Question 16 Angel

Required

(a) (i) Explain to the finance director why the building renovation has been incorrectly

recorded, setting out the correcting entries. (4 marks)

Renovation

Dr PPE $3m

Cr Revenue $3m

Correction: renovation is a capital expenditure and not a revenue expenditure. Angel has debited the
revenue so the correction is to cancel the revenue and add the amount to the PPE as part of the cost of
asset

Grant

$2m – equally $1m job creation $1m renovation capital based

Dr PPE $2m

Cr Deferred Income $1m (capital based)

Cr Retained Earnings- profit and loss $1m ( job creation-revenue based)

(ii) Explain, showing supporting calculations, the adjustments that need to be made to

calculate the correct profit before tax figure for inclusion in a consolidated statement

of cash flows for the Angel Group for the year ended 30 November 20X3, prepared

using the indirect method. (4 marks)

Adjustments from the note no (i) (iii)

Borrowing costs

Dr Property Plant and equipment $4m (construction cost)

Dr Property plant and equipment $1m (borrowing cost)

Cr Profit and Loss $5m

$m
Profit before tax (before adjustments) 184
Adjustments from note
i) Renovation and grant (3 +1) 4
ii) Borrowing costs 5
Profit before tax -group CF 193

(iii) Prepare the cash generated from operations figure for inclusion in a consolidated

statement of cash flows for the Angel Group for the year ended 30 November 20X3,

using the indirect method, in accordance with the requirements of IAS 7 Statement of

Cash Flows. For each line item, explain to the finance director of Angel Group the

reason for its inclusion in the reconciliation. (14 marks)

Cash generated from operations

Net profit before tax (ii) 193

Adjustments

Gain or loss on disposal ($63-$49)

Depreciation
Share profit of associate
Impairment of GW

Operating profit before working capital changes

Inventories
 Trade Receivables
Trade payables
Cash generated from operations

W1 Property Plant and equipment

$m
Opening 465
Additions 14

Closing 475

W2 Investment in associates

$m
Opening 0

Closing 80

W3 Financial assets

$m
Opening 180

Closing 215

Inventories Trade Receivables Trade payables Current tax

Opening balance 190 180 361 138

Additions 6 3 5

Closing 155 125 155 49