acca dec 2011 f7 mock paper

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Mock Examination : ACCA Paper F7

Financial Reporting

Session : December 2011

Set by : Mr Ben Lee

Your Lecturer

Mr Ben Lee

Mr Goh Sher Wee

Your Mailing Address : ______________________________________

______________________________________

Your Contact Number : ______________________________________

I wish to have my script marked by my lecturer and

collect the marked script at the SAA-GE Reception Counter

ave e mar e scrp re urne o me y ma

(Please submit your script latest by11th Nov 2011 for marking)

SAA GLOBAL EDUCATION CENTRE PTE LTD

CompanyRegistration No. 201001206N

20 Aljunied Road, #01-04, CPA House,

Singapore389805

Tel: (65) 6744 9700 Fax: (65) 6744 9796

Website: www.saa.org.sg Email: [email protected]



Question 1

Hyflux Ltd acquired 2.4 million shares of Sunny Ltd on 1 Oct 2011, by issuing two of its own sharesfor every three shares in Sunny Ltd and a deferred payment of $1.00 for every eight Sunny Ltd shares payable on 1 Oct 2013. Hyflux Ltd’s share was trading at a market price of $2.00 on 1 Oct 2011; the present value of the cash consideration is equal to $0.80 at a discount rate of 12% per annum. Thedeferred cash consideration has not been recorded as part of the investment.

The following profit statements have been prepared for Hyflux Ltd and Sunny Ltd for the year ended 31 Dec 2011.

Hyflux Ltd Sunny Ltd $‘000 $‘000

Sales 700 300Cost of sales (306) (188)

____ ____

Gross profit 394 112Operating expenses (27) (20)

Finance costs (15) (12) ____ ____

Profit before tax 352 80Taxation (92) (24)

_____ _____ Profit after tax 260 56Dividends (100) 0

_____ _____ Retained profit for the year 160 56

______ _____

Balance SheetAs at 31 Dec 2011

Hyflux Ltd Sunny Ltd

$‘000 $‘000 $‘000 $‘000Assets Non Current AssetsProperty, plant and equipment 3,100 3,000Investments 3,300 30

____ ____ 6,400 3,030

Current assetsStock 1,200 500Debtors 1,300 240Bank and cash 800 105

____ ____ Total assets 9,700 3,875

____ ____



Equity and liabilitiesEquity shares 6,000 3,000Accumulated profits 620 340

______ _____ 6,620 3,340

Non current liabilities10% loan 2,000 300

Current liabilitiesCreditors 980 235Dividend payable 100 0

_____ _____ Total equity and liabilities 9,700 3,875

______ ______

Notes

i) Hyflux Ltd made sales of $30,000 to Sunny Ltd during the year. These goods originally costHyflux Ltd $20,000.Only 50% of these goods had been resold by Sunny Ltd by 31 Dec 2011.

ii) Inter company balance were:Owed to Sunny in Hyflux’s book 30Receivable from Hyflux in Sunny’s book 50

The difference is due to a cash in transit, not yet received by Sunny Ltd

iii) The fair value of a plant in Sunny Ltd was $160,000 higher than the book value at the date of acquisition, it has a four years remaining life with straight line depreciation.

iv) It is estimated that the consolidated goodwill is valued at $600,000 on 31 Dec 2011 followingthe FRS 103 requirement.

v) There are currently 3 million shares in Sunny Ltd.

Required

a) Prepare a consolidated Income Statement for Hyflux Ltd for the year ended 31 Dec 2011.(11 marks)

b) Prepare a consolidated statement of financial position for Hyflux Ltd as at 31 Dec 2011.(14 marks)



Question 2

The trial balance of Baka Ltd, a publicly listed company, at 31 March 2011 is as follows:

$000 $000Investment property 2,000Building 8,000Plant and equipment – at cost 3,250Accumulated depreciation 1 April 2010

- building 3,200- plant 2,200

Accumulated profits 1 April 2010 3,050Sales revenues 27,080Purchases 17,000Construction contract costs to 31 March 2010 1,600Construction contract progress billings received 1,500

Trade Debtors 7,520Inventory 1,700Cash in bank 3,17010% preference share 1,200Trade creditors 3,340Equity shares 4,0006% Loan Note (issued in 2008) 2,000Property rental 110Distribution cost 340Interim dividend 2,000Administration expenses 1,000

Loan interest paid 100 _______ ______ 47,680 47,680

_______ ______

The following notes are relevant:

i) On 31 March 2011, the company’s only remaining building was revalued at $6 million. The building had an estimated life of 25 years when it was acquired on 1 April 2000 and this hasnot changed as a result of the revaluation. The directors of Angelo wish to incorporate thisvalue in the financial statements for the year ended 31 March 2011.

Plant is depreciated at 20% per annum on net book value.

ii) The investment property was revaluated at $1.7 million on 31 Mar 2011.

iii) Included in the sales revenue is an amount of $1 million relating to sales made under a sales or return basis. These goods were subsequently returned in good condition after 31 Mar 2011.These goods were sold at a mark up of 25%.



iv) The figures in respect of contract balances relate to a three-year contract entered into on 1 July2010. Details relating to this contract are:

$000Contract price 10,000Estimated total contract costs 6,000Agreed value of work completed and billed at 31 March 2011 3,000

Baka Ltd’s policy is to recognise profits on long-term construction contracts from the point thatthey become more than 20% complete. The percentage of completion is deemed to be theagreed value of the work completed to date as a percentage of the total contract price. Contractrevenue is taken as the agreed value of the work completed to date.

v) A provision for income tax for the year to 31 March 2011 of $400,000 is required. Thedirectors declared a final dividend of 7c per share for 20 million ordinary shares in issue on 25March 2011.

vi) Closing Inventory as at 31 March 2011 was stated at a cost of $3.1 million.

Required :

a) Prepare the statement of comprehensive income for Baka Ltd for the year ended 31 March2011.

(10 marks)

b) Prepare the statement of changes in equity and (5 marks)

c) The statement of financial position for Baka Ltd as at 31 March 2011.(10 marks)



Question 3

Allion Ltd has provided you with the balance sheets and some information for the years to 31 May2008 and 2009.

Allion Ltd

Balance Sheet as at

31 May 2009 31 May 2008$000 $000 $000 $000

Non current assetsProperty, plant and equipment 1,320 1,120Computer software 200 100

1,520 1,220

Current Assets

Stock 520 530Debtors 797 584Investments – Government securities 50 180Cash nil 1,367 135 1,429Total assets 2,887 2,649

Equity and Liabilities

Capital and ReservesEquity Shares of $1 each 500 400ReservesShare premium 140 80Accumulated profits 994 1,134 972 1,052

1,634 1,452

Non-current liabilitiesFinance lease obligation 280 60Deferred tax 12 92Plant maintenance provision nil 292 80 232

Current liabilitiesCreditors 600 602Bank overdraft 108 nilUnpaid dividends declared 100 120Taxation 83 213Finance lease obligations 70 961 30 965

2,887 2,649



The income statement for the year ended 31 Mar 2009 shows the following:$000

Net profit before tax 203Income tax expenses (41)

____ Net profit after tax 162

Dividend (140) _____ Retained profit 22

_____

The following supporting information is available:

i) Details relating to the non-current assets are (in $000s):

31 May 2009 31 May 2008

Cost Depreciation NBV Cost Depreciation NBV

Freehold land and buildings nil nil nil 700 120 580Leasehold land and buildings 500 20 480 nil nil nilPurchased plant 580 250 330 620 200 420Plant on finance lease 650 140 510 150 30 120

1,320 1,120

On 1 April Allion Ltd sold its freehold property for $700,000.

The total amount of payments made in the year to 31 March 2009 in respect of finance leases was$275,000, of which $35,000 was for interest. Interest expense on bank overdraft was $10,000.

During the same period ‘purchased’ plant which had originally cost $190,000 was sold for $75,000giving a profit of $14,000.

ii) The plant maintenance provision was released in the income statement in the year to 31 March2009 as such provisions are no longer permitted under the rules in FRS 37 ‘Provisions,Contingent Liabilities and Contingent Assets’.

iii) The total tax charge (including deferred tax) in the income statement for the year to 31 March2009 was $41,000.

iv) During the year some Government securities, which are shown at cost in the balance sheet,were sold at a profit of $15,000. This profit was credited to the income statement, as was$9,000 of income received from the securities. No other Government securities were traded during the year.

v) Allion Ltd paid an interim dividend during the year to 31 March 2009 of $40,000.



Required :

a) As far as the information permits, prepare a cash flow statement for Allion for the year to 31March 2009 in accordance with FRS 7 ‘Cash Flow Statements’.

(20 marks)

b) Identify the important areas that you would draw based on the information in the question and the cash flow statement prepared in (a). You are not required to calculate ratios.(5 marks)



Question 4

The IASB’s framework for the preparation and presentation of financial statements sets out theconcepts that underlies the preparation and presentation of financial statements that external users arelikely to rely on when making economic decisions about an enterprise.

a) Discuss the extent that the formulation of a “conceptual framework” by IASB had aided in the process of setting accounting standards?(8 marks)

On 1 January 2008 Lawson Ltd issued an 8% $10 million convertible loan at par. The loan isconvertible in three year time to ordinary shares or redeemable at par in cash.The directors decided toissue the convertible loan because a non convertible loan would have required an interest rate of 10%.The directors intend to show the loan at $10 million under the non current liabilities. The followingdiscount rates are available:

8% 10%

Year 1 0.93 0.91Year 2 0.86 0.83Year 3 0.79 0.75

Required:Describe how Lawson Ltd should treat the items in its financial statements for the year ended 31 Dec2008

(7 marks)



Question 5

On 1 Jan 2008, Caterpillar acquired a profitable Game Arcade for $1.5 million, the summarized fair value of the assets reflecting the term of the acquisition was:

$,000

Goodwill 500Leasehold premise( 10 years remaining) 400Machines at the premise 300Operating license 300

_____ 1,500 _____

At the dates of acquisition, the machines had an average estimated remaining life of five years and theoperating licenses has an effective duration of three years.

For the year ended 31 Dec 2008, the Game Arcade generated a very healthy profit of $800,000,which is higher than initial expectation, and business was looking very bright at 31 Dec 2008.

But on 1 Apr 2009, the government announced a change in policy to disallow students under theage of 16 years old to enter the Game Arcade, this has seriously affected the revenue of the business, and it is felt that the fair value of the business had fallen to $400,000, taking into accountfuture revenue. A professional assessment of the machines at the premise indicated fair value of $150,000.

Required:

In accordance with requirements of FRS36 “Accounting for impairment of Assets”, briefly describehow each of the assets should be valued at 31 Dec 2008 and 31 Dec 2009.

(10 marks)

acca dec 2011 f7 mock paper

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