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Sheet1Sec A33Ethic 6, unknown 2, Consol 2028Sec B33(50)Q211 ++Q311 ++44Sec B(a) Easy, diff(b)(c)PLSOFP1st 3 notes are for consol(cannot drop)Next 3 or 4 notes are IFRS adj(may drop max 2 notes)ImpairmentDefinitionFrequencyCGUReversal

Q2 (a)

Q2 (b)


Q2 (b)

Marchant pg 10(a) Workings ($m)1. Investment in NathanGoodwillConsideration transferred80Non controlling interest (NCI)45Fair value of net assets(110)15

Impairment loss of last year = 20% x 15 = 3Remove revaluation of goodwill = 3 + 2 = 5Gain or loss to be removed = 18 - (95 / 60% x 8%) = 5.3 GainRemove fair value gain on inv in Nathan = 95 - 90 = 5 OCI2. Investment in OptionGoodwillConsideration transferred70NCI28Fair value of net assets(86)12

Gain or loss on disposal (group)Proceeds50Fair value of remaining stake4090Net assets derecognised(90)Goodwill derecognised(12)NCI derecognised34(68)Gain to profit or loss22Share of profit from assoc = 15 x 6/12 x 20% = 1.503. Intra groupDr Revenue12 Cr Purchases12Unrealised loss is not reversed in this case as the sale of $12m isat fair value. Reversal of loss will lead to inventory to be carriedat above net realisable value.4. Pension costsReported in PLCurrent service cost4.0Net interest cost (expense) (50 - 48) x 10%0.2Past service cost3.07.2

Reported in OCIRemeasurement loss2

5. PPEDateDetails$m1 May 2012Cost12.0(-) Depn 10 yrs(1.2)10.8Gain (bal fig) OCI2.230 Apr 2013Revalued13.0(-) Depn 9 yrs(1.4)11.6Loss (bal fig) N1(4.6)30 Apr 2014Revalued7.0

N1 Cr PPE4.6Dr OCI2.2Dr Other exp2.4

6. Share optionsYearCalculationCumulativeCurrent30 Apr 20138,000 options x $100 x 4 directors x 1/31.071.07

30 Apr 20148,000 options x $100 x 6 directors x 2/33.202.13

7. Hedge lossEffect of cash flow hedge loss is recognised to OCI, not finance cost.Answer (a) (ii)Changes in stake$m$mProceeds18.00

Worth of 8% in Nathan transferred Net asset as at year end120 Fair value adjustment (110 - 25 s cap - 65 RE - 6 OCE)14 Goodwill (15 - 3) W112146 x 8%11.68Accretion6.32

Retained control after disposal will not give rise to gain or loss inconsolidated financial statements. The difference of $6.32 is to berecognised within equity, and not in profit or loss.Goodwill is not remeasured as there is not significant economicevent.After disposal profit or loss will be shared between Marchant andNCI based on 52 : 48.(b) It is true that IFRS encourage fair value model to be in linewith the qualitative characteristic of "relevance" in ConceptualFramework for Financial Reporting.Fair values are used extensively in various IFRSs, namely revaluationmodel in property, plant and equipment, fair value model in investment properties, fair value of financial assets and financialliabilties, etc.However, IFRS is not implementing full fair value model. Cost modelremains as an accounting policy choice, and it is popular even intoday's accounting. Plus, there are several areas where use of fairvalue is restricted :-i) Equity cannot be remeasured to fair valueii) For intangible assets, revaluation model is allowed onlyif the asset is quoted in an active marketIt is not true to say IFRS implements a fair value model.In today's business acquisition, financial value of an entity is established by refering to share prices and separate negotiations.The value cannot be decided by looking at financial statement.This is because the purpose of the financial statements are topresent the financial performance and position of an entity, whichmainly based on past transactions. It hardly gives prospective information.Also, to maintain certain level of reliability, assets and liabilitieswhich are not measured reliably cannot be recognised in financialstatement, for example, internally generated goodwill, which is animportant element to establish the financial value of an entity.At the end, financial statements do not fail user's need, as it is neverdesigned to report financial value.(c) A lease is a finance lease if it transfers substantially all risks andrewards of the ownership to the lessee. An operating lease is a leaseother than finance lease.An entity can make any arrangement to maximise tax benefits, butthe reporting of the lease must be based on the substance of thearrangement, rather than the legal form.The finance director must be independent when assessing theclassification of the lease, and should not be influenced by the taxposition and loan application.Financial controller should have a discussion with the finance directorto decide the lease classification. If the outcome is not satisfactory,then financial controller can seek advice from audit committee andthe external auditor.Mock Q1PentagonWorkings ($m)1. Investment in SmoothGoodwillConsideration transferred90Non controlling interests (NCI) 30% x 116.6735Fair value of net assets(100)Deferred tax liability (100 - 90) x 30% tax rate328

Fair value adjustmentFair value of net assets100Book value Share capital(38) Retained earnings (pre)(23)Brand name39

Add to intangible asset = 39 - (39 / 10 yrs x 14/12 = 4.55 post RE (s))= 34.45Add to deferred tax liability = 3Remove gain on fair value of inv in S = 94 - 90 = 4 (RE of P)2. Investment in FloraGoodwillDinar mRate$mConsideration transferred1202.548.00NCI (25% x 112 )282.511.20Fair value of net assets Share capital32 Retained earnings (pre)80(112)2.5(44.80)3614.40Gain on exchange diff (OCE of P) partial goodwill2.74At YE362.117.14

Correction to Flora's accountDr Post RE of Flora (2.2 - 2) x $6m1.2m Dinar Cr Current liabilities1.2m DinarRetranslate Flora's SOFP to $Dinar mRate$mTangible NCA1462.169.52Current assets1022.148.57248118.10

Ordinary shares322.512.80Retained earnings pre802.532.00 post(95 - 80 - 1.2)13.802.06.90OCE (post)202.010.00Gain on exchange diff (post OCE of Flora)7.73

Non current liab412.119.52Current liab (60 + 1.2)

Eliminate URPDr RE of P ($6m x 20% x 1/2)$0.6m Cr Inventory$0.6m3. Foreign propertyDinar mRate$m1 Dec 2014 Cost302.512.00 Depn 20 yrs(0.60)11.40Gain on revaluation (OCE of P)5.2730 Nov 2015352.116.67

4. Pension Cr RE of P (11 - 9)2 Cr Net plan liab (non current liab)3Dr Remeasurement (OCE of P)55. ProvisionNo provision as no obligationDr Current liab2 Cr RE of P26. Redeemable sharesThese shares create obligation to Pentagon. They are non currentliabilitiesDr Ordinary shares20 Cr Non current liab207. Group RE as at YEPentagon360.00(-) Gain on fair value (W1)(4.00)(-) URP (W2)(0.60)(+) Pension (W4)2.00(+) Provision (W5)2.00

Smooth Post acqn(56 - 23)33.00 (-) Amortisation (W1)(4.55)28.45NCI 30%x 70%19.928.54

Flora 6.9 (W2) x 75%5.18NCI 25%384.501.73

8. Group OCE as at YEPentagon50.00(+) Goodwill retranslation (W2)2.74(+) Gain on revaluation (W3)5.27(-) Pension (W4)(5.00)NCI 30%Smooth post acqn 4 x 70%2.801.20

Flora post acqn Existing (W2)10.00 From translation of financial statement (W2)7.7317.73NCI 25% x 75%13.304.4369.11

9. NCI as at YEIn SmoothAt acqn (W1)35.00Share of post RE (W7)8.54 OCE (W8)1.20

In FloraAt acqn (W2)11.20Share of post RE (W7)1.73 OCE (W8)4.4362.10

(b) Fair value is measured frommarket participant's point of view.Entity's specific assumption does not affect the fair valuation ofassets and liabilitites.Pentagon cannot measured the value of net assets of the acquireebased on what it was prepared to pay, and cannot be based onfuture business plan.As to the customer relationships, although the apprear to be valuelessto Pentagon, an independent market participant will still be willingto pay a price to acquire such relationships. The intangible assetscannot be valued at zero.Pentagon's aggressive negotiation could be due to trying to reducethe offer price. While this could save Pentagon some monies andincrease profit, the long run shareholders' wealth will be damaged asthe reputation of the group will be affected.Also, improper valuation of assets will not show a true and fair viewand will affect users' decision making.Directors of Pentagon should follow IFRS and exercise properbusiness ethic in the acquisition.Jocatt pg 11Answer (a)JocattConsolidated statement of cash flow for the year ended 30 Nov 2010Note$m$mCash flow from operating activitiesProfit before tax59Adjustments (12) Gain on remeasurement (5 - 4)(i)(1) Amortisation (W1)17 Pension expenses 10 + (6/3yrs) - 8(iv)4 Contribution paid (W2)(7) Heating system written off(v)0.5 Fair value gain (W3)(1.5) Gain on disposal of land (15 + 4 - 10)(9) Depreciation(vi)27 Impairment loss (W5)31.5 Share of profit from assocPL(6) Finance costPL6

Operating profit before working capital changes (4)120.5 Decrease in inventory (105 - 128)23 Decrease in receivables (62 - 5 Tigret) - 11356 Increase in payables (144 - 55)89

Cash from operation (3)288.5 Tax paid (W7)(16.5) Interest paidPL(6)

Net cash from operating activities266.0

Cash flow from investing activities (8)Purchase of investment in subsidiary (15 - 7)(i)(8)Addition to intangible assets (8 + 4)(iii)(12)Addition to investment property(v)(1)Proceeds from disposal of land(vi)15Purchase of property, plant and equipment (W4)(98)Purchase of AFS investment (W6)(5)Purchase of investment in assoc (54 YE - 6)(48)

Net cash from investing activities(157)

Cash flow from financing activities (5)Proceeds from rights issue (NCI portion) 5 x 40%(ii)2Repayment of borrowing (67 - 71)(4)Dividend paid(5)Dividend paid to NCI(13)

Net cash from financing activities(20)

Net increase in cash and cash equivalent (C&CE)89C&CE b/f143C&CE c/f232

Workings ($m)1. Intangible assetsBal b/f72Bal c/f85Addition12Amortisation (bal fig)17Tigret18

2. Defined benefit planNew syllabusOld syll