Mock Exam Semester 1, 2024/2025

Question 1

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2 The IASB’s Conceptual Framework refers to four measurement bases. Briefly explain how
each base relate to the measurement of a non-current asset.
(4 marks)

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Question 2
You are an ICAEW Chartered Accountant at Haltom Ltd which prepares financial statements in accordance
with IFRS Accounting Standards. A first draft of the financial statements for the year ended 31 December
20X5 has been prepared.
Management performance is monitored through the use of Financial Ratio Indicators for Evaluation of Staff
(FRIES). These are operating profit margin, interest cover and revenue growth. The managing director,
who has a domineering personality, has spoken to you about four financial reporting issues. He said:
I finalised the financial reporting of the four outstanding issues whilst you were on vacation and the
draft financial statements have now been completed. It's essential that we meet the ambitious targets
of our investors. The FRIES and profit and loss figure are very important and they now show good
revenue growth from last year's figure of £9.62 million. I'd like you to confirm that my treatment is
acceptable under IFRS Accounting Standards. We need this to happen. I want you to report to me
directly on this one.
The following are extracts from the financial statements of Haltom Ltd:
Draft statement of profit or loss for the year ended 31 December 20X5
£
Revenue 10,780,000
Cost of sales (5,260,000)
Gross profit 5,520,000
Operating expenses (1,320,000)
Operating profit 4,200,000
Interest expense (110,000)
Profit before tax 4,090,000
Tax (550,000)
Profit for the period 3,540,000
Draft statement of financial position (extract) as at 31 December 20X5
EQUITY
£
Ordinary £1 share capital 1,000,000
7% £1 convertible preference shares 5,000,000
Retained earnings 15,500,000
21,500,000
You have obtained the following information regarding the outstanding issues:
(1) On 1 January 20X5, Haltom Ltd sold its head office building to a bank for £3.4 million and then
immediately leased it back under a 10-year lease. The transfer of the building constituted a sale under
IFRS 15, Revenue from Contracts with Customers. At the date of sale, the carrying amount of the
building was £3 million, its fair value was £3.4 million and its useful life to Haltom Ltd was 10 years.
Under the terms of the lease, Haltom Ltd must pay £200,000 pa in arrears. The interest rate implicit in
the lease is 5.85% and on 1 January 20X5, the present value of the future lease payments was
£1,483,000. Haltom Ltd derecognised the carrying amount of the building and recognised the cash
received of £3.4 million in bank and a gain on disposal of £0.4 million in revenue. It also recognised
an expense of £200,000 in operating expenses, in respect of the lease payment made on 31 December
20X5.
(2) On 1 January 20X5 Haltom Ltd issued five million 7% £1 convertible preference shares at par. The
dividend is payable annually commencing on 31 December 20X5. The preference shares are
convertible to an equal number of equity shares on 31 December 20X7 at the option of the holder or

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 redeemable at par for cash. The convertible preference shares have been presented as part of equity
and the dividend paid has been recognised in the statement of changes in equity as the managing
director believes they will ultimately be converted. The market rate of interest on similar borrowings
without the convertibility option is 9%.
(3) Haltom Ltd has a franchise agreement with Scopi Ltd, which is allowed to manufacture and sell goods
under the Haltom Ltd brand name.
Jessica Nuttall, who owns a controlling interest in Scopi Ltd, was appointed as a director of Haltom Ltd
on 1 October 20X5. Having taken appropriate advice, the other directors of Haltom Ltd are satisfied
that the transactions with Scopi Ltd are at arm's length and the managing director is of the opinion that
no disclosures are required.
(4) On 1 July 20X5 Haltom Ltd issued 200,000 new £1 ordinary shares at full market price of £2 per share.
The issue was fully subscribed. The managing director is keen to conserve cash so, instead of paying
an ordinary dividend, a 1 for 4 bonus issue was made on 31 December 20X5. Neither share issue has
yet been accounted for.
Requirements
2.1 (a) Explain the required IFRS Accounting Standards financial reporting treatment of the above issues,
preparing relevant calculations where appropriate. (19 marks)
(b) Prepare a revised statement of profit or loss for the year ended 31 December 20X5 and an extract
from the statement of financial position showing equity as at that date.
(5 marks)
2.2 Calculate basic earnings per share for the year ended 31 December 20X5. Give your answer to the
nearest penny. (2 marks)
2.3 Discuss the ethical issues and actions arising from the above information that you should consider.
(4 marks)

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Question 3
Linguine plc is a listed company and is financed by both debt and equity. It manufactures medicines for the
pharmaceutical industry and has a high turnover of staff.
The following information is relevant to the statement of cash flows for the year ended 31 December
20X3.
(1) Extracts from Linguine plc’s statement of financial position as at 31 December 20X3:
20X3 20X2
£ £
Property, plant and equipment 969,400 987,200
Ordinary share capital (£1 shares) 2,500,000 1,500,000
Share premium 400,000 600,000
Revaluation surplus 275,600 150,300
Retained earnings 3,560,800 2,968,500
(2) During the year ended 31 December 20X3, Linguine plc:
 made a profit for the year of £1,035,600;
 paid ordinary dividends;
 paid £15,000 (including £1,000 interest) due on a lease taken out in the previous
financial year;
 purchased new machines for cash of £214,600;
 sold a machine, making a profit of £12,700. The receivable remained unpaid at 31
December 20X3;
 charged depreciation of £314,000; and
 revalued its land.
(3) On 1 March 20X3 Linguine plc made a 1 for 4 bonus issue out of share premium.
On 1 August 20X3 ordinary shares were issued for cash.
(4) Trade and other receivables included the amount due for the machine sold.
(5) Cash generated from operations was £256,200 before adjusting for relevant
information above.
Requirements
Prepare an extract from Linguine plc's statement of cash flows for the year ended 31 December
20X3, showing:
 cash generated from operations;
 cash flows from investing activities; and
 cash flows from financing activities.
(10 marks)

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Question 4
On 1 January 20X3 Barbina plc had one subsidiary company, Fusilli Ltd. On 1 May 20X3 Barbina plc
acquired shares in a second subsidiary company, Macaroni Ltd.
The individual statements of profit or loss for the year ended 31 December 20X3 for Barbina plc and its
subsidiaries are set out below:
Statements of profit or loss for the year ended 31 December 20X3
Barbina plc Fusilli Ltd Macaroni Ltd
£ £ £
Revenue 789,600 501,200 301,200
Cost of sales (401,200) (302,800) (158,160)
Gross profit 388,400 198,400 143,040
Operating expenses (201,100) (111,200) (98,280)
Operating profit 187,300 87,200 44,760
Investment income 97,000 – –
Profit before tax 284,300 87,200 44,760
Income tax expense (56,000) (17,400) (9,000)
Profit for the year 228,300 69,800 35,760
Additional information
(1) Extracts from the statements of financial position as at 31 December 20X3:
Barbina plc Fusilli Ltd Macaroni Ltd
£ £ £
Ordinary share capital
(£1 shares) 500,000 400,000 300,000
Retained earnings 1,250,600 524,800 161,900
(2) Barbina plc owns 70% of Fusilli Ltd's ordinary shares. At the acquisition date:
 the fair values of the assets acquired and liabilities assumed by Barbina plc were the same as
their carrying amounts;
 the fair value of the non-controlling interests was £123,600; and
 retained earnings were £325,600.
Barbina plc chose to measure the non-controlling interest in Fusilli Ltd using the fair value method.

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(3) On 1 May 20X3 Barbina plc acquired 60% of Macaroni Ltd's ordinary shares. Barbina plc chose to
measure the non-controlling interest in Macaroni Ltd using the proportionate method. Macaroni Ltd’s
profits for the year ended 31 December 20X3 accrued evenly over the year.
On the acquisition date, the fair values of the assets acquired and liabilities assumed by Barbina plc
were the same as their carrying amounts with the exception of a machine which had a fair value of
£8,400 in excess of its carrying amount. The machine had a remaining estimated useful life of seven
years at 1 May 20X3. Depreciation on this machine is recognised in cost of sales.
(4) Cumulative impairment losses of £14,000 had been recognised by 31 December 20X2 in respect of
goodwill arising on the acquisition of Fusilli Ltd.
(5) In December 20X3 Barbina plc sold goods to Fusilli Ltd for £16,000 at a gross margin of 20%. At 31
December 20X3 half of these goods remained unsold by Fusilli Ltd.
(6) In September 20X3 Barbina plc and Fusilli Ltd paid ordinary dividends of 20p and 30p per share
respectively.
Requirement
Prepare for the year ended 31 December 20X3 for Barbina plc:
 the consolidated statement of profit or loss; and
 an extract from the consolidated statement of changes in equity showing the retained earnings and
non-controlling interests columns.
Total: 22 marks