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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)