F7 Mock Exam Questions

Question 1

Hyflux Ltd acquired 2.4 million shares of Sunny Ltd on 1 Oct 2009, by issuing two of its own shares
for every three shares in Sunny Ltd and a deferred payment of $1.00 for every eight Sunny Ltd shares
payable on 1 Oct 20011. Hyflux Ltd’s share was trading at a market price of $2.00 on 1 Oct 2009; the
present value of the cash consideration is equal to $0.80 at a discount rate of 12% per annum. The
deferred cash consideration has not been recorded as part of the investment.

The following profit statements have been prepared for Hyflux Ltd and Sunny Ltd for the year ended
31 Dec 2009.

Hyflux Ltd Sunny Ltd

$‘000 $‘000
Sales 700 300
Cost of sales (306) (188)
____ ____
Gross profit 394 112
Operating expenses (27) (20)
Finance costs (15) (12)
____ ____
Profit before tax 352 80
Taxation (92) (24)
_____ _____
Profit after tax 260 56
Dividends (100) 0
_____ _____
Retained profit for the year 160 56
______ _____

Balance Sheet
As at 31 Dec 2009

Hyflux Ltd Sunny Ltd

$‘000 $‘000 $‘000 $‘000

Assets
Non Current Assets
Property, plant and equipment 3,100 3,000
Investments 3,300 30
____ ____
6,400 3,030

Current assets
Stock 1,200 500
Debtors 1,300 240
Bank and cash 800 105
____ ____
Total assets 9,700 3,875
____ ____
F7 Mock Exam Questions

Equity and liabilities

Equity shares 6,000 3,000
Accumulated profits 620 340
______ _____
6,620 3,340
Non current liabilities
10% loan 2,000 300

Current liabilities
Creditors 980 235
Dividend payable 100 0
_____ _____
Total equity and liabilities 9,700 3,875
______ ______

Notes

i) Hyflux Ltd made sales of $30,000 to Sunny Ltd during the year. These goods originally cost
Hyflux Ltd $20,000.Only 50% of these goods had been resold by Sunny Ltd by 31 Dec 2009.

ii) Inter company balance were:

Owed to Sunny in Hyflux’s book 30
Receivable from Hyflux in Sunny’s book 50
The difference is due to a cash in transit, not yet received by Sunny Ltd

iii) The fair value of a plant in Sunny Ltd was $160,000 higher than the book value at the date of
acquisition, it has a four years remaining life with straight line depreciation.

iv) It is estimated that the consolidated goodwill is valued at $600,000 on 31 Dec 2009 following
the FRS 103 requirement.

v) There are currently 3 million shares in Sunny Ltd.

Required

a) Prepare a consolidated Income Statement for Hyflux Ltd for the year ended 31 Dec 2009.
(11 marks)

b) Prepare a consolidated statement of financial position for Hyflux Ltd as at 31 Dec 2009.
(14 marks)
F7 Mock Exam Questions

Question 2

The trial balance of Baka Ltd, a publicly listed company, at 31 March 2009 is as follows:

$000 $000
Investment property 2,000
Building 8,000
Plant and equipment – at cost 3,250
Accumulated depreciation 1 April 2008
- building 3,200
- plant 2,200
Accumulated profits 1 April 2008 3,050
Sales revenues 27,080
Purchases 17,000
Construction contract costs to 31 March 2008 1,600
Construction contract progress billings received 1,500
Trade Debtors 7,520
Inventory 1,700
Cash in bank 3,170
10% preference share 1,200
Trade creditors 3,340
Equity shares 4,000
6% Loan Note (issued in 2006) 2,000
Property rental 110
Distribution cost 340
Interim dividend 2,000
Administration expenses 1,000
Loan interest paid 100
_______ ______
47,680 47,680
_______ ______

The following notes are relevant:

i) On 31 March 2009, the company’s only remaining building was revalued at $6 million. The
building had an estimated life of 25 years when it was acquired on 1 April 1998 and this has
not changed as a result of the revaluation. The directors of Angelo wish to incorporate this
value in the financial statements for the year ended 31 March 2009.
Plant is depreciated at 20% per annum on net book value.

ii) The investment property was revaluated at $1.7 million on 31 Mar 2009.

iii) Included in the sales revenue is an amount of $1 million relating to sales made under a sales or
return basis. These goods were subsequently returned in good condition after 31 Mar 2009.
These goods were sold at a mark up of 25%.
F7 Mock Exam Questions

iv) The figures in respect of contract balances relate to a three-year contract entered into on 1 July
2008. Details relating to this contract are:
$000
Contract price 10,000
Estimated total contract costs 6,000
Agreed value of work completed and billed at 31 March 2009 3,000

Baka Ltd’s policy is to recognise profits on long-term construction contracts from the point that
they become more than 20% complete. The percentage of completion is deemed to be the
agreed value of the work completed to date as a percentage of the total contract price. Contract
revenue is taken as the agreed value of the work completed to date.

v) A provision for income tax for the year to 31 March 2009 of $400,000 is required. The
directors declared a final dividend of 7c per share for 20 million ordinary shares in issue on 25
March 2009.

vi) Closing Inventory as at 31 March 2009 was stated at a cost of $3.1 million.

Required :

a) Prepare the statement of comprehensive income for Baka Ltd for the year ended 31 March
2009.
(10 marks)

b) Prepare the statement of changes in equity and

(5 marks)

c) The statement of financial position for Baka Ltd as at 31 March 2009.

(10 marks)
F7 Mock Exam Questions

Question 3

Allion Ltd has provided you with the balance sheets and some information for the years to 31 May
2008 and 2009.

Allion Ltd
Balance Sheet as at

31 May 2009 31 May 2008

$000 $000 $000 $000

Non current assets

Property, plant and equipment 1,320 1,120
Computer software 200 100
1,520 1,220

Current Assets
Stock 520 530
Debtors 797 584
Investments – Government securities 50 180
Cash nil 1,367 135 1,429
Total assets 2,887 2,649

Equity and Liabilities

Capital and Reserves

Equity Shares of $1 each 500 400
Reserves
Share premium 140 80
Accumulated profits 994 1,134 972 1,052
1,634 1,452

Non-current liabilities
Finance lease obligation 280 60
Deferred tax 12 92
Plant maintenance provision nil 292 80 232

Current liabilities
Creditors 600 602
Bank overdraft 108 nil
Unpaid dividends declared 100 120
Taxation 83 213
Finance lease obligations 70 961 30 965
2,887 2,649
F7 Mock Exam Questions

The income statement for the year ended 31 Mar 2009 shows the following:
$000
Net profit before tax 203
Income tax expenses (41)
____
Net profit after tax 162
Dividend (140)
_____
Retained profit 22
_____

The following supporting information is available:

i) Details relating to the non-current assets are (in $000s):

31 May 2009 31 May 2008

Cost Depreciation NBV Cost Depreciation NBV

Freehold land and buildings nil nil nil 700 120 580
Leasehold land and buildings 500 20 480 nil nil nil
Purchased plant 580 250 330 620 200 420
Plant on finance lease 650 140 510 150 30 120
1,320 1,120

On 1 April Allion Ltd sold its freehold property for $700,000.

The total amount of payments made in the year to 31 March 2009 in respect of finance leases was
$275,000, of which $35,000 was for interest. Interest expense on bank overdraft was $10,000.

During the same period ‘purchased’ plant which had originally cost $190,000 was sold for $75,000
giving a profit of $14,000.

ii) The plant maintenance provision was released in the income statement in the year to 31 March
2009 as such provisions are no longer permitted under the rules in FRS 37 ‘Provisions,
Contingent Liabilities and Contingent Assets’.

iii) The total tax charge (including deferred tax) in the income statement for the year to 31 March
2009 was $41,000.

iv) During the year some Government securities, which are shown at cost in the balance sheet,
were sold at a profit of $15,000. This profit was credited to the income statement, as was
$9,000 of income received from the securities. No other Government securities were traded
during the year.

v) Allion Ltd paid an interim dividend during the year to 31 March 2009 of $40,000.
F7 Mock Exam Questions

Required :

a) As far as the information permits, prepare a cash flow statement for Allion for the year to 31
March 2009 in accordance with FRS 7 ‘Cash Flow Statements’.
(20 marks)

b) Identify the important areas that you would draw based on the information in the question and
the cash flow statement prepared in (a). You are not required to calculate ratios.
(5 marks)
F7 Mock Exam Questions

Question 4

The IASB’s framework for the preparation and presentation of financial statements sets out the
concepts that underlies the preparation and presentation of financial statements that external users are
likely to rely on when making economic decisions about an enterprise.

a) Discuss the extent that the formulation of a “conceptual framework” by IASB had aided in the
process of setting accounting standards?
(8 marks)

On 1 January 2008 Lawson Ltd issued an 8% $10 million convertible loan at par. The loan is
convertible in three year time to ordinary shares or redeemable at par in cash.The directors decided to
issue the convertible loan because a non convertible loan would have required an interest rate of 10%.
The directors intend to show the loan at $10 million under the non current liabilities. The following
discount rates are available:

8% 10%
Year 1 0.93 0.91
Year 2 0.86 0.83
Year 3 0.79 0.75

Required:

Describe how Lawson Ltd should treat the items in its financial statements for the year ended 31 Dec
2008
(7 marks)
F7 Mock Exam Questions

Question 5

On 1 Jan 2008, Caterpillar acquired a profitable Game Arcade for $1.5 million, the summarized fair
value of the assets reflecting the term of the acquisition was:

$,000
Goodwill 500
Leasehold premise( 10 years remaining) 400
Machines at the premise 300
Operating license 300
_____
1,500
_____

At the dates of acquisition, the machines had an average estimated remaining life of five years and the
operating licenses has an effective duration of three years.

For the year ended 31 Dec 2008, the Game Arcade generated a very healthy profit of $800,000,
which is higher than initial expectation, and business was looking very bright at 31 Dec 2008.

But on 1 Apr 2009, the government announced a change in policy to disallow students under the
age of 16 years old to enter the Game Arcade, this has seriously affected the revenue of the
business, and it is felt that the fair value of the business had fallen to $400,000, taking into account
future revenue. A professional assessment of the machines at the premise indicated fair value of
$150,000.

Required:

In accordance with requirements of FRS36 “Accounting for impairment of Assets”, briefly describe
how each of the assets should be valued at 31 Dec 2008 and 31 Dec 2009.
(10 marks)