FINANCIAL REPORTING

MARKING SCHEME
QUESTION 2 D)

Carrying amount of cgu

Cgu1= 48,000
Cgu2= 155000
Compare value in use and NRV
Nrv= fairvalue-cost to sell
Nrv
Cgu1= 50000
Cgu2=70000
Value in use
Cgu 1
year cashflows Df(10%) pv
1 8000 0.909 7272
2 6000 0.826 4956
3 9000 0.751 6759
4 10000 0.683 6830
5 11000 0.621 6831
6 12000 0.564 6768
39416

Cgu 2
year cashflows Df(12%) pv
1 20000 0.893 17860
2 22000 0.783 17226
3 27000 0..693 18711
4 24000 0.613 14712
5 25000 0.543 13575
6 30000 0.480 14400
96484
Recoverable amount = lower between value in use and nrv
Recoverable amount
Cgu1
Nrv=50,000
Value in use=39416
Recoverable amount= 39416
Cgu2
Nrv= 70000
Value in use=96484
Recoverable amount=70,000
2. impairment loss ( this occur when carrying amount is lower than recoverable amount)
Cgu1
Recoverable amount=39416
Carrying amount=48,000
Impairment loss= 48,000-39416=8584
Cgu 2
Recoverable amount=70000
Carrying amount= 155000
Impairment loss= 155000-70000=85000

3. Allocation of impairment loss

Cgu 1
Carrying amount Impairment loss Carrying amount
before impairment after impairment
loss
Tangible fixed asset 26000 =26000/48000*8584=4649 21351
inventory 22000 22000/48000*8584=3934 18066
48000 39417
Cgu 2
Carrying amount Impairment loss Carrying amount
before impairment after impairment
loss
goodwill 25000 2500 0
Tangible fixed 107000 107000/130000*60000=49384 57616
asset
inventory 23000 23000/130000*60000=10615 12385
155000 70000
Firstly, impairment loss should be allocated to goodwill in full and the remaining balance will be
allocated to other asset on prorate basis
Impairment loss 85000-25000=60,000

Qn2. B)
ii)This is a financial asset as we have purchased,
fairvalue of instrument= 1000
interest= 4.72/100*1250=59
Period/year Amortised cost Interest(p&l)10% Interest received Amortised c/f
b/f
1 1000 100 59 1041
2 1041 104 59 1086
3 1086 109 59 1136
4 1136 114 59 1191
5 1191 119 59+1250 0

Qn2 c)
pat− preference dividend−nci
ii) basic eps= ¿
weighted avr no ord shares
weighted average no of ordinary shares
bal b/f…………………………….. 100,000
bonus issue 1/3*100,000………… 33,333
issue of share at market price
(20,000*9/12)……………………….15000
148333
Profit before tax………………….. 400,000
Profit after tax………………….. 400,000*0.7= 280,000
Preference dividend 8%*800,000…. 64000

Basic Eps= 280,000-64000/148333=1.46

Diluted earning per share
pat− preference dividend−nci+ extra earnings
Dps= ¿
weighted avr no ord shares +extra shares
Dilution
 Share option
= 5000/10*5=2500
Extra shares= 5000-2500=2500
 Convertible preference share
Extra shares
1 pref share=2 ord share
Preference shares= 800,000/10=80,000 shares
1 pref share=2 ord share
80,000 pref=2*80,000= 160,000 ord shares
Extra earnings
dividend saved= 8%*800,000=64000
Test for dilution
Increase in earnings Increase in share eps
Share option - 2500 -
Convertible 64000 160,000 0.4
preference share

We start by using smallest

Dilution

Increase in eaarnings Increase in share Eps

Basic eps 216000 148333 1.88
Share option - 2500 -
216000 150833 1.43
Conv pref share 64000 160,000
280,000 310833 0.9
Diluted eps=0.9