(b) Discuss the relative costs to the preparer and benefits to the users of financial statements of increased
disclosure of information in financial statements. (14 marks)
Quality of discussion and reasoning. (2 marks)
第1题:
(b) Describe with suitable calculations how the goodwill arising on the acquisition of Briars will be dealt with in
the group financial statements and how the loan to Briars should be treated in the financial statements of
Briars for the year ended 31 May 2006. (9 marks)
(b) IAS21 ‘The Effects of Changes in Foreign Exchange Rates’ requires goodwill arising on the acquisition of a foreign operation
and fair value adjustments to acquired assets and liabilities to be treated as belonging to the foreign operation. They should
be expressed in the functional currency of the foreign operation and translated at the closing rate at each balance sheet date.
Effectively goodwill is treated as a foreign currency asset which is retranslated at the closing rate. In this case the goodwillarising on the acquisition of Briars would be treated as follows:
At 31 May 2006, the goodwill will be retranslated at 2·5 euros to the dollar to give a figure of $4·4 million. Therefore this
will be the figure for goodwill in the balance sheet and an exchange loss of $1·4 million recorded in equity (translation
reserve). The impairment of goodwill will be expensed in profit or loss to the value of $1·2 million. (The closing rate has been
used to translate the impairment; however, there may be an argument for using the average rate.)
The loan to Briars will effectively be classed as a financial liability measured at amortised cost. It is the default category for
financial liabilities that do not meet the definition of financial liabilities at fair value through profit or loss. For most entities,
most financial liabilities will fall into this category. When a financial liability is recognised initially in the balance sheet, the
liability is measured at fair value. Fair value is the amount for which a liability can be settled, between knowledgeable, willing
parties in an arm’s length transaction. In other words, fair value is an actual or estimated transaction price on the reporting
date for a transaction taking place between unrelated parties that have adequate information about the asset or liability being
measured.
Since fair value is a market transaction price, on initial recognition fair value generally is assumed to equal the amount of
consideration paid or received for the financial asset or financial liability. Accordingly, IAS39 specifies that the best evidence
of the fair value of a financial instrument at initial recognition generally is the transaction price. However for longer-term
receivables or payables that do not pay interest or pay a below-market interest, IAS39 does require measurement initially at
the present value of the cash flows to be received or paid.
Thus in Briars financial statements the following entries will be made:
第2题:
(b) Discuss the key issues which will need to be addressed in determining the basic components of an
internationally agreed conceptual framework. (10 marks)
Appropriateness and quality of discussion. (2 marks)
第3题:
(b) Discuss how management’s judgement and the financial reporting infrastructure of a country can have a
significant impact on financial statements prepared under IFRS. (6 marks)
Appropriateness and quality of discussion. (2 marks)
第4题:
Required:
Discuss the principles and practices which should be used in the financial year to 30 November 2008 to account
for:(b) the costs incurred in extending the network; (7 marks)
第5题:
4 Whilst acknowledging the importance of high quality corporate reporting, the recommendations to improve it are
sometimes questioned on the basis that the marketplace for capital can determine the nature and quality of corporate
reporting. It could be argued that additional accounting and disclosure standards would only distort a market
mechanism that already works well and would add costs to the reporting mechanism, with no apparent benefit. It
could be said that accounting standards create costly, inefficient, and unnecessary regulation. It could be argued that
increased disclosure reduces risks and offers a degree of protection to users. However, increased disclosure has several
costs to the preparer of financial statements.
Required:
(a) Explain why accounting standards are needed to help the market mechanism work effectively for the benefit
of preparers and users of corporate reports. (9 marks)
第6题:
(b) Using the information contained in Appendix 1.1, discuss the financial performance of HLP and MAS,
incorporating details of the following in your discussion:
(i) Overall client fees (total and per consultation)
(ii) Advisory protection scheme consultation ‘utilisation levels’ for both property and commercial clients
(iii) Cost/expense levels. (10 marks)
(ii) As far as annual agreements relating to property work are concerned, HLP had a take up rate of 82·5% whereas MAS
had a take up rate of only 50%. Therefore, HLP has ‘lost out’ to competitor MAS in relative financial terms as regards
the ‘take-up’ of consultations relating to property work. This is because both HLP and MAS received an annual fee from
each property client irrespective of the number of consultations given. MAS should therefore have had a better profit
margin from this area of business than HLP. However, the extent to which HLP has ‘lost out’ cannot be quantified since
we would need to know the variable costs per consultation and this detail is not available. What we do know is that
HLP earned actual revenue per effective consultation amounting to £90·90 whereas the budgeted revenue per
consultation amounted to £100. MAS earned £120 per effective consultation.
The same picture emerges from annual agreements relating to commercial work. HLP had a budgeted take up rate of
50%, however the actual take up rate during the period was 90%. MAS had an actual take up rate of 50%. The actual
revenue per effective consultation earned by HLP amounted to £167 whereas the budgeted revenue per consultation
amounted to £300. MAS earned £250 per effective consultation.
There could possibly be an upside to this situation for HLP in that it might be the case that the uptake of 90% of
consultations without further charge by clients holding annual agreements in respect of commercial work might be
indicative of a high level of customer satisfaction. It could on the other hand be indicative of a mindset which says ‘I
have already paid for these consultations therefore I am going to request them’.
(iii) Budgeted and actual salaries in HLP were £50,000 per annum, per advisor. Two additional advisors were employed
during the year in order to provide consultations in respect of commercial work. MAS paid a salary of £60,000 to each
advisor which is 20% higher than the salary of £50,000 paid to each advisor by HLP. Perhaps this is indicative that
the advisors employed by MAS are more experienced and/or better qualified than those employed by HLP.
HLP paid indemnity insurance of £250,000 which is £150,000 (150%) more than the amount of £100,000 paid by
MAS. This excess cost may well have arisen as a consequence of successful claims against HLP for negligence in
undertaking commercial work. It would be interesting to know whether HLP had been the subject of any successful
claims for negligent work during recent years as premiums invariably reflect the claims history of a business. Rather
worrying is the fact that HLP was subject to three such claims during the year ended 31 May 2007.
Significant subcontract costs were incurred by HLP during the year probably in an attempt to satisfy demand and retain
the goodwill of its clients. HLP incurred subcontract costs in respect of commercial properties which totalled £144,000.
These consultations earned revenue amounting to (320 x £150) = £48,000, hence a loss of £96,000 was incurred
in this area of the business.
HLP also paid £300,000 for 600 subcontract consultations in respect of litigation work. These consultations earned
revenue amounting to (600 x £250) = £150,000, hence a loss of £150,000 was incurred in this area of the business.
In contrast, MAS paid £7,000 for 20 subcontract consultations in respect of commercial work and an identical amount
for 20 subcontract consultations in respect of litigation work. These consultations earned revenue amounting to
20 x (£150 + £200) =£7,000. Therefore, a loss of only £7,000 was incurred in respect of subcontract consultations
by MAS.
Other operating expenses were budgeted at 53·0% of sales revenue. The actual level incurred was 40·7% of sales
revenue. The fixed/variable split of such costs is not given but it may well be the case that the fall in this percentage is
due to good cost control by HLP. However, it might simply be the case that the original budget was flawed. Competitor
MAS would appear to have a slightly superior cost structure to that of HLP since its other operating expenses amounted
to 38·4% of sales revenue. Further information is required in order to draw firmer conclusions regarding cost control
within both businesses.
第7题:
(b) (i) Advise Alasdair of the tax implications and relative financial risks attached to the following property
investments:
(1) buy to let residential property;
(2) commercial property; and
(3) shares in a property investment company/unit trust. (9 marks)
第8题:
(c) Describe the examination procedures you should use to verify Cusiter Co’s prospective financial information.
(9 marks)
第9题:
(b) Describe the potential benefits for Hugh Co in choosing to have a financial statement audit. (4 marks)
第10题:
3 (a) Financial statements often contain material balances recognised at fair value. For auditors, this leads to additional
audit risk.
Required:
Discuss this statement. (7 marks)
第11题:
The finance director of Blod Co, Uma Thorton, has requested that your firm type the financial statements in the form
to be presented to shareholders at the forthcoming company general meeting. Uma has also commented that the
previous auditors did not use a liability disclaimer in their audit report, and would like more information about the use
of liability disclaimer paragraphs.
Required:
(b) Discuss the ethical issues raised by the request for your firm to type the financial statements of Blod Co.
(3 marks)
第12题:
JJG Co is planning to raise $15 million of new finance for a major expansion of existing business and is considering a rights issue, a placing or an issue of bonds. The corporate objectives of JJG Co, as stated in its Annual Report, are to maximise the wealth of its shareholders and to achieve continuous growth in earnings per share. Recent financial information on JJG Co is as follows:
Required:
(a) Evaluate the financial performance of JJG Co, and analyse and discuss the extent to which the company has achieved its stated corporate objectives of:
(i) maximising the wealth of its shareholders;
(ii) achieving continuous growth in earnings per share.
Note: up to 7 marks are available for financial analysis.(12 marks)
(b) If the new finance is raised via a rights issue at $7·50 per share and the major expansion of business has
not yet begun, calculate and comment on the effect of the rights issue on:
(i) the share price of JJG Co;
(ii) the earnings per share of the company; and
(iii) the debt/equity ratio. (6 marks)
(c) Analyse and discuss the relative merits of a rights issue, a placing and an issue of bonds as ways of raising the finance for the expansion. (7 marks)
第13题:
5 Financial statements have seen an increasing move towards the use of fair values in accounting. Advocates of ‘fair
value accounting’ believe that fair value is the most relevant measure for financial reporting whilst others believe that
historical cost provides a more useful measure.
Issues have been raised over the reliability and measurement of fair values, and over the nature of the current level
of disclosure in financial statements in this area.
Required:
(a) Discuss the problems associated with the reliability and measurement of fair values and the nature of any
additional disclosures which may be required if fair value accounting is to be used exclusively in corporate
reporting. (13 marks)
第14题:
(c) Discuss how the manipulation of financial statements by company accountants is inconsistent with their
responsibilities as members of the accounting profession setting out the distinguishing features of a
profession and the privileges that society gives to a profession. (Your answer should include reference to the
above scenario.) (7 marks)
Note: requirement (c) includes 2 marks for the quality of the discussion.
第15题:
(c) Discuss the ethical responsibility of the company accountant in ensuring that manipulation of the statement
of cash flows, such as that suggested by the directors, does not occur. (5 marks)
Note: requirements (b) and (c) include 2 professional marks in total for the quality of the discussion.
第16题:
Discuss the principles and practices which should be used in the financial year to 30 November 2008 to account
for:(c) the purchase of handsets and the recognition of revenue from customers and dealers. (8 marks)
Appropriateness and quality of discussion. (2 marks)
Handsets and revenue recognition
The inventory of handsets should be measured at the lower of cost and net realisable value (IAS2, ‘Inventories’, para 9). Johan
should recognise a provision at the point of purchase for the handsets to be sold at a loss. The inventory should be written down
to its net realisable value (NRV) of $149 per handset as they are sold both to prepaid customers and dealers. The NRV is $51
less than cost. Net realisable value is the estimated selling price in the normal course of business less the estimated selling costs.
IAS18, ‘Revenue’, requires the recognition of revenue by reference to the stage of completion of the transaction at the reporting
date. Revenue associated with the provision of services should be recognised as service as rendered. Johan should record the
receipt of $21 per call card as deferred revenue at the point of sale. Revenue of $18 should be recognised over the six month
period from the date of sale. The unused call credit of $3 would be recognised when the card expires as that is the point at which
the obligation of Johan ceases. Revenue is earned from the provision of services and not from the physical sale of the card.
IAS18 does not deal in detail with agency arrangements but says the gross inflows of economic benefits include amounts collected
on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the
principal are not revenue. Revenue is the amount of the ‘commission’. Additionally where there are two or more transactions, they
should be taken together if the commercial effect cannot be understood without reference to the series of transactions as a whole.
As a result of the above, Johan should not recognise revenue when the handset is sold to the dealer, as the dealer is acting as an
agent for the sale of the handset and the service contract. Johan has retained the risk of the loss in value of the handset as they
can be returned by the dealer and the price set for the handset is under the control of Johan. The handset sale and the provision
of the service would have to be assessed as to their separability. However, the handset cannot be sold separately and is
commercially linked to the provision of the service. Johan would, therefore, recognise the net payment of $130 as a customer
acquisition cost which may qualify as an intangible asset under IAS38, and the revenue from the service contract will be recognised
as the service is rendered. The intangible asset would be amortised over the 12 month contract. The cost of the handset from the
manufacturer will be charged as cost of goods sold ($200).
第17题:
(ii) Briefly discuss FOUR non-financial factors which might influence the above decision. (4 marks)
第18题:
(ii) Briefly discuss THREE disadvantages of using EVA? in the measurement of financial performance.
(3 marks)
第19题:
(b) Using the information provided, state the financial statement risks arising and justify an appropriate audit
approach for Indigo Co for the year ending 31 December 2005. (14 marks)
第20题:
(d) Discuss the professional accountant’s liability for reporting on prospective financial information and the
measures that the professional accountant might take to reduce that liability. (6 marks)
第21题:
(c) With specific reference to Hugh Co, discuss the objective of a review engagement and contrast the level of
assurance provided with that provided in an audit of financial statements. (6 marks)
第22题:
(b) (i) Discuss the relationship between the concepts of ‘business risk’ and ‘financial statement risk’; and
(4 marks)
第23题:
听力原文:M: There are several reasons why careful analysis of financial statements is necessary. What are they?
W: First, financial statements are general-purpose statements. Secondly, the relationships between amounts on successive financial statements are not obvious without analysis. And thirdly, users of financial statements may be interested in seeing how well a company is performing.
Q: What are they talking about?
(17)
A.The methods of financial statements.
B.The necessity of careful analysis of financial statements
C.The relationship among financial statements.
D.The purpose of financial statements.