P1 - Corporate Reporting April 10

8/6/2019 P1 - Corporate Reporting April 10

http://slidepdf.com/reader/full/p1-corporate-reporting-april-10 1/19

CORPORATE REPORTING

PROFESSIONAL 1 EXAMINATION - APRIL 2010

NOTES:You are required to answer Questions 1, 2 and 3. You are also required to answer either Question 4 or 5.(If you provide answers to both Questions 4 and 5, you must draw a clearly distinguishable line through theanswer not to be marked. Otherwise, only the first answer to hand for Questions 4 or 5 will be marked.)

PRO-FORMA STATEMENT OF COMPREHENSIVE INCOME BY NATURE,

STATEMENT OF COMPREHENSIVE INCOME BY FUNCTIONAND STATEMENT OF FINANCIAL POSITION ARE PROVIDED.

TIME ALLOWED:3.5 hours, plus 10 minutes to read the paper.

INSTRUCTIONS:During the reading time you may write notes on the examination paper but you may not commence

writing in your answer book. Please read each Question carefully.

Marks for each question are shown. The pass mark required is 50% in total over the whole paper.

Start your answer to each question on a new page.

You are reminded that candidates are expected to pay particular attention to their communication skills

and care must be taken regarding the format and literacy of the solutions. The marking system will take

into account the content of the candidates' answers and the extent to which answers are supported with

relevant legislation, case law or examples where appropriate.

List on the cover of each answer booklet, in the space provided, the number of each question(s)

attempted.

The Institute of Certified Public Accountants in Ireland, 17 Harcourt Street, Dublin 2.



Page 1

THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

CORPORATE REPORTINGPROFESSIONAL 1 EXAMINATION – APRIL 2010

Time allowed 3.5 hours, plus 10 minutes to read the paper.You are required to answer Questions 1, 2 and 3. You are also required to answer either Question 4 or 5.

(If you provide answers to both Questions 4 and 5, you must draw a clearly distinguishable line through theanswer not to be marked. Otherwise, only the first answer to hand for Questions 4 or 5 will be marked.)

You are required to answer Questions 1, 2 and 3.

1.(A) Glenview PLC acquired 80% of Valleylave Ltd’s ordinary shares for 168m cash on 1st January 2009. The draft

statements of financial position of the two companies at 31 December 2009 are shown below:

Glenview PLC Valleylave LtdNon-current assets €m €m €m €mProperty, plant and equipment 610 152

Development costs (note 3) - 28Investments 240 10

850 190Current assetsInventory 105 45Trade receivables 60 30Bank - 165 8 83Total assets 1,015 273

Equity and LiabilitiesEquityOrdinary shares of 1 each 500 60Retained earnings 222 126

722 186Non- current liabilities12% loan note 205 60

Current liabilitiesTrade payables 60 18Taxation 21 9Bank overdraft 7 88 - 27Total Equity and Liabilities 1,015 273

The following information is relevant:

1. Valleylave Ltd’s retained earnings at 1st January 2009 amounted to 94m. The share capital at that datewas 60m.

2. Glenview PLC has a policy of revaluing land and buildings. At the date of acquisition, Valleylave Ltd’s landand buildings had a fair value of 20m higher than their carrying value.

3. Valleylave Ltd’s development project was completed on 31 December 2008 at a cost of 35m. 7m of thishas been amortised in 2009. Glenview PLC’s Directors do not agree with the capitalisation policy adoptedby Valleylave Ltd and are of the opinion that 12m of the remaining development costs, at 31 December2009, do not meet the criteria of IAS 38 Intangible Assets for recognition as an asset.

4. Valleylave Ltd sold goods to Glenview PLC during the year at a profit of

9m. One third of these goods arestill in the inventory of Glenview PLC at 31 December 2009.



Page 2

5. During November 2009, Glenview PLC loaned 10m (interest free) to Valleylave Ltd which is due to berepaid in March 2010. The amounts are included in the trade receivables and trade payables of therespective companies.

6. A cheque for 8m from Glenview PLC sent to Valleylave Ltd before the end of the financial year was notreceived until January 2010.

7. Glenview PLC’s draft financial statements at 31 December 2009 included a note explaining a contingentasset of 300,000. The sum was received on 31 January 2010 and should now be accounted for as an

adjusting event after the reporting period.

8. In calculating goodwill, Glenview PLC’s policy is to value the non-controlling interest using fair value at thedate of acquisition. On this date, the fair value of the non-controlling interest was 42 million.

REQUIREMENTS:

(a) Prepare the consolidated statement of financial position for Glenview PLC as at 31 December 2009.(18 marks)

(Presentation: 1 mark)

(b) Explain why the fair value of an entity’s assets is used in the preparation of consolidated financialstatements.

(4 marks)

(B) The Purchasing Manager of Eco Ltd buys goods from a company based in Botoland, whose currency is the Boto.The value of the purchases on 31 May 2009 amounted to 600,000 Botos. The transaction was not settled until30 June, Eco Ltd’s year end.

Rate of Exchange31 May 2009 1 = 1.5 Botos30 June 2009 1 = 1.9 Botos

REQUIREMENTS:

(a) Illustrate how this transaction will be reported in the financial statements of Eco Ltd for the year ended 30June 2009.

(4 marks)

(b) Assume Eco Ltd has a foreign subsidiary which operates as an independent entity. Explain what methodof translation would be used for the purposes of preparing consolidated financial statements for the group.

(3 marks)

[TOTAL: 30 MARKS]



Page 3

2. After the closing of the ledger accounts for the year ended 31 December 2009, the following balances were

extracted from the nominal ledger of Logan Ltd.Dr Cr

€‘000 €‘000

Land (note 1) 200Buildings at cost (note 2) 240Equipment at cost (note 3) 190Accumulated depreciation 1 January 2009:

Buildings 60Equipment 110Inventory 1 January 2009 95Intangible asset (note 10) 38Amortisation 2Investment property –valuation at 1 January 2009 (note 4) 100Trade receivables 90Trade payables 105Amounts receivable from supplier (note 5) 70Income tax (note 6) 6Deferred taxation 1210% loan stock (redeemable 2014) 130

Revenue 1,500Purchases 796Wages and salaries 102Administrative expenses 127Selling and distribution expenses 116Operating expenses 50Allowance for doubtful debts 11.50Bank 10Interest paid (note 7) 6.50Investment income 12Preference share capital-5% irredeemable 1 shares 20Ordinary dividends paid 18Ordinary share capital 55Revaluation reserve 25Retained earnings 1 January 2009 216

2,256.50 2,256.50

The following notes are relevant:

1. Land is to be revalued at 220,000.

2. Buildings are depreciated over 40 years. Depreciation is to be charged 50% to administration costs and50% to cost of sales.

3. Equipment is depreciated at 25% on the reducing balance basis. Depreciation is to be charged in full to

cost of sales.

4. Details of the investment property are:

Value – 1 January 2009 100,000

Value – 31 December 2009 95,000

5. Logan Ltd has lodged a claim for 70,000 against one of its suppliers for faulty goods supplied. Thesupplier has contested the validity of this claim, and at 31 December 2009 the legal costs incurred byLogan Ltd amounted to 40,000 to date. The company’s solicitors have advised the Directors’ of LoganLtd that, although the outcome is unclear, they have a good case. The ledger accounts above, show a

receivable for

70,000 due from the supplier with the corresponding credit being included withinpurchases. No adjustment has been made for the legal costs which have not yet been paid at the year end.On 31 January 2010, Logan Ltd’s solicitors have advised that it is now probable that the claim will be settledin full.



6. The income tax balance in the ledger accounts represents an under provision of the previous year’sestimate. The estimated income tax liability for the year ended 31 December 2009 is 20,000.

7. The loan stock was issued on 1 January 2009 and accrued interest at 31 December 2009 has not yet beenaccounted for.

8. Inventories held at 31 December 2009 are valued at a cost of 110,000. This includes 31,000 of slowmoving goods. Logan Ltd is trying to sell these slow moving items to another company, but has not beensuccessful in obtaining a reasonable offer. The best price that it has been offered to date is 19,000.

9. Logan Ltd is to make an allowance for doubtful debts amounting to 4% of year-end receivables. On 5January 2010 the company received notification that one of its customers had gone into receivership. Thiscustomer owed Logan Ltd 30,000 at 31 December 2009.

10. Whilst preparing the ledger accounts, the accountant discovered an error in the previous year’s financialstatements. Expenditure amounting to 40,000 in relation to a brand had been capitalised as an intangibleasset whereas in fact this was in contravention of IAS38 Intangible Assets . This expenditure has beensubject to an amortisation charge of 5% which has been included in the ledger accounts above.

11. Provision has not yet been made for the preference dividend.

REQUIREMENTS:

(a) Prepare Logan Ltd’s statement of comprehensive income for the year ended 31 December 2009 and astatement of financial position as at that date. Your answer should be presented in accordance with IAS1(revised) Presentation of Financial Statements . (Notes to the financial statements are not required but youshould show any workings).

(21 marks)(1 mark presentation)

(b) Prepare a memorandum for the Financial Accountant of Logan Ltd which:

(i) Explains your accounting treatment of the items referred to in notes 5, 8 and 10 above. (6 marks)

(ii) Describes the purpose of a statement of changes in equity. (You are not required to prepare theSOCE).

(2 marks)

[TOTAL: 30 MARKS]

Page 4



Page 5

3. The following multiple choice questions contains eight sections, each of which are followed by a choice

of answers. Only one of each set of answers is strictly correct.

REQUIREMENTS:

Give your answer to each section in the answer sheet provided. [TOTAL: 20 MARKS]

1. The proposed final dividend for CAT Ltd for the year ended 30 September 2008 was 40,000. This was paid in

October 2008. The final dividend for the year ended 30 September 2009 was 60,000, which was declared onthe 25 September 2009. An interim dividend for the year ended 30 September 2009 of 22,000 was paid.

In accordance with IAS 7 Statement of Cash Flows what is the figure for dividends paid which will appear in thestatement of cash flows for CAT Ltd for the year ended 30 September 2009?

(a) 62,000(b) 82,000(c) 100,000(d) 60,000

2. Peter Ltd has the following products in inventory at the end of 2009:

Units Cost per unit

Bentub (completed) 8,400 22Jontub (part complete) 2,800 16

Each product normally sells at 34 per unit. Due to the difficult trading conditions Peter Ltd intends to offer adiscount of 15% per unit and expects to incur 4 per unit in selling costs. 10 per unit is expected to be incurredto complete each unit of Jontub.

In accordance with IAS 2 Inventories , at what amount should inventory be stated in the financial statements ofPeter Ltd at 31 December 2009?

(a) 257,600(b) 278,900(c) 254,520(d) 281,820

3. The financial statements of Pot PLC were approved by the Board of Directors on 1 February 2010. As per IAS10 Events after the Reporting Period , which of the following would be a non-adjusting item in the financialstatements at 31 December 2009?

(i) Identification of a material error in the valuation of inventory.(ii) An increase in the market value of investments.

(iii) The disposal of equipment, which was surplus to the business’s requirements.(iv) Receipt of notification of bankruptcy of a customer with a balance outstanding at year end.

(a) (ii) and (iii)(b) (i) and (iii)(c) (i) and (iv)(d) All of the above.

4. Which of the following is not a condition that must be met in order to record revenue from the rendering ofservices?

(a) The amount can be measured reliably.

(b) Stage of completion of the work can be measured reliably.(c) Costs incurred for the transaction can be measured reliably.(d) The seller has passed on effective control of the service being performed.



Page 6

5. On 1 May 2009, Batman PLC entered into a finance lease agreement. Batman PLC paid a deposit of 11,000on that date. The cash price of the leased asset at 1 May 2009 was 35,000. Batman PLC pays interest of 7%on its borrowings. The rate of interest implied in the lease was approximately 10%. Under IAS17 Leases , what isthe finance charge in Batman PLC’s statement of comprehensive income for the year ended 30 April 2010?

(a) 3,500(b) 2,300(c) 2,450(d) 2,400

6. At a board meeting held on 1 November 2009, Marcus PLC made the decision to sell a major division. The actualclosure took place on 10 February 2010. In the year ended 31 December 2009 the division reported a loss of€150,000. Costs of redundancies relating to the division to be incurred in 2010 are expected to amount to€40,000.

In accordance with IFRS5 Non-current Assets Held for Sale and Discontinued Operations , what will be reportedin Marcus PLC’s statement of comprehensive income for the year ended 31 December 2009 in respect of thedivision?

(a) 150,000 loss from continuing operations(b) 190,000 loss from continuing operations(c) 150,000 loss from discontinued operations(d) 190,000 loss from discontinued operations

7. The IASB’s Framework for the Preparation and Presentation of Financial Statement includes the four qualitativecharacteristics of financial information.

Which one of the following statements includes the four qualitative characteristics of financial information?

(a) Materiality, reliability, understandable and going concern.(b) Relevance, reliability, comparable and understandable.(c) Prudence, comparable, understandable and accuracy.(d) Relevance, materiality, accuracy and going concern.

8. The following is an extract from the financial statements of Honey Ltd as at 31 December 2009 and 2008:

2009 2008€000 €000

Revenue 3,400 2,900Cost of sales 1,800 1,500

Inventory 820 760Trade receivables 650 510

Calculate the inventory turnover and the average collection period for trade receivables.

Inventory Turnover Average collection period for trade receivables2009 2008 2009 2008

(a) 166 days 185 days 70 days 64 days(b) 70 days 64 days 166 days 180 days(c) 89 days 96 days 132 days 124 days(d) 180 days 172 days 70 days 64 days



Page 7

4. IAS 38 Intangible Assets sets out the principles for accounting for intangible assets.

REQUIREMENTS:

(a) Identify the criteria that must be satisfied before an intangible asset can be recognised in the financialstatements.

(5 marks)

(b) What criteria must be satisfied before expenditure on internally generated research and development can

be capitalised?(3 marks)

(c) Smith PLC, a developer and manufacturer of household and commercial cleaning products, prepares itsfinancial statements to 31 December 2009. The Board of Directors are finalising the financial statementsand need assistance on the treatment of the following issues:

(i) On 1 January 2008, Smith PLC acquired a six year patent to manufacture and distribute a productcalled Clean Line Fluid. The fluid is for use in restaurants and public houses. The patent cost 12mand it is to be amortised on a straight line basis. In January 2010 a review of the sales of Clean LineFluid indicated a very disappointing level of sales. The decision was taken that production wouldcease at 31 December 2010 despite the product delivering a net profit.

(ii) Research and Development expenditure in the year to 31 December 2009 totalled 4m. Half of thiswas incurred on research costs and the remaining amounts were incurred on the development costsof the following three products:

Products: Wash and Go 1,000,000Wipe Clear 400,000Soft and Clean 600,000

The Wash and Go product is expected to generate high levels of sales and matching profits over thenext 4 years, after which it will be replaced. The Wipe Clear product is experiencing difficulties in thefinal stage of product testing and there is uncertainty within the product development team of thelength of time or costs needed to complete the product prior to its launch. Smith PLC registered a 6year patent for the Soft and Clean product effective from 1 January 2009.

(iii) During the year ended 31 December 2009, a staff training programme was carried out at a cost of200,000. The external training provider has demonstrated to the Directors of Smith PLC that thetraining should result in additional profits of 380,000.

Advise the Directors of Smith PLC on the treatment of the above issues in the financial statementsfor the year ended 31 December 2009.

(9 marks)

(d) What information needs to be disclosed for each class or type of intangible asset? (3 marks)

[TOTAL: 20 MARKS]



5. IAS11 Construction Contracts defines a construction contract and provides guidance on how it should be

recognised and measured in the financial statements.

Ashridge Ltd has three contracts in progress to build new bridges in Dublin, Cork and Drogheda. The company’sfirst accounting period ended on 30 September 2008 and during that period the company tendered for and wona contract to build a large bridge in Dublin. During the year ended 30 September 2009, Ashridge secured twoother contracts in Cork and Drogheda. The following information as at 30 September 2009 is available for eachof the three contracts:

Contract Dublin Cork Drogheda

€m €m €m

Contract value 32.00 20.00 25.50Certified value of work completed:

To 30 September 2008 12.00 - -Year to 30 September 2009 7.50 1.50 11.50To date 19.50 1.50 11.50

Value of work invoiced:To 30 September 2008 11.00 - -Year to 30 September 2009 6.40 1.20 11.40

To date 17.40 1.20 11.40

Payments received:To 30 September 2008 10.50 - -Year to 30 September 2009 3.84 - 8.20To date 14.34 - 8.20

Costs incurred:To 30 September 2008 14.08 - -Year to 30 September 2009 7.68 3.10 24.68To date 21.76 3.10 24.68

Estimated future costs to complete:As at 30 September 2008 12.00 - -As at 30 September 2009 3.20 10.50 4.40

Additional information:

(i) The Drogheda contract has experienced some difficulties. These have not affected costs, but thecustomer has agreed to increase the value of the contract by 1.0m by way of compensation.

(ii) There have been some labour problems at the Dublin site in 2009 but Ashridge Ltd believes thesehave now been resolved and the contract is expected to continue profitably.

(iii) Ashridge Ltd accounts for its contracts in accordance with IAS11 Construction Contracts using thevalue of work certified (as a percentage of contract value) to estimate the percentage completion ofeach contract.

REQUIREMENTS:

(a) For each of the three contracts, calculate the amounts which would appear in the financial statements ofAshridge Limited for the year ended 30 September 2009.

(13 marks)

(b) List three main disclosures required by IAS11. (3 marks)

(c) Discuss the issue of profit recognition in relation to construction contracts. (4 marks)

[TOTAL: 20 MARKS]

END OF PAPER

Page 8



THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

CORPORATE REPORTINGPROFESSIONAL 1 EXAMINATION – APRIL 2010

SOLUTION 1

Consolidated statement of financial position of Glenview Group as at 31 December 2009

€m €m

Assets

Non- current assets

Tangible assets (610+152+20) 782

Development costs (28-12) 16

Investments (72+10) 82

Goodwill (w3) 36

916

Current Assets

Inventory (105+45-3) 147

Accounts Receivables (60+30-8-10) 72

Other receivables .3

Bank (8+8) 16 235.3

1151.3

Equity and Liabilities

Ordinary share capital 500.00

Retained earnings (w5) 235.90

735.90

Non controlling interest (w4) 45.40

781.3Non-current liabilities

12% Loan stock (205+60) 265

Current Liabilities

Accounts payabless (60+18-10) 68

Taxation (21+9) 30

Bank overdraft 7 105

1,151.3

W1 Group structure

Glenview

1 January 2009 80%

Valleylave

Page 10

SUGGESTED SOLUTIONS



W2 Net Assets at fair value

At acquisition At reporting period end

€m €m

Share capital 60 60

Retained earnings 94 126

154 186

Fair value adjustment

Land and buildings 20 20

Research and development - (12)Unrealised profit on

inventory - (3)

174 191

W3 Goodwill

Consideration paid 168

Non controlling interest 42

210

Fair value of subsidiary net assets 174

Goodwill 36

Fair value non controlling interest at

Date of acquisition @ 3.50 42.00

Fair value of Assets 174 * 20% 34.80

Goodwill attributable to NCI 7.20

Other methods of calculation acceptable

W4 Non controlling interest at reporting period end

20% of 191m 38.20

Goodwill 7.2045.40

W5 Retained earnings

Glenview plc 222m

Contingent asset 0.3m

Subsidiary

{(191 – 174 }* 80% 13.6m

235.90

Alternative calculation:

126-94=32-3-12=17*80% 13.6m

(18 marks)

Presentation (1 mark)

Page 11



(b) In order to account for an acquisition, the acquiring company must measure the cost of what it is accounting

for, which will normally represent:

• The cost of the investment in its own statement of financial position, and

• Amount allocated between the identifiable net assets of the subsidiary, the non-controlling interest and

goodwill in the consolidated financial statements.

Fair value defined by IFRS3 is the ‘amount for which the asset could be exchanged or a liability settled

between knowledgeable, willing parties in an arm’s length transaction’

Identifiable assets and liabilities are included in consolidated accounts at their fair values because:

• Consolidated accounts are from the perspective of the group, rather than the perspectives of the

individual companies. The cost to the group is their fair value at date of acquisition.

• Purchased goodwill (per IFRS3 revised) is the difference between the value of acquired entity and

aggregate of the fair values of that entity’s identifiable assets and liabilities. If the fair value is not used

then the goodwill will be meaningless.

(4 marks)

(c)

(i) At date of transaction

Dr Purchases 400,000

Cr Trade payables 400,000

At year end

Trade payables must be translated at closing rate (1.90) = 315,789

Dr Trade payables 84,211Cr SCI 84,211 (4 marks)

(ii) Need to use the closing rate method of translation for consolidation purposes. Under this approach, assets

and liabilities are translated at the rate ruling at the statement of financial position date – the closing rate.

Revenues and expenses are translated using the average rate for the period.

Any exchange differences arising are shown as separate components of equity. (3 marks)

[Tota:l 30 marks]

Page 12



SOLUTION 2

Statement of Comprehensive Income for the year ended 31 December 2009

€’000

Revenue 1,500

Cost of sales (w1) (988)

Gross profit 512

Operating expenses (50)

Distribution costs (w1) (136.9)Administrative expenses (w1) (170)

Profit from operations 155.1

Finance costs (13)

Investment income 12

Loss on fair value of investments (5)

Profit before taxation 149.10

Income tax expense (w4) (26)

Profit for the year 123.10

Other Comprehensive Income

Gains on revaluation 20

143.10

Statement of Financial Position for the year ended 31 December 2009

2009

€’000 €’000

ASSETS

Non-current assets

Property, plant and equipment 220 + (240-66) +60 454

Investment property 95

Intangibles -

549

Current assets

Inventories 98Trade and other receivables (90-30-2.4) 57.60

Bank 10

165.6

Total assets 714.6

EQUITY AND LIABILITIES

Equity

Ordinary share capital 55

Preference share capital (irredeemable) 20

Revaluation surplus (25+20) 45

Retained earnings (w7) 280.1

400.10

Non-current liabilities

10% loan stock 130

Deferred tax 12

Current liabilities

Trade and other payables (105 + 4.3 +40) 151.50

Preference dividend payable 1

Taxation 20

172.50

Total equity and liabilities 714.60

Page 13



Workings

W1 - Allocation of costs

Cost of sales Admin Selling

& Distribution

€’000 €’000 €’000

Admin/Selling 127 116

Opening inventory 95Purchases 796

Wages and salaries 102

Bad and doubtful debts (30 -9.10) 20.9

Depreciation:

Buildings W2 3 3

Equipment (25% x (190 – 110) 20

Legal costs re litigation against supplier 40

Contingent asset (write off) 70

Closing inventory (110 -12) (98)

988 170 136.9

*11.5 – ((90 -30) x 4%) = 9.1 (decrease)

W2 - Depreciation on buildings

240,000/40=6,000 pa

W3 - Investment property

Changes in valuation go directly to SCI – (5,000)

W4 - SCI taxation

Income tax 20,000

Under-provision 6,00026,000

W5 - Interest accrual

6,500 paid but should have paid 10% x 13,000 = 13,00

Therefore accrue 6,500 at 31 December 2009.

W6

Write off 40,000 against retained earnings brought forward.

W7 - Retained earnings

€’000

Brought forward 216

Prior error (38 + 2) (40)

Dividend paid (18)

Preference dividend (1)

Profit for the year 123.10

At 31 December 2009 280.10 (21 Marks)

Presentation 1 mark

Page 14



(b) Memorandum

To: Financial Controller

From: A. N. Accountant

Date: XX/XX/XX

Subject: Accounting Issues

1. Legal claim against the supplier

Logan Ltd should not be accruing for a contingent asset of €70,000. IAS37 is specific in stating that

contingent assets must not be recognised. Only when the realisation of the related economic benefits

is virtually certain should recognition take place. This is an application of the prudence concept. Where

inflow of economic benefits is probable, the contingent asset should be disclosed. Legal costs should

be accrued for as it is very probable case will be successful..

2. Inventories must be valued at lower of cost or net realisable value as per IAS2.

To include inventory at higher value of €31,000 would be to overstate profits in the current accounting

year (by decreasing cost of sales). Most realistic price is €19,000- therefore write down the difference

for slow moving inventory.

3. IAS38 outlines strict criteria for capitalisation of intangible assets. Brand would appear to have been

generated internally and would not meet IAS38 criteria. Need to add back the amortisation charge of

€2,000 (via retained earnings) and adjust the retained earnings (brought forward) for prior year error

of €38,000. i.e. adjust for €40,000 in total.

(6 marks)

4. Purpose of Statement of Changes in Equity Statement (SOCE)

The main purpose of a SOCE statement is to show how each component of equity has changed during

an accounting period. In the case of a company, these components are share capital and each of the

company’s reserves. Total comprehensive income and effects of any retrospective application ofaccounting policies/restatement of items should be shown.

(2 marks)

[Total: 30 marks]

Page 15



SOLUTION 3

1. (a)

Balance b/f 40,000

Interim dividend 22,000

Final dividend 60,000

122,000

Less dividend o/s 60,000

Dividend paid 62,000

2. (c)

No. Cost NRV €

Bentub 8,400 22 34*.85=28.9-4=24.9 184,800

Jontub 2,800 26 34*.85=28.9-4=24.9 69,720

254,520

3. (a) (ii) and (iii)

4. (d)

5. (d) Cash price 35,000

Less deposit 11,00024,000

@ 10% 2,400

6 (d)

7 (b)

8 (a)

Inventory Turnover Average collection period for trade receivable

2009 2008 2009 2008

820 *365=166days 760*365=185days 650*365=70days 510*365=64 days1,800 1,500 3,400 2,900

Page 16



SOLUTION 4

(a) • Intangible assets are Identifiable non-monetary asset without a physical presence. Examples include:

- legal (copyrights, patents)

- Competitive (knowledge, human capital)

• must be identifiable

• must have control over the asset

• there must exist future economic benefit to the business

• the cost of the asset is identifiable (5 marks)

(b) • Technically feasible

• Intent and ability to complete

• Can be used or sold

• Will generate probable future economic benefits

• Resources available to complete

• Ability to measure (3 marks)

(c)

(i) The fair value of the patent at 31 December 2009 should be revalued to €2m as the life of the asset has been

reduced to one year. The amount of the asset needs to be written off by €8m with a written down value of

€2m at the reporting year end. The change needs to be disclosed in the notes to the accounts.

Balance at 1 January 2008 (12m – 1/6) 10m

Write off 8m

Balance at 31 December 2009 (1 year remaining) 2m

• Wash and go: capitalise €1m

Write off over 4 years (€250,000 pa)

• Wipe clear: write off full development cost of €400,000 as outcome and future costs are

unknown and it is uncertain if is it technically or financially viable?

• Soft and clean: Write off over the life of the patent. Capitalise €600,000 amortise €100,000

pa (need to review)

(ii) Training costs are not allowed as staff are not under control of Smith plc, and when staff leave the benefits

of the training, whatever they maybe, may also leave. Therefore write off €200,000 in full.

(9 marks)

(d) Student could make reference to:

• Useful life

• Split between internally generated and other

• Amortisation rates

• Gross and accumulated amortisation amount

• Amortisation charge

• Reconciliation of balances from the start to the year end

• Other (3 marks)

[Total: 20 marks]

Page 17



SOLUTION 5

(a) Working 1

Contract

Dublin Cork Drogheda

2008 €m €m €m

Contract value 32.00

Estimated costs to complete 24.96

Estimated total profit 7.04

2009

Original contract value 32.00 20.00 25.50

Revision 1.0

26.50

Estimated total costs to complete 24.96 13.6 29.08

Overall profit/(loss) 7.04 6.4 (2.58)

Turnover to date (30 Sept 2009) 19.5 1.5 11.5

Less turnover recognised in 2008 (12.00) - -

Turnover for 2009 7.5 1.5 11.5

Profit or loss for 2009

Full loss provided (2.58)

Cork work not sufficiently advanced -

To date (60% x 7.04) 4.22

Less 2008 (38% x 7.04) (2.68)

1.61

Cost of sales (balancing figure) 5.89 1.5 14.08

Cork project considered at too early a stage for including profit. Alternative approach could be adopted if

there was more certainty.

Statement of Comprehensive Income

Revenue 7.5 1.5 11.5

Cost of sales 5.89 1.5 14.08

Profit/Loss 1.61 Nil (2.58)

Statement of financial Position

Cost to date 21.76 3.10 24.68

Recognised profit/losses 4.29 - (2.58)

Progress billings (17.40) (1.20) (11.40)

Due from customers for contract work 8.65 1.9 10.7

Progress billings 17.40 1.2 11.4

Amounts received 14.34 - 8.20

Trade receivables 3.06 1.2 3.2

Note:

Assuming the above outcomes have been estimated reliably, we can estimate the percentage completion of

each contract’s contract activity; using the value of work certified on a cumulative basis.

2008

Work certified to date/contract value 38%

(12/32)

2009Work certified/contract value 61% 7.5% N/A(losses)

(19.5/32) (1.5/20)

(13 marks)

Page 18



(b) Disclosures include

• Amount of contract revenue recognised during the accounting period

• Methods used to determine contract revenue for the period

• Methods used to determine stage of completion of contracts in progress (3 marks)

(c) Timing of profit is an important aspect of a statement of comprehensive income showing a faithful

representation. Only realised profits should be disclosed as part of profits for the year. With construction

contracts, the process of completing the project takes a relatively long time and, in particular, will spreadacross at least one accounting period-end. It would not be reasonable to wait until the project is finished

before taking profit. IAS11 recognises profit on uncompleted contracts in proportion to some measure of the

percentage of completion applied to the estimated total contract profit. This reflects the accruals concept as

opposed to the prudence concept. However, if it is not possible to make a reliable estimate of the contract

outcome, IAS11 does not permit any profit to be recognised. However, sufficient contract revenue may be

recognised to cover the costs to date, so long as it is thought that these costs will be recovered.

(4 marks)

[Total: 20 marks]

P

Documents

P1 - Corporate Reporting April 10