(a) Tangier is a public listed company. Its summarised financial statements for the years ended 31 March 2012 and the comparative figures are shown below.<br>Statements of comprehensive income for the year ended 31 March:<br>Statements of financial position as at 31 March:<br>The following information is relevant:<br>Depreciation/amortisation charges for the year ended 31 March 2012 were:<br>There were no sales of non-current assets during the year, although property has been revalued.<br>Required:<br>Prepare the statement of cash flows for the year ended 31 March 2012 for Tangier in accordance with the indirect method in accordance with IAS 7 Statement of cash flows. (11 marks)<br>(b) The following additional information has been obtained in relation to the operations of Tangier for the year ended 31 March 2012:<br>(i) On 1 June 2011, Tangier won a tender for a new contract to supply Jetside with aircraft engines that Tangier manufactures under a recently-acquired licence. The bidding process was very competitive and Tangier had to increase its manufacturing capacity to fulfil the contract.<br>(ii) Tangier also decided to invest in Raremetal by acquiring 8% of its equity shares in order to secure supplies of specialised materials used in the manufacture of the engines. No dividends were received from Raremetal nor had the value of its shares changed since acquisition.<br>(iii) Tangier revalued its property during the year to facilitate the issue of the 10% loan notes.<br>On seeing the results for the first time, one of the company’s non-executive directors is disappointed by the current year’s performance.<br>Required:<br>Explain how the new contract and its related costs may have affected Tangier’s operating performance, identifying any further information that may be useful to your answer.<br>Your answer may be supported by appropriate ratios (up to 4 marks available), but ratios and analysis of working capital are not required. (14 marks)

(a) The objective of IAS 36 Impairment of assets is to prescribe the procedures that an entity applies to ensure that its assets are not impaired.<br>Required:<br>Explain what is meant by an impairment review. Your answer should include reference to assets that may form. a cash generating unit.<br>Note: you are NOT required to describe the indicators of an impairment or how impairment losses are allocated against assets. (4 marks)<br>(b) (i) Telepath acquired an item of plant at a cost of $800,000 on 1 April 2010 that is used to produce and package pharmaceutical pills. The plant had an estimated residual value of $50,000 and an estimated life of five years, neither of which has changed. Telepath uses straight-line depreciation. On 31 March 2012, Telepath was informed by a major customer (who buys products produced by the plant) that it would no longer be placing orders with Telepath. Even before this information was known, Telepath had been having difficulty finding work for this plant. It now estimates that net cash inflows earned from the plant for the next three years will be:<br>On 31 March 2015, the plant is still expected to be sold for its estimated realisable value.<br>Telepath has confirmed that there is no market in which to sell the plant at 31 March 2012.<br>Telepath’s cost of capital is 10% and the following values should be used:<br>(ii) Telepath owned a 100% subsidiary, Tilda, that is treated as a cash generating unit. On 31 March 2012, there was an industrial accident (a gas explosion) that caused damage to some of Tilda’s plant. The assets of Tilda immediately before the accident were:<br>As a result of the accident, the recoverable amount of Tilda is $6·7 million<br>The explosion destroyed (to the point of no further use) an item of plant that had a carrying amount of $500,000.<br>Tilda has an open offer from a competitor of $1 million for its patent. The receivables and cash are already stated at their fair values less costs to sell (net realisable values).<br>Required:<br>Calculate the carrying amounts of the assets in (i) and (ii) above at 31 March 2012 after applying any impairment losses.<br>Calculations should be to the nearest $1,000.<br>The following mark allocation is provided as guidance for this requirement:<br>(i) 4 marks<br>(ii) 7 marks

The following trial balance relates to Quincy as at 30 September 2012:<br>The following notes are relevant:<br>(i) On 1 October 2011, Quincy sold one of its products for $10 million (included in revenue in the trial balance). As part of the sale agreement, Quincy is committed to the ongoing servicing of this product until 30 September 2014 (i.e. three years from the date of sale). The value of this service has been included in the selling price of $10 million. The estimated cost to Quincy of the servicing is $600,000 per annum and Quincy’s normal gross profit margin on this type of servicing is 25%. Ignore discounting.<br>(ii) Quincy issued a $25 million 6% loan note on 1 October 2011. Issue costs were $1 million and these have been charged to administrative expenses. The loan will be redeemed on 30 September 2014 at a premium which gives an effective interest rate on the loan of 8%.<br>(iii) Quincy paid an equity dividend of 8 cents per share during the year ended 30 September 2012.<br>(iv) Non-current assets:<br>Quincy had been carrying land and buildings at depreciated cost, but due to a recent rise in property prices, it decided to revalue its property on 1 October 2011 to market value. An independent valuer confirmed the value of the property at $60 million (land element $12 million) as at that date and the directors accepted this valuation. The property had a remaining life of 16 years at the date of its revaluation. Quincy will make a transfer from the revaluation reserve to retained earnings in respect of the realisation of the revaluation reserve. Ignore deferred tax on the revaluation.<br>Plant and equipment is depreciated at 15% per annum using the reducing balance method.<br>No depreciation has yet been charged on any non-current asset for the year ended 30 September 2012. All depreciation is charged to cost of sales.<br>(v) The investments had a fair value of $15·7 million as at 30 September 2012. There were no acquisitions or disposals of these investments during the year ended 30 September 2012.<br>(vi) The balance on current tax represents the under/over provision of the tax liability for the year ended 30 September 2011. A provision for income tax for the year ended 30 September 2012 of $7·4 million is required. At 30 September 2012, Quincy had taxable temporary differences of $5 million, requiring a provision for deferred tax. Any deferred tax adjustment should be reported in the income statement. The income tax rate of Quincy is 20%.<br>Required:<br>(a) Prepare the statement of comprehensive income for Quincy for the year ended 30 September 2012.<br>(b) Prepare the statement of changes in equity for Quincy for the year ended 30 September 2012.<br>(c) Prepare the statement of financial position for Quincy as at 30 September 2012. Notes to the financial statements are not required.<br>The following mark allocation is provided as guidance for this question:<br>(a) 11 marks<br>(b) 4 marks<br>(c) 10 marks

(a) A director of Enca, a public listed company, has expressed concerns about the accounting treatment of some of the company’s items of property, plant and equipment which have increased in value. His main concern is that the statement of financial position does not show the true value of assets which have increased in value and that this ‘undervaluation’ is compounded by having to charge depreciation on these assets, which also reduces reported profit. He argues that this does not make economic sense.<br>Required:<br>Respond to the director’s concerns by summarising the principal requirements of IAS 16 Property, Plant and Equipment in relation to the revaluation of property, plant and equipment, including its subsequent treatment.<br>(b) The following details relate to two items of property, plant and equipment (A and B) owned by Delta which are depreciated on a straight-line basis with no estimated residual value:<br>At 31 March 2014 item A was still in use, but item B was sold (on that date) for $70 million.<br>Note: Delta makes an annual transfer from its revaluation surplus to retained earnings in respect of excess depreciation.<br>Required:<br>Prepare extracts from:<br>(i) Delta’s statements of profit or loss for the years ended 31 March 2013 and 2014 in respect of charges (expenses) related to property, plant and equipment;<br>(ii) Delta’s statements of financial position as at 31 March 2013 and 2014 for the carrying amount of property, plant and equipment and the revaluation surplus.<br>The following mark allocation is provided as guidance for this requirement:<br>(i) 5 marks<br>(ii) 5 marks (10 marks)

When a gain on a bargain purchase (negative goodwill) arises, IFRS 3 Business Combinations requires an entity to first of all review the measurement of the assets, liabilities and consideration transferred in respect of the combination.<br>When the negative goodwill is confirmed, how is it then recognised？

A. It is credited directly to retained earnings
B. It is credited to profit or loss
C. It is debited to profit or loss
D. It is deducted from positive goodwill

Trasten Co operates in an emerging market with a fast-growing economy where prices increase frequently.<br>Which of the following statements are true when using historical cost accounting compared to current value accounting in this type of market？<br>(1) Capital employed which is calculated using historical costs is understated compared to current value capital employed<br>(2) Historical cost profits are overstated in comparison to current value profits<br>(3) Capital employed which is calculated using historical costs is overstated compared to current value capital employed<br>(4) Historical cost profits are understated in comparison to current value profits

A. 1 and 2
B. 1 and 4
C. 2 and 3
D. 3 and 4

After preparing a draft statement of profit or loss (before interest and tax) for the year ended 31 March 20X6 (before any adjustments which may be required by notes (i) to (iv) below), the summarised trial balance of Triage Co as at 31 March 20X6 is:<br>The following notes are relevant:<br>(i) Triage Co issued 400,000 $100 6% convertible loan notes on 1 April 20X5. Interest is payable annually in arrears on 31 March each year. The loans can be converted to equity shares on the basis of 20 shares for each $100 loan note on 31 March 20X8 or redeemed at par for cash on the same date. An equivalent loan without the conversion rights would have required an interest rate of 8%.<br>The present value of $1 receivable at the end of each year, based on discount rates of 6% and 8%, are:<br>(ii) Non-current assets:<br>The directors decided to revalue the leased property at $66·3m on 1 October 20X5. Triage Co does not make an annual transfer from the revaluation surplus to retained earnings to reflect the realisation of the revaluation gain; however, the revaluation will give rise to a deferred tax liability at the company’s tax rate of 20%.<br>The leased property is depreciated on a straight-line basis and plant and equipment at 15% per annum using the reducing balance method.<br>No depreciation has yet been charged on any non-current assets for the year ended 31 March 20X6.<br>(iii) In September 20X5, the directors of Triage Co discovered a fraud. In total, $700,000 which had been included as receivables in the above trial balance had been stolen by an employee. $450,000 of this related to the year ended 31 March 20X5, the rest to the current year. The directors are hopeful that 50% of the losses can be recovered from the company’s insurers.<br>(iv) A provision of $2·7m is required for current income tax on the profit of the year to 31 March 20X6. The balance on current tax in the trial balance is the under/over provision of tax for the previous year. In addition to the temporary differences relating to the information in note (ii), at 31 March 20X6, the carrying amounts of Triage Co’s net assets are $12m more than their tax base.<br>Required:<br>(a) Prepare a schedule of adjustments required to the draft profit before interest and tax (in the above trial balance) to give the profit or loss of Triage Co for the year ended 31 March 20X6 as a result of the information in notes (i) to (iv) above.<br>(b) Prepare the statement of financial position of Triage Co as at 31 March 20X6.<br>(c) The issue of convertible loan notes can potentially dilute the basic earnings per share (EPS). Calculate the diluted earnings per share for Triage Co for the year ended 31 March 20X6 (there is no need to calculate the basic EPS).<br>Note: A statement of changes in equity and the notes to the statement of financial position are not required.<br>The following mark allocation is provided as guidance for this question:<br>(a) 5 marks<br>(b) 12 marks<br>(c) 3 marks

The summarised financial statements of Gregory Co as a single entity at 31 March 20X5 and as a group at 31 March 20X6 are:<br>Other information:<br>(i) Each month since the acquisition, Gregory Co’s sales to Tamsin Co were consistently $2m. Gregory Co had chosen to only make a gross profit margin of 10% on these sales as Tamsin Co is part of the group.<br>(ii) The values of property, plant and equipment held by both companies have been rising for several years.<br>(iii) On reviewing the above financial statements, Gregory Co’s chief executive officer (CEO) made the following observations:<br>(1) I see the profit for the year has increased by $1m which is up 20% on last year, but I thought it would be more as Tamsin Co was supposed to be a very profitable company.<br>(2) I have calculated the earnings per share (EPS) for 20X6 at 13 cents (6,000/46,000 x 100) and for 20X5 at 12·5 cents (5,000/40,000 x 100) and, although the profit has increased 20%, our EPS has barely changed.<br>(3) I am worried that the low price at which we are selling goods to Tamsin Co is undermining our group’s overall profitability.<br>(4) I note that our share price is now $2·30, how does this compare with our share price immediately before we bought Tamsin Co？<br>Required: (a) Reply to the four observations of the CEO. (8 marks)<br>(b) Using the above financial statements, calculate the following ratios for Gregory Co for the years ended 31 March 20X6 and 20X5 and comment on the comparative performance:<br>(i) Return on capital employed (ROCE)<br>(ii) Net asset turnover<br>(iii) Gross profit margin<br>(iv) Operating profit margin<br>Note: Four marks are available for the ratio calculations. (12 marks)<br>Note: Your answers to (a) and (b) should reflect the impact of the consolidation of Tamsin Co during the year ended 31 March 20X6.

Which of the following comments, regarding the use of fair values on the acquisition of a subsidiary, is correct？

A. The use of fair value to record a subsidiary’s acquired assets does not comply with the historical cost principle
B. The use of fair values to record the acquisition of plant always increases consolidated post-acquisition depreciation charges compared to the corresponding charge in the subsidiary’s own financial statements
Cash consideration payable one year after the date of acquisition needs to be discounted to reflect its fair value
D. Patents must be included as part of goodwill because it is impossible to determine the fair value of an acquired patent, as, by definition, patents are unique

Which of the following criticisms does NOT apply to historical cost financial statements during a period of rising prices？

A. They are difficult to verify because transactions could have happened many years ago
B. They contain mixed values; some items are at current values and some are at out of date values
C. They understate assets and overstate profit
D. They overstate gearing in the statement of financial position