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SCHOOL OF MANAGEMENT AND LANGUAGES

Accountancy and Finance

CONTEMPORARY ISSUES IN FINANCIAL ACCOUNTING


Course Code: C39CA

Sample Paper for 2016/17 Course

Duration TWO hours


(Plus 15 minutes reading time)

INSTRUCTIONS

Answer ALL questions

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C39CA 16/17 Sample

Part A

Question 1

The trial balance for Forensic Ltd as at 31 March 2016 is shown below.

Notes '000 '000


Land at valuation 2,500
Buildings at cost 3,500
Equipment & Motor Vehicles at Cost 1,800
Allowances for depreciation at 31 March 2015
Buildings 450
Equipment & Motor Vehicles 1,500
Inventory at 31 March 2015 650
Trade receivables and payables 750 1,660
Bank Balance 457
Deferred Tax 150
Purchases and Sales 6,125 9,850
Administrative Expenses 1,654
Distribution Costs 1,452
Bank interest 65
Dividends paid 52
Rental income 566
Current tax 500
Ordinary 1 shares 800
Retained Earnings at 31 March 2015 1,340
Revaluation Reserve 1,275

18,548 18,548

The following notes are also relevant:

(i) Land is not depreciated. The valuation shown in the trial balance
needs to be updated to reflect the current value of 3.8 million
(ii) Buildings are depreciated at 5% straight line. No depreciation
charge has yet been included for the current year. This
depreciation should be included in Administrative Expenses
(iii) Equipment and vehicles are depreciated at 25% on a reducing
balance basis. Again, no charge has yet been included in the
current years accounts. This depreciation should be included in
Distribution costs
(iv) At 31 March 2016, Forensic ltd had closing inventory which had
originally cost 660,000. Included in this figure was an amount
of 50,000 relating to items which, due to flood damage before
the year end, can only be sold for 20,000
(v) The balance on the current tax account represents the over /
under provision for taxation for y/e 31 March 2015. The income
tax liability for y/e 31 March 2016 is estimated to be 935,000.
(vi) As at 31 March 2016, the tax written down value of Forensics net
assets was 550,000 less than their net reported values in the
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C39CA 16/17 Sample

financial statements. The income tax rate applicable to Forensic


is 20%.
Requirements

Prepare the following statements for Forensic for the year ended 31 March
2016:
a) Total Comprehensive Income
(15 marks)
b) Changes in Equity (5
marks)
c) Financial Position
(15 marks)
You are not required to prepare notes to the financial statements but you
should show all your workings.
Total 35 marks

Question 2

You are working as a graduate trainee in the financial accounting team of


a large multinational entity. Your manager has asked you to draft some
notes to brief her on recent changes to IFRS that will impact on the entity.

Background to the Entity


The entity operates in the food and drinks industry, manufacturing ready
meals for big supermarkets across the world. The entity leases much of
its equipment. About 50% of these leases (by asset value) are currently
accounted for as finance leases, while the remainder are accounted for as
operating leases. All the leases are for periods of more than one year and
are for material assets.
The entity manufactures its own machinery for packaging ready meals. In
the last few years, it has also started to sell these machines commercially.
It can take up to 3 years for machines to be completed and fully installed
in customers premises. Initial construction work is carried out at your
entitys premises, installation usually occurs in the last 6 months of the
contract.

Requirements

Draft notes for your manager on how the following recent IFRSs may
impact on the entitys financial statements. Your answer should include
discussion on how accounting treatment may change (comparing current
accounting treatment with that which will be required under the new IFRS)
and also outline what the impact may be on key financial ratios.

(a) IFRS 16 Leases (8 marks)


(b)IFRS 15 Revenue (7 marks)

Total 15 marks
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C39CA 16/17 Sample

Total marks for Part A: 50

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C39CA 16/17 Sample

Part B

1. This question relates to IAS 21 The Effects of Changes in Foreign


Exchange Rates

(a) Describe the two different ways in which an entity may carry on
foreign activities
(3 marks)

(b)Explain what is meant by the terms:


i. Functional currency
ii. Foreign currency
iii. Presentation currency
(6 marks)

(c) A UK company sold goods on credit for 100,000 Utopian dollars (U$)
on 31 December 2015. U$75,000 was repaid on 31 March 2016. At
31 December 2016, U$25,000 was still outstanding (and was
subsequently paid on 28 February 2017).
Exchange rates (U$ to ) were as follows:
31 December 2015 U$1.78
31 March 2016 U$1.82
31 December 2016 U$1.65
28 February 2017 U$1.69
Use this information to answer the following questions:
i. At what value should the sale be shown in the accounts for the
year ended 31 December 2015? ( sterling)
ii. At what value should the accounts receivable be shown as at 31
December 2016?
iii. What is the gain or loss on translation for this transaction, and
when will this be shown?
(6 marks)

2. Explain why it is seen as desirable to have one set of international


accounting standards which are followed by all large entities.
(5 marks)

Total 20 marks

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C39CA 16/17 Sample

Part C

Question 1

The following questions relate to the IASBs Conceptual Framework (the


Framework).
The framework talks about qualitative characteristics of useful financial
information, dividing them into Fundamental and Enhancing
Characteristics
a) Explain what is meant by each of the two fundamental
characteristics (4 marks)
b) List the four enhancing characteristics (6
marks)

The Framework distinguishes between three different approaches to the


measurement of capital:
Nominal financial capital maintenance
General purchasing power maintenance
Physical Capital Maintenance
c) Explain what is meant by each of these terms
(6 marks)

Total 16 marks

Question 2

(a) IAS 24 covers Related Party Disclosures. What is meant by Related


Parties and why are special disclosures required?
(4 marks)

(b)Explain the difference between an accounting policy and an


accounting estimate
(5 marks)

(c) Explain what is meant by a prior period error and how it should be
accounted for.
(5 marks)

Total 14 marks

Total Marks for Part C: 30

End of Paper

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