ACCA MOCK

FINANCIAL REPORTING
Answers
MARCH 21
Time allowed
3 hours and 15 minutes
This paper is divided into three sections:
Section A ‐ All 15 questions are compulsory and MUST be
attempted
Section B ‐ All 15 questions are compulsory and MUST be
attempted
Section C ‐ BOTH questions are compulsory and MUST be
attempted
Formulae sheet, present value and annuity tables are on pages
3, 4
and 5

IPRO EDUCATION
Q1 C
Bearer plants and land related to agricultural activity are both excluded from the
scope of IAS 41. Unlike biological assets, agricultural produce must always be
measured at fair value.

Q2 D
The initial carrying value of the asset is recorded net of the grant income, giving
$90,000 – $15,000 = $75,000. This cost is then depreciated over nine years, giving
an annual depreciation charge of $8,333. Therefore, the carrying value of the asset
at 31 December 20X7 is $75,000 – $8,333 = $66,667.

Q3 B
Deferred tax provision required $18,000 (60,000 × 30%)
Current liability Taxation – current year estimate $30,000

Q4 C

Q5 C
Year Bal b/d Interest 10% Dividend Bal c/d
2014 98,000 9,800 (8,000) 99,800
2015 99,800 9,980 (8,000) 101,780

Q6 A
NCI at acquisition = 30% × ($150,000 SC + $125,000 RE) = $82,500
NCI % x post acquisition = 30% × ($200,000 – $125,000) = $22,500
NCI at 31 December 20X5 = $82,500 + $22,500 = $105,000
Alternative calculation: NCI % × net assets at acquisition = 30% × ($150,000 +
$200,000) = $105,000
Q7 A
Cost (500,000 x 20% x $4) $400,000
Share of profit for 20X7 ($100,000 x 6 /12 x 20%) $10,000
Share of profit for 20X8 ($250,000 x 20%) $50,000
Less: Dividend received ($20,000 x 20%) ($4,000)
Carrying value $456,000
Dividends are considered to be received when they are declared. The actual
receipt of the cheque is irrelevant.

Q8 D
The Fariox Co has suffered a total loss of $750,000 - $500,000 = $250,000
The goodwill of $100,000 should be written off in full. The remaining loss, after the
allocation to goodwill, will be $150,000.
Inventory cannot be written off further as it is already valued at net realisable
value. Therefore, the combined value of equipment and furniture after the
impairment will be: $400,000 + $200,000 - $150,000 = $450,000

Q9 B
Property, plant and equipment
$000 $000
b/f 350
Additions ß 172 Disposal 45
Depreciation 52
c/f 425
––––– –––––
522 522
––––– –––––
Cash additions = $172,000 less $20,000 payable = $152,000

Q 10 A

Q 11 A
Inventories, deferred tax assets, non-current assets held for sale and financial
assets are all excluded from the scope of IAS 36. Their valuation is dealt with by
the respective accounting standard.
Q 12 C
Cost of sales – P Co $90,000
Cost of sales – S Co ($60,000 / 12 x 9) $45,000
Intra-group sales ($10,000)
Unrealised profit ($10,000 / 100 x 20) / 2 $ 1,000

Q 13 D
The profit on the sale of a non‐current asset is deducted from profit as the cash
received on the sale is dealt with separately.
The large payable paid off is likely to result in a decrease in payables which is 'bad'
for cash.
The reduction in inventories will be 'good' for cash as less cash tied up in inventories.
Depreciation is added back to profit so an increased charge is more likely to increase
cash generated when compared to profit.

Q 14 D
Capitalising the repair expense will result in overstated profits. Overstated profits
will overstate EPS and ROCE.

Q 15 .C
Q 16 C
Depreciation for first six months ($200,000 / 10 x 6 / 12) = $10,000
Depreciation for last six months ($195,000 / 7.5 x 6 / 12) = $13,000
Total charge for the year = $23,000
Note: Remaining useful life of 7.5 years can be calculated by utilising the
information for accumulated depreciation.

Q 17 B
Grant 1 - Grants related to taxable income are excluded from the scope of IAS 20.
Grant 2 - $200,000 can be recognised.
Grant 3 - Reduced rate loans can be recognised under IAS 20.
Total Grant Income: $200,000 + $100,000 (7% - 3%) = $204,000

Q 18 A
The evidence of the claim existed before the reporting date. It was simply not
received by white Co. Therefore, Issue 1 needs to be adjusted. No evidence of
Issue 2 existed at the reporting date. It needs not to be adjusted.

Q 19 A
The assets are impaired only when their carrying amount exceeds the recoverable
amount. Recoverable amount is higher of value in use and fair value less costs to sell.
Crane 1
Carrying amount = $600,000 - $120,000 = $480,000
Recoverable amount = $500,000
Impairment = Nil
Crane 2
Carrying amount = $750,000 - $250,000 = $500,000
Recoverable amount = $490,000
Impairment = $10,000
Crane 3
Carrying amount = $800,000 - $160,000 = $640,000
Recoverable amount = $300,000
Impairment = $340,000
Total impairment
$10,000 + $340,000 = $350,000
Q 20 D
Initial recording ($10,000 x 90%) - 500 = $8,500
Interest charged ($8,500 x 12%) = $1,020
Cash paid ($10,000 x 8%) = ($800)

Q 21 C
The increase in payables should be added, as it is good for cash. The increases in
inventories and receivables will have a negative impact on cash.

Q 22 D
Both items are non‐cash expenses so must be added to profit from operations in
order to calculate cash generated from operations.

Q 23 A
Tax liabilities
$Dr Cr
000 $000
b/f (108 + 250) 358
SPL charge 672
Cash paid (bal fig) 496
c/f (234 + 300) 534
––––– –––––
1,030 1,030
––––– –––––

Q 24 C
The opening cash balance of $7,518,000 has decreased to an overdrawn position of
$465,000. This has resulted in a decrease of $7,983,000.

Q 25 C
Sales and purchases of non‐current assets should be recorded within investing
activities.
Q 26 26. D
Only public limited companies, or those in the process of issuing securities to public,
are required to present EPS. There is no need to calculate EPS separately for each
company in the consolidated accounts.

Q 27 27. B
Redeemable preference shares are treated as debt. Therefore, the dividend paid on
such shares Is already deducted when arriving at net profit.
EPS = ($200,000 – 10,000) / 5,000
EPS = $38.00

Q 28 28. A
Gross profit $1,000,000
Operating expenses ($200,000)
Preference dividends ($20,000)
Profit before tax $780,000
Tax at 30% (234,000)
Net profit $546,000
EPS = $546,000 / 200,000
EPS = $2.73
Q 29 29. A
The first step is to calculate theoretical ex-rights price:
Value of 5 shares before issue @ $3.20 $16.00
Value of rights issue @2.00 $2.00
Total value of 6 shares $18.00
Theoretical ex-rights price ($18/6) $3.00
EPS for 2016
Before rights issue = $500,000 / 100,000 = $5.00
Corresponding EPS with rights issue = $5.00 x $3.00 / $3.20 = $4.69
EPS for 2017
Before rights issue (100,000 / 12 x 3) x $3.20 / $3.00 = 26,667
After rights issue (120,000 / 12 x 9) = 90,000
Total weighted average shares = 116,667
EPS = $400,000 / 116,667 = $3.43

Q 30 30. C
Theoretical ex-rights price is simply a fraction used in the calculation of EPS. No
separate disclosure is required for it.
Q 31 (a) Appvar
Consolidated income statement for the year ended 30 September 2008
$’000
Revenue (85,000 + (42,000 x 6/12) – 8,000 intra-group sales) 98,000
Cost of sales (w (i)) (72,000)
–––––––
Gross profit 26,000
Distribution costs (2,000 + (2,000 x 6/12)) (3,000)
Administrative expenses (6,000 + (3,200 x 6/12)) (7,600)
Finance costs (300 + (400 x 6/12)) (500)
–––––––
Profit before tax 14,900
Income tax expense (4,700 + (1,400 x 6/12)) (5,400)
–––––––
Profit for the year 9,500
–––––––
Attributable to:
Equity holders of the parent 9,300
Non-controlling interest (((3,000 x 6/12)
– (800 URP + 200 depreciation)) x 40%) 200
–––––––
9,500
–––––––
(b) Consolidated statement of financial position as at 30 September 2008
Assets
Non-current assets
Property, plant and equipment (40,600 + 12,600 + 2,000 – 200
depreciation adjustment (w (i))) 55,000
Goodwill (w (ii)) 4,500
–––––––
59,500
Current assets (w (iii)) 21,400
–––––––
Total assets 80,900
–––––––
Equity and liabilities
Equity attributable to owners of the parent
Equity shares of $1 each ((10, 000 + 1,600) w (ii)) 11,600
Share premium (w (ii)) 8,000
Retained earnings (w (iv)) 35,700
–––––––
55,300
Non-controlling interest (w (v)) 6,100
–––––––
Total equity 61,400
Non-current liabilities
10% loan notes (4,000 + 3,000) 7,000
Current liabilities (8,200 + 4,700 – 400 intra-group balance) 12,500
–––––––
Total equity and liabilities 80,900
–––––––

Workings (figures in brackets in $’000)

(i) Cost of sales $’000
Pedantic 63,000
Sophistic (32,000 x 6/12) 16,000
Intra-group sales (8,000)
URP in inventory 800
Additional depreciation (2,000/5 years x 6/12) 200
–––––––
72,000
–––––––

The unrealised profit (URP) in inventory is calculated as ($8 million – $5·2 million) x
40/140 = $800,000.
(ii) Goodwill in Sophistic
Investment at cost $’000 $’000
Shares (4,000 x 60% x 2/3 x $6) 9,600
Less – Equity shares of Sophistic (4,000 x 60%) (2,400)
– pre-acquisition reserves (5,000 x 60% see below) (3,000)
– fair value adjustment (2,000 x 60%) (1,200) (6,600)
–––––– ––––––
Parent’s goodwill 3,000
Non-controlling interest’s goodwill (per question) 1,500
––––––
Total goodwill 4,500
––––––
The pre-acquisition reserves are:
At 30 September 2008 6,500
Earned in the post acquisition period (3,000 x 6/12) (1,500)
––––––
5,000
––––––
Alternative calculation for goodwill in Sophistic
Investment at cost (as above) 9,600
Fair value of non-controlling interest (see below) 5,900
–––––––
Cost of the controlling interest 15,500
Less fair value of net assets at acquisition (4,000 + 5,000 + 2,000) (11,000)
–––––––
Total goodwill 4,500
–––––––
Fair value of non-controlling interest (at acquisition)
Share of fair value of net assets (11,000 x 40%) 4,400
Attributable goodwill per question 1,500
––––––
5,900
––––––

The 1·6 million shares (4,000 x 60% x 2/3) issued by Pedantic would be recorded as
share capital of $1·6 million and share premium of $8 million (1,600 x $5).
(iii) Current assets $’000 $’000
Pedantic 16,000
Sophistic 6,600
URP in inventory (800)
Cash in transit 200
Intra-group balance (600)
–––––––
21,400
–––––––
(iv) Retained earnings
Pedantic per statement of financial position 35,400
Sophistic’s post acquisition profit
(((3,000 x 6/12) – (800 URP + 200 depreciation)) x 60%) 300
–––––––
35,700
–––––––

(v) Non-controlling interest (in statement of financial position)

Net assets per statement of financial position 10,500
URP in inventory (800)
Net fair value adjustment (2,000 – 200) 1,800
–––––––
11,500 x 40% = 4,600
–––––––
Share of goodwill (per question) 1,500
––––––
6,100
––––––
Q 32 a) Thuzz – Statement of comprehensive income for the year ended 30 September
2012
$’000
Revenue (213,500 – 1,600 (w (i))) 211,900
Cost of sales (w (ii)) (147,300)
––––––––
Gross profit 64,600
Distribution costs (12,500)
Administrative expenses (19,000 – 1,000 loan issue costs (w (iv))) (18,000)
Loss on fair value of equity investments (17,000 – 15,700) (1,300)
Investment income 400
Finance costs (w (iv)) (1,920)
––––––––
Profit before tax 31,280
Income tax expense (7,400 + 1,100 – 200 (w (v))) (8,300)
––––––––
Profit for the year 22,980
Other comprehensive income
Gain on revaluation of land and buildings (w (iii)) 18,000
––––––––
Total comprehensive income 40,980
––––––––
(b) Thuzz– Statement of changes in equity for the year ended 30 September 2012
Share Revaluation Retained Total
capital reserve earnings equity
$’000 $’000 $’000 $’000
Balance at 1 October 2011 60,000 nil 18,500 78,500
Total comprehensive income 18,000 22,980 40,980
Transfer to retained earnings (w (iii)) (1,000) 1,000 nil
Dividend paid (60,000 x 4 x 8 cents) (19,200) (19,200)
––––––– ––––––– ––––––– ––––––––
Balance at 30 September 2012 60,000 17,000 23,280 100,280
––––––– ––––––– ––––––– ––––––––
(c)Thuzz– Statement of financial position as at 30 September 2012
Assets $ 000 $’000
Non-current assets
Property, plant and equipment (57,000 + 42,500 (w (iii))) 99,500
Equity financial asset investments 15,700
––––––––
115,200
Current assets
Inventory 24,800
Trade receivables 28,500
Bank 2 900 56,200
––––––– ––––––––
Total assets 171,400
––––––––
Equity and liabilities
Equity
Equity shares of 25 cents each 60,000
Revaluation reserve 17,000
Retained earnings 23,280 40,280
––––––– ––––––––
100,280
Non-current liabilities
Deferred tax (w (v)) 1,000
Deferred revenue (w (i)) 800
6% loan note (2014) (w (iv)) 24,420 26,220
–––––––
Current liabilities
Trade payables 36,700
Deferred revenue (w (i)) 800
Current tax payable 7,400 44,900
––––––– ––––––––
Total equity and liabilities 171,400
 Workings (figures in brackets in $’000)
(i) Sales made which include revenue for ongoing servicing work must have part of
the revenue deferred. The deferred revenue must include the normal profit margin
(25%) for the deferred work. At 30 September 2012, there are two more
years of servicing work, thus $1·6 million ((600 x 2) x 100/75) must be treated as
deferred revenue, split equally between current and non-current liabilities.
(ii) Cost of sales
$’000
Per trial balance 136,800
Depreciation of building (w (iii)) 3,000
Depreciation of plant (w (iii)) 7,500
––––––––
147,300
––––––––
(iii) Non-current assets
Land and buildings:
The gain on revaluation and carrying amount of the land and buildings is:
Land Building
$’000 $’000
Carrying amount as at 1 October 2011 10,000 (40,000 – 8,000) 32,000
Revalued amount as at this date (12,000) (60,000 – 12,000) (48,000)
––––––– –––––––
Gain on revaluation 2,000 16,000
––––––– –––––––
Building depreciation year to 30 September 2012 (48,000/16 years) 3,000
The transfer from the revaluation reserve to retained earnings in respect of ‘excess’
depreciation (as the revaluation is
realised) is $1 million (48,000 – 32,000)/16 years.
The carrying amount at 30 September 2012 is $57 million (60,000 – 3,000).
Plant and equipment:
$’000
Carrying amount as at 1 October 2011 (83,700 – 33,700) 50,000
Depreciation at 15% per annum (7,500)
–––––––
Carrying amount as at 30 September 2012 42,500
–––––––
(iv) Loan note
The finance cost of the loan note is charged at the effective rate of 8% applied to
the carrying amount of the loan. The issue costs of the loan ($1 million) should be
deducted from the proceeds of the loan ($25 million) and not treated as
an administrative expense. This gives an initial carrying amount of $24 million and a
finance cost of $1,920,000 (24,000 x 8%). The interest actually paid is $1·5 million
(25,000 x 6%) and the difference between these amounts, of $420,000 (1,920 –
1,500), is accrued and added to the carrying amount of the loan note. This gives
$24·42 million (24,000 + 420) for inclusion as a non-current liability in the
statement of financial position.
Note: The loan interest paid of $1·5 million plus the dividend paid of $19·2 million
(see (b)) equals the $20·7 million shown in the trial balance for these items.

(v) Deferred tax

$’000
Provision required as at 30 September 2012 (5,000 x 20%) 1,000
Less provision b/f (1,200)
––––––
Credit to income statement 200
––––––