CFR Exam Guide

COMPANY FINANCIAL REPORTING
June 2015
Examination Guide
The Examination Guide contains all questions from the June 2015 examination paper
together with the marking scheme answers and comments from the examiner.
The answers detailed below show some but not all possible answers that were
accepted by the marking team. Marks were awarded for other valid answers that
might not be included in this guide.
The Examination Guide has been created and should be used as a study aid.
© 2015 Chartered Institute of Public Finance and Accountancy

COMPANY FINANCIAL REPORTING
09 June 2015
Reading time: 10 minutes

Writing time: 3 hours
Instructions to candidates
There are five questions on this question paper.
Answer four questions in total:
Two compulsory questions from Section A

Two of the three questions from Section B
The questions in Section A carry 60 marks in total

The questions in Section B each carry 20 marks
All workings should be shown. Where calculations are required using formulae, calculators may
be used but steps in the workings must be shown. Calculations with no evidence of this (for
example, using the scientific functions of calculators) will receive no credit. Programmable
calculators are not permitted in the examinations room.
Formula sheets, Pro forma booklets, statistical tables, graph paper and cash analysis paper are
available from the invigilator, where applicable.
Where a question asks for a specific format or style, such as a letter, report or layout of
accounts, marks will be awarded for presentation and written communication.
© 2015 Chartered Institute of Public Finance and Accountancy

CFR Exam Guide June 2015
SECTION A (Compulsory)
1
The following trial balance has been produced from the ledgers of Hurst plc at 31 March 2015.
Note £ 000 £ 000

Revenue 1 8 700
Purchases 1 500
Production costs 1 200
Administrative expenses 980
Distribution costs 370
Bank interest paid 50
Research and development 2 470
Land and buildings at valuation - 1 April 2014 4,5 1 700
Equipment – at cost 6 4 500
Investment property – valuation at 1 April 2014 7 2 200
Accumulated depreciation at 1 April 2014:
- Buildings 4 400
- Equipment 6 450
Intangibles at cost 3 500
Accumulated amortisation of intangibles at 1 April 2014 3 50
Inventory at 1 April 2014 50
Bank 400
Trade Receivables 11 350
Loan 9 1 000
Interim dividend paid 350
Trade payables 400
Corporation tax 10 35
Ordinary share capital 1 250
Share premium 250
Revaluation reserve at 1 April 2014 300
Retained earnings at 1 April 2014 1 785
14 620 14 620
The following information is provided to assist you in preparing the financial statements:
1) Included within revenue is a government grant of £150 000 that Hurst plc received.
The grant relates to the employment of additional staff that will occur during the next
financial year.
2) Research and development expenditure comprises the following:
• £80 000 on general research

• £67 000 on developing new technology. At the year end the directors do not
think the development will be successful
• £323 000 on development of new production technology. The development is
almost complete and they are highly confident that the technology will result in
significant cost savings.
3) Intangibles at cost relates to a development that was being amortised over a useful life
of ten years. At 1 April 2014 this was reviewed and the development was then assessed
as having a remaining useful life of six years.
4) The £1 700 000 is based on last year’s revaluation and includes land at a valuation of
£1 000 000. Land has an indefinite useful life. The buildings should be depreciated on
the value at the start of the year and the remaining useful life was 20 years at 1 April
2014.
Page 3
5) At the year end the directors obtained the following valuations:
• Land £1 250 000

• Buildings £570 000
6) Equipment is depreciated on a straight line basis over five years. Hurst plc estimate that
the equipment is used in the business on the following basis:
• 50% in production
• 25% in the administration function
• 25% in distribution function.
7) The year end valuation of the investment property was £2 500 000 and Hurst plc’s
accounting policy is to use the fair value model for investment properties.
8) The year end inventory was valued at £65 000 but it was subsequently discovered that
goods included within this with a cost of £7 000 were sold for £ 2 000.
9) Hurst plc took out the loan of £1 000 000 on 1 April 2014 and it is repayable in four
equal annual instalments. The interest rate on the loan is 10%, payable six monthly and
Hurst plc owes six months' interest at the year end.
10) The corporation tax for the previous year was settled in December 2014 and the
estimate for corporation tax for the year ended 31 March 2015 is £625 000.
11) The directors have also discovered that a customer, who owed £125 000 at the year
end, was declared bankrupt in April 2015.
• Requirement for question 1
In accordance with the requirements of IAS 1 Presentation of Financial Statements

prepare:
(a) A statement of comprehensive income for Hurst plc for the year ended 31
March 2015 and a statement of financial position for Hurst plc at 31 March
2015. (27)
(b) Explain your accounting treatment of the revenue referred to in note 1. (3)
Note:
• Financial statements must be prepared in a format that is suitable for
publication.
• You must clearly show all workings and calculations.
• Round all figures to round £000.
(30)
Page 4
2
Below are the financial statements for Parker plc.
Statement of comprehensive income for the year ended 31 March 2015
2015 2014
£ £
Revenue 1 247 000 890 000
Cost of sales (839 500) (576 000)
Gross profit 407 500 314 000
Administrative expenses (56 800) (51 000)
Distribution costs (118 700) (79 000)
Profit from operations 232 000 184 000
Finance cost (49 800) (24 500)
Profit before tax 182 200 159 500
Taxation (29 800) (22 250)
Profit for the year 152 400 137 250
Other comprehensive income
Gain on revaluation 36 800 16 550
Total comprehensive income for the year 189 200 153 800
Dividends Paid 80 000 40 000
Statement of financial position at 31 March 2015
2015 2014
£ £
Non-current assets
Property, plant and equipment 425 000 319 000
Current assets
Inventory 89 300 52 000
Receivables 198 600 108 900
Cash and cash equivalents - 17 100
287 900 178 000
Total assets 712 900 497 000
Equity and liabilities

Share capital 100 000 100 000
Revaluation reserve 65 800 29 000
Retained earnings 214 400 142 000
380 200 271 000
Non-current liabilities
Loan 260 000 170 000
Current liabilities
Trade payables 57 700 56 000
Overdraft 15 000 -
72 700 56 000
Total equity and liabilities 712 900 497 000

Page 5
(a) Prepare a report on behalf of the shareholders of Parker plc that covers the
following areas:
• Calculation of ten ratios (10)

• Assesses the performance of Parker plc for the year ended 31 March
2015. (12)
• Identify any limitations of your analysis and how these could be
overcome. (5)
(b) As a student accountant you work in the finance department of Parker plc and
as part of your role you are aware that Parker plc is likely to win a major new
contract that is likely to significantly improve profits.
A friend says that they have heard a rumour about Parker plc and asks you for
information.
Discuss the ethical issues this situation presents. (3)
(30)
Page 6
SECTION B (Answer TWO from three questions)
3
Statements of financial position at 31 March 2015
Teddy Bear
plc ltd
£ 000 £ 000
Non-current assets
Property, plant and equipment 1 250 450
Investment in Bear ltd 450 -
Current assets
Inventory 125 25
Receivables 130 90
Cash 89 100
2 044 665
Equity and reserves
£1 share capital 500 100
Share premium 25 50
Retained earnings 1 096 366
Loan 320 50
Current liabilities
Trade Payables 78 89
Tax 25 10
2044 665
The following information is also available:
1) Teddy plc acquired 75,000 ordinary shares of Bear ltd on 1 April 2013 and at that date
the retained earnings of Bear ltd was £250 000.
2) At acquisition the fair value of Bear ltd’s property, plant and equipment was £95 000
above the book value. This has not been reflected in the financial statements. The
additional depreciation on this would be £3 000 per year.
3) Teddy plc is accounting for the non-controlling interest by valuing it at fair value. The
fair value of the goodwill attributable to the non-controlling interest is £18 250.
4) Included within the receivables of Teddy plc is £45 000 that is owed by Bear ltd.
5) At the year end the directors decide that the goodwill relating to Bear ltd needs to be
impaired by £35 000.
Page 7
(a) Prepare the consolidated statement of financial position for the Teddy group at
31 March 2015. (14)
(b) Explain any additional consolidation adjustments that would have arisen if you
became aware that Bear ltd had sold goods to Teddy plc during the year. (4)
(c) Briefly define the concept of significant influence as per IAS 28 Investments in
Associates and Joint Ventures. (2)
(20)
Page 8
4
Part (a)
The accountant at Butler plc has gone on sick leave and there are some outstanding issues that
need to be resolved before the financial statements can be prepared. The year end is 31 March
2015 and you have been asked to prepare any required adjustments for the following
transactions:
1 Butler plc incurred £300 000 on borrowing costs during the year and the full
amount has been recognised as an expense in profit or loss. You are now aware
that £50 000 of this interest relates to the construction of a new warehouse
which is a qualifying asset. (3)
2 During the year Butler plc has sold goods with a warranty. The production
department have estimated that the repair cost for goods sold this year would be
£265 000. (3)
3 On 1 April 2014 Butler plc entered in to a finance lease over a period of three
years. The fair value of the leased asset was £250 000 and they were to make
three payments on 30 March every year of £100 525. The interest rate implicit in
the lease is 10%.
The only entries recorded for this transaction were:
Debit Expense-lease cost £100 525
Credit cash- £100 525 (7)
4 The current balance on the deferred tax liability account is £450 000.
The deferred tax liability as at 31 March 2015 has been calculated at £400 000. (2)
• Requirement for question 4 part (a)
(a) For each of the four transactions above explain the accounting issue and prepare
adjustment journals.
For transaction 3) you are not required to split the liability between current and non-current
liability. (15)
Part (b)
After the above adjustments Butler plc’s profit after tax for the year is £637 000.
At the beginning of the financial year Butler plc had 6 000 000 £1 shares in issue.
On the 31 December 2014 there was a 1 for 5 rights issue. The rights issue was at £1.65 per
share and the market value of the shares, immediately before the issue, was £2.00.
• Requirement for question 4 part (b)
(b) Calculate the basic EPS for Butler plc for the year ended 31 March 2015. (5)
(20)
Page 9
5
Part (a)
The Conceptual Framework consists of a set of fundamental principles and definitions that
underlie the preparation of financial statements.
• Requirement for question 5 Part (a)
Define an asset and a liability as elements of the financial statements and

illustrate your definition with an example of each. (4)
Part (b)
Globalisation of financial markets has led to the idea of companies producing integrated
reports. These reports contain both financial and other information and aim to show how the
business created value over a period of time.
• Requirement for question 5 Part (b)
Explain five potential benefits of providing an integrated report. (5)
Part (c)
You work for Barley ltd and the Finance Director has asked for your advice on the preparation
of the financial statements for the year ended 30 April 2015. She has provided you with the
following information:
(i) Within the year-end inventory are goods that were purchased by Barley ltd under a
consignment agreement. The agreement is that Barley ltd can return the goods at any
time and the price will be determined by market changes.
(4)
(ii) The Board of Barley ltd met on 1 April 2015 and agreed on a decision to sell a
warehouse. At the year end the warehouse is on the market and a sale is considered to
be highly likely.
(4)
(iii) In May 2015 there was a flood at one of Barley ltd’s warehouses. The flood caused
damage to inventory that had cost £125 000 and now needs to be destroyed.
(3)
• Requirement for question 5 Part (c)
For items (i) – (iii), explain the correct accounting treatment and the impact
on the financial statements. Your answer should refer to the relevant
accounting standards and concepts. (11)
(20)
Page 10
Marking Scheme for question 1
(a) Hurst plc

Statement of comprehensive income for the year ended 31 March 2015
£000 Marks
Revenue (8700 - 150) 8 550 1
Cost of sales (W1) (3 362) 4 (W1)
Gross profit 5 188
Distribution costs (W1) (595) 1 (W1)

Administrative expenses (W1) (1 345) 2 (W1)
Other income (2 500 - 2 200) 300 0.5
Profit from operating activities 3 548
Finance costs (50 + 50) (100) 1

Profit before tax 3 448
Taxation (625 – 35) (590) 1
Profit after tax 2 858
Other comprehensive income

Revaluation of land and buildings (250&285) (W2) 535 0.5
Total comprehensive income 3 393
1
Presentation
(12 marks)
Page 11
Hurst plc
Statement of financial position as at 31 March 2015
£000 Marks
Non-current assets
Property, plant and equipment (W2) 4 970 3(W2)
Intangibles (W3) 698 2(W3)
Investment properties 2 500 0.5
8 168
Current assets
Inventories (W4) 60 1(W4)
Receivables (350 - 125) 225 0.5
Bank 400 0.5
Total current assets 685
Total assets 8 853
Equity and Liabilities
Share capital 1 250 0.5

Share premium account 250 0.5
Retained earnings (1 785 – 350 + 2 858) 4 293 1.5
Revaluation reserve (300 + 535) 835 0.5
Total equity 6 628
Loans (1 000 x 3/4) 750 0.5
Current liabilities:
Trade payables 400 0.5
Accruals 50 0.5
Deferred income 150 1
Bank loans(1 000 x 1/4) 250 0.5
Current tax payable 625 0.5
Total current liabilities 1 475
Total equity and liabilities 8 853

1 for presentation
(15)
Workings
Page 12
1) Expenses
Cost of Admin Dist Marks

sales
£000 £000 £000
Per TB 1 500 980 370 1.5
Per TB 1 200 0.5
Research 80 0.5
Development 67 0.5
Dep’n on buildings (W2) 15 0.5
Dep’n on equipment: 450 225 225 1.5
W2 900 *50%
W2 900*25%
Amortisation W3 75 0.5
Opening inventory 50 0.5
Bad debt 125 0.5
Closing inventory W4 (60) 0.5
3 362 1 345 595
(4) (2) (1) (7)
Equally correct to present R&D and amortisation under admin.
2) PPE
Land Buildings Equipment Total Marks

£000 £000 £000 £000
Per TB 1 000 700 4 500
Per TB (400) (450)
300 4 050
Depreciation:
300/20 years (15) 1
4 500/ 5 years (900) 1
Revaluation 250 285 1

Closing 1 250 570 3 150 4 970
(3)
3) Intangible
£000 Marks
Per TB 500
(50)
450
Additions 323 1
Amortisation (75) 1
450/6 years
Closing 698
(2)
4) Inventories
Page 13
£000 Marks
Per TB 65
Cost (7)
Net realisable value 2
60 (1)
Part
(b) The £150 000 has currently been recognised as revenue. The
amount relates to a revenue grant from the government and the 1 mark for
accounting rules of IAS 20 Government Grants should be followed. each, up to
This means that the grant should be recognised in profit or loss 3 marks
when the associated expenses are incurred. total
The additional staff costs will occur in the next financial year and
the grant should be matched against this cost hence the £150 000
should be removed from revenue and shown as deferred income.
(3)
(30)
Page 14
Examiner’s comments on question 1
This question required candidates to prepare a set of financial statements from a trial balance.
As is usual in CFR, candidates tend to be well prepared for this style of question and, this was,
on average, the best answered question on this paper.
The common errors in this question were:
• Revaluation calculated at the wrong point of the year. The question required candidates
to depreciate the land and buildings for the year and then revalue at the year end. The
majority of candidates revalued first and then calculated depreciation for the year.
Candidates did then obtain marks for following through their own figures and showing
the gain in other comprehensive income.
• A few candidates incorrectly calculated the depreciation on equipment; this was
surprising as it was just on a straight line basis so should be calculated on cost.
• Some did not deduct the bad debt from trade receivables.
• The majority of candidates correctly recognised the £80 000 and £67 000 as an
expense but then the calculation of the intangible balance was frequently incorrect as
they did not add the £323 000 to the intangibles.
• Calculating the amortisation, the question stated that the remaining useful life had been
reviewed as six years. That means the carrying value should then be spread over six
years.
• Some did not deduct dividends from retained earnings.
• Some did not split the bank loan between current and non-current liabilities.
Page 15
Marking scheme for question 2
Part (a)
Report on the performance of Parker plc
2015 2014 Marks
ROCE 232 000 / 184 000 /

(380 200 + 260 000) (271 000 + 170 000)
= 36.25% = 41.72%
Gross profit margin 407 500 / 1 247 000 314 000 / 890 000 =
= 32.68% 35.28%
Operating profit 232 000 / 1 247 000 184 000 / 890 000
margin = 18.60% = 20.67%
Non-current asset 1 247 000 / 425 000 890 000 / 319 000
turnover = 2.93 times = 2.79 times
Current ratio 287 900 / 72 700 178 000 / 56 000

= 3.96 = 3.18
Quick ratio 287 900 - 89 300 / 178 000 - 52 000 / 0.5 per
72 700 56 000 correct ratio
= 2.73 = 2.25 up to a
maximum of
Inventory days 89 300 / 839 500 x 52 000 / 576 000 x 365 10 marks.
365 = 32.95 days Accept any
= 39 days other valid
ratios.
Receivables days 198 600 / 1 247 000 x 108 900 / 890 000 x 365
365 = 44.66 days
= 58.13 days
Payable days 57 700 / 839 500 x 56 000 / 576 000 x 365

365 = 35.49 days
= 25.09 days
Gearing 260 000 / 170 000 /

(380 200 + 260 000) (271 000 + 170 000)
= 40.61% = 38.55 %
Interest cover 232 000 / 49 800 184 000 / 24 500

= 4.66 times = 7.51 times
Ordinary dividend 152 400 / 80 000 137 250 / 40 000

cover = 1.91 times = 3.43 times
(10)
Reference can be made to the following items: Marks

Page 16
Profitability
Parker plc’s revenue has increased by 40% from 2014. This could be the
result of expansion as they have also invested in non-current assets during
this year.
The gross profit margin has fallen from 35% to 33% implying that Parker
plc has either had to reduce prices to sell more or has suffered from
increased costs. The change is not significant and absolute gross profit has
risen by 30% compared to 2014.
Administrative expenses have increased by just over 11% showing that

despite the expansion Parker plc has good control over their overheads. A Award 0.5
concern would be whether they can continue their growth with the current when a ratio
cost base. is a referred
to and it is a
However distribution costs have increased by 50%, which is higher than the change. 1
revenue growth and this has impacted on the operating profit margins. This mark for any
could be the result of higher costs to reach their new customers. valid
explanations
- including
any valid
The ROCE has reduced from 42% to 36%, which shows that Parker plc is concerns and
less efficient in using its capital than before. However the impact of the the
revaluation needs to be noted as this would reduce the ROCE. The timing of conclusion.
the purchase of the new non-current assets is also key as the full impact of 0.5 for
these new assets may not have been fully realised. In the future the non- mentioning
current assets may become more efficient. any
percentage
Liquidity change.
Overall the working capital has deteriorated with Parker plc moving from a
positive cash balance to an overdraft at the year end. A key reason for this Award 1
is the increase in receivable days from 45 days to 58 days, showing that it mark for
is taking them longer to collect cash from customers. They may have layout and
increased credit terms to gain new customers. presentation.
Last year it took them 33 days to turn the inventory to a sale but this has
increased to 39 days this year. They could be having to keep more stock to
meet the needs of new customers. This would also fit with the increased
distribution costs.
They are also paying their suppliers quicker than last year; payable days
have fallen from 36 days to 25 days. This could be to take advantage of
discounts but this is causing them to have an overdraft. The payment terms
with suppliers should be reviewed.
Page 17
Gearing
The gearing of Parker plc has increased from 39% to 41% as a result of
increased borrowings. The increased borrowings has been used to fund new
non-current assets.
It should also be noted that without the revaluation the gearing ratio would
have shown a more significant increase.
The increased borrowings has resulted in increased interest cost and the
interest cover has fallen from 7.51 times to 4.67 times. Whilst they still
have good coverage of interest cost this does rely on them maintain the
increased profits in the future.
Investment
Parker plc has decided to double the dividend this year despite the
considerable investment in non-current assets. This is has resulted in
dividend cover falling from 3.43 times to 1.91 times. Whether they can
maintain this increase dividend in the future would be an area of concern.
Conclusion
Parker plc would appear to have gone through a considerable period of

change and it may be too early to establish whether it going to be
successful. Whilst revenue has grown and profits are rising there are
concerns on the liquidity. Shareholders should be concerned about Parker
maintaining the dividend in the future.
(12)
Marks can be awarded for other relevant comments (up to a maximum of 12 marks)
Reference can be made to the following items: Marks
Limitations of ratio analysis
It is important to note that this analysis is based on historic data and they
may not be a good indicator of the future performance of the business. To
improve the analysis budgets or up to date management information would
1 mark per
be useful.
limitation
and 1 mark
The analysis is restricted by the lack of information about the sector that
per solution
Parker plc operates in and its key customers and suppliers. It may also be
to the
useful to compare Parker plc’s ratios with industry averages or competitors.
problem-up
to a
A further limitation is that there is only two years of data and there isn’t a
maximum of
statement of cash flows. Ideally more data could be available to build up
5
trends.
The ratio analysis has also been limited by the revaluation. Ideally the
ratios should be calculated to adjust for the revaluation to improve
comparability.
(5)
Page 18
Part (b)
Marks
As an accountant there is a duty to follow the ethical principles contained in
the CIPFA code of ethics. The key principle that is relevant here is
confidentiality. This means that information about organisations and people
encountered in the course of accountancy assignments should not be
1 mark per
disclosed to anyone who does not have a legal or professional right to it.
point
It is clear here that confidential information has been obtained and it is
unethical to use that information for personal gain or that of another. Care
must be taken not to discuss this matter with the friend as any discussion
would be unethical but it also could be illegal.
(3)
(30)
Page 19
This question required students to calculate ratios and then to comment on them and discuss
any limitations of their analysis. Finally, it required a discussion of an ethical issue with
confidentiality.
This question was well answered compared to previous sittings which is pleasing. However
there were 10 marks for ratio calculations and the weak area was often again the ability to
explain those calculations.
Ratio calculations were generally good, but common errors were:
• Two years not always being calculated so no analysis could be made

• Incorrect profit figure being used for Return on Equity and Earnings per Share
Assessment of performance was generally very poor for the following reasons:
• Only a few comments made in most answers.
• Most candidates stated what ratios show (e.g. debtor days show how many days
customers take to pay) but did not provide an assessment of performance.
• Many commentaries did not compare the ratios to the previous year.
• Many stated that liquidity was sound based on the ratios with no account being taken of
the overdraft position.
It is important that students focus better on the written elements in such questions as a
question could be set that requires less ratio calculations. When analysing the performance
candidates must discuss what the change in a ratio actually means, for example the gross
profit margin has fallen from 35% to 33% and students should then suggest a possible
explanation that makes sense.
It was pleasing that students were very good at discussing ethics and explaining that
confidentiality must be maintained.
Page 20
Question 3
Working 1
Net assets of the subsidiary
At date of At
acquisition reporting
date
£000 £000
Share Capital 100 100
Share premium 50 50
Retained earnings 250 366
Fair value adjustment 95 89
(95-3-3 )
495 605
Working 2
Goodwill
£000 Marks
Consideration 450 0.5
Less: net assets at (371.25) 2
acquisition
495 x 75% (W1)
Goodwill attributable to the 18.25 0.5
NCI
Goodwill 97
Less: impairment (35) 0.5
62
(3.5)
Working 3
Non-controlling interest
£000 Marks
605 (W1) x 25% 151.25 1
Goodwill attributable to 0.5
18.25
NCI
Impairment
35 x 25% (8.75) 0.5
160.75 (2)
Working 4
Retained earnings
£000 Marks
Teddy plc 1 096 0.5
Bear ltd
(366 – 250) x 75% 87 1
(89-95) x 75% (4.5) 1
Impairment 0.5
(26.25)
35 x 75%
1152.25 (3)
Page 21
Teddy plc
Consolidated statement of financial position as at 31 March 2015
£000 Marks
Non-current assets
Property, plant and equipment 1 789 1
(1 250+450+89)
Goodwill 62 3.5(W2)
Current assets
Inventory 150 0.5
(125+25)
Receivables 175 1
(130+90-45)
Cash 189 0.5
(89+100)
2 365
Equity and reserves

£1 share capital 500 0.5
Share premium 25
Retained earnings 1152.25 3(W4)
NCI 160.75 2(W3)
Loan 370 0.5
(320+50)
Current liabilities
Trade Payables 122 1
(78+89-45)
Tax 35 0.5
(25+10)
2365
(14)
Part (b)
Marks
This is an example of an intra-group trading and on consolidation the
transaction needs to be removed. In the consolidated statement of
comprehensive income the revenue and cost both need to be eliminated.
At the year-end any inventory that is still held by Teddy plc will include
unrealised profit. This need to be calculated and removed from the relevant
figures. The effect of this is that only profit made by the group from selling
1 mark per
to third parties is reflected.
valid point
As it is the subsidiary, Bear ltd, that is the seller, the unrealised profit will
be removed from the retained earnings of the subsidiary and hence shared
with the non-controlling interest.
The other side of the entry will be to remove the unrealised profit from the
group inventories.
(4)
Page 22
Part (c)
Marks
Significant influence – The power to participate in the financial and
operating policy decisions of the investee but is not control of those 1 mark per
policies. It is assumed when the entity owns between 20% -50%. valid point
(2)
(20)
Page 23
This question was the most popular and, on average, the best answered optional question.
Candidates were required to prepare a consolidated statement of financial position and then
discuss the impact of intra-group trading and then briefly define significant influence.
As in the previous sitting there were a few candidates who still struggled with a goodwill
calculation and, in particular, the calculation of the net assets at acquisition. Net assets is
equal to share capital, share premium and retained earnings.
The majority of students did not deal with the goodwill impairment correctly; as the NCI was
valued at fair value, the impairment should be split between the group and the NCI.
Candidates should be well prepared to deal with the two different methods of calculating NCI
and the impact on goodwill and impairment.
Page 24
Part (a)
Marks
1) The borrowing costs of £50 000 should be capitalised as they relate to
interest incurred on a qualifying asset. IAS 23 Borrowing costs specifically
Up to 2
states that borrowing costs are a directly attributable cost and must be
marks for
capitalised.
the
The £50 000 needs to be removed from profit or loss and added to the cost
explanation
of the warehouse. The journal required is:
and 1 mark
for the
Debit: Non-current asset/warehouse £50 000
journal
Credit: Expense- finance costs £50 000
(3)
Marks
2) Firstly it needs to be established whether there is a present obligation as a
result of a past event. The sale of the goods with the warranty means both
Award up to
of these criteria are met. The next point is that whether there is a probable
2 marks for
outflow, as the production department has estimated a repair costs this
the
criteria is also met. A provision based on this estimate should be
explanation
recognised.
and 1 mark
for the
Debit: Expenses £265 000
journal
Credit Provision £265 000
(3)
Marks
3) The lease needs to be recognized as an asset and a lease liability as Butler
plc has the risk and rewards of ownership. This is initially measured at fair
value. Up to 2
In profit or loss a finance cost based on the 10% interest rate should be marks for
recognised rather the full lease payment. The lease payment should be the
deducted from the lease liability. explanation
Finally the asset should be depreciated over its useful life.
Lease liability
Year Opening Interest Principal Total Closing

(10%)
1
1 250 000 25 000 75 525 100 525 174 475
Deprecation
1
250 000 / 3 = 83 333
Journals
Debit: NCA £250 000 1 mark per

Credit: Lease liability £250 000 correct
journal to a
Debit: SCI - depreciation expense £83 333 maximum of
Credit: Accumulated depreciation £83 333 4
Page 25
Debit: Lease liability £100 525

Credit: SCI – lease cost £100 525
Debit: SCI – finance cost £25 000

Credit: Lease liability £25 000
( this journal could be combined as

Debit Lease liability £75 525
Credit SCI – lease cost £75 525 )
8 marks
available,
capped at
(7)
Marks
4) The deferred tax liability needs to be reduced to ensure it reflects the
liability at the year end. 1 for the
explanation
Debit: Deferred tax liability – SOFP £50 000 and 1 for the
Credit: SCI - Tax expense £50 000 journal
(2)
(15)
Part (b)
Marks
Calculate the ex-rights price of the share
No of shares Share Price £ Capital

Market value of 6 000 000 2.00 12 000 000
shares prior to right
issue 0.5
Proceeds from rights 1 200 000 1.65 1 980 000

issue
(6 000 000/5) 0.5
Total 7 200 000 13 980 000
The average market price value of one share following the rights issue is:
1
13 980 000/7 200 000 = 1.94
Page 26
Calculate number of shares in the rights issue issued at average

share price
Proceeds from rights issue 1 980 000
Average share price following the rights issue 1.94

(theoretical ex-rights price
1
Number of shares issued at average price 1 020 619
(1 980 000 / £1.94)
Calculate the bonus issue of the rights issue
Total number of shares issues 1 200 000

Number of shares issued at average price 1 020 619
0.5
Number of bonus issue 179 381
(1 200 000 – 1020 619)
Calculate the weighted average number of shares
Number of ordinary shares 6 000 000

Bonus shares 179 381
Shares issued at market value 255 155 0.5
1 020 619 x 3/12
Weighted average number of 6 434 536
shares
Calculate EPS
1
637 000 / 6434 536 = 9.89p
(5)
(20)
Page 27
In this question students were required to discuss the accounting treatment of four issues and
prepare journals. They were then required to calculate the EPS.
This question was by far the most popular of the two more discursive style questions but it was
clear that the EPS calculation really helped with the marks in this question as many students
obtained full marks here.
The ability to prepare journals clearly differentiated candidates that went on to be successful in
this exam. The ability to prepare and explain journals is a vital skill in the workplace and hence
examined by this paper.
Page 28
Part (a)
Marks
An asset is a resource controlled by the entity as a result of past events
and from which future economic benefit is expected to flow to the entity.
An example of this is a non-current asset, the entity controls this by

ownership or substance. The past event is the purchase or lease agreement
and they get a future economic benefit by using the asset to generate cash.
1 mark per
point up to
A liability is a present obligation of the entity arising from past events, the
max 4
settlement of which is expected to result in an outflow from the entity of
resources.
An example of this a trade payable, the obligation is the liability to pay the
supplier, which arose when the goods were delivered. The outflow is the
cash leaving the business when they pay the supplier
(4)
Part (b)
Marks
The potential benefits include:
Greater access to a wide range of internal and external information sources.
More relevant and understandable information available to enable

stakeholders to make more informed and better decisions.
1 mark per
A more efficient allocation of capital and other resources. point up to
max 5
Improved access to a range of different markets.
Enhanced competitive advantage through cost savings, efficiencies and

differentiation.
(5)
Part (c)
Marks
(i) The consignment inventory should be accounted for by reference to the
substance of the transaction, which means by looking at the commercial
substance rather than the legal form of the transaction.
Barley ltd needs to consider whether they have the risk and rewards of this
inventory. The fact that Barley ltd has the right to return the goods at any
time along with the fact that the price may change would indicate that 1 mark per
Barley ltd does not have the risks of ownership. point up to
max 4
The inventory should not be included within Barley ltd’s inventory and the
transaction should be reversed.
Page 29
(ii) The following conditions need to be met to decide if the warehouse should
be classified as an asset held for sale under IFRS 5. The conditions are that
management are committed to a plan and the warehouse is available for
immediate sale. They should be actively looking for a buyer and a sale
needs to be highly probable with no expected changes.
1 mark per
Based on the facts given it would seem that the warehouse meets these point up to
conditions but this would need to be confirmed. If this is the case then the max 4
warehouse should be moved from non-current assets in to assets held for
sale.
The warehouse should be measured at the lower of carrying value and fair
value less costs to sell. Depreciation on the warehouse should cease.
(iii) The flood is an event after the reporting period and the decision is whether
it is an adjusting or non-adjusting event. This depends on whether the
event confirms conditions that existed at the year end. A flood is an
example of a non-adjusting event as the conditions were not in existence at 1 mark per
the year end. point up to
max 3
If the amount is material then the event should be disclosed in the notes to
the financial statements.
(11)
(20)
Page 30
This question required students to define elements of the financial statements, to explain the
benefits of an integrated report and then explain three accounting areas.
This was the least common choice of question and on average the worst answered question,
with the integrated reporting part being particularly poorly answered. The answers were
usually focused on the benefits of harmonisation rather than on integrated reporting.
Candidates also perhaps disliked this question as it was purely discursive and I would
recommend that all future candidates take note of this and focus on their ability to explain
accounting areas as well as preparing for the numerical type questions.
Page 31
Summary
Overall this sitting showed an improvement in the pass rate and the ability to provide a good
answer to the discursive question requirements was encouraging in a number of scripts. I
would recommend that future candidates take note of this as this may make the difference
between success and failure in CFR exams.
Future candidates should also note that successful candidates answered four questions.
Weaker candidates often score well on question one but then clearly run out of time, this
approach does not work.
Page 32

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COMPANY FINANCIAL REPORTING

© 2015 Chartered Institute of Public Finance and Accountancy

Reading time: 10 minutes

There are five questions on this question paper.

Answer four questions in total:

Two compulsory questions from Section A

The questions in Section A carry 60 marks in total

© 2015 Chartered Institute of Public Finance and Accountancy

Note £ 000 £ 000

2) Research and development expenditure comprises the following:

• £80 000 on general research

5) At the year end the directors obtained the following valuations:

• Land £1 250 000

• Requirement for question 1

In accordance with the requirements of IAS 1 Presentation of Financial Statements

Statement of comprehensive income for the year ended 31 March 2015

Dividends Paid 80 000 40 000

Statement of financial position at 31 March 2015

Equity and liabilities

Total equity and liabilities 712 900 497 000

• Requirement for question 2

• Calculation of ten ratios (10)

Discuss the ethical issues this situation presents. (3)

SECTION B (Answer TWO from three questions)

The following information is also available:

• Requirement for question 3

• Requirement for question 4 part (a)

• Requirement for question 4 part (b)

• Requirement for question 5 Part (a)

Define an asset and a liability as elements of the financial statements and

• Requirement for question 5 Part (b)

Explain five potential benefits of providing an integrated report. (5)

• Requirement for question 5 Part (c)

Marking Scheme for question 1

(a) Hurst plc

Distribution costs (W1) (595) 1 (W1)

Profit from operating activities 3 548

Finance costs (50 + 50) (100) 1

Other comprehensive income

Total assets 8 853

Equity and Liabilities

Share capital 1 250 0.5

Total equity and liabilities 8 853

Cost of Admin Dist Marks

Equally correct to present R&D and amortisation under admin.

Land Buildings Equipment Total Marks

Revaluation 250 285 1

Examiner’s comments on question 1

The common errors in this question were:

Marking scheme for question 2

Report on the performance of Parker plc

2015 2014 Marks

ROCE 232 000 / 184 000 /

Current ratio 287 900 / 72 700 178 000 / 56 000

Payable days 57 700 / 839 500 x 56 000 / 576 000 x 365

Gearing 260 000 / 170 000 /

Interest cover 232 000 / 49 800 184 000 / 24 500

Ordinary dividend 152 400 / 80 000 137 250 / 40 000

Reference can be made to the following items: Marks

Administrative expenses have increased by just over 11% showing that

Parker plc would appear to have gone through a considerable period of

Reference can be made to the following items: Marks

Limitations of ratio analysis