(International) December 2011
Time allowed Reading and planning: 15 minutes Writing: 3 hours
All FIVE questions are compulsory and MUST be attempted.
Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor. This question paper must not be removed from the examination hall.
Kaplan Publishing/Kaplan Financial
Paper F7 (INT)
PAPER F7 (INT) : FINANCIAL REPORTING
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K A P LA N P UB L I S H I N G
REVISION MOCK : QUESTIONS
All FIVE questions are compulsory and MUST be attempted
On 1 October 2009, Pedal acquired 75% of the equity share capital of Spoke in a share exchange of two shares in Pedal for three shares in Spoke. The issue of shares has not yet been recorded by Pedal. At the date of acquisition shares in Pedal had a market value of $6 each. Pedal also acquired 50% of Spoke’s 10% loan note at the acquisition date. Below are the summarised draft financial statements of both companies. Income statements for the year ended 31 March 2010 Pedal $000 170,000 (126,000) –––––––– 44,000 (4,000) (12,000) 200 (600) –––––––– 27,600 (9,400) –––––––– 18,200 –––––––– Spoke $000 84,000 (64,000) –––––– 20,000 (4,000) (6,400) nil (800) –––––– 8,800 (2,800) –––––– 6,000 ––––––
Revenue Cost of sales Gross profit Distribution costs Administrative expenses Investment income Finance costs Profit before tax Income tax expense Profit for the year Statements of financial position as at 31 March 2010 Assets Non-current assets Property, plant and equipment Investments Current assets Total assets Equity and liabilities Equity shares of $1 each Retained earnings
77,200 4,000 32,000 ––––––– 113,200 ––––––– 20,000 70,800 ––––––– 90,800 6,000 16,400 ––––––– 113,200 –––––––
25,200 13,200 –––––– 38,400 –––––– 8,000 13,000 –––––– 21,000 8,000 9,400 –––––– 38,400 ––––––
Non-current liabilities 10% loan notes Current liabilities Total equity and liabilities
PAPER F7 (INT) : FINANCIAL REPORTING
The following information is relevant: (i) At the date of acquisition, the fair values of Spoke’s assets were equal to their carrying amounts with the exception of an item of plant, which had a fair value of $4 million in excess of its carrying amount. It had a remaining life of five years at that date [straight-line depreciation is used]. Spoke has not adjusted the carrying amount of its plant as a result of the fair value exercise. In the post acquisition period Spoke sold goods to Pedal for $10 million. Spoke made a profit of $4 million on these sales. One quarter of these goods were still in the inventory of Pedal at 31 March 2010. Other than where indicated, income statement items are deemed to accrue evenly on a time basis. The current accounts of the two companies were reconciled at the year-end with Pedal owing Spoke $800,000....