UNIVERSITY OF BRADFORD

FINANCIAL ACCOUNTING
MAN2907L
May 2009

xx.00 xx.00 hours

Supplementary
This is a CLOSED BOOK examination
There are TWO Sections
SECTION A is multiple choice. This is compulsory.
Mark your answers on the answer grid and return together with questions
No marks are deducted for wrong answers. (40% of marks)
SECTION B Answer any TWO questions from this section. (60% of marks)

Non-programmable calculators without a long-term data memory are permitted.

SECTION B
Answer ONE question only from this section
Question 1
Maxibrands plc are preparing their accounts for the year ended 31 st October, 20X8, and the
following information is available relating to various intangible assets acquired on the acquisition of
Universal plc.
(a) A milk quota of 2,000,000 litres at 30p per litre, There is an active market trading in milk and
other quotas,
(b) A government licence to experiment with the use of hormones to increase the cream content of
milk had been granted to Universal shortly before the acquisition by Maxibrands. No fee had
been required. This is the first licence to be granted by the government and was one of the
reasons that Maxibrands acquired Universal. The licence is not transferable but the directors
estimate that it has a value to the company based on discounted cash flows for a five-year
period of 1 million.
(c) A full cream yoghurt sold under the brand name 'Naughty but Nice' was valued by the directors
at 2 million. Further enquiry established that a similar brand name had been recently sold for
1.5 million.
Required:
Explain how each of the above items would be treated in the consolidated financial statements
using IAS 38.
(100% of marks)

Question 2

80%

25%
60%

40%

100%

D
F

15%

The proportions shown represent holdings in the ordinary share capital (equity) of the entities
indicated
Required:
a)

Outline the conditions that are required for the creation of a group of companies
(20% of marks)

b)

Examine the diagram above and identify and explain which entities shown form part of the
A group.
(40% of marks)

c)

Describe the appropriate method of accounting for the group, indicating any particular
processes or calculations which would be required in the case of the individual entities
shown.
(40% of marks)
(Total 100% marks)

Question 3
Required:
a)

Outline the reasons for including a cash-flow statement as one of the principal financial
statements and identify the five principal headings included in such a statement, explaining
the significance of each.
(50% of marks)

b)

The following are the details supporting the "Cash flow from operations" in the past year's
cash flow statement of XYZ plc.

Profit before taxation

Depreciation
Interest charged
Increase in trade receivables
Increase in inventories
Increase in trade payables
Cash flow generated from operations

000
5,735
950
122
(653)
(1,221)
577
5,410

Explain the reasons underlying each of the five items comprising the reconciliation between
the profit and the cash flow as indicated in the note above.
(50% of marks)
(Total 100% marks)

Question 4
During its financial year ended 31st March, 20X9, Digger plc, an engineering company, has
worked on several contracts. Information relating to one of them is given below:
Contract: Chester-56a
Date commenced
Original estimate of completion date
Contract price
Proportion of work certified as satisfactorily
completed (and invoiced) up to 31st March, 20X9
Progress payments from customer Brandon Ltd
Costs to 31st March, 20X9
Wages
Materials sent to site
Other contract costs
Proportion of Head Office costs
Plant and equipment transferred to site
(at book value on 1st April, 20X8)

1st April, 20X8

30th June, 20X9
480,000
360,000
300,000
182,000
72,000
36,000
12,000
18,000

The plant and equipment is estimated to have a residual value of about 2,000 by the time
the contract is expected to be completed.
Inventory of materials on site

6,000

Estimate of costs to complete the contract

Wages
20,000
Materials (including materials on hand at 31st March, 20X9) 24,000
Other (including Head Office costs)
16,000
At 31st March, 20X9 it is estimated that work to a cost value of 38,000 has been completed
but not yet included in the certifications or invoiced
Required:
a) Show the account for the contract in the books of Digger up to 31st March, 20X9
(including any transfer to the income statement which you think is appropriate).
(40% of marks)
b) Calculate the items to be shown in the balance sheet and the profit or loss to be
recognised in the 20X8-20X9 financial statements
(30% of marks)
c) Outline the basic objectives and principles adopted by IAS 11 in its requirements for the
treatment of long-term contract gains/losses and work in progress
(30% of marks)
(Total: 100% marks)

Question 5
'The practice of creative accounting is an inevitable consequence of the systems of financial
accountability which have developed in capitalist economies. Judicious management of reported
earnings and balance sheets using creative accounting techniques is not necessarily a bad thing.
Required:
Identify the situations under which creative accounting is undertaken, giving examples of the
creative practices which companies may adopt in such situations
(40% of marks)
Discuss arguments both in favour and counter to the above assertions.
(60% of marks)
(Total: 100% marks)