2016年6月ACCA F7考试真题

P a p e r F 7

Please write your answers to all parts of these questions on the lined pages within the Candidate Answer Booklet.

1On 1 October 2015, Zanda Co acquired 60% of Medda Co’s equity shares by means of a share exchange of one new share in Zanda Co for every two acquired shares in Medda Co. In addition, Zanda Co will pay a further $0·54 per acquired share on 30 September 2016.

Zanda Co has not recorded any of the purchase consideration and its cost of capital is 8% per annum.

The market value of Zanda Co’s shares at 1 October 2015 was $3·00 each.

The summarised statements of financial position of the two companies as at 31 March 2016 are:

Zanda Co Medda Co

$’000$’000 Assets

Non-current assets

Property, plant and equipment (note (i))25,40013,500

Financial asset: equity investments (note (iv))5,5002,000

––––––––––––––

30,90015,500

––––––––––––––Current assets

Inventory (note (iii))12,7005,300

Other current assets9,7004,000

––––––––––––––

22,4009,300

––––––––––––––T otal assets53,30024,800

––––––––––––––Equity and liabilities

Equity

Equity shares of $1 each20,0009,000

Retained earnings:

Brought forward at 1 April 201512,2008,600

Profit/(loss) for the year ended 31 March 20165,000(3,000)

––––––––––––––

37,20014,600 Non-current liabilities

Deferred tax (note (i))5,000nil

Current liabilities11,10010,200

––––––––––––––T otal equity and liabilities53,30024,800

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

(i)At the date of acquisition, Zanda Co conducted a fair value exercise on Medda Co’s net assets which were equal

to their carrying amounts (including Medda Co’s financial asset equity investments) with the exception of an item of plant which had a fair value of $2·5 million below its carrying amount. The plant had a remaining useful life of 30 months at 1 October 2015.

The directors of Zanda Co are of the opinion that an unrecorded deferred tax asset of $1·2 million at 1 October 2015, relating to Medda Co’s losses, can be relieved in the near future as a result of the acquisition. At 31 March 2016, the directors’ opinion has not changed, nor has the value of the deferred tax asset.

(ii)Zanda Co’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose,

a share price for Medda Co of $1·50 each is representative of the fair value of the shares held by the non-

controlling interest.

(iii)At 31 March 2016, Medda Co held goods in inventory which had been supplied by Zanda Co at a mark-up on cost of 35%. These goods had cost Medda Co $2·43 million.

2(iv)The financial asset equity investments of Zanda Co and Medda Co are carried at their fair values at 1 April 2015.

At 31 March 2016, these had fair values of $6·1 million and $1·8 million respectively, with the change in Medda Co’s investments all occurring since the acquisition on 1 October 2015.

(v)There is no impairment to goodwill at 31 March 2016.

Required:

Prepare the following extracts from the consolidated statement of financial position of Zanda Co as at 31 March 2016:

(i)Goodwill;

(ii)Retained earnings;

(iii)Non-controlling interest.

The following mark allocation is provided as guidance for this question:

(i) 6 marks

(ii)7 marks

(iii) 2 marks

(15 marks)

3[P.T.O.2Nonat Co is a manufacturer of domestic appliances. Its chairman is pleased with the results for the year ended

31 December 2015 as they show a continuing improvement over recent past performance. However, the finance

director says that a better assessment of the company’s performance would be made by a comparison to other companies in the same sector. The finance director has obtained some ratios for Nonat Co’s business sector, based on a year end of 31 December 2015, which are:

Return on capital employed (ROCE)18·5%

Net asset (total assets less current liabilities) turnover 1·8 times

Gross profit margin 21%

Operating profit margin10·3%

Current ratio 1·6:1

Gearing (debt/equity)36%

The summarised financial statements of Nonat Co are:

Statement of profit or loss for the year ended 31 December 2015

$’000

Revenue62,500

Cost of sales(51,800)

–––––––

Gross profit10,700

Operating costs(5,800)

Finance costs(1,800)

–––––––

Profit before tax 3,100

Income tax expense(1,000)

–––––––

Profit for the year2,100

–––––––

Statement of financial position as at 31 December 2015

$’000$’000

Assets

Non-current assets

Property 8,100

Owned plant12,600

Leased plant12,200

–––––––

32,900

Current assets16,400

–––––––

T otal assets49,300

–––––––

Equity and liabilities

Equity

Equity shares of $1 each9,000

Property revaluation surplus4,000

Retained earnings 10,600

–––––––

23,600

Non-current liabilities

10% loan notes 10,000

Finance lease obligations6,40016,400

–––––––

Current liabilities

Finance lease obligations2,100

Other current liabilities7,2009,300

––––––––––––––

T otal equity and liabilities49,300

–––––––

4Required:

(a)Prepare for Nonat Co the equivalent ratios to those of its sector.

Note: The finance lease obligations should be treated as debt in the ROCE and gearing calculations.

(6 marks)

(b)Analyse the financial performance and position of Nonat Co for the year to 31 December 2015 in comparison

to the sector averages.(9 marks)

(15 marks)

5[P.T.O.3The following trial balance relates to Downing Co as at 31 March 2016:

$’000$’000 Equity shares of $1 each25,000

Other equity11,800

Retained earnings at 1 April 20158,000

5% convertible loan notes (note (iii))30,000

Land and buildings at cost (land element $14 million) (note (iv)),000

Plant and equipment at cost (note (iv))82,700

Patent at cost (ten-year life) (note (iv))7,500

Accumulated depreciation/amortisation at 1 April 2015:

buildings5,000

plant and equipment36,700

patent3,000 Inventory at 31 March 201632,100

T rade receivables38,500

Bank2,700

Current tax (note (v))1,550

Deferred tax (note (v))4,800

Revenue (note (i))267,900

Cost of sales166,600

Distribution costs20,000

Administrative expenses22,000

Contract asset (note (ii))5,000

Loan note interest paid (note (iii))1,500

Bank interest150

Other operating income from royalties300

T rade payables46,400

––––––––––––––––

441,600441,600

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

(i)Revenue includes an amount of $16 million for a sale made on 1 April 2015. The sale relates to a single product

and includes ongoing servicing from Downing Co for four years. The normal selling price of the product and the servicing would be $18 million and $500,000 per annum ($2 million in total) respectively.

(ii)The contract asset is comprised of contract costs incurred at 31 March 2016 of $15 million less a payment of $10 million from the customer. The agreed transaction price for the total contract is $30 million and the total expected costs are $24 million. Downing Co uses an input method based on costs incurred to date relative to the total expected costs to determine the progress towards completion of its contracts.

(iii)Downing Co issued 300,000 $100 5% convertible loan notes on 1 April 2015. The loan notes can be converted to equity shares on the basis of 25 shares for each $100 loan note on 31 March 2018 or redeemed at par for cash on the same date. An equivalent loan note without the conversion rights would have required an interest rate of 8%.

The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8%, are:

5%8%

End of year 10·950·93

20·910·86

30·860·79

(iv)Non-current assets:

Due to rising property prices, Downing Co decided to revalue its land and buildings on 1 April 2015 to their market value. The values were confirmed at that date as land $16 million and buildings $52·2 million with the buildings having an estimated remaining life of 18 years at the date of revaluation. Downing Co intends to make

a transfer from the revaluation surplus to retained earnings in respect of the annual realisation of the revaluation

surplus. Ignore deferred tax on the revaluation.

6

Plant and equipment is depreciated at 15% per annum using the reducing balance method.

During the current year, the income from royalties relating to the patent had declined considerably and the directors are concerned that the value of the patent may be impaired. A study at the year end concluded that the present value of the future estimated net cash flows from the patent at 31 March 2016 is $3·25 million;

however, Downing Co also has a confirmed offer of $3·4 million to sell the patent immediately at that date.

No depreciation/amortisation has yet been charged on any non-current asset for the year ended 31 March 2016.

All depreciation/amortisation is charged to cost of sales.

There were no acquisitions or disposals of non-current assets during the year.

(v)The directors estimate a provision for income tax for the year ended 31 March 2016 of $11·4 million is required.

The balance on current tax in the trial balance represents the under/over provision of the tax liability for the year ended 31 March 2015. At 31 March 2016, Downing Co had taxable temporary differences of $18·5 million requiring a provision for deferred tax. Any deferred tax movement should be reported in profit or loss. The income tax rate applicable to Downing Co is 20%.

Required:

(a)Prepare the statement of profit or loss and other comprehensive income for Downing Co for the year ended

31 March 2016.

(b)Prepare the statement of changes in equity for Downing Co for the year ended 31 March 2016.

(c)Prepare the statement of financial position of Downing Co as at 31 March 2016.

Notes to the financial statements are not required. Work to the nearest $1,000.

The following mark allocation is provided as guidance for these requirements:

(a)11 marks

(b) 4 marks

(c)10 marks

(25 marks)

(d)The finance director of Downing Co has correctly calculated the company’s basic and diluted earnings per share

(EPS) to be disclosed in the financial statements for the year ended 31 March 2016 at 148·2 cents and 119·4 cents respectively.

On seeing these figures, the chief executive officer (CEO) is concerned that the market will react badly knowing that the company’s EPS in the near future will be only 119·4 cents, a fall of over 19% on the current year’s basic EPS.

Required:

Explain why and what aspect of Downing Co’s capital structure is causing the basic EPS to be diluted and comment on the validity of the CEO’s concerns.(5 marks)

(30 marks)

End of Question Paper

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