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:

This is a closed book examination.

Non-programmable calculators are allowed.

You must answer all three

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 31^st 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

Additional Information

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

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

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).

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

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:

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

Narrative	Workings	Answer $(000)
Consideration and NCI:



Net Assets at Acquisition:





Goodwill at acquisition

Goodwill at carrying value

(7 marks)

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

Narrative	Workings	Answer $(000)

(6 marks)

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

Narrative	Workings	Answer $(000)

(2.5 marks)

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 1 (continued)

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

Statement of Financial Position as at 31^st 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 31^st March 2021.

The following information is available:

Street plc is a recruitment agency; placing temporary staff into businesses. Street plc is a business to business company (only works with businesses).
Management have decided that in order to increase sales, they would offer extended client terms to 90 days.
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 31^st 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 31^st 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

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 31^st 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.

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

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:

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

Narrative	Workings	Answer $

(8 marks)

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)

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 31^st 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

Share premium 20,000

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:

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 31^st March 2021. Educare plc has a policy for depreciation as follows:

The values in the above Statement of Financial Position are as at 1^st 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).

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.

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.

On 1^st 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.

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:

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

Narrative	Workings	$’000

(6 marks)

b) Make a Statement of Changes in Equity as at 31^st March 2021.

Narrative	Share Capital	Share Premium	Revaluation Surplus	Retained earnings	Total Equity

marks)

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 3 (continued)

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

Statement of Financial Position as at 31^st 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)

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:

This is a closed book examination.

Non-programmable calculators are allowed.

You must answer all three

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 31^st 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

Additional Information

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

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

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).

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

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:

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

Narrative	Workings	Answer $(000)
Consideration and NCI:



Net Assets at Acquisition:





Goodwill at acquisition

Goodwill at carrying value

(7 marks)

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

Narrative	Workings	Answer $(000)

(6 marks)

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

Narrative	Workings	Answer $(000)

(2.5 marks)

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 1 (continued)

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

Statement of Financial Position as at 31^st 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 31^st March 2021.

The following information is available:

Street plc is a recruitment agency; placing temporary staff into businesses. Street plc is a business to business company (only works with businesses).
Management have decided that in order to increase sales, they would offer extended client terms to 90 days.
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 31^st 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 31^st 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

Non-Current Assets

Intangible Assets refer to the new booking system.

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

Depreciation

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 2 (continued)

Required:

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

Narrative	Workings	Answer $

(8 marks)

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)

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 31^st 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

Share premium 20,000

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:

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 31^st March 2021. Educare plc has a policy for depreciation as follows:

The values in the above Statement of Financial Position are as at 1^st 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).

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.

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.

On 1^st 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.

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:

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

Narrative	Workings	$’000

(6 marks)

b) Make a Statement of Changes in Equity as at 31^st March 2021.

Narrative	Share Capital	Share Premium	Revaluation Surplus	Retained earnings	Total Equity

marks)

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 3 (continued)

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

Statement of Financial Position as at 31^st 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