2 Misson, a public limited company, has carried out transactions denominated in foreign currency during the financial

year ended 31 October 2006 and has conducted foreign operations through a foreign entity. Its functional and

presentation currency is the dollar. A summary of the foreign currency activities is set out below:

(a) Misson has a 100% owned foreign subsidiary, Chong, which was formed on 1 November 2004 with a share

capital of 100 million euros which has been taken as the cost of the investment. The total shareholders’ equity

of the subsidiary as at 31 October 2005 and 31 October 2006 was 140 million euros and 160 million euros

respectively. Chong has not paid any dividends to Misson and has no other reserves than retained earnings in its

financial statements. The subsidiary was sold on 31 October 2006 for 195 million euros.

Misson would like to know how to treat the sale of the subsidiary in the parent and group accounts for the year

ended 31 October 2006. (8 marks)

Required:

Discuss the accounting treatment of the above transactions in accordance with the advice required by the

directors.

(Candidates should show detailed workings as well as a discussion of the accounting treatment used.)

(b) Using relevant evaluation criteria, assess how achievable and compatible these three strategic goals are over

the next five years. (20 marks)

(a) The following figures have been calculated from the financial statements (including comparatives) of Barstead for

the year ended 30 September 2009:

increase in profit after taxation 80%

increase in (basic) earnings per share 5%

increase in diluted earnings per share 2%

Required:

Explain why the three measures of earnings (profit) growth for the same company over the same period can

give apparently differing impressions. (4 marks)

(b) The profit after tax for Barstead for the year ended 30 September 2009 was $15 million. At 1 October 2008 the company had in issue 36 million equity shares and a $10 million 8% convertible loan note. The loan note will mature in 2010 and will be redeemed at par or converted to equity shares on the basis of 25 shares for each $100 of loan note at the loan-note holders’ option. On 1 January 2009 Barstead made a fully subscribed rights issue of one new share for every four shares held at a price of $2·80 each. The market price of the equity shares of Barstead immediately before the issue was $3·80. The earnings per share (EPS) reported for the year ended 30 September 2008 was 35 cents.

Barstead’s income tax rate is 25%.

Required:

Calculate the (basic) EPS figure for Barstead (including comparatives) and the diluted EPS (comparatives not required) that would be disclosed for the year ended 30 September 2009. (6 marks)

(ii) An evaluation of the environmental and sustainability implications of the Giant Dam Project; (8 marks)

(d) Discuss the main benefits that might accrue from the successful implementation of a Total Quality

Management programme by the management of the combined entity. (5 marks)

(ii) Calculate the minimum target contribution to sales ratio (%) at which ‘Nellie the Elephant’ will be

financially viable, assuming that all other data remain unchanged. (4 marks)

(ii) Advise Benny of the amount of tax he could save by delaying the sale of the shares by 30 days. For the

purposes of this part, you may assume that the benefit in respect of the furnished flat is ￡11,800 per

year. (3 marks)

(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.

A company predicted that the learning rate for production of a new product would be 80%. The actual learning rate was 75%. The following possible reasons were stated for this:

(i) The number of new employees recruited was lower than expected

(ii) Unexpected problems were encountered with production

(iii) Unexpected changes to Health and Safety laws meant that the company had to increase the number of breaks during production for employees

Which of the above reasons could have caused the difference between the expected rate of learning and the actual rate of learning?

A.All of the above

B.(ii) and (iii) only

C.(i) only

D.None of the above

(b) How can Maslow’s theory be applied to the motivation of staff? (5 marks)

(b) Explain the major benefits of pursuing a policy of internal development. (4 marks)