C APÍTULO 5
5.2. El M ODELO PRD y la tipificación municipal
5.2.1 Una clasificación de los municipios de Chihuahua
General comments
This was a typical consolidated statement of financial position question, featuring one subsidiary and one associate (acquired during the year). Adjustments were typical of this type of question and included a fair value adjustment on acquisition, intra-group balances and transactions and impairment write-downs.
Stow plc
Consolidated statement of financial position as at 30 September 2009
£ £
Assets
Non-current assets
Property, plant and equipment (4,175,500 + 2,678,500 + 1,000,000)
7,854,000
Intangibles (W3) 370,000
Investments in associates (W7) 909,240
9,133,240 Current assets
Inventories (1,237,000 + 1,050,000 – 90,000 (W6) – (62,500 x 40%) (W6))
2,172,000
Trade and other receivables (976,500 + 750,000 – 540,000) (W6))
1,186,500
Cash and cash equivalents (9,500 + 1,500) 11,000
3,369,500
Total assets 12,502,740
Equity and liabilities
Equity attributable to owners of Stow plc
Ordinary share capital 3,000,000
Share premium account 1,000,000
Retained earnings (W5) 6,296,500
10,296,500
Non-controlling interest (W4) 922,440
Total equity 11,218,940
Current liabilities
Trade and other payables (766,000 + 637,800 – 540,000) (W6))
863,800
Taxation (280,000 + 140,000) 420,000
1,283,800
Total equity and liabilities 12,502,740
Workings
(1) Group structure
(2) Net assets – Bourton Ltd
Year end Acquisition Post acq
£ £ £
Share capital 2,000,000 2,000,000 -
Share premium 500,000 500,000 -
Retained earnings
Per Q 1,202,200 1,575,000
PURP (W6) (90,000) -
FV adj – land 1,000,000 1,000,000 -
4,612,200 5,075,000 (462,800)
(3) Goodwill – Bourton Ltd
£
Consideration transferred 4,500,000
Non-controlling interest at acquisition (5,075,000 (W2) x 20%) 1,015,000
Net assets at acquisition (W2) (5,075,000)
440,000 Impairments to date (50,000 + 20,000) (70,000)
370,000 1,600
2,000
Stow plc
Bourton Ltd
400 1,000
Naunton Ltd
= 80%
= 40%
(4) Non-controlling interest – Bourton Ltd
£ Share of net assets (4,612,200 (W2) x 20%) 922,440 (5) Retained earnings
Stow plc 6,602,500
Bourton Ltd ((462,800) (W2) x 80%) (370,240)
Naunton Ltd ((1,298,100 – 875,000 – 62,500) (W6)) x 40%)) 144,240 Less Impairments to date (70,000 (W3) + 10,000 (W7)) (80,000) 6,296,500 (6) PURP
Bourton Ltd
Naunton Ltd
% £ £
SP 150 540,000 375,000
Cost (100) (360,000) (250,000)
GP 50 180,000 125,000
X ½ 90,000 62,500
(7) Investments in associates – Naunton Ltd
£
Cost 750,000
Add: Share of post acquisition increase in net assets ((1,298,100 – 875,000)) x 40%))
169,240
Less: Impairment to date (10,000)
909,240
Candidates were clearly very well prepared for this question and generally scored highly. Almost all candidates demonstrated a sound technique, following that set out in the learning materials. The most common errors were in relation to the associate, in either the retained earnings working and/or the investment in associate working itself or in relation to the calculation of the provisions for unrealised profit.
Common errors included the following:
• In the net assets table for the subsidiary, only including the fair value adjustment in the year-end column and/or deducting the fair value adjustment instead of adding it.
• Including the fair value adjustment in the net assets table but failing to uplift the value of property, plant and equipment in the consolidated statement of financial position by the same amount.
• Failing to include the share premium account in the net assets table for the subsidiary.
• Failing to adjust both receivables and payables (or in some cases, either) for the invoice value of the sale of goods from the subsidiary to the parent, with a number of candidates making the adjustment at cost.
• Arriving at provisions for unrealised profits in respect of the subsidiary and the associate on different bases when the same cost structure was specified in the question.
• Failing to calculate any provision for unrealised profit in respect of the goods sold by the associate to the parent.
• Calculating unrealised profit based on the full invoice value, as opposed to only half of that value, when the question clearly stated that only half of the goods remained in year-end inventory.
• Taking the cost figures given in the question for the intra-group sales as being the selling price of the goods and hence calculating incorrect provisions for unrealised profit.
• Pleasingly, many candidates correctly adjusted for the group share of the provision for unrealised profit arising on goods sold by the associate to the parent against retained earnings and inventory, but many also made an adjustment against the carrying amount of the associate. Others calculated an initial post-acquisition profit figure for the associate less a 40% share of the provision for unrealised profit but then adjusted that total by 40%, consequently scaling down the provision for unrealised profit twice. This error occurred most often when candidates produced a(n) (unnecessary) net assets table for the associate.
• Taking only six-twelfths of the movement on the associate’s profit to retained earnings and the investment in associate working, failing to recognise that although the acquisition of the associate did indeed occur half way through the year the figure given for retained earnings was at the date of acquisition, such that there was no need to time-apportion any of the figures given.
• Not adjusting for the accumulated impairments in the group retained earnings working, instead adjusting only for the impairments which had arisen during the current year.
• Having correctly arrived at a post-acquisition loss for the subsidiary in a net assets table, turning this into a post-acquisition profit when taking 80% of this figure to group retained earnings.
A number of candidates failed to provide workings for assets and liabilities on the face of the consolidated statement of financial position. Where these figures were incorrect no partial marks could then be awarded.
Candidates must show their workings in all cases so that partial credit can be given.
Presentation of the consolidated statement of financial position was generally good, although very few candidates gained the presentation mark which was available for clearly disclosing the non-controlling interest as a separate component of equity.
Total possible marks Maximum full marks
21 21
PROFESSIONAL STAGE FINANCIAL ACCOUNTING – OT EXAMINER’S COMMENTS
The performance of candidates in the March 2010 objective test questions section for the Professional Stage Financial Accounting paper was good. Candidates performed well across all syllabus areas.
When practising OT items, care should always be taken to ensure that the principles underlying any particular item are understood rather than rote learning the answer. In particular, candidates should ensure that they read all items very carefully.
The following table summarises how well* candidates answered each syllabus content area.
Syllabus area Number of questions Well answered Poorly answered
LO1 2 1 1
LO2 7 6 1
LO3 6 6 0
Total 15 13 2
*If 50% or more of the candidates gave the correct answer, then the question was classified as ‘well answered’.
Brief comments on the two poorly answered questions, which covered LO1 (accounting and reporting concepts) and LO2 (preparation of single company financial statements), are below (this paper was marked under the new electronic marking system and no further information regarding responses was available):
Item 1
This item asked which roles are undertaken by the International Accounting Standards Committee Foundation (IASCF). Candidates clearly do not understand the structure that surrounds and supports the International Accounting Standards Board.
Item 2
This item, required candidates to identify which adjustments should be recognised as a prior period error.
Four short scenarios were provided which included a settled legal claim, a computational error, a fraud and a revised tax liability.
MARK PLAN AND EXAMINER’S COMMENTARY
The mark plan set out below was used to mark these questions. Markers are encouraged to use discretion and to award partial marks where a point was either not explained fully or made by implication. More marks are available than could be awarded for each requirement, where indicated. This allows credit to be given for a variety of valid points, which are made by candidates.
Question 1
Overall marks for this question can be analysed as follows: Total: 18 General comments
This question is a typical question testing the preparation of an income statement and statement of financial position from a trial balance. A number of adjustments were required, including the reversal of a provision, an inventory valuation issue, an adjustment for the over provision of tax and deferred revenue.
(a)
Karonga plc – Statement of financial position as at 31 December 2009
£ £
ASSETS
Non-current assets
Property, plant and equipment (W5) 943,435
Current assets
Inventories (W3) 1,161,000
Trade receivables (1,075,000 – 60,750 (W4)) 1,014,250
Cash and cash equivalents 189,500
2,364,750
Total assets 3,308,185
EQUITY AND LIABILITIES Equity
Ordinary share capital 1,325,000
Retained earnings (28,090 + 227,895) 255,985
1,580,985 Non-current liabilities
Bank loan 1,025,300
Current liabilities
Trade and other payables (583,700 + 12,500(W1)) 596,200
Taxation (W5) 105,700
701,900
Total equity and liabilities 3,308,185
Karonga plc – Income Statement for year ended 31 December 2009
£
Revenue (W1) 6,196,400
Cost of sales (W2) (3,506,501)
Gross profit 2,689,899
Administrative expenses (W2) (2,315,434)
Operating profit 374,465
Finance costs (49,170)
Profit before tax 325,295
Income tax expense (105,700 – 8,300) (97,400)
Net profit for the period 227,895
Note: Marks will be awarded if items are included in a different line item in the income statement provided that the heading used is appropriate.
W1 Revenue adjustment
£
Trial balance – revenue 6,208,900
Fitness machine deposits (250 x £50) (12,500) 6,196,400
Trial balance 2,324,000 3,553,100
Opening inventory 1,093,800
Less: closing inventory (W3) (1,161,000)
Bad debt reversal (W4) (1,650)
Depreciation charge – buildings (12,710 (40% / 60%) 5,084 7,626
Depreciation charge – plant & equipment 12,975
Provision reversal (12,000)
2,315,434 3,506,501 W3 Inventory adjustment
£
Closing inventory 1,163,500
Net realisable value write down (£20 - £15) x 500 items (2,500) 1,161,000 W4 Bad debt
£
Opening allowance 62,400
Movement in year (balancing figure) (1,650)
Closing allowance (53,750 + 7,000) 60,750
W5 Property, plant and equipment
Cost Acc dep
£ £
Trial balance – L&B 985,500 88,970
Trial balance – P&E 103,800 31,210
Depreciation charge for year (103,800 / 8yrs) 12,975 Depreciation charge for year ((985,500 –
350,000) / 50yrs)
12,710
At 31 December 2009 1,089,300 145,865 943,435
As in previous sittings, candidates were clearly very well-prepared for this type of question. Almost all candidates produced a well-laid out income statement and statement of financial position with all narrative and sub-totals completed. Some candidates lost presentation marks for the statement of financial position by not adding across numbers in brackets, failing to complete sub-totals or by having incomplete or abbreviated narrative. On the income statement the most common presentational failing was to not include a sub-total for profit from operations. However, overall presentation is improving with each sitting.
As ever, candidates should remember that this type of question requires financial statements to be in a form suitable for publication.
Workings generally were set out clearly, with the standard cost matrix generally being produced.
Candidates must remember that if they do not provide clear workings for calculations and their final answer is incorrect they risk gaining no marks for a working that may be worth 2 or 3 marks. Clear workings, even if only bracketed will score partial marks for incorrect answers.
Most candidates were able to deal with the more straightforward adjustments such as the depreciation charges, closing inventory and adjusting revenue for the payments made in advance, although the corresponding entry in current liabilities was not always included.
Common errors included the treatment of the tax figures which seemed to cause some confusion as to how to deal with the over provision from the previous year. Candidates commonly put the same figure in the income statement and statement of financial position, although this was split between whether it was the income tax charge or the liability.
Candidates often used the correct brought forward and carried forward figures for the specific bad debt allowance but missed the additional allowance that needed making of £7,000. Other candidates correctly calculated the carried forward figure and hence calculated that an adjustment of £1,650 was needed but then either didn’t recognise this in the income statement or added it to expenses rather than deducting it.
Only a few candidates carried the double entry through completely by deducting the full closing allowance from trade receivables, £7,000 was a more common deduction.
The treatment of the legal provision also caused a few problems. Very few candidates realised that the provision needed reversing. A mix of treatments were seen with candidates either including the provision in the statement of financial position or providing for it in the current year even though it was a brought
Question 2
Overall marks for this question can be analysed as follows: Total: 19 General comments
This question tested the preparation of a consolidated statement of cash flows and supporting note. A subsidiary was disposed of during the year. Missing figures to be calculated included dividends paid (to the group and to the non-controlling interest), interest paid, tax paid, depreciation and amortisation charge for the year and proceeds from the issue of share capital following a bonus issue during the year.
Chitipa plc
Consolidated statement of cash flows for the year ended 31 December 2009
£ £
Cash flows from operating activities
Cash generated from operations (Note) 331,900
Interest paid (W1) (73,000)
Income tax paid (W2) (76,050)
Net cash from operating activities 182,850
Cash flows from investing activities
Purchase of property, plant and equipment (360,000) Disposal of Thyolo Ltd net of cash disposed of (200,000
– 7,900)
192,100
Net cash from investing activities (167,900)
Cash flows from financing activities
Repayment of borrowings (736,300 – 561,700) (174,600) Proceeds from share issue (W4 & W5) 175,000
Dividends paid (W6) (27,500)
Dividends paid to non-controlling interest (W7) (11,850)
Net cash used in financing activities (38,950)
Net increase in cash and cash equivalents (24,000)
Cash and cash equivalents at beginning of period 172,500
Cash and cash equivalents at end of period 148,500
Note: Reconciliation of profit before tax to cash generated from operations
£
Profit before tax (222,000 + 12,600) 234,600
Finance cost 71,000
Depreciation charge (W3) 22,700
Impairment loss on goodwill (373,700 – 364,200) 9,500
Increase in inventories (401,300 – 393,800) (7,500)
Increase in trade and other receivables (496,300 – 475,200 + 25,400) (46,500) Increase in trade and other payables ((21,700 – 5,000) – (11,700 – 7,000) +
36,100)
48,100
Cash generated from operations 331,900
Workings
Additions 360,000 Deprecation charge (β) 22,700
C/d 723,400
Bonus issue 50,000 Cash received (β) 125,000
C/d 215,000
Candidates generally performed well on this question, adopting a good exam technique that allowed them to gain a good pass in this question but miss out some of the more tricky areas. Presentation of the statement of cash flows was good, although candidates often missed sub-totalling each section and the date for the period for which the cash flow was prepared was missed by a significant minority of candidates.
Candidates generally calculated the repayment of borrowings correctly and the purchase of property, plant and equipment, although a minority of candidates showed the latter as an inflow of cash rather than outflow.
Interest paid was also generally shown correctly. A common mistake was in relation to the income tax expense where a significant number of candidates missed the tax expense in respect of the discontinued operation.
The calculation of the proceeds from the share issue were mixed with candidates gaining the marks for the brought forward and carried forward figures but often getting the entries for the bonus issue back to front. The calculation for the cash flows from the disposal of the subsidiary was one of the most disappointing areas with candidates showing all kinds of long and complicated net assets workings, when a, simple netting off of two figures was required.
Candidates seemed happy with the T-account for dividends paid, although the treatment of the bonus issue was not always correctly dealt with, sometimes it was shown on the wrong side of the T-account or missed entirely. However, the calculation of the dividend paid to the non-controlling interest was disappointing with a good majority of candidates simply electing to ignore the calculation entirely. Candidates who did show a working for this generally were unable to calculate the disposal value or simply missed it out.
A good attempt at producing the reconciliation of profit before tax to cash generated from operations was made by almost all candidates. Common errors however included not including the profit before tax for the discontinued operation, adding back the loss on disposal even though it was not included in the parent’s profit before tax figure, ignoring the impact of the goodwill impairment and deducting the individual assets and liabilities at disposal in the movements calculations, rather than adding them, or ignoring them completely.
Total possible marks Maximum full marks
19 19
Question 3
Overall marks for this question can be analysed as follows: Total: 22 General comments
This question required the preparation of a consolidated statement of financial position. The group has an associate, with the acquisition of a subsidiary during the year. A fair value adjustment in relation to a piece of equipment, with depreciation adjustment, was required. Inter-company trading had taken place during the year between the parent and associate company and a suspense account needed eliminating, which was created on the acquisition of property, plant and equipment on deferred payment terms.
Rumphi plc
(a) Consolidated statement of financial position as at 31 December 2009
£’000 £’000
Trade and other receivables (120,840 + 945,600) 1,066,440 Cash and cash equivalents (72,600 + 189,500) 262,100
1,381,500
Total assets 3,158,158
Equity and liabilities
Equity attributable to Rumphi plc shareholders
Ordinary share capital 930,000
Retained earnings (W5) 802,840
Attributable to the equity holders of Rumphi plc 1,732,840
Non-controlling interest (W4) 348,948
2,081,788 Non-current liabilities
Deferred payment (W8) 40,000
Current liabilities
Trade and other payables (236,380 + 470,330) 706,710
Taxation (172,000 + 157,660) 329,660
(2) Net assets – Luwa Ltd
31 Dec 2009 Acquisition Post acq
£ £ £
Share capital 350,000 350,000 –
Share premium account 125,000 125,000 –
Retained earnings 748,260 600,710 147,550
Goodwill on business (71,600) (71,600) –
PPE FV uplift 12,000 12,000 –
FV depreciation adjustment (12,000 / 8yrs x 4/12) (500) – (500) 1,163,160 1,016,110 147,050 (3) Goodwill – Luwa Ltd
£
Consideration transferred 900,000
Net assets at acquisition (W2) (1,016,110)
Non-controlling interest at acquisition (1,016,110 (W2) x 30%) 304,833 188,723
Less: Impairment (45,000)
143,723 (4) Non-controlling interest – Luwa Ltd
Share of net assets (1,163,160 (W2) x 30%) £348,948
(5) Retained earnings
Machine depreciation adjustment (W8) (8,000)
802,840
(7) Investment in associate – Dedza Ltd
£
Original cost 107,000
Add: Share of post acquisition increase in retained earnings 13,285
Less: Impairment to date (10,000)
Less: Share of PURP (1,700)
108,585 (8) Property, plant and equipment
£
Rumphi plc 800,300
Luwa Ltd 644,550
Fair value adjustment 12,000
FV depreciation adjustment (W2) (500)
New machine (80,000 – 40,000) 40,000
Depreciation adj on new machine (40,000 / 5 yrs) (8,000) 1,488,350
The majority of candidate answers to this question were very good. Most notably candidates coped far better with the provision for unrealised profit on sales made by the parent to the associate than they have at previous sittings. Where errors were made in respect of the provision for unrealised profit it was by deducting the full amount of the unrealised earnings from retained earnings and investment in associate rather than the parent’s share. A significant minority of candidates made the adjustment to consolidated inventory instead of to the investment in associate.
Presentation was very good, although candidates still seem to not complete statements in some way, most typically by not showing the sub total before the non-controlling interest line and therefore they inevitably lose marks.
Workings were generally well laid out, although the property, plant and equipment workings were often squashed on the face of the statement of financial position which made it quite difficult to read. This was compounded by the fact that these scripts were scanned for electronic marking and therefore squashed workings became even harder to read. Candidates should be made aware of this, to try and avoid such an approach in the future.
The majority of candidates made a good attempt at the net assets working. However, a number of common errors were made in this area including not deducting the goodwill recognised by the subsidiary, instead candidates included this as part of consolidated intangible assets, and forgetting that the fair value uplift on the equipment meant that additional depreciation needed to be calculated. For candidates that did appreciate that additional depreciation should be recognised they often missed that it was only four months worth, rather than a full year. Another common error was not including the subsidiary’s share premium in the net assets working but instead showing it on the face of the consolidated statement of financial position.
One surprising error was that whilst almost all candidates correctly calculated the percentages of the subsidiary and the associate held by the parent, a significant minority of candidates subsequently mixed up the associate percentage (25%) with the non-controlling interest percentage (30%).
Other common errors included correctly adding the £40,000 due on the new machine to consolidated property, plant and equipment but either showing the corresponding liability as current or not showing a corresponding liability at all, or simply adding £80,000 to property, plant and equipment rather than only
£40,000.
A worrying few consolidated either only four-twelfths or 70% of the subsidiary’s assets and liabilities.
Total possible marks Maximum full marks
22 22
Question 4
Overall marks for this question can be analysed as follows: Total: 21 General comments
The first part of this question is a single topic question focusing on non-current assets, including aspects on leasing. Candidates were required to prepare a finance lease calculation, assess a research and development
The first part of this question is a single topic question focusing on non-current assets, including aspects on leasing. Candidates were required to prepare a finance lease calculation, assess a research and development