LUBS5017M01 Advanced Financial Reporting
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LUBS5017M01
Advanced Financial Reporting
Section A
Question 1 – You must answer this Question
a) The summarised financial statements of three companies at 31 December 20X5 are as follows:
Statement of Financial Position as at 31 December 20X5
Non-current assets
Property, plant & equipment Investments
Current assets
Inventories
Cash & bank
Total assets
Equity
Share capital (£1 shares) Share premium Retained earnings
Current liabilities
Trade payables
Equity and Liabilities
Billy plc £m £m
1,400 2,400 3,800 300 |
Goat Ltd £m £m 1,560
1,560
40 |
Gruff Ltd £m £m 1,900
1,900
40 |
160
1,340
5,140
2,900
400
1,400
4,700
440 |
5,140 |
Comprehensive Income statement for the year ended 31 December 20X5
Billy Plc Goat Ltd Gruff Ltd
£m £m £m
Revenue 30,400 15,844 12,000
Cost of Sales (19,200) (8,000) (6,000)
Gross Profit 11,200 7,844 6,000
Administration expenses (7,200) (4,000) (3,200)
Profit from operations 4,000 3,844 2,800
Dividends Received 1,200 - -
Profit before tax 5,200 3,844 2,800
Taxation (2,000) (2,600) (600)
Comprehensive income 3,200 1,244 2,200
Notes:
• Billy plc, a public listed company, has the following investments at 31 December 20X5. On 1 January 20X1 the company acquired 480 million shares in Gruff Limited for a cash payment of £800 million, and on 1 January 20X2 the company acquired 1,200 million shares in Goat Limited for a cash payment of £1,600 million.
• The retained earnings of Gruff at 1 January 20X1 were £360m and the retained earnings of Goat at 1 January 20X2 were £40m.
• The fair value of Goat’s land at the date of acquisition was £60m in excess of its carrying value.
• Goat and Gruff have not issued any shares since they were acquired by Billy.
• An impairment test on 31 December 20X5 showed that consolidated goodwill should be written down by £40m, and the investment in Gruff is to be impaired by £10m.
• During the year Goat sold goods to Billy. The sales value was £1,600m and the cost to Goat was £1,200m. 25% of the goods are still held by Billy.
• During the year Gruff sold goods to Billy. The sales value was £500m and the cost to Gruff was £400m. 50% of the goods are still held by Billy.
• Non-controlling interests are valued using the proportion of net assets method.
• The following dividends were paid during the year:
- By Billy plc: £700m - By Goat Ltd: £1,000m - By Gruff Ltd: £800m
Required:
Prepare the Consolidated Statement of Comprehensive Income of Billy plc for the year ended 31 December 20X5, and the Consolidated Statement of Financial Position as at that date.
(30 marks)
b) Explain the consolidation adjustments you made for the following items:
i) The fair value of the land in Goat
(5 marks)
ii) The sale between Goat and Billy
(3 marks)
iii) The dividends paid by Goat and Gruff
(2 marks)
Total 40 marks
Section B - Answer two questions
Question 2
The following summarised information is from Ted Baker’s financial statements in 20X8 and
20X7. The company is a high street and online fashion retailer.
Income statements
|
20X8 £000 |
20X7 £000 |
Revenue |
142,231 |
125,648 |
Cost of sales |
(59,560) |
(51,986) |
Gross profit |
82,671 |
73,662 |
Operating expenses |
(60,529) |
(53,613) |
Operating profit |
22,142 |
20,049 |
Finance income |
302 |
192 |
Finance costs (=interest payable) |
(387) |
(191) |
Profit before tax |
22,057 |
20,050 |
Taxation |
(6,815) |
(5,634) |
Net profit for the period |
15,242 |
14,416 |
Statements of financial position
|
20X8 £000 |
20X7 £000 |
Non-current assets |
24,799 |
20,216 |
Current assets |
|
|
Inventories |
29,315 |
27,825 |
Trade and other receivables (4) |
14,128 |
11,843 |
Other current assets |
781 |
216 |
Cash and cash equivalents |
13,105 |
13,513 |
|
57,329 |
53,397 |
Total assets |
82,128 |
73,613 |
|
|
|
Equity |
|
|
Share capital (1) (2) (3) |
2,160 |
2,160 |
Share premium |
9,137 |
9,052 |
Other reserves |
(269) |
(583) |
Retained earnings |
44,684 |
40,652 |
|
55,712 |
51,281 |
Non-current liabilities |
|
|
Loans |
843 |
43 |
Current liabilities |
|
|
Trade and other payables (5) |
21,777 |
20,274 |
Income tax payable |
3,418 |
1,708 |
Other current liabilities |
378 |
307 |
|
25,573 |
22,289 |
Total equity and liabilities |
82,128 |
73,613 |
Notes:
(1) Total dividends on ordinary shares £5,079,000 (20X8) and £4,556,000 (20X7).
(2) Number of ordinary shares in issue 42,321,000 (20X8) and 42,915,000 (20X7).
(3) Share price 480.0 pence (20X8) and 641.5 pence (20X7).
(4) Trade receivables £10,217,000 (20X8) and £8,543,000 (20X7).
(5) Trade payables £13,361,000 (20X8) and £11,770,000 (20X7).
Required:
a) Calculate ten pairs of ratios for Ted Baker for 20X8 and 20X7, covering profitability, efficiency, liquidity, risk/gearing, and investment. You need to present your workings and show the ratios to 3 significant figures.
(20 marks)
b) Using your ratio calculations and the financial statements given, analyse Ted Baker’s performance over 20X8 and 20X7, taking in to consideration the market in which they operate.
(10 marks)
Total 30 marks
Question 3
a) IAS 16: Property, Plant and Equipment outlines the accounting treatment for most types of property, plant and equipment. IAS 16 requires that property, plant and equipment is initially measured at its cost, subsequently measured either using a cost or revaluation model.
Required:
Explain the requirements of IAS 16 if companies choose the revaluation model and discuss the potential advantages and disadvantages of making this choice.
(12 marks)
2022-05-19