Preparation for exam. Part 1. Exercise 1: Compile the statement of financial position Item Value (CU) Building, plant and equipment 850,000 Amortization for building, plant and equipment -230,000 Materials 170,000 Merchandise 260,000 Cash 180,000 Receivables 90,000 Corrections for receivables (bad debts) -15,000 Company’s brand name 75,000 Short-term bank loan 55,000 Long-term bank loan 145,000 Payables 120,000 Common stocks 750,000 Reserves 190,000 Retained earnings 230,000 Business result (profit or loss) of the current period -110,000 Assets: Value (CU) Current assets Non-current assets Total assets Equity and liabilities: Short-term liabilities Short-term bank loan Long-term bank loan Owner’s equity Total equity and liabilities Exercise 2: Compile the statement of total comprehensive income Item Value (CU) Sale of own production 700,000 Own production -550,000 Sales of unused equipment 180,000 Recovery amount of unused equipment sold -165,000 Sales of securities 175,000 Securities held for sale -190,000 Income tax expense for comprehensive income -24,000 Exchange differences on translating foreign operations -10,000 Actuarial gains on defined benefit pension obligations 8,000 Share of associates’ other comprehensive income 12,000 Income tax expense for other comprehensive income -1,500 Item Value (CU) Income from continuing operations (before tax) Gain/Loss from discontinued operations (before tax) Income tax expense for comprehensive income Profit/Loss for the year Other comprehensive income (before tax) Income tax expense for other comprehensive income Other comprehensive income for the year Total comprehensive income for the year Exercise 3: Find changes in owner’s equity Item Value (CU) Total equity Common stocks 350,000 Reserves 120,000 Fond for remeasurement 95,000 Retained earnings 130,000 Operations Value (CU) Creation of reserves 95,000 Share of retained earnings distributed to shareholders -70,000 Remeasurement of securities -15,000 Profit for the year 65,000 Share capital Reserves Fond for remeasurement Retained earnings and Restated balance Balance at the beginning of the period … … … … … Creation of reserves … … … … … Distribution to shareholders … … … … … Remeasurement of securities … … … … … Profit for the year … … … … … Total … … … … … Exercise 4: Compile consolidated statement of financial position and account for goodwill for the entity presented below Parent (P) acquires 60% of subsidiary (S) Goodwill = … Item Parent (P) Subsidiary (S) Consolidated statement of financial position Non-current tangible assets 550,000 110,000 … Consideration transferred (acquisition cost) by Parent (P) 200,000 … Goodwill … Current assets 210,000 80,000 … Total assets 960,000 190,000 … Non-controlling interest ... LT liabilities 10,000 … Legal capital 500,000 150,000 … Retained earnings 460,000 30,000 … Total equity and liabilities 960,000 190,000 … Exercise 5: Costs of acquisition an item and restoring the site after dismantling and removing the item acquired On 1.1.20X1 an entity bought a building for CU 230,000. Expected lifetime of the building is 7 years and after the end of this lifetime it will be necessary to restore the site on which the building is located. Estimated costs of site restoring are CU 24,000 and average interest rate is 15% p.a. Present value entity’s costs for site restoration: … Acquisition cost of building: … Example 6: Carrying amount of an item at subsequent measurement On 1 January 20X1 an entity acquired equipment for CU 380,000. Management estimates the useful life of the equipment as 10 years measured from the date of acquisition. Furthermore, it estimates the residual value of the equipment as CU 30,000. Management judges that straight-line method reflects the pattern in which it expects to consume future economic benefits generated by the equipment. At 31 December 20X1 the equipment was damaged and its recoverable amount was estimated as CU 340,000. What is the carrying amount of the plant on 31 December 20X1? Exercise 7: Calculate a depreciation amount An entity has equipment with balance value CU 6,000. Lifetime is defined as 4 years, recoverable amount is CU 400. It is assumed that equipment will produce 20 units of goods during first two years of its lifetime and 30 units of goods during last two years of its lifetime. Year Straight-line depreciation DDB Production depreciation 1 … … … 2 … … … 3 … … … 4 … … … Total … … … Exercise 8: Correct the errors and adjust retained earnings At the beginning of the year 20X1 an entity found, that in the year 20X0 there was an expense of CU 150,000, which was not accounted. Balance of retained earnings at the beginning of the year 20X0 was CU 300,000 and at the beginning of the year 20X1 – CU 400,000. Initial income statements: 20X0 20X1 Revenues (CU) 750,000 900,000 Expenses (CU) 500,000 750,000 EBT (CU) … … Income tax 30% (CU) … … EAT (CU) … … Corrected income statements: 20X0 20X1 Revenues (CU) … … Expenses (CU) … … EBT (CU) … … Income tax 30% (CU) … … EAT (CU) … … Correction of retained earnings: Item 20X0 20X1 Retained earnings at the beginning of the period (CU) … … Correction of errors (CU) … … Corrected retained earnings at the beginning of the period (CU) … … Exercise 9: Determine the amount of goodwill which should be recognized At 1 January 20X5 SME A acquired 100 per cent of the equity interests in SME B in exchange for cash of CU 300,000. The fair value of SME B’s identifiable assets acquired and liabilities assumed are as follows (no contingent liabilities exist): Item Value (CU) Equipment 105,000 Inventory 45,000 Accounts receivable 20,000 Patents 70,000 Accounts payable 23,000 What is the value of goodwill that the entity should recognize? Exercise 10: Test inventories for impairment and, if any, decide about subsequent reversal of Impairment loss A retailer holds three items of inventory (X, Y, and Z) at 31 December 20X0. All three inventories stay unsold at 31 December 20X1. Carrying amount at 31/12/20X0 Selling price at 31/12/20X0 Costs to sell estimated at 31/12/20X0 Selling price estimated at 31/12/20X1 Costs to sell estimated at 31/12/20X1 Item X 30,000 40,000 10,000 30,000 2,000 Item Y 50,000 50,000 5,000 70,000 12,000 Item Z 70,000 70,000 3,000 73,000 5,000 Item X Item Y Item Z Carrying amount at 31/12/20X before impairment test Selling price less cost to sell at 31/12/20X0 Impairment loss at 31/12/20X0 Carrying amount at 31/12/20X1 before impairment test Selling price less cost to sell at 31/12/20X1 Impairment loss at 31/12/20X1 Reversal of impairment loss for the year ended 31/12/20X1 Exercise 11: Account for financial leasing in financial statements of lessee On 1 January 20X1 an entity entered, as lessee, into a three-year non-cancellable lease of a machine. At the end of the lease term ownership of the machine passes to the lessee. There were made three lease payments for CU 4,000 always paid by 31 December. The interest rate implicit in the lease is 15 per cent per year. Real value of machine is CU 9,500. Estimated lifetime of machine is 10 years, estimated residual value at the end of lifetime is CU 500. Compile schedule of lease payments and compile extraction of statement of financial position and statement of comprehensive income of lessee during contract term. Example 12: Perform impairment test for goodwill and estimate the recognized amount of impairment loss On 31 December 20X1, Entity T acquires 100% of voting rights in Entity M for CU10,000. Entity M has manufacturing plants in three countries. The data below relates to the end of 20X1. Allocation of purchase price Fair value of identifiable assets Goodwill Activities in Country A 5,000 3,500 Activities in Country B 2,000 1,500 Activities in Country C 5,000 3,500 Goodwill arising on the acquisition of Entity M has been allocated to three cash-generating units (Countries A, B and C). During 20X2, a new government is elected in Country A. It passed legislation that significantly restricts exports of the main product produced by Entity T and its subsidiaries (ie Group T). As a result, and for the foreseeable future, Group T’s production in Country A will be cut by 40 per cent. The significant export restriction and the resulting production decrease require Group T to estimate the recoverable amount of Country A’s cash-generating unit at the end of 20X2. Management estimates cash flow forecasts for Country A operations and determines the cash-generating unit’s recoverable amount to be CU 2,750. Goodwill Identifiable assets Total Historical cost Accumulated amortization/depreciation (31 December 20X2) Carrying amount 31 December 20X2 Impairment loss 31 December 20X2 Carrying amount after impairment loss 31 December 20X2 At the end of 20X2, accumulated amortization for goodwill and identifiable assets for cash-generating unit from country A was CU 350 and CU 400 respectively. Estimate impairment loss and new carrying amount of intangible assets for cash-generating unit from country A at 31 December 20X2. Example 13: Estimate the cost of purchase (inventories) A retailer imported goods at a cost of CU 570, including CU 45 non-refundable import duties and CU 25 refundable purchase taxes. The risks and rewards of ownership of the imported goods were transferred to the retailer upon collection of the goods from the harbor warehouse. The retailer was required to pay for the goods upon collection. The retailer incurred CU23 to transport the goods to its retail outlet and a further CU 15 in delivering the goods to its customer. Further selling costs of CU 10 were incurred in selling the goods. What is the recognized cost of purchase of inventories? Example 14: Joint product (inventories) An entity manufactures a chemical ‘A’ for use in the agriculture industry. The production process requires a mixture of base chemicals followed by a maturation process, and from which, a product ‘A’ and joint product ‘B’ are produced. Furthermore, the total costs (ie including direct costs and the allocation of overheads) of a production run are CU 600,000. Each production run produces: · 8,000 liters of product A, sales value = CU450,000 · 6,500 liters of product B, sales value = CU350,000 The entity allocates the joint process costs to the products produced on the basis of their relative sales values. What are the per unit costs of by-products A and B? Example 15: Financial leasing On 1 January 20X1 an entity entered, as lessee, into a three-year non-cancellable lease of a machine. At the end of the lease term ownership of the machine passes to the lessee. There were made three lease payments for CU 3,000 always paid by 31 December. The interest rate implicit in the lease is 10 per cent per year. Real value of machine is CU 9,000. Estimated lifetime of machine is 10 years, estimated residual value at the end of lifetime is CU 600. Compile schedule of lease payments and compile extraction of statement of financial position and statement of comprehensive income of lessee during contract term.