company applies newly issued IFRSs at the earliest opportunity. The group comprises three companies, Ashlee, the
holding company, and its 100% owned subsidiaries Pilot and Gibson, both public limited companies. The group
financial statements at first appeared to indicate that the group was solvent and in a good financial position. However,
after the year end, but prior to the approval of the financial statements mistakes have been found which affect the
financial position of the group to the extent that loan covenant agreements have been breached.
As a result the loan creditors require Ashlee to cut its costs, reduce its operations and reorganise its activities.
Therefore, redundancies are planned and the subsidiary, Pilot, is to be reorganised. The carrying value of Pilot’s net
assets, including allocated goodwill, was $85 million at 31 March 2005, before taking account of reorganisation
costs. The directors of Ashlee wish to include $4 million of reorganisation costs in the financial statements of Pilot for
the year ended 31 March 2005. The directors of Ashlee have prepared cash flow projections which indicate that the
net present value of future net cash flows from Pilot is expected to be $84 million if the reorganisation takes place
and $82 million if the reorganisation does not take place.
Ashlee had already decided prior to the year end to sell the other subsidiary, Gibson. Gibson will be sold after the
financial statements have been signed. The contract for the sale of Gibson was being negotiated at the time of the
preparation of the financial statements and it is expected that Gibson will be sold in June 2005.
The carrying amounts of Gibson and Pilot including allocated goodwill were as follows at the year end:
The fair value of the net assets of Gibson at the year end was $415 million and the estimated costs of selling the
company were $5 million.
Part of the business activity of Ashlee is to buy and sell property. The directors of Ashlee had signed a contract on
1 March 2005 to sell two of its development properties which are carried at the lower of cost and net realisable value
under IAS 2 ‘Inventories’. The sale was agreed at a figure of $40 million (carrying value $30 million). A receivable of
$40 million and profit of $10 million were recognised in the financial statements for the year ended 31 March 2005.
The sale of the properties was completed on 1 May 2005 when the legal title passed. The policy used in the prior
year was to recognise revenue when the sale of such properties had been completed.
Additionally, Ashlee had purchased, on 1 April 2004, 150,000 shares of a public limited company, Race, at a price
of $20 per share. Ashlee had incurred transaction costs of $100,000 to acquire the shares. The company is unsure
as to whether to classify this investment as ‘available for sale’ or ‘at fair value through profit and loss’ in the financial
statements for the year ended 31 March 2005. The quoted price of the shares at 31 March 2005 was $25 per share.
The shares purchased represent approximately 1% of the issued share capital of Race and are not classified as ‘held
for trading’.
There is no goodwill arising in the group financial statements other than that set out above.
Required:
Discuss the implications, with suitable computations, of the above events for the group financial statements of
Ashlee for the year ended 31 March 2005.
(25 marks)
第1题
es. The plan provides a
pension of 1% of the final salary for each year of service. The cost for the year is determined using the projected unit
credit method. This reflects service rendered to the dates of valuation of the plan and incorporates actuarial
assumptions primarily regarding discount rates, which are based on the market yields of high quality corporate bonds.
The expected average remaining working lives of employees is twelve years.
The directors have provided the following information about the defined benefit plan for the current year (year ended
31 October 2005):
(i) the actuarial cost of providing benefits in respect of employees’ service for the year to 31 October 2005 was
$40 million. This is the present value of the pension benefits earned by the employees in the year.
(ii) The pension benefits paid to former employees in the year were $42 million.
(iii) Savage should have paid contributions to the fund of $28 million. Because of cash flow problems $8 million of
this amount had not been paid at the financial year end of 31 October 2005.
(iv) The present value of the obligation to provide benefits to current and former employees was $3,000 million at
31 October 2004 and $3,375 million at 31 October 2005.
(v) The fair value of the plan assets was $2,900 million at 31 October 2004 and $3,170 million (including the
contributions owed by Savage) at 31 October 2005. The actuarial gains recognised at 31 October 2004 were
$336 million.
With effect from 1 November 2004, the company had amended the plan so that the employees were now provided
with an increased pension entitlement. The benefits became vested immediately and the actuaries computed that the
present value of the cost of these benefits at 1 November 2004 was $125 million. The discount rates and expected
第2题
n 1 April 2006. The
purchase consideration was one million ordinary shares of Leigh which had a market value of $2·50 per share
at that date and the fair value of the net assets of Handy was $9 million. The retained earnings of Handy were
$4 million and other reserves of Handy were $3 million at that date. Leigh appointed two directors to the Board
of Handy, and it intends to hold the investment for a significant period of time. Leigh exerts significant influence
over Handy. The summarised balance sheet of Handy at 31 May 2007 is as follows:
第3题
3 On 1 June 2005, Egin, a public limited company, was formed out of the re-organisation of a group of companies with
foreign operations. The directors require advice on the disclosure of related party information but are reluctant to
disclose information as they feel that such transactions are a normal feature of business and need not be disclosed.
Under the new group structure, Egin owns 80% of Briars, 60% of Doye, and 30% of Eye. Egin exercises significant
influence over Eye. The directors of Egin are also directors of Briars and Doye but only one director of Egin sits on the
management board of Eye. The management board of Eye comprises five directors. Originally the group comprised
five companies but the fifth company, Tang, which was a 70% subsidiary of Egin, was sold on 31 January 2006.
There were no transactions between Tang and the Egin Group during the year to 31 May 2006. 30% of the shares
of Egin are owned by another company, Atomic, which exerts significant influence over Egin. The remaining 40% ofthe shares of Doye are owned by Spade.
During the current financial year to 31 May 2006, Doye has sold a significant amount of plant and equipment to
Spade at the normal selling price for such items. The directors of Egin have proposed that where related party
relationships are determined and sales are at normal selling price, any disclosures will state that prices charged to
related parties are made on an arm’s length basis.
The directors are unsure how to treat certain transactions relating to their foreign subsidiary, Briars. Egin purchased
80% of the ordinary share capital of Briars on 1 June 2005 for 50 million euros when its net assets were fair valued
at 45 million euros. At 31 May 2006, it is established that goodwill is impaired by 3 million euros. Additionally, at
the date of acquisition, Egin had made an interest free loan to Briars of $10 million. The loan is to be repaid on
31 May 2007. An equivalent loan would normally carry an interest rate of 6% taking into account Briars’ credit rating.
The exchange rates were as follows:
Euros to $
1 June 2005 2
31 May 2006 2·5
Average rate for year 2·3
Financial liabilities of the Group are normally measured at amortised cost.
One of the directors of Briars who is not on the management board of Egin owns the whole of the share capital of a
company, Blue, that sells goods at market price to Briars. The director is in charge of the production at Briars and
also acts as a consultant to the management board of the group.
Required:
(a) (i) Discuss why it is important to disclose related party transactions, explaining the criteria which determine
a related party relationship. (5 marks)
(ii) Describe the nature of any related party relationships and transactions which exists:
– within the Egin Group including Tang (5 marks)
– between Spade and the Egin Group (3 marks)
– between Atomic and the Egin Group (3 marks)
commenting on whether transactions should be described as being at ‘arm’s length’.
第4题
are-based Payment’ on the
financial statements for the year ended 31 May 2005 as they wish to adopt the IFRS early. However, the directors of
Vident are unhappy about having to apply the standard and have put forward the following arguments as to why they
should not recognise an expense for share-based payments:
i. they feel that share options have no cost to their company and, therefore, there should be no expense charged
in the income statement.
ii. they do not feel that the expense arising from share options under IFRS2 actually meets the definition of an
expense under the ‘Framework’ document.
iii. the directors are worried about the dual impact of the IFRS on earnings per share, as an expense is shown in
the income statement and the impact of share options is recognised in the diluted earnings per share calculation.
iv. they feel that accounting for share-based payment may have an adverse effect on their company and may
discourage it from introducing new share option plans.
The following share option schemes were in existence at 31 May 2005:
The price of the company’s shares at 31 May 2005 is $12 per share and at 31 May 2004 was $12·50 per share.
The performance conditions which apply to the exercise of executive share options are as follows:
Performance Condition A
The share options do not vest if the growth in the company’s earnings per share (EpS) for the year is less than 4%.
The rate of growth of EpS was 4·5% (2003), 4·1% (2004), 4·2% (2005). The directors must still work for the
company on the vesting date.
Performance Condition B
The share options do not vest until the share price has increased from its value of $12·50 at the grant date (1 June
2004) to above $13·50. The director must still work for the company on the vesting date.
No directors have left the company since the issue of the share options and none are expected to leave before June
2007. The shares vest and can be exercised on the first day of the due month.
The directors are unsure as to whether the share options granted to Van Heflin on 1 June 2002 should be accounted
for using IFRS2 as they were granted prior to the publication of the original Exposure Draft (7 November 2002).
Additionally the directors are also uncertain about the deferred tax implications of adopting IFRS2. Vident operates in
a country where a tax allowance will not arise until the options are exercised and the tax allowance will be based on
the option’s intrinsic value at the exercise date.
Assume a tax rate of 30%.
Required:
Draft a report to the directors of Vident setting out:
(a) the reasons why share-based payments should be recognised in financial statements and why the directors’
arguments are unacceptable; (9 marks)
第5题
ign supplier on 30 June
2007. The purchase price is 4 million euros. A non-refundable deposit of 1 million euros was paid on signing
the contract on 31 July 2006 with the balance of 3 million euros payable on 30 June 2007. Misson was
uncertain as to whether to purchase a 3 million euro bond on 31 July 2006 which will not mature until 30 June
2010, or to enter into a forward contract on the same date to purchase 3 million euros for a fixed price of
$2 million on 30 June 2007 and to designate the forward contract as a cash flow hedge of the purchase
commitment. The bond carries interest at 4% per annum payable on 30 June 2007. Current market rates are
4% per annum. The company chose to purchase the bond with a view to selling it on 30 June 2007 in order
to purchase the plant and equipment. The bond is not to be classified as a cash flow hedge but at fair value
through profit or loss.
Misson would like advice as to whether it made the correct decision and as to the accounting treatment of the
items in (c) above for the current and subsequent year. (10 marks)
第6题
ds (IFRS) in its financial
statements for the year ended 31 May 2005. The directors of the company are worried about the effect of the move
to IFRS on their financial performance and the views of analysts. The directors have highlighted some ‘headline’
differences between IFRS and their current local equivalent standards and require a report on the impact of a move
to IFRS on the key financial ratios for the current period.
Differences between local Generally Accepted Accounting Practice (GAAP) and IFRS
Leases
Local GAAP does not require property leases to be separated into land and building components. Long-term property
leases are accounted for as operating leases in the financial statements of Handrew under local GAAP. Under the terms
of the contract, the title to the land does not pass to Handrew but the title to the building passes to the company.
The company has produced a schedule of future minimum operating lease rentals and allocated these rentals between
land and buildings based on their relative fair value at the start of the lease period. The operating leases commenced
on 1 June 2004 when the value of the land was $270 million and the building was $90 million. Annual operating
lease rentals paid in arrears commencing on 31 May 2005 are land $30 million and buildings $10 million. These
amounts are payable for the first five years of the lease term after which the payments diminish. The minimum lease
term is 40 years.
The net present value of the future minimum operating lease payments as at 1 June 2004 was land $198 million
and buildings $86 million. The interest rate used for discounting cash flows is 6%. Buildings are depreciated on a
straight line basis over 20 years and at the end of this period, the building’s economic life will be over. The lessee
intends to redevelop the land at some stage in the future. Assume that the tax allowances on buildings are given to
the lessee on the same basis as the depreciation charge based on the net present value at the start of the lease, and
that operating lease payments are fully allowable for taxation.
Plant and equipment
Local GAAP requires the residual value of a non-current asset to be determined at the date of acquisition or latest
valuation. The residual value of much of the plant and equipment is deemed to be negligible. However, certain plant
(cost $20 million and carrying value $16 million at 31 May 2005) has a high residual value. At the time of
purchasing this plant (June 2003), the residual value was thought to be approximately $4 million. However the value
of an item of an identical piece of plant already of the age and in the condition expected at the end of its useful life
is $8 million at 31 May 2005 ($11 million at 1 June 2004). Plant is depreciated on a straight line basis over
eight years.
Investment properties
Local GAAP requires investment property to be measured at market value and gains and losses reported in equity.
The company owns a hotel which consists of land and buildings and it has been designated as an investment
property. The property was purchased on 1 June 2004. The hotel has been included in the balance sheet at 31 May
2005 at its market value on an existing use basis at $40 million (land valuation $30 million, building $10 million).
A revaluation gain of $5 million has been recognised in equity. The company could sell the land for redevelopment
for $50 million although it has no intention of doing so at the present time. The company wants to recognise holding
gains/losses in profit and loss. Local GAAP does not require deferred tax to be provided on revaluation gains and
losses.
The directors have calculated the following ratios based on the local GAAP financial statements for the year ended
The issued share capital of Handrew is 200 million ordinary shares of $1. There is no preference capital. The interest
charge and tax charge in the income statement are $5 million and $25 million respectively. Interest and rental
payments attract tax allowances in this jurisdiction when paid. Assume taxation is 30%.
Required:
Write a report to the directors of Handrew:
(a) Discussing the impact of the change to IFRS on the reported profit and balance sheet of Handrew at 31 May
2005. (18 marks)
(b) Calculate and briefly discuss the impact of the change to IFRS on the three performance ratios. (7 marks)
(Candidates should show in an appendix calculations of the impact of the move to IFRS on profits, taxation and
the balance sheet. Candidates should not take into account IFRS1 ‘First time Adoption of International Financial
Reporting Standards’ when answering this question.)
(25 marks)
第7题
year end of 31 May 2006.
The company sells its products in department stores throughout the world. Prochain insists on creating its own selling
areas within the department stores which are called ‘model areas’. Prochain is allocated space in the department store
where it can display and market its fashion goods. The company feels that this helps to promote its merchandise.
Prochain pays for all the costs of the ‘model areas’ including design, decoration and construction costs. The areas are
used for approximately two years after which the company has to dismantle the ‘model areas’. The costs of
dismantling the ‘model areas’ are normally 20% of the original construction cost and the elements of the area are
worthless when dismantled. The current accounting practice followed by Prochain is to charge the full cost of the
‘model areas’ against profit or loss in the year when the area is dismantled. The accumulated cost of the ‘model areas’
shown in the balance sheet at 31 May 2006 is $20 million. The company has estimated that the average age of the
‘model areas’ is eight months at 31 May 2006. (7 marks)
Prochain acquired 100% of a sports goods and clothing manufacturer, Badex, a private limited company, on 1 June
2005. Prochain intends to develop its own brand of sports clothing which it will sell in the department stores. The
shareholders of Badex valued the company at $125 million based upon profit forecasts which assumed significant
growth in the demand for the ‘Badex’ brand name. Prochain had taken a more conservative view of the value of the
company and estimated the fair value to be in the region of $108 million to $112 million of which
$20 million relates to the brand name ‘Badex’. Prochain is only prepared to pay the full purchase price if profits from
the sale of ‘Badex’ clothing and sports goods reach the forecast levels. The agreed purchase price was $100 million
plus a further payment of $25 million in two years on 31 May 2007. This further payment will comprise a guaranteed
payment of $10 million with no performance conditions and a further payment of $15 million if the actual profits
during this two year period from the sale of Badex clothing and goods exceed the forecast profit. The forecast profit
on Badex goods and clothing over the two year period is $16 million and the actual profits in the year to 31 May
2006 were $4 million. Prochain did not feel at any time since acquisition that the actual profits would meet the
forecast profit levels. (8 marks)
After the acquisition of Badex, Prochain started developing its own sports clothing brand ‘Pro’. The expenditure in theperiod to 31 May 2006 was as follows:
The costs of the production and launch of the products include the cost of upgrading the existing machinery
($3 million), market research costs ($2 million) and staff training costs ($1 million).
Currently an intangible asset of $20 million is shown in the financial statements for the year ended 31 May 2006.
(6 marks)
Prochain owns a number of prestigious apartments which it leases to famous persons who are under a contract of
employment to promote its fashion clothing. The apartments are let at below the market rate. The lease terms are
short and are normally for six months. The leases terminate when the contracts for promoting the clothing terminate.
Prochain wishes to account for the apartments as investment properties with the difference between the market rate
and actual rental charged to be recognised as an employee benefit expense. (4 marks)
Assume a discount rate of 5·5% where necessary.
Required:
Discuss how the above items should be dealt with in the financial statements of Prochain for the year ended
31 May 2006 under International Financial Reporting Standards.
(25 marks)
第8题
on the building industry.
The company would like advice on how to treat certain items under IAS19, ‘Employee Benefits’ and IAS37 ‘Provisions,
Contingent Liabilities and Contingent Assets’. The company operates the Macaljoy (2006) Pension Plan which
commenced on 1 November 2006 and the Macaljoy (1990) Pension Plan, which was closed to new entrants from
31 October 2006, but which was open to future service accrual for the employees already in the scheme. The assets
of the schemes are held separately from those of the company in funds under the control of trustees. The following
information relates to the two schemes:
Macaljoy (1990) Pension Plan
The terms of the plan are as follows:
(i) employees contribute 6% of their salaries to the plan
(ii) Macaljoy contributes, currently, the same amount to the plan for the benefit of the employees
(iii) On retirement, employees are guaranteed a pension which is based upon the number of years service with the
company and their final salary
The following details relate to the plan in the year to 31 October 2007:
Warranties
Additionally the company manufactures and sells building equipment on which it gives a standard one year warranty
to all customers. The company has extended the warranty to two years for certain major customers and has insured
against the cost of the second year of the warranty. The warranty has been extended at nil cost to the customer. The
claims made under the extended warranty are made in the first instance against Macaljoy and then Macaljoy in turn
makes a counter claim against the insurance company. Past experience has shown that 80% of the building
equipment will not be subject to warranty claims in the first year, 15% will have minor defects and 5% will require
major repair. Macaljoy estimates that in the second year of the warranty, 20% of the items sold will have minor defects
and 10% will require major repair.
第9题
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)
第10题
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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