ACCA F7 (INT) Financial Reporting - Study text - 2010 - Emile Woolf Publishing
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Answers to practice questions
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Date
Number
of shares
Time
factor
Bonus
fraction
Rights
fraction
Weighted
average
number of
shares
1 January Brought
forward
5,000,000
1/12
6/5
4/3
666,667
1 February Bonus issue
(1 for 5)
1,000,000
–
––––––––
6,000,000 2/12 4/3 1,333,333
1 April Rights issue
(1 for 2)
3,000,000
–
––––––––
9,000,000 2/12
1,500,000
1 June Issue at full
market
price
800,000
–
––––––––
31 December Carried
forward
9,800,000
7/12
5,716,667
–
–––––––––
9,216,667
–
–––––––––
Earnings for Year 5 are (3,362,000 – 600,500 – 800,000) $1,961,500
EPS Year 5 = 1,961,500/9,216,667 = $0.21 or 21c
EPS Year 4 (adjusted) = $0.32 × 3/4 × 5/6 = $0.20 or 20c
25 Mandy
Adjusted total earnings
Year 4 Year 3
$ $
$ $
Reported earnings 2,579,000
1,979,000
Add back interest saved
(1,000,000 × 7%) (1,000,000 ×
7% × 9/12)
70,000
52,500
Minus tax at 30% (21,000)
(15,750)
–
––
–
–––
49,000
–
––––––
36,750
–
–––––––
––––––––
Adjusted total earnings 2,628,000
2,015,750
–
–––––––
––––––––
Number of shares
Year 4
Number of shares
1 January Brought forward 5,000,000
Dilutions:
Share options (W) 200,000
Convertible shares (1,000,000 ÷ 100 × 30)
300,000
–
–––––––––
31 December
5,500,000
–
–––––––––
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Year 3
Date
Number
of shares
Time
factor
Weighted average
number of shares
1 January Brought forward 5,000,000
Share options: dilution (W) 125,000
–
––––––––
5,125,000 3/12
1,281,250
1 April Convertibles: dilution 300,000
–
––––––––
5,425,000 9/12
4,068,750
–
––––––––
–
–––––––––
5,350,000
–
–––––––––
Diluted EPS
Year 4 = 2,628,000/5,500,000 = $0.48 or 48c
Year 3 = 2,015,750/5,350,000 = $0.38 or 38c
Working
Cash receivable on exercise of all the options = 500,000 × $3 = $1,500,000
Year 4
Number of shares this would buy at full market price in Year 4 = $1,500,000/5 =
300,000 shares
Shares
Options 500,000
Minus number of shares at fair value (300,000)
–
–––––––
Net dilution 200,000
–
–––––––
Year 3
Number of shares this would buy at full market price in Year 3 = $1,500,000/4 =
375,000 shares
Shares
Options 500,000
Minus number of shares at fair value (375,000)
–
–––––––
Net dilution 125,000
–
–––––––
26 Bella
Statement of cash flows for the year ended 31 March Year 6
$000 $000
Cash flows from operating activities
Profit before taxation 4,617
Adjustments for:
Depreciation (W1) 300
Loss on disposal of non-current asset (800 – 700) 100
Interest expense 60
–
–––––
5,077
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$000 $000
Increase in inventories (280 – 100) (180)
Decrease in trade and other receivables (1,350 – 1,290) 60
Increase in trade payables (430 – 275) 155
–
–––––
Cash generated from operations 5,112
Interest paid (W3) (45)
Income taxes paid (W4) (185)
–
–––––
Net cash from operating activities
4,882
Cash flows from investing activities
Purchase of property, plant and equipment (6,000)
Proceeds from the sale of property, plant and equipment 700
Purchase of intangible assets (800 – 300) (500)
–
–––––
Net cash used in investing activities
(5,800)
Cash flows from financing activities
Proceeds from the issue of share capital (W2) 865
Issue of long-term loan (600 – 500) 100
Dividends paid (350)
–
–––––
Net cash inflow from financing activities
615
–
–––––
Net decrease in cash and cash equivalents
(303)
Cash and cash equivalents at the beginning of the period
45
Cash and cash equivalents at the end of the period (55 – 313)
(258)
Workings
(1) Property, plant and equipment (PPE)
$000
$000
PPE at NBV at end of year
12,900
PPE at NBV at beginning of year 8,000
Disposals during the year at NBV (800)
–
–––––
(7,200)
–
–––––
5,700
Depreciation charge for the year (balancing figure)
300
–
–––––
PPE acquired during the year
6,000
–
–––––
(2) Share capital and premium
Share capital Share
premium
Total
$000 $000 $000
At end of year 1,900 95 1,995
At beginning of year 1,100 30 (1,130)
–
–––––
Cash receipts from share issue
865
–
–––––
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(3) Interest payable
$000
Accrued interest at beginning of year 25
Interest charge in the income statement 60
–
––––
85
Accrued interest at end of year (40)
–
––––
Interest payments in the year 45
–
––––
(4) Current tax payable
$000
Tax payable at beginning of year 325
Tax charge in the income statement 400
–
–––
725
Tax payable at end of year (540)
–
–––
Tax payments in the year 185
–
–––
27 Chester
Statement of cash flows for the year ended 31 December Year 5
$000 $000
Cash flows from operating activities
Cash receipts from customers (W5) 3,510
Cash paid to suppliers (W6) (1,570)
Cash paid to and on behalf of employees (260)
–
––––
Cash generated from operations 1,680
Income taxes paid (W4) (120)
–
––––
Net cash from operating activities
1,560
Cash flows from investing activities
Purchase of property, plant and equipment (W1) (2,250)
Proceeds from the sale of property, plant and equipment 400
Interest received (W3) 30
–
––––
Net cash used in investing activities
(1,820)
Cash flows from financing activities
Proceeds from the issue of share capital (W2) 450
Dividends paid (W7) (175)
–
––––
Net cash inflow from financing activities
275
–
––––
Net decrease in cash and cash equivalents
15
Cash and cash equivalents at the beginning of the period
25
–
––––
Cash and cash equivalents at the end of the period
40
–
––––
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Workings
(1) Property, plant and equipment (PPE)
$000 $000
PPE at NBV at end of year
3,900
PPE at NBV at beginning of year 2,500
Disposals during the year at NBV (350)
–
–––––
(2,150)
–
–––––
1,750
Depreciation charge for the year
500
–
–––––
PPE acquired during the year (balancing figure)
2,250
–
–––––
(2) Share capital and premium
Share capital Share
premium
Total
$000 $000 $000
At end of year 1,100 200 1,300
At beginning of year 800 50 (850)
–
––––
Cash receipts from share issue
450
–
––––
(3) Interest receivable
$000
Interest receivable at beginning of year 20
Interest receivable in the income statement 50
–
––––
70
Interest receivable at end of year (40)
–
––––
Interest received in the year 30
–
––––
(4) Current tax payable
$000
Tax payable at beginning of year 150
Tax charge in the income statement 200
–
–––
350
Tax payable at end of year (230)
–
–––
Tax payments in the year 120
–
–––
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(5) Cash receipts from customers
$000
Trade receivables at beginning of year 570
Revenue in the income statement 3,500
–
–––––
4,070
Trade receivables at end of year (560)
–
–––––
Cash receipts from customers 3,510
–
–––––
(6) Cash paid to suppliers
$000 $000
Trade payables at beginning of year
320
Costs in the income statement:
Total costs (1,400 + 400 + 340) 2,140
Opening inventories (320)
Closing inventories 480
Cash paid to and on behalf of employees (260)
Depreciation (500)
Gain on disposal of PPE (400 – 350) 50
–
––––
1,590
–
––––
1,910
Trade payables at end of year
(340)
–
––––
Cash paid to suppliers
1,570
–
––––
(7) Dividends paid
$000
Retained earnings at beginning of year 2,115
Profit for the period 1,210
–
–––––
3,325
Retained earnings at end of year (3,150)
–
–––––
Dividends paid 175
–
–––––
28 Faye
Consolidated statement of financial position as at 31 December Year 3
$
$
Non-current assets
Property, plant and equipment at cost (10,000 + 3,000) 13,000
Minus depreciation (5,000 + 1,000) (6,000)
–
––––––
7,000
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Current assets
Inventories (12,000 + 4,000) 16,000
Receivables (15,000 + 2,000) 17,000
Cash at bank (20,000 + 1,000) 21,000
–
––––––
54,000
–
––––––
61,000
–
––––––
Capital and reserves
Ordinary share capital $1 shares) 30,000
Consolidated accumulated profits (13,000 + 2,000) 15,000
–
––––––
45,000
Current liabilities
Payables (11,000 + 5,000)
16,000
–
––––––
61,000
–
––––––
29 Major – Part 1
(a) Consolidated statement of financial position at 31 August Year 4
$
Tangible non-current assets at net book value (30,000 + 50,000) 80,000
Goodwill (W1) 20,000
–
––––––
100,000
Inventories (25,000 + 30,000) 55,000
Receivables (10,000 + 40,000) 50,000
Cash at bank 10,000
–
––––––
215,000
–
––––––
Ordinary share capital ($1 shares) 100,000
Consolidated retained earnings (W2) 75,000
–
––––––
175,000
8% loan notes (25,000 – 20,000) 5,000
Payables (15,000 + 20,000) 35,000
–
––––––
215,000
–
––––––
(b) How the figures would differ if goodwill had suffered an impairment of
$5,000?
Goodwill would be $5,000 lower i.e. $15,000.
Consolidated retained earnings would be $5,000 lower i.e. $60,000.
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Workings
(1) Goodwill
$
Fair value of net assets acquired
Share capital 50,000
Retained earnings 10,000
–
––––––
60,000
Cost of the acquisition of ordinary shares 80,000
–
––––––
Goodwill 20,000
–
––––––
(2) Consolidated retained earnings
$
Parent retained earnings 60,000
Parent’s share of subsidiary’s post acquisition profits
(25,000 – 10,000)
15,000
–
––––––
75,000
–
––––––
30 Major – Part 2
Consolidated statement of financial position at 31 August Year 4
$
Tangible non-current assets at net book value (30,000 + 50,000 + 25,000) 105,000
Inventories (25,000 + 30,000) 55,000
Receivables (10,000 + 40,000) 50,000
Cash at bank 10,000
–
––––––
220,000
–
––––––
Ordinary share capital ($1 shares) 100,000
Consolidated retained earnings (W2) 80,000
–
––––––
180,000
8% loan notes (25,000 – 20,000) 5,000
Payables (15,000 + 20,000) 35,000
–
––––––
220,000
–
––––––
Workings
(1) Goodwill
$
Fair value of net assets acquired
Share capital 50,000
Retained earnings 10,000
Minus fair value adjustments (25,000 – 5,000) 20,000
–
––––––
80,000
Cost of the acquisition of ordinary shares 80,000
–
––––––
Goodwill -
–
––––––
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(2) Consolidated retained earnings
$
Parent retained earnings 60,000
Parent’s share of subsidiary’s post acquisition profits
(25,000 – 10,000 + 5,000)
20,000
–
––––––
80,000
–
––––––
31 Harry
Consolidated statement of financial position at 31 July Year 4
$000 $000
Non-current assets
Property, plant and equipment 41,000
Freehold land 12,000
Goodwill (W2) 1,000
–
––––––
54,000
Current assets
Inventories (20,000 + 16,000) 36,000
Receivables (25,000 + 15,000) 40,000
–
––––––
76,000
–
–––––––
130,000
–
–––––––
$000 $000
Equity and reserves
Equity attributable to owners of the parent
Share capital ($1 shares)
40,000
Retained earnings
35,500
–
––––––
75,500
Non-controlling interests (W4)
3,500
–
––––––
Total equity
79,000
Current liabilities
Payables (27,000 + 24,000)
51,000
–
–––––––
130,000
–
–––––––
Workings
(1) Group structure
%
Parent share (3/4) 75
Non-controlling interests 25
–
–––
100
–
–––
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(2) Goodwill
$000
Fair value of net assets acquired
Net assets of Sally at acquisition 10,000
Fair value adjustment re land (12,000 – 10,000) 2,000
–
––––––
12,000
–
––––––
Cost of the acquisition 12,000
Parent’s share (x 75%) (W1) 9,000
–
––––––
Goodwill 3,000
Minus impairment to date (2,000)
–
––––––
Goodwill carried forward 1,000
–
––––––
(3) Consolidated retained earnings
Sally’s retained earnings at acquisition were $6 million (net assets per the
statement of financial position were $10 million, share capital was and is
$4,000). Therefore Sally’s post acquisition retained earnings are $2 million ($8
million – $6 million).
$000
Parent retained earnings 36,000
Parent’s share of subsidiary’s post acquisition profits (2,000 ×
75%)
1,500
Minus impaired goodwill since acquisition (2,000)
–
––––––
35,500
–
––––––
(4) Non-controlling interests
$000
Non-controlling interests = (12,000 + 2,000) x 25% = 3,500
32 Max
Consolidated income statement for the year ended 31 December Year 3
$
Revenue 240,700
Cost of sales (151,641)
–
–––––––
Gross profit 89,059
Distribution costs and administrative expenses (28,070)
Profit before tax 60,989
Income tax expense (31,291)
–
–––––––
Profit for the period 29,698
–
–––––––