Diploma in International Financial Reporting (Dip IFR) : Friday 5 June 2020
Diploma in International Financial Reporting (Dip IFR) : Friday 5 June 2020
Diploma in International Financial Reporting (Dip IFR) : Friday 5 June 2020
Dip IFR
International
Financial Reporting
(Dip IFR)
Friday 5 June 2020
This question paper must not be removed from the examination hall.
The Association of
Chartered Certified
Accountants
ALL FOUR questions are compulsory and MUST be attempted
1 Alpha, a parent company with one subsidiary, Beta, is preparing the consolidated statement of profit or loss and
other comprehensive income for the year ending 31 March 20X5. The draft statements of profit or loss and other
comprehensive income are as follows:
Alpha Beta
$’000 $’000
Revenue (Note 2) 64,800 39,000
Cost of sales (Notes 2 and 4) (26,000 ) (16,000 )
––––––– –––––––
Gross profit 38,800 23,000
Distribution costs (5,000 ) (2,000 )
Administrative expenses (9,000 ) (3,500 )
Investment income (Notes 1 and 3) 7,000 0
Finance costs (Note 1) (4,000 ) (2,500 )
––––––– –––––––
Profit before tax 27,800 15,000
Income tax expense (7,000 ) (4,000 )
––––––– –––––––
Profit for the year 20,800 11,000
––––––– –––––––
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Gains on property revaluation (Note 4) 5,000 3,000
––––––– –––––––
Other comprehensive income for the year: 5,000 3,000
––––––– –––––––
Total comprehensive income for the year 25,800 14,000
–––––––
––––––– –––––––
–––––––
Note 1 – Alpha’s investment in Beta
On 1 April 20X3, Alpha acquired 180 million equity shares in Beta. On that date Beta had 200 million equity shares
in issue. Alpha made a cash payment of $60 million to the former shareholders of Beta on 1 April 20X3 and agreed to
make a further payment of $26·62 million on 31 March 20X6.
Alpha had correctly accounted for the deferred payment in its financial statements for the year ended 31 March 20X4
but has made no further entries in its financial statements for the year ended 31 March 20X5. An appropriate annual
rate to use in any discounting calculations is 10%. At a discount rate of 10% per annum the present value of $1
payable in three years is $0·7513.
On 31 December 20X4, Beta paid a dividend of $5 million. This was the only dividend paid by Beta in the year ended
31 March 20X5 and was appropriately recognised by Alpha.
On 1 April 20X3, Alpha made a long-term loan to Beta of $25 million. The loans are included in the financial
statements of Beta at this amount. These long-term loans attract interest at an annual rate of 8%. Both Alpha and Beta
have correctly accounted for this interest in their individual financial statements for the year ended 31 March 20X5.
No impairments of the goodwill on acquisition of Beta have been evident up to and including 31 March 20X5.
Note 2 – Intra-group trading
Alpha supplies Beta with a raw material which it uses in its production process. Alpha applies a mark-up of one-third
to its cost. Sales of the raw material by Alpha to Beta in the year ended 31 March 20X5 totalled $10 million. On
31 March 20X4 and 20X5, the inventories of Beta included goods costing $2 million and $3 million respectively which
had been purchased from Alpha.
Note 3 – Alpha’s other investments
Apart from its investments in the equity shares and loans of Beta, Alpha has a portfolio of equity investments which
are correctly classified as fair value through profit or loss. The investment income of Alpha for the year ended 31 March
20X5 currently correctly includes dividend income from this portfolio. However, the carrying amount of the portfolio
has not yet been adjusted to its fair value at 31 March 20X5. On 31 March 20X5, the carrying amount of the portfolio
was $32 million and its fair value $33·5 million.
2
Note 4 – Revaluation of property, plant and equipment (PPE)
Both Alpha and Beta measure their PPE using the revaluation model. PPE is re‑measured at the end of each financial
year.
In previous periods Alpha had recorded net revaluation losses of $3·5 million. These losses were correctly accounted
for under the requirements of IAS® 16 – Property, Plant and Equipment.
In the financial statements of Alpha for the year ended 31 March 20X5, re-measurement gains of $5 million were
entirely recognised in other comprehensive income. These gains related to the same properties which had previously
suffered revaluation losses.
Beta has only ever recorded revaluation gains. All depreciation and impairments of PPE are recognised in cost of sales.
Note 5 – Equity settled share based payment scheme
On 1 April 20X3, Alpha granted 500 senior executives 4,000 share options each. The options vest on 31 March
20X7. The options only vest for senior executives who remain employed by Alpha on 31 March 20X7. The following
information is relevant:
Date Fair value of option Number of executives for whom
($) the option is expected to vest
1 April 20X3 1·20 400
31 March 20X4 1·35 420
31 March 20X5 1·50 450
This transaction was correctly accounted for in the financial statements of Alpha for the year ended 31 March 20X4 and
the cost was recognised as an administrative expense. However, no further entries have yet been made in the financial
statements for the year ended 31 March 20X5.
Required:
Prepare the consolidated statement of profit or loss and other comprehensive income of Alpha for the year ended
31 March 20X5. Where relevant you should round all figures to the nearest $’000.
Note: Ignore deferred tax.
(25 marks)
3 [P.T.O.
2 Gamma prepares consolidated financial statements to 31 March each year. Notes 1 and 2 contain information relevant
to these financial statements:
Required:
Using the information in notes 1 and 2, explain and show how the two events would be reported in the consolidated
financial statements of Gamma for the year ended 31 March 20X5.
Note: The mark allocations are indicated in each note above. Marks will be awarded for explanations as well as for
computations.
(25 marks)
4
This is a blank page.
Question 3 begins on page 6.
5 [P.T.O.
3 Delta prepares financial statements to 31 March each year. Delta applies IAS 12 – Income Taxes – and IAS 41 –
Agriculture – in the preparation of its financial statements.
IAS 12 requires that entities recognise deferred tax liabilities on taxable temporary differences and, in certain
circumstances, deferred tax assets on deductible temporary differences. Temporary differences are determined by
comparing the carrying amount of an asset or liability with its tax base.
IAS 41 sets out the principles of recognition and measurement for biological assets and harvested produce.
6
Required:
Using the information in notes 1 and 2, explain, with appropriate computations, how Delta should report these
transactions in the financial statements for the year ended 31 March 20X5.
Note: The mark allocations are indicated in each note above. Marks will be awarded for explanations as well as for
computations.
(25 marks)
7 [P.T.O.
4 Omega is a listed entity and you are the financial controller. The financial statements of Omega for the year ended
31 March 20X5 are currently being prepared. One of Omega’s directors has sent you three questions regarding the
financial statements.
Required:
Provide answers to the questions raised by one of Omega’s directors relating to the financial statements for the
year ended 31 March 20X5.
Note: The mark allocations are indicated in each question above.
(25 marks)