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Lincoln International Business School Time Constrained Assessment Department Accountancy, Finance and Economics Module Title Advanced Financial Accountancy Module Code ACC3162M (Resit) Module Coordinator Emma Holmes Duration of Assessment 4 hours 45 minutes Date 3 rd August 2020 Release Time 10:15 hours British Summer Time Submission Time 15:00 hours British Summer Time Word limit for each answer N/A General Instructions to Candidates 1. You must submit your answers as a MS Word Document to Turnitin on Blackboard before the submission time: failure to do so will be classified as misconduct in examinations. We strongly recommend you submit 15 minutes prior to the deadline. 2. You must also send a copy of your work to the ACC3162M@lincoln.ac.uk at the same time. You must place the Module Code and your Student Id in the Subject Field of the Mail. 3. Hand-written notes, expressions, symbols, Excel workings, or diagrams, must be inserted into the Word Document. 4. This assessment is an open resource format: you may use online resources, lecture and seminar notes, text books and journals. 5. All work will be subject to plagiarism and academic integrity checks. In submitting your assessment you are claiming that it is your own original work; if standard checks suggest otherwise, Academic Misconduct Regulations will be applied. 6. The duration of the Time Constrained Assessment will vary for those students with LSPs . Extensions do not apply, but Extenuating Circumstances can be applied for in the normal way. 7. A reference list is not required.

Academic Year 2019/20 Page 2 of 12 Module Specific Instructions to Candidates 1. All AFE students are required to uphold the highest ethical and professional standards in line with professional bodies. Any identified cases of unethical behaviour during the assessment may be reported to a relevant professional body and may impact on your ability to claim exemptions. Students are also welcomed to report any detected cases of integrity breach (anonymous reporting of a breach holds no weight). 2. To ensure academic integrity of our assessments in line with professional body accreditations, AFE students can randomly be called to a viva, which is an academic interview where you will be asked questions to check your understanding of the subject to help confirm the originality of your work. 3. Remember that due to the extended time limit, students may be tempted to write overly long answers. Please note, lengthy answers will not necessarily get you extra marks for discursive questions. Be guided by the marks available for each question and focus on the content and requirements. 4. QUESTIONS TO ANSWER: You must answer ALL questions in Section A and TWO from section B (5 questions in total). Question ONE and TWO are worth 30 marks each. Question THREE is worth 20 marks. Questions in Section B are worth 10 marks each.

Academic Year 2019/20 Page 3 of 12 SECTION A (Answer all THREE questions from this section) Question 1 Statements of financial position as at 31 December 2019: Cowley Ltd Toffolo Ltd Rhead Ltd £ £ £ Non-current assets Tangible non-current assets 281,344 137,456 22,088 Investment in Rhead Ltd 2,148 11,163 - 283,492 148,619 22,088 Current assets Inventory 12,370 7,731 4,295 Trade receivables 13,530 9,536 2,921 Cash and cash equivalents 2,835 - 5,154 28,735 17,267 12,370 Total assets 312,227 165,886 34,458 Equity and liabilities Equity Share capital (£1 ordinary shares) 171,813 85,000 14,620 Share premium 51,544 22,440 - Retained earnings 32,215 17,125 5,584 255,572 124,565 20,204 Non-current liabilities Borrowings 42,953 25,772 - Current liabilities Trade payables 10,309 8,161 13,395 Bank overdraft - 5,154 - Taxation 3,393 2,234 859 13,702 15,549 14,254 Total liabilities 56,655 41,321 14,254 Total equity and liabilities 312,227 165,886 34,458 Question 1 is continued on the next page

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Academic Year 2019/20 Page 4 of 12 Question 1 (continued ) Notes: a) On the 1 July 2019 Cowley Ltd acquired 85% of the ordinary share capital of Toffolo Ltd in a share for share exchange of two shares in Cowley Ltd for five shares in Toffolo Ltd. The issue of these shares has not been reflected in the financial statements of Cowley Ltd. The value of one Cowley Ltd share at the 1 July 2019 was £5.50. b) On the 1 July 2019 Cowley Ltd purchased 6% of the ordinary share capital of Rhead Ltd. c) Toffolo Ltd had acquired a 60% holding in Rhead Ltd on 1 June 2016 for a consideration of £12,750 when the retained earnings of Rhead Ltd were £1,750 . The fair value of Toffolo Ltd’s investment in Rhead Lt d at 1 July 2019 was £13,200. d) On the 1 July 2019 the fair values of Toffolo Ltd’s assets and liabilities were £145,000. The increase in the fair value of the net assets of Toffolo Ltd is due to an increase in the value of plant and equipment. The fair values of Rhe ad Ltd’s assets and liabilities were equal to their carrying amounts. e) Plant and equipment is depreciated at 10% per annum on a straight line basis. No depreciation charges have been included in the financial statements to reflect the increase in the value of plant and equipment. f) The profits for the year ended 31 December 2019 were £7,520 and £2,100 for Toffolo Ltd and Rhead Ltd respectively. g) Cowley Ltd values goodwill on consolidation based on the fair value of the non-controlling interest (gross goodwill). h) At the date of acquisition of Toffolo Ltd by Cowley Ltd the fair value of one Toffolo Ltd share was £4.10. At the date of acquisition of Rhead Ltd by Cowley Ltd the fair value of one Rhead Ltd share was £2. These values can be taken to represent the value of the non-controlling interest at the date of acquisition. i) On the 23 September 2019 Toffolo Ltd had sold goods to Rhead Ltd for £350. All of these goods were sold by Rhead Ltd by 31 December 2019. Toffolo Ltd had sold the goods to Rhead Ltd with a 15% gross profit margin. j) On the 7 December 2019 Toffolo Ltd had sold goods to Cowley Ltd for £2,000. Three quarters of these were included in the closing inventory of Cowley Ltd at the 31 December 2019. Toffolo Ltd had sold the goods to Cowley Ltd with a mark-up of 15%. k) Goodwill in Rhead Ltd has been impaired by 5%. There has been no impairment to the goodwill in Toffolo Ltd. Question 1 is continued on the next page

Academic Year 2019/20 Page 5 of 12 Question 1 (continued ) Required: a) Prepare the consolidated statement of financial position for Cowley Ltd and its subsidiaries at 31 December 2019. (Figures should be rounded to the nearest £) (26 marks) b) Cowley Ltd is considering acquiring a new subsidiary, Bruno Ltda, a company registered in Portugal. The majority of Bruno Ltda's transactions are in Euros and their local statutory financial statements are also prepared in Euros. Required: Using Cowley Ltd and Bruno Ltda as examples, explain the following IAS21 definitions: i. Functional currency (2 marks) ii. Presentation currency (2 marks) Total 30 marks

Academic Year 2019/20 Page 6 of 12 Question 2 Sunny Days Ltd is a company which specialises in children's toys and games. On 1 January 2019 it expanded its operations by acquiring an 80% interest in an outdoor playground company, Mini Escapes Ltd. The purchase consideration was £99,200 consisting of 72,000 50p shares and £9,200 cash. Draft consolidated income statement for the year ended 31 December 2019 £ Operating profit 217,760 Income from long term investment 17,280 Interest payable (2,640) Profit before tax 232,400 Corporation tax (51,128) Deferred tax (195) Tax attributable to investment income (3,456) Profit after tax 177,621 Non-controlling interest (35,800) Profit attributable to equity holders of the parent 141,821 Question 2 is continued on the next page

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Academic Year 2019/20 Page 7 of 12 Question 2 (continued) Draft consolidated statements of financial position as at 31 December 2019 2018 £ £ Non-current assets Land and buildings 44,000 30,000 Equipment 501,600 356,304 Goodwill 14,000 - Long term investments 380,800 360,000 940,400 746,304 Current assets Inventories 155,520 172,800 Trade and other receivables 60,960 71,328 Cash and cash equivalents 15,620 100,400 232,100 344,528 Total assets 1,172,500 1,090,832 Equity and liabilities Equity Share capital 50p shares 88,800 46,400 Share premium 139,200 73,920 Retained earnings 696,000 764,800 924,000 885,120 Non-controlling interest 39,360 - 963,360 885,120 Non-current liabilities Long term loans 54,000 57,600 Obligations under finance leases 10,000 12,000 Deferred tax 864 960 64,864 70,560 Current liabilities Trade and other payables 72,800 71,840 Obligations under finance leases 4,500 4,800 Corporation tax payable 58,432 50,400 Accrued interest charges 8,544 8,112 144,276 135,152 Total liabilities 209,140 205,712 Total equity and liabilities 1,172,500 1,090,832 Question 2 is continued on the next page

Academic Year 2019/20 Page 8 of 12 Question 2 (continued) Additional information a) Information extracted from the non-current assets note is as follows: 2019 2018 £ £ Land - cost 36,500 20,000 Buildings - carrying amount 7,500 10,000 44,000 30,000 Equipment - cost 685,800 450,680 Equipment - accumulated depreciation (184,200) (94,376) 501,600 356,304 b) There had been no acquisitions or disposals of buildings during the year. c) Equipment (original cost £90,000, accumulated depreciation £42,000) was sold during the year for £45,000. New equipment was acquired in 2019 including additions of £20,000 acquired under finance leases. d) Information relating to the acquisition of Mini Escapes Ltd is as follows: The fair value of the non-controlling interest at the date of acquisition was £28,320. Required: a) Prepare the consolidated cash flow statement for the year ended 31 December 2019 for Sunny Days Ltd using the indirect method. (Figures should be rounded to the nearest £) (24 marks) b) Discuss the benefits for stakeholders of producing a cash flow statement. (6 marks) Total 30 marks £ Equipment 95,575 Inventories 7,462 Trade receivables 10,272 Cash 8,640 Trade payables (7,997) Tax payable (672) 113,280

Academic Year 2019/20 Page 9 of 12 Question 3 On 1 January 2019 Titania plc purchased 40,500 £1 ordinary shares in Hermia Ltd. On that date the retained earnings of Hermia Ltd stood at £20,600,000. The fair value of the non-controlling interest in Hermia Ltd at the 1 January 2019 was £9,000,000. On the same date Titania plc purchased 9,000 £1 ordinary shares in Oberon Ltd when the retained earnings of Oberon Ltd stood at £3,600,000 and the revaluation reserve at £1,000,000. Statements of financial position as at 31 December 2019: Titania plc Hermia Ltd Oberon Ltd £’000 £’000 £’000 Non-current assets Property, plant and equipment 651,150 206,550 17,100 Investments Shares in Hermia Ltd 79,600 Shares in Oberon Ltd 18,000 748,750 206,550 17,100 Current assets 762,750 272,250 19,800 Total assets 1,511,500 478,800 36,900 Equity and liabilities Equity £1 ordinary shares 135,000 45,000 22,500 Revaluation reserve 90,000 2,700 Retained earnings 1,232,500 (33,300) 8,100 1,457,500 11,700 33,300 Current liabilities 54,000 467,100 3,600 Total liabilities 54,000 467,100 3,600 Total equity and liabilities 1,511,500 478,800 36,900 Question 3 is continued on the next page

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Academic Year 2019/20 Page 10 of 12 Question 3 (continued) Notes: a) Included in the closing inventory of Hermia Ltd were goods which had been purchased from Titania plc amounting to £2,400,000. Titania plc sold these goods at cost plus one third. b) The group re-values its property, plant and equipment every year. At the 31 December 2019 the value of the property, plant and equipment in Hermia Ltd is £205,000,000. The values of the property, plant and equipment in Titania plc and Oberon Ltd are as per the statement of financial position. c) Goodwill on consolidation arising on the acquisition of Hermia Ltd is to be impaired by 20%. There is no impairment on the goodwill arising on the acquisition of the shares in Oberon Ltd. Required: (a) Prepare the consolidated statement of financial position of the Titania group as at the 31 December 2019. (15 marks) (b) IAS 28 Investments in Associates defines an associate as “an enterprise in which an investor has significant influence but not control nor joint control” . Required: Identify how significant influence might be evidenced. (5 marks) Total 20 marks

Academic Year 2019/20 Page 11 of 12 SECTION B (Answer TWO questions from this section) Questions 4, 5 and 6 are based on the following case study Case Study – Sliverlight plc As a financial accountant you have been asked to assist in the review of the financial affairs of a publicly listed company, Silverlight plc. Files have been sent to you as a part of the review and information in these files indicates the following: Note 1 – Employee benefits Silverlight plc has a package of employee benefits in place covering present and future benefits. A review is necessary to ensure the adequacy of the benefits being provided and to make sure they are cost-effective. The company wishes to concentrate its review particularly on short-term benefits and post-employment benefits. Note 2 – Corporate governance The managing director of Silverlight plc has been discussing with the board of directors changes which might need to be made to ensure compliance with the 2018 UK Code of Corporate Governance. This follows criticisms by some shareholders that the company is not as transparent as it should be and is not complying with the updated set of principles laid out in the Code. Note 3 – Operating segments Silverlight plc is currently preparing segmental information as part of its evaluation of its financial performance in accordance with IFRS 8 Operating Segments . Several stakeholders have said they do not understand what is meant by the term ‘Segment Reporting’ and what the benefits of segmental reporting are. They have also been told that IFRS 8 Operating Segments requires the disclosure of ‘Entity - wide information’ and do not understand to what this refers to. Question 4 IAS 19 Employee Benefits categorises benefits under four headings of which two are: i. Short-term benefits ii. Post-employment benefits Required: Briefly describe and discuss the benefits categorised under each of the two headings, providing examples of the types of benefit for each category. (10 marks) Total 10 marks

Academic Year 2019/20 Page 12 of 12 Question 5 The introduction to the 2018 UK Corporate Governance Code discusses the updated set of principles that emphasise the value of good corporate governance to long-term sustainable success. Required: Discuss the general responsibilities which companies have in applying the updated set of principles outlined in the introduction to the 2018 UK Corporate Governance Code. (10 marks) Total 10 marks Question 6 a) Discuss the objectives of segmental reporting. (2 marks) b) Identify the benefits of segmental reporting. (3 marks) c) D iscuss what is meant by the term ‘entity - wide information’ with regards to IFRS 8 Operating Segments . (5 marks) Total 10 marks You have now reached the end of the examination paper. You should have answered FIVE questions (three from Section A and two from Section B).

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