F2 – Financial Management
Instructions to candidates
You are allowed three hours to answer this question paper. You are allowed 20 minutes reading time before the examination begins during which you should read the question paper and, if you wish, highlight and/or make notes on the question paper. However, you will not be allowed, under any circumstances, to open the answer book and start writing or use your calculator during this reading time. You are strongly advised to carefully read ALL the question requirements before attempting the question concerned (that is all parts and/or subquestions). ALL answers must be written in the answer book. Answers written on the question paper will not be submitted for marking. You should show all workings as marks are available for the method you use. ALL QUESTIONS ARE COMPULSORY. Section A comprises 5 questions and is on pages 2 to 7. Section B comprises 2 questions and is on pages 8 to 11. Maths tables and formulae are provided on pages 13 to 15. The list of verbs as published in the syllabus is given for reference on page 19. Write your candidate number, the paper number and examination subject title in the spaces provided on the front of the answer book. Also write your contact ID and name in the space provided in the right hand margin and seal to close. Tick the appropriate boxes on the front of the answer book to indicate the questions you have answered.
The Chartered Institute of Management Accountants 2011
F2 – Financial Management
4 March 2011 – Friday
SECTION A – 50 MARKS
[You are advised to spend no longer than 18 minutes on each question in this section.]
ANSWER ALL FIVE QUESTIONS IN THIS SECTION
The income statements for KL, LM and NP for the year ended 31 December 2010 are shown below. KL $000 4,000 (2,300) 1,700 (900) (350) 70 520 (250) 270 LM $000 1,500 (1,000) 500 (120) (150) 230 (80) 150 NP $000 1,200 (800) 400 (80) (100) 220 (100) 120
Revenue Cost of sales Gross profit Distribution costs Administrative expenses Other income Profit before tax Income tax expense Profit for the year
Additional information 1. KL acquired 70% of the ordinary share capital of LM on 1 January 2009 for $8,200,000. At the date of acquisition the net assets of LM were assessed to have a fair value of $10,000,000. The only fair value adjustment required on acquisition related to depreciable assets (see note2 below). The group policy is to value non-controlling interest at fair value at the date of acquisition. The fair value of the non-controlling interest at the date of acquisition was $2,200,000. At the date of acquisition, depreciable assets of LM with a remaining useful life at that date of 6 years had a fair value of $240,000 more than their book value. The group policy is to depreciate non-current assets on a straight line basis over their remaining economic useful life. Depreciation is charged to administrative expenses. No impairment of goodwill arose in the year ended 31 December 2009, however an impairment review conducted on 31 December 2010 showed goodwill being impaired by 15%. Impairment losses are charged to administrative expenses. KL acquired 40% of the ordinary share capital of NP on 1 October 2010. KL is now able to exercise significant influence over the operating and financial policies of NP. During the year to 31 December 2010, KL and LM paid ordinary dividends of $300,000 and $100,000 respectively. Income from investments is included within other income. LM sold goods to KL on 1 November 2010 with a sales value of $140,000. Half of these goods remain in KL’s inventories at the year end. LM makes 20% profit margin on all sales.
4. 5. 6.
Prepare the consolidated income statement for the KL Group for the year ended 31 December 2010. (Round all workings to the nearest $000)
(Total for Question One = 10 marks)