UNIVERSITY OF EAST ANGLIA Norwich Business School PG Main Series Examination 2012-13 INTERNATIONAL FINANCIAL REPORTING NBS-MC64 Time allowed: 2 hours Answer THREE questions: including at least ONE question chosen from Section A and ONE question chosen from Section B. All questions carry equal marks. Notes are not permitted in this examination. Do not turn over until you are told to do so by the Invigilator. NBS-MC64 Module Contact: Mr Peter Russell, NBS Copyright of the University of East Anglia Version 1
SECTION A Page 2 Question 1 The balance sheets of Lyon SA as at 31 December 2012 and 2011, together with an income statement (extract) for the year ended 31 December 2012, are shown below: Balance sheets as at 31 December 2012 2011 million million Property, plant and equipment at cost 1,988 1,124 Accumulated depreciation (316) (204) Total non-current assets 1,672 920 Inventories 468 408 Receivables 864 720 Cash and cash equivalents 20 552 Total current assets 1,352 1,680 Trade payables and other current liabilities (424) (320) Current tax liabilities (160) (120) Total current liabilities (584) (440) Net current assets 768 1,240 Total assets 2,440 2,160 Non-current liabilities 7% debentures 400 280 Called up share capital 1,600 1,760 Retained profit 440 120 Total equity 2,040 1,880 Total capital employed 2,440 2,160
Page 3 Income statement (extract) for the year ended 31 December 2012 million Profit before taxation 480 Taxation (160) Retained profit 320 During the year plant and equipment costing 56m, with a written down value of 32m, was sold for 7m. This was the only disposal of non-current assets that took place during the year. There was an issue of debentures on 1 January 2012. REQUIRED: (a) Prepare a cash flow statement for Lyon for the year ended 31 December 2012 in compliance with IAS 7, in so far as the information permits. (25 marks) (b) Outline the advantages of cash flow statements to users. (8 ⅓ marks) (Total 33 ⅓ marks) PLEASE TURN OVER
Page 4 Question 2 Set out below are extracts from the published financial statements of Toulouse SA: Income statements for the years ended 31 March 2013 2012 million million Turnover 700 620 Operating profit (see note) 138 150 Net finance costs (20) (20) Profit before taxation 118 130 Taxation (29) (32) Net profit from continuing operations 89 98 Dividends (30) (25) Retained profit 59 73 Note: Operating profit includes a charge of 45m (2013) and 5m (2012) for restructuring.
Page 5 Balance sheets as at 31 March 2013 2012 million million Intangible assets 600 555 Property, plant and equipment 503 615 Total non-current assets 1,103 1,170 Inventories 115 61 Receivables 82 89 Cash and cash equivalents 6 40 Total current assets 203 190 Borrowings due within one year (45) (40) Trade payables and other current liabilities (42) (37) Current tax liabilities (30) (25) Total current liabilities (117) (102) Net current assets 86 88 Total assets 1,189 1,258 Non-current liabilities 193 221 Called up share capital 500 600 Retained profit 496 437 Total equity 996 1,037 Total capital employed 1,189 1,258 REQUIRED: (a) Write a report on the financial performance of Toulouse SA for 2013 and 2012. Your report should include at least two ratios for both 2013 and 2012 in each of the following areas: profitability; liquidity; efficiency; financial structure. (25 marks) (b) Outline the problems in using ratio analysis to assess the financial performance of a company. (8 ⅓ marks) (Total 33 ⅓ marks) PLEASE TURN OVER
Page 6 Question 3 Europe SA established a wholly owned overseas subsidiary company, Asia Limited, on 1 April 2012. Europe subscribed 1,500,000 in cash for 300,000 shares of 100 dimes each in Asia. The rate of exchange was 20 dimes to 1. After purchasing leasehold property, and taking out a long term loan, Asia's opening balance sheet is: Asia Limited - Balance Sheet as at 1 April 2012 dimes(000) Rate (000) of exchange Leasehold property Cost 36,000 20 1,800 Short term monetary assets Cash 9,000 20 450 Long term loan (15,000) 20 (750) 30,000 1,500 Share capital 300,000 shares of 100 dimes each 30,000 20 1,500 After the first year of trading Asia's financial results are as follows: Asia Limited Income Statement for the year ended 31 March 2013 dimes(000) Turnover 12,000 Expenses: Management expenses (3,450) Amortisation on leasehold property (3,600) Interest (15%) (2,250) (9,300) 2,700 Taxation (50%) (1,350) Retained profit 1,350
Page 7 Asia Limited - Balance Sheet as at 31 March 2013 dimes(000) Plant and equipment Cost 36,000 Depreciation (3,600) 32,400 Short term monetary assets (trade receivables, cash, trade payables) 13,950 Long term loan (15,000) 31,350 Share capital 300,000 shares of 100 dimes each 30,000 Retained profit 1,350 31,350 During the year the rates of exchange were as follows: Dimes to 1 At 1 April 2012 20 Average for the year 16 At 31 March 2013 12 REQUIRED (a) In accordance with the relevant accounting standards, prepare the translated accounts of Asia Limited for the year ended 31 March 2013 that will be used in the consolidated accounts of Europe SA using the closing rate method of foreign currency translation and analyse the difference on exchange. The income statement should be translated using the average rate of exchange. (25 marks) (b) Indicate how the translated accounts of Asia Limited would have differed if the temporal method had been used to translate the accounts (note: full translated accounts are not required). (8 ⅓ marks) (Total 33 ⅓ marks) PLEASE TURN OVER
Page 8 Question 4 (a) The directors of Grenoble SA have decided to lease an item of plant and equipment over a period of four years with annual payments of 35,000 payable in advance. The asset has a useful life of 4 years and a fair value of 130,000. The present value of the minimum lease payments at the interest rate implicit in the lease is 120,000. Grenoble uses the sum of digits method to calculate the annula finance charge. REQUIRED: In accordance with the relevant international accounting standards, what entries over the term of the lease would be made in financial statements of Grenoble SA in respect of this transaction? (15 marks) (b) Montpelier started trading one year ago. The chief accountant has collected details about the amount of inventory at the beginning and end of the year, and how specific and general prices have changed over the year. The information is as follows: Basis of valuation Price Closing Price Opening per unit Total per unit Total (130 units) (105 units) Historic cost (HC) 23 2,990 15 1,575 Replacement Cost (RC) 28 3,640 17 1,785 Net Realisable Value (NRV) 25 3,250 13 1,365 All of the opening inventory was sold during the year. The replacement cost and net realisable value prices are stated as on the first day and last day of the financial year. The general price index (or Retail Price Index, RPI) has changed as follows: Index Beginning of year, and date on which opening inventory was purchased 100 Date on which closing inventory was purchased 118 End of year 120 REQUIRED: What calculations could the chief accountant perform to calculate the 'profit' on inventory using the data that has been collected? (18 ⅓ marks) (Total 33 ⅓ marks)
Page 9 SECTION B 5. Why is it that the accounting treatment of brands, goodwill and other intangibles have caused such difficulties and confusion over the years. (33 ⅓ marks) 6. Discuss the extent to which the IASB and FASB have succeeded in converging their conceptual frameworks for accounting. (33 ⅓ marks) 7. What are the reasons for increasing the harmonisation of accounting standards, and what are the difficulties involved in achieving harmonisation? (33 ⅓ marks) 8. Discuss the information that might be included in a Corporate Social Responsibility (CSR) report to stakeholders, giving information and examples. (33 ⅓ marks) END OF PAPER