38 Chapter 7 Paper F7 Preparation of the Consolidated Statement of Financial Position September/December 2016 but where the examiner tells us the value of the NCI is based on a full or fair value basis of the market value of the subsidiary information may be given in any one of three ways the exam question could say, for example, either goodwill attributable to the NCI on acquisition was $2,000, or the NCI investment was estimated at $30,000, or the market value of the subsidiary shares immediately before acquisition was $4. Ivona Guido $ $ Investment in Guido 100,000 - Other net assets 60,000 190,000 160,000 190,000 $1 Equity shares 70,000 80,000 Retained earnings 90,000 110,000 160,000 190,000
58 Chapter 10 Paper F7 Preparation of the Consolidated Statement of Profit or Loss and Other Comprehensive Incomeeme2Sbeep0em16ber (Ignore goodwill) Strictly speaking, the Statement of Profit or Loss and Other Comprehensive Income should finish on the line “Profit after tax”, but continue down through non-controlling interest and dividends Inter-entity trading issue when considering the group as if it were a single entity, inter-entity trading represents transactions which the group undertakes with itself. Clearly these have to be eliminated from the results. The value of inventory in the Consolidated Statement of Profit or Loss and Other Comprehensive Income may need to be adjusted to make sure that it represents the cost to the group. Lina $ $ Revenue 40,000 30,000 Cost of sales and expenses 27,000 16,000 Profit from operations 13,000 14,000 Dividend from subsidiary - Profit before tax 16,000 14,000 Taxation 4,800 4,200 Profit after tax 11,200 9,800 Dividends of $6,000 and $5,000 respectively have been proposed. During the year Lina sold $4,000 worth of goods at a mark up of 25% to Sigimantas. Sigimantas had none of these goods in inventory at the year end. Prepare a Consolidated Statement of Profit or Loss and Other Comprehensive Income for the Lina Group for the year ended 31 December, 2009.
70 Chapter 13 Paper F7 Calculation of Construction Contract Profits September/December 2016 contract revenue comprises: initial amount of revenue agreed in the contract agreed variations in contract work, claims and incentives… … but only to the extent that revenue will probably result, and … these revenues are capable of reliable measurement Tomas has been asked by Iveta to build an apartment block in Kaunas. The project will take 4 years. Iveta has agreed to pay the following: $ 1 million for the apartment block $300,000 extra if the block is at least 60% complete by the end of year 2 a bonus of $100,000 if Iveta is pleased with the finished block At the end of year 1, how much of the total contract revenue should be recognised? At the end of year 2, what options would you have?
Chapter 20 Paper F7 Interpretation of Accounts – Ratio Analysis September/December 2016 The key ratios Profitability 115 Return on capital employed (or ROCE) PBIT expressed as a percentage TALCL PBIT Profit before interest and tax. It is often referred to internationally as IBIT (Income before interest and tax) TALCL Total assets less current liabilities. It is equal to the capital invested in the business (equity plus non-current liabilities) Profit margin PBIT expressed as a percentage Revenue Asset turnover Revenue expressed as a multiple TALCL Return on equity Profit available for equity expressed as a percentage Equity shareholders’ funds Liquidity Current ratio Current assets : Current liabilities expressed as ratio eg 3:1 Quick ratio (or acid test) Current assets less inventory : Current liabilities expressed as a ratio Inventory turnover Cost of sales expressed as a multiple Average inventory Receivables collection period Trade receivables × 365 expressed as a number of days Credit sales Payables payment period Trade payables × 365 expressed as a number of days Credit purchases Gearing Debt/equity Interest bearing net debt expressed as a percentage Shareholders’ funds Debt/debt + equity Interest bearing net debt expressed as a percentage Shareholders’ funds + Interest bearing net debt Net debt long term debt net of any spare cash. In some cases, a long term bank overdraft is classed as long term debt. Interest cover PBIT expressed as a
152 Chapter 29 Paper F7 Agriculture September/December 2016 in this case, the asset should be measured at cost less accumulated depreciation and impairment losses but the entity must still measure all of its other biological assets at fair value less costs to sell and if circumstances change and fair value becomes reliably measurable, a switch to fair value less costs to sell is required guidance on the measurement of fair value best measure is “quoted market price in an active market” if no active market, a market–based price such as the most recent market price for that type (or similar) asset if market–based prices not available, the net present value of related cash flows from that asset, discounted at the entity’s current cost of capital in rare circumstances, cost may be taken as fair value where there has been little or no change to the biological asset since acquisition or where such change is not likely to have a material affect on value the fair value of a biological asset is based on current prices and is not reflective of actual prices agreed in binding sales contracts requiring delivery at some time in the future sundry points change in fair value of biological assets is part due to physical change (asset is one year older) and part due to market price change separate disclosure of the two elements is encouraged but not required fair value measurement stops at harvest. After that, IAS on inventory applies agricultural land is accounted for under IAS on PPE but agricultural assets attached to the land (for example fruit trees) are measured separately from the land intangible agricultural assets (for example milk quotas) are accounted for under IAS intangible assets government grants unconditionally received in respect of biological assets measured at fair value less costs to sell are accounted for as income in the period when the grant is receivable but if the grant is conditional, it shall be recognised as income only when the conditions have been met this includes grants receivable where an entity is required NOT to engage in agricultural activities
166 Paper F7 Answers to Examples September/December 2016 answEr to ExamplE 7 $ Goodwill (W2) 35,000 Other net assets (60 + 190) 250,000 285,000 $1 Equity shares 70,000 Retained earnings (W3) 132,000 NC Interest (W4) 83,000 285,000 60% 40% Cost of investment 100,000 Nci investment valuation 55,000 155,000 Net assets @ doa $1 Equity shares 80,000 Retained earnings 40,000 120,000 Goodwill 35,000 W3 Consolidated retained earnings Ivona Guido per q 90,000 110,000 - pre acq 40,000 ... post acq 70,000 our share 42,000 60% 132,000 W4 NCI (40%) Value @ doa 55,000 Share of S post acq ret’d 40% × (110,000 - 40,000) 28,000 83,000 answEr to ExamplE 8 $ Goodwill (W2) 32,800 Other assets (60 + 190) 250,000 282,800 $1 Equity shares 70,000 Retained earnings (W3) 132,000 Nci (W4) 80,800 282,800
172 Paper F7 Answers to Examples September/December 2016 answEr to ExamplE 3 Linas Group Consolidated Statement of Financial Position as at 31 December, 2009. $’000 TNCA (400 - 5 + 240) 635 Current assets (440 + 510) 950 1,585 $1 Equity shares L Only 300 Retained earnings (W3) 767 NC Interest (W4) 1,355 Current liabilities (200 + 30) 230 1,585 W1 L A 40% W2 Goodwill Cost 160,000 Nci investment valuation 158,000 318,000 Net assets @ doa $1 Equity shares 120,000 Retained earnings 275,000 395,000 Goodwill (77,000) Pup calculation Asset cost 200,000 Acc dep 120,000 80,000 Sold for 90,000 Pup of 10,000 Dep for 2009 40,000 45,000 ... excess dep is 5,000 W3 Consolidated retained earnings W4 NC Interest (40%) Value @ doa 158,000 Share of S post acq ret’d 40% x 325,000 130,000 288,000 60
190 Paper F7 Answers to Examples September/December 2016 answEr to ExamplE 2 2009 2010 2011 Total $ $ $ $ Profit before depreciation 1,800,000 2,300,000 2,500,000 6,600,000 Depreciation (200,000) (200,000) (200,000) (600,000) Profit 1,600,000 2,100,000 2,300,000 6,000,000 Tax – current (Wl) 300,000 575,000 625,000 1,500,000 – deferred (W2) - 1,200,000 1,575,000 1,725,000 4,500,000 Deferred tax liability 100,000 50,000 - The temporary difference in this example is the difference between the carrying value of the asset (net book value) and its tax written down value after deducting the tax allowances. (W1) Income Tax working 2009 2010 2011 $ $ $ Profit before depreciation 1,800,000 2,300,000 2,500,000 Tax allowances - - 1,200,000 2,300,000 2,500,000 At 25% 300,000 575,000 625,000 (W2) Deferred tax working Book value 400,000 200,000 – Tax written down value – – – 400,000 200,000 – At 25% 100,000 50,000 – answEr to ExamplE 3 Revaluation Carrying value 342,000 Revalued to 258,000 less deferred tax 37,500 Revaluation reserve 220,500 Deferred tax Revalued amount 600,000 Tax written down value 450,000 Temporary difference 150,000 @ 25% 37,500 Deferred tax answEr to ExamplE 4 2009 2010 $’000 $’000 Profit from operations 660 660 Warranties (160) - 500 660 Tax – current 165 125 – deferred (40) 40 Profit after tax 375 495 Deferred tax asset 40 - The temporary difference is equivalent to the difference between the Statement of Financial Position accrual for warranties and the tax base of the warranty payments liability which is nil in 2009, because nothing has yet been paid.
198 Paper F7 Answers to Examples September/December 2016 Appendix 2009 2008 Return on capital employed 115 0.75% 76 0.48% 16,248 16,008 Profit margin 115 9.4% 76 7.6% 1,220 1,000 Asset turnover 1,220 0.075% 1,000 0.062% 16,248 16,008 Return on equity 64 0.40% 54 0.34% 16,048 16,008 Current ratio 520 : 872 .6 : 1 310 : 202 1.5 : 1 Quick ratio 295 : 872 .3 : 1 190 : 202 .95 : 1 Inventory turnover 900 4 × 760 6.3 × 225 120 Receivables days 280 × 365 83.7 days 125 × 365 46 days 1,220 1,000 Payables days 440 × 365 176 days 160 × 365 80 days 900 760 Debt / equity 200 1.25% N/A 16,048 Interest cover 115 4.87 × N/A 24 Dividend cover 64 2.7 54 2.7 24 20 Chapter 21 answEr to ExamplE 1 Rights fraction Shares Value In vestment Before 4 4 16 Rights 1 3 3 After 5 19 After the rights issue, an existing investor has an investment of 5 shares worth $19 ie $3.80 per share. The rights fraction is therefore CRAP ie 4.00 TERP 3.80 Do not reduce this to a decimal calculation. A degree of accuracy is unnecessarily lost. Basic EPS calculation Date Number Fraction WANES 1.1.09 5,000,000 7/12 4/3.8 1.8.09 6,250,000 5/12 EPS 3,000,000 = 52.9c 5,674,341 2008 as originally disclosed 54c as restated 54 ×3.8 = 51.3c 4
Paper F7 Mini Exercises – Answers September/December 2016 Answer 2 237 (a) Cost of investment 420,000 Nci investment valuation 340,000 NA @ doa Shares 300,000 Ret ears 400,000 700,000 Goodwill 60,000 Impairment 60% 36,000 24,000 (Nci share of impairment 45% x 36,000 16,200) (b) Cost of investment 420,000 Nci investment valuation 324,000 NA @ doa as above 700,000 Goodwill 44,000 Impairment 60% 17,600 (Nci share of impairment 45% x 26,400 11,880) (c) Cost of investment 420,000 NA @ doa as above 700,000 H's share 55% 385,000 35,000 Nci goodwill (given) Goodwill 45,000 Impairment 60% 18,000 (Nci share of impairment 45% x 27,000 12,150) (d) Cost of investment 420,000 Nci investment valuation 45% x 700,000 315,000 735,000 NA @ doa as above 700,000 Goodwill 35,000 Impairment 60% 14,000