ACCA paper f 7 financial reporting F7FR(Int) MT1B qs d08

Monitoring Test MT1B Financial Reporting F7FR-MT1B-Z08-Q Time allowed 1.5 hours All THREE questions are compulsory and MUST be attempted Do NOT open this paper until instructed by the supervisor Accountancy Tuition Centre Ltd ATC INTERNATIONAL Orange Inc has one subsidiary undertaking, Apple Inc (its only investment) It acquired 75,000 of Apple’s $1 ordinary shares on January 2004 for $122,500 At that date the balance on Apple’s retained earnings was $30,000 Statements of financial position and statements of comprehensive income for the two companies for the year ended 31 December 2007 are given below Statements of financial position as at 31 December 2007 Orange Inc $ NON CURRENT ASSETS Tangible Investments CURRENT ASSETS Inventory Receivables Cash and bank $ $ Apple Inc 243,500 122,500 ––––––– 366,000 52,000 33,000 12,000 –––––– Total assets 97,000 ––––––– 463,000 ––––––– $ 162,000 12,000 ––––––– 174,000 30,000 21,000 2,000 ––––––– 53,000 ––––––– 227,000 ––––––– EQUITY AND LIABILITIES Share capital Retained earnings Liabilities: amounts falling due within one year Payables Proposed dividend 300,000 134,500 ––––––– 434,500 13,500 15,000 –––––– Total equity and liabilities  Accountancy Tuition Centre (International Holdings) Ltd 2008 28,500 ––––––– 463,000 ––––––– 100,000 97,000 ––––––– 197,000 10,000 20,000 ––––––– 30,000 ––––––– 227,000 ––––––– Statements of comprehensive income for the year ended 31 December 2007 Revenue Cost of sales Gross profit Administrative expenses Distribution expenses Operating profit Investment income Profit before tax Taxation Profit after tax Extract from SOCIE Retained profit January 2007 Profit for year Dividends Paid Proposed Retained profit at 31 December 2007 Additional information Orange Inc $ 597,000 (322,000) ––––––– 275,000 (101,000) (53,000) ––––––– 121,000 7,500 ––––––– 128,500 (18,000) ––––––– 110,500 ––––––– Apple Inc $ 462,000 (271,000) ––––––– 191,000 (32,000) (27,000) ––––––– 132,000 2,000 ––––––– 134,000 (21,000) ––––––– 113,000 ––––––– 49,000 110,500 14,000 113,000 (10,000) (15,000) ––––––– 134,500 ––––––– (10,000) (20,000) ––––––– 97,000 ––––––– (i) Non-controlling interest is valued at their proportionate share of the identifiable net assets on acquisition, they are not credited with goodwill (ii) The value of goodwill on the following dates is 31 December 2006 31 December 2007 $5,000 $2,000 (iii) During the year Apple sold goods to Orange for $120,000 Apple sells all goods at a mark-up of 25% At 31 December 2007 Orange’s inventory included $12,000 of these goods (iv) For the purposes of calculating the original amount paid for the shares of Apple Inc, Orange valued Apple’s net assets at $150,000 No adjustment was made in the books of Apple’s books to reflect this valuation which was due to land (included in tangible non current assets) being worth more than its book value (v) Orange Inc has not yet accrued for its share of Apple’s proposed dividend The dividends were proposed prior to the financial year end Required: Prepare the consolidated statement of financial position and statement of comprehensive income of Orange Inc for the year ended 31 December 2007 Notes to the accounts are not required (20 marks)  Accountancy Tuition Centre (International Holdings) Ltd 2008 Carlisle Inc carried out work on construction contracts during the financial year to 30 September 2008 Details of the four projects are set out below: Contract value Costs to date Estimated future costs Payments on account Date of commencement Revenues recognised in previous periods Costs recognised in previous periods Profits recognised in previous periods A101 $ 650,000 150,000 450,000 130,000 B102 $ 1,000,000 400,000 240,000 650,000 October2006 July2006 C103 $ 850,000 800,000 88,000 765,000 D104 $ 790,000 28,000 672,000 20,000 August2006 August 2008 65,000 150,000 420,000 50,000 60,000 400,000 15,000 90,000 20,000 Required: Calculate the amounts to be included in the financial statements of Carlisle Inc for the year ended 30 September 2008, preparing all relevant extracts of the financial statements but excluding accounting policy notes The directors not recognise profits until the contracts are 5% complete and it is the accounting policy to calculate percentage completion on a cost basis (20 marks) Orlick needs to re-fit one of its production plants with new machinery The machinery would cost $2·4 million to buy and would have an expected useful economic life of six years As an alternative to outright purchase the machines could be leased on a four-year lease with payments of $760,000 annually in arrears At the end of the four-year period Orlick has the option to continue to lease the machinery for a further two years for an annual rental of $1, payable in arrears Orlick is responsible for the repair and maintenance of the machinery throughout the primary and secondary rental period At the end of six years the machinery is likely to have a negligible residual value Required: (a) Define a finance lease and an operating lease in accordance with IAS 17 Leases (3 marks) (b) Assuming the leasing option is chosen by Orlick, compute all relevant amounts (excluding cash) that would appear in the statement of comprehensive income and the statement of financial position for the first year of the lease Assume that the lease commenced on the first day of the accounting period and that all payments in arrears have been made by the end of the reporting period Where relevant, you should refer to appropriate international financial reporting standards Assume, where necessary, an annual finance cost of 10% (7 marks) (10 marks) End of Question Paper  Accountancy Tuition Centre (International Holdings) Ltd 2008 ... profit Investment income Profit before tax Taxation Profit after tax Extract from SOCIE Retained profit January 20 07 Profit for year Dividends Paid Proposed Retained profit at 31 December 20 07. .. appear in the statement of comprehensive income and the statement of financial position for the first year of the lease Assume that the lease commenced on the first day of the accounting period... by the end of the reporting period Where relevant, you should refer to appropriate international financial reporting standards Assume, where necessary, an annual finance cost of 10% (7 marks) (10