kaplan acca interim mock june 2015 p2

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ACCA Paper P2 Corporate Reporting June 2015

Interim Assessment

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ACCAINTERIMASSESSMENT

CorporateReporting

June 2015

TimeallowedReadingtime: 15minutesWritingtime: 3hours

ThispaperisdividedintotwosectionsSectionA ThisquestioniscompulsoryandMUSTbeansweredSectionB AnswerBOTHquestions

DonotopenthispaperuntilinstructedbythesupervisorThisquestionpapermustnotberemovedfromtheexaminationhall

KaplanPublishing/KaplanFinancial

Pape

rP2(

INT&

UK)



ACCA P2 ( INT & UK) : CORPORATE REPORTING

2 KAPLAN PUBLISHING

KaplanFinancialLimited,2014Thetext inthismaterialandanyothersmadeavailablebyanyKaplanGroupcompanydoesnotamounttoadviceonaparticularmatterandshouldnotbetakenassuch.Norelianceshouldbeplacedonthecontentasthebasisforanyinvestmentorotherdecisionorinconnectionwithanyadvicegiven to thirdparties.Pleaseconsultyourappropriateprofessionaladviserasnecessary.KaplanPublishingLimitedandallotherKaplangroupcompaniesexpresslydisclaimall liabilitytoany person in respect of any losses or other claims, whether direct,indirect, incidental, andconsequentialorotherwisearisinginrelationtotheuseofsuchmaterials.Allrightsreserved.Nopartofthisexaminationmaybereproducedortransmittedinanyformorbyanymeans,electronicormechanical,includingphotocopying,recording,orbyanyinformationstorageandretrievalsystem,withoutpriorpermissionfromKaplanPublishing.



INTERIM ASSESSMENT QUESTIONS

KAPLAN PUBLISHING 3

SECTIONAThisquestioniscompulsoryandMUSTbeanswered1 WatchisacompanythatproducesitsfinancialstatementsinaccordancewithInternational

Financial Reporting Standards. Buildings are held at fair value whenever permitted byrelevantaccountingstandards.Adraftstatementof financialpositionasat31December20X5ispresentedbelow: $mNoncurrentassets Property,plantandequipment 76Investmentproperties 5Financialassets 15 96Currentassets Inventories 14Tradeandotherreceivables 17Cashandcashequivalents 3 Totalassets 130 Equityandliabilities Sharecapital 10Sharepremium 15Retainedearnings 50Othercomponentsofequity 5 Noncurrentliabilities Loans 19 Currentliabilities Tradeandotherpayables 31 Totalequityandliabilities 130

Anumberofaccountingissueshaveyettoberesolved.Thefollowinginformationisrelevanttothecompletionofthefinancialstatementsfortheyearended31December20X5:1 On1January20X1,Watchpurchasedabuildingforuseinthebusiness.Thebuilding

cost$10millionwasattributedausefuleconomic lifeof50years.At31December20X5,thebuildingisdeemedtohaveafairvalueof$13million.Thisrevaluationhasnotyetbeenaccountedfor.

2 The investmentpropertiesofWatch relate to abuilding thathashistoricallybeenheldtoearnrentalincome.Thisbuildingwasworth$5millionon1January20X5.On31December20X5,Watchreoccupiedthebuildingandstartedtouse itasaheadoffice.Itsfairvalueon31December20X5was$5.5million.




4 KAPLAN PUBLISHING

3 Thefinancialassetsbalancerelatesto$15millionthatwas loanedtoakeysupplieron 1 January 20X5. The loan, which is interestfree, is due to be repaid on 31December20X6.Thesuppliercanusuallyborrowatarateof15%.

4 On1October20X5,Watchentered intoafuturescontracttosell10,000unitsof itsinventory for $5 million. No consideration was paid for the futures contract atinception.Thiswasdesignatedasa fairvaluehedge,with inventoryas thehedgeditemandthefuturescontractasthehedging instrument.Bythereportingdate,thefairvalueofthe futurescontracthadrisento$1.1millionandthe fairvalueoftheinventoryhadfallenby$0.9million.

5 By31December20X5,$1.5millionhasbeen received indeposits from customersawaitingthereleaseofWatchslatestproduct.Thecashreceivedhasbeenrecordedasrevenue.Thegoodswerenotdespatchedtothecustomersuntil15January20X6.

6 Watchoperatesadefinedcontributionpensionschemeand isobligedtocontribute5% of gross salaries into the scheme. For the year ended 31 December 20X5employee salaries were $8 million and Watchs contributions to the schemeamountedto$300,000.

7 On30June20X5,Watch introducedasharebasedpaymentschemefor1,000of itsemployees.Eachoneoftheseemployeeswasgranted1,000shareoptionsthatwillvestiftheyremainwiththecompanyforafurther3years.

At 31 December 20X5, 970 of the employees still worked for the company. It isestimated that the employees who were granted share options will leave thecompanyatarateoffivepermonth.Thefairvalueofeachshareoptionwas$4.20on30June20X5and$4.60on31December20X5.Noaccountingentrieshavebeenpostedforthissharescheme.

8 IncludedintheloansbalanceofWatchisaloandenominatedintheMark(MK).Thisloanwas forMK13millionandwas receivedon1March20X5.The accountantofWatch correctly recorded this using the spot rate on 1March 20X5 but no otherentrieshavebeenposted.Relevantexchangeratesareasfollows:Date MK:$1March20X5 3.231December20X5 3.6

9 On 31 December 20X5, Watch issued 1 million $10 5% convertible loan notes.Interest ispayableannually inarrears.Theholdersofthese loannotescanredeemthemon31December20X8intheformofcashorequityshares.Similardebtwithoutaconversionoptionhasan interest rateof8%.Theproceeds from thisbond issuehavebeenrecordedwithinloans.

Requirement:(a) Usingtheinformationabove,preparethestatementoffinancialpositionforWatch

as at 31 December 20X5 in accordance with International Financial ReportingStandards.Ignoredeferredtaxissues. (35marks)

AlthoughWatchholdsbuildingsatfairvalue,theFinanceDirectorisunsureofthespecificrequirementsofIFRS13.Requirement:(b) Accordingto IFRS13,what ismeantbytheterm fairvalueandhowshould itbe

determined? (9marks)(c) Discusstheethicalresponsibilitiesofanaccountantwhenaccountingforbuildings

atfairvalue. (6marks) (Total:50marks)






KAPLAN PUBLISHING 5

SECTION B AnswerBOTHquestions2 Shine is a company that prepares its financial statements under International Financial

ReportingStandards.Therearesomeoutstandingaccountingissuesthatrelatetotheyearended31December20X1.(a) During theyear,Shinesoldgoods toStar for$500,000atamarkupof30%.Shine

normallymakes amarkupof70%on its sales.By the yearend, this sales invoiceremainedoutstanding.MrsJonesowns100%oftheequityshares inShine,and isadirectorofStar. (5marks)

(b) Duringtheyearended31December20X1,Shinespent$3.0milliononresearchanddevelopmentactivities.Abreakdownofthisisprovidedbelow: $mResearchactivities(1Jan20X130April20X1) 1.2Developmentactivities(1May20X131December20X1) 1.8 3.0

On 1May 20X1,prudent forecasts indicated that this projectwould be extremelyprofitable,butitwasnotuntil30June20X1thatthecompanyhadadequatefundstocompletetheproject.At31December20X1,developmentwasstillongoing.Underlocallaw,researchanddevelopmentexpenditureisdeductiblefortaxpurposesonacashpaidbasis.Shinepaystaxatarateof25%. (6marks)

(c) On30June20X1,Shinesolditsfreeholdofficepremisesfor$10millionandleaseditback on a 5 year lease term.At this date, the office had a carrying valueof $3.2million,a fairvalueof$7million,andaremaininguseful lifeof30years.Shinewillpayannualrentalsof$800,000inarrears. (6marks)

(d) On1 January20X1, Shinepurchased anew itemofmachinery for$2million.Thisitemofmachinery containshazardous chemicalswhoseuseanddisposal is strictlycontrolledby legislation.Theplantwillbeusedfor10years,atwhichpointShine islegally obliged to dismantle the asset and have it safely disposed of. Thesedismantling costsareestimated tobe$500,000.Adiscount rateof10% shouldbeused. (6marks)

Required:Discusshowtheabovetransactionsshouldbeaccountedfor inthefinancialstatementsofShinefortheyearended31December20X1.Note:themarkallocationisshownagainsteachofthefoureventsabove.

Professional marks will be awarded in question 2 for the clarity and quality ofpresentationanddiscussion. (2marks) (Total:25marks)




6 KAPLAN PUBLISHING

3 AlbumpreparesitsfinancialstatementsunderInternationalFinancialReportingStandards.Its functional currency is the dollar ($). The directors require advice about a number ofissuesofrelevancetothefinancialstatementsfortheyearended31December20X1.(a) Album is targeting an international readership and therefore has a factory and

warehouse located overseas. On 1 December 20X1, the January 20X2 edition ofRunnersUniversewasprintedataproductioncostofCU200,000.On31December20X1,thesemagazineswereheld in inventoryandhadanestimatednetsalespriceofCU250,000.Thisvaluationwasconfirmedpostyearend.

There have been significant fluctuations in the currency markets. The followingexchangeratesarerelevant:Date CU:$1December20X1 2.1:131December20X1 3.0:1

(5marks)(b) Album launched a new monthly magazine during the year and has sold a large

numberofannualsubscriptions.Customerspayforthetwelveissuesinadvanceandreceivetheir firstmagazine inthemonth followingpayment (e.g.customerswhosepaymentisreceivedinSeptemberwillreceivetheirfirstmagazineinOctober).

Albumhas recorded$504,000as revenue fromsubscriptions to thisnewmagazinefortheyearended31December20X1.Abreakdownofthisfigureisprovidedbelow:Dateofreceipt $000September20X1 86October20X1 98November20X1 110December20X1 210 504

(6marks)(c) Despite initiatives to increase sales, the directors of Albummade the decision to

closeoneofthecompanyswarehousesduringtheyearended31December20X1.Thesalewascompletedbeforetheyearend,withAlbumrecordingamateriallossondisposal. The directors wish to highlight to the shareholders that the ongoingbusinesswillnowbemoreprofitable.Assuch,theyhavepresentedthecostsoftheclosurewithinprofitsfromdiscontinuedoperations.

Themembersofstaffemployedatthiswarehousewere initiallyrelocatedtootherareasof thebusiness.However,on15December20X1, thedirectorsdecided thatredundancieswouldneed tobemadeand that thevalueof these ismaterial.Thiswasannouncedtotheaffectedemployeeson10January20X2. (7marks)

(d) Albumpurchasedabondon31December20X1,alsoincurringtransactioncosts.Thebondpaysamarketrateofinterestandwillberedeemedincashinfiveyears.Albumgenerallyholds investmentsuntilmaturitybuthaspreviouslysold investmentsearlyin order to meet shortterm cash flow needs. The directors are unsure how toaccountforthisbond. (5marks)




KAPLAN PUBLISHING 7

Required:DiscusshowtheaboveissuesshouldbetreatedinthefinancialstatementsofAlbumfortheyearended31December20X1.Note:themarkallocationisshownagainsteachofthefoureventsabove.

Professional marks will be awarded in question 3 for the clarity and quality ofpresentationanddiscussion. (2marks) (Total:25marks)







P2 INT-UK Interim Assessment - Cover Pages Jun15P2 INT-UK Interim Assessment - Questions Jun15

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