Economic Risk

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UNIVERSITY OF ESSEX

SECOND YEAR EXAMINATION 2011

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BE110 FINANCIAL REPORTING AND ANALYSIS

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Time allowed: 3 hours

The paper consists of EIGHT questions.

FOUR in Section A
FOUR in Section B

Candidates must answer FOUR questions.

At least TWO questions from Section A
At least ONE question from Section B

All questions carry equal weight.

Candidates are permitted to bring into the examination room: Calculators (hand held, containing no textual information)

Please do not leave your seat unless you are given permission by an invigilator. Do not communicate in any way with any other candidate in the examination room. Do not open the question paper until told to do so.

All answers must be written in the answer book(s) provided.
All rough work must be written in the answer book(s) provided. A line should be drawn through any rough work to indicate to the examiner that it is not part of the work to be marked. At the end of the examination, remain seated until your answer book(s) have been collected and you have been told you may leave.

SECTION A – Candidates must answer at least two questions

QUESTION 1:
Maytix Limited purchases an item of equipment for £1m in August 2006. The expected useful life of the asset is 10 years, and Maytix applies straight-line depreciation to all plant and equipment, charging a full year’s depreciation on all assets held at the year-end (31 March). Capital Allowances can be claimed on the equipment at 25% pa on the reducing balance method, and a full year’s allowance against taxable profits of an accounting year can be claimed on any equipment purchased during that year.

Rates of Corporation Tax applicable to Maytix are:

YE 31 March 2007CT Rate of 31%
YE 31 March 2008CT Rate of 30%
YE 31 March 2009CT Rate of 30%
YE 31 March 2010CT Rate of 29%
YE 31 March 2011CT Rate of 29%

Required

1. Assuming that Maytix Limited claims all Capital Allowances in full, calculate the deferred tax provision for each of the financial years, 2007 – 2011, given the corporation Tax rates shown, using both the liability method and the deferral method. All workings must be shown in full. (15 marks)

2. Using T accounts show the movement in the Deferred Tax A/C under these two methods. (5 marks)

3. What is the conceptual difference between these two methods? (5 marks)

[TOTAL 25 MARKS]

END OF QUESTION ONE
QUESTION 2:

On 1 January 2011 Portman plc acquired 80% of the ordinary shares of Kidman plc for £42,200, 20% of the preferred shares for £4,000 and 10% of the bonds for £1,800, and gained control. The retained earnings of Kidman plc as at 1 January 2011 were £8,000. The fair value of the land in Kidman plc was £2,000 above book value.

During the year, Portman plc sold some of its inventory to Kidman plc for £6,000, which represented cost plus a mark-up of 25%. Half of these goods were still in the inventory of Kidman plc at 31 December 2011.

The statements of financial position of the two companies as at 31 December 2011 were as follows:

Continued on Next Page...................

Required:

Prepare a consolidated statement of financial position for the Portman Group as at 31 December 2011. Note that depreciation is not charged on land. Use method 1 to compute non-controlling interest. All workings should be clearly shown.

[25 marks]

END OF QUESTION TWO

QUESTION 3:

The statements of financial position of XYZ plc as at 31 October 2011 and 31 October...
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