AFR CAT ONE

Question one

Jarvis owns 30% of McLintock. During the year to 31 December 20X4 McLintock sold $2 million of goods to
Jarvis, of which 40% were still held in inventory by Jarvis at the year end. McLintock applies a mark-up of
25% on all goods sold.
What effect would the above transactions have on group inventory at 31 December 20X4?

Which of the following are not classified as financial instruments under IAS 32 Financial Instruments:
Presentation?

On 1 January 20X6 Fellini hired a machine under a finance lease. The cash price of the machine was
$3.5 million and the present value of the minimum lease payments was $3.3 million. Instalments of
$700,000 are payable annually in advance with the first payment made on 1 January 20X6. The interest rate
implicit in the lease is 6%.
What amount will appear under non-current liabilities in respect of this lease in the statement of financial
position of Fellini at 31 December 20X7?

Which of the following situations does not suggest that a leasing arrangement constitutes a finance lease?

A company’s trial balance shows a debit balance of $2.1 million brought forward on current tax and a credit
balance of $5.4 million on deferred tax. The tax charge for the current year is estimated at $16.2 million and
the carrying amounts of net assets are $13 million in excess of their tax base. The income tax rate is 30%
What amount will be shown as income tax in the statement of profit or loss for the year?

Indicate your answer in million $_________

The statements of financial position of Pinto included the following.
Statements of financial position as at:
time                                                                   31 March 20X8                              31 March 20X7
$’000                                               $’000
Current assets
Income tax asset                                                        –                                                     50
Non-current liabilities
Deferred tax                                                               50                                                  30
Current liabilities
Income tax payable                                                   150                                                   –
The profit or loss income tax charge for the year ended 31 March 20X8 is estimated at $160,000.
What amount of income tax has been received or paid during the year ended 31 March 20X8?

Use of historical cost accounting means asset values can be reliably verified but it has a number of
shortcomings which need to be considered when analysing financial statements.
Which one of these is a possible result of the use of historical cost accounting during a period of inflation?

The carrying amount of property, plant and equipment was $410 million at 31 March 20X1 and $680
million at 31 March 20X2. During the year, property with a carrying amount of $210 million was
revalued to $290 million. The depreciation charge for the year was $115 million. There were no
disposals.
What amount will appear on the statement of cash flows for the year ended 31 March 20X2 in respect of
purchases of property, plant and equipment?

Witch acquired 70% of the 200,000 equity shares of Wizard, its only subsidiary, on 1 April 20X8 when the
retained earnings of Wizard were $450,000. The carrying amounts of Wizard’s net assets at the date of
acquisition were equal to their fair values apart from a building which had a carrying amount of $600,000
and a fair value of $850,000. The remaining useful life of the building at the acquisition date was 40 years.
Witch measures non-controlling interest at fair value, based on share price. The market value of Wizard
shares at the date of acquisition was $1.75.
At 31 March 20X9 the retained earnings of Wizard were $750,000. At what amount should the noncontrolling interest appear in the consolidated statement of financial position of Witch at 31 March 20X9?

At 1 January 20X9 Penguin plc paid $1.2m for an 80% share in Platypus Ltd. Platypus Ltd’s net assets at the date
of acquisition were:
items                                         $’000
Share capital                              500
Retained earnings                      850
Revaluation surplus                  450
It is group policy is to measure non-controlling interests at acquisition at fair value. The fair value of the noncontrolling interest at the date of acquisition was $400,000.
Statements of profit or loss for both companies for the year ended 31 December 20X9 were:
company                                                                   Penguin                    Platypus
details                                                                          $’000                            $’000
Revenue                                                                           12,500                          2,600
Cost of sales                                                                    (7,400)                         (1,090)
Gross profit                                                                         5,100                          1,510
Distribution costs                                                                 (700)                            (220)
Administrative expenses                                                     (1,300)                       (550)
Finance costs                                                                      (40)                               –
Profit before tax                                                                    3,060                          740
Income tax expense                                                               (900)                         (230)
Profit for the year                                                                   2,160                          510
Required
Calculate the goodwill on acquisition.

On 1 April 20X0 Picant acquired 75% of Sander’s equity shares by means of a share exchange and an
additional amount payable on 1 April 20X1 that was contingent upon the post-acquisition performance of
Sander. At the date of acquisition Picant assessed the fair value of this contingent consideration at $4.2
million but by 31 March 20X1 it was clear that the amount to be paid would be only $2.7 million.
How should Picant account for this $1.5 million adjustment in its financial statements as at 31 March 20X1?

Basil acquired 60% of Parsley on 1 March 20X9. In September 20X9 Basil sold $46,000 worth of
goods to Parsley. Basil applies a 30% mark-up to all its sales. 25% of these goods were still held in
inventory by Parsley at the end of the year.
An extract from the draft statements of profit or loss of Basil and Parsley at 31 December 20X9 is:
company                                               Basil               Parsley
Details                                                         $                    $
Revenue                                               955,000                 421,500
Cost of sales                                         (407,300)               (214,600)
Gross profit                                             547,700               206,900
All revenue and costs arise evenly throughout the year.
What will be shown as gross profit in the consolidated statement of profit or loss of Basil for the year ended
31 December 20X9?