SUGGESTED ANSWERS — SPRING 2015 EXAMINATIONS 408 ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING - SEMESTER: Marks at Electronics Group Consolidated Statement of Financial Position as at December 31, 2014 Rs. in million Non-Current Assets Property, plant and equipment (PPE) [283.20 + 140-14 (W-4)] 409.20 0.5+0.25 Financial assets (W-9) 56. 0.25 Goodill (W-1) 16.30 0.25 Investment in associate (W-5) 0.25 Inventory (19.25 + 8.75 ~ 5.00 - 0.45) 22.55 0.75+0.25 Accounts receivable (15.75 + 5.25) 21.00 0s Cash and Bank (7.0 + 3.5) 10.50 05 54.05 569.84 Equity Share capital @ 10 each 154.00 0.25 Other reserves (W-8) 52.15 0.25 Retained earings (W-2) 155.34 0.25 361.94 Non-controlling interest (W-3) 28.75 0.25 Long-term liabilities 12% loan notes 72.50 0.25 Differed consideration 7.00 0.25 Other long-term liabilities [78.85 + 0.35 (W-7)] 79.20 05 158.70 Current Liabilities (12.15+8.75) 209 0s 569.84 wa: Calculation of Goodwill Cost of investment Contingent consideration 15.00 0.25 Cash paid 85.72 0.25 12% loan notes (3.5 x 80% x 100 x 1/20) 14.00 0.75+0.26 Deferred Consideration (3.5 x 80% x 2.5 x (1.12)? 5.58 0.754025 Total Consideration 120.30 025 Add FV of NCI (35 + 95) x 20% 26.00 05+0.25 146.30 025 Share capital 35 025 Retained earnings 95 025 Total goodwill 025 MEETS apo TE SA SPT ET STR TSN SEESUGGESTED ANSWERS — SPRING 2015 EXAMINATIONS. 2ofa ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING - SEMESTER-5: Marks wee: Consolidated retained earnings Electronics Volta __Osaka Balance at reporting date 145.25 113.75 4550 — 0.25+0.25+0.26 Unrealized profit on goods (W-6) (6.00) (1.50) 0.25+0.26 Unrealized profit on plant (W-4) (14.00) 0.25 Contingent liability 15.00 0.25 Impairment of financial asset (3.56) 0.25 Balance at acquistion (95.00) __ (38.50) 0.26+0.25 13.75 5.50 0.25+0.25 Share of Volta (13.75 x 80%) 11.00 os Share of Osaka (6.5 x 30%) 05 0s w-3: Non-Controlling interest FV of NCI at acquisition 26 0.25 ‘Share of Post-acquisition retained earnings (13.75x20%) 2.75 0,540.25 Total NCI 28.75 0s wa: Un-realized Profit on Plant: Rs. in million Sales proceeds 88.00 0.25 Book value -72.00 0.25 Profit on sales of plant 16.00 0.25 Less profit realized by use (16/4 x 6/12) @ 0540.25 14 05 Ws: Investment in Associate Cost 31.5 0s Share of increase in retained earnings (730%) 2.40 0s 33, 05 Ws: Un-realized Profit on goods: Sales of goods: From Vota to Electronios : Sales amount 0.25 Cost of sale (60 x 1/1.25) 0.25 Profit on sale 0.25 unrealized profit (10x1/2) 5.00 0.25 From Osaka to Electronics : Sales amount 20.00 0.25 Profit on sale (30x25%) 7.50 0.25 Unrealized profit (7.5x20%) 1.50 0.25 6.50 0.25 wW7: Loss on re-measurement of defined benefit obligation 1.55 Gain on re-measurement on plan asset 4.20 0.35 0s aT aE Ta pT aS a EEEa2 SUGGESTED ANSWERS — SPRING 2015 EXAMINATIONS. sofa ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING - SEMESTER-5: Marks w-8: Other reserves at balance sheet date 52.50 Less pension scheme (0.35) 52.45 0s Wa: Balance per question 60.25 0.25 Amount of impaired of financial asset 20.50 0.25 Less recoverable amount 16.94 05 Impairment 3.56) 05 69 05 Modern Company Statement of Cash Flows for the year ended December 31, 2014 Cash Flows from Operating activities: Rs. in million Profit before tax 729.90 0.25 Interest payable 46.75 0.25 Income from associate (6.50) 0.25 ‘Operating profit TAS 0.25 Non-cash items Depreciation 136.05 0.25 Gain on disposal of assets (W-1) (82.35) 0.25 824.85 0.25 ‘Change in working capital Increase in inventory (1462.35 ~ 1143.6 ~ 81.8 acq ~ 17.4 ex diff) Increase in receivables (803.1 — 663 - 85 acq ~ 45.9 x diff) Increase in payables (641.7 — 448.35 ~ 71.00 acq ~ 34.35 x diff) Interest paid Tax paid (W-2) Cash Flows from Investing activities: Purchase of non-current assets (W-3) Proceeds on disposal Cash consideration paid on acquisition of subsidiary, net of cash acquired (175.00 ~ 34.8) Dividend received from associate (W-4) ‘Cash Flows from Financing activities: Dividends paid Dividends paid to NCI (W-6) Proceeds from long-term loan (W-5) Change in cash and cash equivalents (658.30 — 459.65 ~ 56.05) ‘Opening cash and cash equivalents (170.25 - 13.65) Closing cash and cash equivalents (383.40 ~184.2) 219.55) 140.25 8.20) 140.25 88.00 140.25 684.10 0.25 (48.75) 0.25 (79.05) 0.25 558.30 05 (450.05) 0.25 128.10 0.25 (140.20) 0.25+0.25 2.50 0.25 (459.65) 05 (66.75) 0.25 6.50) 0.25 16.20 0.25 (56.08) 05 42.60 05 —156.60_ 05 — 190.20, 05 aS a EEESUGGESTED ANSWERS — SPRING 2015 EXAMINATIONS. ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING - SEMESTER-5: Workings: (All amounts are in million of rupees) we Proceeds of disposal of NCA: Sales proceeds cv Profit on disposal Cash Balance cif — CT Balance cif — DT W-3: Balance bif Exchange gain Acquisition of subsidiary Cash Balance bit Profit W-5: old ws: Dividend to NCI eld Tax Rs. 79.05 | Balance b/f - CT 558.30 | Balance bif — DT 193.50 VS 830.85 Non-current assets (PPE) 1,347.75 16.35 41.20 450.05 1,855.35 Sale Depreciation old om associates Dividend received Cash Balance cif Long-term loans bid Subsidiary Cash 315.30 Non-controlling interest 5.50 | bid Income statement ofa Marks Rs. 128.10 (48.75) 82.35 0.25 Rs 384.90 0.25+0.25 140.25 0.25+0.25 305.70 0.25+0.25 830.85 45,75 0.25+0.25 136,05 0.25+0.25 1,673.55 0.25+0.25 0s 1,855.35 2.50 0.25+0.25 45.00 0,25+0.25 47.50 252.30 0.25 48,80 0.25 16.20 0.25+0.25 315.30 2.55 0.25+0.25 3.45 0.25 0.25405 25.50 | Subsidiary (125 x 0.2) _ 25.00 31,00 31,00 aS a EEESUGGESTED ANSWERS — SPRING 2015 EXAMINATIONS. Soff ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING - SEMESTER-5: wr: W-8: Goodwill - proportionate basis Marks Retained earnings Dividend 66.75 | bid 953.85 Ex diff 45.30 old 1,353.15 | Net profit 420.75 1,419.90 1419.90 05 Rs. Cost of investment 175.00 CV of NCI at acquisition (20% x 125) 25.0 200.00 FV of net assets at acquisition (125.00) Goodwill at acquisition 75.00 Balance bif 0 Balance cif to group SOFP 76.00 1.0 3 (a) Although the particular focus of management commentary will depend on the facts and circumstances of the entity, management commentary should include information that is, essential to an understanding of: ‘+ the nature of the business; 1 ‘+ management's objectives and its strategies for meeting those objectives; 01 ‘+ the entity's most significant resources, risks and relationships; 01 ‘+ the results of operations and prospects; and 01 + the critical performance measures and indicators that management uses to 04 ‘evaluate the entity's performance against stated objectives {b) IFRS 8 requires the following disclosures about the entity as a whole, even if it only has one reportable segment: +The revenues from external customers for each product and service or each group 01 of similar products and services. + Revenues from extemal customers split between the entity's country of domicile 01 and all foreign countries in total + Non-current assets split between those located in the entity's country of domicile 91 and all foreign countries in total + Revenue from a single external customer which amounts to ten percent or more of 91 an entity's revenue. They identity of the customer does not need to be disclosed. a aSUGGESTED ANSWERS — SPRING 2015 EXAMINATIONS 6of8 ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING - SEMESTER: Marks Hedging is @ method of managing risk by designating one or more hedging instruments so that their change in fair value is offset, in whole or in part, to the change in fair value or cash flows of a hedged item. o1 Under IAS 39 hedge accounting rules can only be applied to a fair value hedge if the hedging relationship meets four criteria. 1+ At the inception of the hedge there must be formal documentation identifying the 01 hedged item and the hedging instrument. 2+ The hedge is expected to be highly effective. o1 3: The effectiveness of the hedge can be measured reliably (.., the fair value/ cash flows of the item and the instrument can be measured reliably). o1 4 The hedge has been assessed on an on-going basis and is determined to have gy been effective ia Int Bond di jerest | Bond discount Date Cash paid 8% | arsemces 14% amortization CV of Bond July 1, 2015 [ 570,000 ‘January 1, 2016) 26,000 39,800 13,900 583,900 | 0.5+05 July 1,2016 26,000 40,873 14,873 598,773 | 05105 ‘January 1, 2017, 26,000 41,914 16,914 614,687 | 0.5105 July 1,2017 | 26,000 43,028 17,028 631,715 | 0.5105 ‘January 1, 2018| 26,000 44,220 18,220 649,935 | 0.5405 July 1,208 | 26,000 45,495 19,495 663,430 | 0.5105 ‘te profit or loss to SFP oR 03 + 03 = 08 Q4(a) * The base information is often out of date because the financial statements are filed months after the reporting date. This lack of timely information leads to problems of interpretation. ‘© Historic cost information may not be the most appropriate information for the decision for which the anaiysis is being undertaken. ‘* Information in published financial statements is generally summarized information and detailed information may be needed. ‘+ Analysis of accounting information only identifies symptoms, not causes, and thus is of limited use. + Year-end figures are not representative, because they include year-end accounting adjustments. AnyTour@rmaky= 4 RTS TR SR RT ET NE ETTSUGGESTED ANSWERS — SPRING 2015 EXAMINATIONS. Tote ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING - SEMESTER-5: Marks (b) Liability at Expense for the year end year (Rs.) (Rs) 2010 (400-25 -60) x 200x 105x', 227.500 227,500 140.25+0.25 2011 (400 -25-20-18)x 200x12x% 44,000 440.26 (644,000 - 227,500) 316,500. 0.5+0.25 SARS not yet exercis 2012 40-28 ~20 10-160) «200 x ee ns (636,500 - 544,000) (7.500) 0540.25, SARS exercised: (160 200 x 13) 416,000 05+0.25 408,500 0.25 SARS not yet exercised: 2013 (400-25 ~ 20 - 10 160 120) x pies » 214,500, 140.25 (214,500 — 536,500) (822,000) 0.5+0.25, SARS exercised: (120 x 200 x 185) 372,000 0540.25 50,000 0.25 2014 SARS not yet exercised: (NIL 214,500) (2148500) 0.25 SARS exercised: (65 x 200 x 18) 234,000 05+0.25, 19.500 0.28 7,022,000 0.25 5 (a) (i) Sustainability is the process of conducting business in such a way that it enables an entity to meet ts present needs without compromising the abilty of future generations to meet their needs. ot In a corporate context, sustainability means that a business entity must attempt to reduce its environmental impact through more efficient use of natural resources and improving environmental practices. o1 (lil) Reporting sustainability is sometimes called reporting the triple bottom line’ covering ‘environment, social and economic reporting. ot (iv). This tack of regulation leads to several potential problems: ‘+ Because disclosure is largely voluntary, not all businesses disclose information. Those that do tend to do so either because they are under particular pressure to prove their ‘green’ credentials (for example, large public utiity companies whose operations directly affect the environment) or because they have deliberately built their reputation on environmental friendliness or social responsibilty o2 * The information disclosed may not be complete or reliable. Many businesses see environmental reporting largely as public relations exercise and therefore only provide information that shows them in a positive light. 7 The information may not be disclosed consistently from year to year. 7 + Some businesses, particularly small and medium sized entities, may believe that the costs of preparing and circulating additional information outweigh the benefits of doing so. o1 STF eT EPR OER ETO TTTSUGGESTED ANSWERS — SPRING 2015 EXAMINATIONS. ofa ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING - SEMESTER-5: Marks (b) (i) Basic earnings per share: ‘ ‘= __Net proft available to ordinary share-holders Basic earnings per share = “Weighted average number of outstanding shares o 875,000 ae oo9 = RS. 0.81 per share o1 wa Net profit available for ordinary share holders: Rs Not profit before tax “172,500 0.25 Less income tax (850,000 x 0.35) (297,500) 05 875,000 05 we Weighted average number of outstanding shares on 01-01-2014 4,000,000 0.25 At bonus shares issued 100,000 0.25 Repurchase of its own shares (50,000 x 6/12) (25,000) 05 Weighted average number of outstanding shares on 31-12-2014 1,075,000 05 ) Incremental earnings per share with respect to 8% bonds 52,000 a joq00 Rs. 052 10 Incremental earnings per share with respect to 10% bonds . 32,500 : = ae = Rs. 0.65 1.0 Since incremental earnings pet share of both loans are less than basic earning per 4 share (Rs. 0.81 per share) therefore, both loans are dilutve. : (iii) Diluted earnings per share: Diluted earnings por share= -—$p5¢°g99 = Re. 0.78 10 ws Rs. Net profitfor the year available to ordinary share holder (W1) 875,000 Interest for 8% bond (10,000 x 100 x 8%) 80,000 Less income tax (80,000 x 35%) (28,000) 52,000 10 Interest for 10% bonds (12,000 x 100 x 5/12x 10%) 50,000 Less income tax (60,000 x 35%) (17.500) 32,500 10 Adjusted net profit 959,500 05 Weighted average number of outstanding shares on 31-12-2014 (W2) 1,075,000 ‘Add: Ordinary shares to be issued for: 8% Bonds (given) 100,000 05 40% Bonds (12,000 x 10x 5/12) 50,000 05 Adjusted weighted average number of outstanding shares 7225,000 08 THE END aS a EEE