(b) Anne is experiencing some tension due to the conflict between her duties and responsibilities as an employee of

Fillmore Pierce and as a qualified professional accountant.

Required:

(i) Compare and contrast her duties and responsibilities in the two roles of employee and professional

accountant. (6 marks)

The following trial balance relates to Sandown at 30 September 2009:

The following notes are relevant:

(i) Sandown’s revenue includes $16 million for goods sold to Pending on 1 October 2008. The terms of the sale are that Sandown will incur ongoing service and support costs of $1·2 million per annum for three years after the sale. Sandown normally makes a gross profit of 40% on such servicing and support work. Ignore the time value of money.

(ii) Administrative expenses include an equity dividend of 4·8 cents per share paid during the year.

(iii) The 5% convertible loan note was issued for proceeds of $20 million on 1 October 2007. It has an effective interest rate of 8% due to the value of its conversion option.

(iv) During the year Sandown sold an available-for-sale investment for $11 million. At the date of sale it had a

carrying amount of $8·8 million and had originally cost $7 million. Sandown has recorded the disposal of the

investment. The remaining available-for-sale investments (the $26·5 million in the trial balance) have a fair value of $29 million at 30 September 2009. The other reserve in the trial balance represents the net increase in the value of the available-for-sale investments as at 1 October 2008. Ignore deferred tax on these transactions.

(v) The balance on current tax represents the under/over provision of the tax liability for the year ended 30 September 2008. The directors have estimated the provision for income tax for the year ended 30 September 2009 at $16·2 million. At 30 September 2009 the carrying amounts of Sandown’s net assets were $13 million in excess of their tax base. The income tax rate of Sandown is 30%.

(vi) Non-current assets:

The freehold property has a land element of $13 million. The building element is being depreciated on a

straight-line basis.

Plant and equipment is depreciated at 40% per annum using the reducing balance method.

Sandown’s brand in the trial balance relates to a product line that received bad publicity during the year which led to falling sales revenues. An impairment review was conducted on 1 April 2009 which concluded that, based on estimated future sales, the brand had a value in use of $12 million and a remaining life of only three years.

However, on the same date as the impairment review, Sandown received an offer to purchase the brand for

$15 million. Prior to the impairment review, it was being depreciated using the straight-line method over a

10-year life.

No depreciation/amortisation has yet been charged on any non-current asset for the year ended 30 September

2009. Depreciation, amortisation and impairment charges are all charged to cost of sales.

Required:

(a) Prepare the statement of comprehensive income for Sandown for the year ended 30 September 2009.

(13 marks)

(b) Prepare the statement of financial position of Sandown as at 30 September 2009. (12 marks)

Notes to the financial statements are not required.

A statement of changes in equity is not required.

Mr Li, a photographer, had his photos published in the July 2014 edition of the tourism journal. The total fee was RMB20,000 and the publisher agreed to pay Mr Li by two instalments, one of RMB18,000 in June 2014 and the balance of RMB2,000 in August 2014. The same photos were republished by the government in a promotion brochure in August 2014 and Mr Li was paid a further fee of RMB3,000 by the government.

What is the total amount of individual income tax (IIT) which Mr Li will pay on the above incomes?

A.RMB2,492

B.RMB2,576

C.RMB2,548

D.RMB3,680

(c) Discuss the practical problems that may be encountered in the implementation of an activity-based system

of product cost management. (5 marks)

(c) Discuss the ways in which budgets and the budgeting process can be used to motivate managers to

endeavour to meet the objectives of the company. Your answer should refer to:

(i) setting targets for financial performance;

(ii) participation in the budget-setting process. (12 marks)

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)

In 2014 Mr Yuan inherited an estate of RMB2 million from his uncle who had died two months earlier.

What is the correct treatment of the estate income for individual income tax purposes?

A.The estate income is not taxable

B.The estate income will be taxed as occasional (ad hoc) income

C.The estate income will be taxed as other income

D.The estate income will be taxed as service income

(b) Good Sports Limited has successfully followed a niche strategy to date.

Assess the extent to which an appropriate e-business strategy could help support such a niche strategy.

(8 marks)

Section B – TWO questions ONLY to be attempted

(a) Cate is an entity in the software industry. Cate had incurred substantial losses in the fi nancial years 31 May 2004 to 31 May 2009. In the fi nancial year to 31 May 2010 Cate made a small profi t before tax. This included signifi cant non-operating gains. In 2009, Cate recognised a material deferred tax asset in respect of carried forward losses, which will expire during 2012. Cate again recognised the deferred tax asset in 2010 on the basis of anticipated performance in the years from 2010 to 2012, based on budgets prepared in 2010. The budgets included high growth rates in profi tability. Cate argued that the budgets were realistic as there were positive indications from customers about future orders. Cate also had plans to expand sales to new markets and to sell new products whose development would be completed soon. Cate was taking measures to increase sales, implementing new programs to improve both productivity and profi tability. Deferred tax assets less deferred tax liabilities represent 25% of shareholders’ equity at 31 May 2010. There are no tax planning opportunities available to Cate that would create taxable profi t in the near future. (5 marks)

(b) At 31 May 2010 Cate held an investment in and had a signifi cant infl uence over Bates, a public limited company. Cate had carried out an impairment test in respect of its investment in accordance with the procedures prescribed in IAS 36, Impairment of assets. Cate argued that fair value was the only measure applicable in this case as value-in-use was not determinable as cash fl ow estimates had not been produced. Cate stated that there were no plans to dispose of the shareholding and hence there was no binding sale agreement. Cate also stated that the quoted share price was not an appropriate measure when considering the fair value of Cate’s signifi cant infl uence on Bates. Therefore, Cate estimated the fair value of its interest in Bates through application of two measurement techniques; one based on earnings multiples and the other based on an option–pricing model. Neither of these methods supported the existence of an impairment loss as of 31 May 2010. (5 marks)

(c) At 1 April 2009 Cate had a direct holding of shares giving 70% of the voting rights in Date. In May 2010, Date issued new shares, which were wholly subscribed for by a new investor. After the increase in capital, Cate retained an interest of 35% of the voting rights in its former subsidiary Date. At the same time, the shareholders of Date signed an agreement providing new governance rules for Date. Based on this new agreement, Cate was no longer to be represented on Date’s board or participate in its management. As a consequence Cate considered that its decision not to subscribe to the issue of new shares was equivalent to a decision to disinvest in Date. Cate argued that the decision not to invest clearly showed its new intention not to recover the investment in Date principally through continuing use of the asset and was considering selling the investment. Due to the fact that Date is a separate line of business (with separate cash fl ows, management and customers), Cate considered that the results of Date for the period to 31 May 2010 should be presented based on principles provided by IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. (8 marks)

(d) In its 2010 fi nancial statements, Cate disclosed the existence of a voluntary fund established in order to provide a post-retirement benefi t plan (Plan) to employees. Cate considers its contributions to the Plan to be voluntary, and has not recorded any related liability in its consolidated fi nancial statements. Cate has a history of paying benefi ts to its former employees, even increasing them to keep pace with infl ation since the commencement of the Plan. The main characteristics of the Plan are as follows:

(i) the Plan is totally funded by Cate;

(ii) the contributions for the Plan are made periodically;

(iii) the post retirement benefi t is calculated based on a percentage of the fi nal salaries of Plan participants dependent on the years of service;

(iv) the annual contributions to the Plan are determined as a function of the fair value of the assets less the liability arising from past services.

Cate argues that it should not have to recognise the Plan because, according to the underlying contract, it can terminate its contributions to the Plan, if and when it wishes. The termination clauses of the contract establish that Cate must immediately purchase lifetime annuities from an insurance company for all the retired employees who are already receiving benefi t when the termination of the contribution is communicated. (5 marks)

Required:

Discuss whether the accounting treatments proposed by the company are acceptable under International Financial Reporting Standards.

Professional marks will be awarded in this question for clarity and quality of discussion. (2 marks)

The mark allocation is shown against each of the four parts above.

(b) Provide an example that illustrates a structured application of the terms contained in the above statement in

respect of a profit-seeking organisation OR a not-for-profit organisation of your own choice. (6 marks)