Idea Transcript
Answers
ACCA Certified Accounting Technician Examination – Paper T6 (INT) Drafting Financial Statements (International Stream)
December 2009 Answers and Marking Scheme
Section A 1
C
= (90,000/2) + (90,000/3) = 75,000
2
C
= Share capital = 3,000,000 (1,500 + 750 + 750) Share Premium = 2,100,000 (2,100 + 750 – 750)
3
A
4
D
5
C n (n + 1) –––––––– 2 Depreciation in the second year is 3/10 of the depreciable amount: = $80,000 x 3/10 = $24,000 Sum of the digits
6
A
7
D
8
C
9
B
= (250,000 + 380,000 – 150,000) – (520,000 x 80%) = 64,000
Opening balance Profit share (50,000/2) Drawings Closing current account balance
10 B
Haslam $ (2,000) 25,000 (5,000) ––––––– 18,000
= 107,000 + ((857,000 – 107,000) x 5%) – 109,000) = 35,500
13
Section B Marks 1
(a)
(b)
Goodwill on acquisition of Martin Consideration transferred NCI ((23,150 – 18,520) x $1·6 Assets at acquisition Share capital Retained earnings
(i)
$000
23,150 5,338
$000 34,000 7,408
1·0 1·0
(28,488) ––––––– 12,920 –––––––
1·0 –––– 3·0 –––– ––––
Bradshaw Consolidated income statement for the year ended 31 October 2009 0·5 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Finance costs Profit before tax Income tax expense PROFIT FOR THE YEAR Profit attributable to: Owners of the parent Non-controlling interest
14
$000 187,900 (91,000) –––––––– 96,900 (14,800) (27,280) (5) –––––––– 54,815 (30,100) –––––––– 24,715 –––––––– ––––––––
Workings ($000) 1·5 125,000 + 77,900 – 15,000 2·5 65,000 + 38,500 – 15,000 + 2,500*
22,575 2,140 –––––––– 24,715 –––––––– ––––––––
1·0 2·0 (20% x 10,700)
0·5 0·5 1·0 (20 – 15) 0·5 1·0 1·0
–––– 12·0 –––– ––––
Marks Workings ($000) (ii)
Bradshaw Consolidated statement of financial position as at 31 October 2009
0·5
ASSETS Non-current assets Property, plant and equipment Intangible – goodwill
1·0 1·0
Current assets Inventory, at cost Receivables Cash and cash equivalents
$000
$000 106,901 12,920 –––––––– 119,821
11,412 25,435 4,405 ––––––––
41,252 –––––––– 161,073 –––––––– ––––––––
Total assets EQUITY AND LIABILITY Capital and Reserves $1 Ordinary shares Retained earnings
77,000 36,222 –––––––– 113,222 8,248 –––––––– 121,470
Non-controlling interest Total equity Non-current liabilities 10% Loan note Current liabilities Payables Tax
50 23,098 16,455 ––––––––
1·5 (9,750 + 4,162 – 2,500*) 2·5 (17,125 + 11,325 – 3,000** – 15***) 0·5 0·5
1·0 4·0 W1 2·5 W2
1·0 (200 – 150) 2·5 (16,613 + 9,500 – 3,000** – 15***) 1·0
Total current liabilities
39,553 –––––––– 161,073 –––––––– ––––––––
Total equity and liabilities
0·5 –––– 20·0 –––– ––––
Notes: * Exclusion of unrealised profit held in inventory ($2,500,000), ** Intracompany indebtedness ($3,000,000), *** Exclusion of intragroup interest ($15,000) Workings W1 Retained earnings as at 31 October 2009 $000 Bradshaw as per statement of financial position Less unrealised profit Martin : Retained earnings Pre-acquisition reserves
$000 35,362 (2,500)
0·5 1·0
3,360 ––––––– 36,222 ––––––– –––––––
2·5 –––– 4·0 ––––
7,408 840 ––––––– 8,248 ––––––– –––––––
1·0 1·5
9,538 (5,338) ––––––– 4,200
Group share (80% x $4,200,000)
W2 Non-controlling interest NCI at acquisition date Share of post-acquisition profit ((9,538 – 5,338) x 20%)
15
–––– 2·5 –––– ––––
Marks 2
(a)
Prepared in accordance with IAS7 Blanchard Statement of cash flows for the year ended 31 October 2009
0·5 $000
Cash flows from operating activities Net profit before tax Adjustments for: Depreciation Interest received Interest paid Profit on equipment disposal Operating profit before working capital changes Increase in inventory Decrease in receivables Increase in payables Cash generated from operations Interest paid Tax paid (W2) Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment (W1) Proceeds from sale of equipment Interest received
$000
1,398
1·0
654 (16) 227 (20) –––––– 2,243 (992) 700 149 –––––– 2,100 (227) (477) ––––––
1·0 0·5 0·5 1·0 0·5 0·5 0·5 0·5 0·5 0·5 2·0 1,396
(2,591) 219 16 ––––––
Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Repayment of long term borrowing
0·5 3·0 1·0 0·5
(2,356) 1,575 (598) ––––––
0·5 1·0 1·0
Net cash used in financing activities
977 –––––– 17 153 –––––– 170 –––––– ––––––
Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of period Cash and cash equivalents at end of period
0·5 1·0 1·0 0·5 –––– 20·0 –––– ––––
Examiner’s note IAS 7 allows interest paid to be an operating cash flow or a financing cash flow. Interest received can be an operating cash flow or an investing cash flow. Workings (all in $000): W1 Additions of non-current assets: Opening net book value Disposals (219 – 20) Depreciation
or
11,718 (199) (654)
Non-current assets NBV B/forward Revaluation Add’ns (bal)
Revaluation (2,130 – 1,170) 960 ––––––– 11,825 Additions (Balancing figure) 2,591 ––––––– Closing net book value 14,416 ––––––– ––––––– W2 Taxation Bal b/f Income statement Tax paid Closing balance
or 370 450
11,718 960 2,591 ––––––– 15,269 ––––––– –––––––
Disposals Depr’tion C/f
99 654 14,416 ––––––– 15,269 ––––––– –––––––
B/f Income Stmt
370 450 ––––––– 820 ––––––– –––––––
Taxation Paid C/f
477 ––––––– 343 ––––––– –––––––
Note: the entries in italics in these t-accounts are the ‘balancing figures’.
16
477 343 ––––––– 820 ––––––– –––––––
(b)
Comments might include: There has been a net increase in cash flows to Blanchard of $17,000. Long-term borrowing of $598,000 has been repaid. This will reduce future interest payments. Additional shares have been issued during the year raising $1,575,000. Additional non-current assets were purchased costing $2,591,000. These assets should improve operational efficiency and therefore generate more positive cash flows in the future. It suggests that the business may be expanding. The purchase of the non-current assets is likely to have been partly financed by the share issue and the general increase in operating cash. The use of shares to finance the purchase suggests good matching of long-term finance against long-term assets. There have been no dividend payments during the year, even though cash flow was positive, so funds have been reinvested in the business. There was an increase in inventory during the year costing $992,000. This might indicate poor inventory control or the expansion of business activity. There appears to be effective management of receivables as these have decreased, resulting in a net positive cash inflow of $700,000. Payables have increased by $149,000. This is clearly linked to the increase in the level of inventory being purchased. Marking Scheme: 1 mark for each relevant comment up to a maximum of 5 marks.
3
(a)
Over the last three years sales revenue has increased by $135,000 (or 122%) from $110,000 to $245,000. However, the gross profit has only increased by $25,000 (or 35.7%). This relative decline in profitability may be due to supplier costs increasing (275% during the period) or increased competition in the market forcing down the margin on selling prices or a relative increase in sales of lower gross profit margin items. The profit for the year has remained the same each year and therefore declined as a proportion of sales, due to an increase in the costs of distribution and administration. This might indicate that costs are not being carefully controlled. Alternatively it may also indicate an increase in competition in the market and that more money is being spent on marketing and perhaps servicing new markets further away. Profit for the periods has remained constant at $55,000. Most of the profit has been paid out as dividends meaning that the investment in new non-current assets has come from Beech’s cash reserve. This may create cash flow difficulties in the future for the business. Inventory has increased as a proportion of revenue over the period which might suggest poor inventory management or a slowing of inventory turnover. Cash and cash equivalents have reduced dramatically and this strongly suggests there may be liquidity problems. Payables appear to be carefully controlled. They have grown steadily over the period, but reduced as a percentage of cost of sales. The company pays out almost all of its profit made as dividend leaving very little for reinvestment. There is a good chance the company may need to utilise its overdraft if it chooses to maintain such a dividend policy. Marking scheme 1 mark for identifying and commenting on a key trend. 7 marks maximum.
17
Marks (b)
(i)
Gross profit percentage
(ii)
Return on capital employed
(iii) Quick/Acid test ratio
Gross Profit ––––––––– Revenue
x 100
95 –––– 245
x 100 =
38·8%
1·5
Profit before interest & tax –––––––––––––––––––––– x 100 Capital and Reserves
63 –––– 370
x 100 =
17·0%
1·5
Current assets – inventory ––––––––––––––––––––––– :1 Current liabilities
35 –––– 45
:1
0·78:1
1·5
(iv) Inventory turnover period (days)
(v)
Receivables collection period
(vi) Earnings per share
(c)
=
Average inventory –––––––––––––––– Cost of sales
x 365
35 –––– 150
x 365 =
85·2 Days
1·5
Average receivables –––––––––––––––––– Revenue
x 365
35 –––– 245
x 365 =
52·1 Days
1·5
55 –––– 350
=
15·7 Cents
1·5
Profit for the period ––––––––––––––––– Ordinary share capital
Further useful information: The nature of the business and type of market The statement of cash flow Forecast financial statements Comparative industry ratios The company’s accounting policies Product mix of goods sold including relative profit margins Company access to bank overdraft facilities Marking Scheme 1 mark for each item up to 4 marks
18
–––– 9·0 –––– ––––