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CIMA F2 Practice and Revision Kit (2013) Updates & Errata

Please accept our apologies for any inconvenience that the following errata may have caused.

Question 10 BN (3/12)

Solution to (a)(i)

At the bottom of (W1), Note 2 should say ‘Annuity factor 9% after 4 years’ (rather than ‘Discount factor 7% after 4 years).

Question 11 JH (5/12)

Solution to part (b)(ii)

Change ‘Fair value at 31 December 20X4’ to ‘Fair value at 31 December 20X1’.

Question 13 EAU (5/11)

Solution to part (b)

Journal should be dated for the year ended 31 December 20X2 (rather than 30 September 20X2).

Question 14 QWS (11/11)

Question

Dates are wrong. Replace with:

Financial Instrument

QWS issued a redeemable debt instrument on 1 July 20X1 at its par value of $6 million. The instrument carries a fixed coupon interest rate of 6%, which is payable annually in arrears. The debt instrument will be redeemed for $6.02 million on 30 June 20X5. Transaction costs associated with the issue were $200,000 and were paid at the time of issue. The effective interest rate applicable to this liability is approximately 7.06%.

Required:

(i)

Explain how this instrument will be initially and subsequently measured.

(ii)

Calculate the carrying value of the liability to be included in QWS's statement of financial position as at 30 June 20X3. (Round all workings to the nearest $000)

(5 marks)

Pension plan

QWS operates a defined benefit pension plan for its employees. At 1 July 20X2 the fair value of the pension plan assets was $1,200,000 and the present value of the plan liabilities was $1,400,000. The yield on high quality corporate bonds was 7%.

The actuary estimates that the current service cost for the year ended 30 June 20X3 is $300,000. QWS made contributions into the pension plan of $400,000 in the year.

The pension plan paid $220,000 to retired members in the year to 30 June 20X3. At 30 June 20X3 the fair value of the pension plan assets was $1,400,000 and the present value of the plan liabilities was $1,600,000.

QWS recognises gains and losses on remeasurement in accordance with IAS 19 Employee benefits (revised 2011).

Required:

Calculate the net expense that will be included in QWS's profit or loss AND the amounts that would be included in respect of gains or losses on remeasurement for the year ended 30 June 20X3. (Round all workings to the nearest

$000)

(5 marks)

(Total = 10 marks)

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Solution to part (a)(i)

1 st sentence of 2 nd paragraph should read:

‘It is initially measured at its fair value ie the cash received of $6m’ (rather than cash paid).

Question 22 ABC and DEF (FA 11/05 amended)

Question

Replace note (d) with:

(d) DEF’s inventories included goods at an advanced stage of work-in-progress with a carrying value of $30,000. The fair value of these goods was estimated at $36,000.

Question 23 AAY (FA 5/08)

Question - In note (1), the profit for the year of AAY should be $81.7 million (not $81,700).

Question 26 ERT (3/11)

Solution

In (W3), note 2, the first sentence should read:

The ‘other reserves’ balance shown in ERT’s separate statement of financial position is eliminated on consolidation because the carrying value of the investment has to be restated to its cost for consolidation purposes (see (W2).

Question 27 SD (9/11)

Solution: workings

(W3) Date of retained earnings should be 28 February 20X1 not 20X2.

(W4) Replace with:

(4)

Non-controlling interest

$

At acquisition

 

1,960,000

NCI share of post-acq retained earnings to

 

28

February 20X1

(40% 426,667(W3))

170,666

 

2,130,666

Decrease in NCI on further acquisition

(20/40 2,130,666)

(1,065,333)

NCI share of post-acq retained earnings to

 

30

June 20X1

(20% 153,333(W3))

30,666

 

1,095,999

Question 28 BN and AB (5/12)

Solution to part (b)

Retained earnings working – should say ‘Share of AB’s post acquisition reserves’ (rather than BN).

Question 31 ST (FA 5/06)

Question

Replace note 1 with:

(1) Investments by ST

Several years ago ST acquired 70% of the issued ordinary share capital of UV. On 1 February 20X5, ST acquired 50% of the issued share capital of WX, an entity set up under a contractual arrangement as a joint venture between ST and one of its suppliers. The arrangement gives the two parties joint control and rights to the net assets of WX.

2

Solution

Replace the whole solution with the following:

Text reference. Joint arrangements are covered in Chapter 9.

Top tips. This is a fairly straightforward consolidation with the addition of the treatment of WX as a joint arrangement using the equity method. However this is complicated by the intra group sale from WX to ST. ST's share of unrealised profits at the reporting date must be eliminated.

Easy marks. Easy marks are available for setting out the proforma and adding across. Also, remember to split out the profit into parent and non-controlling interests.

ST GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 JANUARY 20X6

 

$'000

Revenue (1,800 + 1,400) Cost of sales (1,200 + 850) Gross profit Operating expenses (450 + 375) Finance cost (16 + (12 – 6 (W2))) Share of profit of joint venture ((50 50%) – 1 (W3)) Profit before tax Income tax expense (45 + 53) Profit for the year

3,200

(2,050)

1,150

(825)

(22)

24

327

(98)

229

the year 3,200 (2,050) 1,150 (825) (22) 24 327 (98 ) 229 Profit attributable to: Owners

Profit attributable to:

Owners of the parent (bal fig) Non-controlling interest (110 30% (UV))

196

33

229

Workings

1 Group structure

ST

70% 50% 1.2.X5 UV WX (subsidiary) (joint venture)
70%
50%
1.2.X5
UV
WX
(subsidiary)
(joint venture)

2 Intragroup debenture loan interest

Intragroup debenture loan interest = $100,000 x 6% = $6,000

Eliminate by:

↓ Interest income $6,000 ↓ Finance costs $6,000 3 Provision for unrealised profit WX ST
↓ Interest income
$6,000
↓ Finance costs
$6,000
3 Provision for unrealised profit
WX
ST

PUP = $20,000 x ½ in inventories x 20/100 margin x 50% group share = $1,000

Eliminate by reducing ‘share of profit of joint venture’.

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Question 36 Preparation question: Part disposal

Question

Last paragraph of question (just before requirement):

The fair value of the non-controlling interest on 1 January 20X6 was $51,400.

Question 40 AZ (FA 5/06)

Solution to part (c)

In (W2) Investment in associate, the share of post acquisition retained reserves should be $85,000 x 40% not $885,000 x 40%.

Q47 Preparation question: Foreign operations

Solution

For your convenience the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and workings 2, 3 and 5 are shown in full. Affected numbers are shown in bold.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20X6

 

Standard

Odense

Rate

Odense

Consol

$'000

Kr'000

$'000

$'000

Revenue Cost of sales Gross profit Other expenses Impairment loss (W2) Dividend from Odense Profit before tax Income tax expense Profit for the year OTHER COMPREHENSIVE INCOME Items that may subsequently be reclassified to profit or loss Exchange difference on translating foreign operations (W5) TOTAL COMPREHENSIVE INCOME FOR THE YEAR

1,125

5,200

8.4

619

1,744

(410)

(2,300)

8.4

(274)

(684)

715

2,900

345

1,060

(180)

(910)

8.4

(108)

(288)

 

(20)

40

575

1,990

237

752

(180)

(640)

8.4

(76)

(256)

395

1,350

161

496

71

395

1,350

161

567

Profit attributable to:

Owners of the parent Non-controlling interest (161 20%)

 

464

32

 

496

Total comprehensive income for the year attributable to:

 

Owners of the parent Non-controlling interest (161 + 48 (W5)) 20%

 

525

42

 

567

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (EXTRACT)

Balance at 1/1/X6 (W4) Dividends paid Total comprehensive income for the year (per SPLOCI) Balance at 31/12/X6 (W3)

4

Retained earnings

$'000

1,065

(195)

525

1,395

Workings

(2)

Goodwill

 

Kr'000

Kr'000

Rate

$'000

 

Consideration transferred (520 9.4) Non-controlling interests (3,100 20%)

4,888 620 (3,100) 2,408
4,888
620
(3,100)
2,408

520

66

Share capital

1,000

9.4

Reserves

2,100

   

(330)

256

 

Exchange differences 20X4-20X5 At 31.12.X5 Impairment losses 20X6 Exchange differences 20X6 At 31.12.X6

 

18

2,408

8.8

274

(168)

8.4

(20)

23

2,240

8.1

277

(3)

Consolidated retained earnings carried forward

 

$'000

 

Standard

1,115

Group share of post acquisition reserves of Odense (324 80%)

259

 

1,374

 

Less goodwill impairment losses (W2) Exchange differences on goodwill (18 + 23)

 

(20)

41

 

1,395

(5)

Exchange differences

 

$'000

$'000

 

On translation of net assets:

Closing NA @ CR Opening NA @ OR (5,300 – 1,350 + 405 = 4,355 @ 8.8) Less retained profit as translated (161 (SPLOCI) – 405 @ 8.1) Exchange gain On goodwill (W2)

654

(495)

(111)

 

48

23

 

71

Question 48 Little (FA Pilot Paper)

Solution to part (b)

(W4) Non-controlling interest – ‘share of post acquisition retained earnings’ should be 355 not 335.

Question 49 Home Group (FA 11/06)

Solution

(W3) Should be headed up ‘Exchange difference on foreign payable’ (rather than ‘Exchange difference on plant’).

Question 51 BH Group (11/11)

Question

In the additional information, note 1, 3 rd paragraph, first sentence, the fair value of the investment at 31 March 20X1 should be $1,170,000 (not $1,1700,000).

In note 3, the second sentence should read: ‘Half of these items remain in BH’s inventories at the year end’.

5

Question 53 AH Group (FA 11/05)

Solution

In (W2), goodwill arising on acquisition should be calculated as follows:

Consideration transferred:

Shares (2m x $2) Cash Non-controlling interest (5,000 x 25%) Less: Net assets at acquisition Goodwill

$'000

4,000

2,000

1,250

(5,000)

2,250

Question 57 AB (9/11)

Solution

In the ‘operating activities’ section of the cash flow, the headings for ‘decrease in trade receivables’ and ‘decrease in inventories’ are the wrong way round. ‘Decrease in inventories’ should be 4,800 and ‘decrease in receivables’ should be 200.

In the note at the foot of the consolidated statement of cash flows, it should say ‘dividends could also be shown under operating activities’.

Question 62 KER (5/10)

Question

In the statement of financial position, the cash and cash equivalents balance for 20X8 should be $22m (not $2m).

Question 63 DFG (3/11)

Solution to part (a)

ROCE for 20X1 is incorrect. It should be 15/337 = 4.5%.

The share of the profit of associate should have been removed when calculating interest cover for 20X1:

Interest cover =

10 12 - 7 = 1.25 times

12

Mock Exam 1: Question 3 FDE (5/09)

Question

Delete last sentence of question: ‘The average remaining working life of employees who participate in the scheme is 10 years’.

Reword requirement (a):

‘Calculate the amounts, in respect of the pension plan, that FDE will include in its statement of profit or loss and other comprehensive income’

Mock Exam 1: Question 4 JK (5/10)

Solution to part (b)

Year end should be 30 November (not 31 December).

Mock Exam 2: Question 7 TYU (9/12)

Solution to part (a)

Operating margin for 20X1 should be 4.9% (rather than 5.0%).

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