IFRS 17 Module 7 - Revision Pack V3 30-06-2012

DiplomainIFRS(June2012)

RevisionPack

PageQ1GlenapplePlc ............................................................................... 3Q2McDowellLtd ............................................................................... 8 GlenOaksChemist ..................................................................... 9Q3GatesPlc ..................................................................................... 10

TimberLodgeLtd ......................................................................... 10

(Question1to3takenfromCharteredAccountantsIrelandSampleexampaper1issuedSeptember2011)Q4RainbowLtd .................................................................................. 14Q5GPLtd........................................................................................... 16FlintstoneLtd ................................................................................ 17Q6Equityandliabilities...................................................................... 18YoungLifeLtd................................................................................ 18(Question4to6takenfromCharteredAccountantsIrelandSampleexampaper2issuedFeb2012)Q7TrafalgarPlc .................................................................................. 19Q8Patchet........................................................................................... 21(Question7to8takenfromICEAWwebsiteDiplomainIFRSFebruary2012exam)Q9Delta............................................................................................. 23Q10Rose ............................................................................................. 25Q11Alpha(1) ...................................................................................... 27Q12Alpha(2) ..................................................................................... 29Q13Jocatt ........................................................................................... 32(Question9to13takenfromACCADiplomainIFRSpastexampapers)Samplequestions/exampapers,otherthanthosepublishedbyCharteredAccountantsIrelandandexpresslyreferredtoassamplepapersprovidedfortheDiplomainIFRSs,shouldonlybeusedforrevisionpurposes,totestyourcomprehensionofaspecificelementofthecourse,i.e.aspecificStandard.ParticipantsshouldonlyusetheseinconjunctionwiththeCharteredAccountantsIrelandsamples.Thesesamplepapersshouldbeusedasthecorecomplementarymaterialtoaidyourstudyandrevisioninadvanceofthefinalexaminationandastoolstofamiliariseyourselfwiththelayoutofthefinalexaminationandtoperfectaspectsofexamtiming.

Chartered Accountants Ireland Diploma in IFRS

Exam 1 - Pilot

Day / Date / Time: XXXXXXX, Y:00 p.m. G.M.T GAV IS THIS NEEDED FOR

PILOT?

There are 3 questions, all of which are compulsory.

An exam total of 100 marks are allocated across the 3 questions.

The examination duration is 2 hours and 30 minutes; of which the first 30 minutes is designated reading time. Candidates are not permitted to write in their answer booklets until the designated reading time is completed.

Wherever possible and appropriate, arguments should be supported by reference to appropriate accounting standards.

There is a 5 minute allowance at the conclusion of the examination to enable candidates to tidy his / her answer book including ensuring that the examination number and number of questions answered have been correctly completed.

Only answers written into the official Chartered Accountants Ireland Examination booklet will be accepted.

Please submit and reference all workings.

3

Chartered Accountants Ireland DIPLOMA IN IFRS 2011 Course Exam: QUESTIONS

Question 1

Glen-apple plc

Consolidated Statement of Comprehensive Income for the year ended 30 June 2011

Revenue 12,000

Cost of sales (3,200)

Operating expenses (2,800)

Income from associate 2,050

Finance costs (1,700)

Profit before tax 6,350

Tax (1,905)

Profit after tax 4,445

Other comprehensive income

Gains on property revaluation 2,050

Total Comprehensive Income 6,495

Glen-apple plc

Consolidated Statement of Financial Position as at 30 June 2011 and 2010

2011 2010

Assets

Non-current assets

Investment in associate 13,500 12,000

Property 15,000 12,810

Plant and machinery 14,720 3,000

Total non-current assets 43,220 27,810

Current assets

Inventory 12,400 15,500

Trade receivables 21,600 20,800

Total current assets 34,000 36,300

Total assets 77,220 64,110

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Liabilities

Non-current liabilities

Provision for site restoration 20,700 13,700

Finance lease liabilities 10,200 9,900

Total non-current liabilities 30,900 23,600

Current liabilities

Trade payables 1,200 1,910

Bank overdraft 1,350 2,170

Provision for legal claims 3,450 2,560

Overtime payable 1,600 1,280

Finance lease liabilities 2,600 2,000

Total current liabilities 10,200 9,920

Total liabilities 41,100 33,520

Net assets 36,120 30,590

Equity

Equity 5,100 2,550

Revaluation reserve 4,000 2,000

Retained earnings 27,020 26,040

Net equity 36,120 30,590

Notes

(1) Property has a remaining useful life at 1 July 2010 of 40 years. Glen-apple plc accounting policy elects the optional annual transfer of the revaluation reserve. Total depreciation for the year was 900.

(2) On the last day of the financial year, the company signed two leases outlined below. No other leases were entered into in the current financial year.

Lease A Lease A is to rent a black and white photocopier, and the present value of the rental payments are 16,000. The rent is charged based on a monthly fixed fee of three cents per copy. The copier was delivered on the last day of the year and no payments have been made to date. Lease B Lease B is to rent a colour photocopier, and the present value of the rental payments are 6,000. The rent is charged based on a monthly fixed fee of 180. The lessor granted a

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concession and structured the payments so that they start in the 15th month after the asset has been delivered. Exactly 75% of the rental fee is to cover the usage of the equipment. The supplier is obligated under this contract to maintain the asset, and if the entity were to enter into a contract of this type independently, this would be expected to be approximately 25% of the contract value. The copier was delivered on the last day of the year and no payments have been made to date. The purchase price of a new copier would have been 4,700.

(3) On 15 April 2011 the bonus issue of equity shares of one share for every five shares held was and this was issued from retained earnings. There was also an issue of shares for cash during the year on 1 May 2011.

(4) The secretary that typed up this report misplaced the amount that was paid for dividends and as she was in a hurry to leave for vacation, asked you to work it out from the information provided.

(5) During the year, Glen-apple plc purchased 100% of Pear Co for 2,000. The financial statements are consolidated and include the year end balances as per IFRS. At the date of acquisition, the fair value of the assets and liabilities of Pear Co were as follows:

Cash 1,000

Receivables 2,000

Machinery 1,000

Payables 2,000

(6) During the year, it was uncovered that the warehouse supervisor stole 2,000 in the prior year. The current year and prior years inventory was falsified with empty boxes during the stock count. The supervisor has left the country shortly after she was caught, and it is unlikely that the amount is now recoverable. This theft has not been adjusted for in the financial information presented.

(7) Machinery to the value of 4,000 was purchased with proceeds from a government grant. The Machinery was not recorded in the statement of position as it had a cost of nil to the company.

(8) The movement in site restoration relates only to plant acquired in the current year.

Required: Prepare the consolidated statement of cash flow for Glen-apple plc using the indirect method for the year ended 30 June 2011 and the consolidated statement of changes in equity for Glen-apple plc.

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(Notes to the statements are not required.)

[50 Marks]

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Question 2 (comprises both a Part A and Part B) Part A: McDowell Ltd. McDowell Ltd. acquired an 80% equity interest in Penny Mart Ltd. on 1 January 2010. At the date of acquisition, the following financial information is relevant:

the consideration was 45 million cash.

the fair value of the identifiable assets and liabilities were 35 million (excluding deferred tax).

the only difference between the carrying value and the fair value of identifiable assets and liabilities is related to inventory where the fair value was larger than the carrying value by 3 million. The inventory was sold to a third party in the normal course of operations six months after the acquisition date by McDowell.

On 15 July 2011, the recoverable amount of Penny Mart was determined to be 30 million. At that date the carrying value of Penny Mart was 35 million. In the tax jurisdiction of Penny Mart, the corporate tax rate is 33% and in the tax jurisdiction of McDowell, the corporate tax rate is 40%. The policy of McDowell is to value the NCI at the fair value of the identifiable assets. Required: a) Calculate the goodwill recorded in the group accounts for McDowell as at 1 January

2010. [6 marks]

b) Explain the impact of the inventory fair value difference for the 2010 financial year. [4 Marks]

c) Calculate the impairment loss on goodwill in 2011, and allocate the impairment loss between the parent and the non controlling interest.

[5 Marks]

Total Marks: 15

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Part B: Glen Oaks Chemist Ltd. Glen Oaks Chemist Ltd. is a pharmacy located in a small industrial town primarily serving the pharmaceutical requirements of the employees of two main companies in the town. One of these companies, operating in the shipbuilding industry, has recently significantly reduced its workforce, this being an impairment indicator under IAS 36. The impairment event occurred on 30 June 2011. The business in its entirety is considered one cash generating unit. After an impairment review, the value in use of Glen Oaks was estimated at 10,000, and the net selling prices (after selling costs) are listed below:

Carrying value

As at 30 June 2011

Net selling

Price

Inventory 5,000 3,000

Delivery vehicle 7,000 5,000

Computers 3,000 1,300

Leasehold improvements 10,000 0

25,000 9,300

Notes: (1) The selling price of the inventory is how much Mr. Murphy (he owns a pharmacy in a

neighbouring town) would purchase the inventory. If Glen Oaks operations continue, these products would be sold to retail customers at 6,000, and the selling costs are approximately 2,000.

(2) If the assets are sold, the leasehold improvements would have a value of nil. Required: Calculate the amount that the assets of Glen Oaks Chemist Ltd. should be recorded at in the statement of financial position at 30 June 2011.

[15 Marks]

Total Marks Part A and B: 30

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Question 3 Gates plc Gates plc hired a new accountant on 15 October 2010. After the new accountant conducted a review in November 2010, it was noted from a review of email correspondence that the previous accountant (a relatively new and experienced) was considering whether to make a provision for environmental damage caused during the construction of an ocean based oil rig. No provision was made in the statement of financial position as at 30 June 2010 for environmental damage. Required: Discuss the facts and circumstances that would indicate whether the adjustment for the environmental damage is a change in accounting estimate or an accounting error. Your answer should outline the determining factors that should be reviewed to determine the correct classification of whether it is a change in estimate or an accounting error.

[10 Marks] Part B: Timber Lodge Ltd. Timber Lodge Ltd. is a luxury five star resort. The resort was recently inspected by the National Park Services, and Timber Lodge was notified that 325 trees were infected with Virus J. Virus J kills a tree within a matter of months by destroying the root system; as the trees are then not stable, they may fall at any time and thereby endanger life. Therefore, national park regulations require that trees infected with Virus J be cut down within 180 days of notification by the national park. If the trees are not cut down by Timber Lodge, the national park will cut down the trees at a cost of 1,000 per tree. If Timber Lodge cuts down the trees themselves, through securing the assistance of university students during their summer holiday period, they estimate a cost of 500 per tree for such felling. The notification from the national park was received on 15 May 2011. Timber Lodges financial year end is 30 June. As of 30 June 2011, the trees were not removed and no contract was signed for their removal. Required: Explain, based on IAS 37, the obligating event triggering the liability for the removal of trees and the related accounting treatment in the financial statements for the year ending 30 June 2011.

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[10 Marks] Total Marks Part A and B: 20

END OF EXAMINATION 11

Chartered Accountants Ireland 2012.

Whilst every effort is made to ensure all the information contained in this document is correct at date of

publication, Chartered Accountants Ireland reserves the right to amend any information herein contained at its

discretion and without prior notice.

Chartered Accountants Ireland

Diploma in International Financial Reporting

Standards

Sample Paper 2

There are 3 questions, all of which are compulsory.

An exam total of 100 marks are allocated across the 3 questions.

This is an open-book examination; the duration is 2 hours and 30 minutes of which the first 30 minutes is designated reading time. Candidates are not permitted to write in

their answer booklets until the reading time has elapsed.

Wherever possible and appropriate, arguments should be supported by reference to appropriate accounting standards.

Candidates should take care to ensure that the information on the cover of the answer booklet accurately reflects the questions which have been attempted. The examiner will

mark the answer book on that assumption.

There is a 5 minute allowance at the conclusion of the examination to enable candidates to tidy his / her answer book including ensuring that the examination number and

number of questions answered have been correctly completed.

Only answers written into the official Chartered Accountants Ireland Examination booklet will be accepted.

Please submit and reference all workings.

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Question 1

Rainbow Ltd.

The following trial balance is for Rainbow Ltd. at 30 June 2011:

Revenue 1,468,000

Purchases 550,000

Other expenses 350,000

Interest expense 5,000

Tax expense 10,000

Dividend income Beares plc. 1,200 Investment in Beares plc. (note iv) 150,000

Land at cost (note ii) 20,000 Building- at cost (note ii) 80,000

Plant and equipment cost 100,000 Depreciation 1 July 2010 - Plant and equipment 29,250

Depreciation 1 July 2010 - Building 8,000

Trade receivables 45,000

Inventory 1 July 2010 (note i) 30,000 Bank 4,500

Trade payables 24,500

Deferred tax liability opening balance (note v) 25,000

Share capital 21,000

Share premium 9,000

Retained earnings 1 July 2010 241,450

The following notes are relevant:

(i) The inventory at 30 June 2011 was measured at a cost value of 85,000. This includes

5,000 of slow moving inventory that is expected to be sold for a net 3,000.

(ii) On 1 July 2010 Rainbow Ltd. revalued its land to 25,000 and its buildings to 105,000.

The building had an estimated life of 40 years as at 1 July 2006. Depreciation is charged

on a straight-line basis. The company elects for the optional transfer of the revaluation

reserve.

Plant and equipment is depreciated at 20% per annum on the diminishing balance basis

and the current year depreciation has not yet been provided for.

(iii) Rainbow Ltd. introduced a share incentive scheme on 1 January 2010. To date, no

adjustments have been recorded as the finance director is of the opinion that the

triggering event to record this will be when the share options are exercised. The terms of

the scheme granted 100,000 options and those options may be exercised on 1 January

2013. At the grant date, 90% of the options are expected to vest, and this was revised to

85% on 30 June 2010 and then to 80% on 30 June 2011.

The fair values of the options were as follows:

1 January 2010 4 30 June 2010 6 30 June 2011 9

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(iv) In the trial balance, the investment in Beares plc. represents an equity interest of 15%.

Rainbow Ltd. is considered a strategic investor for Beares plc. as Rainbow Ltd. has a

wealth of experience in new technologies that Beares plc. is significantly investing in.

Two members of Rainbow Ltd.s key management were elected to the board of directors

of Beares plc. Beares plc. had a profit for the year of 25,000, and other comprehensive

income of 3,000 due to a revaluation of its Buildings net of deferred tax. Beares plc. has

a 30 June year end.

On 15 May 2011, Rainbow Ltd. sold a large quantity of merchandise to Beares plc. and

this resulted in a profit in Rainbow Ltd. of 40,000. On 30 June 2011, the inventory was

in the warehouse of Beares plc. and was not yet sold to third party customers.

(v) The corporate tax rate is 20% and the deferred tax liability at the end of the year is

30,000 after all adjustments have been made.

Required:

In accordance with IFRS, as far as the information permits, prepare the statement of

comprehensive income and the statement of financial position for the year ended 30 June

2011. (Notes to the statements are not required.) Please show all workings clearly.

[50 Marks]

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Question 2 (comprises both Part A and Part B)

Part A: GP Ltd.

GP Ltd. has the following information to assist in the preparation of the deferred tax

computation for the 2011 financial year.

(1) Investment properties increased by 2,500 during the year and GP Ltd. has adopted IAS

40 where investment properties are reflected at their current value in the financial

statements. Gains on investment properties are taxable when the property is sold.

(2) On a review of the tax computation it was noted that the current tax liability was

underprovided by 500.

(3) During the year, property, plant and equipment were revalued upwards by 3,000. The

tax capital allowance during the year was 2,500 and depreciation under IFRS was

4,000.

The current years tax expense is 4,500 before taking into account any of the adjustments

above and the corporate tax rate is 20%.

The opening balance of deferred tax was a net liability of 1,200.

Required:

Prepare the extracts of the tax expense to show how it is disclosed in the statement of

comprehensive income and statement of financial position for the 2011 financial year in

accordance with IFRS. In the extracts show only the impact of the tax.

[15 Marks]

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Part B: Flintstone Ltd.

Flintstone Ltd. is constructing an office block in Ballsbridge on behalf of a third party. The

contract will take five years to complete, and the contract, which commenced in 2010, is now

in the second year.

Flintstone Ltd.s accounting policy for measuring stage of completion is to use the work

certified method. As at 31 December 2010, work certified was 25% and at 31 December

2011, work certified was 50%.

The Directors ascertain that the outcome of a contract can be estimated reliably once it is

20% complete.

The total contract is a fixed price of 10 million.

In 2010, total costs were estimated at 8 million, of which 3 million were incurred.

In 2011, total costs were estimated to be 7 million; of which costs incurred were 5 million.

Required:

Prepare the statement of financial position and the statement of comprehensive income

extracts for the contract for 2010 and 2011.

[15 Marks]


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Question 3 (comprises both Part A and Part B)

Part A:

IAS specially states that redeemable preferred shares are liabilities and non-redeemable

preferred shares are equity.

Required:

Discuss and justify if the accounting treatment prescribed is consistent with the definition of

equity and liabilities in the conceptual framework.

[10 Marks]

Part B: Young Life Ltd.

Young Life Ltd. has completed the research into enabling technology that automatically

matches photos with a large global database of names. After the research phase was

completed, and the technology was developed to achieve this objective, Young Life Ltd. is

now in the development phase of a number of products for commercial application.

Required:

Under IAS 38, discuss and explain (not merely listing the requirements of the standard), the

supporting evidence and documentation that would be reasonably expected to justify the

capitalisation of costs during the development phase.

[10 Marks]


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1 Trafalgar is a public limited company reporting under IFRSs. The trial balance of Trafalgar extracted from the company's general ledger as at 31 December 2011 showed the following balances

$'000 $'000 DR CR

Land 170,000 Buildings revalued 260,000 Buildings accumulated depreciation at 1 January 2011 10,400 Plant and equipment cost 120,000 Plant and equipment accumulated depreciation at 1 January 2011

22,800

Development costs 12,800 Investment property at 1 January 2011 10,600 Inventories at 1 January 2011 37,300 Trade receivables 56,500 Cash and cash equivalents 8,400 Ordinary share capital ($1 shares) 100,000 Share premium 185,000 Retained earnings at 1 January 2011 101,900 Revaluation surplus at 1 January 2011 (land and buildings) 28,000 Long-term borrowings 80,000 Deferred tax liability at 1 January 2011 33,000 Trade and other payables 54,900 Dividends paid 18,000 Sales 545,800 Purchases 322,400 Distribution costs 60,300 Administrative expenses 80,700 Finance costs 4,800 1,161,800 1,161,800

The following information needs to be taken into account:

(a) The company's accounting policy in respect of depreciation of its property, plant and

equipment is as follows: Buildings Straight line to a zero residual value (see below) Plant and equipment 10% reducing balance The buildings were purchased on 1 January 2001 and were last revalued on

31 December 2008, when their remaining useful life was revised to 50 years from that date.

The company treats depreciation of buildings as an administrative expense and

depreciation of plant and equipment as a cost of sale. No land and buildings were purchased or sold during the year.

The company wishes to revalue its land and buildings at 31 December 2011. The

surveyor's valuation was $436 million as at that date (including $180 million for the land).

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The company treats revaluation gains as realised on disposal or retirement of the asset. Revaluation gains (or losses) are taxable (or tax deductible) when the asset is disposed

of, or otherwise derecognised, in the tax regime in which Trafalgar operates. (b) The development costs consist of amounts capitalised in 2009 and 2010 relating to a

new product development. No additional development expenditure was incurred in the year ended 31 December 2011. The product began commercial production on 1 July 2011, and the company estimated, at that date, that the product's useful life was four years due to its technological nature.

Sales of the product did not achieve the amount expected during the second half of 2011,

and so, at 31 December 2011, management performed an impairment test on the development expenditure. The estimated net cash flows are (at 31 December 2011 prices):

Year to 31 December 2012 $3.2 million Year to 31 December 2013 $3.4 million Year to 31 December 2014 $1.6 million 6 months to 30 June 2015 $0.8 million

All cash flows occur on the final day of each period mentioned. An appropriate annual

discount rate (adjusted to exclude the effects of inflation) is 5%. The fair value of the development expenditure asset was expected to be less than the

sum of the discounted cash flows. Development expenditure is tax deductible when incurred in the tax regime in which

Trafalgar operates. The company recognises amortisation and impairment losses on development expenditure in cost of sales.

(c) The inventories figure in the trial balance is the opening inventories balance measured on

the first-in first-out (FIFO) basis. Due to a change in Trafalgar's business, the company decided to change its accounting policy with respect to inventories to a weighted average basis, as follows:

31 December 2009 31 December 2010 $'000 $'000 FIFO 33,200 37,300 Weighted average 30,300 34,100

Closing inventories at 31 December 2011, measured under the weighted average basis,

amounted to $41.2 million. The inventory valuation method has no tax consequences.

(d) The investment property was purchased during 2009. Trafalgar uses the fair value model

for its investment property. The market value of the property at 31 December 2011 had risen to $11.2 million.

Tax is payable on gains on investment properties when they are sold in the tax regime in

which Trafalgar operates.

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3 Patchet is preparing its financial statements for the year ended 31 December 2011. It has a number of subsidiaries. The following matters relating to two new investments are outstanding: (a) On 1 September 2011, Patchet entered into a contractual arrangement with another

party, Able, to manufacture products together, using the expertise of both companies. This involved setting up a new company, Dotun Electronics, in which each party holds 50% of the ordinary shares and is entitled to a 50% share of profits.

Equipment and cash to set up the business were contributed, by each investor, to Dotun

Electronics in pr0oportion to their ownership and in return for the share capital. The arrangement is to last five years. After the five years, the arrangement can be terminated and the parties can take back the equipment that they have contributed. Any new equipment necessary during the period of the agreement will be purchased by one of the parties and sold to Dotun Electronics in return for an increased shareholding and rights to the equipment at the end of the arrangement. Each party to the arrangement uses the equipment it has contributed to perform its part of the work under the arrangement. Under the terms of the agreement, each party is liable to pay for the supplies used by their equipment in the event that revenues do not cover costs. Dotun Electronics also took out loan finance which was guaranteed by the two investors in proportion to their ownership.

Dotun Electronics has a 31 December year end. Under the terms of the agreement, financial and operating policy decisions must be

made together by both parties to the arrangement. (10 marks) (b) Patchet had been negotiating the arrangement for some time. As a result, on

1 April 2011, Patchet classified the equipment that was subsequently transferred to Dotun Electronics as held for sale. No impairment loss was necessary on 1 April 2011, however, the equipment was not depreciated from 1 April 2011 until its transfer to the new entity. (6 marks)

(c) Patchet also entered into another contractual arrangement on 1 September 2011 with

another company, Cain, setting up an unquoted entity, Regional Electronics. However, in this arrangement Patchet only has a 15% shareholding and does not have any influence in day to day financial and operating policies. Patchet has recorded the investment in Regional Electronics at its cost on 1 September 2011, being the carrying amount of the equipment and cash transferred at that date. No subsequent changes were made to the carrying amount. (5 marks)

Requirements Advise the directors on the accounting treatment of the above items in Patchet's financial statements for the year ended 31 December 2011. Indicate how any changes proposed by the IASB could alter the accounting treatment. In part (a) you should consider the effect on both the consolidated and separate financial statements of Patchet. In parts (b) and (c) you should consider the effect on the separate financial statements of Patchet only. Note: A report format is not required. (21 marks)

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Opening inventories were 30.8 million Blats and were acquired on 31 December 2010. Closing inventories were purchased just before the year end and do not need restatement.

Income and expenses (excluding the inventories elements of cost of sales) arose evenly

over the year. No dividends were paid during the year.

Relevant prices indices are:

31 December 2010 560 31 December 2011 780 Weighted average for the year ended 31 December 2011 690

Ignore any deferred tax effects. Work to the nearest 1 million Blats where necessary.

Requirements

(a) Discuss the indications that an economy is hyperinflationary and explain how an entity should apply IAS 29 Financial Reporting in Hyperinflationary Economies for the first time. (5 marks)

(b) Restate the above draft statement of comprehensive income (only) for the effects of

hyperinflation as required by IAS 29 (insofar as the information provided permits).

Note: You are not required to restate the draft statement of financial position. (10 marks) (15 marks)

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Q9 Dalta 1 The trial balance of Delta at 31 March 2008 (its financial reporting date) is as follows: $000 $000 Revenue (Note 1) 164,000 Production costs (Note 2) 90,000 Distribution costs 8,000 Administrative expenses 26,000 Inventories at 31 March 2007 19,710 Interest paid on interest bearing borrowings (Note 4) 3,000 Income tax (Note 5) 100 Dividends paid on equity shares 5,000 Property, plant and equipment (Note 6): At cost at 31 March 2008 77,000 Accumulated depreciation at 31 March 2007 22,610 Trade receivables 53,000 Cash and cash equivalents 33,000 Trade payables 12,000 Long term interest bearing borrowings (Note 4) 50,000 Lease rentals (Note 7) 20,000 Deferred tax (Note 5) 7,000 Issued equity capital 50,000 Retained earnings at 31 March 2007 29,000 334,710 334,710 Notes to the Trial Balance Note 1 revenue On 1 April 2007 Delta sold goods for a price of $121 million. The terms of the sale allowed the customer extended credit and the price was payable by the customer in cash on 31 March 2009. Delta included $121 million in revenue for the current year and $121 million in closing trade receivables. A discount rate that is appropriate for the risks in this transaction is 10%. Note 2 production costs During the year ended 31 March 2008 Delta sold goods to the value of $20 million under warranty. The terms of the warranty were that if the goods were defective within 12 months of the date of sale, Delta would repair or replace them. The warranty was not offered by Delta in respect of goods sold in previous periods. The directors of Delta estimate that, for each product sold, there is an 80% chance no defects will occur in that product. Therefore they have not made a provision for the cost of any future warranty claims on the grounds that, for each item sold, the most likely outcome is that no additional costs will be incurred. Any warranty costs that were incurred were included in the production costs for the year. Where warranty costs were incurred, on average they amounted to 50% of the revenue received from the initial sale of the product. Warranty costs of $800,000 were incurred before the year end and included within production costs in the trial balance. Note 3 inventories at 31 March 2008 The carrying value of inventories at 31 March 2008 was $25 million. Note 4 long term interest bearing borrowings On 1 April 2007 Delta borrowed $50 million for five years at an annual interest rate of 6%. The market interest rate on loans at this time was 8% and so the terms of the contract provide for a repayment on 1 April 2012 of more than $50 million. The repayment makes the effective interest rate applicable to the loan 8%. At 31 March 2007 the market value of a loan with identical cash flows was $53 million. Delta does not consider that the loan is part of a trading portfolio. Note 5 tax

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The estimated income tax on the profits for the year to 31 March 2008 is $15 million. During the year $13 million was paid in full and final settlement of income tax on the profits for the year ended 31 March 2007. The statement of financial position at 31 March 2007 had included $14 million in respect of this liability. At 31 March 2008 the carrying amounts of the net assets of Delta exceeded their tax base by $28 million. This information is before taking account of the property revaluation (see Note 6 below) The rate of income tax in the jurisdiction in which Delta operates is 30%. Note 6 property, plant and equipment Details are as follows: Property Plant and Land Buildings equipment $000 $000 $000 Cost at 31 March 2008 (see below) 22,000 28,000 27,000 Estimate of useful economic life (at date of purchase) Infinite 50 years 4 years Accumulated depreciation at 31 March 2007 0 5,600 17,010 On 1 April 2007 the open market value of the property was $60 million, including $32 million relating to the building. The directors wish to reflect this revaluation in the financial statements, but no entries regarding the revaluation have yet been made. The directors do not wish to make an annual transfer of excess depreciation to retained earnings. The original estimate of the useful economic life of the building is still considered valid. No assets were fully depreciated at 31 March 2008. All of the depreciation is to be charged to cost of sales. Note 7 Lease rentals On 1 April 2007 Delta began to lease a large group of machines that were used in the production process. The lease was for 4 years and the annual rental (payable in advance on 1 April each year) was $20 million. The lessor paid $71 million for the machines on 31 March 2007. The lessor has advised Delta that the lease is a finance lease and that the rate of interest implicit in the lease can be taken as 9% per year. Required: (a) Prepare the statement of comprehensive income for Delta for the year ended 31 March 2008. (14 marks) (b) Prepare the statement of financial position for Delta as at 31 March 2008 (11 marks) Note: notes to the statement of comprehensive income and statement of financial position are not required. (25 marks) (Taken from ACCA Dip IFRS June 2008 Q2)

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Q10 Rose 2 Rose, a public limited company, operates in the mining sector. The draft statements of financial position are as follows, at 30 April 2011: Rose Petal Stem $m $m Dinars m Assets: Non-current assets Property, plant and equipment 370 110 380 Investments in subsidiaries Petal 113 Stem 46 Financial assets 15 7 50 544 117 430 Current assets 118 100 330 Total assets 662 217 760 Equity and liabilities: Share capital 158 38 200 Retained earnings 256 56 300 Other components of equity 7 4 Total equity 421 98 500 Non-current liabilities 56 42 160 Current liabilities 185 77 100 Total liabilities 241 119 260 Total equity and liabilities 662 217 760 The following information is relevant to the preparation of the group financial statements: 1 On 1 May 2010, Rose acquired 70% of the equity interests of Petal, a public limited company. The Purchase consideration comprised cash of $94 million. The fair value of the identifiable net assets recognised by Petal was $120 million excluding the patent below. The identifiable net assets of Petal at 1 May 2010 included a patent which had a fair value of $4 million. This had not been recognised in the financial statements of Petal. The patent had a remaining term of four years to run at that date and is not renewable. The retained earnings of Petal were $49 million and other components of equity were $3 million at the date of acquisition. The remaining excess of the fair value of the net assets is due to an increase in the value of land. Rose wishes to use the full goodwill method. The fair value of the non-controlling interest in Petal was $46 million on 1 May 2010. There have been no issues of ordinary shares since acquisition and goodwill on acquisition is not impaired. Rose acquired a further 10% interest from the non-controlling interest in Petal on 30 April 2011 for a Cash consideration of $19 million. 2 Rose acquired 52% of the ordinary shares of Stem on 1 May 2010 when Stems retained earnings were 220 million dinars. The fair value of the identifiable net assets of Stem on 1 May 2010 was 495 million dinars. The excess of the fair value over the net assets of Stem is due to an increase in the value of land. The fair value of the non-controlling interest in Stem at 1 May 2010 was 250 million dinars.

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Stem is located in a foreign country and operates a mine. The income of Stem is denominated and settled in dinars. The output of the mine is routinely traded in dinars and its price is determined initially by local supply and demand. Stem pays 40% of its costs and expenses in dollars with the remainder being incurred locally and settled in dinars. Stems management has a considerable degree of authority and autonomy in carrying out the operations of Stem and is not dependent upon group companies for finance. Rose wishes to use the full goodwill method to consolidate the financial statements of Stem. There have been no issues of ordinary shares and no impairment of goodwill since acquisition. The following exchange rates are relevant to the preparation of the group financial statements: Dinars to $ 1 May 2010 6 30 April 2011 5 Average for year to 30 April 2011 58 3 Rose has a property located in the same country as Stem. The property was acquired on 1 May 2010 and is carried at a cost of 30 million dinars. The property is depreciated over 20 years on the straight-line method. At 30 April 2011, the property was revalued to 35 million dinars. Depreciation has been charged for the year but the revaluation has not been taken into account in the preparation of the financial statements as at 30 April 2011. 4 Rose commenced a long-term bonus scheme for employees at 1 May 2010. Under the scheme Employees receive a cumulative bonus on the completion of five years service. The bonus is 2% of the total of the annual salary of the employees. The total salary of employees for the year to 30 April 2011 was $40 million and a discount rate of 8% is assumed. Additionally at 30 April 2011, it is assumed that all employees will receive the bonus and that salaries will rise by 5% per year. 5 Rose purchased plant for $20 million on 1 May 2007 with an estimated useful life of six years. Its Estimated residual value at that date was $14 million. At 1 May 2010, the estimated residual value changed to $26 million. The change in the residual value has not been taken into account when preparing the financial statements as at 30 April 2011. Required: (a) (i) Discuss and apply the principles set out in IAS 21 The Effects of Changes in Foreign Exchange Rates in order to determine the functional currency of Stem. (7 marks) (ii) Prepare a consolidated statement of financial position of the Rose Group at 30 April 2011, in accordance with International Financial Reporting Standards (IFRS), showing the exchange difference arising on the translation of Stems net assets. Ignore deferred taxation. (35 marks) (b) Rose was considering acquiring a service company. Rose stated that the acquisition may be made because of the value of the human capital and the opportunity for synergies and cross- selling opportunities. Rose estimated the fair value of the assets based on what it was prepared to pay for them. Rose further stated that what it was willing to pay was influenced by its future plans for the business. The company to be acquired had contract-based customer relationships with well-known domestic and international companies and some mining companies. Rose estimated that the fair value of all of these customer relationships to be zero because Rose already enjoyed relationships with the majority of those customers. Required: Discuss the validity of the accounting treatment proposed by Rose and whether such a proposed treatment raises any ethical issues. (8 marks) (50 marks) (Taken from ACCA P2 Corporate Reporting June 2011 Q1)

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Q11 Alpha (1) 3 The income statements and summarised statements of changes in equity of Alpha, Beta and Gamma for the year ended 31 March 2008 are given below: Income Statements Alpha Beta Gamma $000 $000 $000 Revenue 150,000 100,000 96,000 Cost of sales (110,000) (78,000) (66,000) Gross profit 40,000 22,000 30,000 Distribution costs (7,000) (6,000) (6,000) Administrative expenses (8,000) (7,000) (7,200) Profit from operations 25,000 9,000 16,800 Investment income 5,000 500 500 Finance cost (4,000) (3,000) (3,200) Profit before tax 26,000 6,500 14,100 Income tax expense (7,000) (1,800) (3,600) Net profit for the period 19,000 4,700 10,500 Summarised Statements of Changes in Equity Balance at 1 April 2007 122,000 91,000 82,000 Net profit for the period 19,000 4,700 10,500 Dividends paid on 31 January 2008 (6,500) (3,000) (5,000) Balance at 31 March 2008 134,500 92,700 87,500 Note 1 purchase of shares in Beta On 1 October 2005 Alpha purchased an 80% equity shareholding in Beta. The equity of Beta as shown in its own financial statements at that date was $32 million. Alpha issued 20 million shares to the former shareholders of Beta in exchange for the shares purchased. The market value of Alphas shares on 1 October 2005 was $2. At the date of acquisition Beta owned a property with a book value of $28 million and a market value of $35 million. Beta had purchased the property for $30 million on 1 October 2000 and estimated that the depreciable amount of the property (the buildings element) was $16 million at 1 October 2000. The estimated useful economic life of the building at 1 October 2000 was 40 years. The directors of Alpha estimated that the buildings element of the property comprised 50% of its market value at 1 October 2005. They considered that the original estimate of the total useful economic life of the buildings element (40 years from 1 October 2000) was still valid. At 1 October 2005 the plant of Beta had a book value of $12 million and a market value of $15 million. The plant is depreciated on a straight line basis and the remaining useful economic life of the plant at 1 October 2005 was estimated at five years. All depreciation is charged on a monthly basis and presented in cost of sales. No adjustments were made to the individual financial statements of Beta to reflect the information given in this note.

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Note 2 purchase of shares in Gamma On 1 July 2007 Alpha purchased 40% of the equity shares of Gamma. This purchase allowed Alpha to exercise a significant influence over Gamma, but Alpha was not able to control its operating and financial policies. No material differences between the market value and the book value of the net assets of Gamma was apparent at the date of the share purchase. Note 3 impairment reviews An impairment review at 31 March 2008 indicated that 25% of the goodwill on acquisition of Beta needed to be written off. Apart from this, no other impairments of goodwill on acquisition of Beta have been required. No impairment of the investment in Gamma has yet been necessary. All impairments are charged to cost of sales. Note 4 inter-company sales Alpha supplies products used by Beta and Gamma. Sales of the products to Beta and Gamma during the year ended 31 March 2008 were as follows (all sales were made at a mark up of 25% on cost): Sales to Beta $125 million. Sales to Gamma (all in the post-acquisition period) $4 million. At 31 March 2008 and 31 March 2007 the inventories of Beta and Gamma included the following amounts in respect of goods purchased from Alpha. Amount in inventory at 31 March 2008 31 March 2007 $000 $000 Beta 3,000 1,600 Gamma 2,000 Nil Note 5 dividend payments The dividend received from Gamma on 31 January 2008 was credited to the income statement of Alpha as investment income as the post-acquisition profits of Gamma were in excess of the dividend received. Required: (a) Prepare the consolidated income statement for Alpha for the year ended 31 March 2008. (18 marks) (b) Prepare the summarised consolidated statement of changes in equity for Alpha for the year ended 31 March 2008. (7 marks) Note: ignore deferred tax. (25 marks)(Taken from ACCA Diploma in International Financial Reporting June 2008 Q1)

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Q12 Alpha (2) 4 Alpha holds investments in Beta and Gamma. The statements of financial position of the three entities at 30 September 2011 were as follows: Alpha Beta Gamma $000 $000 $000 ASSETS Non-current assets: Property, plant and equipment (Note 1) 210,000 165,000 120,000 Investments: in Beta (Note 1) 180,000 Nil Nil in Gamma (Note 3) 52,000 Nil Nil in Sigma (Note 6) 15,000 Nil Nil 457,000 165,000 120,000 Current assets: Inventories (Note 4) 65,000 36,000 29,000 Trade receivables (Note 5) 55,000 38,000 35,000 Cash and cash equivalents 12,000 7,000 9,000 132,000 81,000 73,000 Total assets 589,000 246,000 193,000 EQUITY AND LIABILITIES Equity Share capital ($1 shares) 180,000 100,000 60,000 Retained earnings 183,000 67,000 64,000 Other components of equity 90,000 5,000 Nil Total equity 453,000 172,000 124,000 Non-current liabilities: Contingent consideration (Note 1) 20,000 Nil Nil Long-term borrowings (Note 8) 50,000 35,000 30,000 Deferred tax 15,000 9,000 12,000 Total non-current liabilities 85,000 44,000 42,000 Current liabilities: Trade and other payables 34,000 23,000 21,000 Short term borrowings 17,000 7,000 6,000 Total current liabilities 51,000 30,000 27,000 Total equity and liabilities 589,000 246,000 193,000 Note 1 Alphas investment in Beta On 1 April 2010 Alpha acquired 80 million shares in Beta by means of a share exchange. Alpha issued one share for every two shares acquired in Beta. On 1 April 2010 the market value of an Alpha share was $4 and the market value of a Beta share was $180. The terms of the business combination provide for an additional cash payment to the former shareholders of Beta on 30 June 2012 based on its post-acquisition financial performance in the first two years since acquisition. The fair value of this additional payment was $20 million on 1 April 2010. The post acquisition performance of Beta was such that the fair value of this payment had increased to $22 million by 30 September 2011. The investment in Beta and the non-current liabilities of Alpha at 30 September 2010 include $20 million in respect of the additional payment due to be made on 30 June 2012.

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On 1 April 2010 the individual financial statements of Beta showed the following reserves balances: Retained earnings $41 million. Other components of equity $3 million. The directors of Alpha carried out a fair value exercise to measure the identifiable assets and liabilities of Beta at 1 April 2010. The following matters emerged: A property, having a carrying amount of $50 million (depreciable amount $30 million), had a fair value of $70 million (depreciable amount $33 million). The estimated future economic life of the depreciable amount of the property at 1 April 2010 was 30 years. This property was still held by Beta at 30 September 2011. Plant and equipment, having a carrying amount of $60 million, had an estimated market value of $64 million. The estimated future economic life of the plant at 1 April 2010 was four years. This plant was still held by Beta at 30 September 2011. Inventory, having a carrying amount of $30 million, had an estimated market value of $31 million. All of this inventory had been sold since 1 April 2010. The fair value adjustments have not been reflected in the individual financial statements of Beta. In the consolidated financial statements the fair value adjustments will be regarded as temporary differences for the purposes of computing deferred tax. The rate of tax to apply to temporary differences (where required but see notes 3, 4, 6 and 7 below) is 20%. It is the group policy to value the non-controlling interest in subsidiaries at the date of acquisition at fair value. The fair value of an equity share in Beta at 1 April 2010 can be used for this purpose. Note 2 Impairment reviews Beta On 1 April 2010 the directors of Alpha identified that Beta comprised five cash-generating units and allocated the goodwill arising on acquisition equally across each unit. No impairment of goodwill was apparent in the year ended 30 September 2010. During the year ended 30 September 2011 four of the five cash-generating units performed very satisfactorily and no impairment of the goodwill allocated to these units had occurred. However the performance of the other unit was below expectations. During the impairment review carried out at 30 September 2011 assets (excluding goodwill) having a carrying amount in the consolidated financial statements of $50 million were allocated to this unit. The recoverable amount of these assets was estimated at $52 million. Note 3 Alphas investment in Gamma On 1 October 2010 Alpha paid $52 million for 40% of the equity shares of Gamma. The retained earnings of Gamma on 1 October 2010 were $60 million. You can ignore any deferred taxation implications of the investment by Alpha in Gamma. The investment in Gamma has not suffered any impairment since 1 October 2010. Note 4 Inter-company sale of inventories The inventories of Beta and Gamma at 30 September 2011 included components purchased from Alpha during the year at a cost of $16 million to Beta and $10 million to Gamma. Alpha generated a gross profit margin of 25% on the supply of these components. You can ignore any deferred tax implications of the information in this note. Note 5 Trade receivables and payables The trade receivables of Alpha included $5 million receivable from Beta and $4 million receivable from Gamma in respect of the purchase of components (see Note 4). The trade payables of Beta and Gamma included equivalent amounts payable to Alpha.

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Note 6 Alphas investment in Sigma Alphas investment in Sigma does not give Alpha sole control, joint control or significant influence. The investment was purchased on 1 January 2011 for $15 million. The investment was classified as fair value through other comprehensive income. The fair value of the investment in Sigma on 30 September 2011 was $16 million. In the tax jurisdiction in which Alpha is located unrealised profits on the revaluation of equity investments are not subject to current tax. Any such profits are taxed only when the investment is sold. Note 7 Employees share option scheme On 1 October 2009 Alpha granted 5,000 share options to 1,000 key employees. The options are due to vest on 30 September 2013 provided the employees remain in employment at 30 September 2013. On 1 October 2009 the directors of Alpha estimated that 90% of the key employees would satisfy the vesting condition. Actual employee turnover was such that this estimate was revised to 92% on 30 September 2010 and 93% on 30 September 2011. At 1 October 2009 the fair value of each share option was estimated to be $120. This estimate was revised to $125 on 30 September 2010 and $128 on 30 September 2011. You can ignore the deferred tax implications of the information in this note. Alpha correctly recognised this transaction in the financial statements for the year ended 30 September 2010. However, they have made no additional adjustments in the financial statements for the year ended 30 September 2011. Note 8 Long-term borrowings On 1 October 2010 Alpha issued 50 million loan notes of $1 each at par. The annual interest payable on these notes is 5 cents per note, payable in arrears. The notes are redeemable at par on 30 September 2015 or convertible (at the option of the note-holders) into equity shares on that date. On 1 October 2010 investors in loan notes with no conversion option would have required an annual rate of return of 8%. On 1 October 2010 the directors of Alpha included $50 million in long-term borrowings in respect of the loan notes. The actual interest paid of $25 million was charged as a finance cost in Alphas income statement for the year ended 30 September 2011. Relevant discount factors are as follows: 5% 8% Present value of $1 payable at the end of year 5 784 cents 681 cents Cumulative present value of $1 payable at the end of years 1-5 $433 $399 Note 9 Modification of vehicles On 1 January 2011 legislation was passed requiring Alpha to carry out modifications to its motor vehicles to enable harmful emissions to be reduced. The modifications should have been completed by 30 June 2011 at an estimated cost to Alpha of $3 million. In fact by 30 September 2011 none of the vehicles had been modified although they continued to be used. It is likely that Alpha will be fined $500,000 per month for the illegal use of the vehicles. The directors of Alpha are uncertain exactly when they will carry out the modifications but they intend to do so sometime during the year ended 30 September 2012. They expect that a fine will become payable very shortly as legal action has commenced against Alpha. Required: Prepare the consolidated statement of financial position of Alpha at 30 September 2011. (40 marks)

(Taken for ACCA Diploma in International Financial Reporting Dec 2011 Q1)

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Q13- JOCATT 5 The following draft group financial statements relate to Jocatt, a public limited company: Jocatt Group: Statement of financial position as at 30 November 2010 2009 $m $m Assets Non-current assets Property, plant and equipment 327 254 Investment property 8 6 Goodwill 48 68 Intangible assets 85 72 Investment in associate 54 Available-for-sale financial assets 94 90 616 490 Current assets Inventories 105 128 Trade receivables 62 113 Cash and cash equivalents 232 143 399 384 Total assets 1,015 874 Equity and Liabilities Equity attributable to the owners of the parent: Share capital 290 275 Retained earnings 351 324 Other components of equity 15 20 656 619 Non-controlling interest 55 36 Total equity 711 655 Non-current liabilities: Long-term borrowings 67 71 Deferred tax 35 41 Long-term provisions-pension liability 25 22 Total non-current liabilities 127 134 Current liabilities: Trade payables 144 55 Current tax payable 33 30 Total current liabilities 177 85 Total liabilities 304 219 Total equity and liabilities 1,015 874

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Jocatt Group: Statement of comprehensive income for the year ended 30 November 2010 $m Revenue 432 Cost of sales (317) Gross profit 115 Other income 25 Distribution costs (555) Administrative expenses (36) Finance costs paid (6) Gains on property 105 Share of profit of associate 6 Profit before tax 59 Income tax expense (11) Profit for the year 48 Other comprehensive income after tax: Gain on available for sale financial assets (AFS) 2 Losses on property revaluation (7) Actuarial losses on defined benefit plan (6) Other comprehensive income for the year, net of tax (11) Total comprehensive income for the year 37 Profit attributable to: Owners of the parent 38 Non-controlling interest 10 48 Total comprehensive income attributable to: $m Owners of the parent 27 Non-controlling interest 10 37 Jocatt Group: Statement of changes in equity for the year ended 30 November 2010 Share Retained AFS Revaluation Total Non- Total Capital Earnings financial Surplus controlling equity assets (PPE) Interest $m $m $m $m $m $m $m Balance at 1 December 2009 275 324 4 16 619 36 655 Share capital issued 15 15 15 Dividends (5) (5) (13) (18) Rights issue 2 2 Acquisitions 20 20 Total comprehensive income for the year 32 2 (7) 27 10 37 Balance at 30 November 2010 290 351 6 9 656 55 711

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The following information relates to the financial statements of Jocatt: (i) On 1 December 2008, Jocatt acquired 8% of the ordinary shares of Tigret. Jocatt had treated this Investment as available-for-sale in the financial statements to 30 November 2009. On 1 December 2009, Jocatt acquired a further 52% of the ordinary shares of Tigret and gained control of the company. The consideration for the acquisitions was as follows: Holding Consideration $m 1 December 2008 8% 4 1 December 2009 52% 30 60% 34 At 1 December 2009, the fair value of the 8% holding in Tigret held by Jocatt at the time of the business combination was $5 million and the fair value of the non-controlling interest in Tigret was $20 million. No gain or loss on the 8% holding in Tigret had been reported in the financial statements at 1 December 2009. The purchase consideration at 1 December 2009 comprised cash of $15 million and shares of $15 million. The fair value of the identifiable net assets of Tigret, excluding deferred tax assets and liabilities, at the date of acquisition comprised the following: $m Property, plant and equipment 15 Intangible assets 18 Trade receivables 5 Cash 7 The tax base of the identifiable net assets of Tigret was $40 million at 1 December 2009. The tax rate of Tigret is 30%. (ii) On 30 November 2010,Tigret made a rights issue on a 1 for 4 basis. The issue was fully subscribed and raised $5 million in cash. (iii) Jocatt purchased a research project from a third party including certain patents on 1 December 2009 for $8 million and recognised it as an intangible asset. During the year, Jocatt incurred further costs, which included $2 million on completing the research phase, $4 million in developing the product for sale and $1 million for the initial marketing costs. There were no other additions to intangible assets in the period other than those on the acquisition of Tigret. (iv) Jocatt operates a defined benefit scheme. The current service costs for the year ended 30 November 2010 are $10 million. Jocatt enhanced the benefits on 1 December 2009 however, these do not vest until 30 November 2012. The total cost of the enhancement is $6 million. The expected return on plan assets was $8 million for the year and Jocatt recognises actuarial gains and losses within other comprehensive income as they arise. (v) Jocatt owns an investment property. During the year, part of the heating system of the property, which had a carrying value of $05 million, was replaced by a new system, which cost $1 million. Jocatt uses the fair value model for measuring investment property. (vi) Jocatt had exchanged surplus land with a carrying value of $10 million for cash of $15 million and plant valued at $4 million. The transaction has commercial substance. Depreciation for the period for property, plant and equipment was $27 million. (vii) Goodwill relating to all subsidiaries had been impairment tested in the year to 30 November 2010 and any impairment accounted for. The goodwill impairment related to those subsidiaries which were 100% owned.

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(viii) Deferred tax of $1 million arose on the gains on available-for-sale investments in the year. (ix) The associate did not pay any dividends in the year. Required: (a) Prepare a consolidated statement of cash flows for the Jocatt Group using the indirect method under IAS 7 Statement of Cash Flows. Note: Ignore deferred taxation other than where it is mentioned in the question. (35 marks) (b) Jocatt operates in the energy industry and undertakes complex natural gas trading arrangements, which involve exchanges in resources with other companies in the industry. Jocatt is entering into a long-term contract for the supply of gas and is raising a loan on the strength of this contract. The proceeds of the loan are to be received over the year to 30 November 2011 and are to be repaid over four years to 30 November 2015. Jocatt wishes to report the proceeds as operating cash flow because it is related to a long-term purchase contract. The directors of Jocatt receive extra income if the operating cash flow exceeds a predetermined target for the year and feel that the indirect method is more useful and informative to users of financial statements than the direct method. (i) Comment on the directors view that the indirect method of preparing statements of cash flow is more useful and informative to users than the direct method. (7 marks) (ii) Discuss the reasons why the directors may wish to report the loan proceeds as an operating cash flow rather than a financing cash flow and whether there are any ethical implications of adopting this treatment. (6 marks) Professional marks will be awarded in part (b) for the clarity and quality of discussion. (2 marks)

(50 marks)(TakenfromACCACorporateReportingDecember2010Q1)

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IFRS 17 Module 7 - Revision Pack 30-06-2012Revision pack Jan 2012

Documents

IFRS 17 Module 7 - Revision Pack V3 30-06-2012