ACCA_F7_2008年12月试题

P a p e r F 7 ( I N T )ALL FIVE questions are compulsory and MUST be attempted

1On 1 April 2008, Pedantic acquired 60% of the equity share capital of Sophistic in a share exchange of two shares in Pedantic for three shares in Sophistic. The issue of shares has not yet been recorded by Pedantic. At the date of acquisition shares in Pedantic had a market value of $6 each. Below are the summarised draft financial statements of both companies.

Income statements for the year ended 30 September 2008

Pedantic Sophistic

$’000$’000 Revenue 85,00042,000

Cost of sales(63,000)(32,000)

––––––––––––––––Gross profit22,00010,000

Distribution costs(2,000)(2,000)

Administrative expenses(6,000)(3,200)

Finance costs(300)(400)

––––––––––––––––Profit before tax13,7004,400

Income tax expense(4,700)(1,400)

––––––––––––––––Profit for the year9,0003,000

––––––––––––––––Statements of financial position as at 30 September 2008

Assets

Non-current assets

Property, plant and equipment40,60012,600

Current assets16,0006,600

––––––––––––––––T otal assets56,60019,200

––––––––––––––––Equity and liabilities

Equity shares of $1 each10,0004,000

Retained earnings35,4006,500

––––––––––––––––

45,40010,500 Non-current liabilities

10% loan notes3,0004,000

Current liabilities8,2004,700

––––––––––––––––T otal equity and liabilities56,60019,200

––––––––––––––––The following information is relevant:

(i)At the date of acquisition, the fair values of Sophistic’s assets were equal to their carrying amounts with the

exception of an item of plant, which had a fair value of $2 million in excess of its carrying amount. It had a remaining life of five years at that date [straight-line depreciation is used]. Sophistic has not adjusted the carrying amount of its plant as a result of the fair value exercise.

(ii)Sales from Sophistic to Pedantic in the post acquisition period were $8 million. Sophistic made a mark up on cost of 40% on these sales. Pedantic had sold $5·2 million (at cost to Pedantic) of these goods by 30 September 2008.

(iii)Other than where indicated, income statement items are deemed to accrue evenly on a time basis.

(iv)Sophistic’s trade receivables at 30 September 2008 include $600,000 due from Pedantic which did not agree with Pedantic’s corresponding trade payable. This was due to cash in transit of $200,000 from Pedantic to Sophistic. Both companies have positive bank balances.

(v)Pedantic has a policy of accounting for any non-controlling interest at fair value. For this purpose the fair value of the goodwill attributable to the non-controlling interest in Sophistic is $1·5 million. Consolidated goodwill was not impaired at 30 September 2008.

2Required:

(a)Prepare the consolidated income statement for Pedantic for the year ended 30 September 2008.(9 marks)

(b)Prepare the consolidated statement of financial position for Pedantic as at 30 September 2008.(16 marks) Note: a statement of changes in equity is not required.

(25 marks)

3[P.T.O.2The following trial balance relates to Candel at 30 September 2008:

$’000$’000 Leasehold property – at valuation 1 October 2007 (note (i))50,000

Plant and equipment – at cost (note (i))76,600

Plant and equipment – accumulated depreciation at 1 October 200724,600

Capitalised development expenditure – at 1 October 2007 (note (ii))20,000

Development expenditure – accumulated amortisation at 1 October 2007 6,000

Closing inventory at 30 September 200820,000

T rade receivables 43,100

Bank1,300

T rade payables and provisions (note (iii))23,800

Revenue (note (i))300,000

Cost of sales204,000

Distribution costs 14,500

Administrative expenses (note (iii))22,200

Preference dividend paid800

Interest on bank borrowings 200

Equity dividend paid6,000

Research and development costs (note (ii))8,600

Equity shares of 25 cents each50,000

8% redeemable preference shares of $1 each (note (iv))20,000

Retained earnings at 1 October 200724,500

Deferred tax (note (v))5,800

Leasehold property revaluation reserve 10,000

––––––––––––––––

466,000466,000

––––––––––––––––The following notes are relevant:

(i)Non-current assets – tangible:

The leasehold property had a remaining life of 20 years at 1 October 2007. The company’s policy is to revalue its property at each year end and at 30 September 2008 it was valued at $43 million. Ignore deferred tax on the revaluation.

On 1 October 2007 an item of plant was disposed of for $2·5 million cash. The proceeds have been treated as sales revenue by Candel. The plant is still included in the above trial balance figures at its cost of $8 million and accumulated depreciation of $4 million (to the date of disposal).

All plant is depreciated at 20% per annum using the reducing balance method.

Depreciation and amortisation of all non-current assets is charged to cost of sales.

(ii)Non-current assets – intangible:

In addition to the capitalised development expenditure (of $20 million), further research and development costs were incurred on a new project which commenced on 1 October 2007. The research stage of the new project lasted until 31 December 2007 and incurred $1·4 million of costs. From that date the project incurred development costs of $800,000 per month. On 1 April 2008 the directors became confident that the project would be successful and yield a profit well in excess of its costs. The project is still in development at

30 September 2008.

Capitalised development expenditure is amortised at 20% per annum using the straight-line method. All expensed research and development is charged to cost of sales.

(iii)Candel is being sued by a customer for $2 million for breach of contract over a cancelled order. Candel has obtained legal opinion that there is a 20% chance that Candel will lose the case. Accordingly Candel has provided $400,000 ($2 million x 20%) included in administrative expenses in respect of the claim. The unrecoverable legal costs of defending the action are estimated at $100,000. These have not been provided for as the legal action will not go to court until next year.

4(iv)The preference shares were issued on 1 April 2008 at par. They are redeemable at a large premium which gives them an effective finance cost of 12% per annum.

(v)The directors have estimated the provision for income tax for the year ended 30 September 2008 at $11·4 million. The required deferred tax provision at 30 September 2008 is $6 million.

Required:

(a)Prepare the statement of comprehensive income for the year ended 30 September 2008.(12 marks)

(b)Prepare the statement of changes in equity for the year ended 30 September 2008.(3 marks)

(c)Prepare the statement of financial position as at 30 September 2008.(10 marks) Note: notes to the financial statements are not required.

(25 marks)

5[P.T.O.3Victular is a public company that would like to acquire (100% of) a suitable private company. It has obtained the following draft financial statements for two companies, Grappa and Merlot. They operate in the same industry and their managements have indicated that they would be receptive to a takeover.

Income statements for the year ended 30 September 2008

Grappa Merlot

$’000$’000 $’000$’000 Revenue12,00020,500

Cost of sales(10,500)(18,000)

––––––––––––––––Gross profit1,5002,500

Operating expenses(240)(500)

Finance costs–loan(210)(300)

–overdraft nil(10)

–lease nil(290)

––––––––––––––––Profit before tax1,0501,400

Income tax expense(150)(400)

––––––––––––––––Profit for the year9001,000

––––––––––––––––Note: dividends paid during the year250700

––––––––––––––––Statements of financial position as at 30 September 2008

Assets

Non-current assets

Freehold factory (note (i))4,400nil

Owned plant (note (ii))5,0002,200

Leased plant (note (ii))nil5,300

––––––––––––––––

9,4007,500 Current assets

Inventory2,0003,600

T rade receivables2,4003,700

Bank6005,000nil7,300

––––––––––––––––––––––––––––––––T otal assets14,40014,800

––––––––––––––––Equity and liabilities

Equity shares of $1 each2,0002,000

Property revaluation reserve 900nil

Retained earnings2,6003,500800800

––––––––––––––––––––––––––––––––

5,5002,800 Non-current liabilities

Finance lease obligations (note (iii))nil3,200

7% loan notes3,000nil

10% loan notes nil3,000

Deferred tax600100

Government grants1,2004,800nil6,300

––––––––––––––––

Current liabilities

Bank overdraft nil1,200

T rade payables3,1003,800

Government grants400nil

Finance lease obligations (note (iii))nil500

T axation6004,1002005,700

––––––––––––––––––––––––––––––––T otal equity and liabilities14,40014,800

––––––––––––––––

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Notes

(i)Both companies operate from similar premises.

(ii)Additional details of the two companies’ plant are:

Grappa Merlot

$’000$’000 Owned plant – cost8,00010,000

Leased plant – original fair value nil7,500

There were no disposals of plant during the year by either company.

(iii) The interest rate implicit within Merlot’s finance leases is 7·5% per annum. For the purpose of calculating ROCE and gearing, all finance lease obligations are treated as long-term interest bearing borrowings.

(iv)The following ratios have been calculated for Grappa and can be taken to be correct:

Return on year end capital employed (ROCE)14·8%

(capital employed taken as shareholders’ funds plus long-term interest bearing borrowings – see note (iii) above) Pre-tax return on equity (ROE)19·1%

Net asset (total assets less current liabilities) turnover 1·2 times

Gross profit margin 12·5%

Operating profit margin10·5%

Current ratio 1·2:1

Closing inventory holding period 70 days

T rade receivables’ collection period 73 days

T rade payables’ payment period (using cost of sales) 108 days

Gearing (see note (iii) above)35·3%

Interest cover 6 times

Dividend cover3·6 times

Required:

(a)Calculate for Merlot the ratios equivalent to all those given for Grappa above.(8 marks)

(b)Assess the relative performance and financial position of Grappa and Merlot for the year ended 30 September

2008 to inform the directors of Victular in their acquisition decision.(12 marks) (c)Explain the limitations of ratio analysis and any further information that may be useful to the directors of

Victular when making an acquisition decision.(5 marks)

(25 marks)

7[P.T.O.4(a)The definition of a liability forms an important element of the International Accounting Standards Board’s Framework for the Preparation and Presentation of Financial Statements which, in turn, forms the basis for IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Required:

Define a liability and describe the circumstances under which provisions should be recognised. Give two examples of how the definition of liabilities enhances the reliability of financial statements. (5 marks)

(b)On 1 October 2007, Promoil acquired a newly constructed oil platform at a cost of $30 million together with the

right to extract oil from an offshore oilfield under a government licence. The terms of the licence are that Promoil will have to remove the platform (which will then have no value) and restore the sea bed to an environmentally satisfactory condition in 10 years’ time when the oil reserves have been exhausted. The estimated cost of this on 30 September 2017 will be $15 million. The present value of $1 receivable in 10 years at the appropriate discount rate for Promoil of 8% is $0·46.

Required:

(i)Explain and quantify how the oil platform should be treated in the financial statements of Promoil for

the year ended 30 September 2008;(7 marks) (ii)Describe how your answer to (b)(i) would change if the government licence did not require an environmental clean up.(3 marks)

(15 marks)

5On 1 October 2005 Dearing acquired a machine under the following terms:

Hours$ Manufacturer’s base price1,050,000

T rade discount (applying to base price only)20%

Early settlement discount taken (on the payable amount of the base cost only)5%

Freight charges30,000

Electrical installation cost28,000

Staff training in use of machine40,000

Pre-production testing22,000

Purchase of a three-year maintenance contract60,000

Estimated residual value20,000

Estimated life in machine hours6,000

Hours used –year ended 30 September 20061,200

–year ended 30 September 20071,800

–year ended 30 September 2008 (see below)850

On 1 October 2007 Dearing decided to upgrade the machine by adding new components at a cost of $200,000.

This upgrade led to a reduction in the production time per unit of the goods being manufactured using the machine.

The upgrade also increased the estimated remaining life of the machine at 1 October 2007 to 4,500 machine hours and its estimated residual value was revised to $40,000.

Required:

Prepare extracts from the income statement and statement of financial position for the above machine for each of the three years to 30 September 2008.

(10 marks)

End of Question Paper

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