You are on page 1of 35

 

 
 
 
 
 
 

 
Diploma in IFRS (June 2012) 
Revision Pack 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 

 

 

 

 

 

 

 

 

 
 
Page 
Q1      Glenapple Plc ...............................................................................  3                
Q2      McDowell Ltd ...............................................................................  8 
              
           Glen Oaks Chemist   .....................................................................  9    
Q3      Gates Plc  ..................................................................................... 10                      
Timber Lodge Ltd ......................................................................... 10         
 
(Question 1 to 3 taken from Chartered Accountants Ireland Sample exam paper 1 issued September 2011) 

 

Q4     Rainbow Ltd .................................................................................. 14                   
Q5     GP Ltd ........................................................................................... 16                            
          Flintstone Ltd ................................................................................ 17                
Q6     Equity and liabilities...................................................................... 18   
          Young Life Ltd................................................................................ 18               
 
(Question 4 to 6 taken from Chartered Accountants Ireland Sample exam paper 2 issued Feb 2012 ) 

 
Q7    Trafalgar Plc  .................................................................................. 19                
Q8    Patchet........................................................................................... 21              
             
(Question 7 to 8 taken from ICEAW website – Diploma in IFRS February 2012 exam) 

 
Q9      Delta............................................................................................. 23                            
Q10    Rose ............................................................................................. 25                             
Q11    Alpha (1) ...................................................................................... 27                     
Q12    Alpha (2)  ..................................................................................... 29                      
Q13    Jocatt ........................................................................................... 32                             
 
 
(Question 9 to 13 taken from ACCA Diploma in IFRS past exam papers) 

 
Sample questions/ exam papers, other than those published by Chartered Accountants Ireland and expressly 
referred to as sample papers provided for the Diploma in IFRSs, should only be used for revision purposes, to 
test your comprehension of a specific element of the course, i.e. a specific Standard. Participants should only 
use these in conjunction with the Chartered Accountants Ireland samples. These sample papers should be used 
as the core complementary material to aid your study and revision in advance of the final examination and as 
tools to familiarise yourself with the layout of the final examination and to perfect aspects of exam timing.  

 
 

Chartered Accountants Ireland
Diploma in IFRS
Exam 1 - Pilot
Day / Date / Time:

 

XXXXXXX, Y:00 p.m. G.M.T GAV – IS THIS NEEDED FOR
PILOT?

There are 3 questions, all of which are compulsory.

An exam total of 100 marks are allocated across the 3 questions.

The examination duration is 2 hours and 30 minutes; of which the first 30 minutes is
designated reading time. Candidates are not permitted to write in their answer booklets
until the designated reading time is completed.

Wherever possible and appropriate, arguments should be supported by reference to
appropriate accounting standards.

There is a 5 minute allowance at the conclusion of the examination to enable candidates
to tidy his / her answer book including ensuring that the examination number and
number of questions answered have been correctly completed.

Only answers written into the official Chartered Accountants Ireland Examination
booklet will be accepted.

Please submit and reference all workings.

 

3

220 27.050 Total Comprehensive Income 6.500 Trade receivables 21.445 Other comprehensive income Gains on property revaluation 2.400 15.700) Profit before tax 6.720 3.220 64.000 Property 15.905) Profit after tax 4.600 20.000 12.110 Assets Non-current assets Current assets Page 2 of 9    4 .300 Total assets 77.Chartered Accountants Ireland DIPLOMA IN IFRS – 2011 Course Exam: QUESTIONS Question 1 Glen-apple plc Consolidated Statement of Comprehensive Income for the year ended 30 June 2011 € Revenue 12.350 Tax (1.000 Cost of sales (3.810 Plant and machinery 14.800) Income from associate 2.800 Total current assets 34.500 12.000 Total non-current assets 43.810 Inventory 12.000 36.200) Operating expenses (2.495 Glen-apple plc Consolidated Statement of Financial Position as at 30 June 2011 and 2010 2011 2010 Investment in associate 13.050 Finance costs (1.

000 Total current liabilities 10. Lease A Lease A is to rent a black and white photocopier.900 23.200 9.200 1. The rent is charged based on a monthly fixed fee of three cents per copy.020 26.520 Net assets 36. The rent is charged based on a monthly fixed fee of €180.040 Net equity 36.600 1.700 13.590 Equity 5.900 Total non-current liabilities 30.550 Revaluation reserve 4.120 30.450 2.920 Total liabilities 41.100 2. Lease B Lease B is to rent a colour photocopier. and the present value of the rental payments are €6. The lessor granted a Page 3 of 9    5 .000. Glen-apple plc accounting policy elects the optional annual transfer of the revaluation reserve. Total depreciation for the year was €900.560 Overtime payable 1. The copier was delivered on the last day of the year and no payments have been made to date.000 2.200 9.Chartered Accountants Ireland DIPLOMA IN IFRS – 2011 Course Exam: QUESTIONS Liabilities Non-current liabilities Provision for site restoration 20. the company signed two leases outlined below.600 2.280 Finance lease liabilities 2.100 33.120 30.910 Bank overdraft 1. and the present value of the rental payments are €16. No other leases were entered into in the current financial year.000 Retained earnings 27.700 Finance lease liabilities 10. (2) On the last day of the financial year.170 Provision for legal claims 3.000.590 Current liabilities Equity Notes (1) Property has a remaining useful life at 1 July 2010 of 40 years.600 Trade payables 1.350 2.

000 Receivables €2.000 (6) During the year. The supplier is obligated under this contract to maintain the asset.700.000 Machinery €1. This theft has not been adjusted for in the financial information presented. (3) On 15 April 2011 the bonus issue of equity shares of one share for every five shares held was and this was issued from retained earnings. (7) Machinery to the value of €4. The Machinery was not recorded in the statement of position as it had a cost of nil to the company. The current year and prior year’s inventory was falsified with empty boxes during the stock count.000 in the prior year.000 was purchased with proceeds from a government grant. this would be expected to be approximately 25% of the contract value. The purchase price of a new copier would have been €4. The copier was delivered on the last day of the year and no payments have been made to date. and if the entity were to enter into a contract of this type independently.Chartered Accountants Ireland DIPLOMA IN IFRS – 2011 Course Exam: QUESTIONS concession and structured the payments so that they start in the 15th month after the asset has been delivered. asked you to work it out from the information provided. There was also an issue of shares for cash during the year on 1 May 2011. (8) The movement in site restoration relates only to plant acquired in the current year. At the date of acquisition. (4) The secretary that typed up this report misplaced the amount that was paid for dividends and as she was in a hurry to leave for vacation. The financial statements are consolidated and include the year end balances as per IFRS.000. it was uncovered that the warehouse supervisor stole €2. and it is unlikely that the amount is now recoverable. Page 4 of 9    6 . Glen-apple plc purchased 100% of Pear Co for €2. Required: Prepare the consolidated statement of cash flow for Glen-apple plc using the indirect method for the year ended 30 June 2011 and the consolidated statement of changes in equity for Glen-apple plc.000 Payables €2. Exactly 75% of the rental fee is to cover the usage of the equipment. The supervisor has left the country shortly after she was caught. the fair value of the assets and liabilities of Pear Co were as follows: Cash €1. (5) During the year.

Chartered Accountants Ireland DIPLOMA IN IFRS – 2011 Course Exam: QUESTIONS (Notes to the statements are not required.) [50 Marks] Page 5 of 9    7 .

acquired an 80% equity interest in Penny Mart Ltd. and allocate the impairment loss between the parent and the non controlling interest. On 15 July 2011. the corporate tax rate is 33% and in the tax jurisdiction of McDowell. The inventory was sold to a third party in the normal course of operations six months after the acquisition date by McDowell.  the only difference between the carrying value and the fair value of identifiable assets and liabilities is related to inventory where the fair value was larger than the carrying value by €3 million. At the date of acquisition. The policy of McDowell is to value the NCI at the fair value of the identifiable assets. [5 Marks] Total Marks: 15 Page 6 of 9    8 . In the tax jurisdiction of Penny Mart. [4 Marks] c) Calculate the impairment loss on goodwill in 2011. McDowell Ltd. Required: a) Calculate the goodwill recorded in the group accounts for McDowell as at 1 January 2010.Chartered Accountants Ireland DIPLOMA IN IFRS – 2011 Course Exam: QUESTIONS Question 2 (comprises both a Part A and Part B) Part A: McDowell Ltd. At that date the carrying value of Penny Mart was €35 million. the corporate tax rate is 40%.  the fair value of the identifiable assets and liabilities were €35 million (excluding deferred tax). the following financial information is relevant:  the consideration was €45 million cash. the recoverable amount of Penny Mart was determined to be €30 million. [6 marks] b) Explain the impact of the inventory fair value difference for the 2010 financial year. on 1 January 2010.

One of these companies.000 5.300 10. and the net selling prices (after selling costs) are listed below: Carrying value Net selling As at 30 June 2011 Price Inventory 5.300 Leasehold improvements Notes: (1) The selling price of the inventory is how much Mr. Murphy (he owns a pharmacy in a neighbouring town) would purchase the inventory.000 9.000 Delivery vehicle 7. this being an impairment indicator under IAS 36. these products would be sold to retail customers at €6. and the selling costs are approximately €2.000.000 Computers 3. should be recorded at in the statement of financial position at 30 June 2011. the leasehold improvements would have a value of nil.Chartered Accountants Ireland DIPLOMA IN IFRS – 2011 Course Exam: QUESTIONS Part B: Glen Oaks Chemist Ltd. Required: Calculate the amount that the assets of Glen Oaks Chemist Ltd. [15 Marks] Total Marks – Part A and B: 30 Page 7 of 9    9 . is a pharmacy located in a small industrial town primarily serving the pharmaceutical requirements of the employees of two main companies in the town. The impairment event occurred on 30 June 2011.000 3.000.000. has recently significantly reduced its workforce. (2) If the assets are sold. If Glen Oaks operations continue. the value in use of Glen Oaks was estimated at €10.000 1. After an impairment review. The business in its entirety is considered one cash generating unit. operating in the shipbuilding industry.000 0 25. Glen Oaks Chemist Ltd.

national park regulations require that trees infected with Virus J be cut down within 180 days of notification by the national park. and Timber Lodge was notified that 325 trees were infected with Virus J. as the trees are then not stable. based on IAS 37. [10 Marks] Part B: Timber Lodge Ltd. it was noted from a review of email correspondence that the previous accountant (a relatively new and experienced) was considering whether to make a provision for environmental damage caused during the construction of an ocean based oil rig. Page 8 of 9    10 . Required: Explain. Therefore. through securing the assistance of university students during their summer holiday period.000 per tree. The notification from the national park was received on 15 May 2011. the national park will cut down the trees at a cost of €1. After the new accountant conducted a review in November 2010. If the trees are not cut down by Timber Lodge. No provision was made in the statement of financial position as at 30 June 2010 for environmental damage. As of 30 June 2011. Timber Lodge Ltd.Chartered Accountants Ireland DIPLOMA IN IFRS – 2011 Course Exam: QUESTIONS Question 3 Gates plc Gates plc hired a new accountant on 15 October 2010. the trees were not removed and no contract was signed for their removal. Virus J kills a tree within a matter of months by destroying the root system. is a luxury five star resort. If Timber Lodge cuts down the trees themselves. Timber Lodge’s financial year end is 30 June. they estimate a cost of €500 per tree for such felling. The resort was recently inspected by the National Park Services. Required: Discuss the facts and circumstances that would indicate whether the adjustment for the environmental damage is a change in accounting estimate or an accounting error. Your answer should outline the determining factors that should be reviewed to determine the correct classification of whether it is a change in estimate or an accounting error. the obligating event triggering the liability for the removal of trees and the related accounting treatment in the financial statements for the year ending 30 June 2011. they may fall at any time and thereby endanger life.

Chartered Accountants Ireland DIPLOMA IN IFRS – 2011 Course Exam: QUESTIONS [10 Marks] Total Marks – Part A and B: 20 Page 9 of 9    END OF EXAMINATION 11 .

12 .

 Candidates should take care to ensure that the information on the cover of the answer booklet accurately reflects the questions which have been attempted.Chartered Accountants Ireland Diploma in International Financial Reporting Standards Sample Paper 2  There are 3 questions. © Chartered Accountants Ireland 2012.  Only answers written into the official Chartered Accountants Ireland Examination booklet will be accepted.  An exam total of 100 marks are allocated across the 3 questions.  Please submit and reference all workings.  This is an open-book examination. Candidates are not permitted to write in their answer booklets until the reading time has elapsed.  There is a 5 minute allowance at the conclusion of the examination to enable candidates to tidy his / her answer book including ensuring that the examination number and number of questions answered have been correctly completed.  Wherever possible and appropriate. The examiner will mark the answer book on that assumption. Whilst every effort is made to ensure all the information contained in this document is correct at date of publication. 13 . the duration is 2 hours and 30 minutes of which the first 30 minutes is designated reading time. Chartered Accountants Ireland reserves the right to amend any information herein contained at its discretion and without prior notice. all of which are compulsory. arguments should be supported by reference to appropriate accounting standards.

The terms of the scheme granted 100.200 150. revalued its land to €25. at 30 June 2011: € Revenue Purchases Other expenses Interest expense Tax expense Dividend income – Beares plc.at cost (note ii) Plant and equipment – cost Depreciation 1 July 2010 .000 10.000 100.000. The building had an estimated life of 40 years as at 1 July 2006.000 350.000 30.Plant and equipment Depreciation 1 July 2010 . no adjustments have been recorded as the finance director is of the opinion that the triggering event to record this will be when the share options are exercised.000 1.000 20.000 9. 90% of the options are expected to vest. (iii) Rainbow Ltd.000 45. and this was revised to 85% on 30 June 2010 and then to 80% on 30 June 2011. (ii) On 1 July 2010 Rainbow Ltd.Building Trade receivables Inventory – 1 July 2010 (note i) Bank Trade payables Deferred tax liability opening balance (note v) Share capital Share premium Retained earnings 1 July 2010 € 1.000 options and those options may be exercised on 1 January 2013.000 241. The company elects for the optional transfer of the revaluation reserve.500 24.468. To date. This includes €5.000 of slow moving inventory that is expected to be sold for a net €3. At the grant date. The fair values of the options were as follows: €4 €6 €9 1 January 2010 30 June 2010 30 June 2011 14 Page 2 of 6 . Plant and equipment is depreciated at 20% per annum on the diminishing balance basis and the current year depreciation has not yet been provided for.450 The following notes are relevant: (i) The inventory at 30 June 2011 was measured at a cost value of €85.000 550. introduced a share incentive scheme on 1 January 2010.000 and its buildings to €105.000 5.000 4.500 25.000 29.000 80.250 8. Investment in Beares plc.000.000 21.Question 1 Rainbow Ltd. Depreciation is charged on a straight-line basis. The following trial balance is for Rainbow Ltd.000. (note iv) Land– at cost (note ii) Building.

On 15 May 2011. On 30 June 2011.000 after all adjustments have been made. and this resulted in a profit in Rainbow Ltd. represents an equity interest of 15%. has a wealth of experience in new technologies that Beares plc. Beares plc.000 due to a revaluation of its Buildings net of deferred tax. of €40. (Notes to the statements are not required. Required: In accordance with IFRS. and other comprehensive income of €3. Rainbow Ltd.) Please show all workings clearly. and was not yet sold to third party customers. [50 Marks] 15 Page 3 of 6 . Two members of Rainbow Ltd. Beares plc. is considered a strategic investor for Beares plc. prepare the statement of comprehensive income and the statement of financial position for the year ended 30 June 2011. had a profit for the year of €25. Rainbow Ltd. is significantly investing in. has a 30 June year end. the inventory was in the warehouse of Beares plc. as far as the information permits.000. as Rainbow Ltd.000.(iv) In the trial balance. sold a large quantity of merchandise to Beares plc. (v) The corporate tax rate is 20% and the deferred tax liability at the end of the year is €30. the investment in Beares plc.’s key management were elected to the board of directors of Beares plc.

Required: Prepare the extracts of the tax expense to show how it is disclosed in the statement of comprehensive income and statement of financial position for the 2011 financial year in accordance with IFRS.500 during the year and GP Ltd. has adopted IAS 40 where investment properties are reflected at their current value in the financial statements. The opening balance of deferred tax was a net liability of €1.500 before taking into account any of the adjustments above and the corporate tax rate is 20%. (2) On a review of the tax computation it was noted that the current tax liability was underprovided by €500. The tax capital allowance during the year was €2. property.000. In the extracts show only the impact of the tax. (3) During the year. Gains on investment properties are taxable when the property is sold. The current year’s tax expense is €4. plant and equipment were revalued upwards by €3.500 and depreciation under IFRS was €4. has the following information to assist in the preparation of the deferred tax computation for the 2011 financial year. GP Ltd.Question 2 (comprises both Part A and Part B) Part A: GP Ltd.000.200. (1) Investment properties increased by €2. [15 Marks] 16 Page 4 of 6 .

As at 31 December 2010. work certified was 25% and at 31 December 2011.Part B: Flintstone Ltd. Flintstone Ltd. of which €3 million were incurred. The contract will take five years to complete.’s accounting policy for measuring stage of completion is to use the work certified method. Flintstone Ltd. is constructing an office block in Ballsbridge on behalf of a third party. [15 Marks] Total Marks – Part A and B: 30 17 Page 5 of 6 . is now in the second year. total costs were estimated at €8 million. The total contract is a fixed price of €10 million. total costs were estimated to be €7 million. In 2010. and the contract. which commenced in 2010. The Directors ascertain that the outcome of a contract can be estimated reliably once it is 20% complete. work certified was 50%. In 2011. of which costs incurred were €5 million. Required: Prepare the statement of financial position and the statement of comprehensive income extracts for the contract for 2010 and 2011.

Required: Discuss and justify if the accounting treatment prescribed is consistent with the definition of equity and liabilities in the conceptual framework. discuss and explain (not merely listing the requirements of the standard). After the research phase was completed. and the technology was developed to achieve this objective. Young Life Ltd. [10 Marks] Total Marks – Part A and B: 20 18 Page 6 of 6 .Question 3 (comprises both Part A and Part B) Part A: IAS specially states that redeemable preferred shares are liabilities and non-redeemable preferred shares are equity. is now in the development phase of a number of products for commercial application. [10 Marks] Part B: Young Life Ltd. Young Life Ltd. Required: Under IAS 38. the supporting evidence and documentation that would be reasonably expected to justify the capitalisation of costs during the development phase. has completed the research into enabling technology that automatically matches photos with a large global database of names.

800 The following information needs to be taken into account: (a) The company's accounting policy in respect of depreciation of its property.161. when their remaining useful life was revised to 50 years from that date.800 1.600 37.400 60.800 22. The company wishes to revalue its land and buildings at 31 December 2011.161. plant and equipment is as follows: Buildings Plant and equipment Straight line to a zero residual value (see below) 10% reducing balance The buildings were purchased on 1 January 2001 and were last revalued on 31 December 2008.400 120.800 10.000 54.900 28.000 185.300 56.700 4.800 100.1 Trafalgar is a public limited company reporting under IFRSs.000 10.000 12.000 80. The company treats depreciation of buildings as an administrative expense and depreciation of plant and equipment as a cost of sale. The trial balance of Trafalgar extracted from the company's general ledger as at 31 December 2011 showed the following balances $'000 DR Land Buildings – revalued Buildings – accumulated depreciation at 1 January 2011 Plant and equipment – cost Plant and equipment – accumulated depreciation at 1 January 2011 Development costs Investment property at 1 January 2011 Inventories at 1 January 2011 Trade receivables Cash and cash equivalents Ordinary share capital ($1 shares) Share premium Retained earnings at 1 January 2011 Revaluation surplus at 1 January 2011 (land and buildings) Long-term borrowings Deferred tax liability at 1 January 2011 Trade and other payables Dividends paid Sales Purchases Distribution costs Administrative expenses Finance costs $'000 CR 170.000 33. The surveyor's valuation was $436 million as at that date (including $180 million for the land).300 80.000 322. No land and buildings were purchased or sold during the year.000 101. 19 .400 18.500 8.000 260.900 545.800 1.

4 million $1. and the company estimated. or otherwise derecognised. No additional development expenditure was incurred in the year ended 31 December 2011. (c) The inventories figure in the trial balance is the opening inventories balance measured on the first-in first-out (FIFO) basis.2 million. The market value of the property at 31 December 2011 had risen to $11. Due to a change in Trafalgar's business. Revaluation gains (or losses) are taxable (or tax deductible) when the asset is disposed of.200 30. Development expenditure is tax deductible when incurred in the tax regime in which Trafalgar operates.2 million. at 31 December 2011. measured under the weighted average basis.100 Closing inventories at 31 December 2011. that the product's useful life was four years due to its technological nature. management performed an impairment test on the development expenditure. The product began commercial production on 1 July 2011. amounted to $41.The company treats revaluation gains as realised on disposal or retirement of the asset. 20 .2 million $3.300 31 December 2010 $'000 37.300 34. at that date. Trafalgar uses the fair value model for its investment property. (d) The investment property was purchased during 2009. Sales of the product did not achieve the amount expected during the second half of 2011. The inventory valuation method has no tax consequences. Tax is payable on gains on investment properties when they are sold in the tax regime in which Trafalgar operates. and so.6 million $0. in the tax regime in which Trafalgar operates. (b) The development costs consist of amounts capitalised in 2009 and 2010 relating to a new product development. as follows: FIFO Weighted average 31 December 2009 $'000 33. The estimated net cash flows are (at 31 December 2011 prices): Year to 31 December 2012 Year to 31 December 2013 Year to 31 December 2014 6 months to 30 June 2015 $3.8 million All cash flows occur on the final day of each period mentioned. the company decided to change its accounting policy with respect to inventories to a weighted average basis. The company recognises amortisation and impairment losses on development expenditure in cost of sales. The fair value of the development expenditure asset was expected to be less than the sum of the discounted cash flows. An appropriate annual discount rate (adjusted to exclude the effects of inflation) is 5%.

Note: A report format is not required. The following matters relating to two new investments are outstanding: (a) On 1 September 2011. Indicate how any changes proposed by the IASB could alter the accounting treatment. setting up an unquoted entity. by each investor. (5 marks) Requirements Advise the directors on the accounting treatment of the above items in Patchet's financial statements for the year ended 31 December 2011. the equipment was not depreciated from 1 April 2011 until its transfer to the new entity. using the expertise of both companies. to Dotun Electronics in pr0oportion to their ownership and in return for the share capital. however. No subsequent changes were made to the carrying amount. The arrangement is to last five years. In part (a) you should consider the effect on both the consolidated and separate financial statements of Patchet. the arrangement can be terminated and the parties can take back the equipment that they have contributed. This involved setting up a new company. in which each party holds 50% of the ordinary shares and is entitled to a 50% share of profits. (10 marks) (b) Patchet had been negotiating the arrangement for some time. Patchet has recorded the investment in Regional Electronics at its cost on 1 September 2011. Able. Under the terms of the agreement. Any new equipment necessary during the period of the agreement will be purchased by one of the parties and sold to Dotun Electronics in return for an increased shareholding and rights to the equipment at the end of the arrangement. Under the terms of the agreement. in this arrangement Patchet only has a 15% shareholding and does not have any influence in day to day financial and operating policies. Cain. Dotun Electronics also took out loan finance which was guaranteed by the two investors in proportion to their ownership. to manufacture products together. No impairment loss was necessary on 1 April 2011. Dotun Electronics has a 31 December year end. (6 marks) (c) Patchet also entered into another contractual arrangement on 1 September 2011 with another company. Dotun Electronics. Each party to the arrangement uses the equipment it has contributed to perform its part of the work under the arrangement. After the five years. It has a number of subsidiaries. Regional Electronics.3 Patchet is preparing its financial statements for the year ended 31 December 2011. Patchet entered into a contractual arrangement with another party. Patchet classified the equipment that was subsequently transferred to Dotun Electronics as held for sale. Equipment and cash to set up the business were contributed. In parts (b) and (c) you should consider the effect on the separate financial statements of Patchet only. As a result. However. each party is liable to pay for the supplies used by their equipment in the event that revenues do not cover costs. on 1 April 2011. being the carrying amount of the equipment and cash transferred at that date. financial and operating policy decisions must be made together by both parties to the arrangement. (21 marks) 21 .

Note: You are not required to restate the draft statement of financial position. No dividends were paid during the year. (5 marks) (b) Restate the above draft statement of comprehensive income (only) for the effects of hyperinflation as required by IAS 29 (insofar as the information provided permits).  Relevant prices indices are: 31 December 2010 560 31 December 2011 780 Weighted average for the year ended 31 December 2011 690  Ignore any deferred tax effects.8 million Blats and were acquired on 31 December 2010.  Income and expenses (excluding the inventories elements of cost of sales) arose evenly over the year. Opening inventories were 30. Requirements (a) Discuss the indications that an economy is hyperinflationary and explain how an entity should apply IAS 29 Financial Reporting in Hyperinflationary Economies for the first time. Work to the nearest 1 million Blats where necessary. (10 marks) (15 marks) 22 . Closing inventories were purchased just before the year end and do not need restatement.

At 31 March 2007 the market value of a loan with identical cash flows was $53 million. Delta would repair or replace them. A discount rate that is appropriate for the risks in this transaction is 10%. Note 4 – long term interest bearing borrowings On 1 April 2007 Delta borrowed $50 million for five years at an annual interest rate of 6%.000 Retained earnings at 31 March 2007 29.000 Lease rentals (Note 7) 20. The repayment makes the effective interest rate applicable to the loan 8%.000 Administrative expenses 26.000 Property.000 Income tax (Note 5) 100 Dividends paid on equity shares 5. Note 3 – inventories at 31 March 2008 The carrying value of inventories at 31 March 2008 was $25 million.000 were incurred before the year end and included within production costs in the trial balance.000 Issued equity capital 50. Delta included $12·1 million in revenue for the current year and $12·1 million in closing trade receivables.Q9 – Dalta 1 The trial balance of Delta at 31 March 2008 (its financial reporting date) is as follows: $’000 $’000 Revenue (Note 1) 164. Where warranty costs were incurred. The warranty was not offered by Delta in respect of goods sold in previous periods.000 Production costs (Note 2) 90. The market interest rate on loans at this time was 8% and so the terms of the contract provide for a repayment on 1 April 2012 of more than $50 million.000 Accumulated depreciation at 31 March 2007 22.000 Long term interest bearing borrowings (Note 4) 50. the most likely outcome is that no additional costs will be incurred. The terms of the warranty were that if the goods were defective within 12 months of the date of sale. The terms of the sale allowed the customer extended credit and the price was payable by the customer in cash on 31 March 2009.000 Trade payables 12. on average they amounted to 50% of the revenue received from the initial sale of the product. for each item sold. Note 5 – tax 23 .610 Trade receivables 53.710 Interest paid on interest bearing borrowings (Note 4) 3. Note 2 – production costs During the year ended 31 March 2008 Delta sold goods to the value of $20 million under warranty. Therefore they have not made a provision for the cost of any future warranty claims on the grounds that.000 Inventories at 31 March 2007 19.000 –––––––– –––––––– 334.710 334. plant and equipment (Note 6): At cost at 31 March 2008 77. there is an 80% chance no defects will occur in that product. for each product sold.000 Cash and cash equivalents 33.000 Deferred tax (Note 5) 7.710 –––––––– –––––––– Notes to the Trial Balance Note 1 – revenue On 1 April 2007 Delta sold goods for a price of $12·1 million. Any warranty costs that were incurred were included in the production costs for the year. Delta does not consider that the loan is part of a trading portfolio. The directors of Delta estimate that. Warranty costs of $800.000 Distribution costs 8.

000 28.010 On 1 April 2007 the open market value of the property was $60 million. – During the year $1·3 million was paid in full and final settlement of income tax on the profits for the year ended 31 March 2007. The lessor has advised Delta that the lease is a finance lease and that the rate of interest implicit in the lease can be taken as 9% per year. but no entries regarding the revaluation have yet been made. Required: (a) Prepare the statement of comprehensive income for Delta for the year ended 31 March 2008. The statement of financial position at 31 March 2007 had included $1·4 million in respect of this liability.000 ––––––– ––––––– Estimate of useful economic life (at date of purchase) Infinite 50 years Accumulated depreciation at 31 March 2007 0 5. The directors do not wish to make an annual transfer of excess depreciation to retained earnings. All of the depreciation is to be charged to cost of sales. This information is before taking account of the property revaluation (see Note 6 below) – The rate of income tax in the jurisdiction in which Delta operates is 30%. The lease was for 4 years and the annual rental (payable in advance on 1 April each year) was $20 million. – At 31 March 2008 the carrying amounts of the net assets of Delta exceeded their tax base by $28 million. (14 marks) (b) Prepare the statement of financial position for Delta as at 31 March 2008 (11 marks) Note: notes to the statement of comprehensive income and statement of financial position are not required. plant and equipment Details are as follows: Property Land Buildings $’000 $’000 Cost at 31 March 2008 (see below) 22. Note 7 – Lease rentals On 1 April 2007 Delta began to lease a large group of machines that were used in the production process.– The estimated income tax on the profits for the year to 31 March 2008 is $1·5 million. including $32 million relating to the building.600 Plant and equipment $’000 27. The lessor paid $71 million for the machines on 31 March 2007. Note 6 – property. (25 marks) (Taken from ACCA Dip IFRS June 2008 Q2) 24 .000 ––––––– 4 years 17. The original estimate of the useful economic life of the building is still considered valid. No assets were fully depreciated at 31 March 2008. The directors wish to reflect this revaluation in the financial statements.

plant and equipment 370 110 380 Investments in subsidiaries Petal 113 Stem 46 Financial assets 15 7 50 –––– –––– –––– 544 117 430 Current assets 118 100 330 –––– –––– –––– Total assets 662 217 760 –––– –––– –––– Equity and liabilities: Share capital 158 38 200 Retained earnings 256 56 300 Other components of equity 7 4 – –––– –––– –––– Total equity 421 98 500 –––– –––– –––– Non-current liabilities 56 42 160 Current liabilities 185 77 100 –––– –––– –––– Total liabilities 241 119 260 –––– –––– –––– Total equity and liabilities 662 217 760 –––– –––– –––– The following information is relevant to the preparation of the group financial statements: 1 On 1 May 2010. The Purchase consideration comprised cash of $94 million. The fair value of the non-controlling interest in Stem at 1 May 2010 was 250 million dinars. The fair value of the identifiable net assets of Stem on 1 May 2010 was 495 million dinars. 2 Rose acquired 52% of the ordinary shares of Stem on 1 May 2010 when Stem’s retained earnings were 220 million dinars. The fair value of the non-controlling interest in Petal was $46 million on 1 May 2010. The excess of the fair value over the net assets of Stem is due to an increase in the value of land. This had not been recognised in the financial statements of Petal. The draft statements of financial position are as follows. The identifiable net assets of Petal at 1 May 2010 included a patent which had a fair value of $4 million. There have been no issues of ordinary shares since acquisition and goodwill on acquisition is not impaired. operates in the mining sector. The retained earnings of Petal were $49 million and other components of equity were $3 million at the date of acquisition. a public limited company. a public limited company. Rose acquired 70% of the equity interests of Petal. Rose wishes to use the ‘full goodwill’ method. The remaining excess of the fair value of the net assets is due to an increase in the value of land. 25 .Q10 – Rose 2 Rose. at 30 April 2011: Rose Petal Stem $m $m Dinars m Assets: Non-current assets Property. The patent had a remaining term of four years to run at that date and is not renewable. The fair value of the identifiable net assets recognised by Petal was $120 million excluding the patent below. Rose acquired a further 10% interest from the non-controlling interest in Petal on 30 April 2011 for a Cash consideration of $19 million.

The property is depreciated over 20 years on the straight-line method. The company to be acquired had contract-based customer relationships with well-known domestic and international companies and some mining companies. Rose stated that the acquisition may be made because of the value of the human capital and the opportunity for synergies and crossselling opportunities.Stem is located in a foreign country and operates a mine. At 30 April 2011. Rose estimated that the fair value of all of these customer relationships to be zero because Rose already enjoyed relationships with the majority of those customers. (7 marks) (ii) Prepare a consolidated statement of financial position of the Rose Group at 30 April 2011. Rose further stated that what it was willing to pay was influenced by its future plans for the business. Under the scheme Employees receive a cumulative bonus on the completion of five years service. Its Estimated residual value at that date was $1·4 million. Stem’s management has a considerable degree of authority and autonomy in carrying out the operations of Stem and is not dependent upon group companies for finance. The change in the residual value has not been taken into account when preparing the financial statements as at 30 April 2011. 5 Rose purchased plant for $20 million on 1 May 2007 with an estimated useful life of six years. The output of the mine is routinely traded in dinars and its price is determined initially by local supply and demand. At 1 May 2010. Required: Discuss the validity of the accounting treatment proposed by Rose and whether such a proposed treatment raises any ethical issues. Additionally at 30 April 2011. (8 marks) (50 marks) (Taken from ACCA P2 Corporate Reporting June 2011 Q1) 26 . Rose estimated the fair value of the assets based on what it was prepared to pay for them. the property was revalued to 35 million dinars. The property was acquired on 1 May 2010 and is carried at a cost of 30 million dinars. Rose wishes to use the ‘full goodwill’ method to consolidate the financial statements of Stem. the estimated residual value changed to $2·6 million. Stem pays 40% of its costs and expenses in dollars with the remainder being incurred locally and settled in dinars. The bonus is 2% of the total of the annual salary of the employees. showing the exchange difference arising on the translation of Stem’s net assets. (35 marks) (b) Rose was considering acquiring a service company. The following exchange rates are relevant to the preparation of the group financial statements: 1 May 2010 30 April 2011 Average for year to 30 April 2011 Dinars to $ 6 5 5·8 3 Rose has a property located in the same country as Stem. it is assumed that all employees will receive the bonus and that salaries will rise by 5% per year. The total salary of employees for the year to 30 April 2011 was $40 million and a discount rate of 8% is assumed. Depreciation has been charged for the year but the revaluation has not been taken into account in the preparation of the financial statements as at 30 April 2011. 4 Rose commenced a long-term bonus scheme for employees at 1 May 2010. There have been no issues of ordinary shares and no impairment of goodwill since acquisition. Ignore deferred taxation. Required: (a) (i) Discuss and apply the principles set out in IAS 21 The Effects of Changes in Foreign Exchange Rates in order to determine the functional currency of Stem. The income of Stem is denominated and settled in dinars. in accordance with International Financial Reporting Standards (IFRS).

000) (8.000 500 500 (4.700 10.500 (6.000 91.000) ––––––––– –––––––– –––––––– 134.000 (110.000 30.700 87.000) (3.000) (7.000 19. The directors of Alpha estimated that the buildings element of the property comprised 50% of its market value at 1 October 2005.000 (7.000 16. All depreciation is charged on a monthly basis and presented in cost of sales.000) (66.200) ––––––––– –––––––– –––––––– 26. At the date of acquisition Beta owned a property with a book value of $28 million and a market value of $35 million.000) (1. The equity of Beta as shown in its own financial statements at that date was $32 million.000 9.500) (3.000 82.000) (7.000 4.700 10. 27 .000 6.000) (5.000) (6. Alpha issued 20 million shares to the former shareholders of Beta in exchange for the shares purchased. They considered that the original estimate of the total useful economic life of the buildings element (40 years from 1 October 2000) was still valid.800 5. At 1 October 2005 the plant of Beta had a book value of $12 million and a market value of $15 million.200) ––––––––– –––––––– –––––––– 25. Beta had purchased the property for $30 million on 1 October 2000 and estimated that the depreciable amount of the property (the buildings element) was $16 million at 1 October 2000.000 4.000 96.500 92.000) (78.Q11 – Alpha (1) 3 The income statements and summarised statements of changes in equity of Alpha.000 100.800) (3.000) ––––––––– –––––––– –––––––– 40.500 14.000 22.100 (7. Beta and Gamma for the year ended 31 March 2008 are given below: Income Statements Alpha Beta Gamma $’000 $’000 $’000 150.000) (3.600) ––––––––– –––––––– –––––––– 19.500 ––––––––– –––––––– –––––––– Revenue Cost of sales Gross profit Distribution costs Administrative expenses Profit from operations Investment income Finance cost Profit before tax Income tax expense Net profit for the period Summarised Statements of Changes in Equity Balance at 1 April 2007 Net profit for the period Dividends paid on 31 January 2008 Balance at 31 March 2008 122. No adjustments were made to the individual financial statements of Beta to reflect the information given in this note. The market value of Alpha’s shares on 1 October 2005 was $2. The estimated useful economic life of the building at 1 October 2000 was 40 years.000) (6.500 ––––––––– –––––––– –––––––– Note 1 – purchase of shares in Beta On 1 October 2005 Alpha purchased an 80% equity shareholding in Beta. The plant is depreciated on a straight line basis and the remaining useful economic life of the plant at 1 October 2005 was estimated at five years.

Required: (a) Prepare the consolidated income statement for Alpha for the year ended 31 March 2008. Note 3 – impairment reviews An impairment review at 31 March 2008 indicated that 25% of the goodwill on acquisition of Beta needed to be written off. No material differences between the market value and the book value of the net assets of Gamma was apparent at the date of the share purchase. This purchase allowed Alpha to exercise a significant influence over Gamma. no other impairments of goodwill on acquisition of Beta have been required.600 2. but Alpha was not able to control its operating and financial policies.000 Nil Beta Gamma Note 5 – dividend payments The dividend received from Gamma on 31 January 2008 was credited to the income statement of Alpha as investment income as the post-acquisition profits of Gamma were in excess of the dividend received. Apart from this. – Sales to Gamma (all in the post-acquisition period) $4 million. No impairment of the investment in Gamma has yet been necessary. (25 marks)        (Taken from ACCA Diploma in International Financial Reporting June 2008 Q1)       28 .Note 2 – purchase of shares in Gamma On 1 July 2007 Alpha purchased 40% of the equity shares of Gamma. (7 marks) Note: ignore deferred tax. Sales of the products to Beta and Gamma during the year ended 31 March 2008 were as follows (all sales were made at a mark up of 25% on cost): – Sales to Beta $12·5 million. Note 4 – inter-company sales Alpha supplies products used by Beta and Gamma. All impairments are charged to cost of sales.000 1. (18 marks) (b) Prepare the summarised consolidated statement of changes in equity for Alpha for the year ended 31 March 2008. Amount in inventory at 31 March 2008 31 March 2007 $’000 $’000 3. At 31 March 2008 and 31 March 2007 the inventories of Beta and Gamma included the following amounts in respect of goods purchased from Alpha.

000 23.000 Total current liabilities Total equity and liabilities Note 1 – Alpha’s investment in Beta On 1 April 2010 Alpha acquired 80 million shares in Beta by means of a share exchange.000 120.000 Nil –––––––– –––––––– –––––––– 453.000 –––––––– –––––––– –––––––– 51.000 5.000 81.000 60.000 –––––––– –––––––– –––––––– 589.000 55.000 7. The post acquisition performance of Beta was such that the fair value of this payment had increased to $22 million by 30 September 2011.000 44.000 29.000 172.000 –––––––– –––––––– –––––––– Total equity Non-current liabilities: Contingent consideration (Note 1) Long-term borrowings (Note 8) Deferred tax 20.000 6.000 165.000 35.000 7. The fair value of this additional payment was $20 million on 1 April 2010.000 Total assets EQUITY AND LIABILITIES Equity Share capital ($1 shares) Retained earnings Other components of equity 180. 29 .000 30.000 Nil Nil 15.000 17.000 180.000 Nil Nil 50.000 64. The investment in Beta and the non-current liabilities of Alpha at 30 September 2010 include $20 million in respect of the additional payment due to be made on 30 June 2012.000 42.000 Nil Nil –––––––– –––––––– –––––––– 457.000 73.000 Nil Nil 52.000 12.000 27.000 36.000 30.000 38.000 246.000 9.000 183.Q12 – Alpha (2) 4 Alpha holds investments in Beta and Gamma.000 35.000 246.000 120.000 9. The statements of financial position of the three entities at 30 September 2011 were as follows: Alpha $’000 ASSETS Non-current assets: Property.000 165.000 193.000 –––––––– –––––––– –––––––– Total non-current liabilities Current liabilities: Trade and other payables Short term borrowings 34. plant and equipment (Note 1) Investments: – in Beta (Note 1) – in Gamma (Note 3) – in Sigma (Note 6) Beta $’000 Gamma $’000 210.000 124.000 21.000 –––––––– –––––––– –––––––– 589.000 12.000 –––––––– –––––––– –––––––– Current assets: Inventories (Note 4) Trade receivables (Note 5) Cash and cash equivalents 65.000 15. Alpha issued one share for every two shares acquired in Beta.000 193. The terms of the business combination provide for an additional cash payment to the former shareholders of Beta on 30 June 2012 based on its post-acquisition financial performance in the first two years since acquisition.000 –––––––– –––––––– –––––––– 85.000 –––––––– –––––––– –––––––– 132. On 1 April 2010 the market value of an Alpha share was $4 and the market value of a Beta share was $1·80.000 90.000 67.000 100.

had an estimated market value of $64 million. During the year ended 30 September 2011 four of the five cash-generating units performed very satisfactorily and no impairment of the goodwill allocated to these units had occurred. had an estimated market value of $31 million. You can ignore any deferred taxation implications of the investment by Alpha in Gamma. Note 4 – Inter-company sale of inventories The inventories of Beta and Gamma at 30 September 2011 included components purchased from Alpha during the year at a cost of $16 million to Beta and $10 million to Gamma. During the impairment review carried out at 30 September 2011 assets (excluding goodwill) having a carrying amount in the consolidated financial statements of $50 million were allocated to this unit. The recoverable amount of these assets was estimated at $52 million. The rate of tax to apply to temporary differences (where required but see notes 3. 6 and 7 below) is 20%. having a carrying amount of $30 million. The estimated future economic life of the depreciable amount of the property at 1 April 2010 was 30 years. The trade payables of Beta and Gamma included equivalent amounts payable to Alpha. The fair value adjustments have not been reflected in the individual financial statements of Beta. Note 3 – Alpha’s investment in Gamma On 1 October 2010 Alpha paid $52 million for 40% of the equity shares of Gamma. – Inventory. – Other components of equity $3 million. The investment in Gamma has not suffered any impairment since 1 October 2010. having a carrying amount of $50 million (depreciable amount $30 million). having a carrying amount of $60 million. Note 2 – Impairment reviews – Beta On 1 April 2010 the directors of Alpha identified that Beta comprised five cash-generating units and allocated the goodwill arising on acquisition equally across each unit. The estimated future economic life of the plant at 1 April 2010 was four years. had a fair value of $70 million (depreciable amount $33 million). – Plant and equipment. Alpha generated a gross profit margin of 25% on the supply of these components.On 1 April 2010 the individual financial statements of Beta showed the following reserves balances: – Retained earnings $41 million. The fair value of an equity share in Beta at 1 April 2010 can be used for this purpose. Note 5 – Trade receivables and payables The trade receivables of Alpha included $5 million receivable from Beta and $4 million receivable from Gamma in respect of the purchase of components (see Note 4). No impairment of goodwill was apparent in the year ended 30 September 2010. The retained earnings of Gamma on 1 October 2010 were $60 million. It is the group policy to value the non-controlling interest in subsidiaries at the date of acquisition at fair value. All of this inventory had been sold since 1 April 2010. However the performance of the other unit was below expectations. 4. You can ignore any deferred tax implications of the information in this note. 30 . In the consolidated financial statements the fair value adjustments will be regarded as temporary differences for the purposes of computing deferred tax. This property was still held by Beta at 30 September 2011. This plant was still held by Beta at 30 September 2011. The following matters emerged: – A property. The directors of Alpha carried out a fair value exercise to measure the identifiable assets and liabilities of Beta at 1 April 2010.

Note 7 – Employees share option scheme On 1 October 2009 Alpha granted 5. Alpha correctly recognised this transaction in the financial statements for the year ended 30 September 2010. In the tax jurisdiction in which Alpha is located unrealised profits on the revaluation of equity investments are not subject to current tax. Actual employee turnover was such that this estimate was revised to 92% on 30 September 2010 and 93% on 30 September 2011. Required: Prepare the consolidated statement of financial position of Alpha at 30 September 2011. The investment was classified as fair value through other comprehensive income.000 per month for the illegal use of the vehicles.000 key employees. The actual interest paid of $2·5 million was charged as a finance cost in Alpha’s income statement for the year ended 30 September 2011. joint control or significant influence. On 1 October 2009 the directors of Alpha estimated that 90% of the key employees would satisfy the vesting condition. Relevant discount factors are as follows: Present value of $1 payable at the end of year 5 Cumulative present value of $1 payable at the end of years 1-5 5% 78·4 cents $4·33 8% 68·1 cents $3·99 Note 9 – Modification of vehicles On 1 January 2011 legislation was passed requiring Alpha to carry out modifications to its motor vehicles to enable harmful emissions to be reduced. It is likely that Alpha will be fined $500. The annual interest payable on these notes is 5 cents per note. The notes are redeemable at par on 30 September 2015 or convertible (at the option of the note-holders) into equity shares on that date. On 1 October 2010 the directors of Alpha included $50 million in long-term borrowings in respect of the loan notes. The modifications should have been completed by 30 June 2011 at an estimated cost to Alpha of $3 million. payable in arrears. They expect that a fine will become payable very shortly as legal action has commenced against Alpha. Note 8 – Long-term borrowings On 1 October 2010 Alpha issued 50 million loan notes of $1 each at par. However. Any such profits are taxed only when the investment is sold. (40 marks) (Taken for ACCA Diploma in International Financial Reporting Dec 2011 Q1) 31 . On 1 October 2010 investors in loan notes with no conversion option would have required an annual rate of return of 8%.Note 6 – Alpha’s investment in Sigma Alpha’s investment in Sigma does not give Alpha sole control. In fact by 30 September 2011 none of the vehicles had been modified although they continued to be used. they have made no additional adjustments in the financial statements for the year ended 30 September 2011. You can ignore the deferred tax implications of the information in this note. At 1 October 2009 the fair value of each share option was estimated to be $1·20. This estimate was revised to $1·25 on 30 September 2010 and $1·28 on 30 September 2011.000 share options to 1. The fair value of the investment in Sigma on 30 September 2011 was $16 million. The investment was purchased on 1 January 2011 for $15 million. The options are due to vest on 30 September 2013 provided the employees remain in employment at 30 September 2013. The directors of Alpha are uncertain exactly when they will carry out the modifications but they intend to do so sometime during the year ended 30 September 2012.

Q13.JOCATT 5 The following draft group financial statements relate to Jocatt. a public limited company: Jocatt Group: Statement of financial position as at 30 November Assets Non-current assets Property.015 –––––– 55 30 ––––– 85 ––––– 219 ––––– 874 ––––– .015 –––––– 128 113 143 ––––– 384 ––––– 874 ––––– 290 351 15 –––––– 656 –––––– 55 –––––– 711 –––––– 275 324 20 ––––– 619 ––––– 36 ––––– 655 ––––– 67 35 25 –––––– 127 –––––– 71 41 22 ––––– 134 ––––– 144 33 –––––– 177 –––––– 304 –––––– 1. plant and equipment Investment property Goodwill Intangible assets Investment in associate Available-for-sale financial assets Current assets Inventories Trade receivables Cash and cash equivalents Total assets Equity and Liabilities Equity attributable to the owners of the parent: Share capital Retained earnings Other components of equity Non-controlling interest Total equity Non-current liabilities: Long-term borrowings Deferred tax Long-term provisions-pension liability Total non-current liabilities Current liabilities: Trade payables Current tax payable Total current liabilities Total liabilities Total equity and liabilities 32 2010 $m 2009 $m 327 8 48 85 54 94 –––––– 616 –––––– 254 6 68 72 – 90 ––––– 490 ––––– 105 62 232 –––––– 399 –––––– 1.

Jocatt Group: Statement of comprehensive income for the year ended 30 November 2010 $m 432 (317) ––––––– 115 25 (55·5) (36) (6) 10·5 6 ––––––– 59 (11) ––––––– 48 Revenue Cost of sales Gross profit Other income Distribution costs Administrative expenses Finance costs paid Gains on property Share of profit of associate Profit before tax Income tax expense Profit for the year Other comprehensive income after tax: Gain on available for sale financial assets (AFS) Losses on property revaluation Actuarial losses on defined benefit plan 2 (7) (6) ––––––– (11) ––––––– 37 Other comprehensive income for the year. net of tax Total comprehensive income for the year Profit attributable to: Owners of the parent Non-controlling interest 38 10 ––––––– 48 ––––––– Total comprehensive income attributable to: $m 27 10 ––––––– 37 ––––––– Owners of the parent Non-controlling interest Jocatt Group: Statement of changes in equity for the year ended 30 November 2010 Share Retained AFS Revaluation Capital Earnings financial Surplus assets (PPE) $m $m $m $m 275 324 4 16 15 (5) Balance at 1 December 2009 Share capital issued Dividends Rights issue Acquisitions Total comprehensive income for the year –––– Balance at 30 November 2010 290 –––– 32 –––– 351 –––– 33 2 –––– 6 –––– (7) –––– 9 –––– Total NonTotal controlling equity Interest $m $m $m 619 36 655 15 15 (5) (13) (18) 2 2 20 20 27 10 37 –––– –––– –––– 656 55 711 –––– –––– –––– .

Depreciation for the period for property. the fair value of the 8% holding in Tigret held by Jocatt at the time of the business combination was $5 million and the fair value of the non-controlling interest in Tigret was $20 million. On 1 December 2009. The purchase consideration at 1 December 2009 comprised cash of $15 million and shares of $15 million. was replaced by a new system. (vi) Jocatt had exchanged surplus land with a carrying value of $10 million for cash of $15 million and plant valued at $4 million. Jocatt uses the fair value model for measuring investment property. The current service costs for the year ended 30 November 2010 are $10 million. plant and equipment was $27 million. Jocatt incurred further costs. part of the heating system of the property. The fair value of the identifiable net assets of Tigret. The consideration for the acquisitions was as follows: Holding 1 December 2008 1 December 2009 8% 52% ––––– 60% ––––– Consideration $m 4 30 –––– 34 –––– At 1 December 2009. The goodwill impairment related to those subsidiaries which were 100% owned.Tigret made a rights issue on a 1 for 4 basis.The following information relates to the financial statements of Jocatt: (i) On 1 December 2008. at the date of acquisition comprised the following: $m 15 18 5 7 Property. which included $2 million on completing the research phase. During the year. excluding deferred tax assets and liabilities. Jocatt enhanced the benefits on 1 December 2009 however. these do not vest until 30 November 2012. (v) Jocatt owns an investment property. The transaction has commercial substance. There were no other additions to intangible assets in the period other than those on the acquisition of Tigret. The tax rate of Tigret is 30%. 34 . (iii) Jocatt purchased a research project from a third party including certain patents on 1 December 2009 for $8 million and recognised it as an intangible asset. During the year. No gain or loss on the 8% holding in Tigret had been reported in the financial statements at 1 December 2009. Jocatt acquired a further 52% of the ordinary shares of Tigret and gained control of the company. Jocatt had treated this Investment as available-for-sale in the financial statements to 30 November 2009. The expected return on plan assets was $8 million for the year and Jocatt recognises actuarial gains and losses within other comprehensive income as they arise. Jocatt acquired 8% of the ordinary shares of Tigret. which had a carrying value of $0·5 million. plant and equipment Intangible assets Trade receivables Cash The tax base of the identifiable net assets of Tigret was $40 million at 1 December 2009. The total cost of the enhancement is $6 million. $4 million in developing the product for sale and $1 million for the initial marketing costs. (iv) Jocatt operates a defined benefit scheme. (vii) Goodwill relating to all subsidiaries had been impairment tested in the year to 30 November 2010 and any impairment accounted for. (ii) On 30 November 2010. which cost $1 million. The issue was fully subscribed and raised $5 million in cash.

The proceeds of the loan are to be received over the year to 30 November 2011 and are to be repaid over four years to 30 November 2015. Jocatt is entering into a long-term contract for the supply of gas and is raising a loan on the strength of this contract. (7 marks) (ii) Discuss the reasons why the directors may wish to report the loan proceeds as an operating cash flow rather than a financing cash flow and whether there are any ethical implications of adopting this treatment. (2 marks) (50 marks)              (Taken from ACCA Corporate Reporting  December 2010 Q1)    35 . Note: Ignore deferred taxation other than where it is mentioned in the question.(viii) Deferred tax of $1 million arose on the gains on available-for-sale investments in the year. Jocatt wishes to report the proceeds as operating cash flow because it is related to a long-term purchase contract. (35 marks) (b) Jocatt operates in the energy industry and undertakes complex natural gas trading arrangements. (i) Comment on the directors’ view that the indirect method of preparing statements of cash flow is more useful and informative to users than the direct method. Required: (a) Prepare a consolidated statement of cash flows for the Jocatt Group using the indirect method under IAS 7 ‘Statement of Cash Flows’. The directors of Jocatt receive extra income if the operating cash flow exceeds a predetermined target for the year and feel that the indirect method is more useful and informative to users of financial statements than the direct method. which involve exchanges in resources with other companies in the industry. (6 marks) Professional marks will be awarded in part (b) for the clarity and quality of discussion. (ix) The associate did not pay any dividends in the year.