Section A
Please answer Question 1 and ONE other question from Section A
Question 1 (Compulsory)
Rosenblatt Ltd is a manufacturing company based in the country of Ruritania. It is a wholly owned subsidiary of the Irish company Rose Petal plc. The draft financial statements of Rosenblatt Ltd have been prepared to the 30th June 2021, using the functional currency of Rosenblatt Ltd, which is the Krona (KR). Rose Petal plc prepares its financial statements in Euro (€).
REQUIRED
A. Using the closing rate method, translate the financial statements of Rosenblatt Ltd in order that they may be included in the consolidated financial statements of the Rose Petal plc group (in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates). Translate to the nearest €’000 (30 Marks)
B. What is meant by an entity’s presentation and functional currency? Explain your answer with reference to how the presentation and functional currency of Rosenblatt Ltd. should be determined. (10 Marks)
C. The harmonisation of accounting standards has gathered pace in the last decade. Outline briefly the advantages and disadvantages of harmonisation. (10 Marks)
Total Question 1: (50 Marks)
Question 2
Foxtrot Ltd operates in the food-processing sector and is an Irish resident company. The following details relate to Foxtrot Ltd. for the year ended 30th June 2021:
a) The Revenue Commissioners allow pension costs as a tax-deductible expense in the financial year in which they are paid. Pension costs of €360,000 have been charged to profit or loss of Foxtrot Ltd. during the financial year to 30th June 2021. However, of this amount, €30,000 has not yet been paid at the year-end, but is included as an accrual in the statement of financial position.
b) Foxtrot Ltd has other accrued expenses of €75,000. These expenses will not be deducted for tax purposes until they are paid.
c) At the year-end, Foxtrot Ltd has a receivable of €32,000 in respect of investment income. This has been included in the financial statements for the year ended 30th June 2021 but it will not be received until August 2021. For tax purposes, this investment income will not be subject to tax until it is received.
d) Foxtrot revalued its premises for the first time to Fair Value at the year-end 30th June 2021. There was a revaluation gain of €600,000 recorded. This was accounted for in the financial statements. e) All other classes of property, plant and equipment are shown using the cost model. At the year end, the following balances applied: Carrying Value €3,200,000 Taxation base €2,400,000
f) There were no other temporary differences at the year-end 30th June 2021.
g) Foxtrot Ltd had at deferred tax liability of €82,000 at the year-end 30th June 2020. h) Foxtrot Ltd pays corporation tax at 12.5%, payable six months after the year-end. For the year ended 30th June 2021, taxable profit was €540,000.
REQUIRED
A. Using journal entries where appropriate, explain how the tax issues above should be accounted for by Foxtrot Ltd. and calculate the tax expense that will be shown in the statement of profit or loss for the year ended 30th June 2021 and the deferred tax liability in the statement of financial position at that date. (25 Marks)
B. What factors are likely to influence the size of the deferred tax liability in an entity’s statement of financial position? (5 Marks)
Total Question 1: (30 Marks)
Question 3
On 1st January 2019, Tango Ltd issued 200,000 share options to each of its eight executive directors, which allows them to purchase shares at a cost of €1.75 per share, on the condition that they complete two years of service, commencing from that date. The shares of Tango Ltd. have a nominal value of €1 each.
On 1st January 2019, it was expected that seven of the eight directors would complete the two-year service period. During 2019, two of the directors resigned and as a result, forfeited their right to exercise their share options.
No further directors left the company in 2020 and the remaining six directors exercised all of their share options on 10th January 2021.
REQUIRED
A. Briefly explain how the above share based payment will be recorded in the financial statements of Tango Ltd., according to IFRS 2 Share Based Payment. (5 Marks)
B. Show the journal entries required to record the share based payments in the financial statements of 31st December 2019 and 2020. In addition, show the journal entry required to record the purchase of shares by the six executive directors on 10th January 2021. (20 Marks)
C. Occasionally, agreements made with employees in respect of share based payments may be subsequently modified because of unforeseen events. This may lead to, for example, changes in exercise price of share options or vesting conditions. Provide a brief summary of how a modification to an equity settled share based payment would be accounted for in the financial statements of an entity, according to IFRS 2 Share Based Payment. (5 Marks)
Total Question 3: (30 Marks)
Section B
Please answer ONE question from section B
Question 4
According to IFRS 1 First Time Adoption of International Financial Reporting Standards, a first-time adopter is an entity that, for the first time, makes an explicit and unreserved statement that its general-purpose financial statements comply with IFRSs. Iago Ltd is a large company that, up to now, has prepared its financial statements in accordance with Irish/UK GAAP. It has now decided that it should adopt International Financial Reporting Standards for the first time in the company’s financial statements for the year ended 31 December 2020.
REQUIRED
Prepare a report to the directors of Iago Ltd. explaining the implications of moving to International Financial Reporting Standards. In particular, the following matters should be addressed in the report: Identify the date of transition under IFRS 1 .The general requirements and accounting adjustments that Iago plc is likely to make when moving from Irish / UK GAAP to IFRS; The practical factors that should be considered before adopting a new set of accounting standards (20 Marks)
Total Question 4: (20 Marks)
Question 5
The Irish Auditing and Accounting Supervisory Authority (IAASA) is State body whose mission statement is “to contribute to Ireland having a strong regulatory environment in which to do business by supervising and promoting high quality financial reporting, auditing and effective regulation of the accounting profession in the public interest”.
REQUIRED
A. Explain briefly the main areas of responsibility of IAASA. (10 Marks)
B. The IAASA is divided into separate operational units, including Financial Reporting Supervision Unit (FRSU) Regulatory and Monitoring Supervision Unit (RMS) Standards & Policy Unit Outline the main functions of these three units and how they contribute to the IAASA’s overall role and function. (10 Marks)
Total Question 5: (20 Marks)
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