Topic juestion 1 The statements of comprehensive income for A, B and C for the year ended 30 April 2013 are shown below. Assume all income accrue evenly throughout the year. x B € F000 £000 F000 Revenue 3,000 2,500 4,000 Cost of Sales 2007 000) (900) Gross Profit 1,800 1,500 3,100 ‘Administrative costs (00) (G00) (G00) Distribution costs (200) (150) (0) Investment income 500 400 200 Finance cost G00) (200) 300) Profit before tax 1,400 1,250 2,250 Income tax expense (00) (700) (800) Profit for the year 800, 350 1450 Revaluation of property, plant and equipment 60 : : Other comprehensive income for the year oo E z Total comprehensive income for the year 360 350 450 Other information: Dividends paid (120) -| 000) Additional information: 1 A acquired 15% of B on the 1* of May 2012. A was not able to exercise significant influence over the financial and operating policies of B. On the 1* of January 2013 A acquired an additional 55% of the 2 million £1 ordinary shares of B for £3,000,000. B’s retained earnings on this date were £500,000. The existing 15% holding was valued at its original cost price of £450,000 on this date. On the 1* of January 2013 itis estimated that B’s buildings are undervalued by £1,000,000. No entries have been made to incorporate this revaluation surplus. . It is group policy to depreciate the buildings on a straight line, monthly basis. On the date of acquisition the remaining useful life of the buildings are estimated at 10 years. Depreciation is shown as part of administrative costs. . It is policy to value non-controlling interest at its fair value at the date of acquisition. The fair value on the non-controlling interest on the 1* of January 2013 was valued at £1,400,000.6. On the 30" of April 2013 it is estimated that the goodwill is impaired by 2%. The impairment is shown as part of administrative costs. 7. A acquired 30% of the share capital of C on the 1" of May 2012. A exercised significant influence from this date. 8. B sold goods to A in March 2013. The invoice price of the goods was £10,000. Goods are priced to achieve a 20% gross profit margin. Of the goods, 50% is still owned by A at year end. 9. During the year, A sold goods to C. The invoice price of the goods was £20,000. Goods had a mark up of 15% on cost. Of the goods, 40% is still owned by C at year end. 10. C paid a dividend of £1,000,000 to its equity shareholders on the 30" of April 2013. A included its share of the dividend in investment income. 11. A and B paid dividends of £120,000 and £50,000 respectively on the 30" of April 2013. 12. The total group equity carried forward as at 30" of April 2012 was £3,000,000, which included £140,000 attributable to the non-controlling interest in B. 13, On the 1* of July 2012, A issued 200,000 £1 ordinary shares, fully paid, at £1.80 per share. Required: a) Prepare the consolidated statement of comprehensive income for the A group for the year ended 30" April 2013. (Round all numbers to the nearest £7000.) (20 marks) b) Prepare the consolidated statement of changes in equity for the A group for the year ended 30" April 2013. (Round all numbers to the nearest £7000.) (5 marks) (otal: 25 marks)Question2 (Based on past AFA exam question) The summarised Statements of Comprehensive Income of Berry, Leaf and Twig for the year ended 31 December 2015 are presented below, together with information relating to the ordinary share capital and dividends payable for the three companies: Berry Leaf Twig £000 £000 £000 Sales 31,000 5,500 8,400 Cost of sales (15,000) (2,400) 3,100) Gross profit 16,000 3,100 5,300 Operating expenses (7,500) 4,590) (1,980) Operating profit 8,500 1,510 3,320 Investment income 100 - - Profit before tax 8,600 1,510 3,320 Taxation 2,370) (450) (600 Profit for the year 6, 1,060 2,720 Share capital (£1 ordinary shares) 1,000 50 80 Ordinary dividend payable 120 80 16 for the year ended 31 December 2015 Additional informat 1. In 2005 Berry acquired 90% of the ordinary shares of Leaf for £570,000. At the date of acquisition, Leaf’s retained earnings were £270,000. Non-controlling interest is measured at fair value (Method 2). The fair value of the non- controlling interest in Leaf on the date of acquisition was £50,000. 3. Goodwill on acquisition is capitalised in the Consolidated Statement of Financial position and reviewed annually for impairment. In previous years there has been no goodwill impairment relating to the investment in Leaf. However, the directors consider that goodwill in Leaf has become impaired by 20% in the year ended 31 December 2015. s Berry sold goods to Leaf during the year for £270,000 (selling price). The goods were invoiced at a mark up on cost of 35%. Of these goods, 60% remained in Leaf’s inventory at the end of the year. Berry acquired 25% of the ordinary shares of Twig on 1 January 2011.6. The directors do not consider the investment in Twig to be impaired. 7. Berry’s investment income includes dividends receivable from group companies and other investment income receivable from outside the group. Berry has accounted for its share of dividends receivable from both Leaf and Twig. Reaui (a) Prepare the Consolidated Statement of Comprehensive Income for the Berry Group for the year ended 31 December 2015. Your answer should show the profit attributable to the parent and also to the non- controlling interest.APPROVED SECTION B - ANSWER TWO OUT OF THREE QUESTIONS Question Two: Extracts from the Statements of Comprehensive Income for three companies, Ford ple, Bridge Ltd and Lock Ltd, are shown below. These companies all have a year end of 31 October 2013. You should assume that all income and expenses accrue evenly throughout the year. Ford Bridge Lock ple Lid Ltd $7000 $7000, $°000 Revenue 110,000 20,800 10,000 Cost of sales (62,000) (7,100) (4,500) Gross profit 48,000 13,700 5,500 Operating expenses (12,500) (2.200) (1,000) Investment income 1,800 100 Nil Profit before tax. 37,300 11,600 4,500 Taxation (8,400) (2,000) 1,300) Profit after tax 28,900 9, 3,200 Notes: 1. Ford ple bought 12% of the 1,000,000 ordinary $1 shares of Bridge Ltd on 1 January 2009 for $480,000 when Bridge's reserves were $1,200,000. Ford ‘was not able to exert any influence over Bridge. 2. Ford ple bought a further 48% of Bridge Ltd’s ordinary shares on 1 February 2013 for $2,000,000 when Bridge’s reserves were $1,800,000. This further acquisition enabled Ford to control Bridge. The fair value of the original 12% shareholding was estimated at $210,000 on 1 February 2013, Non-controlling, interest on 1 February 2013 had a fair value of $1,900,000. 3. At 31 October 2013 an impairment review indicated that goodwill relating to the acquisition of Bridge Ltd was impaired by 30%. 4, On 1 September 2013, Ford ple bought goods from Bridge Ltd for $100,000, The goods cost Bridge $65,000. At the end of the year, 80% of these goods remained in Ford’s inventory. 5. Ford ple bought 30% of the ordinary share capital of Lock Ltd on | August 2013. From this date Ford exercised significant influence over Lock. The directors of Ford consider that the goodwill arising on the acquisition of Lock ‘was not impaired as at 31 October 2013. Tena 2008 {Course Tile. AdvenedFinsail Accounting (Cowre Code ACCOII24 Page 4 of 10APPROVED 6. Ford ple’s investment income consists of a dividend receivable from Bridge Ltd and also other investment income. A dividend of $900,000 was declared by Bridge on 31 October 2013 which you should treat as relating to the period since 1 February 2013. Lock Ltd did not declare a dividend for 2013. 7. During the year Lock Ltd sold goods to Ford ple for $50,000. Lock earns a ‘margin of 60% on all sales. At the end of the year, all of these goods remained in Ford’s inventory. Required: (@) Prepare the Consolidated Statement of Comprehensive Income for the Ford ple group for the year ended 31 October 2013. Round all figures to the nearest thousand ($°000). (23 marks) (b) Explain the reasons for the consolidation adjustments which you have made in relation to the information in Notes 4 (goods bought by Ford from Bridge) and 6 (Ford’s im some) above. (7 marks) (Total: 30 marks) Question Three follows on the next page. Tnanry 2014 Course Tle. Advanced Financial Accounting (Course Code ACOOII2S. Page 5 of 10APPROVED SECTION B - ANSWER TWO OUT OF THREE QUESTIONS Question Two: (a) The Intemational Accounting Standards Board’s Conceptual Framework for Financial Reporting 2010 states that the two qualitative characteristics of relevance and faithful representation are fundamental in financial reporting. Explain the meaning of the two fundamental characteristics of relevance and faithful representation. (6 marks) (b) The summarised Statements of Profit or Loss and Other Comprehensive Income (Comprehensive Income Statements) of Red ple, Blue Ltd and Yellow Ltd for the year ended 31 October 2015 are presented below, together with information relating to the ordinary share capital and dividends payable for the three companies: Red ple Blue Ltd Yellow Ltd £000 £000 £000 Operating profit 3,000 1,500 850 Investment income 80 20 Profit before tax 3,080 870 Taxation 1,100) 400) 150) Profit for the year 1,980 1,100 720 Other comprehensive income Revaluation surplus 1,000 - - Total comprehensive income 2,980, 1,100 Share capital at 31 October 2015 1,000 100 50 (£1 ordinary shares) Ordinary dividend payable for 150 80 40 the year ended 31 October 2015 Tana 2016 Cowes Tle Advanced Financial Accounting Course Cae ACCOT24 Page Sof 12APPROVED Additional information: 1, In 2010 Red ple acquired 60,000 of Blue Ltd’s ordinary shares for £450,000. At the date of acquisition, the fair value of Blue’s net assets was £600,000. 2. The non-controlling interest arising on the acquisition of Blue Ltd is measured at fair value (Method 2). The fair value of the non-controlling interest in Blue on the date of acquisition was £250,000. 3. Goodwill on acquisition is capitalised in the Consolidated Statement of Financial Position and reviewed annually for impairment. In previous years there has been no goodwill impairment relating to the investment in Blue. However, the directors consider that goodwill in Blue has become impaired by 10% in the year ended 31 October 2015. 4, Red ple acquired 45% of the ordinary shares of Yellow Ltd on | November 2014. This shareholding enables Red to have significant influence over Yellow. The directors do not consider the investment in Yellow to be impaired at 31 October 2015, 5. Yellow Ltd sold goods to Red ple during the year for £300,000 (selling price). The ‘goods were invoiced at a 50% mark up on cost. All of these goods remained in Red’s inventory at the end of the year. 6. Red plc’s investment income includes dividends receivable from group companies and other investment income receivable from outside the group. Red has accounted for its share of dividends receivable from both Blue Ltd and Yellow Ltd. 7. Alll dividends payable by the three companies for the year ended 31 October 2015 were paid in full on 1 October 2015. Required: Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the Red plc Group for the year ended 31 October 2015. Your answer should show the amounts attributable to the parent and to the non- controlling interest in respect of: = Profit for the year; and ~ Total comprehensive income, (17 marks) Question Two continues on the next page. Tana 2006 Cours Tae Advanced Financial Accounting (Couie Cade ACCOTI24 Page of 2APPROVED - EXAM SECTION B - ANSWER TWO OUT OF THREE QUESTIONS IN THIS SECTION Question 3: a) The Statements of Profit or Loss (Income Statements) for three companies are shown below, together with information relating to issued share capital and dividends paid. ‘The companies all have a 12 month reporting period ending on 31 December 2016. ‘You should assume that profits accrue evenly throughout the year. AquaPle Brook Ltd Creek Ltd £000 £000 £000 Revenue 4,900 1,700 1,550 Cost of sales 1,750) 740) 760) Gross profit 3,150 960 790 Operating expenses (980) 40) 110) Profit from operations 2,170 820 680 Investment income 127 - 20 Profit before tax 22297 320 700 Taxation (653 70) (150) Profit for the year 1,644 650 550 Issued share capital: Ordinary £1 shares 1,000 800 10 £1 preference shares (5%) : 60 - 450 120 280 - 30 - information: 1. Aqua Ple acquired 75% of Brook Ltd’s ordinary shares and 20% of Brook’s preference shares several years ago. The directors do not consider Aqua’s investment in Brook to be impaired. 2, On 1 January 2016 Aqua Ple acquired 30% of Creek Ltd’s ordinary shares for consideration of £300,000. shareholding gave Aqua significant influence but not control over Creek. The directors do not consider Aqua’s investment in Creek to be impaired. Senay 2077 Cours Tle Financia counting (Cowie Cade ACCOI128 Page 6 of 12APPROVED - EXAM 3. During the year, Aqua Ple sold goods to Brook Ltd for £1,000,000, earning a margin of 60% on these sales. At the end of the year, 10% of these goods remained in Brook’s inventory. 4, ‘There was no Other comprehensive income for any company in the year. 5. Aqua Ple has included its share of dividends received from Brook Ltd and Creek Ltd in Investment income. Required: Prepare the Consolidated Statement of Profit or Loss for the year ended 31 December 2016. ‘Your answer should show the amount of profit attributable to the parent and to the non-controlling interest. (Part a) = 17 marks) b) On 1 January 2017 Aqua Ple acquired an additional 40% of Creek Ltd’s shares for a consideration of £550,000, The fair value of its original 30% holding was £480,000 on that date. Reguired: i) Explain, with reasons, how the investment in Creek Ltd will be treated in the consolidated financial statements for the year ended 31 December 2017; and (4 marks) ii) Calculate the gain which arises on the de-recognition of the associate on 1 January 2017. (@ marks) (Part b) =8 marks) (Total: 25 marks) Taman 2007 ‘Course Financia Accoveting (Course Cade NCCOM28 Page 7 of 12Approved SECTION B - ANSWER TWO OUT OF THREE QUESTIONS IN THIS ‘SECTION uestion 3 a) The summarised Statements of Profit or Loss and Other Comprehensive Income of Winter ple, Summer Ltd and Autumn Ltd for the year ended 30 November 2017 are presented below: Winter ple Summer Ltd Autumn Ltd £000 £000 £000 Sales 20,000 7,500 2,800 Cost of sales 12,000) 2,500) 900 Gross profit 8,000 5,000 1,900 Operating expenses 1,100) 1,200) (450) Operating profit 6,900 3,800 1,450 Investment income 40 20 10 Profit before tax 6940 3,820 1,460 Taxation 2,110) 1,400) 460) Profit for the year 4,830 2,420 1,000 Other comprehensive income Revaluation surplus 1,000 200 - Total comprehensive income 3,830 2,620 7,000 Additional information: 1. In 2013 Winter ple acquired 75% of Summer Ltd’s ordinary shares for £660,000. At the date of acquisition, the fair value of Summer's net assets was £720,000. 2, The non-controlling interest arising on the acquisition of Summer Ltd is measured as the proportionate share of net assets (Method 1). 3. Goodwill on acquisition is capitalised in the Consolidated Statement of Financial Position and reviewed annually for impairment. In previous years there has been no goodwill impairment relating to the investment in Summer. However, the directors consider that goodwill in Summer has become impaired by 20% in the year ended 30 November 2017. Sanaa OTE Financial Accounting ‘ACEO Hat Page 6 10Approved 4, Winter ple acquired 40% of the ordinary shares of Autumn Ltd on 1 March 2017. This shareholding enables Winter to have significant influence over ‘Autumn, The directors do not consider the investment in Autumn to be impaired at 30 November 2017. 5. Winter ple sold goods to Summer Ltd during the year for £240,000 (selling, price). The goods were invoiced at a 60% mark up on cost. All of these goods remained in Summer's inventory at the end of the year. 6. No dividends were payable by any of the three companies for the year ended 30 November 2017. Prepare the Consolidated Statement of Profit or Loss and Other ‘Comprehensive Income for the Winter ple Group for the year ended 30 ‘November 2017. Your answer should show the amounts attributable to the parent and to the non-controlling interest in respect of: ~ Profit for the year; and - Total comprehensive income, (20 marks) b) The following information also relates to the Winter ple group: 7. The total group equity brought forward at 1 December 2016 was £17,000,000, which included £2,000,000 attributable to the non-controlling interest in ‘Summer Ltd. Required: Prepare the Consolidated Statement of Changes in Equity for the Winter ple group for the year ended 30 November 2017, showing the movements in total equity and analysing the total between the equity attributable to the parent and to the non-controlling interest. (S marks) (Total: 25 marks) Sanaa OTE Fant Accounting ‘ACEO NI¢ Page of 10