2009-Financial Reporting Main EQP and Commentaries

This paper is not to be removed from the Examination Halls
UNIVERSITY OF LONDON
279 0091 ZA
BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the
Social Sciences, the Diploma in Economics and Access Route for Students in the
External Programme
Financial Reporting
Wednesday, 27th May 2009 : 2.30pm to 5.45pm
Candidates should answer FOUR of the following SEVEN questions. All questions carry
equal marks.
Workings should be submitted for all questions requiring calculations. Any necessary
assumptions introduced in answering a question are to be stated.
Extracts from compound interest tables are given after the final question on this paper.
8-column accounting paper is provided at the end of this question paper. If used, it must be
detached and fastened securely inside the answer book.
A calculator may be used when answering questions on this paper and it must comply in all
respects with the specification given with your Admission Notice. The make and type of
machine must be clearly stated on the front cover of the answer book.
University of London 2009

UL09/0083
D02
PLEASE TURN OVER

Page 1 of 9
1.
The income statements and balance sheets for Hole Plc, Sail Ltd and Ask Ltd are given
below:
Income statement
For the year ended 31.12.2008
Hole Plc
000
Sail Ltd
000
Ask Ltd
000
Operating expenses
Investment income
Profit before tax
Tax
Profit after tax
Dividends payable
Retained profit bfwd
Retained profit cfwd
2,800
(1,250)
1,550
(300)
40
1,290
(175)
1,115
(50)
2,535
3,600
2,000
(1,100)
900
(170)
5
735
(25)
710
(20)
630
1,320
1,700
(950)
750
(200)
Balance sheet as at 31.12.2008
000
000
Revenue (Turnover)
Cost of sales
000
Non current assets land

Investments
3,500
700
1,100
100
900
Inventories
Trade receivables
Cash
Dividends receivable
Intracompany loans received from Sail Ltd
Intracompany loans received from Ask Ltd
500
300
250
15
160
35
5,460
800
200
300
400
250
200
2,500
1,750
50
200
1,320
50
760
150
20
100
1,280
10
320
30
10
5,460
2,500
1,750
Share capital
Profit and loss account reserve
Loans
Trade payables
Intracompany loans payable to Hole Plc
Dividends payable
500
3,600
500
810
(question continues on next page)
UL09/0083
D02
550
(60)
490
(10)
800
1,280
Page 2 of 9
Notes:
Hole Plc acquired 60% of Sail Ltd on 1 January 2003 for 425,000, when the share
capital and reserves of Sail Ltd were 250,000. There has been no change in the issued
share capital of Sail Ltd since 1 January 2003.
Hole Plc acquired 30 % of Ask Ltd on 1 January 2001 for 125,000, when the share
capital and reserves of Ask Ltd were 400,000. Hole Plc has some participation in the
management of Ark Ltd but does not control Ark Ltd. There has been no change in the
issued share capital of Ask Ltd since 1 January 2001.
The goodwill policy for all acquisitions has always been to capitalise goodwill.
Sail Ltd revalued its land to 1,200,000 on 1 January 2003 but has not incorporated this
valuation in its accounts. There has been no acquisition and disposal of land by Sail Plc
since 2003.
At the year end, 31.12.2008, Sail Ltd owed Hole Plc 150,000 but Hole Plc recorded
that Sail Ltd owed it 160,000. At the year end, 31.12.2008, Ask Ltd owed Hole Plc
30,000 but Hole Plc recorded that Ask Ltd owed it 35,000. The differences are due to
cash in transit.
In 2008, Sail Ltd sold inventories to Hole Plc for 100,000. These had cost Sail Ltd
80,000. Half of these inventories are still unsold. Ask Ltd sold inventories to Hole Plc
for 20,000. These had cost Ask Ltd 10,000. Half of these inventories are still unsold.
Required:
Prepare a consolidated income statement for the year ended 31.12.2008 and a consolidated
balance sheet as at 31.12.2008 for Hole Plc.
(25 marks)
2.
Home Ltd acquired 100% of Foreign Org on 1 January 2008, the day it was set up.
Foreign Org is based in a country whose currency is the bat. The financial statements of
Foreign Org for the year ended 31 December 2008 are given as follows:
Income statement
2008
Bats
Sales
Cost of sales
Opening inventories
Purchases
Closing inventories
2008
Bats
3,720,000
280,000
1,000,000
(100,000)
(1,180,000)
2,540,000
(160,000)
(60,800)
2,319,200
(80,000)
2,239,200
(100,000)
2,139,200
Gross profit
Depreciation
Other expenses
Profit before tax
Tax
Profit after tax
Dividends
Retained profit for the year

UL09/0083
D02
Page 3 of 9
Balance sheet as at 31 December

2008
Non current assets
Property, plant and equipment
Current assets
Inventories
Other net monetary assets
Total assets less current liabilities
Capital and reserves
Ordinary share capital
Revaluation reserve
Profit and loss account
Debentures
Bats
560,000
100,000
1,927,200
2,587,200
208,000
40,000
2,139,200
200,000
2,587,200
The following information is also available:

Non current assets were acquired on 1 March 2008.
The revaluation reserve arose from the revaluation of non current assets on 1 December
2008.
Opening inventories were acquired on 1 February 2008 and closing inventories were
acquired on 15 December 2008.
The dividend was paid on the last day of the period.
Exchange rates were as follows:
Date
Exchange rate
1 January 2008
1 = 5 bats
1 February 2008
1 = 4 bats
1 March 2008
1 = 6 bats
1 December 2008
1 = 3 bats
15 December 2008
1 = 3 bats
31 December 2008
1 = 8 bats
Average for 2008
1 = 5 bats
Required:
(a)
Compare and contrast the closing rate method and the temporal method for
translating the financial statements of foreign entities and outline the situations in
which they should be used.
(10 marks)
(b)
Translate the accounts of Foreign Org using the temporal method.

(15 marks)
UL09/0083
D02
Page 4 of 9
3.
On 1 January 2007, Company X purchased a new machine. The machine cost 300,000
and has a useful economic life of five years. Estimated operating costs are 21,000 per
annum for the first two years, 22,500 per annum for the next two years and 25,000 in
the final year of its useful life. Its estimated net realisable value at the end of the
machines useful life, or at any time, is 10,000. There is no market for machines of this
type except as scrap.
The machine produces a constant annual output, all of which can be sold, with gross
revenues of 125,000 per annum. The company values its assets on the balance sheet at
deprival value. Its cost of capital is 10% per annum. Payment for a replacement
machine would be made at the time of replacement; all other cashflows may be assumed
to occur at the end of the years concerned.
Required
4.
(a)
Calculate the deprival value of the machine at 31 December 2008

(12 marks)
(b)
Calculate the deprival value of the machine assuming the price of a new machine
goes up on 31 December 2008 to 325,000.
(7 marks)
(c)
What would be the deprival value at 31 December 2008 if sales revenue fell
permanently to 75,000 per annum from 1st January 2009?
(6 marks)
Long Term Plc has two construction contracts under way X and Y. The position on
each contract at 31 December 2008 was as follows:
X
1 January 2008
000
1 August 2008
000
Contract price
8,000
1,500
Cost of work to date
5,100
600
Value of work certified
6,000
800
Estimated additional
costs to completion
1,400
2,200
Payments on account
6,200
720
Start date
Required
(a)
Compare and contrast the accounting treatment of inventory to that of

construction contracts and discuss the application of prudence to inventory and
construction contracts.
(12 marks)
(b)
Show how Contracts X and Y will be reflected in the income statement and
balance sheet of Long Term Plc at 31 December 2008 in accordance with IAS 11,
using the value of work certified method.
(13 marks)
UL09/0083
D02
Page 5 of 9
5.
Answer all parts of this question

(a)
The profit after tax for Hub Ltd is 500,000. In issue are 100,000 1.00 nominal
value 5% preference shares and 100,000 1.00 nominal value ordinary shares.
The market price per ordinary share is 10.00 at the end of the year. Calculate the
price earnings ratio at the end of the year and discuss the meaning of this ratio.
(5 marks)
(b)
Hub Ltd acquired a non-current asset on 1 January 2008 for 300,000.

Depreciation is to be charged using the straight-line method over 5 years. The
specific price index for the non current asset is 100 on 1 January 2008 and 150 on
31 December 2008. Discuss how the unrealised gain on the non current asset
arises under current value accounting. Calculate the unrealised gain on the non
current asset for Hub Ltd for the year ended 31 December 2008.
(5 marks)
(c)
At the balance sheet date, 31 December 2008, inventory was valued at 600,000
by Hub Ltd. On 1 February 2009, the auditors discovered that the inventory had
been incorrectly valued and should have been valued at 100,000. On 1 March,
the company entered into an agreement to sell a major subsidiary of the company.
The accounts have not been signed off as at 1 March 2009. What are events after
the balance sheet date? Outline how the above transactions should be dealt with in
the financial statements of Hub Ltd as at 31 December 2008.
(5 marks)
(d)
What are financial instruments and how should they be accounted for under IAS
32, IAS 39 and IFRS 7?
(5 marks)
(e)
A non-current asset (building) has been acquired by Hub Ltd and it wishes to
account for this as an investment property. The non-current asset cost 400,000 on
1 January 2008, its market value on 31 December 2008 is 500,000 and Hub Ltds
deprecation policy for similar non current assets is the reducing balance method
using a rate of 10%. What are investment properties and how are they accounted
for? Show how the non-current asset would be accounted for in the income
statement for the year ended 31 December 2008 and in the balance sheet as at 31
December 2008 for Hub Ltd if it could be classed as an investment property using
both the fair value model and the cost model.
(5 marks)
UL09/0083
D02
Page 6 of 9
6.
Either
Compare and contrast consolidated financial statements prepared using the acquisition
(purchase) method with those prepared using the merger (pooling of interests) method.
Explain why the merger (pooling of interests) method is no longer allowed under
international financial reporting standards.
Or
Discuss the objectives of conceptual frameworks. Outline the qualitative characteristics
of financial statements and discuss any problems with applying these to financial
accounting.
7.
Either
Discuss the limitations of historical cost accounting and critically assess the extent to
which current purchasing power financial statements and current value financial
statements address these limitations.
Or
Discuss the major issues in accounting for expenditure on research and development.
UL09/0083
D02
Page 7 of 9
Present Value interest factor per 1.00 due at the end of n years for interest rate of:
%
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
%
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
10
0.990
0.980
0.971
0.961
0.951
0.942
0.933
0.923
0.914
0.905
0.896
0.887
0.879
0.870
0.861
0.853
0.844
0.836
0.828
0.820
0.811
0.803
0.795
0.788
0.780
0.980
0.961
0.942
0.924
0.906
0.888
0.871
0.853
0.837
0.820
0.804
0.788
0.773
0.758
0.743
0.728
0.714
0.700
0.686
0.673
0.660
0.647
0.634
0.622
0.610
0.971
0.943
0.915
0.888
0.863
0.837
0.813
0.789
0.766
0.744
0.722
0.701
0.681
0.661
0.642
0.623
0.605
0.587
0.570
0.554
0.538
0.522
0.507
0.492
0.478
0.962
0.925
0.889
0.855
0.822
0.790
0.760
0.731
0.703
0.676
0.650
0.625
0.601
0.577
0.555
0.534
0.513
0.494
0.475
0.456
0.439
0.422
0.406
0.390
0.375
0.952
0.907
0.864
0.823
0.784
0.746
0.711
0.677
0.645
0.614
0.585
0.557
0.530
0.505
0.481
0.458
0.436
0.416
0.396
0.377
0.359
0.342
0.326
0.310
0.295
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
0.527
0.497
0.469
0.442
0.417
0.394
0.371
0.350
0.331
0.312
0.294
0.278
0.262
0.247
0.233
0.935
0.873
0.816
0.763
0.713
0.666
0.623
0.582
0.544
0.508
0.475
0.444
0.415
0.388
0.362
0.339
0.317
0.296
0.277
0.258
0.242
0.226
0.211
0.197
0.184
0.926
0.857
0.794
0.735
0.681
0.630
0.583
0.540
0.500
0.463
0.429
0.397
0.368
0.340
0.315
0.292
0.270
0.250
0.232
0.215
0.199
0.184
0.170
0.158
0.146
0.917
0.842
0.772
0.708
0.650
0.596
0.547
0.502
0.460
0.422
0.388
0.356
0.326
0.299
0.275
0.252
0.231
0.212
0.194
0.178
0.164
0.150
0.138
0.126
0.116
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
0.350
0.319
0.290
0.263
0.239
0.218
0.198
0.180
0.164
0.149
0.135
0.123
0.112
0.102
0.092
11
12
13
14
15
16
17
18
19
20
0.901
0.812
0.731
0.659
0.593
0.535
0.482
0.434
0.391
0.352
0.317
0.286
0.258
0.232
0.209
0.188
0.170
0.153
0.138
0.124
0.112
0.101
0.091
0.082
0.074
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
0.287
0.257
0.229
0.205
0.183
0.163
0.146
0.130
0.116
0.104
0.093
0.083
0.074
0.066
0.059
0.885
0.783
0.693
0.613
0.543
0.480
0.425
0.376
0.333
0.295
0.261
0.231
0.204
0.181
0.160
0.141
0.125
0.111
0.098
0.087
0.077
0.068
0.060
0.053
0.047
0.877
0.769
0.675
0.592
0.519
0.456
0.400
0.351
0.308
0.270
0.237
0.208
0.182
0.160
0.140
0.123
0.108
0.095
0.083
0.073
0.064
0.056
0.049
0.043
0.038
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
0.215
0.187
0.163
0.141
0.123
0.107
0.093
0.081
0.070
0.061
0.053
0.046
0.040
0.035
0.030
0.862
0.743
0.641
0.552
0.476
0.410
0.354
0.305
0.263
0.227
0.195
0.168
0.145
0.125
0.108
0.093
0.080
0.069
0.060
0.051
0.044
0.038
0.033
0.028
0.024
0.855
0.731
0.624
0.534
0.456
0.390
0.333
0.285
0.243
0.208
0.178
0.152
0.130
0.111
0.095
0.081
0.069
0.059
0.051
0.043
0.037
0.032
0.027
0.023
0.020
0.847
0.718
0.609
0.516
0.437
0.370
0.314
0.266
0.225
0.191
0.162
0.137
0.116
0.099
0.084
0.071
0.060
0.051
0.043
0.037
0.031
0.026
0.022
0.019
0.016
0.840
0.706
0.593
0.499
0.419
0.352
0.296
0.249
0.209
0.176
0.148
0.124
0.104
0.088
0.074
0.062
0.052
0.044
0.037
0.031
0.026
0.022
0.018
0.015
0.013
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
0.135
0.112
0.093
0.078
0.065
0.054
0.045
0.038
0.031
0.026
0.022
0.018
0.015
0.013
0.010
UL09/0083
D02
Page 8 of 9
Present Value interest factor for an annuity of 1.00 for a series of n years for interest rate of :
%
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
%
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
10
0.990
1.970
2.941
3.902
4.853
5.795
6.728
7.652
8.566
9.471
10.368
11.255
12.134
13.004
13.865
14.718
15.562
16.398
17.226
18.046
18.857
19.660
20.456
21.243
22.023
0.980
1.942
2.884
3.808
4.713
5.601
6.472
7.325
8.162
8.983
9.787
10.575
11.348
12.106
12.849
13.578
14.292
14.992
15.678
16.351
17.011
17.658
18.292
18.914
19.523
0.971
1.913
2.829
3.717
4.580
5.417
6.230
7.020
7.786
8.530
9.253
9.954
10.635
11.296
11.938
12.561
13.166
13.754
14.324
14.877
15.415
15.937
16.444
16.936
17.413
0.962
1.886
2.775
3.630
4.452
5.242
6.002
6.733
7.435
8.111
8.760
9.385
9.986
10.563
11.118
11.652
12.166
12.659
13.134
13.590
14.029
14.451
14.857
15.247
15.622
0.952
1.859
2.723
3.546
4.329
5.076
5.786
6.463
7.108
7.722
8.306
8.863
9.394
9.899
10.380
10.838
11.274
11.690
12.085
12.462
12.821
13.163
13.489
13.799
14.094
0.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
6.802
7.360
7.887
8.384
8.853
9.295
9.712
10.106
10.477
10.828
11.158
11.470
11.764
12.042
12.303
12.550
12.783
0.935
1.808
2.624
3.387
4.100
4.767
5.389
5.971
6.515
7.024
7.499
7.943
8.358
8.745
9.108
9.447
9.763
10.059
10.336
10.594
10.836
11.061
11.272
11.469
11.654
0.926
1.783
2.577
3.312
3.993
4.623
5.206
5.747
6.247
6.710
7.139
7.536
7.904
8.244
8.559
8.851
9.122
9.372
9.604
9.818
10.017
10.201
10.371
10.529
10.675
0.917
1.759
2.531
3.240
3.890
4.486
5.033
5.535
5.995
6.418
6.805
7.161
7.487
7.786
8.061
8.313
8.544
8.756
8.950
9.129
9.292
9.442
9.580
9.707
9.823
0.909
1.736
2.487
3.170
3.791
4.355
4.868
5.335
5.759
6.145
6.495
6.814
7.103
7.367
7.606
7.824
8.022
8.201
8.365
8.514
8.649
8.772
8.883
8.985
9.077
11
12
13
14
15
16
17
18
19
20
0.901
1.713
2.444
3.102
3.696
4.231
4.712
5.146
5.537
5.889
6.207
6.492
6.750
6.982
7.191
7.379
7.549
7.702
7.839
7.963
8.075
8.176
8.266
8.348
8.422
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
5.938
6.194
6.424
6.628
6.811
6.974
7.120
7.250
7.366
7.469
7.562
7.645
7.718
7.784
7.843
0.885
1.668
2.361
2.974
3.517
3.998
4.423
4.799
5.132
5.426
5.687
5.918
6.122
6.302
6.462
6.604
6.729
6.840
6.938
7.025
7.102
7.170
7.230
7.283
7.330
0.877
1.647
2.322
2.914
3.433
3.889
4.288
4.639
4.946
5.216
5.453
5.660
5.842
6.002
6.142
6.265
6.373
6.467
6.550
6.623
6.687
6.743
6.792
6.835
6.873
0.870
1.626
2.283
2.855
3.352
3.784
4.160
4.487
4.772
5.019
5.234
5.421
5.583
5.724
5.847
5.954
6.047
6.128
6.198
6.259
6.312
6.359
6.399
6.434
6.464
0.862
1.605
2.246
2.798
3.274
3.685
4.039
4.344
4.607
4.833
5.029
5.197
5.342
5.468
5.575
5.668
5.749
5.818
5.877
5.929
5.973
6.011
6.044
6.073
6.097
0.855
1.585
2.210
2.743
3.199
3.589
3.922
4.207
4.451
4.659
4.836
4.988
5.118
5.229
5.324
5.405
5.475
5.534
5.584
5.628
5.665
5.696
5.723
5.746
5.766
0.847
1.566
2.174
2.690
3.127
3.498
3.812
4.078
4.303
4.494
4.656
4.793
4.910
5.008
5.092
5.162
5.222
5.273
5.316
5.353
5.384
5.410
5.432
5.451
5.467
0.840
1.547
2.140
2.639
3.058
3.410
3.706
3.954
4.163
4.339
4.486
4.611
4.715
4.802
4.876
4.938
4.990
5.033
5.070
5.101
5.127
5.149
5.167
5.182
5.195
0.833
1.528
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192
4.327
4.439
4.533
4.611
4.675
4.730
4.775
4.812
4.843
4.870
4.891
4.909
4.925
4.937
4.948
END OF PAPER
UL09/0083
D02
Page 9 of 9
This paper is not to be removed from the Examination Halls
UNIVERSITY OF LONDON
279 0091 ZB
BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the
Social Sciences, the Diploma in Economics and Access Route for Students in the
External Programme
Financial Reporting
Wednesday, 27th May 2009 : 2.30pm to 5.45pm
Candidates should answer FOUR of the following SEVEN questions. All questions carry
equal marks.
Workings should be submitted for all questions requiring calculations. Any necessary
assumptions introduced in answering a question are to be stated.
Extracts from compound interest tables are given after the final question on this paper.
8-column accounting paper is provided at the end of this question paper. If used, it must be
detached and fastened securely inside the answer book.
A calculator may be used when answering questions on this paper and it must comply in all
respects with the specification given with your Admission Notice. The make and type of
machine must be clearly stated on the front cover of the answer book.
PLEASE TURN OVER
University of London 2009

UL09/0084
D01
Page 1 of 9
1.
The income statements for the year ending 31.12.2008 and balance sheets as at
31.12.2008 for Hall Plc, Suit Ltd and Ant Ltd are given as follows:
Income statement for the year ended 31.12.2008
Hall Plc
000
Suit Ltd
000
Ant Ltd
000
Operating expenses
Investment income
Profit before tax
Tax
Profit after tax
Dividends payable
11,200
(5,000)
6,200
(1,200)
160
5,160
(700)
4,460
(200)
10,140
14,400
8,000
(4,400)
3,600
(680)
20
2,940
(100)
2,840
(80)
2,520
5,280
6,800
(3,800)
3,000
(800)
000
000
000
Revenue
Cost of sales
Non current assets land

Investments
Inventories
Trade receivables
Cash
Dividends receivable
Intracompany loans received from
Suit Ltd
Intracompany loans received from
Ant Ltd
Share capital
Loans
Trade payables
Intracompany loans payable to Hall
Plc
Dividends payable
14,000
2,800
4,400
400
3,600
2,000
1,200
1,000
74
640
3,200
800
1,200
1,600
1,000
800
21,854
10,000
7,000
2,000
14,400
2,000
3,254
800
5,280
800
2,440
600
400
5,120
40
1,280
120
200
80
40
21,854
10,000
7,000
140
UL09/0084
D01
Page 2 of 9
2,200
(240)
1,960
(40)
3,200
5,120
Notes
Hall Plc acquired 80% of Suit Ltd on 1 January 2003 for 1,850,000, when the share
capital and reserves of Suit Ltd were 950,000. There has been no change in the issued
share capital of Suit Ltd since 1 January 2003.
Hall Plc acquired 25 % of Ant Ltd on 1 January 2001 for 200,000, when the share
capital and reserves of Ant Ltd were 500,000. Hall Plc has some participation in the
management of Ant Ltd but does not control Ant Ltd There has been no change in the
issued share capital of Ant Ltd since 1 January 2001.
The goodwill policy for all acquisitions has always been to capitalise goodwill.
Suit Ltd revalued its land to 5,000,000 on 1 January 2003 but has not incorporated this
valuation in its accounts. There has been no acquisition and disposal of land by Suit
since 2003.
At the year end Suit Ltd owed Hall Plc 600,000 but Hall Plc recorded that Suit Ltd
owed it 640,000. At the year end, Ant Ltd owed Hall Plc 120,000 but Hall Plc
recorded that Ant Ltd owed it 140,000. The differences are due to cash in transit.
In 2008, Suit Ltd sold Hall Plc inventories which cost 160,000 for 200,000. Half of
these inventories are still unsold. Ant Ltd sold inventories to Hall Plc for 40,000.
These had cost Ant Ltd 20,000. There were no other intergroup sales. Half of these
inventories are still unsold.
Required:
Prepare a consolidated income statement for the year ended 31.12.2008 and a
consolidated balance sheet as at 31.12.2008 for Hall Plc.
(25 marks)
UL09/0084
D01
Page 3 of 9
2.
Comp Ltd started trading on 1.1 2008. The income statement and the balance sheet for the
first year of trading are given as follows:
Income statement
Revenue
400,000
Cost of sales
Opening inventories
Purchases
Closing inventories
50,000
200,000
(20,000)
(230,000)
170,000
(50,000)
(20,000)
100,000
Gross profit
General expenses
Depreciation
Net profit
Balance sheet
Non current assets at net book value

Current assets less current liabilities
Inventories
Other monetary net assets
Total assets
360,000
20,000
255,000
635,000
Capital and liabilities

Share capital (1 shares)
Long term liabilities
Debentures
300,000
100,000
235,000
635,000
The price change indices for the year were identified as follows:
Indices
Inventories
Non current assets
RPI
1.1.2008
Average for
the year
30.11.2008
31.12 2008
130
100
135
150
125
155
190
155
160
200
180
170
Closing inventories were acquired on 30 November 2008. All non-current assets and
opening inventories were acquired on the first day of trading. Revenue, purchases and
general expenses accrue evenly throughout the year.
Required
(a)
What are current value financial statements? Discuss the advantages and
limitations of current value financial statements.
(12 marks)
(b)
Prepare the current value financial statements for Comp Ltd on a physical capital
maintenance basis. Ignore monetary working capital and gearing adjustments.
(13 marks)
UL09/0084
D01
Page 4 of 9
3.
On 1 January 2007, Company Y purchased a new machine. The machine cost

1,200,000 and has a useful economic life of five years. Estimated operating costs are
84,000 per annum for the first two years, 90,000 per annum for the next two years
and 100,000 in the final year of its useful life. Its estimated net realisable value at the
end of the machines useful life, or at any time, is 40,000. There is no market for plant
of this type except as scrap.
The machine produces a constant annual output, all of which can be sold, with gross
revenues of 500,000 per annum. The company values its assets on the balance sheet at
deprival value. Its cost of capital is 10% per annum. Payment for a replacement
machine would be made at the time of replacement; all other cashflows may be assumed
to occur at the end of the years concerned.
Required
4.
(a)
Calculate the deprival value of the machine at 31 December 2008.

(12 marks)
(b)
Calculate the deprival value of the machine assuming the price of a new machine
goes up on 31 December 2008 to 1,300,000.
(7 marks)
(c)
What would be the deprival value at 31 December 2008 if sales revenue fell
permanently to 300,000 per annum from 1 January 2009?
(6 marks)
Cup Plc entered into the following transactions:

(1)
Bought a non current asset denominated in the currency imps. The non current
asset cost 15,000 imps on 1 August 2008 and on this date the exchange rate was
1:4 imps. Cup Plc has a December year end and the exchange rate on 31
December 2008 was 1:6 imps. Cup Plc paid for the asset on 31 January 2009
when the exchange rate was 1:2 imps.
(2)
Cup plc raised a 3 year loan of 500,000 rolls on 1 January 2007. Rolls are a
foreign currency. The exchange rates were 1 : 5 rolls on 1 January 2007, 1 : 6
rolls 31 December 2007 and 1 : 4 rolls on 31 December 2008.
Required:
(a)
Show how the transaction in (a) above would be accounted for by Cup Plc at each
of the date of purchase, the financial year end and the date of payment. Show how
the transaction in (b) above would be accounted for on 1 January 2007, 31
December 2007 and 31 December 2008.
(13 marks)
(b)
Discuss the rationale for the accounting treatment of business transactions

denominated in foreign currencies. Discuss the concept of realisation in relation
to business transactions denominated in foreign currencies.
(12 marks)
UL09/0084
D01
Page 5 of 9
5.
Answer all parts of this question.

(a)
What is return on capital employed and what information does it disclose about a
companys performance? Discuss the advantages and disadvantages of calculating
this using average rather than closing capital employed.
(5 marks)
(b)
At the balance sheet date, 31 December 2008, inventory was valued at 300,000.
On 1 February, the auditors discovered that the inventory had been incorrectly
valued and should have been valued at 10,000. On 1 March, the company enters
into an agreement to sell a major subsidiary of the company. The accounts have
not been signed off as at 1 March 2009. What are events after the balance sheet
date? Outline how the above transactions should be dealt with in the financial
statements of the company as at 31 December 2008.
(5 marks)
(c)
What are financial instruments and how should they be accounted for under IAS
32, IAS 39 and IFRS 7?
(5 marks)
(d)
A non-current asset (building) has been acquired by the company and it wishes to
account for this as an investment property. The non-current asset cost 700,000 on
1 January 2008, its market value on 31 December 2008 is 900,000 and the
companys deprecation policy for similar non current assets is the reducing
balance method using a rate of 10%. What are investment properties and how are
they accounted for? Show how the non-current asset would be accounted for in
the income statement for the year ended 31 December 2008 and in the balance
sheet as at 31 December 2008 if it could be classed as an investment property
using both the fair value model and the cost model.
(5 marks)
(e)
What is Hicks income number 2 for companies? A company acquires a bond

which pays 5,000 at the end of the year in perpetuity. The rate of interest is
expected to be 20% per annum. Calculate the value of this bond. Calculate the
revised value of the bond at time 0, if at time 1, the rate of interest unexpectedly
changes to 10% and is expected to remain at this level in the future.
(5 marks)
UL09/0084
D01
Page 6 of 9
6.
Either
Discuss the major issues in accounting for goodwill.
Or
Compare and contrast consolidated financial statements prepared using the acquisition
(purchase) method with those prepared using the merger (pooling of interests) method.
Explain why the merger (pooling of interests) method is no longer allowed under
international financial reporting standards.
7.
Either
Discuss the main arguments for and against a conceptual framework in relation to
financial reporting.
Or
What are finance leases and operating leases and how are they accounted for? Discuss
the concepts of off balance sheet finance and substance over form in determining the
accounting treatment of finance and operating leases and discuss the impact of the
operating/finance lease classification on the gearing ratio, return on capital employed
and return on net assets.
UL09/0084
D01
Page 7 of 9
Present Value interest factor per 1.00 due at the end of n years for interest rate of:
%
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
%
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
10
0.990
0.980
0.971
0.961
0.951
0.942
0.933
0.923
0.914
0.905
0.896
0.887
0.879
0.870
0.861
0.853
0.844
0.836
0.828
0.820
0.811
0.803
0.795
0.788
0.780
0.980
0.961
0.942
0.924
0.906
0.888
0.871
0.853
0.837
0.820
0.804
0.788
0.773
0.758
0.743
0.728
0.714
0.700
0.686
0.673
0.660
0.647
0.634
0.622
0.610
0.971
0.943
0.915
0.888
0.863
0.837
0.813
0.789
0.766
0.744
0.722
0.701
0.681
0.661
0.642
0.623
0.605
0.587
0.570
0.554
0.538
0.522
0.507
0.492
0.478
0.962
0.925
0.889
0.855
0.822
0.790
0.760
0.731
0.703
0.676
0.650
0.625
0.601
0.577
0.555
0.534
0.513
0.494
0.475
0.456
0.439
0.422
0.406
0.390
0.375
0.952
0.907
0.864
0.823
0.784
0.746
0.711
0.677
0.645
0.614
0.585
0.557
0.530
0.505
0.481
0.458
0.436
0.416
0.396
0.377
0.359
0.342
0.326
0.310
0.295
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
0.527
0.497
0.469
0.442
0.417
0.394
0.371
0.350
0.331
0.312
0.294
0.278
0.262
0.247
0.233
0.935
0.873
0.816
0.763
0.713
0.666
0.623
0.582
0.544
0.508
0.475
0.444
0.415
0.388
0.362
0.339
0.317
0.296
0.277
0.258
0.242
0.226
0.211
0.197
0.184
0.926
0.857
0.794
0.735
0.681
0.630
0.583
0.540
0.500
0.463
0.429
0.397
0.368
0.340
0.315
0.292
0.270
0.250
0.232
0.215
0.199
0.184
0.170
0.158
0.146
0.917
0.842
0.772
0.708
0.650
0.596
0.547
0.502
0.460
0.422
0.388
0.356
0.326
0.299
0.275
0.252
0.231
0.212
0.194
0.178
0.164
0.150
0.138
0.126
0.116
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
0.350
0.319
0.290
0.263
0.239
0.218
0.198
0.180
0.164
0.149
0.135
0.123
0.112
0.102
0.092
11
12
13
14
15
16
17
18
19
20
0.901
0.812
0.731
0.659
0.593
0.535
0.482
0.434
0.391
0.352
0.317
0.286
0.258
0.232
0.209
0.188
0.170
0.153
0.138
0.124
0.112
0.101
0.091
0.082
0.074
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
0.287
0.257
0.229
0.205
0.183
0.163
0.146
0.130
0.116
0.104
0.093
0.083
0.074
0.066
0.059
0.885
0.783
0.693
0.613
0.543
0.480
0.425
0.376
0.333
0.295
0.261
0.231
0.204
0.181
0.160
0.141
0.125
0.111
0.098
0.087
0.077
0.068
0.060
0.053
0.047
0.877
0.769
0.675
0.592
0.519
0.456
0.400
0.351
0.308
0.270
0.237
0.208
0.182
0.160
0.140
0.123
0.108
0.095
0.083
0.073
0.064
0.056
0.049
0.043
0.038
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
0.215
0.187
0.163
0.141
0.123
0.107
0.093
0.081
0.070
0.061
0.053
0.046
0.040
0.035
0.030
0.862
0.743
0.641
0.552
0.476
0.410
0.354
0.305
0.263
0.227
0.195
0.168
0.145
0.125
0.108
0.093
0.080
0.069
0.060
0.051
0.044
0.038
0.033
0.028
0.024
0.855
0.731
0.624
0.534
0.456
0.390
0.333
0.285
0.243
0.208
0.178
0.152
0.130
0.111
0.095
0.081
0.069
0.059
0.051
0.043
0.037
0.032
0.027
0.023
0.020
0.847
0.718
0.609
0.516
0.437
0.370
0.314
0.266
0.225
0.191
0.162
0.137
0.116
0.099
0.084
0.071
0.060
0.051
0.043
0.037
0.031
0.026
0.022
0.019
0.016
0.840
0.706
0.593
0.499
0.419
0.352
0.296
0.249
0.209
0.176
0.148
0.124
0.104
0.088
0.074
0.062
0.052
0.044
0.037
0.031
0.026
0.022
0.018
0.015
0.013
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
0.135
0.112
0.093
0.078
0.065
0.054
0.045
0.038
0.031
0.026
0.022
0.018
0.015
0.013
0.010
UL09/0084
D01
Page 8 of 9
Present Value interest factor for an annuity of 1.00 for a series of n years for interest rate of :
%
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
%
n
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
10
0.990
1.970
2.941
3.902
4.853
5.795
6.728
7.652
8.566
9.471
10.368
11.255
12.134
13.004
13.865
14.718
15.562
16.398
17.226
18.046
18.857
19.660
20.456
21.243
22.023
0.980
1.942
2.884
3.808
4.713
5.601
6.472
7.325
8.162
8.983
9.787
10.575
11.348
12.106
12.849
13.578
14.292
14.992
15.678
16.351
17.011
17.658
18.292
18.914
19.523
0.971
1.913
2.829
3.717
4.580
5.417
6.230
7.020
7.786
8.530
9.253
9.954
10.635
11.296
11.938
12.561
13.166
13.754
14.324
14.877
15.415
15.937
16.444
16.936
17.413
0.962
1.886
2.775
3.630
4.452
5.242
6.002
6.733
7.435
8.111
8.760
9.385
9.986
10.563
11.118
11.652
12.166
12.659
13.134
13.590
14.029
14.451
14.857
15.247
15.622
0.952
1.859
2.723
3.546
4.329
5.076
5.786
6.463
7.108
7.722
8.306
8.863
9.394
9.899
10.380
10.838
11.274
11.690
12.085
12.462
12.821
13.163
13.489
13.799
14.094
0.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
6.802
7.360
7.887
8.384
8.853
9.295
9.712
10.106
10.477
10.828
11.158
11.470
11.764
12.042
12.303
12.550
12.783
0.935
1.808
2.624
3.387
4.100
4.767
5.389
5.971
6.515
7.024
7.499
7.943
8.358
8.745
9.108
9.447
9.763
10.059
10.336
10.594
10.836
11.061
11.272
11.469
11.654
0.926
1.783
2.577
3.312
3.993
4.623
5.206
5.747
6.247
6.710
7.139
7.536
7.904
8.244
8.559
8.851
9.122
9.372
9.604
9.818
10.017
10.201
10.371
10.529
10.675
0.917
1.759
2.531
3.240
3.890
4.486
5.033
5.535
5.995
6.418
6.805
7.161
7.487
7.786
8.061
8.313
8.544
8.756
8.950
9.129
9.292
9.442
9.580
9.707
9.823
0.909
1.736
2.487
3.170
3.791
4.355
4.868
5.335
5.759
6.145
6.495
6.814
7.103
7.367
7.606
7.824
8.022
8.201
8.365
8.514
8.649
8.772
8.883
8.985
9.077
11
12
13
14
15
16
17
18
19
20
0.901
1.713
2.444
3.102
3.696
4.231
4.712
5.146
5.537
5.889
6.207
6.492
6.750
6.982
7.191
7.379
7.549
7.702
7.839
7.963
8.075
8.176
8.266
8.348
8.422
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
5.938
6.194
6.424
6.628
6.811
6.974
7.120
7.250
7.366
7.469
7.562
7.645
7.718
7.784
7.843
0.885
1.668
2.361
2.974
3.517
3.998
4.423
4.799
5.132
5.426
5.687
5.918
6.122
6.302
6.462
6.604
6.729
6.840
6.938
7.025
7.102
7.170
7.230
7.283
7.330
0.877
1.647
2.322
2.914
3.433
3.889
4.288
4.639
4.946
5.216
5.453
5.660
5.842
6.002
6.142
6.265
6.373
6.467
6.550
6.623
6.687
6.743
6.792
6.835
6.873
0.870
1.626
2.283
2.855
3.352
3.784
4.160
4.487
4.772
5.019
5.234
5.421
5.583
5.724
5.847
5.954
6.047
6.128
6.198
6.259
6.312
6.359
6.399
6.434
6.464
0.862
1.605
2.246
2.798
3.274
3.685
4.039
4.344
4.607
4.833
5.029
5.197
5.342
5.468
5.575
5.668
5.749
5.818
5.877
5.929
5.973
6.011
6.044
6.073
6.097
0.855
1.585
2.210
2.743
3.199
3.589
3.922
4.207
4.451
4.659
4.836
4.988
5.118
5.229
5.324
5.405
5.475
5.534
5.584
5.628
5.665
5.696
5.723
5.746
5.766
0.847
1.566
2.174
2.690
3.127
3.498
3.812
4.078
4.303
4.494
4.656
4.793
4.910
5.008
5.092
5.162
5.222
5.273
5.316
5.353
5.384
5.410
5.432
5.451
5.467
0.840
1.547
2.140
2.639
3.058
3.410
3.706
3.954
4.163
4.339
4.486
4.611
4.715
4.802
4.876
4.938
4.990
5.033
5.070
5.101
5.127
5.149
5.167
5.182
5.195
0.833
1.528
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192
4.327
4.439
4.533
4.611
4.675
4.730
4.775
4.812
4.843
4.870
4.891
4.909
4.925
4.937
4.948
END OF PAPER
UL09/0084
D01
Page 9 of 9
Examiners commentaries 2009

91 Financial reporting Zone A
Specific comments on questions
Candidates should answer FOUR of the following SEVEN questions
Question 1
The income statements and balance sheets for Hole Plc, Sail Ltd and Ask Ltd
[For full question please refer to the examination paper].
Required:
consolidated balance sheet as at 31.12.2008 for Hole Plc. (25 marks)
Reading for this question:
The preparation of consolidated financial statements are covered in
Chapter 7 of the subject guide and Chapter 24 of International financial
reporting as well as in most advanced financial reporting textbooks.
Approaching the question:
This question required the preparation of both a consolidated balance
sheet and a consolidated profit and loss account including calculations
of goodwill, minority interest, share in associate and investments. It is
important that in questions that involve many detailed calculations
candidates show clear workings for each of the figures and that the
financial statements are presented clearly. The solutions are given as
follows:
91 Financial reporting
Income statement for Hole Plc

000
Revenue
Cost of sales
4,700
(2,260)
2,440
Operating expenses
(470)
Share in Ask
163.5
Investment income
Profit before tax
Tax
Profit after tax
Minority interest
Dividends payable
30
2,163.5
(218)
1,945.5
(280)
(50)
3,033
4,648.5
000
Non-current assets land
4,700
Investments
250
Goodwill
220
Share in ask
412.5
Inventories
1,290
Trade receivables
500
Cash
560
Dividends receivable from Ask
Inter-company receivables from Ask
35
7,970.5
Share capital
500
4,648.5
Loans
Trade payables
550
1,570
Dividends payable
58
Minority interest
644
7,970.5
Workings (in 000)

Profit and loss account workings
Sales = 2,800 + 2,000 100 = 4,700
Cost of sales = 1,250 + 1,100 100 + 10 = 2,260
Investment income = 40 + 5 60% (20) 30% (10) = 30
Share in ask = 30% * (550 5) = 163.5
Tax = 175 + 25 + 3% * 60 = 218
Minority interest = 40% * (710 10) = 280
Retained profit bfwd =
2,535 + 60% (630 50) + 30% (800 300) = 3,033
Balance sheet workings

Land = 3,500 + 1,100 + 100 = 4,700
Investments = 700 + 100 425 125 = 250
Goodwill in Sail = 425 60% * 350 = 215
Goodwill in Ask = 125 30% * 400 = 5
Inventories = 500 + 800 10 = 1,290
Dividend receivable = div rec from Ask = 3
Dividend payable = 50 + 40% * 20
Calculations for minority interest, share in ask and profit and loss
account:
P+l
Hole
Sail
Ask
3,600
1,320
1,280
(10)
(5)
Provision for
unrealised profit
Revised P+L
3,600
1,310
1,275
Share capital
500
200
100
Revaluation
Share capital +
reserves
100
4,100
Minority interest
(Sail)
1,610
1,373
40% *
1610 =
644
Share in Ask
30% *
1373 =
412.5
Profit and loss account reserve =

3,600 + 60% * (1,310 50) + 30% (1,275 300) = 4,648.5
Question 2
Home Ltd acquired 100% of Foreign Org. on 1 January 2008
Required:
a. Compare and contrast the closing rate method and the temporal method
for translating the financial statements of foreign entities and outline the
situations in which they should be used. (10 marks)
Translation of financial statement of foreign entities is covered in
reporting, as well as in most advanced financial reporting textbooks.

This part of the question required candidates to be able to compare
and contrast two methods for translating the financial statements of
foreign entities and to discuss the situations when each of the methods
should be used. Good answers directly compared and contrasted the
methods and clearly described the situations in which each method
was appropriate. Weak answers just listed the methods with little
comparison and were unclear as to when each method should be used.
b. Translate the accounts of Foreign Org using the temporal method.
(15 marks)
As above.
This part of the question required candidates to translate the
statements of a foreign entity using the temporal method. It is
follows:
Year
2008
2008
Bats
Bats
000
000
Sales
3,720
Rate
000
5
000
744
Cost of sales
Open inventories
280
70
Purchases
1,000
200
Closing inventories
(100)
(33)
(1,180)
(237)
Gross profit
2,540
507
Depreciation
(160)
(53)
(60)
(12)
Other expenses
Foreign exchange difference
Profit before tax
Tax
(32)
2,320
(80)
Profit after tax
2,240
Dividends
(100)
Retained profit
for the year
2,140
410
5
(16)
394
(13)
381
Balance sheet as at 31 December

2008
Rate
Bats 000
000
Non-current assets
Property, plant and equipment
560
187
100
33
Trade receivables
1,927
241
Total assets less liabilities
2,587
Current assets
Inventories
461
Capital and reserves

Ordinary share capital
Revaluation reserve
Debentures
208
42
40
13
200
25
2,139
Bal fig
381
2,587
461
Question 3
On 1 January 2007, Company X purchased a new machine
Deprival value is covered in Chapter 6 of the subject guide and
Chapters 5 and 6 of International financial reporting.
This question required the calculation of deprival value in three
different scenarios. Candidates were required to calculate equivalent
annual costs, compare costs with have and have not budgets and
calculate present values of differences in order to determine deprival
values. Good answers did this and were able to identify the deprival
value. Poor answers defined deprival value but were unable to attempt
the calculation. The solutions are given as follows:
Required
a.
Calculate the deprival value of the machine at 31 December 2008.

(12 marks)
(i)
AEC = (30,000 + 21,000*a2]0.1 + 22,500* a2]0.1V2
+ 25,000V5 10000V5)/a5]0.1 = 99,500
note AEC = annual equivalent cost
Have budget
Operating costs
2009
2010
2011
22,500
22,500
25,000
Scrap
2012 onwards
(10,000)
Replacement aec
99,500
22,500
22,500
15,000
99,500
Replace at aec
99,500
99,500
99,500
99,500
Difference
77,000
77,000
84,500
Have not budget
Present value of
difference =
replacement cost
197,000
Since the aec is lower than the annual gross sales revenue of 125,000,
it is worth replacing the asset.
The deprival value is therefore the replacement cost of 197,000.
b. Calculate the deprival value of the machine assuming the price of a new
machine goes up on 31 December 2008 to 325,000. (7 marks)
AEC = (325,000 + 21,000*a2]0.1 + 22,500* a2]0.1V2 + 25,000V5
10,000V5)/ a5]0.1 = 106,500
Have budget
Operating costs
2009
2010
2011
22,500
22,500
25,000
Scrap
2012 onwards
(10,000)
Replacement aec
106,500
22,500
22,500
15,000
106,500
106,500
106,500
106,500
106,500
84,000
84,000
91,500
Have not budget

Replace at aec
Difference
Present value of
difference =
replacement cost
214,500
c. What would be the deprival value at 31 December 2008 if sales revenue

st
fell permanently to 75,000 per annum from 1 January 2009? (6 marks)
Since the aec is higher than the annual gross sales revenue of 75,000,
it is not worth replacing the asset.
The deprival value is therefore the lower of the net realisable value and
the present value of future cashflows.
Future cashflows
2009
75,000 22,500 = 52,500
2010
75,000 22,500 = 52,500
2011
75,000 15,000 = 60,000
pv of future cashflows = 52,500 v1 + 52,500v2 + 60,000 v3 =

136,148
Question 4
Long Term Plc has two construction contracts under way X and Y
Required
a. Compare and contrast the accounting treatment of inventory to that of
construction contracts and discuss the application of prudence to
inventory and construction contracts. (12 marks)
Accounting for inventories and construction contracts is covered in
Chapter 11 of the subject guide and Chapter 15 of International
financial reporting as well as in most advanced financial reporting
textbooks.
This part of the question required candidates to compare and contrast
accounting for inventory and accounting for construction contracts,
followed by a discussion of prudence to both accounting for inventories
and accounting for construction contracts. Good answers clearly
compared the accounting treatments for inventory and construction
contracts, defined the concept of prudence and discussed this for both
inventory and construction contracts. Poor answers tended just to list
how inventory and construction contracts were accounted for with no
comparison and no discussion of prudence.
b. Show how Contracts X and Y will be reflected in the income statement
and balance sheet of Long Term Plc at 31 December 2008 in accordance
with IAS 11, using the value of work certified method. (13 marks)
As above.
This part of the question required candidates to account for two
construction contracts, showing both profit and loss account and
balance sheet entries. Solutions are given as follows:
Contract x
Profit and loss account (all workings in 000)
Profit on contract = 8,000 5,100 1,400 = 1,500
Attributable profit = 6,000/8,000 * 1,500 = 1,125
Sales = 6,000
Cost of sales = 6,000/8,000 * 6,500 = 4,875
Balance sheet (all workings in 000)
Construction contract balance = costs to date + attributable profit payments on account = 5,100 + 1,125 6,200 = 25
Contract Y
Profit and loss account (all workings in 000
Loss on contract = 1,500 600 2,200 = 1,300
Foreseeable loss = 1,300
Sales = 800
Cost of sales = 800
Foreseeable loss = 1,300
Balance sheet (all workings in 000)
Construction contract balances = costs to date foreseeable loss
payments on account = 600 1,300 720 = (1,420)
Question 5
Answer all parts of this question
a.
The profit after tax for Hub Ltd is 500,000. In issue are 100,000 1.00
nominal value 5% preference shares and 100,000 1.00 nominal value
ordinary shares. The market price per ordinary share is 10.00 at the end
of the year. Calculate the price earnings ratio at the end of the year and
discuss the meaning of this ratio.
(5 marks)
Ratio analysis is covered in Chapter 14 of the subject guide and
Chapters 26 and 27 of International financial reporting, as well as in
most advanced financial reporting textbooks.
A good answer would define the price earnings ratio and clearly
discuss the meaning of the ratio. The ratio is calculated as follows:
Earnings per share = 500,000 5000 / 100000 = 4.95
Price earnings = market price/e/s = 10/4.95 = 2.02
10
b. Hub Ltd acquired a non-current asset on 1 January 2008 for 300,000.

Depreciation is to be charged using the straight-line method over 5 years.
The specific price index for the non current asset is 100 on 1 January 2008
and 150 on 31 December 2008. Discuss how the unrealised gain on the
non current asset arises under current value accounting. Calculate the
unrealised gain on the non current asset for Hub Ltd for the year ended
31 December 2008. (5 marks)
Current value accounting is covered in Chapter 6 of the subject guide
and Chapters 5 and 6 of International financial reporting, as well as in
A good answer would define unrealised gains and discuss how they
arise. The gain is calculated as follows:
Depreciation = 300,000/5 = 60,000
net book value at year end = 300,000 60,000 = 240,000
unrealised gain on non-current assets = 240,000 * 150/100
240,000 = 120,000
c. At the balance sheet date, 31 December 2008, inventory was valued at
600,000 by Hub Ltd. On 1 February 2009, the auditors discovered that
the inventory had been incorrectly valued and should have been valued at
100,000. On 1 March, the company entered into an agreement to sell a
major subsidiary of the company. The accounts have not been signed off
as at 1 March 2009. What are events after the balance sheet date?
Outline how the above transactions should be dealt with in the financial
statements of Hub Ltd as at 31 December 2008. (5 marks)
Post balance events are covered in Chapter 12 and accounting for equities
and liabilities is covered in Chapters 16 and 18 of International financial
reporting, as well as in most advanced financial reporting textbooks.
A good answer would define post-balance sheet events and discuss
clearly how different post-balance sheet events should be accounted
for. The examples in the question would be addressed and the
accounting treatment for each of the two scenarios should be
discussed, that is adjustment for the inventory is required but no
adjustment is required for the sale of subsidiary. Instead disclosure of
this transaction needs to be made.
d. What are financial instruments and how should they be accounted for
under IAS 32, IAS 39 and IFRS 7? (5 marks)
Financial instruments are covered in Chapter 12 and accounting for
equities and liabilities is covered in Chapters 16 and 18 of International
financial reporting, as well as in most advanced financial reporting
textbooks.
Good answers would include a definition of financial instruments, give
examples of these and discuss the accounting treatment under the
three accounting standards.
11
e. A non-current asset (building) has been acquired by Hub Ltd and it wishes
to account for this as an investment property. The non-current asset cost
400,000 on 1 January 2008, its market value on 31 December 2008 is
500,000 and Hub Ltds deprecation policy for similar non-current assets
is the reducing balance method using a rate of 10%. What are investment
properties and how are they accounted for? Show how the non-current
asset would be accounted for in the income statement for the year ended
31 December 2008 and in the balance sheet as at 31 December 2008 for
Hub Ltd if it could be classed as an investment property using both the
fair value model and the cost model. (5 marks)
Investment properties are covered in Chapter 9 of the subject guide
and Chapter 12 of International financial reporting, as well as in most
advanced financial reporting textbooks.
A good answer would define investment properties and discuss how
they are accounted for. The accounting treatment in the profit and loss
account and the balance sheet for both the fair value model and the
cost model is given as follows:
fair value model
In-balance sheet non-current asset 500,000
revaluation = 100,000
(in income statement under ifrs or balance sheet under uk standard)
cost model acceptable under ifrs
at net book value = 360,000
depreciation = 40,000 income statement.
Question 6
Either
Compare and contrast consolidated financial statements prepared using the
acquisition (purchase) method with those prepared using the merger (pooling
of interests) method. Explain why the merger (pooling of interests) method is
no longer allowed under international financial reporting standards.
reporting.
A good answer would outline both methods and compare and contrast
the two methods.
Answers may include when the two methods should be used, treatment
of goodwill, the value at which shares are issued and share premium,
how reserves are treated and revaluation of assets.
A good discussion of why pooling of interests method is no longer
allowed might include the impact of the two methods on the financial
statements, perceptions of users and that in practice most transactions
relating to group companies are acquisitions.
12
Weak answers tended to outline the two methods with little or no

comparison and little explanation of why the merger (pooling of
interests) method is no longer used.
Some answers also only addressed part of the question.
Or
Discuss the objectives of conceptual frameworks. Outline the qualitative
characteristics of financial statements and discuss any problems with applying
these to financial accounting.
Conceptual frameworks are covered in Chapter 2 of the subject guide
and Chapter 8 of International financial reporting, as well as in most
advanced financial reporting textbooks and in many articles.
A good answer would define a general conceptual framework and
discuss briefly the main components of such a framework, referring to
a current conceptual framework (e.g. statements of principles or IASB
framework). The objectives of the conceptual framework should be
discussed with a critique of the objectives. The qualitative
characteristics should be defined and illustrated with examples.
Discussion of the problems relating to the application of the qualitative
characteristics might focus around relevance versus reliability,
prudence versus matching, prudence versus faithful representation,
and faithful representation versus users ability. Weak answers tended
to just define and describe conceptual frameworks without much
discussion of objectives and only discussed some of the qualitative
characteristics with little on the problems with their application.
Question 7
Either
Discuss the limitations of historical cost accounting and critically assess the
extent to which current purchasing power financial statements and current
value financial statements address these limitations.
Historic cost accounting and alternatives to historic cost accounting are
covered in Chapters 4, 5 and 6 of the subject guide and Chapters 5, 6
and 7 of International financial reporting, as well as in most advanced
financial reporting textbooks and in many articles.
A good answer would define historic cost accounting illustrating this
with examples and perhaps refer to some of its advantages briefly. The
limitations of historic cost accounting should be discussed. CPP and
CVA accounts should be described clearly and the limitations that are
addressed by each method should be discussed as well as the
limitations that are not addressed by the methods. Weak answers
tended to partly describe historic cost accounting but did not address
its advantages and limitation. CPP and CVA were described but with
little discussion of advantages and limitations of these. Some weak
answers addressed only part of the question.
13
Or
Discuss the major issues in accounting for expenditure on research and
development.
Research and development is covered in Chapter 10 of the subject
guide and Chapter 13 of International financial reporting as well as in
A good answer would define R+D with suitable examples and may
consider the importance of this type of investment/expenditure.
Issues relating to R+D would then be discussed and these may include
identifying R+D expenditure, which costs to include, relationship of
costs to income from R+D, uncertainty surrounding R+D, different
accounting treatments, impact on financial statements of different
accounting treatments and economic consequence and accounting
standards in this area for example (SSAP 13, IAS 38) and differences
between them.
Weak answers tended to define R+D and outline an accounting
standard in this area without discussing issues and concepts relating to
R+D.
14
Examiners report 2009

91 Financial reporting Zone B
Specific comments on questions
Candidates should answer FOUR of the following SEVEN questions.
Question 1
The income statements for the year ending 31.12.2008 and balance sheets as
at 31.12.2008 for Hall Plc, Suit Ltd and Ant Ltd are given as follows: [For full
question please refer to the examination paper]
Required:
consolidated balance sheet as at 31.12.2008 for Hall Plc. (25 marks)
reporting as well as most advanced financial reporting textbooks.
This question required the preparation of both a consolidated balance
sheet and a consolidated profit and loss account including calculations
of goodwill, minority interest, share in associate and investments. It is
follows:
Income statement for Hall

000
Revenue
19,000
Cost of sales
(9,220)
9,780
Operating expenses
(1,880)
Share in Ant
547.5
Investment income
106
Profit before tax
8,553.5
Tax
(860)
Profit after tax
7,693.5
Minority interest
(564)
Dividends payable
(200)
12,811
19,740.5
000
Non-current assets land
19,000
Investments
1,150
Goodwill
685
Share in Ant
1,377.5
Inventories
5,180
Trade receivables
2,000
Cash
2,240
Dividends receivable from Ant
10
Inter-company receivables from Ant
140
31,782.5
Share capital
2,000
19,740.5
Loans
2,800
Trade payables
5,694
Dividends payable
216
Minority interest
1,332
31,782.5
Workings
Profit and loss account workings (all workings in 000)
Sales = 11,200 + 8,000 200 = 19,000
Cost of sales = 5,000 + 4,400 200 + 20 = 9,220
Investment income = 160 + 20 80% * 80 25% * 40 = 106
Share in Ant = 25% * (2,200 10) = 547.5
Tax = 700+100+ (25% * 240) = 860
Minority interest= 20% * (2,840 20) = 564
Retained profit bfwd = 10,140 + 80% (2,520 150) + 25%
(3,200 100) = 12,811
Balance sheet workings (in 000)
Land = 14,000 + 5,000 = 19,000
Investments= 2,800 + 400 1,850 200 = 1,150
Goodwill suit = 1,850 80% * (950 + 600) = 610
Goodwill Ant = 200 25% * 500 = 75
Inventories = 2,000 + 3,200 20 = 5,180
Div rec = div rec from Ant = 25% * 40 = 10
Div pay = 200 + 20% * 80 = 216
Working for minority interest, share in Ant and profit and loss account
reserve
P+l
Hall
Suit
Ant
14,400
5,280
5,120
(20)
(10)
14,400
5,260
5,110
2,000
800
400
Provision for
unrealised profit
Revised P+L
Share cap
Revaluation
Share cap +
reserves
Minority interest
Share in ant
600
16,400
6,660
5,510
20% *
6660 =
1332
25% *
5510 =
1377.5
Profit and loss account reserve = 14,400 + 80% * (5260 150) + 25

* (5110 100) = 19,740.5
Question 2
Comp Ltd started trading on 1.1 2008. The income statement and the balance
sheet for the first year of trading are given as follows: [For full question
please refer to the examination paper]
Required
a. What are current value financial statements? Discuss the advantages and
limitations of current value financial statements. (12 marks)
Current value financial statements are covered in Chapter 6 of the
subject guide and Chapters 5 and 6 of International financial reporting
as well as most advanced financial reporting textbooks.
A good answer would explain what current value financial statements
were and give appropriate examples. Both the limitations and
advantages would also be discussed clearly. Weak answers tended to
outline some elements of CVA but with little or no examples and with
little or no discussion of the advantages and limitations of CVA.
b. Prepare the current value financial statements for Comp Ltd on a physical
capital maintenance basis. Ignore monetary working capital and gearing
adjustments. (13 marks)
As above.
It is important that in questions that involve many detailed calculations
financial statements are presented clearly. Solutions are given as
follows:
Income statement
Revenue
Cost of sales
Opening inventories
Purchases
Closing inventories
Gross profit
General expenses
depreciation
Net profit
Adj
Ratio
400
50
200
(20)
400
150/130
150/190
(230)
170
(50)
(20)
100
58
200
(16)
(242)
159
180/100
(50)
(36)
72
Balance sheet
Non-current assets
Net book value
360
180/100
648
20
200/190
21
Current assets
Inventories
Other monetary net
assets
Total assets
Share capital (1
shares)
255
255
635
924
300
300
100
72
235
235
635
288
16
11
1
924
Long term liabilities

debentures
Fixed asset adj
Depreciation adj
Cosa adj
Closing inventories
Question 3
On 1 January 2007, Company Y purchased a new machine. The machine cost
1,200,000 and has a useful economic life of five years. Estimated operating
costs are 84,000 per annum for the first two years, 90,000 per annum for the
next two years and 100,000 in the final year of its useful life. Its estimated
net realisable value at the end of the machines useful life, or at any time, is
40,000. There is no market for plant of this type except as scrap.
The machine produces a constant annual output, all of which can be sold, with
gross revenues of 500,000 per annum. The company values its assets on the
balance sheet at deprival value. Its cost of capital is 10% per annum. Payment
for a replacement machine would be made at the time of replacement; all
other cashflows may be assumed to occur at the end of the years concerned.
Required
Deprival value is covered in Chapter 6 of the subject guide and
Chapters 5 and 6 of International financial reporting.
This question required the calculation of deprival value in three
different scenarios. Candidates were required to calculate equivalent
annual costs, compare costs with have and have not budgets and
calculate present values of differences in order to determine deprival
values. Good answers did this and were able to identify the deprival
value. Poor answers defined deprival value but were unable to attempt
the calculation. The solutions are given as follows:
a. Calculate the deprival value of the machine at 31 December 2008.

(12 marks)
AEC = (1,200,000 + 84000*a2]0.1 + 90,000* a2]0.1V2 +100,000V5
40,000V5)/ a5]0.1 = 398,000
note aec = annual equivalent cost
Have budget
2009
2010
2011
Op costs
90,000
90,000
100,000
Scrap
2012 onwards
(40,000)
Replacement
aec
398,000
90,000
90,000
60,000
398,000
Replace at
aec
398,000
398,000
398,000
398,000
Difference
308,000
308,000
338,000
Present
value of
difference =
replacement
cost
788,000
Have not
budget
b. Calculate the deprival value of the machine assuming the price of a new
machine goes up on 31 December 2008 to 1,300,000. (7 marks)
AEC = (1,300,000 + 84,000*a2]0.1 + 90,000* a2]0.1V2 +100,000V5
40000V5)/ a5]0.1 = 426,000
Have budget
2009
2010
2011
Op costs
90,000
90,000
100,000
Scrap
2012 onwards
(40,000)
Replacement
aec
428,000
90,000
90,000
60,000
426,000
Replace at aec
426,000
426,000
426,000
426,000
Difference
336,000
336,000
366,000
Have not
budget
Present value of
difference =
replacement
cost
858,000
it is worth replacing the asset
The deprival value is therefore the replacement cost of 858,000
c. What would be the deprival value at 31 December 2008 if sales revenue
fell permanently to 300,000 per annum from 1 January 2009? (6 marks)
Since the aec is higher than the annual gross sales revenue of
300,000, it is not worth replacing the asset.
The deprival value is therefore the lower of the net realisable value and
the present value of future cashflows.
Future cashflows
2009 300,000 90,000 = 210,000
2010 300,000 90,000 = 210,000
2011 300,000 60000 = 240,000
pv of future cashflows = 210,000 v1 + 210,000v2 + 240,000 v3 =
544,592
therefore deprival value = 544,592 since net realisable value is lower.
Question 4
Cup Plc entered into the following transactions:
1. Bought a non current asset denominated in the currency imps. The non
current asset cost 15,000 imps on 1 August 2008 and on this date the
exchange rate was 1:4 imps. Cup Plc has a December year end and the
exchange rate on 31 December 2008 was 1:6 imps. Cup Plc paid for the
asset on 31 January 2009 when the exchange rate was 1:2 imps.
2. Cup plc raised a 3 year loan of 500,000 rolls on 1 January 2007. Rolls
are a foreign currency. The exchange rates were 1 : 5 rolls on 1 January
2007, 1 : 6 rolls 31 December 2007 and 1 : 4 rolls on 31 December
2008.
Required:
a. Show how the transaction in (a) above would be accounted for by Cup Plc
at each of the date of purchase, the financial year end and the date of
payment. Show how the transaction in (b) above would be accounted for
on 1 January 2007, 31 December 2007 and 31 December 2008. (13 marks)
Foreign exchange transactions are covered in chapter of the subject
guide and Chapter 25 of International financial reporting as well as
The solutions are given as follows:
A
1 August 2008
Non-current asset = 15,000/4 = 3,750
creditor = 15,000/4 = 3,750
31 December 2008
Non-current asset = 3,750
creditor = 15,000/6 = 2,500
profit in P+L = 1,250
31 January 2009 in accounts for 31 December 2009
Non-current asset = 3,750
creditor repaid = 15,000/2 = 7,500
loss in P+L = (5,000)
1 January 2007
loan = 500,000/5 = 100,000
year end 31 December 2007
loan 500,000/6 = 83,333
gain of 16,667 to income statement
year end 31 December 2008
loan = 500,000/4 = 125,000
loss of 41,667 to income statement
b. Discuss the rationale for the accounting treatment of business

transactions denominated in foreign currencies. Discuss the concept of
realisation in relation to business transactions denominated in foreign
currencies. (12 marks)
As above.
Although this question related to foreign exchange transaction, many
candidates discussed foreign exchange translation. Full credit was
given if a candidate chose to interpret the question in this way. Good
answers clearly discussed either foreign exchange transaction or
foreign exchange translations, defined the concept of realisation and
discuss the application of realisation to this area. Weak answers listed
only some of the elements of either foreign exchange transactions or
foreign exchange translation with little or no discussion of the
application of realisation.
Question 5
Answer all parts of this question.
a. What is return on capital employed and what information does it disclose
about a companys performance? Discuss the advantages and
disadvantages of calculating this using average rather than closing capital
employed. (5 marks)
Ratio analysis is covered in Chapter 14 of the subject guide and
Chapters 26 and 27 of International financial reporting as well as most
A good answer would discuss all parts of this question (i.e. define
ROCE, discuss the information about a companys performance
indicated by ratio and the issues relating to using averages rather than
year end figures).
b. At the balance sheet date, 31 December 2008, inventory was valued at
300,000. On 1 February, the auditors discovered that the inventory had
been incorrectly valued and should have been valued at 10,000. On 1
March, the company enters into an agreement to sell a major subsidiary
of the company. The accounts have not been signed off as at 1 March
2009. What are events after the balance sheet date? Outline how the
above transactions should be dealt with in the financial statements of the
company as at 31 December 2008. (5 marks)
Post balance events are covered in Chapter 12 and accounting for
financial reporting.
10

A good answer would define post-balance sheet events and discuss
clearly how different post balance sheet events should be accounted
for. The examples in the question would be addressed and the
accounting treatment for each of the two scenarios should be
discussed. In other words adjustment for the inventory is required but
no adjustment is required for the sale of subsidiary. Instead disclosures
of this transaction needs to be made.
c. What are financial instruments and how should they be accounted for
under IAS 32, IAS 39 and IFRS 7? (5 marks)
Financial instruments are covered in Chapter 12 and accounting for
financial reporting as well as in most advanced financial reporting
textbooks.
Good answers would include a definition of financial instruments, give
examples of these and discuss the accounting treatment under the
three accounting standards.
d. A non-current asset (building) has been acquired by the company and it
wishes to account for this as an investment property. The non-current
asset cost 700,000 on 1 January 2008, its market value on 31 December
2008 is 900,000 and the companys deprecation policy for similar non
current assets is the reducing balance method using a rate of 10%. What
are investment properties and how are they accounted for? Show how the
non-current asset would be accounted for in the income statement for the
year ended 31 December 2008 and in the balance sheet as at 31
December 2008 if it could be classed as an investment property using
both the fair value model and the cost model. (5 marks)
Investment properties are covered in Chapter 9 of the subject guide
and Chapter 12 of International financial reporting as well as in most
A good answer would define investment properties and discuss how
they are accounted for. The accounting treatment in the profit and loss
account and the balance sheet for both the fair value model and the
cost model is given as follows:
Fair value model
In balance sheet non-current asset 900,000
IP revaln = 200,000
In income statement under ifrs, in balance sheet under UK standards
Cost model
Balance sheet Net book value 630,000
Depreciation = 70,000 income statement.
11
e. What is Hicks income number 2 for companies? A company acquires a

bond which pays 5,000 at the end of the year in perpetuity. The rate of
interest is expected to be 20% per annum. Calculate the value of this
bond. Calculate the revised value of the bond at time 0, if at time 1, the
rate of interest unexpectedly changes to 10% and is expected to remain
at this level in the future. (5 marks)
Hicks income concepts are covered in Chapter 3 of the subject guide
and Chapter 4 of International financial reporting.
A good answer would define the Hicks concept and calculate the bond
value as follows:
value of bond = 5000/0.2 = 25,000
revised value of bond = 5000 + (5000/0.1) = 45,833.33
1.2
Question 6
Either
Discuss the major issues in accounting for goodwill.
Goodwill is covered in Chapter 10 of the subject guide and Chapter 13
of International financial reporting.
A good answer would define goodwill and discuss how it arises. Both
internally generated goodwill and purchased goodwill should be
covered. Issues relating to goodwill would then be discussed and these
may include valuation of goodwill, uncertainty surrounding goodwill,
accounting treatments, impact on financial statements of different
accounting treatments and economic consequences, amortisation and
impairment issues and accounting standards in this area for example
(FRS 10, FRS 11, IAS 38, IFRS 3). Weak answers tended to define
goodwill but with little or no discussion of how goodwill arises and the
issues surrounding goodwill.
Or
Compare and contrast consolidated financial statements prepared using the
acquisition (purchase) method with those prepared using the merger (pooling
of interests) method. Explain why the merger (pooling of interests) method is
no longer allowed under International financial reporting standards.
reporting.
12

A good answer would outline both methods and compare and contrast
the two. Answers may include when the two methods should be used,
treatment of goodwill, the value at which shares are issued and share
premium, how reserves are treated and revaluation of assets. A good
discussion of why pooling of interests method is no longer allowed
might include the impact of the two methods on the financial
statements, perceptions of users and that, in practice most transactions
relating to group companies are acquisitions. Weak answers tended to
outline the two methods with little or no comparison and little
explanation of why the merger (pooling of interests) method is no
longer used. Some answers also only addressed part of the question.
Question 7
Either
Discuss the main arguments for and against a conceptual framework in relation
to financial reporting.
Conceptual frameworks are covered in Chapter 2 of the subject guide
and Chapter 8 of International financial reporting.
A good answer would define a general conceptual framework and
discuss briefly the main components of such a framework, possibly
referring to a current conceptual framework (e.g. statements of
principles or IASB framework). Candidates should then discuss both
arguments supporting conceptual frameworks and arguments against
conceptual frameworks.
Arguments for conceptual frameworks may include relationship to
accounting standards, the improvement of financial reporting over time
(e.g. consistency, that some key assumptions are explicated and
political arguments).
Arguments against conceptual frameworks may include time and cost
of preparation, that they will not eliminate judgment and controversy
since definitions are general and accounting is not a science, they can
be used by all parties to justify their position, that a consensus-seeking
process used to gain acceptance for cf and that cf projects are devised
for particular groups.
Weak answers tended to just define and describe conceptual
frameworks with little or no discussion of the main arguments for and
against them.
Or
What are finance leases and operating leases and how are they accounted for?
Discuss the concepts of off-balance sheet finance and substance over form in
determining the accounting treatment of finance and operating leases and
discuss the impact of the operating/finance lease classification on the gearing
ratio, return on capital employed and return on net assets.
Leases are covered in Chapter 9 of the subject guide and Chapter 12 of
International financial reporting as well as in most advanced financial
reporting texts.
13

A good answer would define finance and operating leases, discussing
the factors that would determine whether a lease was a finance lease
or operating lease with an example to illustrate this see pp.20001 of
the subject guide. Substance over form and off-balance sheet finance
should be defined and discussed in relation to finance leases and
operating leases. The impact on financial statements (both b/s and
P+L) of treating leases as a finance lease instead of an operating lease
(or vice versa) and the impact on the gearing ratio, ROCE and return
on net assets should be discussed with a consideration of why
companies might prefer one treatment over another. Candidates might
refer to either UK or international accounting standards.
Weak answers tended to define the different types of leases and
discussed some of the factors in determining the type of lease but with
little or no discussion of the impact of the accounting treatment on the
financial statements. Some answers only addressed part of the
question.
14

2009-Financial Reporting Main EQP and Commentaries

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This paper is not to be removed from the Examination Halls

University of London 2009

PLEASE TURN OVER

Balance sheet as at 31.12.2008

Non current assets land

(question continues on next page)

(question continues on next page)

Balance sheet as at 31 December

The following information is also available:

Translate the accounts of Foreign Org using the temporal method.

Calculate the deprival value of the machine at 31 December 2008

Cost of work to date

Value of work certified

Compare and contrast the accounting treatment of inventory to that of

Answer all parts of this question

Hub Ltd acquired a non-current asset on 1 January 2008 for 300,000.

This paper is not to be removed from the Examination Halls

PLEASE TURN OVER

University of London 2009

Balance sheet as at 31.12.2008

Non current assets land

(question continues on next page)

Non current assets at net book value

Capital and liabilities

On 1 January 2007, Company Y purchased a new machine. The machine cost

Calculate the deprival value of the machine at 31 December 2008.

Cup Plc entered into the following transactions:

Discuss the rationale for the accounting treatment of business transactions

Answer all parts of this question.

What is Hicks income number 2 for companies? A company acquires a bond

Examiners commentaries 2009

Examiners commentaries 2009

Income statement for Hole Plc

Retained profit bfwd

Retained profit cfwd

Examiners commentaries 2009

Balance sheet as at 31.12.2008

Non-current assets land

Dividends receivable from Ask

Inter-company receivables from Ask

Workings (in 000)

Balance sheet workings

Profit and loss account reserve =

Examiners commentaries 2009

Approaching the question:

Profit after tax

Examiners commentaries 2009

Balance sheet as at 31 December

Total assets less liabilities

Capital and reserves

Calculate the deprival value of the machine at 31 December 2008.

Have not budget

Have not budget

Examiners commentaries 2009

c. What would be the deprival value at 31 December 2008 if sales revenue

75,000 22,500 = 52,500

75,000 22,500 = 52,500

75,000 15,000 = 60,000

pv of future cashflows = 52,500 v1 + 52,500v2 + 60,000 v3 =

Examiners commentaries 2009

b. Hub Ltd acquired a non-current asset on 1 January 2008 for 300,000.

Examiners commentaries 2009

Weak answers tended to outline the two methods with little or no

Examiners commentaries 2009