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Cima F2 Exam Question No 66

Question No 66:

ASD operates a defined benefit pension plan for its employees. At 1 January 2012 the fair value of the pension plan assets was $5,700,000 and the present value of the pension plan liabilities was $5,500,000. The net pension asset that resulted was correctly accounted for in accordance with IAS 19 Employee benefits.

The actuary estimates that the service cost for the year to 31 December 2012 is $1,020,000. The interest cost on the plan liabilities is estimated at 6% and the expected return on plan assets at 3% for the year to 31 December 2012. The pension plan paid $280,000 to retired members and ASD paid $820,000 in contributions to the pension plan for the year to 31 December 2012.
At 31 December 2012 the fair value of the pension plan assets is $6,300,000 and the present value of the pension plan liabilities is $6,500,000.

ASD recognises actuarial gains and losses in other comprehensive income in the period in which they occur.

Required:
In accordance with IAS 19 Employee benefits:
(i) Calculate the actuarial gains or losses on pension plan assets and liabilities that will be included in ASD’s other comprehensive income for the year ended 31 December 2012. (Round all figures to the nearest $000.)
(ii) Calculate the net pension asset or liability (stating which it is) that will be included in ASD’s statement of financial position as at 31 December 2012.

Answer:

Pension plan
(i) Actuarial gains and losses
 

	FV of plan assets $000	PV of plan liabilities $000
Opening balance	5,700	5,500
Service cost		1,020
Interest cost (6% x $5,500,000)		330
Expected return (3% x $5,700,000))	171
Benefits paid	(280)	(280)
Contributions	820
	6411	6570
Actuarial loss on plan assets	(111)
Actuarial gain on plan liabilities		(70)
Closing balance	6,300	6,500

(ii)

Statement of financial position	$000
Present value of pension plan liabilities at 31/12/12	6,500
Fair value of pension plan assets at 31/12/12/td>	(6,300)
Net pension liability	200

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Cima F2 Exam Question No 65

Question No 65:

The total number of shares issued on the exercise of the option or warrant is split into two

• The number of shares that would have been issued if the cash received had been used to buy shares at fair value (using the average price of the shares during the period);
• The remainder, which are treated like a bonus issue (i.e. as having been issued for no consideration).

The number of shares issued for no consideration is added to the weighted average number of shares when calculating the DEPS.

Cima F2 Exam Question No 64

Question No 64:

Options and warrants to subscribe for shares?
An option or warrant gives the holder the right to buy shares at some time in the future at a predetermined price.The cash received by the entity when the option is exercised will be less than the market price of the shares, as the option will only be exercised if the exercise price is lower than the market price.
The increase in resources does not match the increase there would be in resources if the issue of shares were at market value. The options will therefore have a dilutive effect on EPS.

Cima F2 Exam Question No 63

Question No 63:

What is Convertible debt?

The principles of convertible bonds and convertible preference shares are similar and will be dealt with together. If the convertible bonds/preference shares had been converted:

• The interest/dividend would be saved therefore earnings would be higher
• The number of shares would increase.

Note: Interest on bonds is tax deductible however preference dividends do not attract tax relief. Therefore, the interest adjustment should only be reflected net of tax in the case of bonds.
Note: If there is an option to convert the debt into a variable number of ordinary shares depending on when conversion takes place, the maximum possible number of additional shares is used in the calculation.

Cima F2 Exam Question No 62

Question No 62:

What is Importance of DEPS?
IAS 33 therefore requires an entity to disclose the DEPS, as well as the basic EPS, calculated using current earnings but assuming that the worst possible future dilution has already happened. Existing shareholders can look at the DEPS to see the effect on current profitability of commitments already entered into to issue ordinary shares in the future.

Cima F2 Exam Question No 61

Question No 61:

IAS 18 Interest, royalties and dividends
Interest, royalties and dividends should be recognised when:

• It is probable that economic benefits will flow to the entity
• The revenue can be measured reliably.

Interest and royalties should be recognised on an accruals basis, i.e. when earned rather than received. Dividends should be recognised when the right to receive them is established.

Cima F2 Exam Question No 60

Question No 60:

IAS 18 Rendering of services?

 Revenue from services should be recognised when all of the following criteria have been met:

• The revenue can be measured reliably
• It is probable that economic benefits will flow to the entity (i.e. the buyer will pay for the services)
• The stage of completion of the transaction can be measured reliably
• The costs to the seller can be measured reliably.

The revenue would then be recognised by reference to the stage of completion of the transaction at the reporting date

Cima F2 Exam Question No 59

Question No 59:

LM acquired 15% of the equity share capital of ST on 1 January 20X6 for $18 million. LM acquired a further 50% of the equity share capital of ST for $50 million on 1 January 20X7 when the fair value of ST's net assets was $82 million. The original 15% investment in ST had a fair value of $20 million at 1 January 20X7. The non controlling interest in ST was measured at its fair value of $30 million at the date control in ST was acquired. Calculate the goodwill arising on the acquisition of ST that LM included in its consolidated financial statements at 31 December 20X7. Give your answer to the nearest $ million. $ ? million
Answer: 18, 18000000

Cima F2 Exam Question No 58

Question No 58

How would KL account for its investment in MN in its consolidated financial statements for the year to 31 December 20X9?

A. Joint venture
B. Joint arrangement
C. Financial asset
D. Subsidiary

Answer: A

Cima F2 Exam Question No 57

Question No 57:

Options and warrants to subscribe for shares, these 'free' shares are equal to:
No. of options * ((FV - EP))/FV)
FV = fair value of the share price
EP = exercise price of the shares

Cima F2 Exam Question No 56

Question No 56:

The total number of shares issued on the exercise of the option or warrant is split into two?

• The number of shares that would have been issued if the cash received had been used to buy shares at fair value (using the average price of the shares during the period);
• The remainder, which are treated like a bonus issue (i.e. as having been issued for no consideration).

The number of shares issued for no consideration is added to the weighted average number of shares when calculating the DEPS.

Cima F2 Exam Question No 55

Question No 55:

Options and warrants to subscribe for shares  
An option or warrant gives the holder the right to buy shares at some time in the future at a predetermined price.The cash received by the entity when the option is exercised will be less than the market price of the shares, as the option will only be exercised if the exercise price is lower than the market price. The increase in resources does not match the increase there would be in resources if the issue of shares were at market value. The options will therefore have a dilutive effect on EPS.

Cima F2 Exam Question No 54

Question No 54:

What is Convertible debt?
The principles of convertible bonds and convertible preference shares are similar and will be dealt with together. If the convertible bonds/preference shares had been converted:

• The interest/dividend would be saved therefore earnings would be higher
• The number of shares would increase.

Note: Interest on bonds is tax deductible however preference dividends do not attract tax relief. Therefore, the interest adjustment should only be reflected net of tax in the case of bonds.
Note: If there is an option to convert the debt into a variable number of ordinary shares depending on when conversion takes place, the maximum possible number of additional shares is used in the calculation.

Cima F2 Exam Question No 53

Question No 53:

What is Assets?
Assets are defined in the Framework as resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Cima F2 Exam Question No 52

Question No 52:

The basic EPS calculation is

 EPS = Earnings / Number of shares

This is expressed as dollars or cents per share (cents if the amount is less that $1).

• Earnings: Net profit attributable to ordinary equity shareholders of the parent entity, i.e. group profit after tax less profit attributable to non-controlling interests and irredeemable preference share dividends.
• Number of shares: Weighted average number of ordinary shares on a time weighted basis.

Cima F2 Exam Question No 51

Question No 51:

ST acquired 75% of the 2 million $1 equity shares of CD on 1 January 20X3, when the retained earnings of CD were S3,550,000. CD has no other reserves.
ST paid $5,600,000 for the shares in CD and the non controlling interest was measured at its fair value of S1,400,000 at acquisition.
At 1 January 20X3, the fair value of CD's net assets were equal to their carrying amount, with the exception of a building. This building had a fair value of $1,000,000 in excess of its carrying amount and a remaining useful life of 25 years on 1 January 20X3.
At 31 December 20X5, the retained earnings of ST and CD were $8,500,000 and $5,250,000 respectively.
What is the value of goodwill to be included in the consolidated statement of financial position of ST as at 31 December 20X5?

A. $450,000
B. $1,450,000
C. $950,000
D. $570,000

Answer: A

Cima F2 Exam Question No 50

Question No 50:

AB acquired 90% of the equity of YZ on 31 December 20X2. On the same date YZ acquired 60% of the equity shares of VW for $750,000. AB has no other subsidiaries. The following information regarding YZ and VW was available: 

What amount will AB include in its consolidated statement of financial position in respect of non-controlling interest at 31 May 20X6?

A. $816,400
B. $741,400
C. $840,600
D. $811,000

Answer: B