ICMAP practice questions for IAS 7 PDF

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IAS7 QUESTION

20

Statement of Cash Flows 01

Nedberg – D02

The financial statements of Nedberg for the year to 30 September 2002, together with the comparative SFP for the year to 30 September 2001 are shown below: Income Statement – year to 30 September 2002: $m $m Sales revenue 3,820 Cost of sales (note (1)) (2,620) Gross profit for period 1,200 Operating expenses (note (1)) (300) 900 Interest – Loan note (30) Profit before tax 870 Taxation (270) Net profit for the period 600 Dividends: ordinary – Interim (120) – Final (280) (400) Net profit for period retained 200 Statements of Financial Position as at 30 September: $m Non-current assets Property, plant and equipment Intangible assets (note (2)) Current assets Inventory Accounts receivable Cash Total assets Equity and liabilities Ordinary Shares of $1 each Reserves Share premium Revaluation Accumulated profits Less dividends paid and declared Non-current liabilities (note (3)) Current liabilities (note (4)) Total equity and liabilities

2002 $m

$m

1,890 650 2,540 1,420 990 70

2,010 (400)

2001 $m 1,830 300 2,130

940 680 nil

2,480 5,020

1,620 3,750

750

500

350 140

100 nil 1,700 (300)

1,610 2,850 870 1,300 5,020

1,400 2,000 540 1,210 3,750

Notes to the financial statements: (1) Cost of sales includes depreciation of property, plant and equipment of $320 million and a loss on the sale of plant of $50 million. It also includes a credit for the amortisation of government grants. Operating expenses include a charge of $20 million for the amortisation of goodwill. (2)

Intangible non-current assets: Deferred development expenditure Goodwill

2002 $m 470 180 650

2001 $m 100 200 300

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ICMAP M4 Financial Accounting (3)

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(4)

Non-current liabilities: 10% loan note Government grants Deferred tax

Current liabilities: Accounts payable Bank overdraft Accrued loan interest Declared dividends unpaid Taxation

300 260 310 870

100 300 140 540

875 nil 15 280 130 1,300

730 115 5 200 160 1,210

The following additional information is relevant: (i) Intangible fixed assets: The company successfully completed the development of a new product during the current year, capitalising a further $500 million before amortisation charges for the period. (ii) Property, plant and equipment/revaluation reserve: – The company revalued its buildings by $200 million on 1 October 2001. The surplus was credited to a revaluation reserve. – New plant was acquired during the year at a cost of $250 million and a government grant of $50 million was received for this plant. –

(iii)

On 1 October 2001 a bonus issue of 1 new share for every 10 held was made from the revaluation reserve. – $10 million has been transferred from the revaluation reserve to realised profits as a year-end adjustment in respect of the additional depreciation created by the revaluation. – The remaining movement on property, plant and equipment was due to the disposal of obsolete plant. Share issues: In addition to the bonus issue referred to above Nedberg made a further issue of ordinary shares for cash.

Required: (a) A statement of cash flows for Nedberg for the year to 30 September 2002 prepared in accordance with IAS 7. (20 marks) (b) Comment briefly on the financial position of Nedberg as portrayed by the information in your statement of cash flows. (5 marks) (25 marks)

QUESTION

02

Planter – J04

The following information relates to Planter, a small private company. It consists of an opening statement of financial position as at 1 April 2003 and a listing of the company’s ledger accounts at 31 March 2004 after the draft operating profit before interest and taxation (of $17,900) had been calculated. Planter – Statement of Financial Position as at

1 April 2003 $ $

Non-current assets Land and buildings (at valuation $49,200 less acc. Dep. $5,000) Plant (at valuation $70,000 less acc. Dep. $22,500) Investments at cost

Current Assets Inventory Trade receivables Bank Total assets

kashifadeel.com

44,200 47,500 16,900 108,600 57,400 28,600 1,200

87,200 195,800

Class Notes Capital and Reserves: Ordinary shares of $1 each Reserves: Share premium Revaluation reserve Accumulated profits

25,000 5,000 12,000 70,300

Non-current liabilities 8% Loan notes Current liabilities Trade payables Taxation

43,200 31,400 8,900

Ledger account listings at 31 March 2004 Ordinary shares of $1 each Share premium Accumulated profits – 1 April 2003 Profit before interest and tax – year to 31 March 2004 Revaluation reserve 8% Loan notes Trade payables Accrued loan interest Taxation Land and buildings at valuation Plant at cost Buildings – accumulated depreciation 31 March 2004 Plant – accumulated depreciation 31 March 2004 Investments at cost Trade receivables Inventory – 31 March 2004 Bank Investment income Loan interest Ordinary dividend

87,300 112,300

Dr $

40,300 195,800 Cr $ 50,000 8,000 70,300 17,900 18,000 39,800 26,700 300

1,100 62,300 84,600 6,800 37,600 8,200 50,400 43,300 1,900 400 1,700 26,100 277,700

277,700

Notes (i) There were no disposals of land and buildings during the year. The increase in the revaluation reserve was entirely due to the revaluation of the company’s land. (ii) Plant with a net book value of $12,000 (cost $23,500) was sold during the year for $7,800. The loss on sale has been included in the profit before interest and tax. (iii) Investments with a cost of $8,700 were sold during the year for $11,000. The profit has been included in the profit before interest and tax. There were no further purchases of investments. (iv) On 10 October 2003 a bonus issue of 1 for 10 ordinary shares was made utilising the share premium account. The remainder of the increase in ordinary shares was due to an issue for cash on 30 October 2003. (v) The balance on the taxation account is after settlement of the provision made for the year to 31 March 2003. A provision for the current year has not yet been made. Required: From the above information, prepare a statement of cash flows using the indirect method for Planter in accordance with IAS 7 for the year to 31 March 2004. (25 marks)

QUESTION

03

Casino – J05

Casino is a publicly listed company. Details of its statements of financial position as at 31 March 2005 and 2004 are shown below together with other relevant information: Statements of Financial Position as at 31 March 2005 31 March 2004 $m $m $m $m Non-current Assets (note (i)) Property, plant and equipment 880 760

(a)

kashifadeel.com

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ICMAP M4 Financial Accounting Intangible assets

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400 1,280

Current assets Inventory Trade receivables Interest receivable Short term deposits Bank Total assets

350 808 5 32 15

Share Capital and Reserves Ordinary Shares of $1 each Reserves Share premium Revaluation reserve Retained earnings

420 372 3 120 75

990 2,260

300 60 112 1,098

Non-current liabilities 12% loan note 8% variable rate loan note Deferred tax

nil 160 90

Current liabilities Trade payables Bank overdraft Taxation Total equity and liabilities

530 125 15

The following supporting information is available: (i) Details relating to the non-current assets are: Property, plant and equipment at: 31 March 2005 Valuation Dep. Land & building Plant

1,210 2,490

510 1,270

$m 600 440

$m 12 148

Carr value $m 588 292 880

1,270 1,570

250

670 2,490

200 nil 45 1,165

1,210 1,410

150 nil 75

225

515 nil 110

625 2,260

31 March 2004 Valuation Dep Carr value $m $m $m 500 80 420 445 105 340 760

Casino revalued the carrying value of its land and buildings by an increase of $70 million on 1 April 2004. On 31 March 2005 Casino transferred $3 million from the revaluation reserve to retained earnings representing the realisation of the revaluation reserve due to the depreciation of buildings. During the year Casino acquired new plant at a cost of $60 million and sold some old plant for $15 million at a loss of $12 million. There were no acquisitions or disposals of intangible assets. (ii)

The following extract is from the draft income statement for the year to 31 March 2005: $m $m Operating loss (32) Interest receivable 12 Finance costs (24) Loss before tax (44) Income tax repayment claim 14 Deferred tax charge (15) (1) Loss for the period (45) The finance costs are made up of: Interest expenses Penalty cost for early redemption of fixed rate loan Issue costs of variable rate loan

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(16) (6) (2)

Class Notes (24) (iii) (iv)

The short term deposits meet the definition of cash equivalents. Dividends of $25 million were paid during the year.

Required: As far as the information permits, prepare a statement of cash flows for Casino for the year to 31 March 2005 in accordance with IAS 7. (20 marks) (b)

In recent years many analysts have commented on a growing disillusionment with the usefulness and reliability of the information contained in some companies’ income statements. Required: Discuss the extent to which a company’s statement of cash flows may be more useful and reliable than its income statement. (5 marks) (25 marks)

QUESTION

04

Tabba – D05

The following draft financial statements relate to Tabba, a private company. 30 September 2005 SFPs as at: $000 $000 Tangible non-current assets (note (ii)) 10,600 Current assets Inventories 2,550 Trade receivables 3,100 Insurance claim (note (iii)) 1,500 Cash and bank 850 8,000 Total assets 18,600 Equity and liabilities Share capital ($1 each) Revaluation (note (ii)) Retained earnings

nil 2,550

Non-current liabilities Lease liability (note (ii)) 6% loan notes 10% loan notes Deferred tax Government grants (note (ii))

2,000 800 nil 200 1,400

Current liabilities Bank overdraft Trade payables Government grants (note (ii)) Lease liability (note (ii)) Current tax payable Total equity and liabilities

30 September 2004 $000 $000 15,800 1,850 2,600 1,200 Nil

5,650 21,450

6,000

Nil 4,050 600 900 100

2,550 8,550

4,400

5,650 18,600

6,000 1,600 850

2,450 8,450

1,700 nil 4,000 500 900

7,100

550 2,950 400 800 1,200

5,900 21,450

The following information is relevant: (i) Income statement extract for the year ended 30 September 2005: Operating profit before interest and tax Interest expense Interest receivable Profit before tax Net income tax credit Profit for the period Note: the interest expense includes interest on lease liability.

$’000 270 (260) 40 50 50 100

kashifadeel.com

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ICMAP M4 Financial Accounting (ii)

The details of the tangible non-current assets are: Cost Accumulated depreciation $’000 $’000 At 30 September 2004 20,200 4,400 At 30 September 2005 16,000 5,400

Carrying value $’000 15,800 10,600

During the year Tabba sold its factory for its fair value $12 million and agreed to rent it back, under an operating lease, for a period of five years at $1 million per annum. At the date of sale it had a carrying value of $7·4 million based on a previous revaluation of $8·6 million less depreciation of $1·2 million since the revaluation. The profit on the sale of the factory has been included in operating profit. The surplus on the revaluation reserve related entirely to the factory. No other disposals of non-current assets were made during the year. Plant acquired under leases during the year was $1·5 million. Other purchases of plant during the year qualified for government grants of $950,000. Amortisation of government grants has been credited to cost of sales.

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(iii)

The insurance claim relates to flood damage to the company’s inventories which occurred in September 2004. The original estimate has been revised during the year after negotiations with the insurance company. The claim is expected to be settled in the near future.

Required: (a) Prepare a statement of cash flows using the indirect method for Tabba in accordance with IAS 7 for the year ended 30 September 2005. (17 marks) (b) Using the information in the question and your statement of cash flows, comment on the change in the financial position of Tabba during the year ended 30 September 2005. Note: you are not required to calculate any ratios. (8 marks) (25 marks)

QUESTION

05

Pinto – J08

Pinto is a publicly listed company. The following financial statements of Pinto are available: Statement of profit or loss and other comprehensive income for the year ended 31 March 2008 $’000 Revenue 5,740 Cost of sales (4,840) Gross profit 900 Income from and gains on investment property 60 Distribution costs (120) Administrative expenses (note (ii)) (350) Finance costs (50) Profit before tax 440 Income tax expense (160) Profit for the year 280 Other comprehensive income Gains on property revaluation 100 380 Total comprehensive income Statements of financial position as at

31 March 2008 $’000 $’000

31 March 2007 $’000 $’000

2,880 420 3,300

1,860 400 2,260

Assets Non-current assets (note (i)) Property, plant and equipment Investment property Current assets Inventory Trade receivables Income tax asset Bank Equity and liabilities Equity shares of 20 cents each (note (iii)) Share premium

kashifadeel.com

1,210 480 nil 10

1,700 5,000

810 540 50 nil

1,000 600

1,400 3,660 600

nil

Class Notes Revaluation reserve Retained earnings Non-current liabilities 6% loan notes (note (ii)) Deferred tax Current liabilities Trade payables Bank overdraft Warranty provision (note (iv)) Current tax payable

150 1,440 nil 50

2,190 3,190 50

50 1,310

1,360 1,960

400 30

430

|7 1,410 Nil 200 150

1,760 5,000

1,050 120 100 Nil

1,270 3,660

The following supporting information is available: (i) An item of plant with a carrying amount of $240,000 was sold at a loss of $90,000 during the year. Depreciation of $280,000 was charged (to cost of sales) for property, plant and equipment in the year ended 31 March 2008. Pinto uses the fair value model in IAS 40 Investment Property. There were no purchases or sales of investment property during the year. (ii) The 6% loan notes were redeemed early incurring a penalty payment of $20,000 which has been charged as an administrative expense in the income statement. (iii) There was an issue of shares for cash on 1 October 2007. There were no bonus issues of shares during the year. (iv) Pinto gives a 12 month warranty on some of the products it sells. The amounts shown in current liabilities as warranty provision are an accurate assessment, based on past experience, of the amount of claims likely to be made in respect of warranties outstanding at each year end. Warranty costs are included in cost of sales. (v) A dividend of 3 cents per share was paid on 1 January 2008. Required: (a) Prepare a statement of cash flows for Pinto for the year to 31 March 2008 in accordance with IAS 7 Statement of cash flows. (15 marks) (b) Comment on the cash flow management of Pinto as revealed by the statement of cash flows and the information provided by the above financial statements. Note: ratio analysis is not required, and will not be awarded any marks. (10 marks) (25 marks)

QUESTION

06

The following information relates to the draft financial statements of Mocha. Summarised statements of financial position as at 30 September: 2011 $’000 $’000 Assets Non-current assets Property, plant and equipment (note (i)) 32,600 Financial asset: equity investments (note (ii)) 4,500 37,100 Current assets Inventory 10,200 Trade receivables 3,500 Bank Nil 13,700 Total assets 50,800 Equity and liabilities Equity Equity shares of $1 each (note (iii)) 14,000 Share premium (note (iii)) nil Revaluation reserve (note (iii)) 2,000 Retained earnings 13,000 15,000 29,000

Mocha – D11

$’000

2010 $’000 24,100 7,000 31,100 7,200 3,700 1,400 12,300 43,400 8,000

2,000 3,600 10,100

15,700 23,700

kashifadeel.com

ICMAP M4 Financial Accounting Non-current liabilities Lease liability Deferred tax Current liabilities Tax Bank overdraft Provision for product warranties (note (iv)) Lease liability Trade payables Total equity and liabilities

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7,000 1,300 1,000 2,900 1,600 4,800 3,200

6,900 900

8,300

13,500 50,800

7,800

1,200 nil 4,000 2,100 4,600

11,900 43,400

Summarised income statements for the years ended 30 September: 2011 $’000 58,500 (46,500) 12,000 (8,700) 1,100 (500) 3,900 (1,000) 2,900

Revenue Cost of sales Gross profit Operating expenses Investment income (note (ii)) Finance costs Profit before tax Income tax expense Profit for the year

2010 $’000 41,000 (30,000) 11,000 (4,500) 700 (400) 6,800 (1,800) 5,000

The following additional information is available: (i) Property, plant and equipment: Cost At 30 September 2010 New Right of use additions Purchase of new plant Disposal of property Depreciation for the year At 30 September 2011

$’000 33,600 6,700 8,300 (5,000) 43,600

Accumulated depreciation $’000 (9,500) 1,000 (2,500) (11,000)

Carrying amount $’000 24,100 6,700 8,300 (4,000) (2,500) 32,600

The property disposed of was sold for $8·1 million. (ii)

Investments/investment income: During the year an investment that had a carrying amount of $3 million was sold for $3·4 million. No investments were purchased during the year. Investment income consists of: Year to 30 September: Dividends received Profit on sale of investment Increases in fair value

2011 $’000 200 400 500 1,100

2010 $’000 250 nil 450 700

(iii)

On 1 April 2011 there was a bonus issue of shares that was funded from the share premium and some of the revaluation reserve. This was followed on 30 April 2011 by an issue of shares for cash at par.

(iv)

The movement in the product warranty provision has been included in cost of sales.

Required: Prepare a statement of cash flows for Mocha for the year ended 30 September 2011, in accordance with IAS 7 Statement of cash flows, using the indirect method. (19 marks)

kashifadeel.com

Class Notes (b) Shareholders can often be confused when trying to evaluate the information provided to them by a company’s financial statements, particularly when comparing accruals-based information in the income statement and the statement of financial position with that in the statement of cash flows. Required: In the two areas stated below, illustrate, by reference to the information in the que...