Corporate Financial Reporting A Global Perspective 1st Edition Herve Stolowy, Michel J Lebas - Solutions

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2. Account Retreatment A group applying IFRS consolidates an SME that applies British standards.List five elements that could be restated in order to be consistent with the group accounting policy.
1. Consolidation Figure 8.19 discloses the Jal group structure.Jal contractually controls Pon even if it only has 40% of the shares. San also contractually controls Kai. In all other cases, there is not control if a firm does not hold at least 50% of the shares.How should the firms Suh, Goi, Kai,
7. VAT Reimbursement The tax return for the VAT of the company Lelo states for the months January, February and March 2009 the following credits:January 2009: €334,000.February 2009: €75,000.March 2009: €654,000.Specify if the company can ask for a refund of each credit and, if this is the
6. Computation of Payable VAT During December 2008, Coco Ltd has delivered goods for €100,000 (VAT not included) and purchased goods and services for €150,000 (VAT not included) of which €20,000 are not tax deductible.Determine the deductible VAT for December 2008 and write down the
5. Computation of the Collected VAT for Service Transactions The company Lolo provides services. In March 2009, it has:established an estimate of €400,000 (VAT not included);carried out a service for an amount of €300,000 (VAT not included);invoiced a service for €600,000 (VAT not
4. Computation of the Collected VAT for Sale of Goods Vivi Ltd is a company that purchases goods in order to resell them. For March 2009, it has:received a receipt for a delivery of €400,000 (VAT not included);delivered goods for €300,000 (VAT not included);invoiced a sale of goods for
Determination of Taxable Income 2008 figures of the company BT are as follows:An accounting income before taxes of €250,000.A tax deposit paid in 2008 for the income tax expense 2008 of €100,000.A taxable income of €390,000.Determine the taxable income of 2007 and BT’s tax liabilities at
2. Recognition of Interim Tax Payments The company Tinane made a taxable income of €3,000,000 in 2007 and €4,500,000 in 2008. The company always closes accounts on December, 31.1. Compute the interim tax payments for 2009, and consider two hypotheses:The taxable income 2009 is
1. Recognition of income Tax Loupie Ltd made a profit of €53,400 in 2008. During the accounting period, the following transactions have to be taken into account:Expenses for hunting permits, bought for Loupie’s best customer, amounting to €1,500.Fines which add up to €100.Besides, the
8. Shares Repurchase The firm Roks want to buy 100,000 of its own shares (at €20 each)in order to comply to its obligations to its top management in terms of stock options. Those shares have a nominal value of €10 in Roks’ books.1. What are the book entries recorded by Roks?2. Shares are
7. Deficit The firm FishnChips is closing the current financial year with a loss, for the third consecutive year. Its equity consists of 100,000 shares of a nominal value of €100 and €2m of accumulated losses.If the management wants to eliminate the losses, what will be the new nominal value of
1. Assuming that assets and liabilities are correctly evaluated, what, from an accounting point of view, is the fair value of the shares?2. If the company decides to issue 100,000 new shares at the price of €100 each, what is the fair value of shares after the capital increase?3. What, in theory,
6. Issuing New Shares Coldcat’s equity appears to be €20m on its balance sheet. Half of this amount consists of shares (100,000 shares of €100 nominal value), the other half consists of reserves. The firm wants to finance its future projects by a capital increase of €10m.
4. Lease of a Building The company Senguillot seeks to rent offices for a long term. It contracts with the firm Bilout which has just built a new €5m building on a €3m land. The contract specifies that:Sentguillot will pay a €1m annual rent and additional charges of €100,000.Sentguillot
3. Accounting of a Loan A firm borrows €500,000 at an interest rate of 4%. Transactions fees are negligible and the loan is to be reimbursed in five constant annuities.1. Compute the amount of an annuity.2. Prepare the reimbursement table (closing capital, annuity, repartition between interests
2. Definitions 1. Explain the concept of economic ownership.2. Explain the difference between the commencement of a lease contract and the inception of the lease.
1. Date of Analysis of a lease contract A lease contract is signed between the firm Davis and Rubini on 10/02/2008. At this point, the land is only a wasteland but Rubini is planning to build a store based on Davis’s requirements within 16 months. The lease term starts on 02/01/2010 and covers an
8. Depreciation of an Available-for-Sale Asset Some bonds that had been bought by the firm Agia for €2,000,000 (available-for-sales) have been evaluated at the 2010 closing, to €1,800,000. At the beginning of February 2011, Agia happens to know that the firm that issued the obligations is in a
7. Purchase and Cession of an Available-for-Sale Asset During January 2010, a firm sells 10,000 stocks previously considered as available-for-sale for a price of €625,000. When bought, those stocks were €59.8 per unit plus transaction fees of €3,000. On 12/31/2010, the stocks’ value was
6. Amortized Cost and Effective Interest Rate On January 1st, a firm purchased 4,000 bonds (when issued) with the following characteristics:Face value: €50 Reimbursement at maturity date (i.e. 4 years later)Issued price after issuance fees : 95%6% stated interest rate, paid annually every
5. Revaluation The firm FAST Ltd is an industrial society that owns units of production in several European states, in which they produce automobile sport materials. The firm has a solid reputation as a supplier of standardized products for famous car manufacturers. On 01/01/2010, a new production
4. Component “Maintenance” Using the data of the first activity, what is the impact of a technical control to be made every other year? The security manager of the factory justifies this intervention because of security regulations that must be enforced. Each intervention costs€26,000.1.
3. Subsidies Using the data of the first activity, what is the impact of a €30,000 subsidy given by the county for that type of acquisition?1. Prepare the modified depreciation plan.2. Record the depreciation expense for the 2011 exercise.
2. Entry Value Using the data of the first activity, what is the impact of a credit period of 2 years granted by the supplier?1. Prepare the depreciation plan using an appropriate pro rata and taking into consideration the expected residual value.2. Record the depreciation expense for the 2011
1. Depreciation Plan On 09/01/2011, the firm Helmsey buys machinery for its factory.The entry value is €200,000 and the utility period is estimated as 6 years. Helmsey expects a residual value of €20,000 at the end of this period. They plan to use the straight-line method to depreciate this
9. Post-Employment Benefits In 1936, the firm Gloucestershire Mechanicals (GM) signed an agreement with its employees which grants an extra pension for the employees who worked more than 20 years for GM, representing 20% of the final year salary. Every year, in December, an actuarial study is made
8. Profit-Sharing for the Employees Fullsix, a marketing agency, historically divides 5%of its net margin to its employes. On 12/31/2010, the firm counts 200 employees and expects a net margin of €500,000.How should the profit-sharing be booked for employees at Fullsix?
7. Paid Leave The traditional biscuit maker, The Welsh Scone (TWS), has 200 employees to whom it grants 25 days of paid leave per year. On 12/31/2010, the average non-used credit is 3 days per employee. According to TWS data over the past 10 years, the employees only take 24 days of paid leave per
6. How to Manipulate Provisions There has been a change in the car renting society Hearts management in November 2010. Concerning the 2010 fiscal year, the firm presents books to its Accounts Commissioner that include provisions for litigation four times larger than in 2010 and provisions for
5. Provision for Deficit Contract Nuclys is a subcontractor of an international conglomerate of the electric industry that intends to build a nuclear plant in China. In January 2007, they signed a €100m contract that shall last 5 years (until 12/31/2011).On 12/31/2010, the controlling department
4. Provision for Litigation The Royal Construction Society (RCS) just finished the restoration of a bridge. However, the client, Southampton City, considers that the bridge still has several grave defects, and brings an action against RCS. According to its lawyer, RCS might have to pay £300,000 in
3. Provision for Litigation The Italian editor Delicioso publishes culinary books everywhere in Europe. A customer had to stay 3 months in hospital after having very badly executed one of the recipes. He brought an action against Delicioso and asked for €1m in damages. At the closing,
2. Provision for Guaranty Given to Customers The computer firm Axer sells notebooks.In 2010, it granted to its customers a 12-month guaranty on 100,000 computers (for both parts and labour). Axer’s after-sales service estimates that there is a 94% chance that no incident will happen, a 4% chance
1. Provision for Rehabilitation Sheffield Steels owns a factory that polluted the land on which it is built. Sheffield Steels estimates that its factory will cease to work around 2020, a date at which it will be too old to sustain. An exterior consulting cabinet stated in 11/10/2010 that the future
9. Inventory Depreciation On 12/31/2010, the firm Gadgetex has 1,000 MP3 players in its stock. They have been recorded at their production cost, namely €150 per unit (Gadgetex sells them for €250). A market study instigated by Gadgetex states that the MP3 players should not be sold for more
8. Valuation of Finished Goods Mercury produces 200 handbags a week. The following materials are needed for their production.200 square metres of leather (value in stock: €50 per square metre).600 hours worked. One hour worked by Mercury costs €40.Variable general production expenses:
7. Inventory Valuation A refinery observes the following evolutions in its stocks of crude oil:On 01/01, there are 1,200,000 cubic metres in stock, at a price of €300 per cubic metres.200,000 cubic metres are refined during the month of January.On 02/01, the refinery purchased 300,000 cubic
6. Raw Materials Acquisition Cost Mercury, a firm working in the luxury industry, bought a stock of calfskin for a value of €300,000, with a 3% discount. Their supplier suggested to pay within 15 days and get a 2% discount, or to pay within 60 days. Mercury decided to pay cash.1. What is the
5. Variations on Exchange Rates The Japanese firm Chugai sells pharmaceuticals to Pharmaplus, a Scottish lab, for €130m on 11/01/2010. This transaction is done “free on board” and the pharmaceuticals are sent by plane on 11/10/2010. Payment must be received within 3 months.The EUR/JPY
4. Returns of Goods Ringo makes MP3 players and sold 100,000 units in 2009, 1,500 of which came back through dysfunction. On 12/31/2009, Ringo’s books show €10m for turnover, €2m for accounts payable and €30,000 as an allocation for returns. On 12/31/2010, Ringo’s turnover has increased
1. At the end of 2009, the amount of Hasan’s doubtful accounts was €3,000. Hasan estimates that there was no hope of recovering them.1. What shall Hasan record on 12/31/2010?2. What are the allowances for doubtful accounts on 12/31/2010?
3. Allowance for Doubtful Accounts The total amount of the accounts receivables of the Japanese importer Hasan is €300,000 on 12/31/2010. Those receivables are split in this way:Amount Probability of non-recover Receivable aged less than 1 month €150,000 1%Receivable aged less than 2 months
2. Acounts Payable and Discount Matbat sells material for construction. During the month of February 2010, Matbat sells:€300,000 on the 4th, with 2/15, n/60 conditions. The customer chooses to pay in 60 days.€100,000 on the 15th, with a discount of 5% and with 1/10, n/30 conditions. The client
1. Valuation of Financial Assets The holding Holdex bought the following shares during the year 2010:3,000 shares of the firm Financia, for €45,000 on March 15.4,500 shares of the firm Mercury for €260,000 on July 20.3,000 shares of the firm Gadgetex for €150,000 on November 15.Those prices
4. Rebates and Trade Discounts Over 2010, the trading group of a chain of supermarkets has the following agreements with its suppliers:A 2% rebate on the catalogue price.An additional discount related to the size of each order based on the following scoring table:Order Rebate Up to €10,000 0%Up
3. Sales and Rentals The IFRS consider very long-term rentals to be sales, and sales with repurchase agreements to be leases.1. What were the reasons for this enactment?2. By taking examples in the automobile and airline industry find reasons for:– renting an asset for a very long term rather
2. Application Fees, Discounts and Customer Loyalty Programs The travel agency Easytravel, established on 07/01/2010, sold, on 09/01/2010 to an enterprise committee, a group trip to China departing on 01/15/2011 with the following conditions:The application fees of €500 must be paid cash on the
1. Rentals and Sales On 01/01/2010, the jetliner manufacturer, Airjet, signs a trade agreement with the airliner, Airsouth, which contains the following points:Sale of five planes for a unit price of €100m. The delivery is planned for 07/01/2010.Rental over 30 years of two special aircraft for a
1.4.1 Case Study: Global Ltd On 01/01/2008, Miss Mayer set up a company for the international trade of cosmetic products, Global Ltd. She personally invested €80,000 in cash, made a studio available in the downtown area valued at €120,000 (which will be used as an office) and which she bought 3
3 What is the meaning of the line item "Minority interest in consolidated companies"?
2 What is the meaning of the line item "Share in net results of equity investees"?
1 What is the meaning of the item "Amortization of goodwill"? What questions does it raise for an analyst or an investor?
10 The equity method should be used when the percentage of control is more than 30% and less than 50% (a) True (b) False
9 The study of annual reports shows that goodwill is generally amortized over 20 or 40 years (a) True (b) False
8 Goodwill is the difference between the purchase price (cost of investment) of shares and the book value of these shares (a) True (b) False
7 Minority interests are reported when which method is used? (a) Full consolidation (b) Equity method (c) Proportionate consolidation (d) None of these
6 The only possibility to hold control of a company is to own more than 50% of the voting rights of this entity (a) True (b) False
5 Associate and affiliate are often considered as synonymous (a) True (b) False
4 Minority interests can be reported (several possible answers) (a) As a part of shareholders" equity (b) As a part of long-term liabilities (c) As a part of current liabilities (d) Between shareholders' equity and long-term liabilities (e) As a negative liability within financial fixed assets (f)
3 In the diagram in question, the percentage of interest (ownership) is (a) 10% (b) 20% (c) 380% (d) 27% (e) None of these
2. In the situation described in the diagram, the percentage of control (stake, voting rights, vote) is(a) 10% (b) 20% (c) 30% (d) 27% (e) None of these 70% C1 10% P C2 20%
1 The percentage of interest (a) Is used to define the dependency link (b) Is used to decide about the inclusion of a company in the consolidation scope (c) Reflects the interests that are controlled directly and indirectly (d) None of these
5 What difference(s) do you notice in the way these companies record reductions in provisions?
4 Explain the nature of each provision.
3 Explain each component of the movements for the five studied companies.
2 Identify and comment on the differences in the terminology used to name each table.
1 What is (are) the main formal difference(s) you can notice in the presentation of the tables between the first four companies and the fifth one?
10 A provision for restructuring can be recorded as soon as a company has decided to close a business entity (a) True (b) False
9 Acontingent liability is recorded (a) As part of the assets (b) As part of the shareholders’ equity and liabilities (c) As part of the revenues (d) As part of the expenses (e) None of these
8 The net salary (after deduction of withholdings) is recorded as such an expense (a) True (b) False
7 Notes payable represent bills of exchange or promissory notes (a) True (b) False
6 When the balance sheet is presented by nature, the current portion of a long-term liability is still included in the financial liability section of the balance sheet (a) True (b) False
5 Warranty costs are recognized as an expense (a) At the time the products covered by the warranty are sold (b) At the time the costs are really incurred (c) None of these
4 An example of an item that is not a current liability is (a) Accrued expenses (b) Prepaid expenses (e) Salaries payable (d) Accounts payable (e) Unearned revenues (f) None of these
3 An example of a current liability is (a) Bank borrowing (long-term portion) (b) Unearned revenues (c) Share capital (d) Retained earnings (e) None of these
2 An example of financial liabilities is (a) Income tax payable (b) Unearned revenues (c) Bank borrowings (d) Salaries payable (e) None of these
1 Provisions for risks and liabilities are recorded (a) In the expenses (b) In the revenues (e) In the shareholders' equity and liabilities (d) As a contra-asset (e) None of these
5 The annual report indicates that the dividends distributed in 1999 relating to the 1998 profit amounted to 1.5 DM per share. It also states that the share capital includes 2,880,000 shares. Double-check the amount of dividends paid in 1999 as found in question 4.
4 From the data excerpted from the balance sheet and income statement provided, find the amount of the dividends distributed in 1999 with regard to 1998.
3 Explain the change in the "Other revenue reserves".
2 What does this balance sheet profit represent? Is the balance sheet presented before or after profit appropriation?
1 Explain the computation of the balance sheet profit in the income statement.
10 The main objective of the legal reserve is to protect the shareholders of the company (a) True (b) False
9 A share may grant a voting right greater than one but never lower than one (a) True (b) False
8 The number of authorized shares is greater than the amount of issued shares which is greater that the amount of outstanding shares (a) True (b) False
7 In all types of limited liability companies, it is possible to defer the payment of one part of the subscribed capital (a) True (b) False
6 A company has the following shareholders' equity section: Ordinary shares: par = 2 CU; 250,000 shares authorized; 100,000 shares issued and outstanding Share premium Reserves Net income Shareholders' equity The market price per share is 15 CU. What is the book value per share? (a) 2 (b) 1.2 (c) 3
5 A company's board has authorized 20,000 shares and 10,000 shares were issued and are outstanding. In April 20X2, the company declared a 2.00 CU per share ordinary dividend. Which of the following journal entries would be necessary at the time of the declaration? (a) Net income (or retained
4 The difference between the price paid for a company's common share and the par value of each share can be called (several possible 5 answers) (a) Capital surplus (b) Share premium (c) Additional paid-in capital (d) Paid-in capital (e) Additional contributed capital (f) Ordinary share capital (g)
3 Dividends cannot be distributed if net income is not greater than zero (a) True (b) False
2 A company received cash subscriptions for 5,000 shares of 20 CU nominal (par) value at 100 CU per share. A down-payment of 50% of the issuance price is required. The remainder of the purchase price is to be paid the following year. At the time that the share is subscribed, share capital should be
1 The sale by a shareholder of shares of a company to another shareholder should be recorded by the company (a) True (b) False
5 What are affiliated companies and is it normal that receivables pertaining to trade with these companies still appear on a consolidated balance sheet (see Chapter 13)?
4 Which method do you feel was used to calculate the provision for doubtful accounts?
3 In your best judgement, are the amounts reported in the notes gross or net? Explain your position and eventually its possible implications.
2 What plausible conclusion can be drawn about the format of presentation of the balance sheet from the existence of the two columns "within one year" and "in over one year"?
1 Relate the balance sheet items shown to the information contained in the notes.
2 Prepare the adjusting entry required on 31 December 20X2 to record the provision on doubtful accounts for each of the following independent assumptions: (a) The provision for doubtful accounts is based on the ending balance of accounts receivable. Eighty percent of the sales for 20X2 were credit
1 Record the write-off of uncollectible doubtful accounts during 20X2.
10 In a monthly bank reconciliation, the statement begins with (a) The cash balance per books at the end of the month (b) The cash balance per books at the beginning of the month (c) The cash balance on the bank statement at the beginning of the month (d) The cash balance on the bank statement at

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Corporate Financial Reporting A Global Perspective 1st Edition Herve Stolowy, Michel J Lebas - Solutions

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