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Q1:  The following information relates to Entrepreneurial Enterprises plc.
(i)  Purchased a  brand  in  1995 for  £2 million.  The  directors  believe  the  brand  is
now worth £7 million.
(ii) Acquired a patent in January 2007, with ten years left to run, for £350,000.
(iii) Bought a fishing quota to catch 1,000 tonnes of fish for £1,000 per tonne on
1  January  2012.  The  market  value  for  the  quota,  for  which  there  is  an  active
market, was £1,400 per tonne on 31 December 2012.
(iv)  A  major  advertising  campaign  was  carried  out  in  the  autumn  of  2012.  The
directors believe the main benefits of this will arise in 2013.
(v)  The  accounting  policy  of  the  company  in  respect  of  intangible assets  is  as

Accounting Policy:
On a straight-line basis over:
Quota     20 years
Brands    20 years
Patents, licences, etc.         remaining legal life when acquired
?  Intangible  assets  for  which  there  is  an  active  market  are  revalued

Explain  how  each  of  the  above  items  should  be  dealt  with  in  the  accounts  of
Entrepreneurial  Enterprises  plc  for  the  year  to  31  December  2012,  and  prepare
the journal entries to show the adjustments for each of the items in preparing the
accounts to 31 December 2012.

(15 marks)

Purchases of a certain product during July were:
July     1     100 units @ £10.00
12     100 units @  £9.80
15       50 units @  £9.60
20     100 units @  £9.40

Units sold during the month were:
July     10      80 units
14   100 units
30     90 units

Assuming no opening inventories:
a)  Determine cost of goods sold for July under three different valuation methods
(12 marks)

b)  Discuss advantages and disadvantages of each method.
(8 marks)

(Total 20 marks)

Q3: Benzo Ltd commenced two projects on 1 January 2014. The following details
relate to them as at 31 December 2014:

Contract 1       Contract 2
£000       £000
Contract price      16,000   36,000
Progress billings invoiced    6,300   21,400
Progress billings received     4,850  20,000
Costs incurred to date       4,300  25,000
Estimated costs to complete    10,100 13,000

Benzo Ltd uses the percentage completion method based on the proportion of costs
incurred to account for construction contracts. The policy of Benzo Ltd is that project
outcomes can only be reliably measured when at least 40% complete.

Prepare extracts from the Income Statement for the year ended 31 December 2014
and  the  Statement  of  Financial  Position  as  at  that  date  for  the  above  contracts  in
accordance with IAS 11 ‘Construction Contracts’.

(15 marks)

Q4: Ditcot Ltd entered into a lease agreement with Samson Ltd on 1 January 2014.
The following information is available:

The leased asset was purchased by Samson Ltd for £190,000 on 1 January 2014. It
has a useful economic life of four years. Ditcot Ltd will pay Samson Ltd four annual
installments of £60,000 each, payable at the end of each financial year. The cost of
capital for Ditcot Ltd is 7% per annum.

The accounting year-end for Ditcot Ltd is 31 December. For the purpose of allocating
interest from finance leases, Ditcot Ltd uses the sum of the digits method.

a.  Show  how  the  above  lease  agreement  should  be  accounted  for,  in
accordance  with  IFRS,  in  Income  Statement  and  Statement  of  Financial
Position of Ditcot ltd over the period of the lease agreement. Show Statement
of Financial  Position  extracts  and  Income  Statement  entries  for  the  year
ending 31 Dec 2014. Ignore taxation and show your answers to the nearest £.

(15 marks)

b.  State  the  factors  that  indicate  that  a  lease  is  a finance  lease in  accordance
with IAS 17 – Leases.
(5 marks)

(Total 20 marks)

Q5: As the financial director of Bellrock plc, you have the following to consider in the
accounts for the year to 31 December 2014.
(i) A customer has made a claim against Bellrock for defective goods sold during the
current year. The claim is nearing settlement and Bellrock’s legal advisers think it is
probable that a sum of £300,000 will be paid by Bellrock in settlement, in addition to
all legal costs.
(ii) Bellrock sells goods with a warranty. If minor defects arose in all products sold,
repair  costs  of  £2  million  would  arise.  If  major  defects  arose  in  all  products  sold,
repair costs of £8 million would arise. Bellrock’s experience is that 20% of sales lead
to claims for minor defects and 5% lead to claims for major defects.
(iii) In September 2014 Bellrock relocated to new office premises. The lease on the
old premises runs to 31 December 2016 at a rent of £180,000 per year. Bellrock has
been unable to find a tenant to sub-let the old office premises.
(iv) Bellrock has a provision of £200,000 brought forward at 1 January 2014 against
a legal claim. During the year to 31 December 2014, Bellrock won this court action
and  therefore  the  provision  is  no  longer  needed.  However,  environmental  penalties
of some £200,000 have been threatened by the Health & Safety Executive and it is
probable  that  this  cost  will  have  to  be  paid.  The  directors  have  therefore  proposed
that the provision be carried forward.
(v) In October 2014, a member of staff was injured while demonstrating a mountain
bicycle.  The  Health  &  Safety  Executive  has  alleged  that  the  company  was  at  fault.
Bellrock Plc’s solicitors believe the company will lose this case brought against it.
Explain, quantifying your answer where possible, how the above should be
accounted for in accordance with IAS 37.
(Total 18 marks)

Q6: A  company  prepares  financial  statements  to  31  December  each  year.  The
following  events  occurred  after  31  December  2013  but  before  the  financial
statements for the year to 31 December 2013 were authorised for issue:
(a) Inventory held at 31 December 2013 was sold to a customer.
(b) The company made a major investment in plant and equipment.
(c) The company made a take-over bid for another company.
(d)  A  customer  who  owed  an  amount  of  money  to  the  company  on  31  December
2013 was declared bankrupt.
(e) The company announced a major restructuring plan.
(f)  It  was  discovered  that  cash  shown  as  an  asset  in  the  statement  of  financial
position at 31 December 2013 had been stolen on 28 December 2013.
(g) It was discovered that a item of equipment shown as an asset in the statement of
financial position at 31 December 2013 had been stolen on 12 January 2014.


Classify  each  of  these  events  as  either  an adjusting  event or a  non-adjusting
event and  explain  how  each  event  should  be  dealt  with  in  the  company’s  financial
statements  for  the  year  to  31  December  2013.  It  may  be  assumed  that  all  of  the
events are material.
(Total 12 marks)




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