AC6001

Module Title Advanced Financial Reporting

Level Six

Time Allowed 60 minutes

Instructions to students:
 Answer all questions in the answer books provided.
 The use of a calculator is permitted.
 Students are not permitted to remove this examination paper from the
examination room.

No. of Pages 7

No. of Questions 11

Page 1 of 6
Section A
Question 1
The following is the trial balance of Friends Co at 31 December 2020:

£’000 £’000
Dr Cr
20,338,56
Sales 0
Cost of sales 9,801,000
Distribution Cost 3,433,320
Administration Cost 3,979,800
Finance Cost 102,168
Taxation 56,430
Deferred tax 81,972
Debentures 178,200
Non-current assets:
Buildings 2,376,000
Buildings accumulated
depreciation 406,296
Land 665,280
Plant 1,487,376
Plant accumulated
depreciation 487,080
Closing Inventory 1,657,260
Receivables 1,894,860
Payables 908,820
Bank 58,212
Ordinary Class A share capital 2,352,240
Ordinary Class B share capital 736,560
Retained Profit 986,040
Dividend paid 1,080,486
26,533,98 26,533,98
0 0
Additional information (£‘000):

 On 1 January 2020 the company revalued its non-current assets. These

revaluations have not yet been included in the trial balance above.
Revaluation details are as follows:
Land revalued to £700,000.
Building revalued to £2,000,000.
The expected life on 1 January 2020 for the building was determined at 40
years.
It is company policy to include the depreciation on buildings in cost of sales.
Depreciation for all the other assets has already been calculated for the
year ending 31 December 2020.
Friends plc. operates in a country where tax is not applicable on revaluation
surplus.

Page 2 of 6
 Question 2 continues overleaf

 On 1 August 2020, an entity issued 900,000-four-year convertible bonds

that have a coupon rate of 3.7%. The market rate of interest for similar
bond without conversion rights is 4.5% (being the interest rate for an
equivalent debt without the conversion option).
 On 31st December 2020, the deferred tax liability declined by £1,972.

Required:

In accordance with the IFRSs, prepare the following statements:

a. Statement of profit or loss and other comprehensive income for the year
ended 31 December 2021.
(25 marks)
b. Statement of financial position as at 31 December 2021.
(35 marks)
All workings must be clearly shown.

Total: 60 marks

End of Section A
Section B follows overleaf

Page 3 of 6
Section B

Answer all questions by writing the letter which corresponds to your answer for
each question on the answer book provided.
Each question is worth 4/ marks.

The following scenario relates to Questions 1 – 4

On 1st January 20X1 the entity entered as lessee, into a four-year lease of a
machine that had an economic life of ten years, at the end of which it is
expected to have residual value of 5,000. At the inception of the lease, the fair
value (cash cost) of the machine was £75,000.

On 31 December for each of the four years of the lease term the entity is
expected to receive £21,892.71. The depreciation method is straight-line. The
interest rate implicit in the lease is 6.5 per cent per year.

Question 1
Based on the amortised cost method, the interest amount for the first and third
years consecutively is:
a. £4,875; £3,768.8 interest income
b. £4,875; £2,590.8 interest expense
c. £4,875; £2,590.8 interest income
d. none of the above

Question 2
The payment related accounting entry on 31 Dec 20X1 is:
a. DEBIT Lease £17,017.71
DEBIT Interest expense £4,875
CREDIT Cash £21,892.71

b. DEBIT Cash £21,892.71

CREDIT Interest income £ 4,875
CREDIT Lease receivable £17,017.71

c. DEBIT Lease £19,301.91

DEBIT Interest expense £ 2,590.798
CREDIT Cash £21,892.71

d. DEBIT Cash £21,892.71

CREDIT Interest income £ 2,590.798
CREDIT Lease receivable £19,301.91

Question 3
Extract from the income statement at 31 Dec 20X3 reflects:
a. depreciation expense £7,000
b. interest expense £2,590.8
c. interest income £2,590.8
d. interest income £2,590.8

Question 4

Extract from the statement of financial position at 31 Dec 20X3 reflects:

Page 4 of 6
a. current liability £20,556.5
b. Machine (NBV) £50,000
c. current lease receivable £20,556.5
d. non-current lease receivable zero

The following scenario relates to Questions 5 - 8

A company’s financial statements show profit before tax of 150,000 in each of

years 20X1 – 20X4. This profit is after charging depreciation of a machine
purchased 1 January 20X1 costing 15000. For financial reporting purposes, the
entity depreciates the machine on a straight line basis over four years to 3000
residual value. The tax allowances granted to the machine are:

1 2 3 4 5
£4,800 £3,600 £2,400 £1,200 £4,800

The entity incurs income tax at the rate of 20 per cent of its taxable profit.
Question 5
The taxable profit for 20X1, 20X2 and 20X3 respectively is:
Taxable profit = profit before tax + depreciation expense ( FR purpose – tax
allowance ( depre ex – tax purpose)
Y1 ; 150,000 + (15,000-3000)/4 -4800 = 148,200
Y2
a. £145,200; £146,400 and £147,600
b. £148,200; £149,400 and £150,600
c. £150,000; £150,000 and £150,000
d. none of the above

Question 6
The current tax expense for 20X1, 20X2 and 20X3 respectively is:
Current tax expense for 20x1 , 20x2 , 20x3
Current tax expense + taxable profit * tax rate
a. £148,200; £149,400 and £150,600
b. £29,640; £29,880 and £30,120
c. £30,000; £30,000 and £30,000
d. none of the above

Question 7
The temporary tax difference on the machine for 20X1, 20X2 and 20X3
respectively is:
a. £1,800; £2,400 and £1,800
b. £360; £480 and £360
c. £360; £120 and £120
d. £147,000; £147,000; £147,000

Question 8
The differed tax on the machine for 20X1, 20X2 and 20X3 respectively is:
a. £360; £480 and £360 deferred tax asset
b. £360; £480 and £360 deferred tax liability
c. £1,800; £2,400 and £1,800 deferred tax asset
d. £1,800; £2,400 and £1,800 deferred tax liability

Question 9

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Which of the following is a fundamental characteristic in the conceptual
framework?

a. Materiality
b. Faithful representation
c. Relevance
d. All answers are fundamental characteristics

Question 10

At 1 January 20X0, Casey had property, plant and equipment with a carrying
amount of $250,000. In the year ended 31 December 20X0, the company
disposed of assets with a carrying amount of $45,000 for $50,000. The company
revalued a building from $75,000 to $100,000 and charged depreciation for the
year of $20,000. At the end of the year the carrying amount of property, plant
and equipment was $270,000.
What amount will be reported in the statement of cash flows for the year ended
31 December 20X0 under the heading “cash flows from investing activities”?
a. $10,000 outflow
b. $10,000 inflow
c. $35,000 outflow
d. $50,000 inflow

End of Section B
End of Paper

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