Monitoring Test MT2A
Financial
Reporting
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
Accountancy Tuition Centre (International Holdings) Ltd 2008 2
1 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 2,520 1,860 1,945
Receivables 2,200 1,755 1,810
Cash 880
–––––– –––––– ––––––
TOTAL ASSETS 17,825 7,940 8,230
–––––– –––––– ––––––
EQUITY AND LIABILITIES
Share capital 5,000 2,500 2,000
Share premium 1,750 500 750
Retained earnings 5,675
Payables 3,250 2,060 2,400
Overdraft 0 180 130 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.
Accountancy Tuition Centre (International Holdings) Ltd 2008 3 Required:
Prepare a consolidated statement of financial position for the Hughes Group as at 30 September 2008.
(19 marks)
2 Extracts from the statement of financial position of Tarantula as at 1 October 2007 is as follows:
$000
Ordinary share of $5 each 10,000
Share premium 1,000
The draft statement of comprehensive income of Tarantula for the year to 30 September 2008 is as follows:
Profit for the year 700
______
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 1
January 2008 there was a 2 for 5 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 1
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 1 for 2 rights issue, on 1 July 2008, at $7 per share when the market value of the shares was $10 (IGNORE THE BONUS
Accountancy Tuition Centre (International Holdings) Ltd 2008 4
(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 1 January 2008 there was a 2 for 5 bonus issue
(iii) Tarantula issued 500,000 new shares for cash on 1 April 2008
(iv) On 1 July 2008 there was a 1 for 2 rights issue at $7 when the market
value was $10 (4 marks)
(21 marks)
3 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
