NOTES:You are required to answer Questions 1, 2 and 3. You are also required to answer either Question 4 or 5.(If you provide answers to both Questions 4 and 5, you must draw a clearly distinguishable line through theanswer not to be marked. Otherwise, only the first answer to hand for Question 4 or 5 will be marked.)

Provided are pro-forma:a) Statement of Comprehensive Income By Nature, Statement of Comprehensive Income By Function,

and Statement of Financial Position. IAS 1 Presentation of Financial Statements permits the use ofthese for annual periods commencing prior to, or on, 30 June 2012.

AND

b) Statements of Profit or Loss and Other Comprehensive Income By Expense, Statements of Profit orLoss and Other Comprehensive Income By Function, and Statement of Financial Position. Theseincorporate the June 2011 amendments to IAS 1 and are effective for annual periods commencingon, or after, 1 July 2012.

Candidates may opt to answer questions to which these are relevant using either a) the formatspermissible up to 30 June 2012 or b) those that are effective for annual periods commencing on, or after,1 July 2012.

TIME ALLOWED:3.5 hours, plus 10 minutes to read the paper.

INSTRUCTIONS:During the reading time you may write notes on the examination paper, but you may not commencewriting in your answer book. Please read each Question carefully.

Marks for each question are shown. The pass mark required is 50% in total over the whole paper.

Start your answer to each question on a new page.

You are reminded to pay particular attention to your communication skills, and care must be takenregarding the format and literacy of the solutions. The marking system will take into account the contentof your answers and the extent to which answers are supported with relevant legislation, case law orexamples, where appropriate.

List on the cover of each answer booklet, in the space provided, the number of each question(s)attempted.

The Institute of Certified Public Accountants in Ireland, 17 Harcourt Street, Dublin 2.

CORPORATE REPORTING

PROFESSIONAL 1 EXAMINATION - APRIL 2013

Page 1

THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

CORPORATE REPORTINGPROFESSIONAL 1 EXAMINATION – APRIL 2013

Time allowed 3.5 hours, plus 10 minutes to read the paper.You are required to answer Questions 1, 2 and 3. You are also required to answer either Question 4 or 5.(If you provide answers to both Questions 4 and 5, you must draw a clearly distinguishable line through theanswer not to be marked. Otherwise, only the first answer to hand for Question 4 or 5 will be marked.)

You are required to answer Questions 1, 2 and 3.

1. Capplin plc (Capplin) purchased 80% of the issued share capital of Power plc (Power) on 1 April 2012, and 30%of the issued share capital of Light plc (Light) on 30 September 2012. The market price of Capplinʼs shares atboth 1 April 2012 and 30 September 2012 was €3.00.

Capplin paid for the purchase of its holding in Power by issuing:

• 3 of its equity shares for every 5 shares acquired in Power; plus• €100 (par value) in 6% loan notes for every 250 shares acquired in Power. The loan notes are redeemable

at par on 31 March 2014.

The market price of Powerʼs equity was €2.10 per share at 1 April 2012.

Capplin paid for the purchase of its holding in Light by issuing 2 shares for every 3 shares acquired in Light. Themarket price of Lightʼs shares at the date of acquisition was €2.60.

The summarised draft statements of financial position of the three companies at 31 March 2013 are as follows:

Capplin Power Light€ m € m € m

Non-current assets:Property, plant and equipment 2,228 810 400Investment in Power 160 - -Other investments 350 40 -

2,738 850 400Current assets:Inventories 160 84 80Trade receivables 320 147 90Bank 62 40 30

542 271 200Total assets 3,280 1,121 600

Equity:Ordinary share capital 50 cent each 1,040 250 120Retained earnings: Balance at 1 April 2012 720 610 310

Year to 31 March 2013 210 160 901,970 1,020 520

Non-current Liabilities:8% Debenture 8506% Loan notes 160

1,010Current liabilities:Trade payables 300 101 80Total Equity and Liabilities 3,280 1,121 600

Page 2

Additional information:

(i) Capplin has to date recorded only the issue of the 6% loan notes in respect of the acquisitions. The shares issuedhave not yet been recorded.

(ii) At the date of acquisition, the fair values of Powerʼs assets were equal to their carrying value with the exceptionof two assets: (1) certain plots of land had a fair value of €20 million below their carrying value. This is notreflected in the financial statements provided on Page 1; (2) the inventory of Power had a fair value of €12 millionin excess of its carrying value. This inventory has been sold by 31 March 2013.

(iii) On 30 September 2012, Capplin sold an item of plant to Power at its fair value of €60m, an increase of €20mon its carrying value. The estimated remaining life of the asset was 4 years at that date, and the plant wasdepreciated on a straight-line basis.

(iv) During the year, Power sold goods to Capplin for €54m, including a mark up of 50%. Two thirds of these goodswere sold by Capplin to third parties by 31 March 2013.

(v) Capplin has €2m trade payables owing to Power at the year end.

(vi) The 8% Debenture was issued by Capplin on 1 April 2012 at its par value of €850m. However, it is redeemableat a premium of 20%. The effect of the premium is to increase the effective finance cost to 10%. The 8% interestcoupon has been paid and accounted for to date; however, no accounting adjustment has been made to reflectthe redemption premium.

(vii) Capplin has adopted a policy of valuing non-controlling interests (NCI) at fair value at the date of acquisition. Forthe purpose of assessing fair value of the NCI in Power, the share price of Power should be used.

(viii) Consolidated goodwill was reviewed for impairment at 31 March 2013 and an impairment of €30 million wasfound to be necessary. The investment in Light was reviewed for impairment at the same date and no impairmentwas found to be necessary.

REQUIREMENT:

(a) Prepare, in accordance with IFRS, the consolidated statement of financial position of Capplin plc as at 31 March2013.

(24 marks)Format & Presentation (1 mark)

(b) Explain and justify briefly how IFRS 10 Consolidated Financial Statements determines which entities need to beconsolidated into group financial statements.

(5 marks)

[Total: 30 MARKS]

Page 3

2. The following information has been taken from the financial statements for Payne plc (Payne) for the year ended31 March 2013.

*Statement of Profit or Loss and Other Comprehensive Income (extracts) for year ended 31 March 2013:€ʼ000

Profit before interest & tax 981Finance costs (108)Profit before tax 873Income tax expense (305)Profit for the year 568Other comprehensive incomeRevaluation surplus on property, plant and equipment 418Total comprehensive income 986

Statements of Financial Position as at 31 March2013 2012

€ʼ000 €ʼ000ASSETSNon-current assets:Property, plant and equipment 11,250 10,500Intangibles 500 452

11,750 10,952Current assets:Inventories 840 1,125Trade and other receivables 260 210Investments 38 18Cash and cash equivalents 5 30

1,143 1,383Total assets 12,893 12,335

EQUITY AND LIABILITIESEquity:Ordinary share capital 6,000 5,250Share premium account 1,800 1,425Revaluation surplus 750 356Retained earnings 2,011 3,369

10,561 10,400Non-current liabilities:Preference share capital (redeemable) 760 600

Current liabilities:Trade and other payables 222 210Taxation 600 525Ordinary dividend payable 750 600

1,572 1,335Total equity and liabilities 12,893 12,335

Statement of Changes in Equity for the year ended 31 March 2013 (extract)

Retained RevaluationEarnings Surplus

€ʼ000 €ʼ000Balance at 1 April 2012 3,369 356Dividends declared (1,950)Total comprehensive income for the year 568 418Transfer from revaluation surplus to retained earnings 24 (24)Balance at 31 March 2013 2,011 750

* In June 2011, the IASB issued amendments to IAS 1 Presentation of Financial Statements. One of these proposedthe adoption of the title Statement of Profit or Loss and Other Comprehensive Income for the performance statement.The title Statement of Comprehensive Income could have been used above.

The following additional information is relevant:(i) During the year Payne issued both ordinary shares and redeemable preference shares for cash. The latter were

issued at par.(ii) Investments classified as current assets are held for the short term and are readily convertible into the stated

amounts of cash on demand.(iii) During the year, Payne sold plant and equipment with a carrying amount of €840,500 for €900,000. Total

depreciation charges for the year amounted to €1,100,000. Plant costing €50,000 was purchased on credit. Theamount is included within trade and other payables.

(iv) Trade and other payables include accrued interest of €5,000 as at 31 March 2013 (2012: €10,000).(v) Intangibles relate to development costs capitalised in accordance with IAS 38 Intangible Assets. Costs amounting

to €70,000 were capitalised during the year.

REQUIREMENT:

(a) Prepare a Statement of Cash Flows for Payne for the year to 31 March 2013 in accordance with IAS 7 Statementof Cash Flows.

(15 marks)Format & Presentation (1 mark)

(b) You have been provided with the following additional information in relation to Payneʼs trading performance forthe years ended on the stated dates:

31/3/2013 31/3/2012€ʼ000 €ʼ000

Revenue 3,400 2,800Cost of sales (2,040) (1,400)Operating expenses (379) (357)

Write a report concisely analysing the cash flow, profitability and working capital management of Payne Ltd duringthe year ended 31 March 2013. Your report should be supported by appropriate ratios (a total of 4 marks isavailable for the calculation of ratios). (14 marks)

[Total: 30 MARKS]

Page 4

Page 5

3. The following multiple-choice question contains eight sections, each of which is followed by a choice ofanswers. Only one of each set of answers is strictly correct. Each question carries equal marks.

REQUIREMENT:Record your answer to each section on the answer sheet provided. [Total: 20 MARKS]

1. Margertate plc produces financial statements for the year ended 31 March 2013 which are expected to beapproved for publication on 30 April 2013.

According to IAS 10 Events After the Reporting Period, which of the following would normally be treated as anadjusting event in the financial statements for the year ended 31 March 2013?

(i) Communication from a customer (owing an amount of €22,000 to Margertate) received on 15 April 2013that they have been placed into liquidation.

(ii) The directors declare a dividend of 8 cents per ordinary share on 24 April 2013 in respect of the year ended31 March 2013.

(iii) An insurance claim is agreed in April 2013 relating to a fire in February 2013.(iv) Investments held by the company at 31 March 2013 had fallen by 8% by 30 April 2013.

(a) (i), (ii) and (iii)(b) (i) and (iii)(c) (ii) and (iv)(d) (i) and (iv)

2. A company has 2 lines of goods in its inventory at 31 March 2013. Details are as follows:A B

Cost €500 €800Net realisable value €460 €960

What figure should appear as closing inventory in the financial statements drawn up to 31 March 2013?

(a) €1,260(b) €1,300(c) €1,420(d) €1,460

3. On 31 March 2013, Peter plc sold goods to Cathy Ltd, an unrelated company, for €900,000. The goods are soldat cost plus 50%. Cathy Ltd has been granted interest free credit and will pay for these goods in full on 31 March2014. At 31 March 2013, the present value of the amount receivable was €860,000.

In accordance with IAS 18 Revenue how much revenue should be included in Peter plcʼs Statement of Profit orLoss and Other Comprehensive Income for the year ended 31 March 2013?

(a) €860,000(b) €600,000(c) €450,000(d) €900,000

4. A company, Huden plc, has the following properties:(i) A building that is vacant but is held with the intention of being leased out under an operating lease to an

unconnected party;(ii) A building being constructed by Huden plc on behalf of third parties;(iii) Land that is held for a currently undetermined future use;(iv) Property that is leased out under a finance lease.

According to IAS 40 Investment Property, which of the above should be classified as investment property?

(a) (i), (iii) and (iv)(b) (i) only(c) all of the above(d) (i) and (iii)

Page 6

5. According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which one of the following shouldbe recognised as a provision in the accounts for the year ended 31 March 2013?

(a) The board decided to close down a division in January 2013, agreed a detailed closure plan on 15 March2013 and details were given to customers and employees immediately afterwards. Redundancy and otherrelevant costs were expected to be €2 million.

(b) Under new legislation, smoke filters must be fitted in its operating plants by 30 July 2013. The expectedcost of complying with this law is €1 million. No action has yet been taken to implement it.

(c) The directors have received a letter from a former employee claiming unfair dismissal. Legal advicereceived is of the opinion that the employee would not be successful in the claim.

(d) Inventory with a cost value of €340,000 is expected to sell for €400,000.

6. Mike plc purchased a piece of equipment for €930,000 on 1 April 2008. Depreciation was charged at 12.50% perannum on a straight-line basis from the date of purchase until 1 April 2012. The equipment was revalued underIAS 16 Property, Plant and Equipment on 1 April 2012 to its fair value of €415,000 and the remaining useful lifeis assessed at four years from that date. The residual value is estimated to be zero.

What is the amount charged to profit or loss in respect of the above transactions for the year ended 31 March2013?

(a) Expense €50,000(b) Expense €103,750(c) Expense €153,750(d) None of the above

7. At 31 March 2012, Dalian Limited had in issue €4m in equity share capital of 50 cent each, and €1m in 6% non-cumulative, non-redeemable preference shares of €1 each. On 1 January 2013, the company made a 1 for 2rights issue at full market value. The profit for the year ended 31 March 2013 was €3m. Preference dividendswere paid in full. There were no other changes to the issued share capital.

Calculate the basic earnings per share for year ended 31 March 2013 in accordance with IAS 33 Earnings PerShare.

(a) 25 cent(b) 33.3 cent(c) 32.7 cent(d) 50 cent

8. Which of the following considerations would not be relevant in determining an entityʼs functional currency?

(a) The currency in which prices are settled.(b) The currency of the parent company.(c) The currency of the country where competition and regulation mainly determine the selling price of the

goods.(d) The currency in which receipts from operating activities are usually retained.

Answer either Question 4 or Question 54. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations provides guidance on the accounting

treatment of discontinued operations and non-current assets held for sale.

(a) Fish plc purchased a machine at a cost of €220,000 on 1 January 2009. The machine was being depreciatedunder the cost model of IAS 16 Property, Plant and Equipment on a straight-line basis over five years assuminga zero residual value. On 30 June 2012 the machine was classified as held for sale. Its fair value was estimatedat €80,000 and costs to sell at €4,000. At 31 December 2012, the reporting date, the machine had not been sold.At that date the fair value was estimated to be €62,000 and the estimate of costs to sell was unchanged. On 31March 2013, the machine still remained unsold and the decision was taken to withdraw it from sale, and toredeploy the machine to another part of the business, where it is expected to recover more than €58,000.

REQUIREMENT:(i) Discuss the IFRS 5 criteria which must be satisfied in order for a non-current asset to be classified as held for

sale. (3 marks)

(ii) Calculate the amounts that should be recognised in respect of this machine in Fish plcʼs * Statements of Profit orLoss and Other Comprehensive Income for the year ended 31 December 2012 and three months ended 31March 2013 and in its Statements of Financial Position as at the same dates. (8 marks)

(b) An extract from the draft * Statement of Profit or Loss and Other Comprehensive Income of Pascal plc for theyear ended 31 December 2012 is shown below:

€ʼ000Revenue 1,116Cost of sales (375)Gross profit 741Investment income 25Distribution costs (110)Administration expenses (300)Profit before tax 356Taxation (89)Profit for year 267

Pascal plc is an Irish company with several divisions, all of which are reported separately and represent majordistinctive components of the company. During the year ended 31 December 2012, Pascal plc carried out areorganisation as follows:

• The activities of Division East were moved to a new factory in Eastern Europe. Management of this divisionremains in Ireland.

• Division West has been wound down. The company has decided to outsource this part of the business toan external distributor from 1 January 2013.

The results of Divisions East and West are set out below, and are included in the above figures.Division East Division West

€ʼ000 €ʼ000Revenue 73 200Cost of sales (26) (80)Distribution costs (13) (5.5)Administration expenses (20) (24)Taxation charge (12) (20)

REQUIREMENT:(i) What is meant by a ʻdiscontinued operationʼ? Assess whether either Division East or Division West of Pascal plc

should be treated as a discontinued operation under IFRS 5. (4 marks)

(ii) Redraft the extract from the above * Statement of Profit or Loss and Other Comprehensive Income to comply withIFRS 5. Show the required note in respect of any discontinued operation. (5 marks)

[Total: 20 MARKS]* In June 2011, the IASB issued amendments to IAS 1 Presentation of Financial Statements. One of these proposed

the adoption of the title Statement of Profit or Loss and Other Comprehensive Income for the performance statement.The title Statement of Comprehensive Income could have been used above.

Page 7

Page 8

OR

5. You are employed as the financial accountant for Moore plc, an Irish manufacturing company located in Donegal.The financial controller, Paul Clancy, has asked you to advise him on matters relating to the reporting anddisclosure of lease transactions in the financial statements for the year ending 31 March 2013. You have recentlyreturned from a one-day training course on IAS 17 Leases, and are keen to show Paul how much you havelearned. Moore plc has entered into the following lease contracts:

(i) Moore plc leased a new piece of equipment from Sinnott plc for three years commencing on 30 September 2012.The fair value of the equipment is €70,000. A deposit of €4,000 was payable on 30 September 2012 followed bysix half-yearly payments of €13,500, payable in arrears, and commencing on 31 March 2013. Moore plc allocatesfinance charges on a sum of the digits basis.

(ii) On 30 September 2012, Moore plc entered into a two-year agreement to lease a new high-performance machinefor a lease payment of €1,500 per month in arrears. A non-refundable deposit of €5,000 has to be paid on order.The machine has an expected useful life of five years, and the lessor remains liable for maintenance.

(iii) Moore plc entered into a 50-year lease for land and buildings on 30 September 2012. Moore plc will have to makelease payments of €60,000 per annum in advance. The fair value of the land and buildings is €800,000 of which€80,000 relates to land. The building has a 50-year useful economic life.

REQUIREMENT:Prepare a memorandum for the financial controller in which you:

(a) Describe how IAS 17 defines a finance lease and list the main characteristics which would normally lead to alease being classified as a finance lease. (4 marks)

(b) Prepare the financial statement extracts and supporting disclosure notes that show how the lease transaction in(i) above should be presented in the financial statements of Moore plc for the year ended 31 December 2012.

(10 Marks)

(c) Advise, with reasons, how leases (ii) and (iii) above should be dealt with in the financial statements for the yearended 31 December 2012. Disclosure notes are not required. (6 marks)

[Total: 20 MARKS]

END OF PAPER

THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

CORPORATE REPORTINGPROFESSIONAL 1 EXAMINATION – APRIL 2013

Solution 1

Marking Scheme:

(a) Basic consolidation (100% C + 100% P + 0% Light) 4Calculation of cost of investment in Power 2Goodwill 2Investment in associate 2Fair value adjustments and post acq movements 2Intra-group sale of plant 2Intra group sale of inventory 2Intra group balance outstanding 1Debenture amortised cost adjustment 2Reserves calculation and consolidation 3NCI calculation 2Presentation 1Subtotal 25

(b) 5 relevant points at 1 mark each 5

[Total: 30 Marks]

Page 9

SUGGESTED SOLUTIONS

(a) Suggested solutionGroup structure:Capplin 80% ownership in Power for full year – SubsidiaryCapplin 30% ownership in Light for half year - Associate

Consolidated statement of financial position of Capplin Group plc as at 31 March 2013€M

Non-current assets:Property, plant and equipment (2,228 +810 -20 (W6 (ii)) -17.5 (W6(iii)) 3,000.5Goodwill (W2) 208Associate (W3) 157.5Other investments (350 + 40) 390

3,756Current assets:Inventories (160 + 84 - 6 (W6(iv))) 238Trade receivables (320 +147 - 2 (W6(v))) 465Bank (62 + 40)

102805

Total assets 4,561

Equity:Equity shares (1,040 + 120 (W1) + 24 (W1)) 1,184Share premium (600 (W1) +120 (W1)) 720Retained earnings (W4) 998.6

2,902.6Non-controlling interest (W5) 232.4

3,135Non-current Liabilities8% Debenture (850 + 17 (W6 (vi))) 8676% Loan stock 160

Current liabilitiesTrade payables (300 +101 - 2 (W6(v))) 399

Total equity & liabilities 4,561

W1 Acquisition of Power plc and Light plc (equity issues not recorded yet)

Power (m) Light (m)Total equity capital (per SOFP) €250 €120Number of shares (€0.50 each) 500 240percentage acquired by parent 80% 30%Number acquired by Capplin 400 72Exchange arrangement 3/5 2/3Number of Capplin shares issued in consideration 240 48Fair value of shares issued in consideration (€3 each) €720 €144Nominal value to equity share capital (€0.50 each) €120 €24Balance to share premium account €600 €120

Journals:Dr Goodwill 720, Cr Equity share capital 120, Cr Share premium 600Dr Investment in associate 144, Cr equity share capital 24, cr share premium 120.

Page 10

W2 Calculation of Goodwill € million

ConsiderationEquity shares (W1: 240 *3.00) 7206% Loan stock (500 shares *80% *100/250) 160

880FV of NCI (500 shares * 20% *€2.10) 210

FV of net assets acquiredEquity shares 250Pre-acquisition reserves 610FVA – Inventory 12FVA - Land (20) (852)Goodwill 238Impairment loss (30)Balance 208

W3 Investment in associateCost of investment (W1) 144Add: Share of post-acquisition earnings (90 * 6/12 *30%) 13.5

157.5

W4 Group retained earnings at 31 March 2013Capplin Power Light

€m €m €mBalance per SOFP (total at y/e) 930 770 400Less balance at acquisition (310 + (90 * 6/12)) (610) (355)Movement on FVA (inventory) (W6 ii) (12)URP in intra-group transfer of plant (W6 iii) (17.5)URP in intra-group sale of goods in inventory (W6 iv) (6)Additional finance cost on 8% debenture (W6 vi) (17) ____ ____Adjusted reserves for consolidation 895.5 142 45Consolidate Power (80% * 142)` 113.6Consolidate Light (30% * 45) 13.5Goodwill impairment (80% * 30) (24)Group total 998.6

W5 Non-controlling interest at end of the yearBalance at acquisition (fair value) 210Share of post-acquisition reserves (142 (W4) * 20%) 28.4Share of goodwill impairment (20% * 30) (6)Total 232.4

Page 11

W6 Adjustments

Note (ii) Fair value adjustments:At acquisition Movement At rep. date

Land (20) ---- (20)Inventory 12 (12) 0Total (8) (12) (20)

Note (iii) Intra group transfer of plantUnrealised profit on transfer (recognised by Capplin) 20Excess depreciation to be eliminated (1/4 * 6/12) (2.5)Adjustment to reduce reserves (Capplin) and PPE 17.5

Note (iv) Intra-group trading of goodsUnrealised profit on goods held in closing inventory:€54m * 50/150 * 1/3 (sold by Power therefore NCI affected) 6Adjustment to reduce reserves (Power) and InventoryNote (v) intra-group balance outstanding 2Adjustment to reduce receivables and payables

Note (vi) 8% debentureFinance cost for year should be (850 * 10%) 85Finance cost recognised per note (850 * 8%) 68Amount remaining to provide for 17Adjustment to reduce reserves (Capplin) and increase debenture

Note (viii) Goodwill impairmentAmount of impairment €30m. This reduces the balance of goodwill.

As the goodwill was calculated using the full fair value method, the charge is shared between the parent andNCI in their profit-sharing proportion 80/20. Hence 24 is charged to group reserves, and 6 to NCI.

Would also accept an adjustment to Powerʼs reserve prior to consolidation.

(c) IFRS 10 requires that any entity that is a parent must prepare consolidated financial statements except in fourspecific situations. These are:

(i) it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and all its otherowners, including those not otherwise entitled to vote, have been informed about, and do not object to,the parent not presenting consolidated financial statements;

(ii) its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchangeor an over-the-counter market, including local and regional markets);

(iii) it did not file, nor is it in the process of filing, its financial statements with a securities commission orother regulatory organisation for the purpose of issuing any class of instruments in a public market; and

(iv) its ultimate or any intermediate parent produces consolidated financial statements that are available forpublic use and comply with IFRSs.

An entity is a parent if it controls another entity.Control exists when an investor is “exposed, or has rights, to variable returns from its involvement with theinvestee and has the ability to affect those returns through its power over the investee” (IFRS 10 para 6).Power is defined as the ability to direct the relevant activities.

The important point is that control is not determined by a percentage holding, but by the ability to affect returnsthrough the exercise of power.

Page 12

Solution 2Marking Scheme:

(a) Cash generated from operations 5Interest paid 1Income tax paid 1Purchase of PPE 2Purchase of intangibles 1Proceeds from sale of PPE 1Proceeds from issue of equity shares 1Proceeds from issue of preference shares 1Dividends paid 1Opening cash / cash equivalents 1Presentation 1Subtotal 16

(b) Calculation of appropriate ratios (4 separate ratios required) 4Analysis at appropriate level 10Subtotal 14Total 30

(a) Statement of cash flows for the year ended 31 March 2013€ʻ000 €ʻ000

Cash flows from operating activitiesCash generated from operations 2,245.5Interest paid (W2) (113.0)Income tax paid (W1) (230.0)Net cash from operating activities 1,952.5

Cash flows from investing activitiesPurchase of property plant and equipment (W3) (2,222.5)Purchase of intangibles (note v) (70.0)Proceeds from sale of property plant and equipment (note (iii)) 900.0Net cash used in investing activities (1,442.5)

Cash flows from financing activitiesProceeds from issue of ordinary share capital(6,000+1,800)-(5,250+1,425) 1,125.0Proceeds from issue of redeemable preferenceshare capital (760-600) 160.0Dividends paid (W6) (1,800.0)

Net cash used in financing activities (515.0)Net increase in cash and cash equivalents (5.0)Cash and cash equivalents at beginning of period (30 + 18) 48.0Cash and cash equivalents at end of period (38 + 5) 43.0

Note: Reconciliation of profit before tax to cash generated from operationsProfit before tax (SOCI) 873.0Finance cost (SOCI) 108.0Depreciation charge (note iii) 1,100.0Amortisation charge (W4) 22.0Profit on disposal of property plant and equipment (900-840.5) (note iii) (59.5)Decrease in inventories (1,125-840) 285.0Increase in trade and other receivables (210-260) (50.0)Increase in trade and other payables (W7) 33.0Cash generated from operations 2,245.5

Page 13

W1Income Tax€ʻ000 €ʻ000

Cash β 230 Bal b/d 525Bal c/d 600 Income statement 305

830 830

W2Finance Cost

€ʻ000 €ʻ000Cash β 113 Bal b/d 10Bal c/d 5 Income statement 108

118 118

W3PPE

€ʻ000 €ʻ000Bal b/d 10,500.0 Disposals 840.5Revaluation surplus (W5) 418.0 Income statement 1,100.0Purchased on credit 50.0 Bal b/d 11,250.0Cash β 2,222.5

13,190.5 13,190.5

W4Intangibles€ʻ000 €ʻ000

Cash 70 Bal b/d 500

Bal b/d 452 Income statement β 22522 522

W5Revaluation Surplus

€ʻ000 €ʻ000Retained earnings 24 Bal b/d 356Bal c/d 750 PPE 418

774 774

W6Ordinary Dividends

€ʻ000 €ʻ000Cash 1,800 Bal b/d 600Bal c/d 750 Retained earnings 1,950

2,550 2,550

W7 Trade and other payables (excluding interest accrual and payables in respect of PPE)

Opening €210,000 – €10,000 = €200,000Closing €222,000 – €5,000 – €50,000 = €167,000Increase = €33,000

Page 14

(b)2013 2012

Gross profit % 1,360* 100 = 40% 1,400*100 = 50%3,400 2,800

Inventory days 840*365 = 150 days 1,125 * 365 = 293 days2,040 1,400

Trade receivables 260 * 365 = 28 days 210* 365 = 27 daysAverage collection 3,400 2,800

Trade payables 167*365 = 29.87 days 200*365 = 52.14 daysAverage payment 2,040 1400

Trade payables 222*365 = 40 days 210*365 = 55 daysAverage payment 2,040 1400

Current Ratio 1,143 : 1,572 1,383:1,3350.72:1 1.03:1

ProfitabilitySales have increased by 21% and cost of sales has risen by 46%, resulting in a fall of 3% in the gross profit.This could be explained by a strategy of lowering sales prices to boost volumes. If so, it did not succeed, eitherin terms of gross profit amount, or gross margin. However, operating costs have increased by just €22,000or 6% - much less than the percentage increase in revenue. As a result, the ratio of expenses as a % ofrevenue has fallen from 12.75% to 11.1%.

Working capital managementCash, including the short term investments, has reduced by €5,000, a fall of 10%. However this is not materialin the context of the large sums invested in non-current assets and paid out as dividends. Operating cash flowis healthy.

A big improvement is evident in the inventory days ratio from 2012 to 2013. However it would seem reasonableto expect further improvement, as 6 months is rather a long time to be carrying inventory.

Trade receivables and payables are reasonable consistent, with a significant improvement noteworthy in thecase of the payables days.

Current ratios seem rather weak, however a cessation of dividends would be a simple way to boost cashflow should an emergency present.

Profit vʼs cash issueCash flow, as noted previously, is healthy. Operating cash flow in particular is strong. It is positive to note thatthe future of the business is being invested in through investment in non-current assets.

However, it seems a little strange for the entity to raise almost €1.3 million in new capital, and immediatelypay out €1.8 million in dividends. It is normal for an entity to use its own resources to the fullest extent beforediluting existing shareholders or asking them to contribute new cash. It may be tax-inefficient as well as beingcostly to the entity.

Page 15

Solution 3Each correct mark gains 2.5 marks. No partial marks are awarded. Workings are not marked.

1 Answer (b)(i) IAS 10 clearly indicates that a bankruptcy after the reporting date is normally regarded as an adjusting

event.(ii) only dividends declared and approved before the year-end are recognised as liabilities.(iii) The fire happened during the reporting period. The outcome agreed in the period after the reporting date

is an adjusting event resolving the uncertainty which existed at the reporting date.(iv) A fall in investments occurring after the year end is normally a non-adjusting event. The only exception

would be if the valuation at the reporting date was erroneous due to an information deficit at thereporting date.

2. Answer (a)

Line A 460Line B 800Total 1,260

3. Answer (a)The revenue from the sale should be measured at the fair value, at the date of sale, of the amount receivable.This is deemed to be the present value.

4. Answer (d)(i) It is the purpose of holding the asset that determines its status under IAS 40. As the intention is to

lease out the property to an unconnected party it is deemed an investment property even though thelease has not yet commenced.

(ii) This in held within inventory as work in progress. It is not an investment property.(iii) IAS 40 provides that an asset whose use has yet to be determined is held as investment property.(iv) Any asset leased out under a finance lease is not recognised in the books of the lessor as by definition

the risks and rewards relating to the asset have been transferred to the lessee.

5. Answer (a)(a) In order for a redundancy plan to be considered an obligating event, IAS 37 requires that a detailed plan

be agreed AND the affected parties be notified. Both of these have occurred by the reporting date,therefore a provision should be made for the expected costs of €2m.

(b) As no action has been taken to implement the legislation, no obligating event has occurred, thereforeno obligation exists.

(c) The advice given to the directors seems to indicate the likelihood of a transfer of economic benefits asa result of this obligation is not probable. Therefore no provision is made. Disclosure in the notes wouldbe appropriate.

(d) The net realisable value is likely to be greater than cost, therefore no adjustment should be made.

6. Answer (c)Carrying value 1 April 2012: = 930,000 – (930,000*12.5%*4)

= 465,000

Revaluation loss 2012-13 = 465,000 - 415,000= 50,000 loss to P/L

Depreciation 2012-13: = 415,000 /4 years remaining= 103,750 loss to P/L

Total charge to P/L = 153,750

Page 16

7. Answer (c)Earnings relevant to the calculation are: 3,000,000 - 60,000 = 2,940,000.

Number of shares is increased by the rights issue, but on a time-weighted basis. The 4,000,000 additionalshares (1 for every 2) were issued on 1 January 2013; therefore they were in issue for three months. Thisincreases the weighted average by 1,000,000 shares (4m * 3/12). There is no retrospective effect as rightsissue shares are issued at full market value (TERP is the same as the market value).

EPS therefore = 2,940,000(8,000,000+1,000,000)

32.7cent

8. Answer (b)IAS 21 gives the factors to be taken into account in the determination of functional currency. All statementsgiven are included except (b).

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Solution 4(a)

(i) A non-current asset is classified as “held for sale” if its carrying amount will be recovered principally througha sale transaction rather than through continuing use. For this to be the case, the asset must be available forimmediate sale in its present condition and the sale must be highly probable. IFRS 5 lists the conditions whichmust be met if a sale is to be considered highly probable.

• Management is committed to a plan to sell the asset and an active programme has been initiated tolocate a buyer and complete the plan; and

• The asset is being actively marketed at a sale price that is reasonable in relation to its current value;and

• A completed sale is expected within one year from the date of classification (may be extended if anydelay is caused by circumstances beyond entityʼs control); and

• It is unlikely that there will be any significant changes to the plan or that the plan will be withdrawn.

If these criteria are not satisfied at the end of the reporting period, the asset should not be classified as heldfor sale. If the criteria are satisfied after the reporting period but before the financial statements are authorisedfor issue, the fact that the asset is now classified as held for sale should be disclosed in the notes to thefinancial statements. (3 marks)

(ii)€

Cost 220,000Depreciation to 31 December 2011 (220,000 * 3/5) (132,000)Carrying amount 1 January 2012 88,000Depreciation to 30 June 2012 (22,000)Carrying value 30 September 2012 66,000

On classification as held for sale on 30 June 2012 the carrying value of €66,000 is compared to the fair valueless costs to sell €76,000 (80,000-4,000).

The transfer to current assets takes place at the lower of these figures, €66,000.

At 31 December 2012, the fair value less costs to sell is reassessed at €58,000 (62,000-4,000). The lowerof the carrying value at date of transfer and the fair value less costs to sell is now €58,000. Accordingly, aloss of €8,000 is recognised in profit or loss for year ended 31 December 2012 as the carrying value isreduced from €66k to €58k.

On 31 March 2013, the asset no longer qualifies to be classified as “held for sale”. Therefore it is reclassifiedback to non-current assets. The carrying value is now the lower of (i) its previous carrying value lesssubsequent depreciation (amount which would have been charged had the classification to “held for sale” notoccurred) and (ii) its recoverable amount at the date of reclassification.

Further depreciation is charged (in 2013) to cover the period from 30 June 2012 to 31 March 2013. Thisamounts to 220,000 * 1/5 * 9/12 or €33,000. Hence the carrying value is now €66,000 – 33,000 or €33,000.

31 Dec 2012 31 Mar 2013SPLOCI:Depreciation charged (22,000) (33,000)Loss on classification to “held for sale” (8,000)Reversal of loss on classification to “held for sale” 8,000

SOFP:Current Assets: NCA Held for Sale 58,000Non-current assets – Property Plant & Equipment 33,000

(8 marks)Page 18

(b)

(i) A discontinued operation is a component of an entity that either has been disposed of or is classified as heldfor sale. For this purpose, a component consists of operations and cash flows that can be clearly distinguishedfrom the rest of the entity and usually comprises a single cash-generating unit or a group of cash-generatingunits. To be considered a discontinued operation, the operation to be discontinued must represent a separategeographical area of operations or major line of business.

Both divisions meet the definition of a component as they have both been reported separately.The closure of Division East is not a discontinued operation. This is because it is not a cessation of a separatemajor line of business as its operations have moved to another location. Neither does it represent a cessationof Irish operations.Division West does represent a discontinued operation, as distribution operations, a major line of business,have ceased internally.

(4 marks)

(ii) Revised extract from Statement of Profit or Loss and Other Comprehensive Income €ʼ000

Continuing operationsSales revenue (1,116 – 200) 916Cost of sales (375 – 80) (295)Gross profit 621Other income 25

646Distribution costs (110 – 5.5) (104.5)Administration expenses (300 – 24) (276)Profit before tax 265.5Taxation (89 – 20) (69)Profit for the year from continuing operations 196.5

Discontinued operationsProfit for the year from discontinued operations (note 1) 70.5Profit for the year 267

Note 1 re discontinued operations €ʼ000Sales revenue 200Cost of sales (80)Gross profit 120Distribution costs (5.5)Administration expenses (24)Profit before tax 90.5Taxation (20)Profit for the year 70.5

(5 marks)

[Total: 20 Marks]

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SOLUTION 5

(a) IAS 17 defines a finance lease as one which transfers substantially all the risks and rewards associated withthe leased asset to the lessee.

The main characteristics of a contract that could lead one to conclude that it is most likely a finance lease are:

• Lease transfers ownership of the asset to the lessee by the end of the lease term, either free of chargeor for an amount substantially less than the fair value of the asset at the date of transfer;

• The lessee has the option to purchase the asset at a price expected to be sufficiently lower than theassetʼs fair value on exercise date to ensure the option will be exercised;

• Lease term is for a major portion of the economic life of the leased asset;• The present value of minimum lease payments which the lessee must make over the lease term

amounts to substantially all of the fair value of the asset;• The leased assets are of such a specialised nature that only the lessee can use them without major

modifications.

(4 marks)

(b) Lease (i)

Calculation of finance charge€

Deposit 4,000Lease payments (6 X €13,500) 81,000Fair value of asset (70,000)Finance charges in total 15,000

Interest calculation

Sum of Digits = n (n +1)2

= (6 x 7)/2 = 21

Period ended€

31 March 2013 6/21 x 15,000 4,286Of which to 31 December 2012 3/6 2,14330 September 2013 5/21 x 15,000 3,57131 March 2014 4/21 x 15,000 2,85730 September 2014 3/21 x 15,000 2,143

Liabilityb/f Interest Payment Capital

31 December 2012 66,000 2,143 0 68,14331 March 2013 2,143 (13,500) 56,78630 September 2013 56,786 3,571 (13,500) 46,85731 December 2013 46,857 1,429 0 48,28631 March 2014 48,286 1,428 (13,500) 36,21430 September 2014 36,214 2,143 (13,500) 24,857

Total liability at 31 December 2012 = 68,143

Capital > 1 year = €48,286 (due 31 December 2013)Due < 1year = €19,857 (balancing figure)

€68,143

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Statement of profit or loss and other comprehensive income

Depreciation70,000/3 * 3/12 (€5,833)Finance charge (€2,143)

Statement of financial position as at 31 December 2012

Non-current assets70,000- 5,833 €64,167

Current liabilitiesFinance lease liabilities €19,857

Non-current liabilitiesFinance lease liabilities €48,286 (10 marks)

(c) Lease (ii)Clearly an operating lease as the lessor is responsible for maintenance, and the lease term is a low proportionof the assetʼs UEL. As the lessor is responsible for maintenance the risks have not been transferred to thelessee. The total lease payments should be recognised on a straight line basis over the lease term.

Amount payable = €5,000 + (24 X €1,500) = €20,500 per annumLife of lease 2 years

Amount recognised in the year ended 31 December 2012 is 3 months rentals.

Dr profit or loss (20,500 * 3/12) €6,125Dr trade and other receivables (balancing figure – prepaid) €3,375Cr Cash (5,000 + 3*1,500) €9,500

(3 marks)

Lease (iii)Under IAS 17 the land and buildings element would be dealt with separately. The lease of the land is anoperating lease, as land has an indefinite useful economic life. The lease on the buildings is assessed on itsown merits. Here, it seems likely that it is a finance lease as the UEL of the building is entirely taken up bythe lease term. The lease payments are split in proportion to the fair values of the respective assets.

Buildings: (720/800) x €60,000 = €54,000Land: (60,000 – 54,000) = €6,000

€6,000 would be treated as an operating lease rental and expensed to statement of comprehensive incomeon a straight line basis. 3 monthsʼ worth of lease payments should be charged in the period to 31 December2012.

€54,000 would be treated as repayment of a finance lease using either the effective interest rate or sum ofthe digits methods.

(3 marks)

[Total: 20 Marks]

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