the contract is expected to continue profitably.
Ashridge Ltd accounts for its contracts in accordance with IAS11 Construction Contracts using the
value of work certified (as a percentage of contract value) to estimate the percentage completion of
each contract.

REQUIREMENTS:

(a)
(b)
(c)

For each of the three contracts, calculate the amounts which would appear in the financial statements of
Ashridge Limited for the year ended 30 September 2009.
(13 marks)

List three main disclosures required by IAS11.

Discuss the issue of profit recognition in relation to construction contracts.

END OF PAPER
Page 8

(3 marks)

(4 marks)

[TOTAL: 20 MARKS]

SUGGESTED SOLUTIONS

THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

CORPORATE REPORTING
PROFESSIONAL 1 EXAMINATION APRIL 2010

SOLUTION 1
Consolidated statement of financial position of Glenview Group as at 31 December 2009
Assets
Non- current assets
Tangible assets (610+152+20)
Development costs (28-12)
Investments (72+10)
Goodwill (w3)

Current Assets
Inventory (105+45-3)
Accounts Receivables (60+30-8-10)
Other receivables
Bank (8+8)

147
72
.3
16

Equity and Liabilities

Ordinary share capital
Retained earnings (w5)

Non-current liabilities
12% Loan stock (205+60)

68
30
7

Group structure

Valleylave

235.3
1151.3

265

Current Liabilities
Accounts payabless (60+18-10)
Taxation (21+9)
Bank overdraft

Glenview

782
16
82
36
916

500.00
235.90
735.90
45.40
781.3

Non controlling interest (w4)

W1

1 January 2009 80%

Page 10

105
1,151.3

W2

Net Assets at fair value

Share capital
Retained earnings

Fair value adjustment

Land and buildings
Research and development
Unrealised profit on
inventory
W3

At acquisition
m
60
94
154

At reporting period end

m
60
126
186

174

(3)
191

20
-

Goodwill

Consideration paid
Non controlling interest

168
42
210
174
36

Fair value of subsidiary net assets

Goodwill

Fair value non controlling interest at

Date of acquisition @ 3.50
Fair value of Assets 174 * 20%
Goodwill attributable to NCI
Other methods of calculation acceptable

42.00
34.80
7.20

W4

Non controlling interest at reporting period end

W5

Retained earnings

20% of 191m
Goodwill

Glenview plc
Contingent asset
Subsidiary
{(191 174 }* 80%

Alternative calculation:
126-94=32-3-12=17*80%

20
(12)

38.20
7.20
45.40
222m
0.3m

13.6m
235.90
13.6m

(18 marks)
Presentation (1 mark)

Page 11

(b)

In order to account for an acquisition, the acquiring company must measure the cost of what it is accounting
for, which will normally represent:

The cost of the investment in its own statement of financial position, and
Amount allocated between the identifiable net assets of the subsidiary, the non-controlling interest and
goodwill in the consolidated financial statements.

Fair value defined by IFRS3 is the amount for which the asset could be exchanged or a liability settled
between knowledgeable, willing parties in an arms length transaction
Identifiable assets and liabilities are included in consolidated accounts at their fair values because:

(c)
(i)

Consolidated accounts are from the perspective of the group, rather than the perspectives of the
individual companies. The cost to the group is their fair value at date of acquisition.

Purchased goodwill (per IFRS3 revised) is the difference between the value of acquired entity and
aggregate of the fair values of that entitys identifiable assets and liabilities. If the fair value is not used
then the goodwill will be meaningless.
(4 marks)

At date of transaction

Dr Purchases
Cr Trade payables

400,000
400,000

At year end

Trade payables must be translated at closing rate (1.90) = 315,789

Dr Trade payables
Cr SCI
(ii)

84,211
84,211

(4 marks)

Need to use the closing rate method of translation for consolidation purposes. Under this approach, assets
and liabilities are translated at the rate ruling at the statement of financial position date the closing rate.

Revenues and expenses are translated using the average rate for the period.

Any exchange differences arising are shown as separate components of equity.

Page 12

(3 marks)

[Tota:l 30 marks]

SOLUTION 2

Statement of Comprehensive Income for the year ended 31 December 2009

000
Revenue
1,500
Cost of sales (w1)
(988)
Gross profit
512
Operating expenses
(50)
Distribution costs (w1)
(136.9)
Administrative expenses (w1)
(170)
Profit from operations
155.1
Finance costs
(13)
Investment income
12
Loss on fair value of investments
(5)
Profit before taxation
149.10
Income tax expense (w4)
(26)
Profit for the year
123.10
Other Comprehensive Income
Gains on revaluation
20
143.10

Statement of Financial Position for the year ended 31 December 2009

2009
000
000
ASSETS
Non-current assets
Property, plant and equipment 220 + (240-66) +60
454
Investment property
95
Intangibles
549
Current assets
Inventories
98
Trade and other receivables (90-30-2.4)
57.60
Bank
10
165.6
Total assets
714.6
EQUITY AND LIABILITIES
Equity
Ordinary share capital
55
Preference share capital (irredeemable)
20
Revaluation surplus (25+20)
45
Retained earnings (w7)
280.1
400.10
Non-current liabilities
10% loan stock
130
Deferred tax
12
Current liabilities
Trade and other payables (105 + 4.3 +40)
151.50
Preference dividend payable
1
Taxation
20
172.50
Total equity and liabilities
714.60

Page 13

Workings

W1 - Allocation of costs

Cost of sales

Admin

000

000
127

Admin/Selling
Opening inventory
Purchases
Wages and salaries
Bad and doubtful debts (30 -9.10)
Depreciation:
Buildings W2
Equipment (25% x (190 110)
Legal costs re litigation against supplier
Contingent asset (write off)
Closing inventory (110 -12)

95
796
102
3
20

70
(98)
988

*11.5 ((90 -30) x 4%) = 9.1 (decrease)

Selling
& Distribution
000
116
20.9

40
170

136.9

W2 - Depreciation on buildings
240,000/40=6,000 pa

W3 - Investment property
Changes in valuation go directly to SCI (5,000)
W4 - SCI taxation
Income tax
Under-provision

20,000
6,000
26,000

W5 - Interest accrual
6,500 paid but should have paid 10% x 13,000 = 13,00
Therefore accrue 6,500 at 31 December 2009.
W6

Write off 40,000 against retained earnings brought forward.

W7 - Retained earnings

Brought forward
Prior error (38 + 2)
Dividend paid
Preference dividend
Profit for the year
At 31 December 2009

000
216
(40)
(18)
(1)
123.10
280.10

Page 14

(21 Marks)
Presentation 1 mark

(b)

Memorandum

To: Financial Controller

From:
A. N. Accountant
Date: XX/XX/XX

Subject:

1.

2.

3.

4.

Accounting Issues

Legal claim against the supplier

Logan Ltd should not be accruing for a contingent asset of 70,000. IAS37 is specific in stating that
contingent assets must not be recognised. Only when the realisation of the related economic benefits
is virtually certain should recognition take place. This is an application of the prudence concept. Where
inflow of economic benefits is probable, the contingent asset should be disclosed. Legal costs should
be accrued for as it is very probable case will be successful..
Inventories must be valued at lower of cost or net realisable value as per IAS2.
To include inventory at higher value of 31,000 would be to overstate profits in the current accounting
year (by decreasing cost of sales). Most realistic price is 19,000- therefore write down the difference
for slow moving inventory.

IAS38 outlines strict criteria for capitalisation of intangible assets. Brand would appear to have been
generated internally and would not meet IAS38 criteria. Need to add back the amortisation charge of
2,000 (via retained earnings) and adjust the retained earnings (brought forward) for prior year error
of 38,000. i.e. adjust for 40,000 in total.
(6 marks)
Purpose of Statement of Changes in Equity Statement (SOCE)

The main purpose of a SOCE statement is to show how each component of equity has changed during
an accounting period. In the case of a company, these components are share capital and each of the
companys reserves. Total comprehensive income and effects of any retrospective application of
accounting policies/restatement of items should be shown.
(2 marks)
[Total: 30 marks]

Page 15

SOLUTION 3
1.

(a)

2.

(c)

3.

(a)

5.

(d)

4.

(d)

(d)

(a)

Balance b/f
Interim dividend
Final dividend

40,000
22,000
60,000
122,000
60,000
62,000

Less dividend o/s

Dividend paid
Bentub
Jontub

(ii) and (iii)

No.
8,400
2,800

Cash price
Less deposit

@ 10%

Cost
22
26

NRV
34*.85=28.9-4=24.9
34*.85=28.9-4=24.9

184,800
69,720
254,520

35,000
11,000
24,000

2,400

(b)
Inventory Turnover
2009
820 *365=166days
1,800

2008
760*365=185days
1,500

Page 16

Average collection period for trade receivable

2009
2008
650*365=70days
510*365=64 days
3,400
2,900

SOLUTION 4
(a)

(b)

(c)
(i)

Intangible assets are Identifiable non-monetary asset without a physical presence. Examples include:
legal (copyrights, patents)
Competitive (knowledge, human capital)
must be identifiable
must have control over the asset
there must exist future economic benefit to the business
the cost of the asset is identifiable
(5 marks)

Technically feasible
Intent and ability to complete
Can be used or sold
Will generate probable future economic benefits
Resources available to complete
Ability to measure

The fair value of the patent at 31 December 2009 should be revalued to 2m as the life of the asset has been
reduced to one year. The amount of the asset needs to be written off by 8m with a written down value of
2m at the reporting year end. The change needs to be disclosed in the notes to the accounts.
Balance at 1 January 2008 (12m 1/6)
Write off
Balance at 31 December 2009 (1 year remaining)

(ii)
(d)

(3 marks)

Wash and go:

Wipe clear:

Soft and clean:

capitalise 1m
Write off over 4 years (250,000 pa)

10m
8m
2m

write off full development cost of 400,000 as outcome and future costs are
unknown and it is uncertain if is it technically or financially viable?

Write off over the life of the patent. Capitalise 600,000 amortise 100,000
pa
(need to review)

Training costs are not allowed as staff are not under control of Smith plc, and when staff leave the benefits
of the training, whatever they maybe, may also leave. Therefore write off 200,000 in full.
(9 marks)

Student could make reference to:

Useful life
Split between internally generated and other
Amortisation rates
Gross and accumulated amortisation amount
Amortisation charge
Reconciliation of balances from the start to the year end
Other

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(3 marks)

[Total: 20 marks]

SOLUTION 5
(a) Working 1
Contract

2008
Contract value

Estimated costs to complete

Estimated total profit

2009
Original contract value
Revision

Estimated total costs to complete

Overall profit/(loss)

Turnover to date (30 Sept 2009)

Less turnover recognised in 2008
Turnover for 2009

Profit or loss for 2009

Full loss provided
Cork work not sufficiently advanced
To date (60% x 7.04)
Less 2008 (38% x 7.04)
Cost of sales (balancing figure)

Dublin
m
32.00

Cork
m

Drogheda
m

32.00

20.00

24.96
7.04

13.6
6.4

25.50
1.0
26.50
29.08
(2.58)

24.96
7.04

19.5
(12.00)
7.5

4.22
(2.68)
1.61
5.89

1.5
1.5
-

1.5

11.5
11.5

(2.58)

14.08

Cork project considered at too early a stage for including profit. Alternative approach could be adopted if
there was more certainty.
Statement of Comprehensive Income
Revenue
Cost of sales
Profit/Loss
Statement of financial Position
Cost to date
Recognised profit/losses
Progress billings
Due from customers for contract work

Progress billings
Amounts received
Trade receivables

7.5
5.89
1.61

1.5
1.5
Nil

11.5
14.08
(2.58)

21.76
4.29
(17.40)
8.65

3.10
(1.20)
1.9

24.68
(2.58)
(11.40)
10.7

17.40
14.34
3.06

1.2
1.2

11.4
8.20
3.2

Note:
Assuming the above outcomes have been estimated reliably, we can estimate the percentage completion of
each contracts contract activity; using the value of work certified on a cumulative basis.
2008
Work certified to date/contract value
38%
(12/32)
2009
Work certified/contract value
61%
7.5%
N/A(losses)
(19.5/32) (1.5/20)
(13 marks)
Page 18

(b)

(c)

Disclosures include

Amount of contract revenue recognised during the accounting period

Methods used to determine contract revenue for the period
Methods used to determine stage of completion of contracts in progress

(3 marks)

Timing of profit is an important aspect of a statement of comprehensive income showing a faithful

representation. Only realised profits should be disclosed as part of profits for the year. With construction
contracts, the process of completing the project takes a relatively long time and, in particular, will spread
across at least one accounting period-end. It would not be reasonable to wait until the project is finished
before taking profit. IAS11 recognises profit on uncompleted contracts in proportion to some measure of the
percentage of completion applied to the estimated total contract profit. This reflects the accruals concept as
opposed to the prudence concept. However, if it is not possible to make a reliable estimate of the contract
outcome, IAS11 does not permit any profit to be recognised. However, sufficient contract revenue may be
recognised to cover the costs to date, so long as it is thought that these costs will be recovered.
(4 marks)

[Total: 20 marks]

Page 19