15 July 2013
(3½ hours)
This paper consists of FOUR written test questions (100 marks). Attempt all parts of all questions.
You are allowed 3 hours to complete the paper plus 30 minutes’ prior reading time. During the reading time you may annotate the question paper, but not start your answers.
1. Ensure your candidate number (but not your name) is on the front of your answer booklet.
2. Answer each question in black ball point pen only.
3. Answers to each question must begin on a new page and must be clearly numbered.
4. Answers should be based on IFRSs issued at 1 January 2012 (ie, those in the 2012
IFRS ‘red book’). However, in this final exam current issues are examinable based on a later cut-off date of 31 March 2013. Companies report under IFRSs unless a particular question states that they report under the IFRS for SMEs.
5. All workings must be shown and clearly referenced.
6. The examiner will take account of the way in which answers are presented.
All references to IFRSs are to International Financial Reporting Standards and
International Accounting Standards.
This examination is open book.
IMPORTANT
Question papers contain confidential information and must NOT be removed from the examination hall.
DO NOT TURN OVER UNTIL YOU
ARE INSTRUCTED TO BEGIN
WORK
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Copyright © ICAEW 2013. All rights reserved.
ICAEW\DIPLOMA IN IFRSs\July 2013

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ICAEW\DIPLOMA IN IFRSs\July 2013 Page 2 of 10

1.
Centra, a publicly listed company, is a producer of soft drinks. As well as producing its own soft drinks, Centra has a licence to bottle and sell drinks of a well-known brand. Recently,
Centra has been suffering from financial difficulties attributed to the recession.
The draft statement of financial position and the statement of profit or loss and other comprehensive income of Centra for the year ended 30 June 2013 show:
Centra
Draft statement of financial position as at 30 June 2013
ASSETS
Non-current assets
Property, plant and equipment
Licence
Current assets
Inventories
Trade receivables
Cash and cash equivalents
$'000
178,400
4,000
182,400
54,200
75,600
3,400
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Retained earnings
Other components of equity (revaluation surplus)
Non-current liabilities
Long-term borrowings
Deferred tax liability
Current liabilities
Trade and other payables
Current tax payable
315,600
Draft statement of profit or loss and other comprehensive income for the year ended 30 June 2013
Revenue
Cost of sales
Gross profit
Distribution costs and administrative expenses
Finance costs
Loss before tax
Income tax expense
LOSS AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR
$'000
561,700
(404,200)
157,500
(167,100)
(0)
(9,600)
0
(9,600)
133,200
315,600
40,000
46,500
78,468
15,000
179,968
36,532
10,900
47,432
88,200
0
88,200
ICAEW\DIPLOMA IN IFRSs\July 2013 Page 3 of 10

The following information is relevant to the preparation of the financial statements of Centra:
(i) Centra has been experiencing financial difficulties over the past two years and on
30 June 2013, Centra renegotiated a loan which makes up its entire long-term borrowings. The original loan of $40 million had been advanced on 1 July 2009 as was being repaid in 8 annual instalments of $6 million (equivalent to an effective annual interest rate of 4.24%) payable in arrears on 30 June each year.
However, Centra had cash flows problems and knew it would be unable to meet the payment due on 30 June 2013. On 30 June 2013 the loan terms were renegotiated with the bank. As a result, the bank advanced an additional $10 million on that date and repayments were revised to six annual payments of $7 million beginning 30 June 2014 with a stated effective annual interest rate of 6%. The difference between the amounts recorded as due to the bank before and after the renegotiation was written off by the bank, representing a gain for Centra.
The amount recognised for the loan (as long term borrowings) in the draft statement of financial position above, represents the amount outstanding at 1 July 2012 plus the additional $10 million advanced. No other entries were made. Tax rules follow IFRS rules in respect of the loan. The cumulative discount factor for six cash flows at 4.24% and 6% is 5.2014 and 4.9173 respectively.
(ii) Centra is also undergoing a restructuring of its business (a condition imposed by the bank to obtain the refinancing). As a result, Centra will incur redundancy and other costs as follows:
$'000
Redundancy payments
Legal costs re staff redundancies
Retraining of staff retained to work in other divisions
4,600
80
440
5,120
Centra wishes to make a provision for these amounts, but no accounting entries have yet been made. Any such provision would be recognised as administrative expenses.
Provisions are tax deductible on settlement in the tax jurisdiction in which Centra operates.
(iii) The licence was purchased on 1 July 2010 for $10 million and was valid for five years.
Amortisation has been charged for each full year to 30 June 2013 (through cost of sales). A clause in the contract allows the licensor to withdraw the licence (with no compensation) if certain financial health measures are not maintained to protect its own brand.
Despite the refinancing, Centra failed these measures in the first half of 2013 and the licensor notified Centra in May 2013 that it would indeed withdraw the licence, effective
1 July 2013.
For tax purposes, allowances for the cost of the licence are allowed on a straight line basis over the five year period of the licence. The tax allowances for the cost of the licence are unaffected by the withdrawal of the licence.
(iv) The inventories are shown in the draft statement of financial position at their cost. The inventory count revealed $2.2 million (at cost) for out of date inventories that could no longer be sold, and will be disposed of, for no income. An additional cost of $40,000 will be incurred to dispose of these inventories.
ICAEW\DIPLOMA IN IFRSs\July 2013 Page 4 of 10

Inventory write-downs are tax deductible when the inventories are sold or scrapped in the tax regime in which Centra operates.
(v) It is Centra's policy to revalue its land and buildings. The carrying amount of land and buildings included in 'Property, plant and equipment' in the draft financial statements above was $110 million. Depreciation for the period of $12 million on property, plant and equipment has already been accounted for. The market value of the land and buildings as assessed by professionally qualified valuers was $116 million as at 30 June 2013.
Gains and losses on property are taxable or tax deductible on sale in the tax regime in which Centra operates.
(vi) The tax base of all property, plant and equipment at 30 June 2013 was $125.4 million.
Losses incurred in the year ended 30 June 2013 that can be recognised for tax purposes (after taking into account disallowable expenses) amounted to $19.2 million.
In the tax regime in which Centra operates tax losses can be carried back for three years and then carried forward indefinitely. Centra made a profit in the previous three years sufficient to absorb the current year tax losses. Centra pays tax at 25% and the tax losses will be applied at that rate. The rate is not expected to change.
The deferred tax liability in the above draft statement of financial position is the figure at
1 July 2012. There were no temporary differences other than those noted above.
Current tax assets and liabilities can be netted in the tax jurisdiction in which Centra operates.
(vii) Current assets and current liabilities as at 30 June 2012 were:
Current assets
Inventories
Trade receivables
Cash and cash equivalents
$'000
54,000
70,300
0
124,300
Current liabilities
Trade and other payables
Bank overdraft
84,800
15,200
Current tax payable
Requirement
400
100,400
(a) Prepare the statement of financial position and the statement of profit or loss and other comprehensive income for Centra for the year ended 30 June 2013, restated for the effect of the above adjustments. (32 marks)
(b) Prepare the 'Operating activities' section of the statement of cash flows of Centra for the year ended 30 June 2013, using the indirect method. (8 marks)
(40 marks)
Notes

Assume income and expenses accrue evenly.

Work to the nearest $1,000.
ICAEW\DIPLOMA IN IFRSs\July 2013 Page 5 of 10

2. Twenkin is the parent company of a group reporting under IFRSs. The group is growing rapidly through acquisition of other companies in the same or similar businesses.
A number of issues have arisen in the preparation of the financial statements for the year ended 31 March 2013.
(1) Twenkin acquired a 40% ordinary shareholding in Biorka on 1 October 2012 from a wealthy investor, Thomas Klein. The remaining 60% of the ordinary shares is still held by Klein. Under the terms of the sale, Twenkin has an option, valid for two years from the date of the purchase of the 40% shareholding, which allows Twenkin to buy an additional 20% of the ordinary shares at a 5% premium per share to the price paid per share for the 40% shareholding. Twenkin has been exercising its votes as a shareholder. It has also appointed the marketing director of Biorka who has implemented a new marketing strategy. Biorka has been more profitable than expected and Biorka’s share price has risen by 10% since Twenkin acquired its 40% shareholding. Shareholdings are equivalent to voting rights. (8 marks)
(2) On 31 March 2012, Twenkin acquired 80% of the shares of a supplier of its raw materials, Hargard.
The price paid was $103.8 million in cash and a further sum, to be paid on
30 June 2014 equivalent to 30% of the average annual profits of Hargard for the two years ended 31 March 2013 and 31 March 2014. The fair value at 31 March 2012 of the further sum to be paid as consideration, based on projected profits, was measured as
$4.2 million. The fair value of Hargard's identifiable assets and liabilities at 31 March
2012 was measured at $120 million (including a patent portfolio valued at $4 million).
In May 2012, after Hargard had been taken over by Twenkin, a more detailed review of the identifiable assets acquired and liabilities assumed was undertaken as planned prior to the March year end, with the assistance of an external valuations expert. As a result the value attributed to Hargard's patent portfolio was increased by $2 million to
$6 million as at 31 March 2012. This new valuation was received after the
31 March 2012 financial statements had been authorised for issue. The patent portfolio had an average remaining useful life of ten years at 31 March 2012.
Hargard did not achieve the projected profits for the year ended 31 March 2013 and, as a result, the fair value of the consideration based on profits was revised to only
$3.7 million at 31 March 2013.
As Hargard is not a quoted company, Twenkin elected to measure non-controlling interests at the acquisition date at the proportionate share of the fair value of the identifiable net assets of Hargard. (10 marks)
(3) In Twenkin's separate financial statements, it holds investments in some subsidiaries at fair value and elected to record changes in fair value in other comprehensive income.
On 1 March 2013, Twenkin acquired the entire ordinary share capital and assumed control of a quoted company Calex for $85.02 million, including transaction costs incurred in buying the shares of $420,000. Additional due diligence and legal costs incurred of $300,000 were charged to profit or loss. Calex was incurring losses at the time it was acquired by Twenkin.
The fair value of the identifiable assets and liabilities of Calex on 1 March 2013 was
$84.9 million. (6 marks)
ICAEW\DIPLOMA IN IFRSs\July 2013 Page 6 of 10

Requirement
Discuss the accounting treatment of the above items, including relevant calculations, in the consolidated financial statements of Twenkin for the year ended 31 March 2013 .
(24 marks)
ICAEW\DIPLOMA IN IFRSs\July 2013 Page 7 of 10

3.
(a) Explain why the IASB considers it necessary to show an expense for share-based payment transactions.
(4 marks)
(b) Consta, a company listed on the national stock exchange, has two share-based payment schemes in operation:
(1) The directors' scheme
This dates back to 1 July 2009 when the scheme commenced. Under the terms of the scheme, directors are able to buy shares in Consta at a discounted exercise price of $30.40 per $1 ordinary share on 30 June 2014, providing they are still directors of the company on that date. The fair value of each option to buy a $1 share was calculated by an independent specialist as $8.30 per option at 1 July
2009. Overall, 300,000 share options were issued and all directors were expected
(and still are expected) to be in the company's employ on 30 June 2014.
The share price on 1 July 2009 was $35.10 and had been rising steadily until the year ended 30 June 2011. Failure to meet targets and difficult economic conditions resulted in the shares trading on the markets at an average price of $32.20 for the year ended 30 June 2012. The 30 June 2012 year-end share price was lower at
$29.50. As a result, the fair value of the existing options was measured at $1.20 each at 30 June 2012.
It was agreed, on 30 June 2012 and effective from that date, that the exercise price for the options would be lowered to $22.90 per share. The fair value on 30
June 2012 of each option to buy a $1 ordinary share was measured at $7.20 immediately after. The average price per share for the year ended 30 June 2013 was $27.20; with a share price of $27.80 at 30 June 2013.
(2) The employees' Share Ownership Programme
Employees were invited in 2012, effective from 1 July 2012, to join a Consta Share
Ownership Programme.
Employees contribute $100 per month (deducted directly from salaries) into the programme for three years.
At the end of the programme on 30 June 2015, providing they are still employed, they can use the $3,600 accumulated in the programme to buy $1 ordinary shares in Consta at a discounted price of $25, or have their money returned to them.
2,000 employees joined the programme on 1 July 2012, although 30 of them had left by 30 June 2013. Consta estimated at 30 June 2013 that a further 50 employees would leave before 30 June 2015. Employees who leave before 30
June 2015 are entitled to have the sums paid into the programme refunded to them.
The fair value at 1 July 2012 of each option to buy a $1 ordinary share was calculated at $3.90.
Consta manages both schemes in house.
ICAEW\DIPLOMA IN IFRSs\July 2013 Page 8 of 10

Requirement
Discuss, showing relevant calculations, the financial reporting treatment of:
(1) the directors' scheme; and
(2) the employees' Share Ownership Programme in the financial statements of Consta for the year ended 30 June 2013.
Ignore deferred tax.
PLEASE TURN OVER FOR FINAL QUESTION
(8 marks)
(6 marks)
(18 marks)
ICAEW\DIPLOMA IN IFRSs\July 2013 Page 9 of 10

4. (a) Discuss how the fair value of biological assets is determined in accordance with IAS 41 and IFRS 13, giving practical examples of the application of each level of inputs per
IFRS 13 using specific biological asset examples. (8 marks)
(b) Parker Dairies owns a herd of cows, mainly for milking, but some are sold for meat.
Details of the draft statement of financial position figures for the year ended
31 December 2012 are as follows:
$'000 Number
Fair values less costs to sell of cattle herd at 1 January 2012
(all three year olds at that date, original cost was $840 each) 1,400
Three year old cows slaughtered for meat
1,260
(carrying amount charged to cost of sales) (100)
New two year old cows purchased 1 January 2012 at $1,000 each 150
(90)
150
Calves born late in 2012
Male calves sold for veal at $280 each (included in revenue)
Cattle herd at 31 December 2012 per draft figures
200
(100)
1,550 1,320
At 31 December 2012, cows had the following selling prices, net of selling costs:
-
-
Two year old milking cow
Three year old milking cow
Four year old milking cow
Calves
$ per animal
1,040
940
900
320
Changes in the value of biological assets are taxed on sale in the tax jurisdiction in which Parker operates. The tax rate applicable to current and deferred tax for 2011,
2012 and future years is 25%.
Requirement
Calculate the carrying amount of the herd and the deferred tax liability in the statement of financial position at 31 December 2012 and the deferred tax charge to profit or loss for the year ended 31 December 2012.
Work to the nearest $1,000. (10 marks)
(18 marks)
ICAEW\DIPLOMA IN IFRSs\July 2013 Page 10 of 10