Professional Documents
Culture Documents
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Accounting profit Add accounting depreciation Add entertaining costs Less tax depreciation Taxed at 25% Answer therefore D
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CIMA 2010 Chartered Management Accounting Qualification Answers for Specimen Examination Paper F1 Published May 2010 (V2)
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Use lower of cost and net realisable value = $2.00 x 300 units = $600 Therefore answer is A C
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SECTION B
Answer to Question Two Requirement (a)
(i) It is important to determine corporate residence as corporate income tax is usually a residence-based tax. Whether corporate income tax will be charged depends on the residence, for tax purposes, of any particular entity. The OECD model tax convention provides that an entities status shall be determined as follows: a) it shall be deemed to be a resident only of the State in which its place of effective management is situated; b) if the State in which its place of effective management is situated cannot be determined or if its place of effective management is in neither State, it shall be deemed to be a resident only of the State with which its economic relations are closer; c) if the State with which its economic relations are closer cannot be determined, it shall be deemed to be a resident of the State from the laws of which it derives its legal status. ATOZ will be deemed to be resident in country NOP as that is where its place of effective management is.
(ii)
Requirement (b)
(i) Single-stage sales taxes apply at one level of the production/distribution chain only; they can be applied to any one of the following levels: the manufacturing level; the wholesale level; the retail level. Tax paid by entities is not recoverable. VAT charges tax at every level, but tax paid at one level can usually be recovered by deducting it from tax collected at the next level. The ultimate consumer bears all the tax.
Financial Operations
CIMA 2010 Chartered Management Accounting Qualification Answers for Specimen Examination Paper F1 Published May 2010 (V2)
(ii) Outputs: Standard rate Zero rate Total Inputs Materials and services New machinery Amount due to be refunded by tax authority Sale excluding VAT $ 200,000 115,000 130,000 300,000 VAT $ 30,000 0 30,000 19,500 45,000 64,500 34,500
Requirement (c)
The possible advantages of having accounting standards based on principles rather than being prescriptive include: It will be harder to construct ways of avoiding the requirements of individual standards, for example, in country K the prescriptive standard sets out definitions of what is allowed and what is not allowed, this causes problems if some items are not specified, such as in RSs case. Whereas if the standard sets out general principles, it is much harder to avoid the standards requirements as what is included will be defined by applying the principle. If a prescriptive standard lists items or specifies quantities they may go out of date fairly quickly and need to be regularly updated. This may be the problem with RS, the expenditure incurred may not have been required when the standard was agreed. If principles based standards are used they do not go out of date unless a principle is changed. If an actual value is specified in a standard, it may be possible for some entities to construct various means of avoiding the application of that requirement. If a general principle is specified it will apply no matter what value is put on it With principle based standards the requirements in certain situations will need to be applied using professional judgement, which can help ensure that the correct application is used. Whereas a prescriptive standard would require a certain treatment to be used, regardless of the situation, which could lead to similar items being treated the same way even if the circumstances are different. Principles-based GAAP should ensure that the spirit of the regulations are adhered to, whereas the prescriptive system is more likely to lead to the letter of the law being followed rather than the spirit.
Requirement (d)
The manufacturing facility has been shown as a separate reportable operating segment according to IFRS 8. This means that it must be a separate operating unit whose operating results are regularly reviewed by BDs chief operating decision maker. This implies that there is discrete financial information available for the manufacturing facilitys operations. It will therefore meet the IFRS 5 definition of a discontinued operation, a component of an entity classified as held for sale and is part of a single plan to dispose of a separate major line of business.
Financial Operations
CIMA 2010 Chartered Management Accounting Qualification Answers for Specimen Examination Paper F1 Published May 2010 (V2)
The manufacturing facility loss of $0.5 million will be shown as one amount as a discontinued operation on the statement of comprehensive income, at the end of the income statement section, after profit from continuing activities and before other comprehensive income. The detailed breakdown of the loss will be given in the notes to the statement of comprehensive income. The manufacturing facility has not been disposed of by the year end, so it will be classified as a non-current asset held for sale. Non-current assets held for sale are valued in the statement of financial position at fair value less the cost to sell. The assets and liabilities have to be shown separately, so the assets of $3.4 million (assets $3.6 million less cost to sell $0.2 million) will be shown after current assets, with the heading non-current assets held for sale. The liabilities of $0.8 million will be shown under current liabilities and headed liabilities directly associated with non-current assets classified as held for sale.
Requirement (e)
Office Space - Operating lease Rentals due: Total payments 4 years at $1,000x12 = 48,000 Spread over 5 years = $48,000/5 = $9,600 p.a. Income statement for year to 31 March 2010 (extract) Administrative expenses - Office rentals $9,600 Statement of financial position as at 31 March 2010 (extract) Current liability - Accrued rentals $9,600 Computer System Finance Charge: Allocate finance charge using actuarial method at 12.5% interest paid in arrears. Depreciate asset using normal accounting policy. Payment date 31.03.10 31.03.11 31.03.12 Income statement Finance charge 4465 3148 1667 Paid Balance at year end 25185 13333 0
Summary of accounting entries: Income statement for year ended 31.03.10 (extract) Finance charges Depreciation Depreciation 35720/3 = 11,907 4,465 11,907
Financial Operations
CIMA 2010 Chartered Management Accounting Qualification Answers for Specimen Examination Paper F1 Published May 2010 (V2)
Statement of Financial Position (extract) Non-current assets Leased equipment under finance leases at cost Accounting depreciation NBV Non-current liabilities Obligations under finance leases Current liabilities Obligations under finance leases
Requirement (f)
(i) IAS 32 requires the particular rights attaching to a preference share to be analysed to determine whether it exhibits the fundamental characteristic of a financial liability. There are a number of characteristics that will indicate that there is an obligation to transfer financial assets to the holder of the share, in each case the preferred share will need to be classified as debt rather than equity. If the terms of issue provide for mandatory redemption for cash the preferred shares will be treated as liabilities. If the preference shares are non-redeemable, the appropriate classification is based on an assessment of the substance of the contractual arrangements and the definitions of a financial liability and equity instrument. For example if the preferred shares are cumulative it means that a dividend will always eventually have to be paid and is therefore not discretionary. Therefore the preferred shares are classified as debt. (ii) PSs shares provide for a cash redemption and are therefore classified as debt. In the statement of financial position the preferred shares will be shown under non-current liabilities. The dividend paid on the preferred shares will be treated as finance cost in the income statement. PS Extracts from financial statements: PS Statement of comprehensive income for year ended 31 March 2010 (extract) Finance expense $61,642 PS Statement of financial position as at 31 March 2010 (extract) Non-current liabilities Preferred shares $1,211,642
Financial Operations
CIMA 2010 Chartered Management Accounting Qualification Answers for Specimen Examination Paper F1 Published May 2010 (V2)
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SECTION C
630 504 126 630 497 133 (7) (1.75) (2) (82) (20.50) (21)
Financial statements
Statement of comprehensive income (extract)
$000
Income tax expense deferred tax Statement of financial position (extract) Current assets deferred tax 2 (21)
Requirement (b) XY - Statement of comprehensive income for the year ended 31 March 2010 Continuing Operations $000 Revenue 1,770 Cost of sales (1,025) Gross Profit 745 Administrative expenses (317) Distribution costs (176) (493) Profit from operations 252 Finance cost (14) Profit before tax 238 Income tax expense (W5) (87) Profit for the period from continuing operations 151
Other Comprehensive Income Gain on fair value adjustment of available for sale investments Profit for the year Specimen Exam Paper
44 195
Financial Operations
CIMA 2010 Chartered Management Accounting Qualification Answers for Specimen Examination Paper F1 Published May 2010 (V2)
1,463
309 1,772
Balance at 1 April 2009 New share issue Statement of comprehensive income Dividend paid Balance at 31 March 2010
Financial Operations
CIMA 2010 Chartered Management Accounting Qualification Answers for Specimen Examination Paper F1 Published May 2010 (V2)
126
(W3)
(W4)
Cost of sales Trial balance Gain on disposal (W3) Depreciation property, plant and equipment (W2)
(W5)
(W6)
Taxation expense Year Last year under-estimate Reduction in deferred tax (see part (a))
(W7)
Interest due
Financial Operations
CIMA 2010 Chartered Management Accounting Qualification Answers for Specimen Examination Paper F1 Published May 2010 (V2)
Treatment of A in the P Group Consolidated Financial Statements Entities should be consolidated according to the requirements of International Financial Reporting Standards and not according to whether the entity makes a profit or loss during the year. P owns 40% of the equity shares in A and exercises significant influence over all aspects of As strategic and operational decisions. P does not control A as it only holds 40% of the shares/votes. P would need >50% of the equity shares to be able to exercise control over A. The argument that A does not need to be consolidated is partially correct, A cannot be consolidated as a subsidiary. Instead A will need to be consolidated as an associated entity using the equity method, as P exercises significant influence over all aspects of As strategic and operational decisions. Equity accounting recognises the post acquisition profits and losses of the associated entity and includes the group share instead of simply recording dividends received from the associated entity. To treat A as a simple investment at cost could be construed as unethical as it would not follow the requirements of international financial reporting standards. The CIMA Code of Ethics for Professional Accountants requires an accountant to have integrity. Integrity implies fair dealing and truthfulness. A professional accountant should not be associated with financial reports that they believe omits or obscures information required to be included where such omission or obscurity would be misleading. Treating A as an investment would obscure the full extent of Ps commitment to its associate and could therefore be unethical. We cannot therefore allow A to be treated as an investment.
Requirement (b)
Group holdings: P in S 40,000,000/40,000,000 = 100% Treat as wholly owned subsidiary P in A 8,000,000/20,000,000 = 40% Treat as an associate (i) Fair value of net assets of S at acquisition Equity Shares Retained earnings Fair value adjustment $000 40,000 6,400 1,000 47,400
The property has a useful life of 20 years, excess depreciation is therefore $1,000,000/20 = $50,000.
Financial Operations
CIMA 2010 Chartered Management Accounting Qualification Answers for Specimen Examination Paper F1 Published May 2010 (V2)
Consolidated retained profits Consolidated property, plant and equipment (ii) Goodwill - S Cost Fair value of net assets acquired (100%) Goodwill
Dr. $000 50
Cr. $000 50
(iii) Investment in associate -A Cost Add group share of post acquisition losses (7,800 21,000) x 40%= Investment at 31 March 2010 (iv) Current accounts P receives a cheque from S Cash and bank Current account with S Cancel current accounts on consolidation Current account with P Current account with S $000 13,000 (5,280) 7,720 Dr. $000 2,000 2,000 6,000 6,000 Cr. $000
(v) Intra-group trading Mark up on cost 33% = 25% margin on selling price. Selling price $4,000,000; unrealised profit = $4,000,000 x 25% = $1,000,000 Dr. Cr. $000 $000 Consolidated retained profits 1,000 Consolidated current assets inventory 1,000 (vi) Cancellation of loan to S Dr. $000 Loan to S Non-current liabilities Borrowings Loan interest Trade payables Trade receivables (vii) Consolidated Retained Earnings Balance P S group share of post acquisition profits (13,000 6,400) Associate A, group share of post acquisition profits (iii) Excess depreciation on fair value increase of property Cancel unrealised profit in inventory (v) $000 21,000 6,600 (5,280) (50) (1,000) 21,270 Financial Operations 10,000 250 250 Cr. $000 10,000
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CIMA 2010 Chartered Management Accounting Qualification Answers for Specimen Examination Paper F1 Published May 2010 (V2)
P Group - Consolidated Statement of Financial Position as at 31 March 2010 $000 Non-Current Assets Goodwill 12,600 Property, plant and equipment (40,000+48,000+1,000-50) 88,950 Investment in associate (iii) 7,720 109,270 Current Assets Inventory (8,000+12,000-1,000) 19,000 Trade receivables (17,000+11,000-250) 27,750 Cash and bank (1,000+3,000+2,000) 6,000 162,020 Equity and Reserves Ordinary Shares Retained Earnings (vii) Non-current liabilities Borrowings (26,000+10,000-10,000) Current Liabilities Trade payables (10,000+5,000-250) 26,000 14,750 162,020 100,000 21,270 121,270
Financial Operations
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