On 1 January 20X6, Gardenbugs Co received a $30,000 government grant relating to equipment which cost $90,000 and had a useful life of six years. The grant was netted off against the cost of the equipment. On 1 January 20X7, when the equipment had a carrying amount of $50,000, its use was changed so that it was no longer being used in accordance with the grant. This meant that the grant needed to be repaid in full but by 31 December 20X7, this had not yet been done.
Which journal entry is required to reflect the correct accounting treatment of the government grant and the equipment in the financial statements of Gardenbugs Co for the year ended 31 December 20X7?
A.A
B.B
C.C
D.D
Parket Co acquired 60% of Suket Co on 1 January 20X7. The following extract has been taken from the individual statements of profit or loss for the year ended 31 March 20X7: Parket Co consistently made sales of $20,000 per month to Suket Co throughout the year. At the year end, Suket Co held $20,000 of this in inventory.
Parket Co made a mark-up on cost of 25% on all sales to Suket Co.
What is Parket Co’s consolidated cost of sales for the year ended 31 March 20X7?
A.$954,000
B.$950,000
C.$774,000
D.$766,000
Shiba Co entered into a non-cancellable four-year operating lease to hire a photocopier on 1 January 20X7. The terms of the lease agreement were as follows:
What is the charge in the statement of profit or loss of Shiba Co for the year ended 31 December 20X7 in respect of this operating lease?
A.$2,375
B.$4,000
C.$4,750
D.$5,250
Patula Co acquired 80% of Sanka Co on 1 October 20X5. At this date, some of Sanka Co’s inventory had a carrying amount of $600,000 but a fair value of $800,000. By 31 December 20X5, 70% of this inventory had been sold by Sanka Co.
The individual statements of financial position at 31 December 20X5 for both companies show the following:
What will be the total inventories figure in the consolidated statement of financial position of Patula Co as at 31 December 20X5?
A.$5,250,000
B.$5,330,000
C.$5,130,000
D.$5,238,000
On 1 July 20X7, it is discovered that the damage to the machine is worse than originally thought. The machine is now considered to be worthless and the recoverable amount of the factory as a cash-generating unit is estimated to be $950,000.
At 1 July 20X7, the cash-generating unit comprises the following assets:
In accordance with IAS 36, what will be the carrying amount of Aphrodite Co’s plant and equipment when the impairment loss has been allocated to the cash-generating unit?
A.$262,500
B.$300,000
C.$237,288
D.$280,838
The following calculations have been prepared for agreement one: How will the finance lease obligation be shown in the statement of financial position as at 31 December 20X7?
A.$44,120 as a non-current liability and $49,271 as a current liability
B.$49,271 as a non-current liability and $44,120 as a current liability
C.$93,391 as a non-current liability
D.$93,391 as a current liability
The following notes are relevant:(i) Triage Co issued 400,000 $100 6% convertible loan notes on 1 April 20X5. Interest is payable annually in arrears on 31 March each year. The loans can be converted to equity shares on the basis of 20 shares for each $100 loan note on 31 March 20X8 or redeemed at par for cash on the same date. An equivalent loan without the conversion rights would have required an interest rate of 8%.The present value of $1 receivable at the end of each year, based on discount rates of 6% and 8%, are:
(ii) Non-current assets:The directors decided to revalue the leased property at $66·3m on 1 October 20X5. Triage Co does not make an annual transfer from the revaluation surplus to retained earnings to reflect the realisation of the revaluation gain; however, the revaluation will give rise to a deferred tax liability at the company’s tax rate of 20%.The leased property is depreciated on a straight-line basis and plant and equipment at 15% per annum using the reducing balance method.No depreciation has yet been charged on any non-current assets for the year ended 31 March 20X6.(iii) In September 20X5, the directors of Triage Co discovered a fraud. In total, $700,000 which had been included as receivables in the above trial balance had been stolen by an employee. $450,000 of this related to the year ended 31 March 20X5, the rest to the current year. The directors are hopeful that 50% of the losses can be recovered from the company’s insurers.(iv) A provision of $2·7m is required for current income tax on the profit of the year to 31 March 20X6. The balance on current tax in the trial balance is the under/over provision of tax for the previous year. In addition to the temporary differences relating to the information in note (ii), at 31 March 20X6, the carrying amounts of Triage Co’s net assets are $12m more than their tax base.Required:(a) Prepare a schedule of adjustments required to the draft profit before interest and tax (in the above trial balance) to give the profit or loss of Triage Co for the year ended 31 March 20X6 as a result of the information in notes (i) to (iv) above.(b) Prepare the statement of financial position of Triage Co as at 31 March 20X6.(c) The issue of convertible loan notes can potentially dilute the basic earnings per share (EPS). Calculate the diluted earnings per share for Triage Co for the year ended 31 March 20X6 (there is no need to calculate the basic EPS).Note: A statement of changes in equity and the notes to the statement of financial position are not required.The following mark allocation is provided as guidance for this question:(a) 5 marks(b) 12 marks(c) 3 marks
Other information:(i) Each month since the acquisition, Gregory Co’s sales to Tamsin Co were consistently $2m. Gregory Co had chosen to only make a gross profit margin of 10% on these sales as Tamsin Co is part of the group.(ii) The values of property, plant and equipment held by both companies have been rising for several years.(iii) On reviewing the above financial statements, Gregory Co’s chief executive officer (CEO) made the following observations:(1) I see the profit for the year has increased by $1m which is up 20% on last year, but I thought it would be more as Tamsin Co was supposed to be a very profitable company.(2) I have calculated the earnings per share (EPS) for 20X6 at 13 cents (6,000/46,000 x 100) and for 20X5 at 12·5 cents (5,000/40,000 x 100) and, although the profit has increased 20%, our EPS has barely changed.(3) I am worried that the low price at which we are selling goods to Tamsin Co is undermining our group’s overall profitability.(4) I note that our share price is now $2·30, how does this compare with our share price immediately before we bought Tamsin Co?Required: (a) Reply to the four observations of the CEO. (8 marks)(b) Using the above financial statements, calculate the following ratios for Gregory Co for the years ended 31 March 20X6 and 20X5 and comment on the comparative performance:(i) Return on capital employed (ROCE)(ii) Net asset turnover(iii) Gross profit margin(iv) Operating profit marginNote: Four marks are available for the ratio calculations. (12 marks)Note: Your answers to (a) and (b) should reflect the impact of the consolidation of Tamsin Co during the year ended 31 March 20X6.
