QUESTION 1 Complex Group The following draft statements of financial position relate to Largo, a public limited company, Fusion,

, a public limited company and Spine, a public limited company, as at 30 November 2003:

The following information is relevant to the preparation of the group financial statements: (i) Largo acquired ninety per cent of the ordinary share capital of Fusion and twenty-six per cent of the ordinary share capital of Spine on 1 December 2002 in a share for share exchange when the accumulated reserves were Fusion $136 million and Spine $30 million. The fair value of the net assets at 1 December 2002 was Largo $650 million, Fusion $330 million and Spine $128 million. Any increase in the consolidated fair value of the net assets over the carrying value is deemed to be attributable to property held by the companies. The share for exchange on the purchase of Fusion and Spine on 1 December 2002 has not yet been recorded in Largos books. Largo issued 150m of its own shares to purchase Fusion and 30m to purchase Spine. There has been no new issue of shares since 1 December 2002. On 1 December 2002, before the share for share exchange, the market capitalisation of the companies was $644 million: Largo; $310 million: Fusion; and $130 million: Spine. (ii) In arriving at the fair value of net assets acquired at 1 December 2002, Largo has not accounted for the deferred tax arising on the increase in the value of the property of both Fusion and Spine. The deferred tax arising on the fair valuation of the property was Fusion $15 million and Spine $9 million. (iii) Fusion had acquired a sixty per cent holding in Spine on 1 December 1999 for a consideration of $50 million when the accumulated reserve of Spine was $10 million. The fair value of the net assets at that date was $80 million with the increase in fair value attributable to property held by the companies. Property is depreciated within the group at five per cent per annum. (iv) Largo purchased a forty per cent interest in Micro, a limited liability investment company on 1 December 2002. The only asset of the company is a portfolio of investments which is held for trading purposes. The stake in Micro was purchased for cash for $11 million. The carrying value of the net assets of Micro on 1 December 2002 was $18 million and their fair value was $20 million. On 30 November 2003, the fair value of the net assets was $24 million. Largo exercises significant influence over Micro. Micro values the portfolio on a mark to market basis. (v) Fusion has included a brand name in its tangible non-current assets at the cost of $9 million. The brand earnings can be separately identified and could be sold separately from the rest of the business. The fair value of the brand at 30 November 2003 was $7 million. The fair value of the brand at the time of Fusions acquisition by Largo was $9 million. (vi) It is the groups policy to value the non-controlling interest at its proportionate share of the fair value of the subsidiarys identifiable net assets. Required: Prepare the consolidated statement of financial position of the Largo Group at the year ended 30 November 2003 in accordance with International Financial Reporting Standards.
05/05/2012 Mr S.JUGNARAIN, ACCA Tutor for Papers F3, F5, F7 & P2 (Tel. 696-2635/770-4130)

QUESTION 2 IAS 16 On 1 October 2005 Dearing acquired a machine under the following terms:
Hours Manufacturers base price Trade discount (applying to base price only) Early settlement discount taken (on the payable amount of the base cost only) Freight charges Electrical installation cost Staff training in use of machine Pre-production testing Purchase of a three-year maintenance contract Estimated residual value Estimated life in machine hours Hours used year ended 30 September 2006 year ended 30 September 2007 year ended 30 September 2008 (see below) $ 1,050,000 20% 5% 30,000 28,000 40,000 22,000 60,000 20,000

6,000 1,200 1,800 850

On 1 October 2007 Dearing decided to upgrade the machine by adding new components at a cost of $200,000. This upgrade led to a reduction in the production time per unit of the goods being manufactured using the machine. The upgrade also increased the estimated remaining life of the machine at 1 October 2007 to 4,500 machine hours and its estimated residual value was revised to $40,000. Required: Prepare extracts from the income statement and statement of financial position for the above machine for each of the three years to 30 September 2008. (10 marks) QUESTION 3 IFRS 5 The non-current assets of Rockby include a head office land and buildings. The Board of Rockby approved the relocation of the head office site on 1 March 2003. The head office land and buildings were renovated and upgraded in the year to 31 March 2003 with a view to selling the site. During the improvements, subsidence was found in the foundations of the main building. The work to correct the subsidence and the renovations were completed on 1 June 2003. As at 31 March 2003 the renovations had cost $23 million and the cost of correcting the subsidence was $1 million. The carrying value of the head office land and buildings was $5 million at 31 March 2003 before accounting for the renovation. Rockby moved its head office to the new site in June 2003 and at the same time, the old head office property was offered for sale at a price of $10 million. However, the market for commercial property had deteriorated significantly and as at 31 March 2004, a buyer for the property had not been found. At that time the company did not wish to reduce the price and hoped that market conditions would improve. On 20 April 2004, a bid of $83 million was received for the property and eventually it was sold (net of costs) for $75 million on 1 June 2004. The carrying value of the head office land and buildings was $7 million at 31 March 2004. Non-current assets are shown in the financial statements at historical cost. Required: Discuss whether the head office land and buildings would be classed as held for sale if IFRS 5 had been applied in the group financial statements at 31 March 2003 and 31 March 2004. (10 marks) QUESTION 4 IAS 38 In the current accounting period, Dexterity has spent $3 million sending its staff on specialist training courses. Whilst these courses have been expensive, they have led to a marked improvement in production quality and staff now need less supervision. This in turn has led to an increase in revenue and cost reductions. The directors of Dexterity believe these benefits will continue for at least three years and wish to treat the training costs as an asset. Required: Explain how the directors of Dexterity should treat the above item in the financial statements for the year to 31 March 2004. (5 marks)

05/05/2012 Mr S.JUGNARAIN, ACCA Tutor for Papers F3, F5, F7 & P2 (Tel. 696-2635/770-4130)