Acca F7 Answers

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Fundamentals Pilot Paper – Skills module

Financial Reporting (International)

Time allowed Reading and planning: Writing:

15 minutes 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.

The Association of Chartered Certified Accountants

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Paper F7 (INT)

ALL FIVE questions are compulsory and MUST be attempted

1

On 1 October 2005 Pumice acquired the following non-current investments: – 80% of the equity share capital of Silverton at a cost of $13.6 million – 50% of Silverton’s 10% loan notes at par – 1.6 million equity shares in Amok at a cost of $6.25 each. The summarised draft balance sheets of the three companies at 31 March 2006 are:

Non-current assets Property, plant and equipment Investments Current assets Total assets Equity and liabilities Equity Equity shares of $1 each Retained earnings Non-current liabilities 8% loan note 10% loan note Current liabilities Total equity and liabilities The following information is relevant: (i)

Pumice ilvertonAmok S $’000 $’000 $’000 20,000 26,000 46,000 15,000 61,000 8,500 nil 8,500 8,000 16,500 16,500 1,500 18,000 11,000 29,000

10,000 37,000 47,000 4,000 nil 10,000 61,000

3,000 8,000 11,000 nil 2,000 3,500 16,500

4,000 20,000 24,000 nil nil 5,000 29,000

(ii)

(iii) (iv) (v)

The fair values of Silverton’s assets were equal to their carrying amounts with the exception of land and plant. Silverton’s land had a fair value of $400,000 in excess of its carrying amount and plant had a fair value of $1.6 million in excess of its carrying amount. The plant had a remaining life of four years (straight-line depreciation) at the date of acquisition. In the post acquisition period Pumice sold goods to Silverton at a price of $6 million. These goods had cost Pumice $4 million. Half of these goods were still in the inventory of Silverton at 31 March 2006. Silverton had a balance of $1.5 million owing to Pumice at 31 March 2006 which agreed with Pumice’s records. The net profit after tax for the year ended 31 March 2006 was $2 million for Silverton and $8 million for Amok. Assume profits accrued evenly throughout the year. An impairment test at 31 March 2006 concluded that consolidated goodwill was impaired by $400,000 and the investment in Amok was impaired by $200,000. No dividends were paid during the year by any of the companies.

Required: (a) Discuss how the investments purchased by Pumice on 1 October 2005 should be treated in its consolidated financial statements. (5 marks) (b) Prepare the consolidated balance sheet for Pumice as at 31 March 2006. (20 marks) (25 marks)



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2

The following trial balance relates to Kala, a publicly listed company, at 31 March 2006: Land and buildings at cost (note (i)) Plant – at cost (note (i)) Investment properties – valuation at 1 April 2005 (note (i)) Purchases Operating expenses Loan interest paid Rental of leased plant (note (ii)) Dividends paid Inventory at 1 April 2005 Trade receivables Revenue Income from investment property Equity shares of $1 each fully paid Retained earnings at 1 April 2005 8% (actual and effective) loan note (note (iii)) Accumulated depreciation at 1 April 2005 – buildings – plant Trade payables Deferred tax Bank $’000 270,000 156,000 90,000 78,200 15,500 2,000 22,000 15,000 37,800 53,200 $’000

278,400 4,500 150,000 119,500 50,000 60,000 26,000 33,400 12,500 5,400 739,700 739,700

The following notes are relevant: (i) The land and buildings were purchased on 1 April 1990. The cost of...
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