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ACF518 CORPORATE FINANCIAL REPORTING MAY 2023
发布时间：2025-09-24
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UNIVERSITY EXAMINATIONS: MAY 2023
Module Code: ACF518
Module Title: CORPORATE FINANCIAL REPORTING
CRN: 36964/25061
Time Allowed: 3 HOURS
SECTION A – Answer BOTH questions Question 1
Garda Plc (Garda) drew up the following trial balance as at 31/12/22.
Additional information:
1. GARDA operates in a regulated industry. On 1st January 2022, it purchased a licence allowing them to operate in a new geographic area. The licence cost £800,000, lasts for 10 years and has been charged to operating expenses. (5 marks)
2 During the year, GARDA made one inventory purchase from a foreign supplier. The inventory was purchased on 30 November 2022 for €900,000. GARDA still held this inventory at 31 December 2022, the inventory’s net realisable value at this date is £950,000.
Due to an administrative error the purchase was recorded in GBP Sterling as follows:
It was also included in closing inventory at £900,000.
The relevant rates of exchange were:
(6 marks)
3 Included in closing inventories are 12,000 units of product A at a total cost of £72,000 and 6,000 units of product B at a total cost of £48,000. Relevant information on product A and product B is provided below:
(5 marks)
4 On 1st January 2022 GARDA sold goods to COMO Ltd (COMO) for £ 1,000,000. COMO paid £250,000 on the date of sale but has been allowed to defer payment of the remaining £750,000 until 31/12/2024. GARDA has a cost of capital of 6%. The entries to record the sale were as follows:
(5 marks)
5 GARDA employees are paid monthly in arrears on the 8th of each month. At 31/12/2022 GARDA owes staff £200,000 for work carried out from 09/12/2022 to 31/12/2022.
GARDA employees are entitled to 30 days paid holidays per annum and may carry up to 5 days leave forward to the following years leave entitlement. At 31/12/2022 a total of 60 days are to be carried forward with associated wages of £ 18,000.
No entries have been made in the accounts in respect of wages owed or holidays carried forward. (5 marks)
6. Due to an arithmetic error, the inventory at 31 December 2021 was understated by £200,000. Any adjustments to comparative figures must be made manually, adjustments to the prior year’s trial balance will not feed through to the current year. GARDA does not pay any dividends and taxation may be ignored. (4 marks)
Required:
Explain the required treatment of items 1 to 6 above. Your explanation should refer to relevant accounting standards and include any journal entries necessary to correct the trial balance.
Round figures to the nearest £000.
[Total: 30 Marks]
Question 2
The financial statements of LEMMY Plc (LEMMY), CLARKE Ltd (CLARKE) and TAYLOR Ltd (TAYLOR) are presented below.
Additional information:
1. LEMMY acquired a 40% shareholding in TAYLOR on 01/10/2022. The Directors of LEMMY do not have a role in the day-to-day running of TAYLOR.
2. During the period 01/10/2022 to 31/12/2022 LEMMY sold goods to TAYLOR for £20m at a margin of 25%. At the year-end TAYLOR still held half these goods in inventory. LEMMY’s receivables include £200k due from TAYLOR. This agreed to the amount included in TAYLOR’S trade payables.
3. LEMMY acquired 108 million £0.25 ordinary shares in CLARKE on 01/0 1/2018. The retained earnings at that date were £28,000,000; the fair value of CLARKE’s net assets was the same as their book value, with the exception of property. The market value of property was £2,000,000 above the book value. At acquisition, the property had a remaining useful life of 25 years, depreciation is charged to administrative expenses. The fair value of the remaining 36 million shares was £20,000,000 on 01/01/2018. LEMMY values non-controlling interests at fair value when calculating goodwill on acquisition of subsidiaries.
4. Since acquisition LEMMY has become a customer of CLARKE. CLARKE’s Trade receivables include £4,100,000 owed by LEMMY; total sales to LEMMY since acquisition, were £ 18,000,000. CLARKE sells goods to LEMMY at a mark-up of 20%. At 31/12/2022, LEMMY still held 30% of these goods in inventory.
5. An impairment test on the goodwill of CLARKE, conducted on 31/12/2022, concluded that goodwill on acquisition is now impaired by £1,000,000. The value of the investment in TAYLOR was not impaired.
6. CLARKE paid dividends of £ 1,600,000 relating to the period from 01/01/2022 to 31/12/2022. All dividends receivable by LEMMY have been credited to other income in the income statement above.
7. All items in the above income statements are deemed to accrue evenly over the year.
Required:
Prepare the consolidated income statement for the LEMMY Group for the year ended 31/12/2022 and a consolidated balance sheet as at that date. (Show workings including ALL JOURNAL ENTRIES REQUIRED)
Round figures to the nearest £000. (30 marks)
[Total: 30 Marks]
SECTION B – Answer two questions from three
Question 3
The International Accounting Standards Board (IASB) has recently released a new standard on leasing, IFRS 16.
(a) Required:
Explain why the IASB has felt it necessary to rethink the accounting treatment for leasing contracts and briefly outline the approach they intend to take on accounting for simple leases. (2 Marks)
(b) ISEO Plc (ISEO) has a year end of 31 December. On 1st January 2022 ISEO leased a machine from ANFO Ltd (ANFO). The machine costANFO £600,000 to manufacture and had a fair value of £800,000 on 1st January 2022.
The agreement contained the following clauses:
Lease term: 4 years
Deposit £300,000 (Paid 01/01/22)
Annual rental, paid in advance: £ 160,000 (payments to be made 01/01/22, 01/01/23, 01/01/24,
01/01/25)
Interest rate implicit in lease: 6%
• The lease is cancellable only with the permission of the lessor. The expected useful life of the machine is 10 years, and the machine will be returned at the end of the lease term.
• Included in annual payment is £ 10,000 to cover maintenance and insurance paid by the lessor.
• ISEO also paid £20,000 on 01/01/2022 for the drawing up of the lease agreement.
• No entries have been made to record the lease.
Required:
(i) Classify the lease for the lessee based on guidance in IFRS 16 Leases. (1 Mark)
(ii) Prepare extracts from the financial statements of ISEO, showings all workings, to illustrate how ISEO Plc should comply with IFRS 16 over the duration of the lease.(9 Marks)
(iii) Draw up the journal entries to record the lease of the machine in the books of ISEO Plc for the year ended 31 December 2022. (4 Marks)
(iv) Draw up the journal entries to record the lease of the machine in the books of ISEO Plc for the year ended 31 December 2023. (4 Marks)
Do not round figures, show in £.
[Total: 20 Marks]
Question 4
CHAM Plc (CHAM) manufacture washing machines. They are in the process of finalising their financial statements for the year ended 31 December 2022. There are a number of areas which may require provisions as follows:
(i) CHAM machinery requires a major overhaul every five years, costing c£2m each time. The company has decided to spread this cost over the four years preceding the overhaul, the first years provision has been recognised as follows:
(3 marks)
(ii) CHAM has been accused by local environmentalists of polluting the local river, causing major damage to salmon stocks. The company is contesting this on the grounds most of the damage was caused by farmers overusing phosphates. CHAM’s lawyers feel they have a 30% chance of losing the case and being forced to pay to rectify the damage which will cost £ 1,200,000. CHAM has therefore made a provision of £ 1,200,000 * 30% = £360,000 and charged it to other expenses. (4 marks)
(iii) CHAM offers a 12 month warranty on goods which are not performing to the customers satisfaction. From past experience, 90% of customers make no warranty claim, 8% make claims which cost CHAM £100 to repair each unit and 2% make claims which cost CHAM £200 to repair each unit. Total sales for the year ended 31 December 2022 were 300,000 units. CHAM has no current provision for warranty claims, expensing each claim as it is received. (4 marks)
(iv) In a bid to tackle increasing energy costs CHAM installed a wind turbine on 01 January 2022 at a capitalised cost of £1,000,000. As part of the planning conditions the wind farm must be decommissioned at the end of its 5 year life and returned to a green field site. It is estimated the decommissioning and site clean-up costs will be £100,000. There have been no amounts recognised in the financial statements regarding site clean-up. The wind farm is to be depreciated straight line over 5 years.
CHAM have calculated a pre-tax discount rate of 6% on long term provisions.
(6 marks)
Required:
(a) Set out the definition of a provision as per IAS 37 Provisions, contingent liabilities and contingent assets, along with the criteria IAS 37 sets out for recognising a provision. (3 Marks)
(b) Applying the principles set out in IAS 37, determine if the above items have been treated correctly, provide an explanation for your decision and, where necessary, indicate the correct treatment and any journal entries required. In the case of part (iv) prepare a schedule detailing the treatment of the site clean-up costs and associated provision (if any) over the life of the windfarm.
Round figures to the nearest £000. (17 Marks)
[Total: 20 Marks]
Question 5
“In a future society, successful firms are going to be those that can link together the environment, society and their economic prosperity. They will look to the long term and find resources that are sustainable and assurance that those costs are not going to skyrocket. ”
Michael Radcliffe, KPMG Director Global Sustainability Network (2002) Required:
Explain what is meant by the green revolution in financial reporting and critically evaluate the attempts by the accounting profession to achieve greater transparency in reporting of environmental issues. (20 Marks)
[Total: 20 Marks]
