2021 mocks

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Subject Link Mock Username Password

FARI http://elearning.icaew.com/training/farifrstulipoffline.zip Tulip farifrstulipoffline k9g3k4

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© ICAEW 2021
 When prompted, enter the username and password as stated on page 1 of this document.

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© ICAEW 2021
PROFESSIONAL LEVEL EXAMINATION
2021
Tulip
(3 HOURS)

FINANCIAL ACCOUNTING AND

REPORTING – IFRS
This exam consists of four questions (100 marks)
Marks breakdown
Question 1 33 marks
Question 2 27 marks
Question 3 16 marks
Question 4 24 marks
1 Please read the instructions on this page carefully before you begin your exam. If
you have any questions, raise your hand and speak with the invigilator before you
begin.
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end of the exam. This form must be submitted as part of any subsequent special
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3 Click on the right arrow in the header to begin the exam. The exam timer will
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4 A warning is given five minutes before the exam ends. When the exam timer
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Respond directly to the exam question requirements. Do not include any content
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content. A student survey is provided post-exam for feedback purposes.

Copyright  ICAEW 2021. All rights reserved.

Unless otherwise stated, make all calculations to the nearest month and the
nearest £.
All references to IFRS are to International Financial Reporting Standards and
International Accounting Standards.

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1 Grouper Ltd manufactures and installs surfaces for various sporting activities. The
following trial balance has been extracted from Grouper Ltd’s nominal ledger at
31 December 2018.
Note(s) £ £
Sales 3,125,800
Purchases 2,055,200
Administrative expenses 349,860
Distribution costs 89,100
Intangible assets 1 799,800
Investment in sole trader 2 300,000
Plant and equipment 1 to 3
Cost 856,200
Accumulated depreciation at 31.12.17 501,500
Construction costs 4 254,000
Bank loan 4 100,000
Retained earnings at 31.12.17 782,800
Ordinary share capital 400,000
Cash at bank 14,400
Inventories at 31.12.17 120,600
Trade receivables 254,740
Trade payables 160,300
Income tax 5 5,300
5,084,800 5,084,800
Notes
1 Intangible assets represents the costs of two projects.
£
Project X 502,800
Project Y 297,000
799,800
The costs for Project X are those correctly capitalised up to 31 December
2017 on a project to develop a new hard-wearing surface for tennis courts.
The new surface was launched on 1 May 2018 and is expected to generate
profits for five years before a superior surface is developed.
The costs for Project Y are those incurred during the year ended 31 December
2018. Project Y initially began on 1 January 2018 as research into a new
artificial surface for cricket pitches, but was assessed as meeting the criteria of
IAS 38, Intangible Assets, for capitalisation on 1 October 2018. Production of
the new surface is expected to commence during 2019.
Project Y’s costs accrued evenly over the year, with the exception of a
machine purchased on 1 October 2018 for £25,000. The cost of this machine
is included in the costs of Project Y above and it was put to use immediately to
help finalise the new surface. It will then be used exclusively for the
manufacture of the new surface. The machine is expected to have a total
useful life of five years.

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 Grouper Ltd wishes to capitalise the maximum amount allowed under IFRS.
All expenses relating to intangible assets should be presented in cost of sales.
2 On 30 June 2018 Grouper Ltd purchased the assets and trade of a sole trader
for cash of £300,000. This was debited to investment in sole trader and
credited to cash. No other accounting entries have been made in relation to
this acquisition. The assets consisted of the following, stated at their fair
values on 30 June 2018.
£
Plant and equipment 228,300
Trade receivable (Loach Ltd) 25,100
253,400
The following information is relevant:
 On 1 July 2018 the plant and equipment had a remaining useful life of
three years.
 In the last few months Loach Ltd has encountered financial difficulties due
to the unexpected entry of a new competitor to its main market. The
amount due from Loach Ltd is still unpaid. Grouper Ltd now believes that it
would be prudent to make an allowance of 60% of this amount.
3 Depreciation for the year has not been charged. Unless otherwise indicated
Grouper Ltd depreciates its plant and equipment on a straight-line basis over
five years. Depreciation is recognised in cost of sales.
4 In the current year Grouper Ltd began to construct a new manufacturing
facility. The construction was still in progress at the year end. On 1 April 2018
Grouper Ltd borrowed £100,000 to fund the second phase of the construction.
The company immediately spent these funds which are included in
construction costs in the trial balance above.
The loan is repayable on 31 December 2019 and has an interest rate of 5% pa
paid annually in arrears. Interest on the loan has not yet been recognised by
Grouper Ltd.
5 The income tax liability for the year ended 31 December 2018 is estimated at
£8,000. The amount shown in the trial balance is the balance remaining in the
nominal ledger after paying the tax liability outstanding at 31 December 2017.
6 Inventories at 31 December 2018 cost £150,200.

Requirements
1.1 Prepare the following for Grouper Ltd, in a form suitable for publication in the
financial statements for the year ended 31 December 2018:
(a) a statement of profit or loss;
(b) a statement of financial position; and
(c) a note to the financial statements showing the movements on intangible
assets. A total column is not required.
(26 marks)

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1.2 Describe the differences between IFRS and UK GAAP in respect of IAS 38,
Intangible Assets and IAS 23, Borrowing Costs. (3 marks)
1.3 IAS 1, Presentation of Financial Statements, requires financial statements to
be prepared using the accrual basis of accounting. Explain this basis with
reference to two examples from the financial statements of Grouper Ltd for the
year ended 31 December 2018. (4 marks)
Total: 33 marks

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2 You are an ICAEW Chartered Accountant and the financial controller of Medaka
plc, a listed company. Jim Fish, the finance director, who is also an ICAEW
Chartered Accountant, has prepared draft financial statements for the year ended
31 December 2018, which include the following figures:
£
Profit for the year 561,200

Equity £
Ordinary share capital (£1 shares) 500,000
Share premium 75,000
Retained earnings 5,625,300

Earnings per share (EPS) 112.2

Since joining Medaka plc, you have become concerned that Jim’s technical
knowledge is not up to date. You raised this with the managing director and, as a
result, you have been asked to review the following issues in the draft financial
statements. The directors are paid an annual bonus which is linked to EPS.
(1) On 1 March 2018 Medaka plc ordered a specialist machine from Italy for
€585,200. The manufacturer of the machine remained responsible for
insurance of the machine until Medaka plc took delivery on 1 July 2018. Jim
capitalised the cost of the machine on the date it was ordered, debiting
property, plant and equipment and crediting payables, using the spot
exchange rate on 1 March 2018.
The manufacturer was paid on 15 July 2018. Jim debited payables and
credited cash, using the spot exchange rate on 15 July 2018.
On 31 December 2018 Jim retranslated the cost of the machine using the spot
exchange rate at this date, taking the retranslation difference to profit or loss.
The machine has an estimated useful life of 10 years. However, Jim has not
depreciated the machine because he said it had increased in value since it
was purchased.
Spot exchange rates were:
1 March 2018 €1:£0.80
1 July 2018 €1:£0.85
15 July 2018 €1:£0.87
31 December 2018 €1:£0.90
(2) Included in inventories at 31 December 2018 were 2,000 units of finished
goods. In valuing these inventories Jim has based his allocation of fixed
production overheads on the 20,000 units produced in the year. Production is
normally 32,000 units pa. The shortfall in production was due to a fire in the
factory which stopped production for several weeks. Fixed overheads for the
year were £460,000.

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(3) On 1 January 2018 Medaka plc purchased a zero coupon bond for £181,440
(nominal value £196,000) and paid an additional £5,000 for broker’s fees.
Medaka plc expects to hold the bond, which is quoted in an active market, to
its redemption on 31 December 2020. Redemption is at a premium of 7% on
the nominal value. The bond has an effective interest rate of 4% pa.
Jim recognised the bond in the draft financial statements as a financial
instrument at its redemption value, taking the difference between this amount
and the total cash paid, including the broker’s fees, to profit or loss.
(4) On 1 September 2018 Medaka plc made a 1 for 5 bonus issue. Jim has not
accounted for this bonus issue in the draft financial statements. He has based
his calculation of EPS on 500,000 ordinary shares, as shown in the draft
financial statements. In accounting for this bonus issue the directors wish to
maximise distributable profits.
Requirements
2.1 Explain the required IFRS financial reporting treatment of issues (1) to (4) in
the financial statements of Medaka plc for the year ended 31 December 2018,
preparing all relevant calculations. (18 marks)
2.2 Using your calculations from 2.1 above calculate the following for Medaka
plc’s financial statements for the year ended 31 December 2018:
(a) a revised profit for the year; and
(b) a revised EPS. (4 marks)
2.3 Discuss the ethical issues arising for yourself and Jim and the steps that you
should take to address them. (5 marks)
Total: 27 marks

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3 On 1 January 2018 Kokopu plc had a number of subsidiary companies and one
associated company. Extracts from the group’s consolidated financial statements
for the year ended 31 December 2018 are set out below.
Consolidated statement of profit or loss for the year ended
31 December 2018 (extract)
Continuing operations £
Profit from operations 980,250
Finance costs (10,250)
Share of profits of associate 56,200
Profit before tax 1,026,200
Income tax expense (205,240)
Profit for the year from continuing operations 820,960
Discontinued operations
Profit for the year from discontinued operations 55,630
Profit for the year 876,590

Attributable to:
Owners of Kokopu plc 610,350
Non-controlling interest 266,240
876,590
Consolidated statement of financial position as at 31 December 2018
2018 2017
ASSETS £ £
Non-current assets
Property, plant and equipment 1,089,100 952,900
Right-of-use assets 338,400 170,500
Intangible assets 441,300 502,500
Investment in associate 237,500 206,300
2,106,300 1,832,200
Current assets
Inventories 901,300 752,200
Trade and other receivables 599,800 603,200
Cash and cash equivalents 445,650 3,600
1,946,750 1,359,000
Total assets 4,053,050 3,191,200
EQUITY AND LIABILITIES
Equity
Ordinary share capital (£1 shares) 500,000 500,000
Revaluation surplus 760,000 715,000
Retained earnings 1,173,750 563,400
Attributable to the equity holders of
Kokopu plc 2,433,750 1,778,400
Non-controlling interest 701,200 652,400
3,134,950 2,430,800

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 2018 2017
Non-current liabilities
Lease liabilities 180,600 120,500

Current liabilities
Trade and other payables 489,200 398,400
Lease liabilities 50,300 40,500
Income tax payable 198,000 201,000
737,500 639,900
Total equity and liabilities 4,053,050 3,191,200
Additional information:
(1) On 30 September 2018 Kokopu plc sold all of its 80% holding in Rohu Ltd for
cash of £742,700. The profit from discontinued operations in the consolidated
statement of profit or loss relates wholly to the sale of the shares in Rohu Ltd
and can be analysed as follows:
£
Profit before tax 61,890
Income tax expense (12,500)
Profit on disposal 6,240
55,630
The net assets of Rohu Ltd at the date of disposal were:
£
Property, plant and equipment 839,300
Trade and other receivables 128,075
Cash and cash equivalents 1,400
Trade and other payables (99,700)
869,075
(2) Intangible assets consist entirely of goodwill arising on business combinations.
Intangible assets at 31 December 2017 included £41,200 in respect of
goodwill arising on the acquisition of Rohu Ltd. During 2018 impairments of
goodwill in relation to other subsidiaries were recognised. Kokopu plc uses the
proportionate method to calculate the non-controlling interest and goodwill
arising on the acquisition of all of its subsidiaries.
(3) During the year ended 31 December 2018 the group made no disposals of
property, plant and equipment other than through the disposal of Rohu Ltd.
The group purchased property, plant and equipment for cash of £1,056,200.
Kokopu plc also revalued a plot of land during the year.
(4) On 1 January 2018, the group entered into a contract for the lease of a
building. The right-of-use asset recognised under the lease was initially
measured at £298,000, which was equal to the present value of the future
lease payments at the commencement date of the lease. All finance costs
relate to leases.

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(5) Kokopu plc did not pay a dividend during the year ended 31 December 2018.
However, dividends were paid to the non-controlling interest by subsidiaries
and Kokopu plc received dividends from its associated company.
Requirement
Prepare a consolidated statement of cash flows for Kokopu plc for the year ended
31 December 2018, including a note reconciling profit before tax to cash
generated from operations, using the indirect method. A note showing the effects
of the disposal of Rohu Ltd is not required.
Total: 16 marks

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4 On 1 January 2018 Opaleye plc had one subsidiary company, Perch Ltd. During
2018 Opaleye plc purchased a second subsidiary, Tetra Ltd.
The draft, summarised statements of financial position of the three companies at
31 December 2018 are shown below:
Opaleye plc Perch Ltd Tetra Ltd
£ £ £
ASSETS
Non-current assets
Property, plant and equipment 875,600 768,500 2,900
Investments 675,000 – –
1,550,600 768,500 2,900
Current assets
Inventories 501,400 356,500 81,300
Trade and other receivables 326,800 201,300 79,200
Cash and cash equivalents 32,600 5,400 200
860,800 563,200 160,700

Total assets 2,411,400 1,331,700 163,600

EQUITY AND LIABILITIES

Equity
Ordinary share capital (£ shares) 1,000,000 500,000 100,000
Revaluation surplus 375,000 150,000 –
Retained earnings 545,900 481,500 (5,800)
1,920,900 1,131,500 94,200
Current liabilities
Trade and other payables 285,500 99,200 69,400
Income tax 205,000 101,000 –
490,500 200,200 69,400
Total equity and liabilities 2,411,400 1,331,700 163,600
Additional information:
(1) Details of the two acquisitions are set out below.
Perch Ltd Tetra Ltd
Date of acquisition 1 January 2012 1 July 2018
Cost of acquisition £650,000 £25,000
Percentage of ordinary shares acquired 60% 90%
Method of accounting for Fair value Proportionate
goodwill arising on consolidation method method
Reserves at date of acquisition:
£ £
Retained earnings 110,600 (17,500)
Revaluation surplus 50,000 Nil

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(2) The fair value of the non-controlling interest in Perch Ltd at acquisition was
estimated at £300,000.
The fair values of Perch Ltd’s assets, liabilities and contingent liabilities on the
date of acquisition were equal to their carrying amounts with the exception of
land and buildings. These had a fair value £32,000 in excess of their carrying
amount, £10,000 of which related to the land. The buildings had a 50 year
remaining useful life on 1 January 2012.
Perch Ltd made a profit for the year ended 31 December 2018 of £126,300.
There has been no movement in the revaluation surplus in the current year.
(3) Tetra Ltd has been loss making for a number of years but Opaleye plc
believes it will be profitable going forward. The fair values of Tetra Ltd’s
assets, liabilities and contingent liabilities on the date of acquisition were equal
to their carrying amounts. These were reassessed following acquisition and no
adjustments were necessary.
(4) On 31 December 2018 Perch Ltd’s inventories included goods purchased from
Tetra Ltd for £19,500 in November 2018. These goods cost Tetra Ltd £18,100.
The invoice to Perch Ltd for these goods was unpaid at the year end.
(5) Opaleye plc has undertaken annual impairment reviews of goodwill. At
1 January 2018 cumulative impairments of £12,000 had been recognised
against goodwill arising on the acquisition of Perch Ltd. On 31 December 2018
a further impairment of £5,000 was identified in respect of goodwill arising on
the acquisition of Perch Ltd and needs to be recognised.
Requirements
4.1 Prepare the consolidated statement of financial position of Opaleye plc as at
31 December 2018. (21 marks)
4.2 Calculate the non-controlling interest in the group brought forward at
1 January 2018. (3 marks)
Total: 24 marks

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Standards including all International Accounting Standards, SIC and IFRIC Interpretations (the Standards). The
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