Answers

ACCA Certied Accounting Technician Examination Paper T6 (INT) Drafting Financial Statements (International Stream) Section A 1 C = (90,000/2) + (90,000/3) = 75,000

December 2009 Answers and Marking Scheme

= Share capital = 3,000,000 (1,500 + 750 + 750) Share Premium = 2,100,000 (2,100 + 750 750)

C n (n + 1) 2 Depreciation in the second year is 3/10 of the depreciable amount: = $80,000 x 3/10 = $24,000 Sum of the digits

= (250,000 + 380,000 150,000) (520,000 x 80%) = 64,000

B Haslam $ (2,000) 25,000 (5,000) 18,000

Opening balance Prot share (50,000/2) Drawings Closing current account balance

10 B

= 107,000 + ((857,000 107,000) x 5%) 109,000) = 35,500

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Section B Marks 1 (a) Goodwill on acquisition of Martin Consideration transferred NCI ((23,150 18,520) x $16 Assets at acquisition Share capital Retained earnings $000 $000 34,000 7,408 10 10

23,150 5,338

(28,488) 12,920

10 30

(b)

(i)

Bradshaw Consolidated income statement for the year ended 31 October 2009 05 Revenue Cost of sales Gross prot Distribution costs Administrative expenses Finance costs Prot before tax Income tax expense PROFIT FOR THE YEAR Prot attributable to: Owners of the parent Non-controlling interest $000 187,900 (91,000) 96,900 (14,800) (27,280) (5) 54,815 (30,100) 24,715 22,575 2,140 24,715 Workings ($000) 15 125,000 + 77,900 15,000 25 65,000 + 38,500 15,000 + 2,500* 05 05 10 (20 15) 05 10 10 10 20 (20% x 10,700) 120

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Marks Workings ($000) (ii) Bradshaw Consolidated statement of nancial position as at 31 October 2009 ASSETS Non-current assets Property, plant and equipment Intangible goodwill Current assets Inventory, at cost Receivables Cash and cash equivalents Total assets EQUITY AND LIABILITY Capital and Reserves $1 Ordinary shares Retained earnings Non-controlling interest Total equity Non-current liabilities 10% Loan note Current liabilities Payables Tax Total current liabilities Total equity and liabilities $000 $000 106,901 12,920 119,821 11,412 25,435 4,405 10 10 05

41,252 161,073

15 (9,750 + 4,162 2,500*) 25 (17,125 + 11,325 3,000** 15***) 05 05

77,000 36,222 113,222 8,248 121,470 50 23,098 16,455 39,553 161,073

10 40 W1 25 W2

10 (200 150) 25 (16,613 + 9,500 3,000** 15***) 10

05 200

Notes: * Exclusion of unrealised prot held in inventory ($2,500,000), ** Intracompany indebtedness ($3,000,000), *** Exclusion of intragroup interest ($15,000) Workings W1 Retained earnings as at 31 October 2009 $000 Bradshaw as per statement of nancial position Less unrealised prot Martin : Retained earnings Pre-acquisition reserves Group share (80% x $4,200,000) $000 35,362 (2,500) 9,538 (5,338) 4,200 3,360 36,222 7,408 840 8,248 25 40 10 15 25 05 10

W2 Non-controlling interest NCI at acquisition date Share of post-acquisition prot ((9,538 5,338) x 20%)

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Marks 2 (a) Prepared in accordance with IAS7 Blanchard Statement of cash ows for the year ended 31 October 2009 $000 Cash ows from operating activities Net prot before tax Adjustments for: Depreciation Interest received Interest paid Prot on equipment disposal Operating prot before working capital changes Increase in inventory Decrease in receivables Increase in payables Cash generated from operations Interest paid Tax paid (W2) Net cash from operating activities Cash ows from investing activities Purchase of property, plant and equipment (W1) Proceeds from sale of equipment Interest received Net cash used in investing activities Cash ows from nancing activities Proceeds from issue of share capital Repayment of long term borrowing Net cash used in nancing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of period Cash and cash equivalents at end of period 1,398 654 (16) 227 (20) 2,243 (992) 700 149 2,100 (227) (477) 1,396 (2,591) 219 16 (2,356) 1,575 (598) 977 17 153 170 $000 10 10 05 05 10 05 05 05 05 05 05 20 05 30 10 05 05 10 10 05 10 10 05 200 05

Examiners note IAS 7 allows interest paid to be an operating cash ow or a nancing cash ow. Interest received can be an operating cash ow or an investing cash ow. Workings (all in $000): W1 Additions of non-current assets: Opening net book value Disposals (219 20) Depreciation 11,718 (199) (654) or B/forward Revaluation Addns (bal) Non-current assets NBV 11,718 960 2,591 15,269 Disposals Deprtion C/f 99 654 14,416 15,269

Revaluation (2,130 1,170) 960 11,825 Additions (Balancing gure) 2,591 Closing net book value 14,416 W2 Taxation Bal b/f Income statement Tax paid Closing balance 370 450 477 343 or Paid C/f

Taxation 477 343 820 B/f Income Stmt 370 450 820

Note: the entries in italics in these t-accounts are the balancing gures.

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(b)

Comments might include: There has been a net increase in cash ows to Blanchard of $17,000. Long-term borrowing of $598,000 has been repaid. This will reduce future interest payments. Additional shares have been issued during the year raising $1,575,000. Additional non-current assets were purchased costing $2,591,000. These assets should improve operational efciency and therefore generate more positive cash ows in the future. It suggests that the business may be expanding. The purchase of the non-current assets is likely to have been partly nanced by the share issue and the general increase in operating cash. The use of shares to nance the purchase suggests good matching of long-term nance against long-term assets. There have been no dividend payments during the year, even though cash ow was positive, so funds have been reinvested in the business. There was an increase in inventory during the year costing $992,000. This might indicate poor inventory control or the expansion of business activity. There appears to be effective management of receivables as these have decreased, resulting in a net positive cash inow of $700,000. Payables have increased by $149,000. This is clearly linked to the increase in the level of inventory being purchased. Marking Scheme: 1 mark for each relevant comment up to a maximum of 5 marks.

(a)

Over the last three years sales revenue has increased by $135,000 (or 122%) from $110,000 to $245,000. However, the gross prot has only increased by $25,000 (or 35.7%). This relative decline in protability may be due to supplier costs increasing (275% during the period) or increased competition in the market forcing down the margin on selling prices or a relative increase in sales of lower gross prot margin items. The prot for the year has remained the same each year and therefore declined as a proportion of sales, due to an increase in the costs of distribution and administration. This might indicate that costs are not being carefully controlled. Alternatively it may also indicate an increase in competition in the market and that more money is being spent on marketing and perhaps servicing new markets further away. Prot for the periods has remained constant at $55,000. Most of the prot has been paid out as dividends meaning that the investment in new non-current assets has come from Beechs cash reserve. This may create cash ow difculties in the future for the business. Inventory has increased as a proportion of revenue over the period which might suggest poor inventory management or a slowing of inventory turnover. Cash and cash equivalents have reduced dramatically and this strongly suggests there may be liquidity problems. Payables appear to be carefully controlled. They have grown steadily over the period, but reduced as a percentage of cost of sales. The company pays out almost all of its prot made as dividend leaving very little for reinvestment. There is a good chance the company may need to utilise its overdraft if it chooses to maintain such a dividend policy. Marking scheme 1 mark for identifying and commenting on a key trend. 7 marks maximum.

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Marks (b) (i) Gross prot percentage Gross Prot Revenue x 100 95 245 63 370 35 45 35 150 35 245 55 350 x 100 = 388% 15

(ii)

Return on capital employed

Prot before interest & tax x 100 Capital and Reserves Current assets inventory :1 Current liabilities Average inventory Cost of sales Average receivables Revenue Prot for the period Ordinary share capital x 365

x 100 =

170%

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(iii) Quick/Acid test ratio

:1

078:1

15

(iv) Inventory turnover period (days)

x 365 =

852 Days

15

(v)

Receivables collection period

x 365

x 365 =

521 Days

15

(vi) Earnings per share

157 Cents

15 90

(c)

Further useful information: The nature of the business and type of market The statement of cash ow Forecast nancial statements Comparative industry ratios The companys accounting policies Product mix of goods sold including relative prot margins Company access to bank overdraft facilities Marking Scheme 1 mark for each item up to 4 marks

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