ACCA_F7_2008年12月试题

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

Income statements for the year ended 30 September 2008

Pedantic$’000

Revenue 85,000Cost of sales(63,000)

––––––––

Gross profit22,000Distribution costs(2,000)Administrative expenses(6,000)Finance costs(300)

––––––––

Profit before tax13,700Income tax expense(4,700)

––––––––

Profit for the year9,000

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

Non-current assets

Property, plant and equipmentCurrent assetsTotal assets

Equity and liabilities

Equity shares of $1 eachRetained earningsNon-current liabilities10% loan notesCurrent liabilitiesTotal equity and liabilities

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

Sophistic$’00042,000(32,000)––––––––10,000(2,000)(3,200)(400)––––––––4,400(1,400)––––––––3,000––––––––

40,60016,000––––––––56,600––––––––10,00035,400––––––––45,4003,0008,200––––––––56,600––––––––

12,6006,600––––––––19,200––––––––4,0006,500––––––––10,5004,0004,700––––––––19,200––––––––

(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 September2008.(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 toSophistic. 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 wasnot impaired at 30 September 2008.

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Required:

(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:

Leasehold property – at valuation 1 October 2007 (note (i))Plant and equipment – at cost (note (i))

Plant and equipment – accumulated depreciation at 1 October 2007Capitalised development expenditure – at 1 October 2007 (note (ii))20,000Development expenditure – accumulated amortisation at 1 October 2007 Closing inventory at 30 September 200820,000Trade receivables 43,100Bank

Trade payables and provisions (note (iii))Revenue (note (i))Cost of sales204,000Distribution costs 14,500Administrative expenses (note (iii))22,200Preference dividend paid800Interest on bank borrowings 200Equity dividend paid6,000Research and development costs (note (ii))8,600Equity shares of 25 cents each

8% redeemable preference shares of $1 each (note (iv))Retained earnings at 1 October 2007Deferred tax (note (v))

Leasehold property revaluation reserve

––––––––466,000––––––––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 revalueits property at each year end and at 30 September 2008 it was valued at $43 million. Ignore deferred tax onthe revaluation.

On 1 October 2007 an item of plant was disposed of for $2·5 million cash. The proceeds have been treated assales revenue by Candel. The plant is still included in the above trial balance figures at its cost of $8 million andaccumulated 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 costswere incurred on a new project which commenced on 1 October 2007. The research stage of the new projectlasted until 31 December 2007 and incurred $1·4 million of costs. From that date the project incurreddevelopment costs of $800,000 per month. On 1 April 2008 the directors became confident that the projectwould 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. Allexpensed 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 unrecoverablelegal costs of defending the action are estimated at $100,000. These have not been provided for as the legalaction will not go to court until next year.

$’00050,00076,600

$’000

24,6006,000

1,30023,800300,000

50,00020,00024,5005,80010,000––––––––466,000––––––––

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(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.(b)Prepare the statement of changes in equity for the year ended 30 September 2008.(c)Prepare the statement of financial position as at 30 September 2008.Note: notes to the financial statements are not required.

5(12 marks)(3 marks)(10 marks)

(25 marks)[P.T.O.

3

Victular is a public company that would like to acquire (100% of) a suitable private company. It has obtained thefollowing draft financial statements for two companies, Grappa and Merlot. They operate in the same industry andtheir managements have indicated that they would be receptive to a takeover.Income statements for the year ended 30 September 2008

$’000

Grappa

$’000 $’000Merlot$’000Revenue12,000Cost of sales

––––––––(10,500)Gross profit

1,500Operating expenses(240)Finance costs–loan

(210)–overdraftnil–lease––––––––nilProfit before tax1,050Income tax expense––––––––

(150)Profit for the year

––––––––

900Note: dividends paid during the year

––––––––

250Statements of financial position as at 30 September 2008Assets

Non-current assets

Freehold factory (note (i))4,400Owned plant (note (ii))5,000

Leased plant (note (ii))––––––––nil9,400

Current assetsInventory

2,000Trade receivables2,400Bank––––––––

600––––––––5,000Total assets

––––––––14,400Equity and liabilities

Equity shares of $1 each2,000

Property revaluation reserve 900Retained earnings

––––––––

2,600––––––––3,5005,500

Non-current liabilities

Finance lease obligations (note (iii))nil7% loan notes3,000

10% loan notesnilDeferred tax

600Government grants

––––––––1,2004,800

Current liabilitiesBank overdraftnilTrade payables3,100Government grants

400Finance lease obligations (note (iii))nilTaxation

––––––––

600––––––––4,100Total equity and liabilities

––––––––14,4006

3,6003,700

––––––––

nilnil––––––––

8003,200

nil3,000100––––––––nil1,2003,800

nil500––––––––

20020,500––––––––(18,000)2,500(500)(300)(10)––––––––(290)1,400––––––––(400)––––––––

1,000––––––––

700nil2,200––––––––5,3007,500

––––––––7,300––––––––14,8002,000

––––––––8002,800

6,300

––––––––5,700––––––––

14,800Notes

(i)Both companies operate from similar premises.(ii)Additional details of the two companies’ plant are:

Grappa$’0008,000

nil

Merlot$’00010,0007,500

Owned plant – cost

Leased plant – original fair value

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, allfinance 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 timesGross profit margin 12·5%Operating profit margin10·5%Current ratio 1·2:1Closing inventory holding period 70 daysTrade receivables’ collection period 73 daysTrade payables’ payment period (using cost of sales) 108 daysGearing (see note (iii) above)35·3%Interest cover6 timesDividend cover3·6 timesRequired:

(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 September2008 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 ofVictular when making an acquisition decision.(5 marks)

(25 marks)

7[P.T.O.

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(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 Statementswhich, 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 twoexamples 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 theright to extract oil from an offshore oilfield under a government licence. The terms of the licence are that Promoilwill have to remove the platform (which will then have no value) and restore the sea bed to an environmentallysatisfactory condition in 10 years’ time when the oil reserves have been exhausted. The estimated cost of thison 30 September 2017 will be $15 million. The present value of $1 receivable in 10 years at the appropriatediscount 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 forthe year ended 30 September 2008;(7 marks)

(ii)Describe how your answer to (b)(i) would change if the government licence did not require anenvironmental clean up.(3 marks)

(15 marks)

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

Hours

Manufacturer’s base price

Trade discount (applying to base price only)

Early settlement discount taken (on the payable amount of the base cost only)Freight charges

Electrical installation cost

Staff training in use of machinePre-production testing

Purchase of a three-year maintenance contractEstimated residual value

Estimated life in machine hours6,000Hours used –year ended 30 September 20061,200

–year ended 30 September 20071,800–year ended 30 September 2008 (see below)850

$

1,050,000

20%5%30,00028,00040,00022,00060,00020,000

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 hoursand 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 eachof the three years to 30 September 2008.

(10 marks)

End of Question Paper

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