MASSEY UNIVERSITY

MANAWATU, AUCKLAND AND DISTANCE CAMPUSES

EXAMINATION FOR
110.309 ADVANCED FINANCIAL ACCOUNTING

SEMESTER ONE 2022

_________________________________________________________________________________________________________

Time allowed is THREE (3) Hours.

1. The examination consists of seven (7) sections.

2. Section A is to be answered on the Excel template attached. This is to be uploaded after
completion.
3. Round numbers to the nearest whole number except for Question 11.
4. Present value tables are provided for use.
5. The examination is a ‘closed book’ examination. NO reference material is permitted. Any
failure to comply with these requirements may result in the student’s examination script
not being marked.
6. Calculators with memory cleared are permitted.
7. No additional reading time is provided; you must complete the exam within the time
allotted.

The exam paper will be made available on the University Library website.

SUMMARY OF QUESTIONS:

All sections are COMPULSORY.

The examination consists of 100 marks, allocated as follows:

SECTION A Q1-2 Foreign currency 20 marks

SECTION B Q3-6 Financial instruments 20 marks
SECTION C Q7 Accounting and culture/Diversity 10 marks
SECTION D Q8-10 Group/Consolidations 20 marks
SECTION E Q11-12 Financial analysis and beyond/Accounting theories 10 marks
SECTION F Q13-14 Segment reporting and related party disclosure 10 marks
SECTION G Q15-16 Accounting for agriculture 10 marks

TOTAL 100 MARKS

IN CONFIDENCE Page 1 of 15
 SECTION A: FOREIGN CURRENCY

Scenario Information
You are the financial accountant at Kiwiana International Ltd (KIL), a New Zealand listed
company. On 1 January 2021, KIL acquired all the issued shares of Singapore Ltd (SL), located
in Singapore. The CFO of KIL, Jenny Zhang, asked you to prepare the translated financial
statements of SL. SL prepares its financial statements using its local currency, the Singaporean
dollar (S$).

SL balance sheet on 1 January 2021 is as follows:

S$ 000
Share Capital 17,000
Retained Earnings 3,000
Accounts Payable 6,000
Total Liabilities and Equity 26,000

Equipment (net) 18,000

Inventory 1,000
Cash and accounts receivable 7,000
Total Assets 26,000

The financial statements of SL as at 31 December 2021, the fiscal year end, as well as the
relevant exchange rates are provided in the Excel spreadsheet template file for this
examination paper.

Additional information:
• Dividends were declared and paid on 1 October 2021.
• The opening inventory was on hand at the time of the acquisition of SL. The closing
inventory was acquired on 15 December 2021.
• All the equipment (net) account relates to equipment that was on hand at the time of the
acquisition.
• The building was acquired on 15 October 2021.
• On 1 December, KIL contributed additional capital to SL of S$3 million.
• Sales, purchases, and other expenses were incurred evenly throughout 2021.

Question 1
Refer to the scenario information in Section A and answer Question 1 in the Excel spreadsheet
template file provided.

Required:
Using the Excel spreadsheet template file provided, translate the SL financial statements for
the year ended 31 December 2021 into New Zealand dollars (NZ$), assuming:
a. The NZ dollar is the functional currency of SL. (8 marks)
b. The Singaporean dollar is the functional currency of SL. (8 marks)

IN CONFIDENCE Page 2 of 15
 1. NZ dollar is the Functional 2. The Singaporean dollar is the
Local Currency
Currency Functional Currency
Exchange Exchange
Income statement for 2021 $S $NZ $NZ
rate rate
Sales revenue 7,000,000
Opening Inventory 1,000,000
Purchases 4,000,000
Ending inventory -500,000
Cost of Goods Sold 4,500,000
Gross Profit 2,500,000
Depreciation- equipment -150,000
Depreciation- building -55,000
Other expenses -400,000
Tax -1,000,000
-/+ foreign exchange gain/loss
(if applicable)
Net Profit 895,000
Retained Earnings 1/1/21 3,000,000
Dividends -500,000
Retained Earnings 31/12/21 3,395,000

Balance Sheet as at 31 December 2021

Contributed Capital 17,000,000
Additional contributed capital 3,000,000
Retained Earnings 3,395,000
Foreign Currency Translation
Reserve (if applicable)
Accounts Payable 2,000,000
Total Liabilities and Equity 25,395,000

Equipment (net) 17,850,000

Building (net) 4,055,000
Inventory 500,000
Cash and accounts receivable 2,990,000
Total Assets 25,395,000

Relevant exchange rates were as follows:

1 January 2021: S$1.00 = NZ$ 1.10
1 October 2021: S$1.00 = NZ$ 1.14
15 October 2021: S$1.00=NZ$ 1.16
1 December 2021 S$1.00= NZ$ 1.17
15 December 2021: S$1.00 = NZ$ 1.18
31 December 2021: S$1.00 = NZ$ 1.20
Average 2021: S$1.00 = NZ$ 1.15

Question 2

You presented the two versions of the translated financial statements for SL at a meeting of
KIL Board. During the board meeting, a board member asked you to explain how the exchange

IN CONFIDENCE Page 3 of 15
 differences are presented in the financial statements for both methods and the reasons for
such presentations.

Briefly explain how the exchange differences are presented in the financial statements under
the two translation methods and the reasons for the different presentations.
(4 marks)

[TOTAL = 20 MARKS]

IN CONFIDENCE Page 4 of 15
 SECTION B: FINANCIAL INSTRUMENTS
Scenario Information

On 1 April 2020, North Shore Ltd acquired 100,000 shares of Manuka Ltd as a long-term
investment at a cost of $500,000. The year-end market prices of Manuka shares were $6.50
on 31 March 2021 and $5.50 on 31 March 2022.

Question 3
Refer to the scenario information in Section B and answer the following question:

Provide the required journal entries for North Shore Ltd to account for the investment in
Manuka Ltd if North Shore Ltd has made the election to account for the equity investment at
fair value through other comprehensive income (OCI).
(6 marks)
Question 4
Refer to the scenario information in Section B and answer the following question:

If North Shore Ltd has NOT made the election to account for its equity investments at fair
value through OCI, provide the required accounting journal entries for North Shore Ltd to
account for the investment in Manuka Ltd using fair value through profit and loss.
(6 marks)
Question 5
Explain why it is that when the market’s required rate of return is less than the coupon rate
being offered on a bond the price the bond will be sold for (its fair value) will be above its face
value.
(3 marks)
Question 6
What is a financial instrument? State for each balance sheet item whether it is or is not a
financial instrument. Briefly explain your answer.
a. Cash and cash equivalents
b. Receivables from customers
c. Inventories
d. Deferred tax asset
(5 marks)

[TOTAL = 20 MARKS]

IN CONFIDENCE Page 5 of 15
 Table to be inserted in Stream to answer Question 3
Date Description Dr Amount Cr Amount

Table to be inserted in Stream to answer Question 4

Date Description Dr Amount Cr Amount

IN CONFIDENCE Page 6 of 15
 SECTION C: ACCOUNTING AND CULTURE/DIVERSITY

Scenario Information

i. “Seventy thousand years ago, HOMO sapiens was still an insignificant animal minding
its own business in a corner of Africa. In the following millennia, it transformed itself
into master of the entire planet and the terror of the ecosystem….. We are more
powerful than ever before, but have very little idea what to do with all that power”
(Harari, 2011, pg. 465-466).

ii. “Every culture has its typical beliefs, norms and values, but these are in constant flux”
(Harari, 2011, pg. 181)

Question 7
Refer to the two quotes by author Yuval Harari in the scenario information in Section C and
answer the following question:

Discuss the influence of culture on accounting. In your discussion, you are expected to raise
at least four well-reasoned points from the following:
• Institutional factors which may influence accounting;
• Examples of how religion influences accounting;
• Hofstede’s ‘cultural dimensions’ which may influence accounting.
You must raise at least one point on each of the above three bullet points, as well as a
forward-looking conclusion which relates culture, accounting standards and climate change.

[TOTAL = 10 MARKS]

IN CONFIDENCE Page 7 of 15
 SECTION D: GROUP/CONSOLIDATIONS
Scenario Information
Luke Ltd had acquired 80 per cent equity in Jack Ltd on 1 July 2012. At that date the capital
and reserves of Jack Ltd were:

Share capital $1,500,000

Retained earnings $1,275,000
$2,775,000

At the date of acquisition, all assets were considered to be fairly valued.

Additional information:
1. The management of Luke Ltd measures any non-controlling interest at the
proportionate share of Jack Ltd’s identifiable net assets.
2. The management of Luke Ltd believes that goodwill acquired was impaired by $22,500
in the financial year ending 30 June 2021. Previous impairments of goodwill amounted
to $168,750.

The following financial statement of Luke Ltd and its subsidiary Jack Ltd have been extracted
from their financial records at 30 June 2021.
Luke Ltd Jack Ltd
($) ($)
Detailed reconciliation of opening and
closing retained earnings

Sales revenue 5,175,000 4,350,000

Cost of goods sold (3,480,000) (1,785,000)
Gross profit 1,695,000 2,565,000
Dividend revenue – from Jack Ltd 558,000 -
Consulting fee revenue 198,750 -
Profit on sale of plant 262,500 -
Expenses
Administrative expenses (231,000) (290,250)
Depreciation (183,750) (426,000)
Consulting fee expense - (198,750)
Other expenses (758,250) (577,500)
Profit before tax 1,541,250 1,072,500
Tax expense (461,250) (316,500)
Profit for the year 1,080,000 756,000
Retained earnings – 1 July 2020 1,852,500 1,794,000
2,932,500 2,550,000
Dividends paid (487,500) (697,500)
Retained earnings – 30 June 2021 2,445,000 1,852,500

IN CONFIDENCE Page 8 of 15
 Luke Ltd Jack Ltd
($) ($)
Statement of financial position
Shareholders’ equity
Retained earnings 2,445,000 1,852,500
Share capital 2,625,000 1,500,000
Current liabilities
Accounts payable 410,250 347,250
Tax payable 309,750 187,500
Non-current liabilities
Loans 1,301,250 870,000
Total equity and liabilities 7,091,250 4,757,250
Current assets
Accounts receivable 445,500 467,250
Inventory 690,000 217,500
Non-current assets
Land and buildings 1,680,000 2,445,000
Plant-at cost 2,248,875 2,668,500
Accumulated depreciation (643,125) (1,041,000)
Investment in Jack Ltd (at cost) 2,670,000 -
Total assets 7,091,250 4,757,250

Question 8
Refer to the scenario information in Section D and answer the following question:

Calculate the amount of goodwill recognised on consolidation at the date of acquisition.

Please show all your workings.
(3 marks)

Question 9
Refer to the scenario information in Section D and answer the following question:

Provide the appropriate journal entries to Luke Ltd to eliminate the cost of the investment in
Jack Ltd and recognise goodwill as at 30 June 2021.
(4 marks)

Question 10
Provide the appropriate journal entries required by the transactions/events listed as 1-6
below for the consolidated accounts for the year ended 30 June 2021, before considering any
NCI (Note: You should consider the effect of tax in your answers). Provide journal narrations
and show your workings.

Transactions:

1. During the year, Luke Ltd made total sales to Jack Ltd of $487,500, while Jack Ltd sold
$390,000 in inventory to Luke Ltd.

IN CONFIDENCE Page 9 of 15
 2. The opening inventory in Luke Ltd as at 1 July 2020 included inventory acquired from Jack
Ltd of $315,000 that had cost Jack Ltd $262,500 to produce.
3. The closing inventory of Jack Ltd includes inventory acquired from Luke Ltd at a cost of
$90,000. This had cost Luke Ltd $72,000 to produce.
4. The closing inventory in Luke Ltd includes inventory acquired from Jack Ltd at a cost of
$252,000. This had cost Jack Ltd $210,000 to produce.
5. On 1 July 2020 Luke Ltd sold an item of plant to Jack Ltd for $870,000 when its carrying
value in Luke Ltd’s accounts was $607,500 (cost of $1,012,500, accumulated depreciation
of $406,500). This plant is assessed as having a remaining useful life of six years.
6. Jack Ltd paid $198,750 of consulting fees to Luke Ltd in the current reporting period.
7. Jack Ltd paid a dividend of $697,500.
Assume a tax rate of 30 per cent throughout this question
(13 marks)

[TOTAL = 20 MARKS]

Table to be inserted in Stream to answer Question 8

Jack Ltd Luke Ltd

Table to be inserted in Stream to answer Question 9

Description Dr Amount Cr Amount

IN CONFIDENCE Page 10 of 15
 Table to be inserted in Stream to answer Question 10
Description Dr Amount Cr Amount

IN CONFIDENCE Page 11 of 15
 SECTION E: FINANCIAL ANALYSIS AND BEYOND/ACCOUNTING THEORIES

Scenario Information
i. These are selected extracts from the Financial Statements of The Warehouse Group:
Consolidated Balance Sheet
As at 1 August 2021
Note 2021 2020
ASSETS
Current assets
Cash and cash equivalents 11.1 160,526 168,068
Trade and other receivables 8.2 79,277 84,263
Inventories 8.1 457,151 393,610
Derivative financial instruments 12.2 8,837 243
Total current assets 705,791 646,184

Total non current assets 1,185,564 1,208,677

Total assets 2.4 1,891,355 1,854,861

LIABILITIES
Total current liabilities 624,137 626,336

ii. The Warehouse Group’s Annual Report for 2021 contains over 100 pages of
information including the following three items:
a. Financial Statements
b. An Integrated Report
c. Global Reporting Initiative (GRI) Disclosures

Question 11
Refer to the scenario information in Section E (i) and answer the following question:

Discuss the liquidity of The Warehouse Group, using appropriate ratios, as well as horizontal
and vertical analysis to support your comments. (5 marks)

Question 12
Refer to the scenario information in Section E (ii) and answer the following questions:

a. State the name of the umbrella term used by the XRB to describe reporting forms like
integrated Reports and GRI disclosures. (1 mark)
b. Identify one further such form of reporting which is expected to become mandatory
for around 200 large financial institutions in NZ entities from 2023. (1 mark)
c. Identify any two of the six ‘capitals’ within Integrated Reports. (1 mark)
d. Briefly describe the ‘ethical branch’ of Stakeholder Theory and relate this to a major
difference between approaches taken in Integrated Reporting as opposed to GRI
standards. (2 marks)

[TOTAL = 10 MARKS]

IN CONFIDENCE Page 12 of 15
 SECTION F: SEGMENT REPORTING AND RELATED PARTY DISCLOSURE

Scenario Information – Segment Reporting

The following divisional information is presented for Clyde Limited. This information is
regularly reviewed by the Board of directors of Clyde Limited.

Division Revenue Profit/ (Loss) Division Assets

($000) ($000) ($000)
Insurance 300 130 900
Banking 150 30 300
Agriculture 60 20 120
Telecom 45 (15) 80
Total 555 165 1400

Question 13
Refer to the scenario information for segment reporting in Section F and answer the following
question:

Which divisions must be reported separately as segments in accordance with NZ IFRS 8?

Please explain.
(6 marks)

Related Party Disclosure

Question 14
Which of the following situations/transactions constitute a related party of an entity within
the scope of IAS 24? Give reasons for your answer.
a. A person who has the authority to plan, direct and control the activities of the entity
b. The personal partner and children of a director of the entity.
c. A subsidiary company that is directly controlled by the entity.
d. Dividend payment to employees who are holders of an entity’s shares.
(4 marks)

[TOTAL = 10 MARKS]

IN CONFIDENCE Page 13 of 15
 SECTION G: ACCOUNTING FOR AGRICULTURE
Scenario Information
Barry Corp owns a plantation forest. The growing cycle is approximately 30 years. The
following information relates to the current year when a portion of the forest was harvested,
and the logs sold and delivered to a nearby sawmill. All receipts and payments were for cash.

$
Beginning fair value of forest 1,600,000
Ending fair value of forest 1,700,000
Costs incurred for cultivating and trimming trees 100,000
Costs incurred for harvesting 60,000
Amount received from the sawmill 160,000
Costs incurred for trucking harvested trees to sawmill 10,000

Question 15
Refer to the scenario information in Section G and answer the following questions:

Prepare the journal entry for the following:

a. cultivation and trimming costs. (2 marks)
b. harvesting the trees. (2 marks)
c. selling the logs and delivering them to the sawmill. (4 marks)

Question 16
Refer to the scenario information in Section G and answer the following question:

Calculate the total profit or loss for the year. (2 marks)

[TOTAL = 10 MARKS]

IN CONFIDENCE Page 14 of 15
 Table to be inserted in Stream to answer Question 15
Description Dr Amount Cr Amount

++++++++

IN CONFIDENCE Page 15 of 15