University of Bath SCHOOL OF MANAGEMENT MN50325 Financial Accounting 2 Wednesday 24 th May 2017 13:00 – 15:00 2 hours Answer TWO of the four questions in Section A Each question in Section A is worth 33 marks AND Answer ONE of the three questions in section B Each question in Section B is worth 34 marks Start the answer to each question on a new page Present value and annuity tables are supplied Only calculators provided by the University may be used PLEASE FILL IN THE DETAILS ON THE FRONT OF YOUR ANSWER BOOK/COVER AND SIGN IN THE SECTION ON THE RIGHT OF YOUR ANSWER BOOK/COVER, PEEL AWAY ADHESIVE STRIP AND SEAL TAKE CARE TO ENTER THE CORRECT CANDIDATE NUMBER AS DETAILED ON YOUR DESK LABEL DO NOT TURN OVER YOUR QUESTION PAPER UNTIL INSTRUCTED TO BY THE CHIEF INVIGILATOR MN50325
Section A – Answer TWO of the four questions in this section Question 1 Below are the draft financial statements of two companies. Statements of Financial Position as at 31 March 2017 Laurel Hardy £000's £000's Assets Non-Current Assets Property, plant and equipment 18,700 3,900 Investments: 10% loan note from Hardy 1,000 - 19,700 3,900 Current Assets Inventories 4,400 2,800 Receivables 5,600 3,200 Bank 300 100 10,300 6,100 Total Assets 30,000 10,000 Equity and Liabilities Equity Equity shares of £1 each 100 2,000 Share Premium 9,900 500 Revaluation surplus 1,700 900 Retained earnings 9,300 4,350 21,000 7,750 Non-current Liabilities 10% loan notes 2,500 1,000 Current Liabilities Trade payables 6,500 1,250 Total equity and liabilities 30,000 10,000 Statements of Profit or Loss and Other Comprehensive Income for the Year to 31 March 2017 Laurel Hardy £000's £000's Operating Profit 7,900 3,400 Finance Costs (250) - Profit before tax 7,650 3,400 Income tax expense (1,530) (680) Profit for the year 6,120 2,720 Other Comprehensive Income Gain on revaluation of property 1,700 900 Total Comprehensive income 7,820 3,620 Additional Information Page 2 of 7 MN50325
(i) On 1 July 2016 Laurel acquired 80% of the equity share capital of Hardy. The consideration was satisfied by a share exchange of four shares in Laurel for every seven acquired shares in Hardy. At the date of acquisition, shares in Laurel and Hardy had a market value of £3.50 and £4 respectively. Laurel will also pay a cash consideration of £2 on 30 June 2018 for each acquired share in Hardy. Laurel has a cost of capital of 10%. None of the consideration has been recorded by Laurel. (ii) At the date of acquisition, the fair values of Hardy’s assets and liabilities were equal to their carrying amounts. However, both Laurel and Hardy revalued their properties on 31 March 2017. You may treat the whole of Hardy’s revaluation gain as a post-acquisition gain. (iii) Assume, except where indicated otherwise, that all items of income and expenditure accrue evenly throughout the year. (iv) Laurel’s policy is to value the non-controlling interest (NCI) at fair value at the date of acquisition.
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