Page 1 of 6 ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATIONS – MARCH/APRIL 2018 B.COM (Int. A/c & Fin) – IV SEMESTER
C4 15MC401:: ADVANCED FINANCIAL REPORTING
Duration: 3 Hours Max. Marks: 70 SECTION - A
I) Answer any TEN questions. Each carries 1 mark. (10x1=10) 1. What is Confidentiality as per the Code of Ethics?
2. Mention 4 Self-interest threats an ACCA Professional can face.
3. Define a Joint Venture.
4. How are Associates different from Subsidiaries?
5. What is deferred tax?
6. Explain the term temporary difference as per IAS 12.
7. Can all borrowing costs be capitalized?
8. What is Lowballing?
9. What are Related Parties as per IAS 24?
10. What is "Fair value" as per IFRS 13?
11. Define an Operating Segment.
12. Distinguish between Equity settled share based payment and cash settled share based payment.
SECTION - B
II) Answer any THREE questions. Each carries 6 marks. (3x6=18) 13. On 1st June 2016, Shami purchased machinery worth $100,000 from Bhuvi.
Shami has decided to depreciate this machine at the standard rate of 20% per annum. The books close on 31st December each year. Bhuvi had previously purchased a machine from Ravi and currently that machine stands at $25,000 on 1st January 2016. Calculate :
A. The value of the machinery on 31st Dec as per IAS 16 based on the above data.
B. The value of the machinery on 31st Dec as per IAS 16 assuming that the machine purchased from Ravi was revalued at the year-ended 31st
December to $31,000.
14. (a) When do deductible temporary differences arise in IAS 12 Income taxes?
(b) A company purchased an asset costing $1,500. At the end of 20X8 the carrying amount is $1,000. The cumulative depreciation for tax purposes is
$900 and the current tax rate is 25%.
Required: Calculate the deferred tax liability for the asset.
15. What is an equity settled share based payment and a cash settled share based payment as per IFRS 2? Give one example of each.
16. a) Explain sale and leaseback as per IAS 17.
b)On 1 January 2012 Pollard Co, wine merchants, buys a small bottling and labelling machine from Bravo Co under a finance lease. The cash price of the
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Page 2 of 6 machine was $7,710 while the amount to be paid was $10,000. The agreement required the immediate payment of a $2,000 deposit with the balance being settled in four equal annual instalments commencing on 31 December 2012.
The charge of $2,290 represents interest of 15% per annum, calculated on the remaining balance of the liability during each accounting period. Depreciation on the plant is to be provided for at the rate of 20% per annum on a straight line basis assuming a residual value of nil.
You are required to show the breakdown of each instalment between interest and capital, using the actuarial method.
17. Define Contingent Assets and Contingent Liabilities as per IAS 37.
Shortly before 31 December 2010, a patient dies in a hospital as a result of a mistake made during an operation. The hospital is aware that a mistake occurred. In these circumstances, the hospital's past experiences and lawyer's advice indicate that it is highly likely that the patient's relatives will start legal proceedings and, if the matter comes to court, that the hospital will be found guilty of negligence and the amount payable would be $70,000.
At the time that the financial statements are authorized for issue in early 2011, the hospital has not received notice of legal proceedings against it.
Explain the accounting treatment required, in terms of recognition or otherwise and measurement if:
A. There is a high chance that the amount is payable.
B. There is very little chance that the amount is payable.
SECTION - C
III) Answer any TWO questions. Each carries 15 marks. (2x15=30) 18. A. In Barca & Co, the general perspective is that fees can be charged looking at
the price charged by the competitors. Along with that, the accountants/auditors can represent the clients in a court of law.
Is this correct from an ethical perspective? Explain. (5 marks) B. Explain 5 threats that an auditor/accountant can face at the workplace other than the ones mentioned above. (10 marks) 19. ABC is a listed company with a number of subsidiaries located throughout the
United Kingdom. ABC currently appraises investment opportunities using a cost of capital of 10 per cent.
On 1 April 2009 ABC purchased 80 per cent of the equity share capital of XYZ for a total cash price of $60m. Half the price was payable on 1 April 2009; the balance was payable on 1 April 2011. The net identifiable assets that were actually included in the statement of financial position of XYZ had a carrying value totalling $55m at 1 April 2009. With the exception of the pension
provision (see below), you discover that the fair values of the net identifiable assets of XYZ at 1 April 2009 are the same as their carrying values. When performing the fair-value exercise at 1 April 2009, you discover that XYZ has a defined-benefit pension scheme that was actuarially valued three years ago and found to be in deficit. As a result of that valuation, a provision of $6m has been built up in the statement of financial position. The fair-value exercise indicates that on 1 April 2009, the pension scheme was in deficit by $11m. This information became available on 31 July 2009.
Assume that today's date is 31 October 2009. You are in the process of
Page 3 of 6 preparing the consolidated financial statements of the group for the year
ended 30 September 2009. Intangible assets are normally written off on a pro- rata basis over twenty years. Your financial director is concerned that profits for the year will be lower than originally anticipated. She is therefore
wondering about changing the accounting policy used by the group, so that all intangible assets are treated as having an indefinite useful life.
Required
(a) Calculate the value of goodwill on acquisition of XYZ in the consolidated accounts of ABC for the year ended 30 September 2009. You should fully explain and justify all parts of the calculation. (6 marks) (b) Write a memorandum to your financial director:
(i) Evaluate the policy of writing off all intangible assets over twenty years (5 marks) (ii) Explain whether it is ever permissible to select a longer write-off period for intangible assets, and describe the future implications of selecting such a period. (4 marks) 20. Jai, a public limited company, purchased 6m shares in Veeru, a public limited
company, on 1 January 2005 for $10m. Veeru had purchased 4m shares in Thakur, a public limited company for $9m on 31 December 2002 when its retained earnings stood at $5m. The balances on retained earnings of the acquired companies were $8m and $6.5m respectively at 1 January 2005. The fair value of the identifiable assets and liabilities of Veeru and Thakur was equivalent to their book values at the acquisition dates.
The statements of financial position of the three companies as at 31 December 2009 are as follows:
Jai Veeru Thakur $'000 $'000 $'000 Non-current assets
Property, plant and equipment 14,500 12,140 17,500 Investment in Veeru 10,000 – – Investment in Thakur – 9,000 –
Total 24,500 21,140 17,500 Current assets
Inventories 6,300 2,100 450 Trade receivables 4,900 2,000 2,320 Cash 500 1,440 515 Total 11,700 5,540 3,285 Total Assets 36,200 26,680 20,785
Equity
50cens ordinary shares 5,000 4,000 2,500 Retained earnings 25,500 20,400 16,300
Page 4 of 6 Total 30,500 24,400 18,800
Current liabilities 5,700 2,280 1,985 Total Equity & Liabilities 36,200 26,680 20,785 Group policy is to value non-controlling interests at fair value at acquisition.
The fair value of the non-controlling interests in Veeru was calculated as
$3,230,000 on 1 January 2005. The fair value of the 40% non-controlling interests in Thakur on 1 January 2005 was $4.6m.
Impairment tests in current and previous years did not reveal any impairment losses.
Required
Prepare the consolidated statement of financial position of Jai as at 31 December 2009.
21. You are the management accountant of Robin Co. Pandey Co is a competitor in the same industry and it has been operating for 20 years. Summaries of Pandey Co's statements of comprehensive income and financial position for the previous two years are given below.
SUMMARISED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER
2007 2008
$m $m Revenue 981 913
Cost of sales 645 590
Gross profit 336 323
Selling, distribution and admin expense 214 219
Profit before interest 122 104
Interest 15 19
Profit before taxation 107 85
Taxation 52 45
Profit after taxation 55 40
Dividends 24 24
SUMMARISED STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2007 2008
Assets Non-current assets Intangible assets 40 48
Tangible assets at net book value 206 216
Current assets Inventories 303 294
Receivables 141 160
Page 5 of 6 Bank 58 52
Total Assets 748 770 Equity and liabilities
Equity
Ordinary share capital 100 100 Retained earnings 330 346 Non-current liabilities
Long-term loans 138 138 Current liabilities
Trade payables 75 75 Other payables 105 111
Total Equity and Liabilities 748 770 You may assume that the index of retail prices has remained constant between 2007 and 2008.
Required
Write a report to the finance director of Robin Co:
(a) Analyzing the performance of Pandey Co and showing any calculations in an appendix to this report. (10 marks) (b) Summarizing five areas which require further investigation, including reference to other pieces of information which would complement your analysis of the performance of Pandey Co. (5 marks)
SECTION - D
IV) Case Study – Compulsory question. (1x12=12) 22. a) Define Research and Development individually and explain their
characteristics as per IAS 38. (4 marks) b) X Co, hires a scientist and a techie to work on a new piece of machinery in aircrafts that will monitor the air pressure in aircrafts so that the ears of the passengers do not get affected by the ascending or descending of aircrafts.
Work begins as usual where the scientist and the techie work on the controller device and suddenly the scientist discovers that there is a part missing which will help in completion of the product and
obtaining that part will cost them above $14,000 including spares. The costs incurred so far are $26,000 including the scientist and techie's fees.
After acquiring the part, the costs now reach $40,000.
Within 3 months, the workers have completed the test product and have installed it in one of the aircrafts. After the first flight, the scientist says that he can improvise on the part since he wasn't fully satisfied.
The pilot of the aircraft mentions that the product was wonderful and that for the first time he did not feel any pain in his ears despite the aircraft descending and he also mentioned that this is the kind of
Page 6 of 6 product that the aircrafts need. The costs have now touched $91,000.
The scientist working for another month discovers the final product that can be used which should cause zero effect on the ears of the passengers. He is happy after a test and looks to patent his product.
The costs after patenting have now reached $109,000.
The first product is sold to a personal friend of the scientist for $1,200 and the friend said that he will recommend this to his friends who own aircrafts.
3 months down the line and none of the aircraft owners have
purchased this product due to a study which indicated that the product can be harmful to the aircraft in the future.
Explain the accounting treatment of the product for each step keeping the Research and Development approach in mind. (8 marks) &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&