business-reporting-july-2010-exam-paper

The fair value of an option was estimated to be 1260

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The fair value of an option was estimated to be £12.60 at 1 September 2009 and £19.40 at 31 May 2010. This is the first time that Flynt has operated such a scheme. As there is no cash cost to the company, I have not made any adjustments to the financial statements. The share price of Flynt at 31 May 2010 was £52 and the average share price for the 9 months to 31 May 2010 was £48. At 31 May 2010 there were still 19 executives in the scheme, but I anticipate there will only be 16 still employed by 1 September 2013.
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© The Institute of Chartered Accountants in England and Wales 2010 3 of 16 Lease of surplus machinery On 1 June 2009 Flynt leased some surplus machinery to Prior plc, an unrelated company, on the following terms: Lease term and remaining useful life of machinery 5 years Carrying amount and fair value of machinery at 31 May 2009 £612,100 Annual instalment payable in arrears £150,000 Interest rate implicit in lease 10% per annum Residual value guaranteed by Prior plc £61,000 Expected residual value at 31 May 2014 £70,000 Initial direct costs incurred by Flynt £1,000 I have treated the agreement as an operating lease and recognised lease rental income of £150,000. I have also charged depreciation of £122,420 and written off the direct costs incurred to the income statement. Acquisition of Dipper plc On 1 December 2009 Flynt purchased 100% of the ordinary shares of Dipper plc for a consideration of £6.4 million when Dipper had net assets with a fair value of £4.9 million including a deficit on a defined benefit pension scheme of £0.4 million. Goodwill of £1.5 million therefore arose on acquisition. The consideration given was 150,000 ordinary shares in Flynt. This was the first equity issue for a number of years. There were 1.4 million ordinary shares in issue on 31 May 2009. Flynt operates a defined contribution scheme, and I am unfamiliar with how to deal with Dipper’s defined benefit scheme. We obtained the following figures from Dipper’s actuaries at the acquisition date: Fair value of scheme assets £2.2 million Present value of pension obligations £2.6 million Estimated service cost from 1 December 2009 to 31 May 2010 £560,000 Expected return on assets 5% per annum Discount rate for scheme obligations 4% per annum The total contributions paid into the scheme by Dipper from the acquisition date to 31 May 2010 were £480,000, and I have charged this sum to operating costs. I have had a letter from Dipper’s pension fund advising me that they have paid out £450,000 to pensioners in the same period. I have not adjusted the deficit in the statement of financial position. Dipper’s accounting policy in relation to pensions is to recognise immediately actuarial gains and losses. I intend to maintain this policy in the group financial statements but I do not know how to calculate the actuarial gain or loss.
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