(b) Determine whether the factoring company’s offer can be recommended on financial grounds. Assume aworking year of 365 days and base your analysis on financial information for 2006. (8 marks)
(b) Determine whether the factoring company’s offer can be recommended on financial grounds. Assume a
working year of 365 days and base your analysis on financial information for 2006. (8 marks)
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(c) Discuss the ways in which budgets and the budgeting process can be used to motivate managers toendeavour to meet the objectives of the company. Your answer should refer to:(i) setting targets for financial performance;(ii) participation in the budget-setting process. (12 marks)
5 Ambush, a public limited company, is assessing the impact of implementing the revised IAS39 ‘Financial Instruments:Recognition and Measurement’. The directors realise that significant changes may occur in their accounting treatmentof financial instruments and they understand that on initial recognition any financial asset or liability can bedesignated as one to be measured at fair value through profit or loss (the fair value option). However, there are certainissues that they wish to have explained and these are set out below.Required:(a) Outline in a report to the directors of Ambush the following information:(i) how financial assets and liabilities are measured and classified, briefly setting out the accountingmethod used for each category. (Hedging relationships can be ignored.) (10 marks)
(iv) Tyre recently undertook a sales campaign whereby customers can obtain free car accessories, by presenting acoupon, which has been included in an advertisement in a national newspaper, on the purchase of a vehicle.The offer is valid for a limited time period from 1 January 2006 until 31 July 2006. The management are unsureas to how to treat this offer in the financial statements for the year ended 31 May 2006.(5 marks)Required:Advise the directors of Tyre on how to treat the above items in the financial statements for the year ended31 May 2006.(The mark allocation is shown against each of the above items)
(b) Describe with suitable calculations how the goodwill arising on the acquisition of Briars will be dealt with inthe group financial statements and how the loan to Briars should be treated in the financial statements ofBriars for the year ended 31 May 2006. (9 marks)
(b) Discuss how management’s judgement and the financial reporting infrastructure of a country can have asignificant impact on financial statements prepared under IFRS. (6 marks)Appropriateness and quality of discussion. (2 marks)
(b) Discuss the relative costs to the preparer and benefits to the users of financial statements of increaseddisclosure of information in financial statements. (14 marks)Quality of discussion and reasoning. (2 marks)
(b) Using the unit cost information available and your calculations in (a), prepare a financial analysis of thedecision strategy which TOC may implement with regard to the manufacture of each product. (6 marks)
Assume that the corporation tax rates for the financial year 2004 apply throughout.(b) Explain the corporation tax (CT) and value added tax (VAT) issues that Irroy should be aware of, if sheproceeds with her proposal for the Irish subsidiary, Green Limited. Your answer should clearly identify thosefactors which will determine whether or not Green Limited is considered UK resident or Irish resident andthe tax implications of each alternative situation.You need not repeat points that are common to each situation. (16 marks)
(c) Prepare brief notes for the proposed meeting with Charles and Jane. Clearly identify the further informationyou would need in order to advise them more fully and suggest appropriate personal financial planningprotection products, in respect of both death and serious illness. (9 marks)You should assume that the income tax rates and allowances for the tax year 2005/06 and the corporation taxrates for the financial year 2005 apply throughout this question.
(iii) State the value added tax (VAT) and stamp duty (SD) issues arising as a result of inserting Bold plc asa holding company and identify any planning actions that can be taken to defer or minimise these taxcosts. (4 marks)You should assume that the corporation tax rates for the financial year 2005 and the income tax ratesand allowances for the tax year 2005/06 apply throughout this question.
(iii) The extent to which Amy will be subject to income tax in the UK on her earnings in respect of dutiesperformed for Cutlass Inc and the travel costs paid for by that company. (5 marks)Appropriateness of format and presentation of the report and the effectiveness with which its advice iscommunicated. (2 marks)Note:You should assume that the income tax rates and allowances for the tax year 2006/07 and the corporation taxrates and allowances for the financial year 2006 apply throughout this questio
(iii) The effect of the restructuring on the group’s ability to recover directly and non-directly attributable inputtax. (6 marks)You are required to prepare calculations in respect of part (ii) only of this part of this question.Note: – You should assume that the corporation tax rates and allowances for the financial year 2006 applythroughout this question.
(c) Explanatory notes, together with relevant supporting calculations, in connection with the loan. (8 marks)Additional marks will be awarded for the appropriateness of the format and presentation of the schedules, theeffectiveness with which the information is communicated and the extent to which the schedules are structured ina logical manner. (3 marks)Notes: – you should assume that the tax rates and allowances for the tax year 2006/07 and for the financial yearto 31 March 2007 apply throughout the question.– you should ignore value added tax (VAT).
(b) Explain why making sales of Sabals in North America will have no effect on Nikau Ltd’s ability to recover itsinput tax. (3 marks)Notes: – you should assume that the corporation tax rates and allowances for the financial year to 31 March 2007will continue to apply for the foreseeable future.– you should ignore indexation allowance.
(b) Using the information provided, state the financial statement risks arising and justify an appropriate auditapproach for Indigo Co for the year ending 31 December 2005. (14 marks)
(c) Comment on the matters to be considered in seeking to determine the extent of Indigo Co’s financial lossresulting from the alleged fraud. (6 marks)
(b) You are an audit manager with specific responsibility for reviewing other information in documents containingaudited financial statements before your firm’s auditor’s report is signed. The financial statements of Hegas, aprivately-owned civil engineering company, show total assets of $120 million, revenue of $261 million, and profitbefore tax of $9·2 million for the year ended 31 March 2005. Your review of the Annual Report has revealedthe following:(i) The statement of changes in equity includes $4·5 million under a separate heading of ‘miscellaneous item’which is described as ‘other difference not recognized in income’. There is no further reference to thisamount or ‘other difference’ elsewhere in the financial statements. However, the Management Report, whichis required by statute, is not audited. It discloses that ‘changes in shareholders’ equity not recognized inincome includes $4·5 million arising on the revaluation of investment properties’.The notes to the financial statements state that the company has implemented IAS 40 ‘Investment Property’for the first time in the year to 31 March 2005 and also that ‘the adoption of this standard did not have asignificant impact on Hegas’s financial position or its results of operations during 2005’.(ii) The chairman’s statement asserts ‘Hegas has now achieved a position as one of the world’s largestgenerators of hydro-electricity, with a dedicated commitment to accountable ethical professionalism’. Auditworking papers show that 14% of revenue was derived from hydro-electricity (2004: 12%). Publiclyavailable information shows that there are seven international suppliers of hydro-electricity in Africa alone,which are all at least three times the size of Hegas in terms of both annual turnover and population supplied.Required:Identify and comment on the implications of the above matters for the auditor’s report on the financialstatements of Hegas for the year ended 31 March 2005. (10 marks)
(b) You are the audit manager of Johnston Co, a private company. The draft consolidated financial statements forthe year ended 31 March 2006 show profit before taxation of $10·5 million (2005 – $9·4 million) and totalassets of $55·2 million (2005 – $50·7 million).Your firm was appointed auditor of Tiltman Co when Johnston Co acquired all the shares of Tiltman Co in March2006. Tiltman’s draft financial statements for the year ended 31 March 2006 show profit before taxation of$0·7 million (2005 – $1·7 million) and total assets of $16·1 million (2005 – $16·6 million). The auditor’sreport on the financial statements for the year ended 31 March 2005 was unmodified.You are currently reviewing two matters that have been left for your attention on the audit working paper files forthe year ended 31 March 2006:(i) In December 2004 Tiltman installed a new computer system that properly quantified an overvaluation ofinventory amounting to $2·7 million. This is being written off over three years.(ii) In May 2006, Tiltman’s head office was relocated to Johnston’s premises as part of a restructuring.Provisions for the resulting redundancies and non-cancellable lease payments amounting to $2·3 millionhave been made in the financial statements of Tiltman for the year ended 31 March 2006.Required:Identify and comment on the implications of these two matters for your auditor’s reports on the financialstatements of Johnston Co and Tiltman Co for the year ended 31 March 2006. (10 marks)
(c) Describe the examination procedures you should use to verify Cusiter Co’s prospective financial information.(9 marks)
(d) Discuss the professional accountant’s liability for reporting on prospective financial information and themeasures that the professional accountant might take to reduce that liability. (6 marks)
(ii) On 1 July 2006 Petrie introduced a 10-year warranty on all sales of its entire range of stainless steelcookware. Sales of stainless steel cookware for the year ended 31 March 2007 totalled $18·2 million. Thenotes to the financial statements disclose the following:‘Since 1 July 2006, the company’s stainless steel cookware is guaranteed to be free from defects inmaterials and workmanship under normal household use within a 10-year guarantee period. No provisionhas been recognised as the amount of the obligation cannot be measured with sufficient reliability.’(4 marks)Your auditor’s report on the financial statements for the year ended 31 March 2006 was unmodified.Required:Identify and comment on the implications of these two matters for your auditor’s report on the financialstatements of Petrie Co for the year ended 31 March 2007.NOTE: The mark allocation is shown against each of the matters above.
The finance director of Blod Co, Uma Thorton, has requested that your firm type the financial statements in the formto be presented to shareholders at the forthcoming company general meeting. Uma has also commented that theprevious auditors did not use a liability disclaimer in their audit report, and would like more information about the useof liability disclaimer paragraphs.Required:(b) Discuss the ethical issues raised by the request for your firm to type the financial statements of Blod Co.(3 marks)
(ii) Write a letter to Donald advising him on the most tax efficient manner in which he can relieve the lossincurred in the year to 31 March 2007. Your letter should briefly outline the types of loss relief availableand explain their relative merits in Donald’s situation. Assume that Donald will have no source of incomeother than the business in the year of assessment 2006/07 and that any income he earned on a parttimebasis while at university was always less than his annual personal allowance. (9 marks)Assume that the corporation tax rates and allowances for the financial year 2004 and the income tax ratesand allowances for 2004/05 apply throughout this question.Relevant retail price index figures are:January 1998 159·5April 1998 162·6
听力原文：The primary objective of financial reporting is to provide information useful for making investment and lending decisions.(6)A．The financial reporting is to provide information for the investors and lenders only.B．The main aim of financial reporting is to offer information useful for decision-making.C．Investment and lending decisions can be made from the financial reporting.D．Investment and lending decisions can not be made from the financial reporting.
听力原文：M: There are several reasons why careful analysis of financial statements is necessary. What are they?W: First, financial statements are general-purpose statements. Secondly, the relationships between amounts on successive financial statements are not obvious without analysis. And thirdly, users of financial statements may be interested in seeing how well a company is performing.Q: What are they talking about?(17)A．The methods of financial statements.B．The necessity of careful analysis of financial statementsC．The relationship among financial statements.D．The purpose of financial statements.
听力原文：The financial reporting is used to provide information useful for making investment and lending decision.(2)A．The objective of financial reporting is to provide information useful for making investment and lending decisions.B．The financial reporting is useless.C．The financial reporting can't help people to decide whether they invest on something or not.D．The financial reporting has no objectives.
The following financial information relates to HGR Co:Statement of financial position at the current date (extracts)The finance director has completed a review of accounts receivable management and has proposed staff training and operating procedure improvements, which he believes will reduce accounts receivable days to the average sector value of 53 days. This reduction would take six months to achieve from the current date, with an equal reduction in each month. He has also proposed changes to inventory management methods, which he hopes will reduce inventory days by two days per month each month over a three-month period from the current date. He does not expect any change in the current level of accounts payable.HGR Co has an overdraft limit of $4,000,000. Overdraft interest is payable at an annual rate of 6·17% per year, with payments being made each month based on the opening balance at the start of that month. Credit sales for the year to the current date were $49,275,000 and cost of sales was $37,230,000. These levels of credit sales and cost of sales are expected to be maintained in the coming year. Assume that there are 365 working days in each year.Required:(a) Discuss the working capital financing strategy of HGR Co. (7 marks)(b) For HGR Co, calculate:(i) the bank balance in three months’ time if no action is taken; and(ii) the bank balance in three months’ time if the finance director’s proposals are implemented.Comment on the forecast cash flow position of HGR Co and recommend a suitable course of action.(10 marks)(c) Discuss how risks arising from granting credit to foreign customers can be managed and reduced.(8 marks)