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Adam Smith Business School
Subject of Accounting and Finance
Degree of MAcc
In-Course Exam
International Financial Accounting for Multinational Corporations, ACCFIN5024
Mon 28 November 2022, 09:30 – Tue 29 November 2022, 09:30
Exam duration: 2 hours
How to complete this exam:
Students should answer ALL THREE questions.
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For this exam, the required number of questions is THREE.
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You are required to answer all three questions.
Question 1
The following information has been extracted from the draft financial statements of Delta ltd,
a manufacturing entity:
Statement of profit or loss for the year ended 30
September 2022
￡000
Revenue 55,785.000
Cost of sales -29,863.570
Gross Profit 25,921.430
Loss on disposal of plant -3,607.430
Other operating expenses -8,553.700
13,760.300
Finance cost -461.156
profit before tax 13,299.144
income tax expense -3,867.760
dividend -4,090.900
retained earnings 5,340.484
Statements of financial position at 30
September
2022
￡000
2021
￡000
Assets
Non-current assets 67,537.040 53,925.500
Current assets
Inventories 5,950.400 4,090.900
Trade receivables 5,578.500 2,975.200
Bank 557.850 4,462.800
79,623.790 65,454.400
Equity and liabilities
Share capital 40,291.646 29,063.985
Retained earnings 21,704.084 16,363.600
Non-current liabilities
Long-term borrowings 6,322.300 10,785.100
Current liabilities
Trade payables 2,447.300 2,819.200
Dividend payables 2,759.300 2,387.400
Tax payables 6,099.160 4,035.115
Total equity and liabilities 79,623.790 65,454.400
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Notes ￡000 Property Plant Total
Non-current assets
At 30 September 2021
Cost 31,239.600 40,165.200 71,404.800
Accumulated Depreciation 4,834.700 12,644.600 17,479.300
Net book value 26,404.900 27,520.600 53,925.500
At 30 September 2022
Cost 41,652.800 49,834.600 91,487.400
Accumulated Depreciation 5,727.260 18,223.100 23,950.360
Net book value 35,925.540 31,611.500 67,537.040
1. Plant disposed of during the year had an original cost of ￡9,669,400 and
accumulated depreciation of ￡3,347,100; cash received on disposal was
￡2,714,870.
2. All additions to non-current assets were purchased for cash.
3. Dividends were declared before the reporting dates.
Required:
1. Prepare Delta’s statement of cash flows for the year ended 30 September 2022, in
accordance with IAS 7 Statements of Cash Flows. (20%). You should prepare the
cash flows for operating activities using the Direct Method.
2. Write at least a 500-word evaluation of the operating, financing, and investing
activities of Delta ltd. (15%)
(Question total: 35%)
Question 2
Dendro plc acquired 60% of Cryo ltd and 80% of Hydro ltd and 30% of Pyro ltd on 1 July
2021. Summary financial statements for each company are shown below.
Statement of comprehensive income for the period ending 30 June
2022
Dendro Cryo Hydro Pyro
￡000 ￡000 ￡000 ￡000
Revenue 160,809.000 109,642.500 51,166.500 65,431.000
Cost of sales -109,642.500 -91,368.750 -43,857.000 -47,890.000
Gross Profit 51,166.500 18,273.750 7,309.500 17,541.000
Distribution costs -25,583.250 -5,482.125 -1,461.900 -3,278.000
Administration costs -12,791.625 -6,213.075 -1,096.425 -4,567.200
Finance costs -3,289.275 -1,827.375 -365.475 -467.235
Profit before tax 9,502.350 4,751.175 4,385.700 9,228.565
Taxation -4,385.700 -2,923.800 -1,827.375 -5,845.715
Profit for the year 5,116.650 1,827.375 2,558.325 3,382.850
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Statement of financial position as at 30 June 2022
Dendro Cryo Hydro Pyro
￡000 ￡000 ￡000 ￡000
ASSETS
Non-current assets
Property, plant and
equipment
18,273.750 10,964.250 8,771.400 9,170.000
Investment in Cryo (at cost) 8,040.450 – – –
Investment in Hydro (at
cost)
5,482.125 – – –
Investment in Pyro (at cost) 2,801.000 – – –
34,597.325 10,964.250 8,771.400 9,170.000
Current assets
Inventory 4,020.225 2,923.800 2,412.135 5,240.000
Accounts receivables 2,923.800 1,827.375 1,315.710 2,620.000
Bank 1,096.425 – – 1,048.000
8,040.450 4,751.175 3,727.845 8,908.000
Total assets 42,637.775 15,715.425 12,499.245 18,078.000
Equity and liabilities
Equity
Ordinary share capital (￡1
shares)
21,074.750 6,578.550 5,116.650 6,170.000
Reserves
Revaluation 730.950 – – –
Retained earnings 7,674.975 4,751.175 3,289.275 6,026.000
29,480.675 11,329.725 8,405.925 12,196.000
Non-current liabilities
Loans 8,917.590 1,827.375 2,192.850 524.000
Current liabilities
Accounts payable 3,654.750 1,461.900 1,281.599 4,572.000
Tax payable 584.760 365.475 107.206 786.000
Bank overdraft – 730.950 511.665 –
13,157.100 4,385.700 4,093.320 5,882.000
Total equity and liabilities 42,637.775 15,715.425 12,499.245 18,078.000
Additional information:
? The fair value of land owned by Cryo ltd was ￡3m in excess of the carrying value in
Cryo’s statement of financial position at the date of acquisition.
? At acquisition the brand value of Hydro ltd was estimated to be ￡600,000 and deemed
to have an indefinite useful life.
? At 30 June 2022 goodwill relating to the acquisition of Cryo is considered impaired by
20%.
? Inter-group sales from Dendro plc to Hydro ltd were ￡5m during the year ending 30
June 2022 with a net margin of 15%. At 30 June 2022 ￡2m of inter-group sales (at the
selling price from Dendro plc to Hydro ltd) were still in Hydro ltd’s inventory.
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? No dividends were paid during the year by any of the companies and their share capital
remained unchanged since 1 July 2021.
? Non-controlling interests in any subsidiaries are to be measured at the appropriate
proportion of the subsidiaries’ identifiable net assets.
Required:
1. Explain the nature of the relationship between Dendro plc, Cryo ltd, Hydro ltd and
Pyro ltd, and the associated accounting treatment, referring to relevant IFRS.
2. Prepare the consolidated statement of financial position for the Dendro plc group as
at 30 June 2022.
(Question total: 30%)
Question 3
You should address both issues in this question.
Issue 1
Frontier Ltd. is a company that provides holistic proofreading, editing and advisory services
for clients. It enters into a 3-year contract with client Sapphire with the following clauses:
? Frontier will provide holistic proofreading and advisory activities for Sapphire,
including monthly writing analysis and advice and yearly progress report.
? Monthly advice and annual progress reports are based on the editing and
proofreading services provided by Frontier’s team.
? The annual fee is ￡34,400 per year, consisting of ￡31,200 per year for up to 156,000
characters, ￡100 per month for monthly analysis and advice and ￡2,000 for the
annual progress report.
? Frontier is entitled to 50p per character in excess of 156,000 characters per year.
? Frontier is entitled to an annual bonus payment of ￡10,000 if the average processing
time of one chapter of 3,000 characters is less than three days in the particular year.
Based on Sapphire’s historical writing activities, it is estimated that the number of characters
produced is 140,000 in the first year, 156,000 in the second year and 160,000 in the third
year. Based on past working patterns, Frontier assumes that the probability of processing
time of 3,000 characters in less than three days is 20%.
Issue 2
On 1 October 2019, Nebula ltd purchased an electronics manufacturing equipment. The
purchase price was ￡356,000 and was offered a 16% discount. They also incurred the
following expenditures:
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Expenditures ￡
Delivery and handling fees 19,400
Import Duties 13,230
Non-refundable local taxes 17,530
Installation fees 34,000
Salary of officer who supervised the installation process 16,000
Legal fees for building permits 32,000
Invoice for training of 3 mechanics to use this equipment 27,000
A spare part with a useful life of five years 60,000
The present value of the estimated dismantling and site
restoration fees
67,000
? The estimated residual value of this machinery is ￡36,000 and the estimated useful
life is 10 years. The straight-line method is adopted to calculate depreciation.
? On 30 September 2021, Nebula ltd hired valuers to assess the fair value of the
machinery and the valuation price was ￡420,000; the residual value remained the
same but the remaining number of years of useful life was extended to 10 years.
? On 30 September 2022, another valuation took place and the valuation amount for
this machinery was ￡367,000. The residual value and the useful life were not
adjusted.
Required:
1. Issue 1: identify performance obligations (POs) in the contract AND determine the
transaction price; provide detailed workings and explanations with reference to relevant
international accounting standard.
2. Issue 2: For the machinery, calculate how much needs to be recognised in the initial
recognition of the cost, fully explaining your reasons for your workings; Your
explanation should reference and relate to the relevant international accounting
standard.
3. Issue 2: For the machinery, calculate and explain how the above changes of value
should be reflected in the financial statements of 2021 and 2022 under the revaluation
model; Again, your explanation should refer to relevant accounting standards.
(Question total: 35%)
(Exam total 100%)
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