- This topic has 2 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Hello
In the last line of note 2 of this question it is mentioned “The fair values in the table below have been reflected in the year-end balances of the Angel Group”.My question is since its in the year end balances of the group, wouldn’t that mean that its already included in the SOFP total of 475? I’m asking because I am seeing it included as part of the working to arrive at the balancing figure which is used in the cash flow.
The links to the past papers are:
Also, in note 4, it mentions “additions at cost including assets acquired on the purchase of subsidiary 80” but in the cash flow workings for PPE it was left out. It was also not in the investment section of the cash flow statement. Please explain why.
Hi,
You’re correct that it states that the balances are reflected in the year-end balances, which they need to be to have been consolidated correctly, but they have not been incorporated at acquisition. The assets and liabilities need to be incorporated at both the acquisition and reporting date, so we need to make the adjustment for the balances acquired at fair value.
The purchase of PPE was a ridiculously tough part of this question as you needed to combine the information from parts (i), (ii) and (iv) to get it correct. Ouch!
To start with I’d use the $80 million figure quouted in part (iv) as your initial outflow and then adjust this for the $14 million PPE acquired at fair value from part (ii). This gives you an outflow of $66 million, which is the figure that you see in the answer’s workings.
Once we have this figure we then need to process the adjustments for the incorrect treatment of the building renovation in part (i) and the IAS 23 adjustment in part (iv).
Part (iv) is possibly easier as we need to correct the error on the construction cost of $4 million that has been charged to other expenses that should have been capitalised, which gives us an additional $4 million outflow additional to the $66 million. Additionally we also need to adjust for the interest of $1 million that has not been capitalised in part (iv), which further increases our outflows as it increases the year-end value of PPE.
To correct the errors from part (i) we need to remove the renovations of $3 million that has incorrectly been charged to revenue, which again gives us an additional $3 million to add to PPE once corrected and a further $3 million outflow. Finally in part (i) we need to adjust for the error made on the $2 million cash grant received where they have DR Bank $2 million and CR PPE $2 million. To correct this we need to DR PPE $2 million CR SPL $1 million (job creation) CR Deferred income $1 million. This again increases PPE and the purchase of PPE in the SCF.
So, if we take $66 million +$4 million + $1 million + $3 million + $2 million = $76 million.
As I said this is just ridiculously difficult so I wouldn’t stress if you found this difficult. I doubt many people, if anyone at all, got it correct in the real exam.
Thanks
- You must be logged in to reply to this topic.