Monitoring Test MT2AFinancialReporting F7FR-MT2A-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 The statements of financial position of Hughes Inc, Scott Inc and Auden Inc as at the 30 September 2008 are as follows: Hughes Inc Scott Inc Auden Inc $000 $000 $000 NON CURRENT ASSETS Property, plant and equipment 5,980 4,275 4,450 Cost of shares in Scott Inc 4,500 Cost of shares in Auden Inc 1,545 Trade investments 200 50 25 CURRENT ASSETS Inventory Receivables Cash TOTAL ASSETS EQUITY AND LIABILITIES Share capital Share premium Retained earnings NON CURRENT LIABILITIES Loans CURRENT LIABILITIES Payables Overdraft Tax payable Additional information 2,520 2,200 880 –––––– 17,825 –––––– 1,860 1,755 1,945 1,810 –––––– 7,940 –––––– –––––– 8,230 –––––– 5,000 1,750 5,675 –––––– 12,425 2,500 500 1,700 –––––– 4,700 2,000 750 2,350 –––––– 5,100 2,000 1,000 500 3,250 150 –––––– 17,825 –––––– 2,060 180 –––––– 7,940 –––––– 2,400 130 100 –––––– 8,230 –––––– (1) Hughes bought 80% of Scott Inc on October 2007, when the retained earnings were $1,300,000 On that date the land of Scott Inc had a fair value $100,000 higher than its book value The carrying value of all other net assets at the date of acquisitions were approximately equal to their fair values (2) Hughes acquired 600,000 $1 shares in Auden on 31 March 2007 The fair value of its assets were considered to be equal to their carrying amounts at the date of acquisition On 31 March 2007 the retained earnings of Auden were $1,800,000 (3) Included in the year-end inventory of Hughes are goods purchased from Scott at a mark up of $100,000 In the year end inventory of Auden are goods purchased from Hughes at a mark up of $50,000 The group policy for unrealised profit is to write it off through the selling company on consolidation (4) The non-controlling interest are valued at their proportionate share of the subsidiary’s identifiable net assets, they are not credited with their share of goodwill At 30 September 2008 goodwill has been impaired by $380,000 in respect of the acquisition of Scott and $45,000 in respect of the acquisition of Auden Accountancy Tuition Centre (International Holdings) Ltd 2008 Required: Prepare a consolidated statement of financial position for the Hughes Group as at 30 September 2008 (19 marks) Extracts from the statement of financial position of Tarantula as at October 2007 is as follows: $000 10,000 1,000 3,000 1,000 –––––– 15,000 –––––– 2,000 Ordinary share of $5 each Share premium Revaluation surplus Retained earnings 6% Preference shares The draft statement of comprehensive income of Tarantula for the year to 30 September 2008 is as follows: $000 1,390 (120) (120) –––––– 1,150 (450) –––––– 700 Operating profit Preference dividends Interest Profit before tax Tax Profit for the year An ordinary dividend of $300,000 was paid during the year The earnings per share reported in last years financial statements was 28 cents Required: (a) Calculate the basic earnings per share for the year ended 30 September 2008 assuming there were no changes in the capital structure in the year; (3 marks) (b) Calculate the basic earnings per share (and its comparative) assuming on January 2008 there was a for bonus issue; (3 marks) (c) Calculate the basic earnings per share (and its comparative) assuming the only change in capital structure was an issue of 500,000 new shares for cash on April 2008 (IGNORE THE BONUS ISSUE IN b.); (3 marks) (d) Calculate the basic earnings per share (and its comparative) assuming the only change in capital structure was a for rights issue, on July 2008, at $7 per share when the market value of the shares was $10 (IGNORE THE BONUS ISSUE IN b AND THE ISSUE IN c); (4 marks) Accountancy Tuition Centre (International Holdings) Ltd 2008 (e) Tarantula had 1,200 share options outstanding at 30 September 2007 and 30 September 2008 All options are exercisable at $5 and the average market value of the shares in the year was $8 Calculate the fully diluted earnings per share assuming there were no changes in the capital structure in the year (4 marks) (f) Calculate the basic earnings per share assuming all the following events occurred in the same period (i) The opening number of shares and the profit are as set out in the table above and the following occurred (ii) On January 2008 there was a for bonus issue (iii) Tarantula issued 500,000 new shares for cash on April 2008 (iv) On July 2008 there was a for rights issue at $7 when the market value was $10 (4 marks) (21 marks) Required: (a) Describe why it is important that substance rather than legal form is used to account for transactions, and describe how financial statements can be adversely affected if the substance of transactions is not recorded (5 marks) (b) Explain the appropriate accounting treatment for the following transaction and the entries that would appear in the statement of comprehensive income for the year ended 30 September 2008 and in the statement of financial position at 30 September 2008 Redwood imports unseasoned hardwood and keeps it for five years under controlled conditions prior to manufacturing high quality furniture In the year ended 30 September 2008 it imported unseasoned timber at a cost of $40m It contracted to sell the whole amount for $40m and to buy it back in five years time for $56.1m Compound interest table Number of years Interest rate per year 6% 1.060 1.124 1.191 1.262 1.338 1.419 7% 1.070 1.143 1.225 1.311 1.403 1.501 8% 1.080 1.166 1.260 1.360 1.469 1.587 (5 marks) (10 marks) End of Question Paper Accountancy Tuition Centre (International Holdings) Ltd 2008 ... Operating profit Preference dividends Interest Profit before tax Tax Profit for the year An ordinary dividend of $300,000 was paid during the year The earnings per share reported in last years financial. .. marks) Extracts from the statement of financial position of Tarantula as at October 20 07 is as follows: $000 10,000 1,000 3,000 1,000 –––––– 15,000 –––––– 2,000 Ordinary share of $5 each Share... Overdraft Tax payable Additional information 2,520 2,200 880 –––––– 17, 825 –––––– 1,860 1 ,75 5 1,945 1,810 –––––– 7, 940 –––––– –––––– 8,230 –––––– 5,000 1 ,75 0 5, 675 –––––– 12,425 2,500 500 1 ,70 0