ACCA paper f 7 financial reporting F7FR(Int) MT1B qs d08

Monitoring Test MT1B Financial Reporting F7FR-MT1B-Z08-Q Time allowed 1.5 hours All THREE questions are compulsory and MUST be attempted.. Statements of financial position and statem

Monitoring Test MT1B

Financial

Reporting

F7FR-MT1B-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

INTERNATIONAL

1 Orange Inc has one subsidiary undertaking, Apple Inc (its only investment) It acquired

75,000 of Apple’s $1 ordinary shares on 1 January 2004 for $122,500 At that date the

balance on Apple’s retained earnings was $30,000

Statements of financial position and statements of comprehensive income for the two companies for the year ended 31 December 2007 are given below

Statements of financial position as at 31 December 2007

$ $ $ $ NON CURRENT ASSETS

CURRENT ASSETS

97,000

EQUITY AND LIABILITIES

Liabilities: amounts falling due

within one year

28,500

Statements of comprehensive income for the year ended 31 December 2007

$ $

––––––– (271,000) –––––––

––––––– (27,000) –––––––

––––––– ––––––– 2,000

––––––– (21,000) –––––––

Extract from SOCIE

Dividends

––––––– (20,000) –––––––

Additional information

(i) Non-controlling interest is valued at their proportionate share of the identifiable net

assets on acquisition, they are not credited with goodwill

(ii) The value of goodwill on the following dates is

(iii) During the year Apple sold goods to Orange for $120,000 Apple sells all goods at

a mark-up of 25% At 31 December 2007 Orange’s inventory included $12,000 of these goods

(iv) For the purposes of calculating the original amount paid for the shares of Apple Inc,

Orange valued Apple’s net assets at $150,000 No adjustment was made in the books of Apple’s books to reflect this valuation which was due to land (included in tangible non current assets) being worth more than its book value

(v) Orange Inc has not yet accrued for its share of Apple’s proposed dividend The

dividends were proposed prior to the financial year end

Required:

Prepare the consolidated statement of financial position and statement of comprehensive income of Orange Inc for the year ended 31 December 2007 Notes to the accounts are not required

(20 marks)

2 Carlisle Inc carried out work on 4 construction contracts during the financial year to 30

September 2008 Details of the four projects are set out below:

Estimated future costs 450,000 240,000 88,000 672,000

Payments on account 130,000 650,000 765,000 20,000

Revenues recognised in

Costs recognised

Profits recognised

Required:

Calculate the amounts to be included in the financial statements of Carlisle Inc for the year ended 30 September 2008, preparing all relevant extracts of the financial statements but excluding accounting policy notes The directors do not recognise profits until the contracts are 5% complete and it is the accounting policy to calculate percentage completion on a cost basis

(20 marks)

3 Orlick needs to re-fit one of its production plants with new machinery The machinery would

cost $2·4 million to buy and would have an expected useful economic life of six years As an alternative to outright purchase the machines could be leased on a four-year lease with payments of $760,000 annually in arrears At the end of the four-year period Orlick has the option to continue to lease the machinery for a further two years for an annual rental of $1, payable in arrears Orlick is responsible for the repair and maintenance of the machinery throughout the primary and secondary rental period At the end of six years the machinery is likely to have a negligible residual value

Required:

(3 marks)

(excluding cash) that would appear in the statement of comprehensive income and the statement of financial position for the first year of the lease Assume that the lease commenced on the first day of the accounting period and that all payments in arrears have been made by the end of the reporting period Where relevant, you should refer to appropriate international financial reporting standards Assume, where necessary, an annual finance cost of 10%

(7 marks)

(10 marks)

End of Question Paper