6010ACC
Corporate Reporting and Analysis
December 2023
(Section A) – Questions 1 and 2 are compulsory and must be attempted
Question 1 (35 marks)
As a plan to expand internationally, Black Ltd. acquired share capital in Decker Ltd on 1 January 2022. The following are the summarised Statements of the Financial Position of both companies as of 31 December 2021, the end of their most recent accounting periods.
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Statements of Financial Position as of 31 December 2021
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|
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Black Ltd
£m
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Decker Ltd
£m
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Non-Current Assets
|
|
Property, Plant and Equipment
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1,940
|
700
|
|
Investments:
|
|
|
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- 200m Ordinary shares in Decker Ltd
|
1,000
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-
|
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- 250m £15% debentures in Decker Ltd
|
200
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-
|
|
|
|
|
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Current Assets
|
|
Inventory
|
1,000
|
340
|
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Receivables
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820
|
300
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Cash and cash equivalents
|
910
|
240
|
|
|
|
|
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Totals
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5,870
|
1,580
|
|
|
|
|
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Equity and Reserves
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Ordinary £1 Shares
|
3,200
|
250
|
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Share Premium
|
500
|
410
|
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Retained Earnings
|
1,200
|
490
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|
|
|
|
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Non-Current Liabilities
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£15% debentures
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500
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250
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|
|
|
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Current Liabilities
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Trade Payables
|
270
|
180
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Owed to Decker ltd
|
200
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-
|
|
|
|
|
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Totals
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5,870
|
1,580
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The following information is also available:
1. On 1st January 2022, as Black Ltd acquired share capital in Decker Ltd, the retained earnings of Decker Ltd amounted to £240m
2. On 1st January 2022, the fair value of Decker Ltd.’s Property, Plant and Equipment was £100m higher than the book value. This is not reflected in the latest statement of financial position as shown on the previous page. No adjustment for depreciation is required.
3. On 31st December 2022, Black Ltd.’s inventory includes £20m relating to goods purchased from Decker Ltd. These goods had cost Decker Ltd £10m.
Requirements for question 1:
a) Calculate the goodwill arising from the acquisition of Decker Ltd on 1st January 2022. (7 Marks)
b) Calculate the consolidated retained earnings as of 31st December 2021. (6 Marks)
c) Calculate the non-controlling interest as of 31st December 2021. (6 Marks)
d) Prepare a consolidated statement of financial position for Black Ltd as of 31st December 2021. (12 Marks)
e) Explain the meaning of “Control” regarding IFRS 10, making reference to the companies Black Ltd and Decker Ltd. (4 Marks)
[Total marks 35 marks]
Question 2 (35 marks)
The following adjusted trial balance has been extracted from the accounting records of Charles Ltd. For the year ended 31 December 2021.
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£000
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£000
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Sales
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375,050
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Purchases
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210,000
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|
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Property, plant and equipment - cost
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370,000
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|
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Property, plant and equipment – accumulated depreciation
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220,405
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Inventory – 1 January 2021
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54,000
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|
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Interest expense
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1,000
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|
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Accruals
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3,250
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Distribution expenses
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35,570
|
|
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Administrative expenses
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26,450
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|
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Retained earnings
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89,565
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Trade receivables
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65,895
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|
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Cash at bank
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3,000
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|
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Bank loan repayable 2023
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22,000
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Ordinary share capital (£1 nominal value per share)
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24,500
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Share premium
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17,400
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Trade payables
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13,745
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Total
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765,915
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765,915
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Balances of the above accounts need to be adjusted before the preparation of Charles Ltd’ set of financial statements using the following information:
1. No dividend was paid in 2021.
2. A trainee accountant in the accounting department has recorded by mistake credit sales amounting to £15,500,000 that belong to January 2022.
3. The closing inventory cost £32,700,000. Due to fluctuation in market prices, included in the figures are inventories that cost 1,200,000, but can only be sold for 600,000.
4. Transportation out costs of £650,000 relating to December 2021 is not included in the trial balance as the invoice was received in January 2022.
5. Interest on the bank loan for the last six months of the year has not been included in the trial balance.
6. The corporation tax charge for the year has been calculated as £3,650,000.
Requirements for question 2
Prepare the following financial statements for Charles Ltd
a) Statement of Comprehensive Income for the year ended 31 December 2021. (8 marks)
b) Statement of Changes in Equity for the year ended 31 December 2021. (5 marks)
c) Statement of Financial Position as of 31 December 2021. (14 marks)
d) Identify and discuss the main stakeholders who may be interested in accessing and reading the financial statements of Charles Ltd. (8 marks)
(Total 35 marks)
(Section B) – Attempt only one question in this section
Question 3 (30 marks)
The income statement and the statement of financial position for Maverick Ltd for the year ended 31 December 2021 are provided below:
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Maverick Ltd
Income statement for the year ending 31 December 2021
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£000
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£000
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Sales
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2,700
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Less: Cost of sales
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(1,200)
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Gross profit
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1,500
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Distribution costs
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(450)
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Administration expenses
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(670)
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(1,120)
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Operating profit
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|
380
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Debenture interest
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(70)
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Profit before tax
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|
310
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Taxation
|
|
50
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Profit after tax
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|
260
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Additional Information:
1. There was a dividend payment during the year of £40,000
2. During the year, there were no disposals of non-current assets
Requirements for question 3:
a) Prepare a Statement of Cash Flows for the year ended 31 December 2021 following IAS 7 using the indirect method. (20 Marks)
b) From your calculations above, comment on the cash flow position of Maverick Ltd. What particular actions did he take to improve its cash position? (6 Marks)
c) The Marketing Manager of Maverick Ltd is confused why the annual profits of the company are not the same as the annual cash generated by the company. Therefore explain why the profit/losses of a company during a financial year are not always the same as the net cash inflow/outflows during the same year (4 Marks)
[Total marks 30 marks]
Question 4 (30 marks)
‘Financial accounting is a heavily regulated and controlled process.’
a) Explain the reasons for the need for regulation of financial accounting. (5 marks)
b) What are the different sources for this regulatory framework? (10 marks)
c) Accounting standards have developed to become global tools. Explain the main purpose of accounting standards (5 marks)
d) Identify five of the sections that make up an international standard (10 marks)
(Total 30 marks)