# Math/Physic/Economic/Statistic Problems

Math/Physic/Economic/Statistic Problems

Math/Physic/Economic/Statistic Problems

CARDIFF SCHOOL OF MANAGEMENT

_____________________________________________________________

Module Title:                        Financial Reporting

Module Number:                  BAC5001

_____________________________________________________________

Examination Period:

Examination Duration:       2 hours (plus 15 minutes reading time)

_____________________________________________________________

INSTRUCTIONS TO CANDIDATES:

1. This is a closed book examination.

1. Non-programmable calculators are allowed.

1. You must answer all three

1. Mark allocation is shown on the questions.

Total marks available are 75.

QUESTION 1

The following summarised Statements of Financial Position relate to the House Group of companies as at 31st December 2020.

 Terrace Plc Bungalow Ltd Non-Current Assets \$’000 \$’000 Plant, Property and Equipment 85,500 28,000 Investment in Bungalow Ltd 21,000 – Current Assets Inventory 10,000 7,400 Receivables 8,600 6,200 Cash 4,300 750 Total Assets 129,400 42,350 Equity and Liabilities Equity Share Capital (\$1par) 60,000 15,000 Retained Earnings 62,600 23,000 122,600 38,000 Current Liabilities Payables 6,800 4,350 Total Equity and Liabilities 129,400 42,350

1. Terrace Plc purchased 12million of the shares in Bungalow Ltd on 1st January 2020, when Bungalow Ltd’s retained earnings balance was \$9,000,000.

1. At the 31st December 2020 the following intergroup debt was still outstanding: Bungalow Ltd owed Terrace Plc \$200,000.

1. During the year, Bungalow Ltd sold goods to Terrace plc for \$1,500,000 with profits being \$800,000. Half of these items were still in Terrace plc’s end of year inventory (unsold).

1. An impairment loss on goodwill for the year to 31st December 2020 has been calculated at \$150,000. This has not been reflected in the accounts.

1. The House Group has the policy to value the non-controlling interest at its fair value. At the date of acquisition, the fair value of the non-controlling interest was \$3.00 per share.

Note: Round figures to whole numbers.

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 1 (continued)

Required:

1. a) Calculate Goodwill at carrying value on 31st December 2020.

 Narrative Workings Answer \$(000) Consideration and NCI: Net Assets at Acquisition: Goodwill at acquisition Goodwill at carrying value

(7 marks)

1. b) Calculate the Consolidated Retained Earnings for the group as at 31st December 2020.

(6 marks)

1. c) Calculate the Non-Controlling Interest as at 31st December 2020.

(2.5 marks)

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 1 (continued)

1. d) Prepare the Consolidated Statement of Financial Position for the House Group as at 31st December 2020.

Statement of Financial Position as at 31st December 2020 for the House Group

 Workings Answer \$(000) Assets Non-Current Assets Current Assets TOTAL ASSETS Equity and Liabilities Equity Share Capital \$1 each Retained Earnings Non-Controlling Interests Current Liabilities TOTAL EQUITY AND LIABILITIES

(9.5 marks)

Total: 25 marks

(QUESTIONS CONTINUE ON NEXT PAGE)

QUESTION 2

As the financial accountant for Street plc, you are responsible for the preparation of a cashflow statement for the year ended 31st March 2021.

The following information is available:

1. Street plc is a recruitment agency; placing temporary staff into businesses. Street plc is a business to business company (only works with businesses).
2. Management have decided that in order to increase sales, they would offer extended client terms to 90 days.
3. A new booking system was purchased by Street Plc this year (as seen in NCA), to help match the clients’ needs to workers’ skills. It is thought that the new system will reduce manpower hours, as the previous system was a manual system, which took a significant amount of time.

Statement of Financial Position for Street plc as at 31st March

 2021 2020 \$’000 \$’000 \$’000 \$’000 Non-Current Assets Property, Plant and Equipment Intangible Assets 150 85 145 — Current Assets Inventory 5 7 Receivables 205 120 Cash at bank — 10 210 137 Total Assets 445 282 Equity and Liabilities Ordinary \$1 shares 100 100 Retained Earnings 126 97 226 197 Non-Current Liabilities Long term loan 120 50 Current Liabilities Payables 99 35 Total Equity and Liabilities 445 282

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 2 (continued)

Income Statement for Street plc for the year ended 31st March 2021

 \$’000 Revenue 18,500) Cost of sales (12,250) Gross Profit 6,250) Distribution costs (110) Administrative expenses (950) Operating profit 5,190) Finance costs (12) Profit before taxation 5,178) Tax expense (1,200) Profit after taxation 3,978) Dividends paid in the period 3,949
1. Non-Current Assets

Plant, Property and Equipment (PPE) held by Street plc are office items of property and equipment for the head-office.  During the year to 31st March 2021, office items were upgraded and as such the business disposed of some of their older items.  These pieces of equipment, which originally cost \$10,000 were disposed of, resulting in a loss of \$2,000.  These items had a carrying value of \$5,000 at the date of disposal.

Intangible Assets refer to the new booking system.

1. Payables

The total payables figure breaks down as follows:

 2021 2020 \$’000 \$’000 Bank overdraft 70 — Trade payables 4 16 Interest payable 10 10 Current tax payable 15 9

1. Depreciation

The depreciation charge for the year, included in the income statement was \$15,000 for PPE but it was agreed that there should be no amortisation for the intangible assets, in the year of capitalisation.

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 2 (continued)

Required:

1. a) Calculate Net cash flow from operating activities for Street Plc as at 31st March

(8 marks)

1. b) Draw up a Statement of Cashflows for Street plc, using the indirect method, in accordance with IAS7.

 \$ \$ Net cash from operating activities CASHFLOWS FROM INVESTING ACTIVITES Purchase of non-current assets Receipts from sale of non-current assets Net cash used in investing activities CASHFLOWS FROM FINANCING ACTIVITES Proceeds from share issue Proceeds from long-term borrowing Dividend paid Net cashflows used in financing activities Net increase in cash and cash equivalents Net cash and cash equivalents at the beginning Net cash and cash equivalents at the end of period

 Workings for NCA Workings for shares Workings for Loans
• marks)

1. c) Using your calculations and the information available, evaluate Street plc’s cash position.

(9 marks)

Total: 25 marks

QUESTION 3

Below is a summarised draft statement of financial position of Educare plc, a publicly listed company, as at 31st March 2021.

\$’000              \$’000

Non-Current Assets

PPE (note 1)                                                                                     350,000

Current Assets

Inventories                                                                              29,000

Receivables (note 2)                                                             65,000

Bank                                                                                           8,800

102,800

Total Assets                                                                                                  452,800

Equity and liabilities

Ordinary shares of \$1 each                                                                       190,000

Revaluation reserve                                                                                                  16,000

Retained earnings- at 01/04/20                                         85,600

For year ended 31/3/21                                           53,200            138,800

364,800

Current liabilities (note 3)                                                               88,000

Total Equity and Liabilities                                                                          452,800

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 3 (continued)

The following information is relevant:

1. The value of ‘PPE’ is made up of \$100m land, \$150m buildings and \$100m machinery. Non-current assets have not been depreciated for the year ended 31st March 2021.  Educare plc has a policy for depreciation as follows:

• The values in the above Statement of Financial Position are as at 1st April 2020 when the buildings had a remaining life of ten years.

• Machinery is depreciated at 15% on the reducing balance basis (carrying value is included in the above statement).

1. The new Finance Director discovered a material fraud perpetrated by the company’s previous Finance Director. A full audit and investigation was completed however it was noted that the Trade Receivable figure in the draft accounts included \$6m that had already been paid by the said receivables.  However, it has been calculated that only \$1m was for the year to 31/3/21.  Insurers have advised that none of the \$6m is recoverable due to the poor systems in place at Educare plc at that time. Also the previous Finance Director can not be located.

1. From calculations carried out by the new Finance Director, it was estimated that corporation tax for the year to 31/3/21 would be \$10m.

1. On 1st August 2020 there was a fully subscribed rights issue of one new share for every seven held at a price of \$1.50 each. The proceeds of the issue have been received and the issue of the shares has been correctly accounted for in the above statement of financial position.

1. Dividends were paid during the year. The first was in June 2020, where a dividend of 8 cents per share was paid.  A further dividend of 4 cents per share was paid at the end of December 2020.  Both of these dividends have already been accounted for in the above statements.

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 3 (continued)

Required:

1. a) Recalculate the profit for the year ended 31st March 2021.

 Narrative Workings \$’000

(6 marks)

1. b) Make a Statement of Changes in Equity as at 31st March 2021.
 Narrative Share Capital Share Premium Revaluation Surplus Retained earnings Total Equity
• marks)

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 3 (continued)

1. c) Make a Statement of Financial Position as at 31st March 2021.

Statement of Financial Position as at 31st March 2021 for Educare Plc

 Workings Answer \$(000) Assets Non-Current Assets Current Assets TOTAL ASSETS Equity and Liabilities Equity Current Liabilities TOTAL EQUITY AND LIABILITIES

(5 marks)

1. d) With reference to the appropriate standard, discuss how you accounted for the fraud in the above statements.

(5 marks)

Total: 25 marks

—END OF PAPER—

Math/Physic/Economic/Statistic Problems

CARDIFF SCHOOL OF MANAGEMENT

_____________________________________________________________

Module Title:                        Financial Reporting

Module Number:                  BAC5001

_____________________________________________________________

Examination Period:

Examination Duration:       2 hours (plus 15 minutes reading time)

_____________________________________________________________

INSTRUCTIONS TO CANDIDATES:

1. This is a closed book examination.

1. Non-programmable calculators are allowed.

1. You must answer all three

1. Mark allocation is shown on the questions.

Total marks available are 75.

QUESTION 1

The following summarised Statements of Financial Position relate to the House Group of companies as at 31st December 2020.

 Terrace Plc Bungalow Ltd Non-Current Assets \$’000 \$’000 Plant, Property and Equipment 85,500 28,000 Investment in Bungalow Ltd 21,000 – Current Assets Inventory 10,000 7,400 Receivables 8,600 6,200 Cash 4,300 750 Total Assets 129,400 42,350 Equity and Liabilities Equity Share Capital (\$1par) 60,000 15,000 Retained Earnings 62,600 23,000 122,600 38,000 Current Liabilities Payables 6,800 4,350 Total Equity and Liabilities 129,400 42,350

1. Terrace Plc purchased 12million of the shares in Bungalow Ltd on 1st January 2020, when Bungalow Ltd’s retained earnings balance was \$9,000,000.

1. At the 31st December 2020 the following intergroup debt was still outstanding: Bungalow Ltd owed Terrace Plc \$200,000.

1. During the year, Bungalow Ltd sold goods to Terrace plc for \$1,500,000 with profits being \$800,000. Half of these items were still in Terrace plc’s end of year inventory (unsold).

1. An impairment loss on goodwill for the year to 31st December 2020 has been calculated at \$150,000. This has not been reflected in the accounts.

1. The House Group has the policy to value the non-controlling interest at its fair value. At the date of acquisition, the fair value of the non-controlling interest was \$3.00 per share.

Note: Round figures to whole numbers.

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 1 (continued)

Required:

1. a) Calculate Goodwill at carrying value on 31st December 2020.

 Narrative Workings Answer \$(000) Consideration and NCI: Net Assets at Acquisition: Goodwill at acquisition Goodwill at carrying value

(7 marks)

1. b) Calculate the Consolidated Retained Earnings for the group as at 31st December 2020.

(6 marks)

1. c) Calculate the Non-Controlling Interest as at 31st December 2020.

(2.5 marks)

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 1 (continued)

1. d) Prepare the Consolidated Statement of Financial Position for the House Group as at 31st December 2020.

Statement of Financial Position as at 31st December 2020 for the House Group

 Workings Answer \$(000) Assets Non-Current Assets Current Assets TOTAL ASSETS Equity and Liabilities Equity Share Capital \$1 each Retained Earnings Non-Controlling Interests Current Liabilities TOTAL EQUITY AND LIABILITIES

(9.5 marks)

Total: 25 marks

(QUESTIONS CONTINUE ON NEXT PAGE)

QUESTION 2

As the financial accountant for Street plc, you are responsible for the preparation of a cashflow statement for the year ended 31st March 2021.

The following information is available:

1. Street plc is a recruitment agency; placing temporary staff into businesses. Street plc is a business to business company (only works with businesses).
2. Management have decided that in order to increase sales, they would offer extended client terms to 90 days.
3. A new booking system was purchased by Street Plc this year (as seen in NCA), to help match the clients’ needs to workers’ skills. It is thought that the new system will reduce manpower hours, as the previous system was a manual system, which took a significant amount of time.

Statement of Financial Position for Street plc as at 31st March

 2021 2020 \$’000 \$’000 \$’000 \$’000 Non-Current Assets Property, Plant and Equipment Intangible Assets 150 85 145 — Current Assets Inventory 5 7 Receivables 205 120 Cash at bank — 10 210 137 Total Assets 445 282 Equity and Liabilities Ordinary \$1 shares 100 100 Retained Earnings 126 97 226 197 Non-Current Liabilities Long term loan 120 50 Current Liabilities Payables 99 35 Total Equity and Liabilities 445 282

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 2 (continued)

Income Statement for Street plc for the year ended 31st March 2021

 \$’000 Revenue 18,500) Cost of sales (12,250) Gross Profit 6,250) Distribution costs (110) Administrative expenses (950) Operating profit 5,190) Finance costs (12) Profit before taxation 5,178) Tax expense (1,200) Profit after taxation 3,978) Dividends paid in the period 3,949
1. Non-Current Assets

Plant, Property and Equipment (PPE) held by Street plc are office items of property and equipment for the head-office.  During the year to 31st March 2021, office items were upgraded and as such the business disposed of some of their older items.  These pieces of equipment, which originally cost \$10,000 were disposed of, resulting in a loss of \$2,000.  These items had a carrying value of \$5,000 at the date of disposal.

Intangible Assets refer to the new booking system.

1. Payables

The total payables figure breaks down as follows:

 2021 2020 \$’000 \$’000 Bank overdraft 70 — Trade payables 4 16 Interest payable 10 10 Current tax payable 15 9

1. Depreciation

The depreciation charge for the year, included in the income statement was \$15,000 for PPE but it was agreed that there should be no amortisation for the intangible assets, in the year of capitalisation.

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 2 (continued)

Required:

1. a) Calculate Net cash flow from operating activities for Street Plc as at 31st March

(8 marks)

1. b) Draw up a Statement of Cashflows for Street plc, using the indirect method, in accordance with IAS7.

 \$ \$ Net cash from operating activities CASHFLOWS FROM INVESTING ACTIVITES Purchase of non-current assets Receipts from sale of non-current assets Net cash used in investing activities CASHFLOWS FROM FINANCING ACTIVITES Proceeds from share issue Proceeds from long-term borrowing Dividend paid Net cashflows used in financing activities Net increase in cash and cash equivalents Net cash and cash equivalents at the beginning Net cash and cash equivalents at the end of period

 Workings for NCA Workings for shares Workings for Loans
• marks)

1. c) Using your calculations and the information available, evaluate Street plc’s cash position.

(9 marks)

Total: 25 marks

QUESTION 3

Below is a summarised draft statement of financial position of Educare plc, a publicly listed company, as at 31st March 2021.

\$’000              \$’000

Non-Current Assets

PPE (note 1)                                                                                     350,000

Current Assets

Inventories                                                                              29,000

Receivables (note 2)                                                             65,000

Bank                                                                                           8,800

102,800

Total Assets                                                                                                  452,800

Equity and liabilities

Ordinary shares of \$1 each                                                                       190,000

Revaluation reserve                                                                                                  16,000

Retained earnings- at 01/04/20                                         85,600

For year ended 31/3/21                                           53,200            138,800

364,800

Current liabilities (note 3)                                                               88,000

Total Equity and Liabilities                                                                          452,800

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 3 (continued)

The following information is relevant:

1. The value of ‘PPE’ is made up of \$100m land, \$150m buildings and \$100m machinery. Non-current assets have not been depreciated for the year ended 31st March 2021.  Educare plc has a policy for depreciation as follows:

• The values in the above Statement of Financial Position are as at 1st April 2020 when the buildings had a remaining life of ten years.

• Machinery is depreciated at 15% on the reducing balance basis (carrying value is included in the above statement).

1. The new Finance Director discovered a material fraud perpetrated by the company’s previous Finance Director. A full audit and investigation was completed however it was noted that the Trade Receivable figure in the draft accounts included \$6m that had already been paid by the said receivables.  However, it has been calculated that only \$1m was for the year to 31/3/21.  Insurers have advised that none of the \$6m is recoverable due to the poor systems in place at Educare plc at that time. Also the previous Finance Director can not be located.

1. From calculations carried out by the new Finance Director, it was estimated that corporation tax for the year to 31/3/21 would be \$10m.

1. On 1st August 2020 there was a fully subscribed rights issue of one new share for every seven held at a price of \$1.50 each. The proceeds of the issue have been received and the issue of the shares has been correctly accounted for in the above statement of financial position.

1. Dividends were paid during the year. The first was in June 2020, where a dividend of 8 cents per share was paid.  A further dividend of 4 cents per share was paid at the end of December 2020.  Both of these dividends have already been accounted for in the above statements.

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 3 (continued)

Required:

1. a) Recalculate the profit for the year ended 31st March 2021.

 Narrative Workings \$’000

(6 marks)

1. b) Make a Statement of Changes in Equity as at 31st March 2021.
 Narrative Share Capital Share Premium Revaluation Surplus Retained earnings Total Equity
• marks)

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 3 (continued)

1. c) Make a Statement of Financial Position as at 31st March 2021.

Statement of Financial Position as at 31st March 2021 for Educare Plc

 Workings Answer \$(000) Assets Non-Current Assets Current Assets TOTAL ASSETS Equity and Liabilities Equity Current Liabilities TOTAL EQUITY AND LIABILITIES

(5 marks)

1. d) With reference to the appropriate standard, discuss how you accounted for the fraud in the above statements.

(5 marks)

Total: 25 marks

—END OF PAPER—