Bayes Undergraduate School

BSc (Hons) Degree in Actuarial Science

BSc (Hons) Finance with Actuarial Science
BSc (Hons) Data Analytics and Actuarial Science
BSc (Hons) Degree in Mathematics & Finance
BSc (Hons) Degree in Mathematical Science with Finance & Economics

AS2207 Financial Reporting

Stage 2 Examination

June 2022 2 hours 15 minutes

Instructions to students:

Answer ALL questions in Section A and ANY 3 questions in Section B.

Only your first answers within the rubric will be marked. Do not attempt additional
questions outside of the rubric. For example, if you are asked to answer 3 from a
selection of 5 questions - either in an assessment or a section within an
assessment - and you answer 4, only the first 3 as they appear in your script will
be marked, the 4th will be disregarded. Any work you do not wish to be taken into
consideration should be deleted or clearly crossed through.

If you believe a question to be ambiguous you are advised to make reasonable

assumptions provided they are consistent with the facts given in the question.
State any such assumptions clearly in your answer and proceed. If you believe
there to be an error in the question state this and proceed.

There is a total of 92 marks for this paper.

This paper consists of 8 printed pages including the title page.

Materials:
This paper should be handwritten on lined paper.
All assessment will need to be submitted to the Moodle dropbox as one single pdf file

All submissions must be labelled in the correct format of your Student ID followed by a
full stop followed by the module code:
o 9digitnumber.ModuleCode (shown on the cover of all assessment as two letters
followed by four numbers)
Any queries should be addressed to: [email protected]

External Examiner: Mr Neil McConville

Internal Examiner: Mr Charles O'Connor

Page 1 of 8
Section A
Answer All Questions (Total 20 marks)
Question 01
ABC’s property originally cost £300,000. After 10 years use it was revalued by £200,000.
This building is depreciated at 2% per annum. Calculate annual depreciation charges
following the revaluation.

A) 18,000
B) 16,000
C) 15,000
D) 11,000 [02 marks]

Question 02
DEF raised £21,000 in a 2:5 Rights Issue. Pre-rights share capital comprised 60,000 £1nv
shares, and the post-rights share price was £1.25. Calculate the pre-rights share price.

A) 1.30
B) 1.36
C) 1.40
D) 1.42 [02 marks]

Question 03
GHI leased plant over five years. Annual payments were £23,000 in arrears with interest
rates at 5%. Licensing fees to operate this plant cost GHI £15,000. Calculate the Right-of-
Use value of this asset in GHI’s accounts.

A) 109,578
B) 114,578
C) 129,578
D) 134,578 [02 marks]

Question 04
Following a 1:6 bonus issue at JKL, the share premium account reduced by one half to
£40,000. If net assets were £395,000, calculate JKL’s revenue reserves.

A) 40,000
B) 60,000
C) 75,000
D) 95,000 [02 marks]

Page 2 of 8
Question 05
MNO’s ROCE was 15%. If company gearing was 20%, and net assets were £150,000,
calculate shareholder funds.

A) 105,000
B) 120,000
C) 125,000
D) 135,000 [02 marks]

Question 06
PQR’s plant, costing £80,000, was damaged in its 6th year of business use. Plant life is 10
years. Engineers reckon residual plant life to be 3 years with value-in-use of £30,000. The
plant could be scrapped now for £10,000. Calculate the asset impairment.

A) 25,000
B) 20,000
C) 15,000
D) 10,000 [02 marks]

Question 07
STU acquired 40% of VWX for £250,000. The latter’s profits in the year after the takeover
were £60,000. Calculate the investment in VWX to be disclosed in STU’s group accounts.

A) 250,000
B) 274,000
C) 280,000
D) 310,000 [02 marks]

Question 08
YZA’s quick asset ratio is half the current ratio. Current assets excluding inventory were
£60,000. Calculate the inventory amount in current assets.

A) 25,000
B) 30,000
C) 45,000
D) 60,000 [02 marks]

Page 3 of 8
Question 09
BCD was acquired by EFG when net assets of the former were £240,000. In line with
group policy, the property was revalued by £120,000 at the time of acquisition. EFG paid
£340,000 buying 80% of BCD. Calculate the non-controlling (minority) interests.

A) 96,000
B) 72,000
C) 48,000
D) 24,000 [02 marks]

Question 10
HIJ acquired all shares and half of the loan stock in KLM whose net assets were revalued
by £120,000 from £340,000 at the time. Goodwill arising was £24,000, and leverage in
KLM was 25%. Calculate the investment in KLM in HIJ’s books.

A) 298,000
B) 316,000
C) 392,000
D) 436,000 [02 marks]

Page 4 of 8
Section B
Answer Any Three Questions (Total 72 marks)

Question 11

Abbey’s trial balance at 31-Dec-2021 is shown below

£ - Dr £ - Cr
Cost of Sales/Sales 195,000 295,000
Office Costs 20,000
Plant Cost/Depreciation 200,000 120,000
Staff wages 16,000
Cash at Bank 77,000
Inventory 35,000
£1NV Shares 100,000
Retained earnings 60,000
Receivables/Payables 67,000 35,000
Totals 610,000 610,000

Notes
1) Office costs include prepaid expenditure of £5,000.
2) A 1:5 Bonus Issue occurred on 01-Jan-2021.
3) Plant (cost £80,000) was damaged on 30-Jun-21. Remaining life of
this plant is 3 years, value-in-use £24,000, & scrap value £15,000.
4) Plant depreciation is 10% p.a. (straight line basis).
5) Company tax rates were 20%.
6) A dividend of 10p per share has been agreed.

Required:
For Y/e Dec-21, prepare the following:
a) Financial Position Statement [10 marks]

b) Income Statement [07 marks]

c) Change in Equity Statement [04 marks]

d) Calculate:
Return on Capital Employed
Profit Margin in Sales
Dividend Cover Ratio [03 marks]

[Total 24 marks]

Page 5 of 8
Question 12

Gawain’s balance sheet for at 31/12/X1 is shown below

£’000 £’000
Buildings 2,100 £1NV Shares 1800
Equipment 450 Reserves 975
Inventory 150 10% Loan Stock 600
Cash & Receivables 1,075 Payables 400
Assets 3,775 Equity & Liabilities 3,775

Assume that new plant could have been purchased on

01/01/X1 as follows:

a) Buy new plant (fair value £600,000, life 6 years) from a

2:9 rights issue made at a premium of 50p per share. [10 marks]

b) Instead, lease this plant over 6 years with interest at 20%

together with annual repayments of £180,000. [10 marks]

Prepare amended balance sheets at 31/12/X1 for each

option a) and b) above.

c) Contrast Finance Leases with Operating Leases [04 marks]

[Total 24 marks]

Page 6 of 8
Question 13

Data extracts from Dormer’s accounts are shown below

Ye-Dec-21 Ye-Dec-20
Land & Buildings 279,000 228,000
Plant 75,000 72,000

Inventory 65,000 53,000

Receivables 52,000 63,000
Cash at Bank 64,000 14,000
Total Assets 535,000 430,000

Share Capital 165,000 115,000

Reserves 195,000 84,000

Long term loans 110,000 158,000

Payables 51,000 62,000

Taxation 8,000 5,000
Interest 6,000 6,000
Total Liabilities & Equity 535,000 430,000

Operating Profits 37,000

Interest -5,000
Taxation -11,000
Profit for the Year 21,000

Notes for the year to 31-Dec-21:

Annual depreciation charges were £30,000.
Plant (cost £15,000/depreciation £8,000) was sold for £4,000.
Buildings costing £80,000 were sold for £110,000.
A warehouse had been revalued by £60,000.
Buildings/warehouses are not depreciated.

Required:
a) Prepare a statement of cashflows for Ye-Dec-21. [16 marks]

b) Reconcile the annual movement in non-current assets. [05 marks]

c) For Ye-Dec-21 calculate:

Gearing, Current, and Quick Asset ratios [03 marks]

[Total 24 marks]

Page 7 of 8
Question 14

Red owns 80% of White & 40% of Blue. At acquisition White/Blue reserves were £16,000
and £8,000 respectively. White non-current assets were revalued by £4,000 at that time.
All relevant group/company data is shown below.

Balance Sheets at 31-Dec-21 Red White Blue

Non-current assets 48,000 24,000 10,000
Investment in White 40,000
Investment in Blue 10,000
Other Net Assets 20,000 30,000 22,000
118,000 54,000 32,000

£1NV Shares 40,000 25,000 10,000

Reserves 54,000 23,000 14,000
Profit/Loss 14,000 6,000 8,000
Other Liabilities 10,000 _____ _____
118,000 54,000 32,000

Required:
For the Red group at Ye-Dec-21 prepare
a) Group Balance Sheet, [10 marks]

b) Group Income Statement, and [06 marks]

c) Explain the rationale for group accounts. [04 marks]

For controlling/non-controlling interests calculate

d) Return on Equity, and [02 marks]

e) Earnings per Share [02 marks]

[Total 24 marks]

Page 8 of 8