(ii) Describe the procedures to verify the number of serious accidents in the year ended 30 November 2007.
(4 marks)
第1题:
(b) Ambush loaned $200,000 to Bromwich on 1 December 2003. The effective and stated interest rate for this
loan was 8 per cent. Interest is payable by Bromwich at the end of each year and the loan is repayable on
30 November 2007. At 30 November 2005, the directors of Ambush have heard that Bromwich is in financial
difficulties and is undergoing a financial reorganisation. The directors feel that it is likely that they will only
receive $100,000 on 30 November 2007 and no future interest payment. Interest for the year ended
30 November 2005 had been received. The financial year end of Ambush is 30 November 2005.
Required:
(i) Outline the requirements of IAS 39 as regards the impairment of financial assets. (6 marks)
第2题:
(b) Describe with suitable calculations how the goodwill arising on the acquisition of Briars will be dealt with in
the group financial statements and how the loan to Briars should be treated in the financial statements of
Briars for the year ended 31 May 2006. (9 marks)
(b) IAS21 ‘The Effects of Changes in Foreign Exchange Rates’ requires goodwill arising on the acquisition of a foreign operation
and fair value adjustments to acquired assets and liabilities to be treated as belonging to the foreign operation. They should
be expressed in the functional currency of the foreign operation and translated at the closing rate at each balance sheet date.
Effectively goodwill is treated as a foreign currency asset which is retranslated at the closing rate. In this case the goodwillarising on the acquisition of Briars would be treated as follows:
At 31 May 2006, the goodwill will be retranslated at 2·5 euros to the dollar to give a figure of $4·4 million. Therefore this
will be the figure for goodwill in the balance sheet and an exchange loss of $1·4 million recorded in equity (translation
reserve). The impairment of goodwill will be expensed in profit or loss to the value of $1·2 million. (The closing rate has been
used to translate the impairment; however, there may be an argument for using the average rate.)
The loan to Briars will effectively be classed as a financial liability measured at amortised cost. It is the default category for
financial liabilities that do not meet the definition of financial liabilities at fair value through profit or loss. For most entities,
most financial liabilities will fall into this category. When a financial liability is recognised initially in the balance sheet, the
liability is measured at fair value. Fair value is the amount for which a liability can be settled, between knowledgeable, willing
parties in an arm’s length transaction. In other words, fair value is an actual or estimated transaction price on the reporting
date for a transaction taking place between unrelated parties that have adequate information about the asset or liability being
measured.
Since fair value is a market transaction price, on initial recognition fair value generally is assumed to equal the amount of
consideration paid or received for the financial asset or financial liability. Accordingly, IAS39 specifies that the best evidence
of the fair value of a financial instrument at initial recognition generally is the transaction price. However for longer-term
receivables or payables that do not pay interest or pay a below-market interest, IAS39 does require measurement initially at
the present value of the cash flows to be received or paid.
Thus in Briars financial statements the following entries will be made:
第3题:
(c) (i) State the date by which Thai Curry Ltd’s self-assessment corporation tax return for the year ended
30 September 2005 should be submitted, and advise the company of the penalties that will be due if
the return is not submitted until 31 May 2007. (3 marks)
(ii) State the date by which Thai Curry Ltd’s corporation tax liability for the year ended 30 September 2005
should be paid, and advise the company of the interest that will be due if the liability is not paid until
31 May 2007. (3 marks)
(c) Self-assessment tax return
(1) Thai Curry Ltd’s self-assessment corporation tax return for the year ended 30 September 2005 must be submitted by
30 September 2006.
(2) If the company does not submit its self-assessment tax return until 31 May 2007, then there will be an automatic fixed
penalty of £200 since the return is more than three months late.
(3) There will also be an additional corporation tax related penalty of £4,415 (44,150 × 10%) being 10% of the tax unpaid,
since the self-assessment tax return is more than six months late.
Corporation tax liability
(1) Thai Curry Ltd’s corporation tax liability for the year ended 30 September 2005 must be paid by 1 July 2006.
(2) If the company does not pay its corporation tax until 31 May 2007, then interest of £3,035 (44,150 at 7·5% = 3,311
× 11/12) will be charged by HM Revenue & Customs for the period 1 July 2006 to 31 May 2007.
第4题:
Required:
Discuss the principles and practices which should be used in the financial year to 30 November 2008 to account
for:(b) the costs incurred in extending the network; (7 marks)
第5题:
(d) Additionally Router purchased 60% of the ordinary shares of a radio station, Playtime, a public limited company,
on 31 May 2007. The remaining 40% of the ordinary shares are owned by a competitor company who owns a
substantial number of warrants issued by Playtime which are currently exercisable. If these warrants are
exercised, they will result in Router only owning 35% of the voting shares of Playtime. (4 marks)
Required:
Discuss how the above items should be dealt with in the group financial statements of Router for the year ended
31 May 2007.
(d) IAS27 paragraph 14, ‘Consolidated and Separate Financial Statements’, states that warrants that have the potential to give
the holder voting power or reduce another party’s voting power over the financial and operating policies of the issuer should
be considered when existence of control is assessed. The warrants held by the competitor company, if exercised, would grant
that company control over Playtime. One party only can control Playtime and, therefore, the competitor company should
consolidate Playtime. In coming to this decision all the facts and circumstances that affect potential voting rights (except the
intention of management and the financial ability to exercise or convert) should be considered. It seems, however, that there
is a prima facie case for not consolidating Playtime but accounting for it under IAS28 or IAS39.
第6题:
(ii) Explain the accounting treatment under IAS39 of the loan to Bromwich in the financial statements of
Ambush for the year ended 30 November 2005. (4 marks)
第7题:
4 (a) Router, a public limited company operates in the entertainment industry. It recently agreed with a television
company to make a film which will be broadcast on the television company’s network. The fee agreed for the
film was $5 million with a further $100,000 to be paid every time the film is shown on the television company’s
channels. It is hoped that it will be shown on four occasions. The film was completed at a cost of $4 million and
delivered to the television company on 1 April 2007. The television company paid the fee of $5 million on
30 April 2007 but indicated that the film needed substantial editing before they were prepared to broadcast it,
the costs of which would be deducted from any future payments to Router. The directors of Router wish to
recognise the anticipated future income of $400,000 in the financial statements for the year ended 31 May
2007. (5 marks)
Required:
Discuss how the above items should be dealt with in the group financial statements of Router for the year ended
31 May 2007.
第8题:
(ii) Describe the basis for the calculation of the provision for deferred taxation on first time adoption of IFRS
including the provision in the opening IFRS balance sheet. (4 marks)
第9题:
(b) (i) Discusses the principles involved in accounting for claims made under the above warranty provision.
(6 marks)
(ii) Shows the accounting treatment for the above warranty provision under IAS37 ‘Provisions, Contingent
Liabilities and Contingent Assets’ for the year ended 31 October 2007. (3 marks)
Appropriateness of the format and presentation of the report and communication of advice. (2 marks)
(b) Provisions – IAS37
An entity must recognise a provision under IAS37 if, and only if:
(a) a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event)
(b) it is probable (‘more likely than not’), that an outflow of resources embodying economic benefits will be required to settle
the obligation
(c) the amount can be estimated reliably
An obligating event is an event that creates a legal or constructive obligation and, therefore, results in an enterprise having
no realistic alternative but to settle the obligation. A constructive obligation arises if past practice creates a valid expectation
on the part of a third party. If it is more likely than not that no present obligation exists, the enterprise should disclose a
contingent liability, unless the possibility of an outflow of resources is remote.
The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation
at the balance sheet date, that is, the amount that an enterprise would rationally pay to settle the obligation at the balance
sheet date or to transfer it to a third party. This means provisions for large populations of events such as warranties, are
measured at a probability weighted expected value. In reaching its best estimate, the entity should take into account the risks
and uncertainties that surround the underlying events.
Expected cash outflows should be discounted to their present values, where the effect of the time value of money is material
using a risk adjusted rate (it should not reflect risks for which future cash flows have been adjusted). If some or all of the
expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement should be
recognised as a separate asset when, and only when, it is virtually certain that reimbursement will be received if the entity
settles the obligation. The amount recognised should not exceed the amount of the provision. In measuring a provision future
events should be considered. The provision for the warranty claim will be determined by using the expected value method.
The past event which causes the obligation is the initial sale of the product with the warranty given at that time. It would be
appropriate for the company to make a provision for the Year 1 warranty of $280,000 and Year 2 warranty of $350,000,
which represents the best estimate of the obligation (see Appendix 2). Only if the insurance company have validated the
counter claim will Macaljoy be able to recognise the asset and income. Recovery has to be virtually certain. If it is virtually
certain, then Macaljoy may be able to recognise the asset. Generally contingent assets are never recognised, but disclosed
where an inflow of economic benefits is probable.
The company could discount the provision if it was considered that the time value of money was material. The majority of
provisions will reverse in the short term (within two years) and, therefore, the effects of discounting are likely to be immaterial.
In this case, using the risk adjusted rate (IAS37), the provision would be reduced to $269,000 in Year 1 and $323,000 in
Year 2. The company will have to determine whether this is material.
Appendix 1
The accounting for the defined benefit plan is as follows:
第10题:
Discuss the principles and practices which should be used in the financial year to 30 November 2008 to account
for:(c) the purchase of handsets and the recognition of revenue from customers and dealers. (8 marks)
Appropriateness and quality of discussion. (2 marks)
Handsets and revenue recognition
The inventory of handsets should be measured at the lower of cost and net realisable value (IAS2, ‘Inventories’, para 9). Johan
should recognise a provision at the point of purchase for the handsets to be sold at a loss. The inventory should be written down
to its net realisable value (NRV) of $149 per handset as they are sold both to prepaid customers and dealers. The NRV is $51
less than cost. Net realisable value is the estimated selling price in the normal course of business less the estimated selling costs.
IAS18, ‘Revenue’, requires the recognition of revenue by reference to the stage of completion of the transaction at the reporting
date. Revenue associated with the provision of services should be recognised as service as rendered. Johan should record the
receipt of $21 per call card as deferred revenue at the point of sale. Revenue of $18 should be recognised over the six month
period from the date of sale. The unused call credit of $3 would be recognised when the card expires as that is the point at which
the obligation of Johan ceases. Revenue is earned from the provision of services and not from the physical sale of the card.
IAS18 does not deal in detail with agency arrangements but says the gross inflows of economic benefits include amounts collected
on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the
principal are not revenue. Revenue is the amount of the ‘commission’. Additionally where there are two or more transactions, they
should be taken together if the commercial effect cannot be understood without reference to the series of transactions as a whole.
As a result of the above, Johan should not recognise revenue when the handset is sold to the dealer, as the dealer is acting as an
agent for the sale of the handset and the service contract. Johan has retained the risk of the loss in value of the handset as they
can be returned by the dealer and the price set for the handset is under the control of Johan. The handset sale and the provision
of the service would have to be assessed as to their separability. However, the handset cannot be sold separately and is
commercially linked to the provision of the service. Johan would, therefore, recognise the net payment of $130 as a customer
acquisition cost which may qualify as an intangible asset under IAS38, and the revenue from the service contract will be recognised
as the service is rendered. The intangible asset would be amortised over the 12 month contract. The cost of the handset from the
manufacturer will be charged as cost of goods sold ($200).