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BMAN21020: FINANCIAL REPORTING AND ACCOUNTABILITY

WORKSHOPS: QUESTIONS ONLY

BMAN21020
WORKSHOPS Activities Booklet
Questions for STUDENTS

SEMESTER 1, 2017-18

This booklet contains the QUESTIONS ONLY.

Note: If you are looking for advice on completing the tasks: there is a second Booklet,
the WORKSHOPS Activities Booklet, which includes advice on what we are expecting
you to bring to each workshop. It includes blank areas for you to complete, to assist in
answering the workshop questions, references to guided reading and recommended
approaches to answering. You can either print it out and complete it in advance of the
workshops, or type your answers in whichever you do, you MUST come PREPARED!

You are also encouraged to make us of excel to answer calculation


questions: it is a very useful employability skill.

If you spot any errors or have any suggestions, please contact Huw Morgan
(huw.morgan@manchester.ac.uk): thank you!

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WORKSHOPS: QUESTIONS ONLY

Workshop 1 Week 3: Published Accounts Revision: Questions

1. The trial balance for Blackpool Rocks Ltd at 30 June 2010 is as follows:

Dr Cr
000 000
Land and buildings 1,300
Plant and machinery 750
Stock of finished goods at 1 July 2009 600
Debtors 375
Cash 500
Creditors 325
Bank loan (at 7% interest) 700
Sales 4,900
Purchases 3,300
Operating expenses 525
Interest 25
Share capital 1,100
Profit and loss account b/f at 1 July 2009 350
7,375 7,375

The figures in the above trial balance include all transactions processed to date.

The following transactions have not yet been processed and needs to be adjusted for:
i) Depreciation of 150,000 on plant and machinery has not yet been accounted for.
ii) A stock count taken at 30 June 2010 has indicated that the company has finished goods stocks to the
value of 595,000. Included in this amount is stock that had a historic cost of 45,000 but was identified
during the stock count as being damaged and it is expected that it can only be sold for 25,000.
iii) Interest has been accounted for on a cash basis only and therefore only part of the interest charge has
been accounted for so far.
iv) A gas and electricity bill has been received post year-end which has not yet been accounted for. The
invoice total is 45,000 and is for the 3 months to 31 July 2010.
v) Rent of 10,000 was paid during June 2010 for the period of July - September 2010. This was incorrectly
recorded as an operating expense.
vi) Debts of 35,000 have been identified as being not collectable and need to be provided for.
vii) During the year, the buildings were damaged in a storm and after repairs; the buildings were assessed as
being impaired by 125,000.
Required:
a) Make the necessary adjustments to account for the information included in parts (i) (vii) above. Show
you workings clearly.
b) Re-state the trial balance following the adjustments you made in part (a).
c) Prepare a draft income statement for the year to 30 June 2010.
d) Prepare a draft balance sheet as at 30 June 2010.

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WORKSHOPS: QUESTIONS ONLY

2. CompuCo is a limited company in the North West of England which buys desktop computers direct from an
importer and sells them on in large batches to Local Education Authorities for use in schools and colleges. The
current model that CompuCo Ltd is selling is the Mark II.

2012 has been a particularly difficult trading year for CompuCo Ltd for two reasons. First, the supply of Mark II
computers has been disrupted because of a shortage of processor chips; this has had the effect of increasing
CompuCo Ltd's cost of buying in Mark IIs during the course of 2012. Secondly, the next generation of computer,
the Mark III, is now becoming more widely available at reasonable prices. As a result, some of CompuCo Ltd's
customers have been deferring their purchases of computers, with some deciding to wait a few months until
they can buy Mark III models instead from a different supplier. As a result, CompuCo Ltd has sold fewer
computers during the year than it had expected.

During the year ended 31.12.2012 the following transactions took place

31.01.12 Bought 350 computers at 600 each


01.03.12 Bought 280 computers at 710 each
15.03.12 Sold 210 computers at 750 each
05.05.12 Bought 150 computers at 730 each
30.09.12 Sold 180 computers at 775 each
10.10.12 Sold 105 computers at 735 each

CompuCo Ltd's only fixed assets are two delivery vans purchased on 2 January 2012 for 22,000 each. These are
both expected to be used in the business for 5 years and then sold for 7,000 each.
Other business expenses of 35,000 were incurred for the rental of office and warehouse space, electricity,
telephone, part-time secretary and miscellaneous expenses.
CompuCo Ltd's financial accountant is considering using the following accounting policies to produce the 2012
financial statements:
For depreciation of fixed assets straight line or reducing balance.
For stock - FIFO or weighted average cost (using the perpetual method in both cases).
Assume that there is no opening stock.

Required:
a) Prepare profit and loss statements for CompuCo Ltd for the year ended 31.12.2012 using:
i) the straight line method of depreciation and FIFO for stock movement
ii) the reducing balance method of depreciation and weighted average cost for stock movement.
b) What is the value of closing stock under each of the combinations (i) and (ii) in part (a) above?
c)
i) Explain the effect of the choice of accounting policies for depreciation and stock on the financial
statements of CompuCo Ltd; and
ii) Which accounting policies you would advise CompuCo Ltd to adopt (including the reasons for your
choice), given what you have been told about the company and the business environment?

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WORKSHOPS: QUESTIONS ONLY

Workshop 2 Week 4 - QUESTION


The Regulation of Financial Accounting
The following exercise was taken from a text book written by Deegan who is one of the co-authors of the
Deegan and Unerman book from which Mike Strivens has extracted some chapters for your core text book.
Full details are on the course outline.
Some years ago all existing records about accounting standards were destroyed in world- wide natural
disasters. After a period of social and economic recovery the newly created post of Government Tsar for
Accounting has been created. You have been appointed to the role after achieving world breaking marks in
your financial reporting theory course at university. This is a post which carries with it significant powers. You
need to decide whether any accounting standards are needed and if so what form they should take. Explain
your choices.
Required
Before the workshop you should make short notes to act as a basis for discussion in the workshop.

Exam Style Question


Even in the absence of regulation there are private contractual incentives for companies to disclose financial
information for the benefit of their stakeholders. Evaluate this argument.
Required
Before the workshop you should pretend that you are in an exam room and you should attempt to write a
short essay evaluating the argument in 45 minutes. For the workshop open books are permitted.

During the workshop students will be asked to read the essay of another student and to provide feedback.
An example of how to answer this question will be provided on Blackboard and will be available after all
workshops in this week are complete.

Workshop 3 Week 5: Tangible Assets QUESTION


(a) Accountants have their own methods for defining assets and for deciding whether assets should be
included (recognised) in the SOFP. Without copying from the text book, describe the criteria that define
an asset, and explain why these criteria do not include ownership. Explain the criteria that must be met if
a company is to recognise an asset in its SOFP. Give two examples of company assets that meet the
definition test but fail the recognition test.
(b) The following extract has been taken from the trial balance of King plc as at 31st December 2013.
000s 000s
Land and Buildings at cost 370
Equipment at cost 200
Vehicles at cost 600
Accumulated depreciation at 1st January 2013:
Buildings 90
Equipment 80
Vehicles 100
Disposal of vehicle 10

You are provided with the following additional information.


1) Included in land and buildings is land which cost 120,000. This land was valued at 300,000 on 31st
December 2013 and the directors wish to include it in the 2013 accounts at this valuation.
2) The company depreciates its assets as follows:
Buildings 4% per annum straight line
Equipment 40% per annum reducing balance
Vehicles 25% per annum straight line
A full years depreciation is charged in the year of acquisition and no depreciation is charged in the year
of disposal. The companys vehicle fleet policy is normally to keep vehicles until they have no residual
value.
On 1st November a vehicle used by senior administrators of the company which cost 40,000 in May 2011
was sold for 10,000 cash. The cash is included in the companys bank account and the double entry was

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WORKSHOPS: QUESTIONS ONLY

made to the disposal account, which is included in the extract from the trial balance above, but no other
entries have been made relating to the disposal. No other non-current assets were disposed of during the
year.
Required:
Calculate the value of the non-current assets which should be disclosed to Kings shareholders.
(c) In order to calculate depreciation the company needs values for the cost of the asset, the residual value
and the expected useful economic life. But in some cases even the cost value may not be clear. Answer
the following.
(i) What is the purpose of depreciation?
(ii) Describe, without copying direct from the text book, the meaning of residual value and useful
economic life.
(iii) On 1st June Manchester Ltd. purchased a second hand machine for 250,000 from Leeds Ltd.
Originally the machine cost Leeds 400,000. Before integrating the machine into its manufacturing
system, Manchester incurred transport costs of 10,000 to get the machine across the Pennines to
its new Old Trafford home and 5000 for installation. Manchester decided to upgrade the machine
to improve its future output. This upgrade cost 9,000. At the same time as the upgrade Manchester
performed routine maintenance on the machine at a cost of 1000. Unfortunately the machine
proved to be unreliable and within four months additional repair costs of 5,000 had been incurred.
Manchesters accounting year end is 31st January. What is the cost of this asset to be recognised in
the SOFP?
(iv) Describe in words how an assets cost should be determined.

Workshop 4 Week 7: Published accounts Question

In addition to your prepared answers to the following questions, please also download a copy of the 2016
Annual Report for Tesco plc (use this link for the webpage or this for the pdf), and have a review of it before
the workshop. (Dont print it out: its 172 pages!) We shall use these financial statements to discuss and
illustrate aspects of published accounts and accounting policies.
Bradford plc is a wholesaler. The following is a trial balance as at 31 December 2013:
Dr Cr
000 000
Ordinary share capital: 1 shares 300
Share premium 20
General reserve 16
Retained earnings as at 1 January 2013 55
Inventory as at 1 January 2013 66
Sales 935
Purchases 484
Administrative costs 10
Distribution costs 6
Plant and Machinery cost 220
Plant and Machinery provision for depreciation 49
Warehouse wages 101
Salesmens salaries 64
Administrative wages and salaries 60
Hire of motor vehicles 19
Directors remuneration 30
Rent received 7
Trade receivables 326
Cash at bank 62
Trade payables 66
1448 1448

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The following additional information is supplied:


1. Depreciate plant and machinery at 20% on a straight line basis.
2. Inventory at 31st December 2013 is 90,000.
3. Accrue auditors fees of 2,000.
4. Corporation tax for the year will be 58,000 payable October 2014.
5. It is estimated that 7/11 of the plant and machinery is used in connection with distribution, with the
remainder for administration. The motor vehicle costs should be assigned to distribution.
Required:
(a) Prepare a statement of comprehensive income and statement of financial position in a form that
complies with IAS 1. No notes to the accounts are required, but show your workings clearly.
(b) Give reasons as to why information contained in the accounting policies notes is of importance to
users of accounts.
(c) Briefly explain what you would expect to find in the following sections of a UK company annual
report:
Narrative sections
Directors report
Auditors report

Workshop 5 Week 8: Published accounts 2: Earnings per Share


Harcourt plc had the following capital structure as at 1 January 2015:

4,000,000 ordinary shares of 50p each 2,000,000
10% 1 preference shares 200,000
12% convertible bonds 500,000

The following information has been extracted from the income statement:

Profit before interest and tax 1,250,000
Less interest (60,000)
Profit before Tax 1,190,000
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Less tax at 40% [1.19m x 40%] (476,000)
Profit attributable to shareholders 714,000

The following information is relevant:


1. On 31 March 2015 Harcourt plc made a 1 for 5 rights issue at 2.35 per share. The market value of a
share on that date was 3.25.
2. The 12% convertible bonds are convertible as follows:
a) If the conversion is exercised on 1 January 2016 each 100 of bonds is convertible into 70 ordinary
shares.
b) If the conversion is exercised on 1 January 2017 each 100 of bonds is convertible into 60 ordinary
shares.
3. Harcourts basic EPS for 2014 is 12p.
Required
a) Calculate the basic EPS for Harcourt plc for 2015 and restate the basic EPS for 2014.
b) Define the diluted earnings per share, and discuss why there is a need to disclose it.
c) Calculate the diluted EPS for Harcourt plc for 2015
d) How can an investor evaluate the quality of the earnings per share figure published in a companys
financial statements?

1In this example, reported profit is the same as taxable profit. We shall investigate tax in semester 2 generally there will be
adjustments required for expenses that are not tax allowable.
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Workshop 6 Week 9: Consolidated Financial Statements (1)


Hale plc (Hale) holds the following interests in two companies. All adopt International Accounting Standards,
and Hale capitalises goodwill in accordance with IFRS 3s full provision method.
Investment in Sale Ltd (Sale):
Hale acquired 90% of the 500,000 1 ordinary share capital during the current year, on 1st October 2015.
Sale had no other reserves or equity, and there has been no change in ordinary shares since acquisition.
Assume Sales sales, costs and profits are generated evenly over the year.
Hale capitalises goodwill in accordance with IFRS 3s full provision method, and the fair value of the non-
controlling interest of Sale at the acquisition date was 180,000.
Investment in Ale Ltd (Ale):
30% of the ordinary share capital was acquired (several years ago) for a cost of 60,000. At the date of
acquisition, Ale had a profit and loss reserve of 30,000. Ale had no other reserves or equity and there
has been no change in ordinary shares since acquisition. Hale has a significant influence in Ale.
You have been given the following individual statements of financial position for the group members of Hale:
Statements of Financial Position Hale Sale Ale
as at 31st March 2016 '000 '000 '000 '000
Non-Current assets: Tangible 4,330 2,890 390
Investment in Sale plc (1st Oct 2015) 2,000
Investment in Ale plc 60
6,390 2,890 390
Current Assets:
- inventory 1,200 500 60
- trade receivables 1,000 300 30
- bank 10 30 -
2,210 830 90
8,600 3,720 480
Share capital and reserves
Ordinary shares 3,000 500 200
Profit and Loss reserve 2,200 2,260 130
5,200 2,760 330
Current Liabilities:
- trade payables 500 320 40
- tax 100 440 30
- dividends payable 300 - -
900 760 70
Non-Current Liabilities: Debentures 2,500 200 80
Share Capital and Liabilities: 8,600 3,720 480

Required:
1) Prepare a Consolidated Statement of Financial Position as at 31st March 2016.
Guidance: you will need to produce the following workings:
1. Goodwill
2. Investment in Associate
3. Consolidated P&L at 31st March 2016
4. Non-controlling Interest at 31st March 2016

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You have also been provided with the following summary income statements for the year ended 31st March
2016:
Draft Income Statements for the year Hale Sale Ale
ended 31st March 2016 '000 '000 '000
Turnover 9,000 4,000 800
Cost of sales (8,000) (1,600) (600)
Gross Profit 1,000 2,400 200
Operating expenses (500) (200) (50)
Operating Profit 500 2,200 150
Tax (100) (440) (30)
Profit after tax 400 1,760 120
Dividends: (400) - -
Retained Profit - 1,760 120
Brought forward 2,200 500 10
Carried forward 2,200 2,260 130
Required:
2) Prepare a Consolidated Income Statement for Hale plc for the year ended 31st March 2016.
3) Prepare extracts from the Consolidated Statement of changes in Equity for the year ended 31st March
2016 relating to movements in: NCI and retained earnings in the format:
Retained Earnings
Balance Brought Forward (see guidance) X
Total comprehensive income for the period X
Dividends to Hale shareholders (X)
Balance carried forward X
Non-controlling Interest
Balance Brought Forward X
Total comprehensive income for the period X
Dividends to NCI (X)
Balance carried forward X
Guidance: In addition to the other workings you will now need to produce the following:
5. Group P&L Account: balance at 31st March 2015

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Workshop 6 Week 9
Consolidated Financial Statements (2): Income Statement and Statement of Changes in Equity
PLEASE NOTE: This is a large and challenging question that covers everything I could think of! Its well
beyond exam standard, but very good practice: if you can do this, then you should be well-prepared for any
exam-standard question.
Alpha plc (Alpha) holds the following interests in two companies. Alpha accounts for all acquisitions using
acquisition accounting (for subsidiary undertakings) and equity accounting (for associated undertakings), and
adopts International Accounting Standards.
Investment in Beta Ltd (Beta):
(i) 60% of the ordinary share capital was acquired on 1st January 2012 when Beta Ltd had a profit and loss
reserve of 120,000, and 200,000 ordinary share capital (with 1 nominal value). Beta had no other
reserves or equity, and there has been no change in ordinary shares since acquisition.
(ii) At the date of acquisition, Alpha reviewed the value of depreciable equipment held by Beta and
considered its fair value to be 180,000 higher than its net book value in Betas Balance Sheet. Both
Alpha and Beta depreciate equipment at the rate of 20% straight line.
(iii) Alpha capitalises goodwill in accordance with IFRS 3s full provision method, and the fair value of the
non-controlling interest of Beta at the acquisition date was 210,000.
(iv) The goodwill arising from the acquisition was impaired in the year ended 31st December 2014 by
20,000. No previous impairments had been made.
Investment in Gamma Ltd (Gamma):
(v) 25% of the ordinary share capital was acquired for a cost of 60,000. At the date of acquisition, Gammas
had a profit and loss reserve of 40,000. Gamma had no other reserves or equity and there has been no
change in ordinary shares since acquisition.
(vi) Gamma had a disappointing set of results during the current year, and Alpha decided to impair its
investment in Gamma for the first time in the year ended 31st December 2014. Alpha now shows the
investment at a value of only 5,000 in the group Statement of Financial Position.
You have been given the following draft income statements for the group members of Alpha for the year
ended 31st December 2014:
Draft Income Statements year ended 31 Dec 2014 Alpha Beta Gamma
'000 '000 '000
Turnover 16,500 6,800 980
Cost of sales (9,420) (4,605) (700)
Gross Profit 7,080 2,195 280
Operating expenses (2,250) (1,520) (320)
Operating Profit 4,830 675 (40)
Tax (1,449) (203) -
Profit after tax 3,381 472 (40)
Dividends (proposed, approved and as yet unpaid) (1,500) (80) -
Retained Profit 1,881 392 (40)
Brought forward as at 1st January 2014 2,200 167 10
Carried forward as at 31st December 2014 4,081 559 (30)
The following information is also relevant:
(vii) During the year, Beta sold goods to Alpha, totalling 650,000, using a gross profit margin of 20%. At
the balance sheet date, Alpha is still holding 140,000 of those goods in inventory.
(viii) Alpha has not yet accounted for any dividends receivable from Beta (note: all dividends in the draft
income statement are proposed and unpaid as at 31st December 2014).

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REQUIRED:
a) Prepare the following workings:
1) Investment in Associate (required for impairment amount in the year)
2) Provision for unrealised profit (required to remove intra-group transaction: note (i))
3) Dividends from Beta to NCI / to Alpha (required to remove intra-group dividends: note (ii))
4) Fair Value adjustment: depreciation (current and prior years)
5) Profit and loss reserves - in the Group SOFP at 31st December 2013
6) Profit and loss reserves - in the Group SOFP at 31st December 2014
7) Non-controlling interest (NCI) - in the Group SOFP at 31st December 2013
8) Non-controlling interest (NCI) - in the Group SOFP at 31st December 2014
9) NCIs share of profit for the year (in the Income Statement)
b) Prepare a Consolidated Income Statement for Alpha plc the year ended 31st December 2014.
c) Prepare extracts from the Consolidated Statement of changes in Equity for the year ended 31st
December 2014 relating to movements in non-controlling interest and retained earnings

Workshop 8 Week 11
Corporate Governance

Preparation in advance of the workshop


Over a period of many years pressure has been applied to companies to improve the way in which they are
governed, and more recently there have been similar pressures on public sector entities. In the private sector
the Board of directors is now seen as central to corporate governance (MS text book page 589).
READ THE FOLLOWING ARTICLE WHICH IS AVAILABLE ON BB
The role of corporate governance and boards in organisational performance by Cornforth and Chambers
(2010), then answer the following questions before the workshop. Bring your answers with you and be
prepared to discuss.
1. Why has there been pressure on companies and other entities to change?
2. In the private sector, what is the role of the board of directors and how is this role operationalized? (When
answering this question you should go back to the theories of reporting lectures and think about what
these theories say that might be relevant here).
3. What does the research evidence say about the effectiveness of boards in relation to issues such as board
size, independent board directors, employee representation on boards and executive compensation?
4. What is the difference between the conformance and performance dimensions of the boards role?

YOU SHOULD ALSO READ THE CHAPTERS IN THE MS TEXT BOOK ON CORPORATE GOVERNANCE SEE
COURSE OUTLINE FOR FULL DETAILS

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