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FT BE110 (14th Intake)

PT BE110 (15th & 16th Intake)



Financial Reporting and Analysis


Main Examination


Time Allowed: 6 Hours




The paper consists of SIX questions:

THREE in Section A

THREE in Section B


Candidates must answer THREE questions.


At least ONE question from each Section


Each question carries 33 marks.


1 mark will be reserved for presentation, layout etc.



Candidates are permitted to use:

Calculators (hand held, containing no textual information)







Bibi Hawa Ghani

SECTION A – Candidates must answer at least one question



Luxury Ltd has acquired 75% of the equity shares of Comfort Ltd on 1 September 2018.


Shown below are the statements of comprehensive income for Luxury Ltd and Comfort Ltd for the year to 31 December 2020:


  Luxury Ltd   Comfort Ltd
  $   $
Sales revenue 748,000   130,000
Cost of sales -320,000   -78,000
Gross profit 428,000   52,000
Distribution costs -85,000   -6,000
Administrative expenses -100,000   -10,000
Finance costs -21,000   -2,000

222,000           34,000

Dividend received from Comfort Ltd          18,000

Profit before tax        240,000           34,000

Taxation        -61,000            -8,000

Profit for the year      179,000           26,000


The retained earnings of Comfort Ltd on 1 September 2018 were $4,000.


Data related to the two companies retained earnings as at 31 December 2020 are as given hereunder:


  Luxury Ltd   Comfort Ltd
  $   $
Balance at 31 Dec 2019 65,000   8,000
Profit for the year 179,000   26,000
Dividends paid -130,000   -24,000

Balance at 31 Dec 2020        114,000           10,000


The following information is also available:

  1. Luxury Ltd had sold goods to Comfort Ltd during the year 31 December 2020 amounting to $12,000. These goods had a cost of $7,000. At the end of the year, one-quarter of the goods were still held by Comfort Ltd. 2. Goodwill on consolidation has suffered an impairment loss of $15,000.




  1. Prepare a consolidated statement of comprehensive income for the year 31 December 2020. (15 marks)


  1. Prepare an extract from the consolidated statement of changes in equity, showing the changes in the group’s retained earnings during the year 31 December 2020. (18 marks)


[Total: 33 marks]







Snowdale’s statement of comprehensive income for the year to 31 December 2021 is shown below.

Its statement of financial position as at that date (with comparative figures for 2020) is also shown.


Statement of financial position as at 31 December 2021


  2021     2020
  $ $   $          $
Non-current assets        
Property, plant and equipment   490,400               476,000
Investments   300,000               300,000
    790,400     776,000
Current assets          
Inventories 284,800     269,600  
Trade receivables 212,000     225,600  
Cash at bank 22,000 518,800    495,200

1,309,200                                1,271,200

Share capital   355,000     260,000
Share premium account   66,000     58,000
Retained earnings   520,800     236,000
    941,800           554,000
Non-current liabilities          
Debenture loans   82,000     204,000
Current liabilities          
Trade payables 245,600     240,800  
Accrued interest payable 3,400      
Taxation 36,400     54,000  
Bank overdraft 285,400         218,400 513,200

1,309,200                                1,271,200  Statement of comprehensive income for the year to 31 December 2021


Sales 737,200
Cost of goods sold (309,600)
Gross profit 427,600
Administrative and selling expenses (100,000)
Interest payable (14,000)
Dividend received 27,600

Profit before tax


Profit after tax



Additional information:

  • Administrative and selling expenses include equipment depreciation of $43,500.
  • There were no disposals of non-current assets during the year to 31 December 2021.
  • All sales and purchases were on credit.
  • A dividend of $20,000 was paid during the year.




  1. Prepare a statement of cash flows for the year to 31 December 2021 in accordance with the requirements of IAS7 (using the indirect method). (22 marks)


  1. Give your opinion on the results shown in the statement of cash flow prepared above. (11 marks)


[Total: 33 marks]






  1. a) Corn Ltd is a public-listed company. As at 1 January 2019, the company has an issued share capital of 3,000,000 ordinary shares. On 1 March 2019, Corn Ltd announced a 1 for 5 bonus issue and on 1 October 2020, Corn Ltd issued an additional 500,000 ordinary shares at its full market price.




  1. Calculate the number of shares to be used in the calculation of restated basic EPS for the year to 31 December 2019.

(5 marks)


  1. Calculate the weighted average number of ordinary shares to be used in the calculation of basic EPS for the year to 31 December 2020.

(8 marks)


  • IAS33 (Earnings Per Share), applies to companies whose ordinary shares are publicly traded.

Explain the importance attached to earnings per share (EPS).

  • marks)


  1. Briefly discuss how basic EPS differ from diluted EPS.
    • marks)



  1. b) Grace Company’s profit after tax for the year to 30 June 2020 was $4 million. The comparative figure for the year to 30 June 2019 was $3.5 million.


The company’s issued share capital at 1 July 2018 consisted of 3 million ordinary shares of $2 each. On 1 October 2019, the company issued an additional 1 million ordinary shares and the company bought back 100,000 shares on 1 March 2020 at its full market price.





Calculate the basic EPS for the two years 30 June 2019 and 30 June 2020.

(12 marks)


[Total: 33 marks]









SECTION B – Candidates must answer at least one question




  1. Distinguish between research and development (R & D) cost in the context of IAS38 Intangible Assets. (4 marks)


  1. Should we capitalise or expense R&D expenditure? (4 marks)


  1. Explain how the following expenditure would be dealt with in the financial statements of Zone Limited to conform with IAS38:

i.) Expenditure incurred with an organisation investigating on the use of a new type of raw material used in its production.

ii.) Expenditure incurred on developing a new high-speed equipment which has the potential to reduce the time taken in production.  Work has been put on hold pending the development of a new gadget suitable for the required speed.

iii.) During the year to 31 December 2021, the company spent a total of $900,000 on research and development of new products.  Of this amount, $500,000 was spent on an unsuccessful attempt on two of their products.  The remaining $400,000 was spent on the development of a new a product with a potential good market. (16 marks)


  1. Briefly identify the main features of goodwill which distinguish it from other intangible assets.

(9 marks)


[Total: 33 marks]







Jezz Blue operates leisure and adventure cruises to the nearby islands.  An adventure cruise boat was acquired on 1 October 2012.  Given below are details of cost to the separate parts of the boat and their estimated useful lives:


Adventure boat hull and decks, original cost $300,000, depreciation on straight-line basis (25 years)

Cabins and fittings, original cost $150,000, depreciation on straight-line basis (12 years) Engine system, original cost $100,000, depreciation on 40,000 hours useful life


As of 30 September 2020, no further additional capital expenditure had been incurred on the boat.


You were informed by the company that during the year ended 30 September 2020, the boat had experienced an extensive engine trouble which had cost the company a large loss of revenue and compensation to customers.  The expired life of the engine system at 30 September 2020 was 30,000 hours.  Due to this situation, the company has decided in early October 2020 to replace the boat’s engine at a cost of $140,000.  The expected life of the new engine system was 50,000 hours and in the year ended 30 September 2021, the boat had used its engines for 5,000 hours.

At the same time as the engine system replacement, the company decided to upgrade the cabins plus fittings at a cost of $60,000 and repaint the boat’s hull and decks at a cost of $20,000.  After the upgrade of the cabins and fittings, it was estimated that their remaining life was 5 years (from the date of the upgrade).


For the purpose of calculating depreciation, all the work on the boat can be assumed to have been completed on 1 October 2020.  There are no residual values for all of them.



Calculate the carrying amount of Jezz Blue’s adventure boat at 30 September 2021. Also state the amounts which should be recognised as expenses for the year ended 30 September 2021.


Support your answer with a clear explanation to the given transactions.

[Total: 33 marks]








  1. Briefly explain “impairment loss”. How are impairment losses usually recognised in the accounts? (4 marks)


  1. Discuss six main indicators of asset impairment, supported with some examples. (18 marks)


  1. State and discuss on two types of assets which must always be tested for impairment. (6 marks)


  1. Explain how the recoverable amount of an asset is arrived at.

(5 marks)


[Total: 33marks]








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