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    Marking Scheme

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    Eric BYIRINGIRO
    The document contains two financial reporting questions. For question 2(d), it calculates the value in use and recoverable amounts for two cash generating units (CGUs), and determines there is an impairment loss for both. It then allocates the impairment losses to assets in each CGU. For question 2(b,c), it calculates basic and diluted earnings per share (EPS). It determines the basic EPS is $1.46 and diluted EPS is $0.90 after considering the impact of share options and convertible preference shares on earnings and number of shares.

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    Marking Scheme

    Uploaded by

    Eric BYIRINGIRO
    19 views5 pages
    The document contains two financial reporting questions. For question 2(d), it calculates the value in use and recoverable amounts for two cash generating units (CGUs), and determines there is an impairment loss for both. It then allocates the impairment losses to assets in each CGU. For question 2(b,c), it calculates basic and diluted earnings per share (EPS). It determines the basic EPS is $1.46 and diluted EPS is $0.90 after considering the impact of share options and convertible preference shares on earnings and number of shares.

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    MARKING SCHEME

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    The document contains two financial reporting questions. For question 2(d), it calculates the value in use and recoverable amounts for two cash generating units (CGUs), and determines there is an impairment loss for both. It then allocates the impairment losses to assets in each CGU. For question 2(b,c), it calculates basic and diluted earnings per share (EPS). It determines the basic EPS is $1.46 and diluted EPS is $0.90 after considering the impact of share options and convertible preference shares on earnings and number of shares.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    19 views5 pages

    Marking Scheme

    Uploaded by

    Eric BYIRINGIRO
    The document contains two financial reporting questions. For question 2(d), it calculates the value in use and recoverable amounts for two cash generating units (CGUs), and determines there is an impairment loss for both. It then allocates the impairment losses to assets in each CGU. For question 2(b,c), it calculates basic and diluted earnings per share (EPS). It determines the basic EPS is $1.46 and diluted EPS is $0.90 after considering the impact of share options and convertible preference shares on earnings and number of shares.

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    FINANCIAL REPORTING

    MARKING SCHEME
    QUESTION 2 D)

    Carrying amount of cgu


    Cgu1= 48,000
    Cgu2= 155000
    Compare value in use and NRV
    Nrv= fairvalue-cost to sell
    Nrv
    Cgu1= 50000
    Cgu2=70000
    Value in use
    Cgu 1
    year cashflows Df(10%) pv
    1 8000 0.909 7272
    2 6000 0.826 4956
    3 9000 0.751 6759
    4 10000 0.683 6830
    5 11000 0.621 6831
    6 12000 0.564 6768
    39416

    Cgu 2
    year cashflows Df(12%) pv
    1 20000 0.893 17860
    2 22000 0.783 17226
    3 27000 0..693 18711
    4 24000 0.613 14712
    5 25000 0.543 13575
    6 30000 0.480 14400
    96484
    Recoverable amount = lower between value in use and nrv
    Recoverable amount
    Cgu1
    Nrv=50,000
    Value in use=39416
    Recoverable amount= 39416
    Cgu2
    Nrv= 70000
    Value in use=96484
    Recoverable amount=70,000
    2. impairment loss ( this occur when carrying amount is lower than recoverable amount)
    Cgu1
    Recoverable amount=39416
    Carrying amount=48,000
    Impairment loss= 48,000-39416=8584
    Cgu 2
    Recoverable amount=70000
    Carrying amount= 155000
    Impairment loss= 155000-70000=85000

    3. Allocation of impairment loss


    Cgu 1
    Carrying amount Impairment loss Carrying amount
    before impairment after impairment
    loss
    Tangible fixed asset 26000 =26000/48000*8584=4649 21351
    inventory 22000 22000/48000*8584=3934 18066
    48000 39417
    Cgu 2
    Carrying amount Impairment loss Carrying amount
    before impairment after impairment
    loss
    goodwill 25000 2500 0
    Tangible fixed 107000 107000/130000*60000=49384 57616
    asset
    inventory 23000 23000/130000*60000=10615 12385
    155000 70000
    Firstly, impairment loss should be allocated to goodwill in full and the remaining balance will be
    allocated to other asset on prorate basis
    Impairment loss 85000-25000=60,000

    Qn2. B)
    ii)This is a financial asset as we have purchased,
    fairvalue of instrument= 1000
    interest= 4.72/100*1250=59
    Period/year Amortised cost Interest(p&l)10% Interest received Amortised c/f
    b/f
    1 1000 100 59 1041
    2 1041 104 59 1086
    3 1086 109 59 1136
    4 1136 114 59 1191
    5 1191 119 59+1250 0

    Qn2 c)
    pat− preference dividend−nci
    ii) basic eps= ¿
    weighted avr no ord shares
    weighted average no of ordinary shares
    bal b/f…………………………….. 100,000
    bonus issue 1/3*100,000………… 33,333
    issue of share at market price
    (20,000*9/12)……………………….15000
    148333
    Profit before tax………………….. 400,000
    Profit after tax………………….. 400,000*0.7= 280,000
    Preference dividend 8%*800,000…. 64000

    Basic Eps= 280,000-64000/148333=1.46


    Diluted earning per share
    pat− preference dividend−nci+ extra earnings
    Dps= ¿
    weighted avr no ord shares +extra shares
    Dilution
     Share option
    = 5000/10*5=2500
    Extra shares= 5000-2500=2500
     Convertible preference share
    Extra shares
    1 pref share=2 ord share
    Preference shares= 800,000/10=80,000 shares
    1 pref share=2 ord share
    80,000 pref=2*80,000= 160,000 ord shares
    Extra earnings
    dividend saved= 8%*800,000=64000
    Test for dilution
    Increase in earnings Increase in share eps
    Share option - 2500 -
    Convertible 64000 160,000 0.4
    preference share

    We start by using smallest

    Dilution

    Increase in eaarnings Increase in share Eps


    Basic eps 216000 148333 1.88
    Share option - 2500 -
    216000 150833 1.43
    Conv pref share 64000 160,000
    280,000 310833 0.9
    Diluted eps=0.9

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