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Answers
Fundamentals Level ? Skills Module, Paper F7 (SGP) Financial Reporting (Singapore)
December 2013 Answers
1 (a) Polestar
Consolidated statement of profit or loss for the year ended 30 September 2013
Revenue (110,000 + (66,000 x 6/12) ? (4,000 + 9,000 intra-group sales)) Cost of sales (w (i))
Gross profit Distribution costs (3,000 + (2,000 x 6/12)) Administrative expenses (5,250 + (2,400 x 6/12) ? 3,400 negative goodwill (w (iii))) Loss on equity investments Decrease in contingent consideration (1,800 ? 1,500) Finance costs
Profit before tax Income tax expense (3,500 ? (1,000 x 6/12))
Profit for the year
$'000 130,000 (109,300) ????????
20,700 (4,000) (3,050)
(200) 300 (250) ???????? 13,500 (3,000) ???????? 10,500 ????????
Profit for year attributable to: Equity holders of the parent Non-controlling interest losses (see below)
11,250
(750) ????????
10,500 ????????
Southstar's adjusted post-acquisition losses for the year ended 30 September 2013 are $3 million (4,600 x 6/12 + (100 additional depreciation + 600 URP)). Therefore the non-controlling interest share of the losses is $750,000 (3,000 x 25%).
Note: FRS 103 Business Combinations says negative goodwill should be credited to the acquirer, thus none of it relates to the non-controlling interests.
(b) Consolidated statement of financial position as at 30 September 2013
Assets Non-current assets Property, plant and equipment (w (ii)) Financial asset: equity investments (16,000 ? (13,500 cash consideration) ? 200 loss)
Current assets (16,500 + 4,800 ? 600 URP) Total assets
Equity and liabilities Equity attributable to owners of the parent Equity shares Retained earnings (w (iv))
Non-controlling interest (w (v)) Total equity Current liabilities Contingent consideration Other (15,000 + 7,800) Total equity and liabilities
Workings in $'000 (i) Cost of sales
Polestar Southstar (67,200 x 6/12) Intra-group purchases (4,000 + 9,000) URP in inventory (see below) Additional depreciation on leased property (2,000/10 years x 6/12)
$'000
63,900 2,300
??????? 66,200 20,700 ??????? 86,900 ???????
30,000 29,750 ??????? 59,750
2,850 ??????? 62,600
1,500 22,800 ??????? 86,900 ???????
$'000 88,000 33,600 (13,000)
600 100 ???????? 109,300 ????????
13
The profit on the sale of the goods back to Polestar is $3?6 million (9,000 ? (4,000 + 1,400)). Therefore the unrealised profit (URP) in the inventory of $1?5 million at 30 September 2013 is $600,000 (3,600 x 1,500/9,000).
(ii) Property, plant and equipment
Polestar Southstar Fair value adjustment Additional depreciation
(iii) Goodwill in Southstar
$'000 41,000 21,000
2,000 (100)
??????? 63,900 ???????
$'000 Investment at cost Immediate cash consideration (6,000 x 2 (i.e. shares issued at 50 cents) x 75% x $1?50) Contingent consideration Non-controlling interest (12,000 x 25% x $1?20)
Net assets (equity) of Southstar at 30 September 2013 Add back: post-acquisition losses (4,600 x 6/12) Fair value adjustment for property Net assets at date of acquisition Bargain purchase/negative goodwill ? credited directly to profit or loss
(iv) Retained earnings
18,000 2,300 2,000
???????
$'000
13,500 1,800 3,600
??????? 18,900
(22,300) ??????? (3,400) ???????
Polestar Southstar's post-acquisition adjusted losses (3,000 x 75%) Negative goodwill Loss on equity investments Decrease in contingent consideration
(v) Non-controlling interest in statement of financial position
$'000 28,500 (2,250)
3,400 (200) 300
??????? 29,750 ???????
At date of acquisition Post-acquisition loss from statement of profit or loss
$'000
3,600
(750) ?????? 2,850 ??????
2 (a) Moby ? Statement of profit or loss and other comprehensive income for the year ended 30 September 2013
Revenue (227,800 + 10,000 construction contract (w (i))) Cost of sales (w (ii))
Gross profit Distribution costs Administrative expenses (16,500 ? 150 disallowed provision ? see below) Finance costs (900 + 4,000 loan + 2,930 lease (w (iv)))
Profit before tax Income tax expense (3,400 ? 1,050 ? 2,000 (w (v)))
Profit for the year
Other comprehensive income Items which will not be reclassified to profit or loss: Gain on revaluation of land and buildings (w (iii)) Deferred tax on gain (4,400 x 25%)
Total other comprehensive income for the year
Total comprehensive income for the year
$'000 237,800 (187,900) ????????
49,900 (13,500) (16,350)
(7,830) ????????
12,220 (350)
???????? 11,870
????????
4,400 (1,100) ???????? 3,300 ????????
15,170 ????????
14
If a company chooses to `self-insure', it cannot create a provision equal to a third party premium. Instead, it must charge the actual cost incurred of the previously insured claims.
(b) Moby ? Statement of financial position as at 30 September 2013
Assets Non-current assets Property, plant and equipment (w (iii))
Current assets Inventory Amount due from contract customer (w (i)) Trade receivables
Total assets
$'000
26,600 6,000
38,500 ???????
Equity and liabilities Equity Equity shares Revaluation reserve Retained earnings (19,800 + 11,870)
3,300 31,670 ???????
Non-current liabilities Lease obligation (w (iv)) Deferred tax (w (v)) Loan note (40,000 x 1?1)
Current liabilities Lease obligation (23,030 ? 16,133 (w (iv))) Trade payables Bank overdraft Current tax payable
Total equity and liabilities
16,133 7,100
44,000 ???????
6,897 21,300
7,300 3,400 ???????
Workings (monetary figures in brackets in $'000) (i) Construction contract:
Total contract revenue Costs incurred to date Estimated costs to complete Total contract profit
$'000
14,000 6,000
???????
Percentage of completion is 40% (10,000/25,000) Amounts to include in financial statements for the year ended 30 September 2013: Revenue Cost of sales (= balancing figure) Profit for year (40% x 5,000)
Amount due from customer:
Contract costs to date Profit for year
Progress billings (work certified) Amount due from customer (ii) Cost of sales:
Per question Construction contract costs Depreciation of building (w (iii)) Depreciation of owned plant (w (iii)) Depreciation of leased plant (w (iii))
$'000 115,000
71,100 ???????? 186,100 ????????
45,000 34,970 ???????? 79,970
67,233
38,897 ???????? 186,100 ????????
$'000 25,000 (20,000) ???????
5,000 ???????
10,000 (8,000) ??????? 2,000 ???????
14,000 2,000
??????? 16,000 (10,000) ???????
6,000 ???????
$'000 164,500
8,000 2,400 6,000 7,000 ???????? 187,900 ????????
15
(iii) Non-current assets:
Land and building Carrying amount 1 October 2012 (60,000 ? 10,000) Revalued land Revalued building Revaluation gain
Depreciation for year (38,400/16 years) Carrying amount at 30 September 2013 (54,400 ? 2,400)
Owned plant Carrying amount 1 October 2012 (65,700 ? 17,700) Depreciation for year (48,000 x 12?5%) Carrying amount at 30 September 2013
$'000
16,000 38,400 ???????
$'000
50,000
54,400 ???????
4,400 ??????? (2,400) ??????? 52,000 ???????
48,000 (6,000) ??????? 42,000 ???????
Leased plant Carrying amount 1 October 2012 (35,000 ? 7,000) Depreciation for year (35,000/5 years)
Carrying amount at 30 September 2013
28,000
(7,000) ??????? 21,000 ???????
Carrying amount of property, plant and equipment at 30 September 2013: (52,000 + 42,000 + 21,000)
115,000
(iv) Lease obligation:
Liability at 1 October 2012 Interest at 10% for year ended 30 September 2013 Rental payment 30 September 2013
Liability at 30 September 2013 Interest at 10% for year ended 30 September 2014 Rental payment 30 September 2014
Liability at 30 September 2014
(v) Deferred tax:
$'000
29,300
2,930
(9,200) ??????? 23,030
2,303
(9,200) ??????? 16,133 ???????
Provision b/f at 1 October 2012 Provision c/f required at 30 September 2013 Taxable differences: per question
on revaluation of land and buildings
$'000
24,000 4,400
??????? 28,400 x 25%
Net reduction in provision Charged to other comprehensive income on revaluation gain (4,400 x 25%)
Credit to profit or loss
$'000 (8,000)
7,100 ???????
(900) (1,100) ??????? 2,000 ???????
16
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