（b) On 31 May 2007, Leigh purchased property, plant and equipment for $4 million. The supp

(c) At 1 June 2006, Router held a 25% shareholding in a film distribution company, Wireless, a public limited

company. On 1 January 2007, Router sold a 15% holding in Wireless thus reducing its investment to a 10%

holding. Router no longer exercises significant influence over Wireless. Before the sale of the shares the net asset

value of Wireless on 1 January 2007 was $200 million and goodwill relating to the acquisition of Wireless was

$5 million. Router received $40 million for its sale of the 15% holding in Wireless. At 1 January 2007, the fair

value of the remaining investment in Wireless was $23 million and at 31 May 2007 the fair value was

$26 million. (6 marks)

Required:

Discuss how the above items should be dealt with in the group financial statements of Router for the year ended

31 May 2007.Required:

Discuss how the above items should be dealt with in the group financial statements of Router for the year ended

31 May 2007.

(d) Wader has decided to close one of its overseas branches. A board meeting was held on 30 April 2007 when a

detailed formal plan was presented to the board. The plan was formalised and accepted at that meeting. Letters

were sent out to customers, suppliers and workers on 15 May 2007 and meetings were held prior to the year

end to determine the issues involved in the closure. The plan is to be implemented in June 2007. The company

wish to provide $8 million for the restructuring but are unsure as to whether this is permissible. Additionally there

was an issue raised at one of the meetings. The operations of the branch are to be moved to another country

from June 2007 but the operating lease on the present buildings of the branch is non-cancellable and runs for

another two years, until 31 May 2009. The annual rent of the buildings is $150,000 payable in arrears on

31 May and the lessor has offered to take a single payment of $270,000 on 31 May 2008 to settle the

outstanding amount owing and terminate the lease on that date. Wader has additionally obtained permission to

sublet the building at a rental of $100,000 per year, payable in advance on 1 June. The company needs advice

on how to treat the above under IAS37 ‘Provisions, Contingent Liabilities and Contingent Assets’. (7 marks)

Required:

Discuss the accounting treatments of the above items in the financial statements for the year ended 31 May

2007.

Note: a discount rate of 5% should be used where necessary. Candidates should show suitable calculations where

necessary.

3 (a) Leigh, a public limited company, purchased the whole of the share capital of Hash, a limited company, on 1 June

2006. The whole of the share capital of Hash was formerly owned by the five directors of Hash and under the

terms of the purchase agreement, the five directors were to receive a total of three million ordinary shares of $1

of Leigh on 1 June 2006 (market value $6 million) and a further 5,000 shares per director on 31 May 2007,

if they were still employed by Leigh on that date. All of the directors were still employed by Leigh at 31 May

2007.

Leigh granted and issued fully paid shares to its own employees on 31 May 2007. Normally share options issued

to employees would vest over a three year period, but these shares were given as a bonus because of the

company’s exceptional performance over the period. The shares in Leigh had a market value of $3 million

(one million ordinary shares of $1 at $3 per share) on 31 May 2007 and an average fair value of

$2·5 million (one million ordinary shares of $1 at $2·50 per share) for the year ended 31 May 2007. It is

expected that Leigh’s share price will rise to $6 per share over the next three years. (10 marks)

Required:

Discuss with suitable computations how the above share based transactions should be accounted for in the

financial statements of Leigh for the year ended 31 May 2007.

(c) Wader is reviewing the accounting treatment of its buildings. The company uses the ‘revaluation model’ for its

buildings. The buildings had originally cost $10 million on 1 June 2005 and had a useful economic life of

20 years. They are being depreciated on a straight line basis to a nil residual value. The buildings were revalued

downwards on 31 May 2006 to $8 million which was the buildings’ recoverable amount. At 31 May 2007 the

value of the buildings had risen to $11 million which is to be included in the financial statements. The company

is unsure how to treat the above events. (7 marks)

Required:

Discuss the accounting treatments of the above items in the financial statements for the year ended 31 May

2007.

Note: a discount rate of 5% should be used where necessary. Candidates should show suitable calculations where

necessary.

(b) Router has a number of film studios and office buildings. The office buildings are in prestigious areas whereas

the film studios are located in ‘out of town’ locations. The management of Router wish to apply the ‘revaluation

model’ to the office buildings and the ‘cost model’ to the film studios in the year ended 31 May 2007. At present

both types of buildings are valued using the ‘revaluation model’. One of the film studios has been converted to a

theme park. In this case only, the land and buildings on the park are leased on a single lease from a third party.

The lease term was 30 years in 1990. The lease of the land and buildings was classified as a finance lease even

though the financial statements purport to comply with IAS 17 ‘Leases’.

The terms of the lease were changed on 31 May 2007. Router is now going to terminate the lease early in 2015

in exchange for a payment of $10 million on 31 May 2007 and a reduction in the monthly lease payments.

Router intends to move from the site in 2015. The revised lease terms have not resulted in a change of

classification of the lease in the financial statements of Router. (10 marks)

Required:

Discuss how the above items should be dealt with in the group financial statements of Router for the year ended

31 May 2007.

4 (a) Router, a public limited company operates in the entertainment industry. It recently agreed with a television

company to make a film which will be broadcast on the television company’s network. The fee agreed for the

film was $5 million with a further $100,000 to be paid every time the film is shown on the television company’s

channels. It is hoped that it will be shown on four occasions. The film was completed at a cost of $4 million and

delivered to the television company on 1 April 2007. The television company paid the fee of $5 million on

30 April 2007 but indicated that the film needed substantial editing before they were prepared to broadcast it,

the costs of which would be deducted from any future payments to Router. The directors of Router wish to

recognise the anticipated future income of $400,000 in the financial statements for the year ended 31 May

2007. (5 marks)

Required:

Discuss how the above items should be dealt with in the group financial statements of Router for the year ended

31 May 2007.

(d) Player trading

Another proposal is for the club to sell its two valuable players, Aldo and Steel. It is thought that it will receive a

total of $16 million for both players. The players are to be offered for sale at the end of the current football season

on 1 May 2007. (5 marks)

Required:

Discuss how the above proposals would be dealt with in the financial statements of Seejoy for the year ending

31 December 2007, setting out their accounting treatment and appropriateness in helping the football club’s

cash flow problems.

(Candidates do not need knowledge of the football finance sector to answer this question.)

capital of Hira Ltd from Belgrove Ltd. Belgrove Ltd currently owns 100% of the share capital of Hira Ltd and has no

other subsidiaries. All three companies have their head offices in the UK and are UK resident.

Hira Ltd had trading losses brought forward, as at 1 April 2006, of ￡18,600 and no income or gains against which

to offset losses in the year ended 31 March 2006. In the year ending 31 March 2007 the company expects to make

further tax adjusted trading losses of ￡55,000 before deduction of capital allowances, and to have no other income

or gains. The tax written down value of Hira Ltd’s plant and machinery as at 31 March 2006 was ￡96,000 and

there will be no fixed asset additions or disposals in the year ending 31 March 2007. In the year ending 31 March

2008 a small tax adjusted trading loss is anticipated. Hira Ltd will surrender the maximum possible trading losses

to Belgrove Ltd and Dovedale Ltd.

The tax adjusted trading profit of Dovedale Ltd for the year ending 31 March 2007 is expected to be ￡875,000 and

to continue at this level in the future. The profits chargeable to corporation tax of Belgrove Ltd are expected to be

￡38,000 for the year ending 31 March 2007 and to increase in the future.

On 1 February 2007 Dovedale Ltd will sell a small office building to Hira Ltd for its market value of ￡234,000.

Dovedale Ltd purchased the building in March 2005 for ￡210,000. In October 2004 Dovedale Ltd sold a factory

for ￡277,450 making a capital gain of ￡84,217. A claim was made to roll over the gain on the sale of the factory

against the acquisition cost of the office building.

On 1 April 2007 Dovedale Ltd intends to acquire the whole of the ordinary share capital of Atapo Inc, an unquoted

company resident in the country of Morovia. Atapo Inc sells components to Dovedale Ltd as well as to other

companies in Morovia and around the world.

It is estimated that Atapo Inc will make a profit before tax of ￡160,000 in the year ending 31 March 2008 and will

pay a dividend to Dovedale Ltd of ￡105,000. It can be assumed that Atapo Inc’s taxable profits are equal to its profit

before tax. The rate of corporation tax in Morovia is 9%. There is a withholding tax of 3% on dividends paid to

non-Morovian resident shareholders. There is no double tax agreement between the UK and Morovia.

Required:

(a) Advise Belgrove Ltd of any capital gains that may arise as a result of the sale of the shares in Hira Ltd. You

are not required to calculate any capital gains in this part of the question. (4 marks)

A.2005/12/31

B.2007/12/31

C.2009/12/31

D.2011/12/31

A.A.Like“2007／*／％”

B.B.Between2007／1／1aIld2007／12／31

C.C.in（“2007／*／*”）

D.D.like"2009／*／*