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1、Intermediate Accounting By Vivian 周卉 13286006815 zhouhuivivianhotmailTutorial Class 5Review for Final ExamFinal ExamKey points1.Condolidated accounts -Consolidated income statement and balance sheet 2.Accounting for fixed assets: - Purpose and methods of depreciation, advantage and disadvantage of d
2、ifferent methods. -Caculation of new depn expense after the change in useful life or revaluation of fixed assetFinal ExamKey points 3.EPS calculation, -Advantage and disadvantage of EPS. -Weighted average no. of shares calculation 4.Impairment of fixed assets or goodwill: -Definition of impairment l
3、oss; -In what situation will a company carry out an impairment review and how -Allocation of impairment loss1. Consolidated AccountsExample 1Beijing plc owns 80% of the shares of Zhuhai plc. The purchase consideration was 450,000. The retained earnings of Zhuhai plc at the date of acquisition were 3
4、50,000.The summarised financial statements of the two companies for the year ended 31 December 2019 were as follows:INCOME STATEMENTS as at 31 Dec. 2019BeijingZhuhai000000Revenue33002100Cost of sales16001200Gross profit1700900Admin expense8050Selling expense820250Profit before tax800600Income tax400
5、300Profit after tax for the year400300Retained Earnings b/fwd710450Retained Earnings c/fwd1110750 Beijing ZhuhaiNon-current Assets13601200Investment in Zhuhai450Inventory200100Receivables250100Amounts receivable from Beijing-30Cash at Bank 10020Total Assets23601450Share Capital (1 ordinary) 550100Re
6、serves1110750Equity1610850Debenture Loans300300Current Liabilities:Payables173200Amounts payable to Zhuhai27-Payables20010023601450BALANCE SHEET as at 31 Dec. 2019Additional information:During the year, Zhuhai had sold goods which it had bought for 200,000, to Beijing with a markup of 30%. At the en
7、d of the year 20% of these were unsold by Beijing by the year end. A review of group current accounts showed a receivables balance of 30,000 in Zhuhais accounts and a payables balance of 27,000 in Beijings accounts. This is due to cash in transit: Beijing had dispatched a cheque of 3,000 on 31 Decem
8、ber 2019.The group policy is to capitalise goodwill without amortisation. There has been no impairment of goodwill, since the acquisition.Example 1Consolidated B/S1. Goodwill calculationinvestment 450Less Parents share of share capital and reserve at the date of acquisition 80%*(350+100) (360)Goodwi
9、ll 902. Cash in transit:Beijing sent cheque to Zhuhai: 3KZhuhais cash: + 3 Zhuhais Receivable: -3Cancel 27K payable-receivable from both companies on consolidation.informationB/SP/L2.Unrealized profitCost 200,mark-up 30%,Inter-company sales 200*(1+30%) = 26020% in stock: unrealized profit=20%*(260-2
10、00)=12Treatment:-reduce inventories of Arthur in B/S(12)-reduce parents share of groups reserve in B/S(12*80% = 9.6)-reduce minority interest in B/S(12*20% = 2.4)-reduce profit by adding cost of sales in income statement(12)-reduce minority interest in income statment(12*20% = 2.4)Consolidated balan
11、ce sheet treatmentB/SP/LinformationinformationB/SP/L3.Minority Interest in B/SMinority share of net assets at the balance sheet date (100+750)*20%= 170Reduce share of URP 12*20% = (2.4)Minority interest in B/S 167.6 4.Groups reserveParents reserve 1110Parents share of post-acquisition profit 80%*(75
12、0-350)= 320Less parents share of unrealized profit80%*12= (9.6)Groups reserve 1420.4Consolidated balance sheet treatmentinformationB/SP/L550 (parent only)100550Share Capital (1 ordinary) 90-Goodwill 1450100-200300850-75014502030100100-1200Zhuhai34112360300 (200+100)200Payables0 (cancel out after adj
13、usting)27Amounts payable to Zhuhai373 (173+200)173Payables600 (300+300)300Debenture Loans21610Equity167.6-Minority interest1420.41110Reserves34112360Total Assets123 (100+20+3)100Cash at Bank 0 (cancel out after adjusting)-Amounts receivable from Beijing350 (250+100)250Receivables288 (200+100 -12)200
14、Inventory-450Investment in Zhuhai2560 (0+1200)0Non-current AssetsGroupBeijing Consolidated income statement treatment1. Eliminate inter-company sales-reduce sales of Zhuhai by 260-reduce cost of sales of Beijing by 2602.Minority Interest in P/LMinoritys share of Subsidiarys profit after tax minus un
15、realized profit300*20%- 12*20% =57.6informationB/SP/LConsolidated income statement3.retained earning b/wd for the groupretained earning b/wd for parent 710Parents share of post acquisition profit b/wd (450-350)*80%= 80retained earning b/wd for the group 790 4.Adding sales and cost of sales sales: 33
16、00+(2100 -260) =5140 cost of sales: (1600 -260)+1200+ 12URP=2552informationB/SP/L688300400Profit after tax57.6 (300*20%- 12*20% )-Minority interest7504503003006002505090012002100Zhuha1420.41110Retained Earnings c/fwd790710Retained Earnings b/fwd630.4400Profit for the year700 (400+300)400Income tax88
17、00Profit before tax1070 (820+250)820Selling expense130 (80+50)80Admin expense25881700Gross profit2552 (1600 -260 +1200+ 12)1600Cost of sales5140 (3300+2100 -260)3300RevenueGroupGroupBeijingINCOME STATEMENTSFixed AssetsPractical example 2Simple plc has purchased a car.The details are as follows:Cost
18、of machine $800,000Residual value $104000Estimated life 4 years1.) Calculate:the annual depreciation charge using the a) straight-line method, b) diminishing balance and b) sum of digits method2.) Comment on which depreciation method is the most appropriate in this case and why.3.) Explain the purpo
19、se of recording depreciation on fixed assetsPractical example 2 straight line $,000Cost 800Depreciation for year 1 174Net book value 626Depreciation for year 2 174Net book value 452Depreciation for year 3 174Net book value 278Depreciation for year 4 174Residual value 104 Cost - estimated residual va
20、lue = depn. charge per year Estimated economic life (800-104) /4 = 174Practical example 2 diminishing balanceDepn rate = 1 - n (residual value)/cost = 1 4 (104)/800=40%Cost 800Depreciation for year 1 320 (800 * 40%) Net book value 480 (800 320)Depreciation for year 2 192 (480 * 40%) Net book value 2
21、88 (480 192)Depreciation for year 3 115Net book value 173Depreciation for year 4 69Residual value 104Practical example 2 sum of digits年数总和法 Cost 800Depreciation for year 1 278 696*4/10 (depn rate)Net book value 522Depreciation for year 2 209 696*3/10Net book value 313Depreciation for year 3 696*2/10
22、Net book value 174Depreciation for year 4 70 696*1/10Residual value 104Step1: Total depreciable cost= Cost - estimated residual value = 800-104 =696 Step2: Total digits: 1+2+3+4=10 Step3: Calculate the depn. Rate (4/10, 3/10, 2/10, 1/10)Step 4: total depreciable cost * depn. rate for each yearPracti
23、cal example 3A fixed asset costs 15,000 six year ago. It was depreciated using straight line method with no residual value. The company has now adopted the current value approach for its building and this building has been valued to 16,000. The fixed asset has an estimated useful life of 30 years wh
24、ich still holds true.Calculate :The NBV The old annual depreciation charge The new annual depreciation chargePractical example 3NBV at the date of revaluation :15,000 (15,000/30 x 6)= 12000Revaluation surplus:= 16,000 - 12000= 4000 This will be credited to revaluation reserve (surplus).Old dep. 15,0
25、00/30 = 500New dep. 16000/(30-6) = 667EPS calculationExample 4 1 January: 10000 ordinary shares in issue1 March: 2000 ordinary shares issued for cash 31 April: Bonus issue (发行红利股), 1 for 4.31 July: Rights issue(配股) at 1 per share on the basis of 2 for 5 held (Market price of the share before rights
26、issue was 1.5). Profit after tax is 20000 Required:Calculate the EPS for this yearExample 41.Bonus fraction as at 31 April:12000+(12000*1/4) = 5 12000 42.Calculation of theoretical Ex-rights price 实际除除权价价钱 1*2 shares= 2 1.5 *5shares = 7.52+ 7.5= 9.5 9.5/7shares= 1.36 (This is the theoretical Ex-righ
27、ts price)Bonus fraction as at 31 July for rights issue:1.5/1.36 = 1.1=11/10 Date Actual Time Bonus Bonus Shares factor Fraction Rights1 January: 10000 2/12 * 5/4 * 11/10 = 2292 Cash issue 2000 1 March: 12000 2/12 * 5/4 * 11/10 = 2750Bonus 300031 April: 15000 3/12 * 11/10 = 4125 Rights issue 6000 31
28、July: 21000 5/12 = 8750Weighted average no. of shares for the year =17917EPS=profit/weighted no. of shares = 20000/17917 =110 p Practical example 5Jay plcs profit after tax and minority interest was 1,095,000 for the year ended 31 December 2019.Notes:1)On 1 January 2019, there were 4,000,000 ordinar
29、y shares of 25p each, in issue.2)On 31 March 2019, there was a bonus issue (红红利股利股发发行行)of 1 new ordinary share for every 4 held.3)On 1st September 2019, there was an issue of one million 25p ordinary shares for cash at full market price.4)A rights issue(供股供股 ,配股配股 was made to the ordinary shareholde
30、rs on the 31st October 2019, at 50 pence per share, on the basis of one share for every four held. The market price immediately before the rights issue was listed as 1.5)The EPS figure for last year was 20 pence.REQUIRED a)Calculate the earnings per share figure for 2019. b)Recalculate the earnings
31、per share figure for the year 2019.Impairment ReviewImpairment of intangible assetsImpairment is a “reduction in the recoverable amount Impairment is a “reduction in the recoverable amount of a fixed asset or goodwill below its carrying of a fixed asset or goodwill below its carrying amount amount I
32、mpairment lossImpairment loss减减减减值损值损值损值损失失失失 is to be recorded when is to be recorded when Carrying amountCarrying amount账账账账面价面价面价面价值值值值is more than recoverable is more than recoverable amountamount可回收金可回收金可回收金可回收金额额额额, which is higher of net realizable , which is higher of net realizable value an
33、d value in usevalue and value in useNet realizable valueNet realizable value可收可收可收可收现现现现价价价价值值值值 -estimated selling price in the ordinary course of -estimated selling price in the ordinary course of business minus any cost to complete and to sell the business minus any cost to complete and to sell t
34、he goods. goods. Value in useValue in use现值现值现值现值 -PV of future cash flows -PV of future cash flows -discounted at required rate of return -discounted at required rate of returnIf impaired-(i.e. carrying amountrecoverable amount) If impaired-(i.e. carrying amountrecoverable amount) written down asse
35、t value to the revised carrying written down asset value to the revised carrying amountamountImpairment of intangible assets Revised carrying amount= the lower ofCarrying amount OR recoverable amount (higher of) Net realizable value value in useImpairment of intangible assetsAllocating impairment lo
36、sses:1.specific fixed assets.2.goodwill3.other capitalised intangibles4.other tangible fixed assets on a pro rata basis (or other more appropriate basis)Indicators of Impairment Current period trading losses or net cash outflow from operating activities, combined with either: past operating losses/n
37、et cash outflows or expectation of continuing operating losses/net cash outflowsSignificant decline in a fixed assets market value.Evidence of obsolescence or physical damage to a fixed assetsignificant adverse changes in:business or marketsstatutory or regulatory environmentCommitment by management
38、 to undertake significant reorganisationMajor loss of key employeesSignificant increase in market rates of interestTina plc acquired a Taxi business on 1 January 2019, for 380,000. The values of the assets of the business at that date based on Net Realisable Values (NRV) were as follows: Vehicles240
39、,000Intangible assets (Taxi Licence 40,000Receivables 20,000Cash 10,000Payables (10,000) 300,000Example 6Example 6On 1 February 2019, the taxi company had five of its vehicles stolen. The NRV of these vehicles was 50,000. These vehicles were not insured adequately.Because of this event, Coco plc wan
40、ts to recognise an impairment loss of 80,000 (inclusive of the loss of stolen vehicles) due to the decline in the value of the income generating unit (i.e. the Taxi business).On 1 March 2019, a competitor firm commenced business in the same area. As a result, business revenue is anticipated to fall
41、by 25%, and that a further impairment loss has occurred due to a decline in the present Value in Use of the business which is calculated at 260,000. The NRV of the taxi licence has fallen to 20,000 as a result of the rival taxi operator. The NRV of the other assets have remained the same as at 1 February 2019.
