Earnings for BEPS
Preference dividend – 500,000 x 10%
Interest - £250,000 x 10% x 70%
Shares:
Ordinary shares
Preference shares – 1 for 10
Loan stock - £250,000 / £1,000 x 500
EPS: £5,017,500 / 1,175,000 = £4.27p
£
5,000,000
50,000
4,950,000
1
£4.95
1
£
4,950,000
50,000
17,500
5,017,500
1
1
2
1,000,000
50,000
125,000
1,175,000
1
1
2
1
[TOTAL MARKS = 25]
2
Answers to Question 2
2. Cash flow statement for Houser Ltd
a)
Operating loss (17,300 – 18,000)
Depreciation
Loss on disposal (6,100 – 5,500)
£000
(700)
1
7,300
600
7,900
2
(11,850)
(3,750)
750
(14,850)
3
Net cash outflow from operating activities
(7,650)
1
Net cash outflow from operating activities
Investing:
Servicing of finance – interest paid
Tax paid (4,900 + 1,200 – 700 – 1,800)
Capital expenditure – proceeds from disposal
Capital expenditure – payment of fixed assets (w1)
Dividends paid (9,050 – 2,000 – 6,000)
(7,650)
Increase in inventories (18,750 – 6,900)
Increase in trade receivables (6,750 – 3,000)
Increase in trade payables (7,050 – 6,300)
Financing:
Increase in loans
Increase in shares
£000
9,200
2,000
Decrease in cash (300 + 3,950)
(2,000)
(3,600)
5,500
(6,650)
(1,050)
(15,450)
1
2
1
2
2
11,200
2
(4,250)
2
Working 1: fixed assets purchases:
Total 2009
Depreciation
Disposal
Total 2010
Purchase
(general layout = 1)
35,250
(7,300)
(6,100)
(28,500)
(6,650)
Total marks 20
b) Students need to discuss:
Already increased overdraft with evidence of what spent money on
Vast increase in loan- what used for? Seems to be to pay for trading loss.
Invested in FA but most of money has come from disposal of other FA
Why paying dividends when cannot afford them
Making vast losses from trading – if controlled inventories then would not need increase in bank overdraft. 1 – 1 ½ marks per valid comment, capped at 5
[TOTAL MARKS = 25]
3
Answers to Question 3
3(a)
Students need to list (up to 2 marks) and describe (up to 2 marks) TWO of the following four qualitative characteristics, and explain how each contributes to the usefulness of financial information (up to 2 marks):
Relevance
Reliability
Comparability
Understandability
(6 marks)
(See core text: Melville, A (2009) International Financial Reporting A Practical Guide, 2nd Edition,
Pearson Education Ltd, pp.21-23)
3(b)
(i)
This item involves the characteristic of comparability. Changes in accounting policies should generally be avoided in order to preserve comparability. Presumably the directors have good reason to believe the new policy presents a more reliable and relevant view. In order to minimise the adverse effect a change in accounting policy has on comparability, the financial statements
(including the corresponding amounts) should be prepared on the basis that the new policy had always been in place (retrospective application). Thus the assets should include the previously expensed finance costs and income statements will no longer show a finance cost (in relation to these assets whilst under construction). Any finance costs relating to periods prior to the policy change (i.e. for two or more years ago) should be adjusted for by increasing retained earnings brought forward in the statement of changes in equity.
1 mark for each valid point, capped at 3
(ii)
This item involves the characteristic of reliability and specifically reporting the substance of transactions. As the
