Tackling SFP/PL

Question 1

If note mentions selling items on interest free credit as opposed to the usual interest rate, what do you do?

Answer 1

Adjust the revenue by removing the PV from the revenue received. For example-

sold assets for £200,000 on interest free credit when usually you charge 5%

Revenue= x
Less Interest free credit= (200,000-(200,000/1.05)

Question 2

If given a note about depreciation, however there is an impaired asset, what steps do you take?

Answer 2

First calculate impairment of machine (carrying amount - depreciation - recoverable amount)

In PPE workings, reduce impairment from total carrying amount.
*Reduce depreciation on impaired machine (in previous working and also dep on recoverable amount)
*Reduce by depreciation on rest

Question 3

How do you treat NCA held for sale (sold midyear)? (4)

Answer 3

a. Calc profit on disposal: Revenue – Cost + realised profit
b. Add relevant cost to cost matrix (cos, dist, admin)
c. Change PFTY to PFTY for continuing operation and add line below for ‘profit from discontinued op’ and enter total from ‘a’
d. Now create PFTY

Question 4

How do you treat changing PPE from cost to reval model?(5)

Answer 4

a. Create PPE matrix and if depreciation for year added then create ‘reversal of dep’ before carrying amount (new 3rd line). Calc reverse dep and add this to cost of sales
b. Calc carrying amount before current year dep (like usual)
c. Under this: calc revaluation (add line under reval line called fair value and add revalued amounts. Use ‘revaluation’ line to calc balance (this is for SFP)
d. Calc dep on FV and add to cost matrix and total for carrying amount
e. Under PFTY add line for other CI, revaluation of PPE, total CI

Question 5

How do you treat Share issues with EIR and rights issue? (2)

Answer 5

a. If EIR given use amortisation table- BF, EIR, CASH (coupon % x bf), CF
i. EIR is finance cost and CF is the goes in redeemable pref share (ncl)
b. If rights issue: ordinary shares / (1+rights issue) (e.g. 1 for 5 then /6)

Question 6

How do you treat zero coupon bonds?

Answer 6

Initial value + amortised interest= Carrying amount

amortised interest (initial value x EIR)