ADVANCED CORPORATE REPORTING

PROFESSIONAL 2 EXAMINATION - NOVEMBER 2020

NOTES:
You are required to answer ALL Questions.

Provided are pro-forma:

Statements of Profit or Loss and Other Comprehensive Income By Expense, Statements of Profit or Loss
and Other Comprehensive Income By Function, and Statements of Financial Position.

Time Allowed
3.5 hours, plus 20 minutes to read the paper.

Examination Format
This is an open book examination. Hard copy material may be consulted during this examination,
subject to the limitations advised on the Institute’s website.

Reading Format
During the reading time you may highlight text and write notes on the examination paper, however, you
may not commence writing on the answer field until your Supervisor tells you to do so. Please read each
Question carefully.

Marks
Marks for each question are shown. The pass mark required is 50% in total over the whole paper.

Answers
You are reminded to pay particular attention to your communication skills, and care must be taken
regarding the format and literacy of your solutions. The marking system will take into account the content
of your answers and the extent to which answers are supported with relevant legislation, case law or
examples, where appropriate.

The Institute of Certified Public Accountants in Ireland, 17 Harcourt Street, Dublin 2.

 THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

ADVANCED CORPORATE REPORTNG

PROFESSIONAL 2 EXAMINATION - NOVEMBER 2020

Case Study: “Park Homes Group”

Hugo Ennis is the Chief Executive of Park Homes Group, a construction business whose stated mission is to build
sustainable homes of excellent quality in vibrant communities. Hugo Ennis knows the construction business well. He
comes from a long line of family builders. He himself spent many years in Australia working in construction. In 2009, he
returned to Ireland and founded Park Homes Ltd. Park Homes was founded at the height of Ireland’s financial and
economic crash. The business started on a small scale but quickly expanded when the economy recovered and demand
for housing surged. In 2014, the company floated on the Euronext exchange, Dublin (formerly the Irish Stock Exchange).
It has successfully raised almost €100m in equity and debt capital since then.

Park Homes Group is made up of the parent company Park Homes Construction Plc (Park Homes) and two subsidiaries
Alpha Ltd and Beta Ltd. A third subsidiary, Greta Ltd, was sold during the year. Details of its acquisitions are as follows:

Company Alpha Beta Greta

€000 €000 €000
Date of acquisition 01/10/17 01/10/16 01/10/12
% acquired 100% 70% 100%
Purchase Consideration €20m €30m €3m
Fair value of net assets at acquisition date €8m €27.04m €2.8m
Goodwill (note) €12m € 2.96m €200,000

Note: The goodwill arising on the acquisition of Alpha and Beta has not been impaired to date. However, there are now
indications that Alpha may be impaired. Details of this possible impairment are outlined in Issue (5) below.

You are the financial controller of Park Homes Group. You are very proud to work for this company. Park Homes has a
very strong ethical culture. It is respected worldwide for its honesty and integrity and its shares are listed in the top ethical
stocks on the Euronext Dublin. However, an issue has come to light in recent days that has raised doubts in your mind
about this ethical stance. The issue involves the pricing of construction contracts. You have set out some thoughts on this
matter in outstanding issue (8) but you haven’t had time to think about what to do. You are under such time pressure. Hugo
Ennis has requested a copy of the finalised consolidated financial statements by the end of this week and these must take
priority.

Park Homes prepares financial statements to 30 September each year. It is now 25 October 2020. You have just completed
a first draft of the group profit and loss account and statement of financial position. These exclude the results of Greta
Ltd, the disposed subsidiary. There are some other outstanding issues that need to be resolved too before the accounts
can be finalised. These issues are summarised below.

OUTSTANDING ISSUES IN RESPECT OF THE PARK HOMES GROUP COMPANIES’ FINANCIAL STATEMENTS AT
30 SEPTEMBER 2020.
Note: You can ignore the effects of taxation unless you are directed to address it as part of a specific issue.

Issue 1
Park Homes are developers of starter homes and apartments but they also contract for third party projects. Third party
contracts are presented as construction contracts in the financial statements. Following the introduction of IFRS15
Revenue from Contracts with Customers in 2018, the company set out a revised accounting policy for construction
contracts. The new policy states that each contract should be treated as a separate single performance obligation satisfied
over time and that revenue for an accounting period should be calculated based on the percentage of total costs incurred.

In 2019, Park Homes was appointed contractor for the construction of a new social housing development in the West of
Ireland. The contract price was €20m plus a bonus of €2m if construction was completed within 24 months. The contract
was signed on 1February 2019. At that date, the company expected total costs to be in the region of €17m but they could
not say for certain that the work would be completed within 24 months. During the year ended 30 September 2019,
construction costs of €4m were incurred on this contract. The only entry made in the 2019 accounts was to debit cost of
sales and credit bank with these costs. No reference was made to IFRS15.

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In the current year, additional costs of €8m were incurred and these were also debited to cost of sales and credited to
the bank. Again, no entries were made to revenue. Furthermore, a stage payment of €10m was received and this was
debited to the bank account and credited to revenue.

It is now anticipated, that based on revised staff availability, the project should be completed within the 24 month period.

Issue 2
Park Homes has a number of leasing contracts on its books relating to machinery and equipment. Following a review of
IFRS16 Leases, you are now satisfied that, with the exception of two contracts, all of the Group’s leasing contracts are
presented in accordance with IFRS16 The two exceptions are lease P156 and lease P279. Park Homes is the lessee in
both leases contracts.

Lease P156 is a contract for the right-of-use of demolition equipment. This lease was signed on 1 October 2019. The lease
requires the payment of three semi-annual amounts of €300,000 each, commencing on 1 October 2019. By 30 September
2020, two instalments had been paid and they were entered in the books as a debit to property, plant and equipment and
a credit to bank. No depreciation has been charged on the capitalised amounts. In addition to the lease payments, issue
costs relating to this contract €15,000 have been paid and have been expensed in full to the profit and loss account. The
cost of financing P156 is 8% per half-year and the present value of the lease payments, at the date of signing, was
€835,000.

The second lease is P279. P279 was also signed on 1 October 2019 and this requires three annual payments of €200,000
each to be made on 30 September 2020, 2021 and 2022. The first payment was made on 30 September 2020 and this
was written off in full to administration expenses. In addition to the annual payments, P279 also includes a variable
payment clause. This means that additional sums must be paid to the lessor if certain performance measures are attained
by the end of each accounting period. You have now established that, based on the company’s current performance, an
additional payment of €18,000 is due this period. This additional charge has not yet been accrued in the accounts. The
cost of financing P279 is 4% per annum and the present value of the lease payments at the inception of the lease was
€555,000.

Issue 3
On 1 September 2019, Park Homes acquired a property in a liquidation sale for €1m. The property was in a state of
disrepair. The directors’ planned to renovate the property and re-locate the group’s head office there. The building work
commenced on 1 January 2020 and was completed on 1 July 2020. The schedule of costs were as follows:

Date 1 Jan 1 March 1 May 1 July Total

2020 2020 2020 2020
€ € € € €
Materials 250,000 200,000 40,000 490,000
Labour 70,000 180,000 130,000 70,000 450,000
Professional fees 40,000 40,000
Opportunity cost (see note below) 6,000 6,000
Post-production maintenance 5,000 5,000
Total 366,000 380,000 170,000 75,000 991,000

Note: The renovation was financed entirely from the company’s own cash resources. You have estimated that the deposit
interest lost as a result of this was €6,000.

On acquisition, the purchase price of €1m was debited to property, plant and equipment but the renovation costs were
charged to administration expenses. The renovation lasted six months and although the work was completed on 1 July
2020, the building was not occupied until 1 October 2020. No depreciation was charged on the renovated property in the
2020 accounts. The group accounting policy is to charge depreciation on property on a monthly basis at a rate of 2% per
annum.

The property renovation was designed by Dermot Hubbard Architectural Services. Dermot Hubbard is a brother of Paul
Hubbard who is the chief construction engineer of Park Homes. Although Paul Hubbard owns a share of Dermot Hubbard
Architectural Services, he has no executive role within the company nor is he a director. However it has now come to your
attention that the Dermot Hubbard bid, which was one of three tenders received by Park Homes, was considerably higher
than the other tenders submitted. You are not clear if and how this information should be presented in the financial
statements.

Page 2
Issue 4
The inventory figure for Park Homes of €370.3m is made up of the following:

€’000
Land held for development €274,000
Work In Progress €90,800
Completed homes for sale €5,500
Total €370,300

Work In Progress includes all costs associated with the on-going construction of residential property. This figure includes
€10m relating to a partly completed apartment complex in Manchester, UK. The complex is 100% complete for materials
and 80% complete for conversion costs. At 30 September 2020, it is estimated that the costs to complete the complex
will be €9m and the date for completion will be 30 April 2021. The apartments are expected to be sold at a profit although
no final selling price has been fixed. There is a lull in the market right now and based on current market values at 30
September 2020 the net realisable value of the complex will be lower than cost by €1.3m. You are wondering if you should
write down this inventory to net realisable value (NRV). The directors are reluctant to do this. They argue that strong
economic forecasts for 2021 will see prices rise to profitable levels.

Land that is purchased for development is presented as ‘Land held for development’ in the inventory figure. Only completed
land purchase contracts are included under this heading. Where the purchase of land is underway, any deposits paid are
included in trade and other receivables and are transferred to inventory only on the legal completion of a contract. A review
of this account at 30 September 2020 shows that amounts totalling €850,000, relating to completed land contracts, are
currently included in trade and other receivables.

Construction costs include all costs associated with the development of a construction site including post-production
costs. In August 2020, Beta Ltd secured planning permission to build 100 private homes close to Amsterdam City in the
Netherlands. One of the conditions of planning in the Netherlands is that builders are legally obliged to construct and pay
for the required public infrastructure relating to each housing development. This is generally done after the houses are
built. The public infrastructure costs associated with the Amsterdam contract are estimated to be €1.5m. However, no entry
has been made in the 2020 financial statements for this expense as this project is not due to be completed until 2023.
The cost of capital relevant to Beta’s international operations is 9% per annum.

Issue 5
Park Homes acquired 100% of Alpha International Ltd. on 1 October 2017. Alpha is an Irish company that exports
insulation materials across the world. At the date of acquisition, goodwill of €12m was calculated. The entire amount of
this goodwill has been outstanding since then as Alpha’s recoverable value has remained above its carrying amount.
This year, however, there are indications that Alpha may be impaired. You are only now getting around to completing this
review and you have not yet made any adjustment to the Group financial statements relating to this matter.
Alpha’s business is divided into two Cash Generating Units (CGUs); the Industrial Division and the Domestic Division.

When Alpha was originally acquired, €8m of the goodwill was attributable to the industrial division and €4m to the
domestic division.

The current carrying values of Alpha’s CGUs as at 30 September 2020 are as follows:

Industrial Domestic
€000 €000
Property, Plant and Equipment 3,800 2,900
Inventory 5,320 1,125
Receivables 5,500 3,500
Cash 450 450
Payables (1,200) (1,000)
13,870 6,975

In relation to the recoverable value of the divisions, it has not been possible to establish the net selling price for either
division but you have now received an estimate of the future cashflows for each of the CGUs. These are as follows:

Page 3
 The Industrial Division
2021 2022 2023 2024 2025
€000 €000 €000 €000 €000
Operating cash 1,500 1,500 1,000 1000 1000
Interest (200) (200) (200) (250) (250)
Taxation (100) (100) (110) (160) (160)
Net 1,200 1,200 690 590 590

The Domestic Division

2021 2022 2023 2024 2025
€000 €000 €000 €000 €000
Operating cash 2,000 2,000 1,800 1850 1850
Interest (200) (200) (200) (250) (250)
Taxation (80) (80) (80) (70) (70)
Net 1,720 1,720 1,520 1,530 1,530

You have also been advised that the Industrial Division would probably be sold at the end of 2025 for an estimated €6m,
but that the Domestic Division will be held indefinitely generating cashflows of €1.5m per annum in perpetuity.
The pre-tax cost of capital for each of Alpha’s divisions is 8% per annum. Taxation is 12.5% per annum.

Issue 6
Park Homes introduced a share option scheme this year for 10 of its key management personnel. 500,000 ordinary share
options were issued on 30 September 2020 to these staff members, with each staff member being issued 50,000 ordinary
shares. These share options were issued on the condition that each staff member in receipt of these share options would
work for Park Homes until 30 September 2022. A further condition of the contract was that the options would only vest
if Park’s share price reaches €20 per share at vesting date. At 30 September 2020, the firm’s share price was €10 per
share and at 25 October 2020, the firm’s share price was €10.40 per share. As these are below the €20 vesting price,
you made no entries to the financial statements. However, you are not so sure now if that was the correct treatment. You
have also heard rumours that one of the key employees is being head hunted by a rival construction firm and may no
longer be employed by Park Homes when the share options vest.

Issue 7
Park Homes sold its subsidiary, Greta Ltd, for €6.3m on 31 March 2020. Greta had been acquired on 1 October 2012 at
a cost of €3m for 100% of its equity shares. At the date of acquisition, the fair value of Greta’s net assets was €2.8m and
goodwill was calculated as €200,000.

The proceeds for the sale of Greta’s shares were received in cash and debited to a bank account and credited to
investments. The profit on disposal of the shares was netted against the cost of sales figure in the financial statements.
No other entries were included.

As part of the sale of Greta, Park Homes provided an indemnity to the buyer against unrecorded taxation liabilities that
might transpire in relation to Greta. You have just been informed that an additional tax liability of €2m is likely to be levied
on the company. No adjustment has been made in the accounts of Park Homes for this amount.

Issue 8
Park Homes has a reputation for being a socially and ethically responsible corporation. The company documentation
states that: ‘It is our integrity that makes us a leader in the construction industry and a trusted partner to our customers’.
So it bothers you to discover that the company may have been engaged in practices that fall well below their own standards
of excellence. In essence, you have discovered that some customers’ bills are being inflated by altering supervisors’ time
sheets. You discovered this by chance when you read an email from a disgruntled client querying their final bill. One of
the directors had replied to the client assuring them that the bill was correctly calculated. But you were never consulted
and now you are concerned. You are also shocked that this has happened as you are responsible for client billings. You
rely on your team to supply you with labour sheets and you trust their integrity. You have managed to look a little deeper
into this and you have also noticed some other discrepancies. These include, amongst other things, approving overtime
for foremen and paying sub-contractors more than the contracts specified. These actions were taken without client approval
and without your knowledge. You had accepted the work sheets and clients were charged accordingly.

You are not sure what to do. You have been careless and distracted in your work and you have let this happen. You
imagine that the measures crept in as a way to retain staff in a highly competitive jobs market but that doesn’t make it
right. You should report it. But, if you do raise this issue you may find you need to leave the company and you don’t want
to do that. Park Homes has been a very good employer to you. As well as a competitive remuneration package, they offer
flexible working hours and generous family leave. You know that you won’t find another position like this again. You could
carry on and pretend that you never saw the email.

You need some guidance on how to address this matter.

Page 4
REQUIREMENT:

(1) An explanation and an analysis of the required IFRS treatment for each of the Outstanding Issues (1) to (6). You
should prepare relevant calculations and discuss the impact on the consolidated statement of profit and loss and
other comprehensive income and the consolidated statement of financial position for Park Homes Group for the
year ended 30 September 2020.
(60 marks)

(2) In relation to the disposal of Greta Limited in Issue 7, explain how the disposal should be treated both in terms of
(i) Park Homes individual financial statements and (ii) Park Homes consolidated financial statements for the year
ended 30 September 2020. You should also address the issue of the indemnity for unrecorded liabilities of Greta
on disposal.
(10 marks)

(3) Re-draft the group financial statements of Park Homes Plc (incorporating the results of Requirement (1) and (2)
for the year ended 30 September 2020 in accordance with relevant IFRS. This should include a revised consolidated
statement of comprehensive income, statement of changes in equity and statement of financial position.

(20 marks)

(4) Discuss the ethical issues arising from the information presented in Issue (8) and outline the appropriate steps to
address them.
(10 marks)

[Total: 100 marks]

Appendix (1) Consolidated Financial Statements of Park Homes and Financial Statements of Greta Ltd.

Consolidated Statement of Profit and Loss and Other Comprehensive Income

for the year ended 30 September 2020

Park Group
(excluding Greta) Greta
€'000 €'000
Revenue 168,500 20,000
Cost of Sales (133,000) (16,000)
Gross Profit 35,500 4,000
Investment Income 100 0
Administration Costs (7,800) (1,000)
Finance Costs (5,500) (800)
Profit before Tax 22,300 2,200
Taxation (3,100) (300)
Group Profit for the period 19,200 1,900
Other Comprehensive Income 0 0
Total Comprehensive Income/(Loss) for the period) 19,200 1,900
Attributable to
Group 18,885 1,900
NCI 315

Note: You can assume that the profit of Greta Limited accrued evenly over the year.

Page 5
 Consolidated Statement of Financial Position as at 30 September 2020

Park Greta
(excluding Greta)
€000 €000
Non-Current Assets
Property, Plant and Equipment 12,400 2,780
Leased Assets 2,420 0
Intangible Assets 130 0
Goodwill 14,960 0
29,910 2,780
Current Asset
Inventories 370,300 6,000
Trade and Other Receivables 4,680 1,250
Cash and Cash Equivalents 31,250 460
406,230 7,710
Total Assets 436,140 10,490

Equity
Share Capital 101,200 200
Share Premium 120,000 2,000
Share Based Payment Reserve 0 0
Retained Earnings 4,300 3,900
Equity Attributable to owners of the Group 225,500 6,100
Non-Controlling Interests 2,218 0
Total Equity 227,718 6,100

Non-Current Liabilities
Loans and Borrowings 74,500 1,200
Deferred taxation 2,900 700
Lease Liabilities 3,160 0
80,560 1,900
Current Liabilities
Trade and Other payables 65,252 1,200
Current Taxation 3,450 290
Lease Liabilities 2,160
Loans and Borrowings 57,000 1,000
127,862 2,490

Total Liabilities 208,422 4,390

Total Equity and Liabilities 436,140 10,490

Page 6
 SUGGESTED SOLUTIONS

THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND

ADVANCED CORPORATE REPORTNG

PROFESSIONAL 2 EXAMINATION - NOVEMBER 2020

Park Homes
Requirement 1 (60 MARKS) ISSUES 1- 6

Issue (1) (10 marks)

In accordance with IFRS15 the company should have followed the 5 step approach from 2018
Steps 1 and 2: are assumed fulfilled (single performance obligation agreed contract)

Step 3: Transaction Price:

2019 20,000k (bonus ignored as no expectation of)

2020 22,000k (bonus included as revised expectation)

Step 4: N/A as only one Performance obligation per case study

Step 5: Recognise revenue as PO is satisfied taking into account variable payments.

2019 for Y/E 30th September 2019 the contracts total expected performance was:

€'000
Contract Price 20,000 (variable consideration based on 'the most likely amount'[IFRS15.53(b)])
Total Costs 17,000
Total Profit 3,000

Costs incurred in Y/E 30/09/19 4,000 (correctly recorded IN 2019 as Db Cost of Sales and Cr Bank)
Revenue for period (see below) 4,706 No revenue recorded in 2019. Adjustment required. See below

Revenue working:
The amount of revenue that should be recognised is based on % of costs incurred (input method) [IFRS15.41]

Revenue 4706 (4m/17m*20m)

No revenue was included in 2019 for revenue on contract. This is a prior period error that should be rectified:

Journal €'000 €'000

Trade and Other receivables 4706
Opening retained earnings 4706

2020 In y/e 30th September 2020 the estimates were revised as follows:

€'000
Contract Price 20,000
Bonus 2,000
Total Costs 17,000
Profit 5,000

The amount of revenue and cost of sales that should be recognised is based on % of costs incurred (input method)

€'000
Revenue 10823 (4m+8m)/17m*22m - 4.706m) 10m has already been entered as a credit
to revenue
Costs 8,000 (4m + 8m) - 4m Already entered into books
2823
Page 7
 Journal €'000 €'000
Trade and Other Receivables 823
Revenue 823
Being recognition of Revenue in accordance with IFRS15

Issue (2) (14 Marks)

All lease contracts in excess of 12 months and €5k are to be treated as lease liabilities measured at the present value
of lease payments with a corresponding Right of Use asset. Both P156 and P279 both full under this category.

P156 Lease Payments €'000

(300k* 3) 900
PV of lease payments 835
Total Finance Charge 65

The set up of this lease is as follows:

Journal €'000 €'000

Right of Use Asset 835
Lease Liability 835

In addition the issue costs should be added to the Right of Use and not to administration expenses

Journal €'000 €'000

Right of Use Asset 15
Administration Expenses 15

The payment of €600k (€300k*2) was debited to PPE. Instead it sould be split between finance charges and repayment
of Lease liability

Journal €'000 €'000

Lease Liability 535
Finance Charge (see interest spread below. Alternative approach) 65
Property Plant and Equipment 600

Note 2 methods are acceptable in situations when payments are made in advance. One method assumes that the first
payment is entirely capital and a finance charge accrual must be made at the period end:

8%
Period Opening Capital Closing Finance
ending Creditor Repayment Creditor Charge
31st March 2020 835 300 535 43 1st payment all capital. Interest to accrue at
year end €43k(535*8%)
30th Sept 2020 535 257 278 22 2nd payment €300k includes €43k interest
accrued at the end of period one only €257k
Capital
31st March 2021 278 278 0 0 3rd payment €300k includes €22k interest
accrued at the end of period one only €278k
Capital

The alternative approach is to assume that each payment includes both capital and finance charge for the period.
8%
Period Opening Finance Closing
ending Creditor Repayment Charge Creditor
31st March 2020 835 300 43 578
30th Sept 2020 578 300 22 300
31st March 2021 300 300 0 0

Finally Depreciaiton on ROU asset over 18 months:

Journal €'000 €'000

Administration expenses (835+15)/18*12 567
ROU asset 567
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P279 Lease Payments 600
(200k* 3)
PV of lease payments 555
Finance Charge 45

The set up of this lease is as follows:

Journal €'000 €'000

Right of Use Asset 555
Lease Liability 555

The payment of €200k was debited to administration. Instead it sould be split between finance charges and repayment
of Lease liability

Journal €'000 €'000

Lease Liability 178
Finance Charge (see interest spread below) 22
Administration Expenses 200

the variable payment should be treated separately and charged to profit and loss

Journal €'000 €'000

Administration Expenses 18
Payables 18

Interest Spread
4%
Period Opening Repayment Finance Closing
ending Creditor Charge Creditor
30th Sept 2020 555 200 22 377
2021 377 200 15 192
2022 192 200 8 0

Finally Depreciaiton on ROU asset over 3 years:

Journal €'000 €'000

Administration expenses 185
ROU asset 185

Issue 3 (10 Marks)

The renovation costs should be capitalised in accordance with IAS16 and included in the property costs. The following
are the rules
€'000
Materials 490 IAS16 permitted
Labour 450 IAS16 permitted
Professional Fees 40 IAS16 permitted
Lost deposit interest Notional Finance costs are not included.
Only direct costs
Post production maint. IAS 16 not permitted
980 To be capitalised in accordance with IAS16

Journal €'000 €'000

PPE 980
Administration Expense 980
Cash and Cash Equivalents(assumed) 25
administration expense 25
(notional expenses are not permitted)

(Other options accepted. No marks attached)

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In addition, Depreciation should be calculated on the gross amount including the original property from the date the
property was available for use ~(even though it remained vacant at the year end) Finished 1st July so 3 months
depreciation
The amount is €1m plus €980k so €1,980k for 3 months

Journal €'000 €'000

Depreciation expense administration exps 10
PPE 10
(Depreciation calculated on total €1.98m*2% for 3 months)

Finally, there is a related party issue here. IAS24. The renovation was designed by Dermot Hubbard architectural Services
which is part owned by Paul Hubbard chief engineering officer of Park Homes. Dermot Hubbard Architectural Services
and Park Homes are not subject to common control and there is no control by Paul Hubbard exercised in either company.
However there may be indirect influence (IAS24.9). Paul Hubbard appears to be in a position to influence the tender price
as the Hubbard tender was the successful one even though it was considerable higher than the other tenders.

Under IAS24 disclosures should be made as follows [IAS24.17]:

A description of the relationship between the parties

A description of the transactions undertaken
The amounts involved
Any other information necessary to form an understanding of the relationship

Issue (4) Inventory (10 Marks)

(i) Work in Progress

IAS2.28 - The cost of inventories may not be recoverable if those inventories …..or if their selling prices have
declined. The practice of writing down inventory below cost is consistent with the view that assets should not be
carried in excess of amounts expected to be realised from their sales or use. At 30.09.2020 the NET Realisable
below estimated cost of finsihed house cost by €1.3m. Clearly a NRV situation exists. The directors are reluctant
to write down as the expected selling price expected to recover. IAS2.33 states that a new assessment of NRV is
to be made in each period and when the circumstances that previsously caused inventories to be written down no
longer exist or there is evidence of a an increase in NRV…. Then the write down can be reversed.

Journal €'000 €'000

Cost of SALES 1,300
Inventory 1,300

(ii) Deposit for development land

Completed contracts for land acquisition should be included in Inventory and not in Trade and other receivables.
An amount of €850k currently
included in Receivables should be presented as inventory

Journal €'000 €'000

Inventory 850
Receivables 850

(ii) Public Infrastructure BETA

A provision should be created here similar to IAS16..16(c.)] dismantling costs and IAS37 as there is a legal provision
to provide the public infrastructure. The Provision should be debited to Inventory and credited to provisions
Discounting should be applied taken into account as the effect of the time value of money will be material.

Provision 1500 (payable in 3 years)

Discount factor 3 year 9% 0.77
Present value 30th September 2020 1158

Journal €'000 €'000

Inventory BETA 1,500
Provisions 1,500
Provisions 342
Financing Costs Group- post acq 239
(1m*.0.84) NCI 103

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Issue 5 (11 Marks)

Industrial Domestic
€'000 €'000
Carrying Value 13870 6975
Net selling Price n/a n/a
Value in Use (& recoverable) 8968 20375
Impairment Yes no
Write down 4902

Value in Use - Industrial €'000

2021 2022 2023 2024 2025
Operating 1500 1500 1000 1000 1000
Sale 6000
1500 1500 1000 1000 7000
Discount Factor 0.926 0.857 0.794 0.735 0.681
Present Value 1389 1286 794 735 4764 8968

IAS36 - Omit taxation and financing effects

IAS36 - Include proceeds of the final sale

value in use - Domestic €'000

2021 2022 2023 2024 2025
Operating 2000 2000 1800 1850 1850
PV of Perpetuity 18750 (1500/.08*0,681)
2000 2000 1800 1850 20600
Discount Factor 0.926 0.857 0.794 0.735 0.681
Present Value 1852 1715 1429 1360 14020 20375

Impairment rules [IAS36.104 to 105 ]

1 Against asset that caused impairment None in this case

2 Goodwill Yes. All of impairment against goodwill.

Journal €'000 €'000

Expenses (PARK) 4,902
Goodwill 4,902

Issue (6) Share Options (5 Marks)

Share options form part of the remuneration package in exchange for services. Because of the difficulty of of measuring
directly the fair value of the services received, the entity should measure the fair value of the employee services received
by reference to the fair value of the instruments [IFRS2.
]
If vesting conditions exist, the charge should be adjusted for the equity not yet granted. [IFRS2. ]

10 members of staff granted the options but one expected to leave so expectation is that options for 9 employees

The option value should be included in the financial statements as follows:

50,000 options * 9 staff members * €10 *1/3years 1500000

Journal €'000 €'000

Administration expenses (staff remuneration) 1500
Equity Reserves 1500

Note: The market based condition, ie the increase in share price can be ignored for the purposes of the calculation.
However the employment condition must be taken into account.

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Requirement 2 (10 MARKS)

IFRS10 25 Group derecognises all of the assets and liabilities of the former subsidiary from the consolidated
statement of financial position

Group recognises any profit or loss associated with the loss of control attributed to the former controlling
interest

Park Homes Individual financial statements

Investment stated at cost in the individual financial statements

€'000
Proceeds of Sale 6,300 Journal already prepared and is correct
Cost of Investment 3,000 Db Bank 6,300
Profit on disposal 3,300 Cr Investments 3,000
Cr Cost of Sales 3300

Park Homes Consolidated financial statements

Investment is stated at cost plus any goodwill outstanding (none) plus share of post acquisition profits. On disposal this
is deducted from proceeds to arrive at profit

€'000
Proceeds of the Sale 6,300
Less:
Cost of Investment 3,000 (shares and reserves at acq + goodwill)
Share of post acq reserves:
100% (1900*7/12) 950 (6 months profit for 2020)
100% (3900-1900) 2000 (Post acq from date of acquisition to 01/10/19)
Profit on Disposal 350

Presentation in the consolidated financial statements:

In consolidated SOPLOCI :
This is presented as a discontinued operation IFRS 5. A single amount is disclosed on the face of the SOCI made up of
the post- tax profit of Greta for the period from 01/10/19 to 31/03/20 (€950k) plus profit on disposal €350k 1,300

Journal €'000 €'000

Cost of Sales (parent) 3,300
Discontinued activity profit (€950k and €350k) 1,300
Opening retained earnings 2000

In consolidated SOFP
Greta does not form part of the consolidated SOFP as Park Homes no longer holdes ownership at the end of the reporting
period

A provision is required for the indemnified liabilities as Park Homes has an obligation to repay any unrecorded liabilities
of Greta. The required provision [IAS37.14] €2m

Journal €'000 €'000

Administration expenses 2000
Liabilities 2000

Page 12
Requirement 2

Consolidated statement of Profit and loss and OCI Park Group P156 Revised

Park Home Group Year ended (excluding

30th September 2020 Greta) Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 Issue 6 Issue 7 Consolidated
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Revenue 168,500 823 169,323
Cost of Sales 133,000 1,300 3,300 137,600
Gross Profit 35,500 31,723
Investment Income 100 100
Administration Expenses 7,800 555 995 4,902 1500 2000 15,762
Gain on Disposal of Greta 1,300 1,300
Finance Costs 5,500 87 -342 5,245
Profit before Tax 22,300 12,116
Taxation 3,100 3,100
Group Profit for the period 19,200 9,016
Other Comprehensive Income/(expense)
Total Other Comprehensive Income 0 0
Total Comprehensive Income/(Loss)
for the period) 19,200 9,016
Attributable to
Group 18,885 8,598
NCI 315 (315+103) 418

Page 13
 Park Home Group
Consolidated Statement of Financial Position as at 30th September 2020

Park Group
(excluding Greta) Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 Issue 6 Issue 7 Consolidated
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Non Current Assets
Property Plant and Equipment 12,400 -600 970 12,770
Leased Assets 2,420 653 3,073
Intangible Assets 130 130
Goodwill 14,960 -4,902 10,058
29,910 26,031
Current Asset
Inventories 370,300 1,050 371,350
Trade and Other Receivables 4,680 5529 -850 9,359
Cash and Cash Equivalents 31,250 25 31,275
406,230 411,984
Total Assets 436,140 438,015

Equity
Share Capital 101,200 101,200
Share Premium 120,000 120,000
Share Based Payment Reserve 0 1500 1,500
Retained Earnings 4,300 5529 -642 995 -1,061 -4,902 -1500 -2,000 719
Equity Attributable to owners of the Group 225,500 223,419
Non-Controlling Interests 2,218 103 2,321
Total Equity 227,718 225,740

Non Current Liabilities

Loans and Borrowings 74,500 74,500
Deferred taxation 2,900 2,900
Lease Liabilities 3,160 192 3,352
80,560 80,752

Current Liabilities
Trade and Other payables 65,252 18 65,270
Current Taxation 3,450 3,450
Provisions 0 1,158 2000 3,158
Lease Liabilities 2,160 485 2,645
Loans and Borrowings 57,000 57,000
127,862 131,523
Total Liabilities 208,422 212,275
Total Equity and Liabilities 436,140 438,015

Park Home Group

Consolidated Statement of Changes in Equity for the Year ended 30th September 2020

Ordinary Share based

Share Share Payment Retained
Capital Premium Reserve Earnings Total
€'000 €'000 €'000 €'000 €'000
Balance 1st September 2019 101,200 120,000 0 -14,585 206,615
P/Y earnings 6,706 6,706
TCI 8,598 8,598
Share based Payment 1500 1500
101,200 120,000 1,500 719 223,419

NCI 2960

Page 14
Requirement 4 (10 MARKS)

CPA Code of Conduct

100.1 A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public
responsibility is not exclusively to satisfy the needs of an individual client or employer. In acting in the public interest
comply with the requirements and application material of this Code to enable members to meet their responsibility member
fails to comply with this code, it may lead to disciplinary action as outlined in the Institute’s Bye-Law 6-Discipline

R110.1 Five fundamental principles of ethics:

Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour

R220.8 When a member in business knows or has reason to believe that the information with which the member is
associated is misleading,he/she shall take appropriate actions to seek to resolve the matter. Actions that might be
appropriate include, but not limited to:

• Discussing concerns that the information is misleading with the member’s superior and/or the appropriate level(s)
of management within the member’s employing organisation or those charged with governance and requesting such
individuals to take appropriate action to resolve the matter.ing how to address such matters internally.

Such action might include:

• Having the information corrected;
• If the information has already been disclosed to the intended users, informing them of the corrected information;
and
• Consulting the policies and procedures of the employing organisation (for example, an ethics or whistle-blowing
policy) regard

220.9 A member in business might determine that the employing organisation has not taken appropriate action. If the
member continues to have reason to believe that the information is misleading, the following further actions might be
appropriate provided that the member remains alert to the principle of confidentiality:

Members in business should consult with:

• The Institute;
• The internal or external auditor of the employing organisation;
• legal counsel;
• Members in Business should determine whether any requirements exist to communicate to third parties, including
the users of the information;

• Third parties, including users of the information.

• Regulatory and oversight authorities. oying organisation

R220.10 If after exhausting all feasible options, the member in business determines that appropriate action has not been
taken and there is reason to believe that the information is still misleading, the member shall refuse to be or to remain
associated with the information. In such circumstances, it might be appropriate for a member to resign from the employing
organisation

Documentation 220.11
A member in business is encouraged to document:
• The facts.
• The accounting principles or other relevant professional standards involved.
• The communications and parties with whom matters were discussed.
• The courses of action considered.
• How the member attempted to address the matter(s).

Page 15