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[主观题]

The introduction of a new accounting standard can have significant impact on an entity by

changing the way in which financial statements show particular transactions or events. In many ways, the impact of a new accounting standard requires the same detailed considerations as is required when an entity first moves from local Generally Accepted Accounting Practice to International Financial Reporting Standards (IFRS).

A new or significantly changed accounting standard often provides the key focus for examination of the financial statements of listed companies by national enforcers who issue common enforcement priorities. These priorities are often highlighted because of significant changes to accounting practices as a result of new or changed standards or because of the challenges faced by entities as a result of the current economic environment. Recent priorities have included recognition and measurement of deferred tax assets and impairment of financial and non-financial assets.

Required:

(a) (i) Discuss the key practical considerations, and financial statement implications which an entity should consider when implementing a move to a new IFRS. (7 marks)

(ii) Discuss briefly the reasons why regulators might focus on the impairment of non-financial assets and deferred tax assets in a period of slow economic growth, setting out the key areas which entities should focus on when accounting for these elements. (8 marks)

(b) Pod is a listed company specialising in the distribution and sale of photographic products and services. Pod’s statement of financial position included an intangible asset which was a portfolio of customers acquired from a similar business which had gone into liquidation. Pod changed its assessment of the useful life of this intangible asset from ‘finite’ to ‘indefinite’. Pod felt that it could not predict the length of life of the intangible asset, stating that it was impossible to foresee the length of life of this intangible due to a number of factors such as technological evolution, and changing consumer behaviour.

Pod has a significant network of retail branches. In its financial statements, Pod changed the determination of a cash generating unit (CGU) for impairment testing purposes at the level of each major product line, rather than at each individual branch. The determination of CGUs was based on the fact that each of its individual branches did not operate on a standalone basis as some income, such as volume rebates, and costs were dependent on the nature of the product line rather than on individual branches. Pod considered that cash inflows and outflows for individual branches did not provide an accurate assessment of the actual cash generated by those branches. Pod, however, has daily sales information and monthly statements of profit or loss produced for each individual branch and this information is used to make decisions about continuing to operate individual branches.

Required:

Discuss whether the changes to accounting practice suggested by Pod are acceptable under International Financial Reporting Standards. (8 marks)

Professional marks will be awarded in question 4 for clarity and quality of presentation. (2 marks)

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更多“The introduction of a new accounting standard can have significant impact on an entity by”相关的问题

第1题

(a) Emcee, a public limited company, is a sports organisation which owns several football

and basketball teams. It has a financial year end of 31 May 2016. Emcee needs a new stadium to host sporting events which will be included as part of Emcee’s property, plant and equipment. Emcee therefore commenced construction on a new stadium on 1 February 2016, and this continued until its completion which was after the year end of 31 May 2016. The direct costs were $20 million in February 2016 and then $50 million in each month until the year end. Emcee has not taken out any specific borrowings to finance the construction of the stadium, but it has incurred finance costs on its general borrowings during the period, which could have been avoided if the stadium had not been constructed. Emcee has calculated that the weighted average cost of borrowings for the period 1 February–31 May 2016 on an annualised basis amounted to 9% per annum. Emcee needs advice on how to treat the borrowing costs in its financial statements for the year ending 31 May 2016. (6 marks)

(b) Emcee purchases and sells players’ registrations on a regular basis. Emcee must purchase registrations for that player to play for the club. Player registrations are contractual obligations between the player and Emcee. The costs of acquiring player registrations include transfer fees, league levy fees, and player agents’ fees incurred by the club. Often players’ former clubs are paid amounts which are contingent upon the performance of the player whilst they play for Emcee. For example, if a contracted basketball player scores an average of more than 20 points per game in a season, then an additional $5 million may become payable to his former club. Also, players’ contracts can be extended and this incurs additional costs for Emcee.

At the end of every season, which also is the financial year end of Emcee, the club reviews its playing staff and makes decisions as to whether they wish to sell any players’ registrations. These registrations are actively marketed by circulating other clubs with a list of players’ registrations and their estimated selling price. Players’ registrations are also sold during the season, often with performance conditions attached. Occasionally, it becomes clear that a player will not play for the club again because of, for example, a player sustaining a career threatening injury or being permanently removed from the playing squad for another reason. The playing registrations of certain players were sold after the year end, for total proceeds, net of associated costs, of $25 million. These registrations had a net book value of $7 million.

Emcee would like to know the financial reporting treatment of the acquisition, extension, review and sale of players’ registrations in the circumstances outlined above. (10 marks)

(c) Emcee uses the revaluation model to measure its stadiums. The directors have been offered $100 million from an airline for the property naming rights of all the stadiums for three years. There are two directors who are on the management boards of Emcee and the airline. Additionally, there are regulations in place by both the football and basketball leagues which regulate the financing of the clubs. These regulations prevent capital contributions from a related party which ‘increases equity without repayment in return’. The aim of these regulations is to promote sustainable business models. Sanctions imposed by the regulator include fines and withholding of prize monies. Emcee wishes to know how to take account of the naming rights in the valuation of the stadium and the potential implications of the financial regulations imposed by the leagues. (7 marks)

Required:

Discuss how the above events would be shown in the financial statements of Emcee under International Financial Reporting Standards.

Note: The split of the mark allocation is shown against each of the three issues above.

Professional marks will be awarded in question 3 for clarity and quality of presentation. (2 marks)

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第2题

Section B – TWO questions ONLY to be attempted(a) Mehran, a public limited company, has ju

Section B – TWO questions ONLY to be attempted

(a) Mehran, a public limited company, has just acquired a company, which comprises a farming and mining business. Mehran wishes advice on how to fair value some of the assets acquired.

One such asset is a piece of land, which is currently used for farming. The fair value of the land if used for farming is $5 million. If the land is used for farming purposes, a tax credit currently arises annually, which is based upon the lower of 15% of the fair market value of land or $500,000 at the current tax rate. The current tax rate in the jurisdiction is 20%.

Mehran has determined that market participants would consider that the land could have an alternative use for residential purposes. The fair value of the land for residential purposes before associated costs is thought to be $7·4 million. In order to transform. the land from farming to residential use, there would be legal costs of $200,000, a viability analysis cost of $300,000 and costs of demolition of the farm buildings of $100,000. Additionally, permission for residential use has not been formally given by the legal authority and because of this, market participants have indicated that the fair value of the land, after the above costs, would be discounted by 20% because of the risk of not obtaining planning permission.

In addition, Mehran has acquired the brand name associated with the produce from the farm. Mehran has decided to discontinue the brand on the assumption that it will gain increased revenues from its own brands. Mehran has determined that if it ceases to use the brand, then the indirect benefits will be $20 million. If it continues to use the brand, then the direct benefit will be $17 million. (8 marks)

(b) Mehran wishes to fair value the inventory of the entity acquired. There are three different markets for the produce, which are mainly vegetables. The first is the local domestic market where Mehran can sell direct to retailers of the produce. The second domestic market is one where Mehran sells directly to manufacturers of canned vegetables. There are no restrictions on the sale of produce in either of the domestic markets other than the demand of the retailers and manufacturers. The final market is the export market but the government limits the amount of produce which can be exported. Mehran needs a licence from the government to export its produce. Farmers tend to sell all of the produce that they can in the export market and, when they do not have any further authorisation to export, they sell the remaining produce in the two domestic markets.

It is difficult to obtain information on the volume of trade in the domestic market where the produce is sold locally direct to retailers but Mehran feels that the market is at least as large as the domestic market – direct to manufacturers. The volumes of sales quoted below have been taken from trade journals.

(9 marks)

(c) Mehran owns a non-controlling equity interest in Erham, a private company, and wishes to fair value it as at its financial year end of 31 March 2016. Mehran acquired the ordinary share interest in Erham on 1 April 2014. During the current financial year, Erham has issued further equity capital through the issue of preferred shares to a venture capital fund.

As a result of the preferred share issue, the venture capital fund now holds a controlling interest in Erham. The terms of the preferred shares, including the voting rights, are similar to those of the ordinary shares, except that the preferred shares have a cumulative fixed dividend entitlement for a period of four years and the preferred shares rank ahead of the ordinary shares upon the liquidation of Erham. The transaction price for the preferred shares was $15 per share.

Mehran wishes to know the factors which should be taken into account in measuring the fair value of their holding in the ordinary shares of Erham at 31 March 2016 using a market-based approach. (6 marks)

Required:

Discuss the way in which Mehran should fair value the above assets with reference to the principles of IFRS 13 Fair Value Measurement.

Note: The mark allocation is shown against each of the three issues above.

Professional marks will be awarded in question 2 for clarity and quality of presentation. (2 marks)

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第3题

(a) The difference between debt and equity in an entity’s statement of financial position

is not easily distinguishable for preparers of financial statements. Some financial instruments may have both features, which can lead to inconsistency of reporting. The International Accounting Standards Board (IASB) has agreed that greater clarity may be required in its definitions of assets and liabilities for debt instruments. It is thought that defining the nature of liabilities would help the IASB’s thinking on the difference between financial instruments classified as equity and liabilities.

Required:

(i) Discuss the key classification differences between debt and equity under International Financial Reporting Standards.

Note: Examples should be given to illustrate your answer. (9 marks)

(ii) Explain why it is important for entities to understand the impact of the classification of a financial instrument as debt or equity in the financial statements. (5 marks)

(b) The directors of Avco, a public limited company, are reviewing the financial statements of two entities which are acquisition targets, Cavor and Lidan.They have asked for clarification on the treatment of the following financial instruments within the financial statements of the entities.

Cavor has two classes of shares: A and B shares. A shares are Cavor’s ordinary shares and are correctly classed as equity. B shares are not mandatorily redeemable shares but contain a call option allowing Cavor to repurchase them. Dividends are payable on the B shares if, and only if, dividends have been paid on the A ordinary shares. The terms of the B shares are such that dividends are payable at a rate equal to that of the A ordinary shares. Additionally, Cavor has also issued share options which give the counterparty rights to buy a fixed number of its B shares for a fixed amount of $10 million. The contract can be settled only by the issuance of shares for cash by Cavor.

Lidan has in issue two classes of shares: A shares and B shares. A shares are correctly classified as equity. Two million B shares of nominal value of $1 each are in issue. The B shares are redeemable in two years’ time at the option of Lidan. Lidan has a choice as to the method of redemption of the B shares. It may either redeem the B shares for cash at their nominal value or it may issue one million A shares in settlement. A shares are currently valued at $10 per share. The lowest price for Lidan’s A shares since its formation has been $5 per share.

Required:

Discuss whether the above arrangements regarding the B shares of each of Cavor and Lidan should be treated as liabilities or equity in the financial statements of the respective issuing companies. (9 marks)

Professional marks will be awarded in question 4 for clarity and quality of presentation. (2 marks)

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第4题

(a) Minco is a major property developer which buys land for the construction of housing. O

ne aspect of its business is to provide low-cost homes through the establishment of a separate entity, known as a housing association. Minco purchases land and transfers ownership to the housing association before construction starts. Minco sells rights to occupy the housing units to members of the public but the housing association is the legal owner of the building. The housing association enters into loan agreements with the bank to cover the costs of building the homes. However, Minco negotiates and acts as guarantor for the loan, and bears the risk of increases in the loan’s interest rate above a specified rate. Currently, the housing rights are normally all sold out on the completion of a project.

Minco enters into discussions with a housing contractor regarding the construction of the housing units but the agreement is between the housing association and the contractor. Minco is responsible for any construction costs in excess of the amount stated in the contract and is responsible for paying the maintenance costs for any units not sold. Minco sets up the board of the housing association, which comprises one person representing Minco and two independent board members.

Minco recognises income for the entire project when the land is transferred to the housing association. The income recognised is the difference between the total sales price for the finished housing units and the total estimated costs for construction of the units. Minco argues that the transfer of land represents a sale of goods which fulfils the revenue recognition criteria in IAS 18 Revenue. (7 marks)

(b) Minco often sponsors professional tennis players in an attempt to improve its brand image. At the moment, it has a three-year agreement with a tennis player who is currently ranked in the world’s top ten players. The agreement is that the player receives a signing bonus of $20,000 and earns an annual amount of $50,000, paid at the end of each year for three years, provided that the player has competed in all the specified tournaments for each year. If the player wins a major tournament, she receives a bonus of 20% of the prize money won at the tournament. In return, the player is required to wear advertising logos on tennis apparel, play a specified number of tournaments and attend photo/film sessions for advertising purposes. The different payments are not interrelated. (5 marks)

(c) Minco leased its head office during the current accounting period and the agreement terminates in six years’ time. There is a clause in the operating lease relating to the internal condition of the property at the termination of the lease. The clause states that the internal condition of the property should be identical to that at the outset of the lease. Minco has improved the building by adding another floor to part of the building during the current accounting period. There is also a clause which enables the landlord to recharge Minco for costs relating to the general disrepair of the building at the end of the lease. In addition, the landlord can recharge any costs of repairing the roof immediately. The landlord intends to replace part of the roof of the building during the current period. (5 marks)

(d) Minco acquired a property for $4 million and annual depreciation of $300,000 is charged on the straight line basis. At the end of the previous financial year of 31 May 2013, when accumulated depreciation was $1 million, a further amount relating to an impairment loss of $350,000 was recognised, which resulted in the property being valued at its estimated value in use. On 1 October 2013, as a consequence of a proposed move to new premises, the property was classified as held for sale. At the time of classification as held for sale, the fair value less costs to sell was $2·4 million. At the date of the published interim financial statements, 1 December 2013, the property market had improved and the fair value less costs to sell was reassessed at $2·52 million and at the year end on 31 May 2014 it had improved even further, so that the fair value less costs to sell was $2·95 million. The property was sold on 5 June 2014 for $3 million. (6 marks)

Required:

Discuss how the above items should be dealt with in the financial statements of Minco.

Note: The mark allocation is shown against each of the four issues above.

Professional marks will be awarded in question 3 for clarity and quality of presentation. (2 marks)

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第5题

Section B – TWO questions ONLY to be attemptedAspire, a public limited company, operates m

Section B – TWO questions ONLY to be attempted

Aspire, a public limited company, operates many of its activities overseas. The directors have asked for advice on the correct accounting treatment of several aspects of Aspire’s overseas operations. Aspire’s functional currency is the dollar.

(a) Aspire has created a new subsidiary, which is incorporated in the same country as Aspire. The subsidiary has issued 2 million dinars of equity capital to Aspire, which paid for these shares in dinars. The subsidiary has also raised 100,000 dinars of equity capital from external sources and has deposited the whole of the capital with a bank in an overseas country whose currency is the dinar. The capital is to be invested in dinar denominated bonds. The subsidiary has a small number of staff and its operating expenses, which are low, are incurred in dollars. The profits are under the control of Aspire. Any income from the investment is either passed on to Aspire in the form. of a dividend or reinvested under instruction from Aspire. The subsidiary does not make any decisions as to where to place the investments.

Aspire would like advice on how to determine the functional currency of the subsidiary. (7 marks)

(b) Aspire has a foreign branch which has the same functional currency as Aspire. The branch’s taxable profits are determined in dinars. On 1 May 2013, the branch acquired a property for 6 million dinars. The property had an expected useful life of 12 years with a zero residual value. The asset is written off for tax purposes over eight years. The tax rate in Aspire’s jurisdiction is 30% and in the branch’s jurisdiction is 20%. The foreign branch uses the cost model for valuing its property and measures the tax base at the exchange rate at the reporting date.

Aspire would like an explanation (including a calculation) as to why a deferred tax charge relating to the asset arises in the group financial statements for the year ended 30 April 2014 and the impact on the financial statements if the tax base had been translated at the historical rate. (6 marks)

(c) On 1 May 2013, Aspire purchased 70% of a multi-national group whose functional currency was the dinar. The purchase consideration was $200 million. At acquisition, the net assets at cost were 1,000 million dinars. The fair values of the net assets were 1,100 million dinars and the fair value of the non-controlling interest was 250 million dinars.

Aspire uses the full goodwill method. Aspire wishes to know how to deal with goodwill arising on the above acquisition in the group financial statements for the year ended 30 April 2014. (5 marks)

(d) Aspire took out a foreign currency loan of 5 million dinars at a fixed interest rate of 8% on 1 May 2013. The interest is paid at the end of each year. The loan will be repaid after two years on 30 April 2015. The interest rate is the current market rate for similar two-year fixed interest loans.

Aspire requires advice on how to account for the loan and interest in the financial statements for the year ended 30 April 2014. (5 marks)

Aspire has a financial statement year end of 30 April 2014 and the average currency exchange rate for the year is not materially different from the actual rate.

Required:

Advise the directors of Aspire on their various requests above, showing suitable calculations where necessary.

Note: The mark allocation is shown against each of the four issues above.

Professional marks will be awarded in question 2 for clarity and quality of presentation. (2 marks)

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第6题

Section A – THIS ONE question is compulsory and MUST be attemptedThe following draft finan

Section A – THIS ONE question is compulsory and MUST be attempted

The following draft financial statements relate to Marchant, a public limited company.

Marchant Group: Draft statements of profit or loss and other comprehensive income for the year ended 30 April 2014.

The following information is relevant to the preparation of the group statement of profit or loss and other comprehensive income:

1. On 1 May 2012, Marchant acquired 60% of the equity interests of Nathan, a public limited company. The purchase consideration comprised cash of $80 million and the fair value of the identifiable net assets acquired was $110 million at that date. The fair value of the non-controlling interest (NCI) in Nathan was $45 million on 1 May 2012. Marchant wishes to use the ‘full goodwill’ method for all acquisitions. The share capital and retained earnings of Nathan were $25 million and $65 million respectively and other components of equity were $6 million at the date of acquisition. The excess of the fair value of the identifiable net assets at acquisition is due to non-depreciable land.

Goodwill has been impairment tested annually and as at 30 April 2013 had reduced in value by 20%. However at 30 April 2014, the impairment of goodwill had reversed and goodwill was valued at $2 million above its original value. This upward change in value has already been included in above draft financial statements of Marchant prior to the preparation of the group accounts.

2. Marchant disposed of an 8% equity interest in Nathan on 30 April 2014 for a cash consideration of $18 million and had accounted for the gain or loss in other income. The carrying value of the net assets of Nathan at 30 April 2014 was $120 million before any adjustments on consolidation. Marchant accounts for investments in subsidiaries using IFRS 9 Financial Instruments and has made an election to show gains and losses in other comprehensive income. The carrying value of the investment in Nathan was $90 million at 30 April 2013 and $95 million at 30 April 2014 before the disposal of the equity interest.

3. Marchant acquired 60% of the equity interests of Option, a public limited company, on 30 April 2012. The purchase consideration was cash of $70 million. Option’s identifiable net assets were fair valued at $86 million and the NCI had a fair value of $28 million at that date. On 1 November 2013, Marchant disposed of a 40% equity interest in Option for a consideration of $50 million. Option’s identifiable net assets were $90 million and the value of the NCI was $34 million at the date of disposal. The remaining equity interest was fair valued at $40 million. After the disposal, Marchant exerts significant influence. Any increase in net assets since acquisition has been reported in profit or loss and the carrying value of the investment in Option had not changed since acquisition. Goodwill had been impairment tested and no impairment was required. No entries had been made in the financial statements of Marchant for this transaction other than for cash received.

4. Marchant sold inventory to Nathan for $12 million at fair value. Marchant made a loss on the transaction of $2 million and Nathan still holds $8 million in inventory at the year end.

5. The following information relates to Marchant’s pension scheme:

The pension costs have not been accounted for in total comprehensive income.

6. On 1 May 2012, Marchant purchased an item of property, plant and equipment for $12 million and this is being depreciated using the straight line basis over 10 years with a zero residual value. At 30 April 2013, the asset was revalued to $13 million but at 30 April 2014, the value of the asset had fallen to $7 million. Marchant uses the revaluation model to value its non-current assets. The effect of the revaluation at 30 April 2014 had not been taken into account in total comprehensive income but depreciation for the year had been charged.

7. On 1 May 2012, Marchant made an award of 8,000 share options to each of its seven directors. The condition attached to the award is that the directors must remain employed by Marchant for three years. The fair value of each option at the grant date was $100 and the fair value of each option at 30 April 2014 was $110. At 30 April 2013, it was estimated that three directors would leave before the end of three years. Due to an economic downturn, the estimate of directors who were going to leave was revised to one director at 30 April 2014. The expense for the year as regards the share options had not been included in profit or loss for the current year and no directors had left by 30 April 2014.

8. A loss on an effective cash flow hedge of Nathan of $3 million has been included in the subsidiary’s finance costs.

9. Ignore the taxation effects of the above adjustments unless specified. Any expense adjustments should be amended in other expenses.

Required:

(a) (i) Prepare a consolidated statement of profit or loss and other comprehensive income for the year ended 30 April 2014 for the Marchant Group. (30 marks)

(ii) Explain, with suitable calculations, how the sale of the 8% interest in Nathan should be dealt with in the group statement of financial position at 30 April 2014. (5 marks)

(b) The directors of Marchant have strong views on the usefulness of the financial statements after their move to International Financial Reporting Standards (IFRSs). They feel that IFRSs implement a fair value model. Nevertheless, they are of the opinion that IFRSs are failing users of financial statements as they do not reflect the financial value of an entity.

Required:

Discuss the directors’ views above as regards the use of fair value in IFRSs and the fact that IFRSs do not reflect the financial value of an entity. (9 marks)

(c) Marchant plans to update its production process and the directors feel that technology-led production is the only feasible way in which the company can remain competitive. Marchant operates from a leased property and the leasing arrangement was established in order to maximise taxation benefits. However, the financial statements have not shown a lease asset or liability to date.

A new financial controller joined Marchant just after the financial year end of 30 April 2014 and is presently reviewing the financial statements to prepare for the upcoming audit and to begin making a loan application to finance the new technology. The financial controller feels that the lease relating to both the land and buildings should be treated as a finance lease but the finance director disagrees. The finance director does not wish to recognise the lease in the statement of financial position and therefore wishes to continue to treat it as an operating lease. The finance director feels that the lease does not meet the criteria for a finance lease, and it was made clear by the finance director that showing the lease as a finance lease could jeopardise the loan application.

Required:

Discuss the ethical and professional issues which face the financial controller in the above situation. (6 marks)

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第7题

(a) The International Accounting Standards Board has recently completed a joint project wi

th the Financial Accounting Standards Board (FASB) on fair value measurement by issuing IFRS 13 Fair Value Measurement. IFRS 13 defines fair value, establishes a framework for measuring fair value and requires significant disclosures relating to fair value measurement.

The IASB wanted to enhance the guidance available for assessing fair value in order that users could better gauge the valuation techniques and inputs used to measure fair value. There are no new requirements as to when fair value accounting is required, but the IFRS gives guidance regarding fair value measurements in existing standards. Fair value measurements are categorised into a three-level hierarchy, based on the type of inputs to the valuation techniques used. However, the guidance in IFRS 13 does not apply to transactions dealt with by certain specific standards.

Required:

(i) Discuss the main principles of fair value measurement as set out in IFRS 13. (7 marks)

(ii) Describe the three-level hierarchy for fair value measurements used in IFRS 13. (6 marks)

(b) Jayach, a public limited company, is reviewing the fair valuation of certain assets and liabilities in light of the introduction of IFRS 13.

It carries an asset that is traded in different markets and is uncertain as to which valuation to use. The asset has to be valued at fair value under International Financial Reporting Standards. Jayach currently only buys and sells the asset in the Australasian market. The data relating to the asset are set out below:

Additionally, Jayach had acquired an entity on 30 November 2012 and is required to fair value a decommissioning liability. The entity has to decommission a mine at the end of its useful life, which is in three years’ time. Jayach has determined that it will use a valuation technique to measure the fair value of the liability. If Jayach were allowed to transfer the liability to another market participant, then the following data would be used.

Jayach needs advice on how to fair value the liability.

Required:

Discuss, with relevant computations, how Jayach should fair value the above asset and liability under IFRS 13. (10 marks)

Professional marks will be awarded in question 4 for the clarity and quality of the presentation and discussion. (2 marks)

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第8题

Blackcutt is a local government organisation whose financial statements are prepared using

International Financial Reporting Standards.

(a) Blackcutt wishes to create a credible investment property portfolio with a view to determining if any property may be considered surplus to the functional objectives and requirements of the local government organisation. The following portfolio of property is owned by Blackcutt.

Blackcutt owns several plots of land. Some of the land is owned by Blackcutt for capital appreciation and this may be sold at any time in the future. Other plots of land have no current purpose as Blackcutt has not determined whether it will use the land to provide services such as those provided by national parks or for short-term sale in the ordinary course of operations.

The local government organisation supplements its income by buying and selling property. The housing department regularly sells part of its housing inventory in the ordinary course of its operations as a result of changing demographics. Part of the inventory, which is not held for sale, is to provide housing to low-income employees at below market rental. The rent paid by employees covers the cost of maintenance of the property. (7 marks)

(b) Blackcutt has outsourced its waste collection to a private sector provider called Waste and Co and pays an annual amount to Waste and Co for its services. Waste and Co purchases the vehicles and uses them exclusively for Blackcutt’s waste collection. The vehicles are painted with the Blackcutt local government organisation name and colours. Blackcutt can use the vehicles and the vehicles are used for waste collection for nearly all of the asset’s life. In the event of Waste and Co’s business ceasing, Blackcutt can obtain legal title to the vehicles and carry on the waste collection service. (6 marks)

(c) Blackcutt owns a warehouse. Chemco has leased the warehouse from Blackcutt and is using it as a storage facility for chemicals. The national government has announced its intention to enact environmental legislation requiring property owners to accept liability for environmental pollution. As a result, Blackcutt has introduced a hazardous chemical policy and has begun to apply the policy to its properties. Blackcutt has had a report that the chemicals have contaminated the land surrounding the warehouse. Blackcutt has no recourse against Chemco or its insurance company for the clean-up costs of the pollution. At 30 November 2012, it is virtually certain that draft legislation requiring a clean up of land already contaminated will be enacted shortly after the year end. (4 marks)

(d) On 1 December 2006, Blackcutt opened a school at a cost of $5 million. The estimated useful life of the school was 25 years. On 30 November 2012, the school was closed because numbers using the school declined unexpectedly due to a population shift caused by the closure of a major employer in the area. The school is to be converted for use as a library, and there is no expectation that numbers using the school will increase in the future and thus the building will not be reopened for use as a school. The current replacement cost for a library of equivalent size to the school is $2·1 million. Because of the nature of the non-current asset, value-in-use and net selling price are unrealistic estimates of the value of the school. The change in use would have no effect on the estimated life of the building. (6 marks)

Required:

Discuss how the above events should be accounted for in the financial statements of Blackcutt.

Note: The mark allocation is shown against each of the four events above.

Professional marks will be awarded in question 3 for the clarity and quality of the presentation and discussion. (2 marks)

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第9题

Section B – TWO questions ONLY to be attempted (a) Coate, a public limited company, is a p

Section B – TWO questions ONLY to be attempted

(a) Coate, a public limited company, is a producer of ecologically friendly electrical power (green electricity). Coate’s revenue comprises mainly the sale of electricity and green certificates. Coate obtains green certificates under a national government scheme. Green certificates represent the environmental value of green electricity. The national government requires suppliers who do not produce green electricity to purchase a certain number of green certificates. Suppliers who do not produce green electricity can buy green certificates either on the market on which they are traded or directly from a producer such as Coate. The national government wishes to give incentives to producers such as Coate by allowing them to gain extra income in this way.

Coate obtains the certificates from the national government on satisfactory completion of an audit by an independent organisation, which confirms the origin of production. Coate then receives a certain number of green certificates from the national government depending on the volume of green electricity generated. The green certificates are allocated to Coate on a quarterly basis by the national government and Coate can trade the green certificates.

Coate is uncertain as to the accounting treatment of the green certificates in its financial statements for the period ended 30 November 2012 and how to treat the green certificates which were not sold at the end of the reporting period. (7 marks)

(b) During the year ended 30 November 2012, Coate acquired an overseas subsidiary whose financial statements are prepared in a different currency to Coate. The amounts reported in the consolidated statement of cash flows included the effect of changes in foreign exchange rates arising on the retranslation of its overseas operations. Additionally, the group’s consolidated statement of cash flows reported as a loss the effect of foreign exchange rate changes on cash and cash equivalents as Coate held some foreign currency of its own denominated in cash. (5 marks)

Under the shareholder agreement, consensus is required with respect to:

– significant changes in the company’s activities;

– plans or budgets that deviate from the business plan;

– accounting policies; acquisition of assets above a certain value; employment or dismissal of senior employees; distribution of dividends or establishment of loan facilities

Coate feels that the consensus required above does not constitute a hindrance to the power to control Patten, as it is customary within the industry to require shareholder consensus for decisions of the types listed in the shareholders’ agreement.

(d) In the notes to Coate’s financial statements for the year ended 30 November 2012, the tax expense included an amount in respect of ‘Adjustments to current tax in respect of prior years’ and this expense had been treated as a prior year adjustment. These items related to adjustments arising from tax audits by the authorities in relation to previous reporting periods.

The issues that resulted in the tax audit adjustment were not a breach of tax law but related predominantly to transfer pricing issues, for which there was a range of possible outcomes that were negotiated during 2012 with the taxation authorities. Further at 30 November 2011, Coate had accounted for all known issues arising from the audits to that date and the tax adjustment could not have been foreseen as at 30 November 2011, as the audit authorities changed the scope of the audit. No penalties were expected to be applied by the taxation authorities.

Required:

Discuss how the above events should be accounted for in the individual or, as appropriate, the consolidated financial statements of Coate.

Note: The mark allocation is shown against each of the four events above.

Professional marks will be awarded in question 2 for the clarity and quality of the presentation and discussion. (2 marks)

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第10题

Section A – THIS ONE question is compulsory and MUST be attemptedMinny is a company which

Section A – THIS ONE question is compulsory and MUST be attempted

Minny is a company which operates in the service sector. Minny has business relationships with Bower and Heeny. All three entities are public limited companies. The draft statements of financial position of these entities are as follows at 30 November 2012:

The following information is relevant to the preparation of the group financial statements:

1. On 1 December 2010, Minny acquired 70% of the equity interests of Bower. The purchase consideration comprised cash of $730 million. At acquisition, the fair value of the non-controlling interest in Bower was $295 million. On 1 December 2010, the fair value of the identifiable net assets acquired was $835 million and retained earnings of Bower were $319 million and other components of equity were $27 million. The excess in fair value is due to non-depreciable land.

2. On 1 December 2011, Bower acquired 80% of the equity interests of Heeny for a cash consideration of $320 million. The fair value of a 20% holding of the non-controlling interest was $72 million; a 30% holding was $108 million and a 44% holding was $161 million. At the date of acquisition, the identifiable net assets of Heeny had a fair value of $362 million, retained earnings were $106 million and other components of equity were $20 million. The excess in fair value is due to non-depreciable land.

It is the group’s policy to measure the non-controlling interest at fair value at the date of acquisition.

3. Both Bower and Heeny were impairment tested at 30 November 2012. The recoverable amounts of both cash generating units as stated in the individual financial statements at 30 November 2012 were Bower, $1,425 million, and Heeny, $604 million, respectively. The directors of Minny felt that any impairment of assets was due to the poor performance of the intangible assets. The recoverable amount has been determined without consideration of liabilities which all relate to the financing of operations.

4. Minny acquired a 14% interest in Puttin, a public limited company, on 1 December 2010 for a cash consideration of $18 million. The investment was accounted for under IFRS 9 Financial Instruments and was designated as at fair value through other comprehensive income. On 1 June 2012, Minny acquired an additional 16% interest in Puttin for a cash consideration of $27 million and achieved significant influence. The value of the original 14% investment on 1 June 2012 was $21 million. Puttin made profits after tax of $20 million and $30 million for the years to 30 November 2011 and 30 November 2012 respectively. On 30 November 2012, Minny received a dividend from Puttin of $2 million, which has been credited to other components of equity

5. Minny purchased patents of $10 million to use in a project to develop new products on 1 December 2011. Minny has completed the investigative phase of the project, incurring an additional cost of $7 million and has determined that the product can be developed profitably. An effective and working prototype was created at a cost of $4 million and in order to put the product into a condition for sale, a further $3 million was spent. Finally, marketing costs of $2 million were incurred. All of the above costs are included in the intangible assets of Minny.

6. Minny intends to dispose of a major line of the parent’s business operations. At the date the held for sale criteria were met, the carrying amount of the assets and liabilities comprising the line of business were:

It is anticipated that Minny will realise $30 million for the business. No adjustments have been made in the financial statements in relation to the above decision.

Required:

(a) Prepare the consolidated statement of financial position for the Minny Group as at 30 November 2012. (35 marks)

(b) Minny intends to dispose of a major line of business in the above scenario and the entity has stated that the held for sale criteria were met under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. The criteria in IFRS 5 are very strict and regulators have been known to question entities on the application of the standard. The two criteria which must be met before an asset or disposal group will be defined as recovered principally through sale are: that it must be available for immediate sale in its present condition and the sale must be highly probable.

Required:

Discuss what is meant in IFRS 5 by ‘available for immediate sale in its present condition’ and ‘the sale must be highly probable’, setting out briefly why regulators may question entities on the application of the standard. (7 marks)

(c) Bower has a property which has a carrying value of $2 million at 30 November 2012. This property had been revalued at the year end and a revaluation surplus of $400,000 had been recorded in other components of equity. The directors were intending to sell the property to Minny for $1 million shortly after the year end. Bower previously used the historical cost basis for valuing property.

Required: Without adjusting your answer to part (a), discuss the ethical and accounting implications of the above intended sale of assets to Minny by Bower. (8 marks)

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