Answers - ACCA Global

1 AnswersFundamentals Level Skills Module, Paper F7 (INT)Financial Reporting (International) December 2012 Answers1(a)Viagem: consolidated goodwill on acquisition of Greca as at 1 January 2012$ 000$ 000 Investment at costShares (10,000 x 90% x 2/3 x $6 50) 39,000 Deferred consideration (9,000 x $1 76/1 1) 14,400 Non-controlling interest (10,000 x 10% x $2 50)2,500 55,900 Net assets (based on equity) of Greca as at 1 January 2012 Equity shares10,000 Retained earnings b/f at 1 October 201135,000 Earnings 1 October 2011 to acquisition (6,200 x 3/12)1,550 Fair value adjustments.

2 Plant1,800contingent liability recognised(450) Net assets at date of acquisition(47,900) consolidated goodwill8,000 (b)Viagem: consolidated income statement for the year ended 30 September 2012$ 000 Revenue (64,600 + (38,000 x 9/12) 7,200 intra-group sales)85,900 Cost of sales (working)(64,250) Gross profit21,650 Distribution costs (1,600 + (1,800 x 9/12))(2,950)Administrative expenses (3,800 + (2,400 x 9/12) + 2,000 goodwill impairment)(7,600)Income from associate (2,000 x 40% based on underlying earnings) 800 Finance costs (420 + (14,400 x 10% x 9/12 re deferred consideration))(1,500)

3 Profit before tax10,400 Income tax expense (2,800 + (1,600 x 9/12))(4,000) Profit for the year6,400 Profit for year attributable to:Equity holders of the parent6,180 Non-controlling interest ((6,200 x 9/12) 450 depreciation 2,000 goodwill impairment) x 10%))220 6,400 Working in $ 000 Cost of salesViagem 51,200 Greca (26,000 x 9/12)19,500 Intra-group purchases (800 x 9 months)(7,200)URP in inventory (1,500 x 25/125)300 Additional depreciation (1,800/3 years x 9/12) 450 64,250 (c)A fair value adjustment to the carrying amount of a subsidiary s leased property is usually required where the property hasbeen carried at depreciated historical cost.

4 If it is already carried at a revalued amount, this should be broadly equal to its fairvalue and no adjustment would normally be required. The pre-acquisition increase should be reflected in the consolidatedstatement of financial position by including the subsidiary s leased property at its fair value, with the corresponding effectbeing a fair value adjustment in the calculation of consolidated goodwill. The adjustment has the effect of reducing the amountof the purchase consideration that is allocated to goodwill. The fair value of the leased property need not be reflected in thesubsidiary s own entity financial statements, although sometimes this is done to make future consolidation there is a post-acquisition increase in the value of a subsidiary s leased property, this may or may not be reflected inthe consolidated financial statements, depending upon whether the group has a policy of carrying such properties at revaluedamounts (current values).

5 If it does, then the increase would be included in other comprehensive income and the non-controlling interest would be shown to have a share of this. The other effect would be that there is likely to be anadjustment in the income statement for additional amortisation based on the increase in value. In the statement of financialposition, the group s share of the post-acquisition increase would be added to the group s property revaluation reserve andthe non-controlling interest s share of it would be added to the non-controlling interest s part of (a)Quincy Statement of comprehensive income for the year ended 30 September 2012$ 000 Revenue (213,500 1,600 (w (i)))211,900 Cost of sales (w (ii))(147,300) Gross profit64,600 Distribution costs (12,500)Administrative expenses (19,000 1,000 loan issue costs (w (iv)))

6 (18,000)Loss on fair value of equity investments (17,000 15,700)(1,300)Investment income400 Finance costs (w (iv))(1,920) Profit before tax31,280 Income tax expense (7,400 + 1,100 200 (w (v)))(8,300) Profit for the year22,980 Other comprehensive incomeGain on revaluation of land and buildings (w (iii))18,000 Total comprehensive income40,980 (b)Quincy Statement of changes in equity for the year ended 30 September 2012 ShareRevaluationRetainedTotalcapitalrese rveearningsequity$ 000$ 000$ 000$ 000 Balance at 1 October 201160,000nil18,50078,500 Total comprehensive income18,00022,98040,980 Transfer to retained earnings (w (iii))(1,000)1,000nilDividend paid (60,000 x 4 x 8 cents)(19,200)(19,200) Balance at 30 September 201260,00017,00023,280100,280 (c)

7 Quincy Statement of financial position as at 30 September 2012 Assets$ 000$ 000 Non-current assets Property, plant and equipment (57,000 + 42,500 (w (iii)))99,500 Equity financial asset investments 15,700 115,200 Current assetsInventory 24,800 Trade receivables 28,500 Bank2,90056,200 Total assets171,400 Equity and liabilitiesEquityEquity shares of 25 cents each60,000 Revaluation reserve17,000 Retained earnings23,28040,280 100,280 Non-current liabilitiesDeferred tax (w (v))1,000 Deferred revenue (w (i)) 8006% loan note (2014) (w (iv))

8 24,42026,220 Current liabilitiesTrade payables36,700 Deferred revenue (w (i)) 800 Current tax payable7,40044,900 Total equity and liabilities171,400 14 Workings (figures in brackets in $ 000)(i)Sales made which include revenue for ongoing servicing work must have part of the revenue deferred. The deferredrevenue must include the normal profit margin (25%) for the deferred work. At 30 September 2012, there are two moreyears of servicing work, thus $1 6 million ((600 x 2) x 100/75) must be treated as deferred revenue, split equallybetween current and non-current liabilities.

9 (ii) Cost of sales$ 000 Per trial balance136,800 Depreciation of building (w (iii))3,000 Depreciation of plant (w (iii))7,500 147,300 (iii) Non-current assetsLand and buildings:The gain on revaluation and carrying amount of the land and buildings is:LandBuilding$ 000$ 000 Carrying amount as at 1 October 2011 10,000(40,000 8,000)32,000 Revalued amount as at this date (12,000) (60,000 12,000) (48,000) Gain on revaluation2,00016,000 Building depreciation year to 30 September 2012 (48,000/16 years)3,000 The transfer from the revaluation reserve to retained earnings in respect of excess depreciation (as the revaluation isrealised) is $1 million (48,000 32,000)/16 carrying amount at 30 September 2012 is $57 million (60,000 3,000).

10 Plant and equipment:$ 000 Carrying amount as at 1 October 2011 (83,700 33,700)50,000 Depreciation at 15% per annum(7,500) Carrying amount as at 30 September 201242,500 (iv) Loan noteThe finance cost of the loan note is charged at the effective rate of 8% applied to the carrying amount of the loan. Theissue costs of the loan ($1 million) should be deducted from the proceeds of the loan ($25 million) and not treated asan administrative expense. This gives an initial carrying amount of $24 million and a finance cost of $1,920,000(24,000 x 8%).