參考案例真題p2int dec

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SectionA–THISONEquestioniscompulsoryandMUSTbeattempted

Grange,apubliclimited operatesinthemanufacturingsector.Thedraftstatementsoffinancialpositionofthegroupcompaniesareasfollowsat30November2009:

Grange

Park

Fence

$m

$m

$m

Assets:

Non-currentassets

Property,ntandequipment 257 311 238

Investmentsinsubsidiaries

Park 340

Fence 134

InvestmentinSitin 16

–––––– ––––– –––––

747 311 238

–––––– ––––– –––––

Currentassets 475 304 141

–––––– ––––– –––––

Totalassets 1,222 615 379

–––––– ––––– –––––

Equityandliabilities:

Sharecapital 430 230 150

Retainedearnings 410 170 65

Othercomponentsofequity 22 14 17

–––––– ––––– –––––

Totalequity 862 414 232

–––––– ––––– –––––

Non-currentliabilities 172 124 38

–––––– ––––– –––––

Currentliabilities

Tradeandotherpayables 178 71 105

Provisionsforliabilities 10 6 4

–––––– ––––– –––––

Totalcurrentliabilities 188 77 109

–––––– ––––– –––––

Totalliabilities 360 201 147

–––––– ––––– –––––

1,222 615 379

Totalequityandliabilities

–––––– ––––– –––––

Thefollowinginformationisrelevanttothepreparationofthegroupfinancialstatements:

On1June2008,Grangeacquired60%oftheequityinterestsofPark,apubliclimited.Thepurchaseconsiderationcomprisedcashof$250million.Excludingthefranchisereferredtobelow,thefairvalueoftheidentifiablenetassetswas$360million.Theexcessofthefairvalueofthenetassetsisduetoanincreaseinthevalueofnon-depreciableland.

Parkheldafranchiseright,whichat1June2008hadafairvalueof$10million.ThishadnotbeenrecognisedinthefinancialstatementsofPark.Thefranchiseagreementhadaremainingtermoffiveyearstorunatthatdateandisnotrenewable.Parkstillholdsthisfranchiseattheyear-end.

Grangewishestousethe‘fullgoodwill’methodforallacquisitions.Thefairvalueofthenon-controllinginterestinParkwas$150millionon1June2008.TheretainedearningsofParkwere$115millionandothercomponentsofequitywere$10millionatthedateofacquisition.

Grangeacquiredafurther20%interestfromthenon-controllinginterestsinParkon30November2009foracashconsiderationof$90million.

On31July2008,Grangeacquireda100%oftheequityinterestsofFenceforacashconsiderationof

$214million.TheidentifiablenetassetsofFencehadaprovisionalfairvalueof$202million,includinganycontingentliabilities.Atthetimeofthebusinesscombination,Fencehadacontingentliabilitywithafairvalueof$30million.At30November2009,thecontingentliabilitymettherecognitioncriteriaofIAS37‘Provisions,ContingentLiabilitiesandContingentAssets’andtherevisedestimateofthisliabilitywas$25million.TheaccountantofFenceisyettoaccountforthisrevisedliability.

However,Grangehadnotcompletedthevaluationofanelementofproperty,ntandequipmentofFenceat31July2008andthevaluationwasnotcompletedby30November2008.Thevaluationwasreceivedon30June2009andtheexcessofthefairvalueoverbookvalueatthedateofacquisitionwasestimatedat

$4million.Theassethadausefuleconomiclifeof10yearsat31July2008.

TheretainedearningsofFencewere$73millionandothercomponentsofequitywere$9millionat31July2008beforeanyadjustmentforthecontingentliability.

On30November2009,Grangedisposedof25%ofitsequityinterestinFencetothenon-controllinginterestforaconsiderationof$80million.Thedisposalproceedshadbeencreditedtothecostoftheinvestmentinthestatementoffinancialposition.

On30June2008,Grangehadacquireda100%interestinSitin,apubliclimited foracashconsiderationof$39million.Sitin’sidentifiablenetassetswerefairvaluedat$32million.

On30November2009,Grangedisposedof60%oftheequityofSitinwhenits tassetswere

$36million.Oftheincreaseinnetassets,$3millionhadbeenreportedinprofitorlossand$1millionhadbeenreportedincomprehensiveeasprofitonanavailable-for-saleasset. eedswere$23millionandtheremainingequityinterestwasfairvaluedat$13million. ificantinfluenceafter

thedisposaloftheinterest.Theonlyaccountingentr astoincreasecashandreducethecostoftheinvestmentin

Grangeacquiredaplot ignificantlyin

valueif inproperty,

at30November2009was$8millionbutasat15December2009,thishadreducedto$ rewassomeuncertaintysurroundingtheviabilityoftheregeneration

Grangeanticipatesthatitwillbefined$1millionbythelocalregulatorforenvironmentalpollution.Italsoanticipatesthatitwillhavetopaycompensationtolocalresidentsof$6millionalthoughthisisonlythebestestimateliability.Inaddition,theregulatorhasrequestedthatcertainchangesbemadetothemanufacturi

ordertomaketheprocessmoreenvironmentallyfriendly.Thisisanticipatedtocostthe

Grangehasapropertylocatedinaforeigncountry,whichwasacquired

30November2008whentheexchangeratewas$1=2dinars.At30November2009,thepropertywasrevaluedto12milliondinars.Theexchangerateat30November2009was$1=1·5dinars.Thepropertywasbeingcarriedatitsvalueasat30November2008.The istorevalueproperty,ntandequipmentwhenevermaterialdifferenceistbetweenbookandfairvalue.Depreciationonthepropertycanbeassumedtobeimmaterial.

Grangehaspreparedanforreorganisingtheparent ’sownoperations.Th ofdirectorshasdiscussedthenbutfurtherworkhastobecarriedoutbeforetheycanapproveit.However,Grangehasmadeapublicannouncementasregardsthereorganisationandwishestomakeareorganisationprovisionat30November2009of$30million.Thenwillgeneratecostsavings.Thedirectorshavecalculatedthevalueinuseofthenetassets(totalequity)oftheparent asbeing$870millionifthereorganisationtakesceand$830millionifthereorganisationdoesnottakece.Grangeisconcernedthattheparent ’sproperty,ntandequipmenthavelostvalueduringtheperiodbecauseofadeclineinpropertypricesintheregionandfeelthatanyimpairmentchargewouldrelatetotheseassets.Thereisnoreservewithinotherequityrelatingtopriorrevaluationofthesenon-currentassets.

Grangeusesaccountingpolicies,whiaximiseitsreturnoncapital,employed.ThedirectorsofGrangefeelthattheyareactingethicallyinusingthisapproachastheyfeelthataslongastheyfollow‘professionalrules’,thenthereisnoproblem.Theyhaveadoptedasimilarphilosophyinthewaytheyconducttheirbusinessaffairs.Thefinancedirectorhadrecentlyreceivedinformationthatoneoftheirkeycustomers,Brook,apubliclimited,washavingseriousliquidityproblems.ThisinformationwasreceivedfromaclosefriendwhowasemployedbyBrook.However,healsolearnedthatBrookhadapproachedarival Field,apubliclimited,forcreditandknewthatifFieldgrantedBrookcreditthentherewasahighprobabilitythattheoutstandingbalanceowedbyBrooktoGrangewouldbepaid.FieldhadapproachedthedirectorforaninformalcreditreferenceforBrookwhountilrecentlyhadalwayspaidpromptly.ThedirectorwasintendingtogiveBrookagoodreferencebecauseofitsrecentpromptpaymenthistoryasthedirectorfeltthattherewasnoobligationorrulewhichrequiredhimtomentionthe ’sliquidityproblems.(Thereisnochangerequiredtothefinancialstatementsasaresultoftheaboveinformation.)

Required:

CalculatethegainorlossarisingonthedisposaloftheequityinterestinSitin. (6marks)

PrepareaconsolidatedstatementoffinancialpositionoftheGrangeGroupat30November2009inaccordancewithInternationalFinancialReportingStandards. (35marks)

Discusstheviewthatethicalbehaviourissimplyamatterofcompliancewithprofessionalrulesandwhetherthefinancedirectorshouldsimplyconsider‘rules’whendeterminingwhethertogiveBrookagoodcreditreference. (7marks)

Professionalmarkswillbeawardedinpart(c)forclarityandexpression. (2marks)

(50marks)

SectionB–TWOquestionsonlytobeattempted

(a)Key,apubliclimited isconcernedaboutthereductioninthegeneralavailabilityofcreditandthesuddentighteningoftheconditionsrequiredtoobtainaloanfrombanks.Therehasbeenareductionincreditavailabilityandariseininterestrates.Itseemsasthoughtherehasceasedtobeaclearrelationshipbetweeninterestratesandcreditavailability,andlendersandinvestorsareseekinglessriskyinvestments.Thedirectorsaretryingtodeterminethepracticalimplicationsforthefinancialstatementsparticularlybecauseoflargewritedownsofassetsinthebankingsector,tighteningofcreditconditions,andfallingsalesandassetprices.Theyareparticularlyconcernedabouttheimpairmentofassetsandthemarketinputstobeusedinimpairmenttesting.Theyareafraidthattheymayexperiencesignificantimpairmentchargesinthecomingfinancialyear.Theyareunsureastohowtheyshouldtestforimpairmentandanyconsiderationswhichshouldbetakenintoaccount.

Required:

Discussthemainconsiderationsthatthe shouldtakeintoaccountwhenimpairmenttestingnon-currentassetsintheaboveeconomicclimate. (8marks)

Professionalmarkswillbeawardedinpart(a)forclarityandexpression. (2marks)

(b)Therearespecificassetsonwhichthe wishestoseekadvice.The holdscertainnon-currentassets,whichareinadevelopmentareaandcarriedatcostlessdepreciation.Theseassetscost$3millionon1June2008andaredepreciatedonthestraight-linebasisovertheirusefullifeoffiveyears.Animpairmentreviewwascarriedouton31May2009andtheprojectedcashflowsrelatingtotheseassetswereasfollows:

Yearto

31May2010

31May2011

31May2012

31May2013

Cashflows($000)

280

450

500

550

The usedadiscountrateof5%.At30November2009,thedirectorsusedthesamecashflowprojectionsandnoticed reverseany

impairmentlosscalcula hasindicatedthatitmaycompensatetheforanylossinvalueoftheassetsu

Keyholdsanon-currentasset,whichwaspurchase

usefullifeof10years.On1December2008,itwasrevaluedto

wasreviewedforimpairmentandwrittendowntoitsrecoverableamountof$

Keycommitteditselfatthebeginningofthefinancialyeartosellingapropertythatisbeingunde owingtheeconomicdownturn.Asaresultoftheeconomicdownturn,thepropertywasnotsoldby eyear.Theassetwasactivelymarketedbuttherewerenoreasonableofferstopurchasetheasset.Keyishoeconomicdownturnwillchangeinthefutureandthereforehasnotreducedthepriceoftheasset.

Required:

Discusswithsuitablecomputations,howtoaccountforanypotentialimpairmentoftheabovenon-currentassetsinthefinancialstatementsfortheyearended30November2009. (15marks)

Note:Thefollowingdiscountfactorsmayberelevant

Year1 0·9524

Year2 0·9070

Year3 0·8638

Year4 0·8227

(25marks)

Burley,apubliclimited operatesintheenergyindustry.Ithasenteredintoseveralarrangementswithotherentitiesasfollows:

BurleyandSlite,apubliclimited,jointlycontrolanoilfield.Burleyhasa60%interestandSlitea40%interestandthecompaniesareentitledtoextractoilintheseproportions.Anagreementwassignedon1December2008,whichallowedforthenetcashsettlementofanyover/underextractionbyone.Thenetcashsettlementwouldbeatthemarketpriceofoilatthedateofsettlement.Bothpartieshaveusedthismethodofsettlementbefore.200,000barrelsofoilwereproducedupto1October2009butnonewereproducedafterthisupto30November2009duetoproductiondifficulties.Theoilwasallsoldtothirdpartiesat$100perbarrel.Burleyhatracted10,000barrelsmorethanthe ’squotaandSlitehasunderextractedbythesameamount.Themarketpriceofoilattheyear-endof30November2009was$105perbarrel.TheexcessoilextractedbyBurleywassettledon12December2009underthetermsoftheagreementat$95perbarrel.

Burleyhadpurchaselfromanotherrbecauseoftheproductiondifficultiesat$98perbarrelandhasoilinventoryof5,000barrelsattheyear-end,purchasedfromthissource.Slitehadnoinventoryofoil.Neither

halinventoryat1December2008.Sellingcostsare$2perbarrel.

Burleywishestoknowhowtoaccountfortherecognitionofrevenue,theexcessoilextractedandtheoilinventoryattheyear-end. (10marks)

BurleyalsoenteredintoanagreementwithJorge,andHeavy,bothpubliclimitedcompanieson1December2008.Eachofthecompaniesholdsonethirdoftheequityinanentity,Wells,apubliclimited whichoperatesoffshoreoilrigs.AnydecisionsregardingtheoperatingandfinancialpoliciesrelatingtoWellshavetobeapprovedbytwothirdsoftheventurers.Burleywantstoaccountfortheinterestintheentitybyusingproportionateconsolidation,andwishesadviceonthematter.

TheoilrigsofWellsstartedoperatingon1December1998andaremeasuredunderthecostmodel.Theusefullifeoftherigsis40years.Theinitialcostoftherigswas$240million,whichincludedmissioningcosts(discounted)of$20million.At1December2008,thecarryingamountofthemissioningliabilityhasgrownto$32·6million,butthenetpresentvalueofmissioningliabilityhasdecreasedto$18·5millionasaresultoftheincreaseintherisk-adjusteddiscountratefrom5%to7%.BurleyisunsurehowtoaccountfortheoilrigsinthefinancialstatementsofWellsfortheyearended30November2009.

Burleyownsa10%interestinapipeline,whichisusedtotransporttheoilfromtheoffshoreoilrigtoarefineryontheland.Burleyhasjointcontroloverthepipelineandhastopayitsshareofthemaintenancecosts.Burleyhastherighttouse10%ofthecapacityofthepipeline.Burleywishestoshowthepipelineasaninvestmentinitsfinancialstatementsto30November2009. (9marks)

Burleyhaspurchasedatransferableinterestinanoilexplorationlicence.Initialsurveysoftheregiondesignatedforexplorationindicatethattherearesubstantialoildepositspresentbutfurthersurveyswillberequiredinordertoestablishthenatureandextentofthedeposits.Burleyalsohastodeterminewhethertheextractionoftheoiliscommerciallyviable.Pastexperiencehasshownthatthelicencecanincreasesubstantiallyinvalueiffurtherinformationastotheviabilityoftheextractionoftheoilesavailable.BurleywishestocapitalisethecostofthelicencebutisunsureastowhethertheaccountingiscompliantwithInternationalFinancialReportingStandards (4marks)

Professionalmarkswillbeawardedinquestion3forclarityandexpression. (2marks)

Required:

Discusswithsuitablecomputationswherenecessary,howtheabovearrangementsandeventswouldbeaccountedforinthefinancialstatementsofBurley.

(25marks)

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Thedefinitionofafinancialinstrumentcapturesawidevarietyofassetsandliabilitiesincludingcash,evidenceofanownershiinanentity,oracon