EFIMM0122

International Financial Reporting

Question 1

Gingerbread Ltd is a cake and biscuit company with a 31 March year end. The Statements of Financial Position for years ended 31 March 2021 and 31 March 2020 are shown below.

Gingerbread Ltd Statement of Financial Position as at:

31-Mar-21  31-Mar-20 £000   £000  £000   £000

ASSETS Non-current assets
Property, plant and equipment	8,500	7,000
Investments	900	300

 

Total non-current assets Current assets		9,400		7,300
Inventories	1,200		1,800
Trade receivables	900		420
Cash and cash equivalents	340		200

 

2,440

2,420

11,840

9,720

Total current assets

 

TOTAL ASSETS

EQUITY AND LIABILITIES Equity
Share capital	6,000	5,000
Share premium account	1,000	800
Revaluation surplus	360	220

 

  Retained earnings 2,000

 

 Total equity 8,020

Non current liabilities
Long-term loan Current liabilities		500		1000
Trade payables	630		600
Income tax	50		100

 

680

700

11,840

9,720

Total current liabilities

 

TOTAL EQUITY AND LIABILITIES

Further information:

1. On 1 January 2021, an item of equipment was sold for £300,000. This equipment originally cost £600,000 and had an accumulated depreciation of £400,000 at the date of disposal.
2. Depreciation charged for the year was £1,000,000.
3. Finance costs for the year were £55,000 and the Corporation Tax charge for the year was £100,000.
4. During the year a dividend of £250,000 was approved and declared.
5. There have been no revaluations to investments during the year.

REQUIRED

1. Prepare the Statement of Cash flows for Gingerbread Ltd for the year ended 31 March 2021 in accordance with IAS 7 – Statement of Cash flows.

(14 marks)

2. Discuss the objective of cash flow information and how the information found in Statements of Cash flows may be useful to the users of financial statements.

(4 marks)

3. Using Gingerbread Ltd’s financial statements, explain with examples how the Statement of Cash flows provides additional information to help assess the liquidity and possible future performance of the company.

(7 marks)

Total 25 marks

 

Question 3

Hsiu Plc purchased a factory on 1 January 2017 for £950,000 and has been depreciating the factory 10% per annum using the reducing balance method.  On 31 December 2020 a storm damaged the factory. As a result the factory is now estimated to have a market value of £470,000 before selling costs of £20,000. Hsiu have assessed the likely output of the factory given the damage and believe that for the next 4 years the factory is likely to generate cashflows of £195,000, £145,000, £100,000 and £65,000, all discounted to present value. At the end of the four years the factory is not anticipated to produce any further cashflows or have a residual value. Hsiu Plc has a 31 December year end.

REQUIRED

1. Prepare extracts from the financial statements of Hsiu Plc at 31 December 2020 in relation to the factory, providing an explanation of the necessary treatment in relation to the damage to the factory from the storm.

(12 marks)

2. Hsiu Plc is considering contracting some work to be performed to reverse some of the damage to the factory from the storm during 2021. Explain if this expenditure on the factory can be added to the value that the factory will be held at on the Statement of Financial Position after the work has been performed.

(4 marks)

3. Hsiu Plc produces financial statements annually. Explain the objective of financial reporting and who are the primary users of financial reporting according to the IFRS Conceptual Framework 2018. Discuss this objective in relation to the fundamental characteristics of useful financial information and the concept of ‘materiality’.

(9 marks) Total 25 marks

Total 25 marks

Question 5

Stag Ltd is an outdoor activities equipment manufacturer with investments in two companies – Deer Ltd and Foal Ltd. The companies all have 31 December year end dates and the draft Statements of Financial Position as at 31 December 2020 are shown below:

	Stag Ltd	Deer Ltd	Foal Ltd
ASSETS Non-current assets	£	£	£
Property, plant and equipment Investments:	300,000	45,000	27,000
Shares in Deer	50,000
Shares in Foal Current assets	12,500
Inventories	15,000	4,000	2,500
Trade Receivables	5,500	3,500	3,000
Cash and cash equivalents	2,500	750	1,050

385,500	53,250	33,550
250,000	48,000	25,000
110,500	2,250	4,050
360,500	50,250	29,050
25,000	3,000	4,500
385,500	53,250	33,550

TOTAL ASSETS

EQUITY AND LIABILITIES

Ordinary Shares £1 Retained Earnings

Current Liabilities

TOTAL EQUITY AND LIABILITIES

Notes:

1. Stag Ltd owns 36,000 shares in Deer Ltd. At the date of acquisition the balance of the retained earnings of Deer was £1,050. No additional shares have been issued by Deer Ltd.