(b) (i) Discuss the main factors that should be taken into account when determining how to treat gains andlosses arising on tangible non-current assets in a single statement of financial performance. (8 marks)

第1题：

5 The International Accounting Standards Board (IASB) is currently in a joint project with the Accounting Standards

Board (ASB) in the UK and the Financial Accounting Standards Board (FASB) in the USA in the area of reporting

financial performance/comprehensive income. The main focus of the project is the development of a single statement

of comprehensive income to replace the income statement and statement of changes in equity. The objective is to

analyse all income and expenses and categorise them in a way that increases users’ understanding of the results of

an entity and assists in forming expectations of future income and expenditure. There seems to be some consensus

that the performance statement should be divided into three components being the results of operating activities,

financing and treasury activities, and other gains and losses.

Required:

(a) Describe the reasons why the three accounting standards boards have decided to cooperate and produce a

single statement of financial performance. (8 marks)

正确答案：
(a) The main reasons why the three accounting standards boards have decided to come together in a joint project regarding a
single performance statement are as follows:
(i) there are many different formats and classifications used for financial statements and different time periods used for
comparative data in different countries.
(ii) there are no common definitions as regards the key elements of financial performance and no agreement on the standard
definitions of the key ratios which would then determine the nature of the information that financial statements should
provide. There has been an increase in the reporting of alternative and often inconsistent financial performance
measures that has led to confusion and often has misled users.
(iii) there has been an increase in the use of pro-forma reporting which would tend to suggest that the existing totals and
sub totals in financial statements are not being used or relied upon as much as in the past.
(iv) there are benefits in separating transactions and events that are recorded at historical cost from those recorded at fair
value. Also, the differentiation between trading and holding gains gives useful information. This ‘mixed attribute’ model
is causing concern over the effects on reported performance.
(v) there is often insufficient disaggregation of data which prevents effective financial analysis of performance.
(vi) there has been an inconsistency in the use of ‘recycling ‘in financial statements of different jurisdictions which has led
to issues of reporting gains and losses twice.
(vii) the reporting of gains and losses on financial instruments required consideration. The gains and losses may currently be
reported under several headings dependent upon the nature of the instrument.
(viii) there are many relevant items excluded from the performance statements and inappropriate items included. For example
the reporting of foreign currency gains/losses on the retranslation of the net investment in foreign operations is normally
recognised in equity in many countries and dividends proposed shown on the face of the income statement when it does
not meet the definition of a liability and is a transaction with the owners of the business and not third parties.
(ix) Information is inconsistently classified within and outside totals and subtotals.

第2题：

(b) Describe with suitable calculations how the goodwill arising on the acquisition of Briars will be dealt with in

the group financial statements and how the loan to Briars should be treated in the financial statements of

Briars for the year ended 31 May 2006. (9 marks)

正确答案：

(b) IAS21 ‘The Effects of Changes in Foreign Exchange Rates’ requires goodwill arising on the acquisition of a foreign operation
and fair value adjustments to acquired assets and liabilities to be treated as belonging to the foreign operation. They should
be expressed in the functional currency of the foreign operation and translated at the closing rate at each balance sheet date.
Effectively goodwill is treated as a foreign currency asset which is retranslated at the closing rate. In this case the goodwillarising on the acquisition of Briars would be treated as follows:

At 31 May 2006, the goodwill will be retranslated at 2·5 euros to the dollar to give a figure of $4·4 million. Therefore this
will be the figure for goodwill in the balance sheet and an exchange loss of $1·4 million recorded in equity (translation
reserve). The impairment of goodwill will be expensed in profit or loss to the value of $1·2 million. (The closing rate has been
used to translate the impairment; however, there may be an argument for using the average rate.)
The loan to Briars will effectively be classed as a financial liability measured at amortised cost. It is the default category for
financial liabilities that do not meet the definition of financial liabilities at fair value through profit or loss. For most entities,
most financial liabilities will fall into this category. When a financial liability is recognised initially in the balance sheet, the
liability is measured at fair value. Fair value is the amount for which a liability can be settled, between knowledgeable, willing
parties in an arm’s length transaction. In other words, fair value is an actual or estimated transaction price on the reporting
date for a transaction taking place between unrelated parties that have adequate information about the asset or liability being
measured.
Since fair value is a market transaction price, on initial recognition fair value generally is assumed to equal the amount of
consideration paid or received for the financial asset or financial liability. Accordingly, IAS39 specifies that the best evidence
of the fair value of a financial instrument at initial recognition generally is the transaction price. However for longer-term
receivables or payables that do not pay interest or pay a below-market interest, IAS39 does require measurement initially at
the present value of the cash flows to be received or paid.
Thus in Briars financial statements the following entries will be made:

第3题：

(b) Discuss how management’s judgement and the financial reporting infrastructure of a country can have a

significant impact on financial statements prepared under IFRS. (6 marks)

Appropriateness and quality of discussion. (2 marks)

正确答案：
(b) Management judgement may have a greater impact under IFRS than generally was the case under national GAAP. IFRS
utilises fair values extensively. Management have to use their judgement in selecting valuation methods and formulating
assumptions when dealing with such areas as onerous contracts, share-based payments, pensions, intangible assets acquired
in business combinations and impairment of assets. Differences in methods or assumptions can have a major impact on
amounts recognised in financial statements. IAS1 expects companies to disclose the sensitivity of carrying amounts to the
methods, assumptions and estimates underpinning their calculation where there is a significant risk of material adjustment
to their carrying amounts within the next financial year. Often management’s judgement is that there is no ‘significant risk’
and they often fail to disclose the degree of estimation or uncertainty and thus comparability is affected.
In addition to the IFRSs themselves, a sound financial reporting infrastructure is required. This implies effective corporate
governance practices, high quality auditing standards and practices, and an effective enforcement or oversight mechanism.
Therefore, consistency and comparability of IFRS financial statements will also depend on the robust nature of the other
elements of the financial reporting infrastructure.
Many preparers of financial statements will have been trained in national GAAP and may not have been trained in the
principles underlying IFRS and this can lead to unintended inconsistencies when implementing IFRS especially where the
accounting profession does not have a CPD requirement. Additionally where the regulatory system of a country is not well
developed, there may not be sufficient market information to utilise fair value measurements and thus this could lead to
hypothetical markets being created or the use of mathematical modelling which again can lead to inconsistencies because of
lack of experience in those countries of utilising these techniques. This problem applies to other assessments or estimates
relating to such things as actuarial valuations, investment property valuations, impairment testing, etc.
The transition to IFRS can bring significant improvement to the quality of financial performance and improve comparability
worldwide. However, there are issues still remaining which can lead to inconsistency and lack of comparability with those
financial statements.

第4题：

Discuss the principles and practices which should be used in the financial year to 30 November 2008 to account

for:(c) the purchase of handsets and the recognition of revenue from customers and dealers. (8 marks)

Appropriateness and quality of discussion. (2 marks)

正确答案：

Handsets and revenue recognition
The inventory of handsets should be measured at the lower of cost and net realisable value (IAS2, ‘Inventories’, para 9). Johan
should recognise a provision at the point of purchase for the handsets to be sold at a loss. The inventory should be written down
to its net realisable value (NRV) of $149 per handset as they are sold both to prepaid customers and dealers. The NRV is $51
less than cost. Net realisable value is the estimated selling price in the normal course of business less the estimated selling costs.
IAS18, ‘Revenue’, requires the recognition of revenue by reference to the stage of completion of the transaction at the reporting
date. Revenue associated with the provision of services should be recognised as service as rendered. Johan should record the
receipt of $21 per call card as deferred revenue at the point of sale. Revenue of $18 should be recognised over the six month
period from the date of sale. The unused call credit of $3 would be recognised when the card expires as that is the point at which
the obligation of Johan ceases. Revenue is earned from the provision of services and not from the physical sale of the card.
IAS18 does not deal in detail with agency arrangements but says the gross inflows of economic benefits include amounts collected
on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the
principal are not revenue. Revenue is the amount of the ‘commission’. Additionally where there are two or more transactions, they
should be taken together if the commercial effect cannot be understood without reference to the series of transactions as a whole.
As a result of the above, Johan should not recognise revenue when the handset is sold to the dealer, as the dealer is acting as an
agent for the sale of the handset and the service contract. Johan has retained the risk of the loss in value of the handset as they
can be returned by the dealer and the price set for the handset is under the control of Johan. The handset sale and the provision
of the service would have to be assessed as to their separability. However, the handset cannot be sold separately and is
commercially linked to the provision of the service. Johan would, therefore, recognise the net payment of $130 as a customer
acquisition cost which may qualify as an intangible asset under IAS38, and the revenue from the service contract will be recognised
as the service is rendered. The intangible asset would be amortised over the 12 month contract. The cost of the handset from the
manufacturer will be charged as cost of goods sold ($200).

第5题：

17 Which of the following statements are correct?

(1) All non-current assets must be depreciated.

(2) If goodwill is revalued, the revaluation surplus appears in the statement of changes in equity.

(3) If a tangible non-current asset is revalued, all tangible assets of the same class should be revalued.

(4) In a company’s published balance sheet, tangible assets and intangible assets must be shown separately.

A 1 and 2

B 2 and 3

C 3 and 4

D 1 and 4

正确答案：C

第6题：

(ii) Briefly discuss FOUR non-financial factors which might influence the above decision. (4 marks)

正确答案：
(ii) Four factors that could be considered are as follows:
(i) The quality of the service provided by NSC as evidenced by, for example, the comfort of the ferries, on-board
facilities, friendliness and responsiveness of staff.
(ii) The health and safety track record of NSC – passenger safety is a ‘must’ in such operations.
(iii) The reliability, timeliness and dependability of NSC as a service provider.
(iv) The potential loss of image due to redundancies within Wonderland plc.

第7题：

(ii) Briefly discuss THREE disadvantages of using EVA? in the measurement of financial performance.

(3 marks)

正确答案：
(ii) Disadvantages of an EVA approach to the measurement of financial performance include:
(i) The calculation of EVA may be complicated due to the number of adjustments required.
(ii) It is difficult to use EVA for inter-firm and inter-divisional comparisons because it is not a ratio measure.
(iii) Economic depreciation is difficult to estimate and conflicts with generally accepted accounting principles.
Note: Other relevant discussion would be acceptable.

第8题：

(c) Briefly outline the corporation tax (CT) issues that Tay Limited should consider when deciding whether to

acquire the shares or the assets of Tagus LDA. You are not required to discuss issues relating to transfer

pricing. (7 marks)

正确答案：
(c) (1) Acquisition of shares
Status
The acquisition of shares in Tagus LDA will add another associated company to the group. This may have an adverse
effect on the rates of corporation tax paid by the two existing group companies, particularly Tay Limited.
Taxation of profits
Profits will be taxed in Portugal. Any profits remitted to the UK as dividends will be taxable as Schedule D Case V income,
but will attract double tax relief. Double tax relief will be available against two types of tax suffered in Portugal. Credit
will be given for any tax withheld on payments from Tagus LDA to Tay Limited and relief will also be available for the
underlying tax as Tay Limited owns at least 10% of the voting power of Tagus LDA. The underlying tax is the tax
attributable to the relevant profits from which the dividend was paid. Double tax relief is given at the lower rate of the
UK tax and the foreign tax (withholding and underlying taxes) suffered.
Losses
As Tagus LDA is a non-UK resident company, losses arising in Tagus LDA cannot be group relieved against profits of the
two UK companies. Similarly, any UK trading losses cannot be used against profits generated by Tagus LDA.
(2) Acquisition of assets
Status
The business of Tagus will be treated as a branch of Tay Limited i.e. an extension of the UK company’s activities. The
number of associated companies will be unaffected.
Taxation of profits
Tay Limited will be treated as having a permanent establishment in Portugal. Profits attributable to the Tagus business
will thus still be taxed in Portugal. In addition, the profits will be taxed in the UK as trading income. Double tax relief
will be available for the tax already suffered in Portugal at the lower of the two rates.
Capital allowances will be available. As the assets in question will not previously have been subject to a claim for UK
capital allowances, there will be no cost restriction and the consideration attributable to each asset will form. the basis
for the capital allowance claim.
Losses
The Tagus trade is part of Tay Limited’s trade, so any losses incurred by the Portuguese trade will automatically be offset
against the trading profits of the UK trade, and vice versa.

第9题：

(b) Prepare a reasoned explanation of how any capital gains tax arising in the UK on the sale of the paintings

can be minimised. (2 marks)

正确答案：
(b) Minimising capital gains tax on the sale of the paintings
Galileo will become resident and ordinarily resident from the date he arrives in the UK as he intends to stay for more than
three years. Prior to that date he will be neither resident nor ordinarily resident such that he will not be subject to UK capital
gains tax.
Galileo should sell the paintings before he leaves Astronomeria; this will avoid UK capital gains tax completely.
Tutorial note
The gains would be taxable on the remittance basis if the paintings were sold after Galileo’s arrival in the UK. However, this
would not help Galileo to minimise the capital gains tax due as he needs to bring the sales proceeds into the UK in order
to purchase a house.

第10题：

(b) Identify and explain the financial statement risks to be taken into account in planning the final audit.

(12 marks)

正确答案：
(b) Financial statement risks
Tutorial note: Note the timeframe. Financial statements for the year to 30 June 2006 are draft. Certain misstatements
may therefore exist due to year-end procedures not yet having taken place.
Revenue/(Receivables)
■ Revenue has increased by 11·8% ((161·5 – 144·4)/144·4 × 100). Overstatement could arise if rebates due to customers
have not yet been accounted for in full (as they are calculated in arrears). If rebates have still to be accounted for trade
receivables will be similarly overstated.
Materials expense
■ Materials expense has increased by 17·8% ((88.0 – 74·7)/74·7 × 100). This is more than the increase in revenue. This
could be legitimate (e.g. if fuel costs have increased significantly). However, the increase could indicate misclassification
of:
– revenue expenditure (see fall in other expenses below);
– capital expenditure (e.g. on overhauls or major refurbishment) as revenue;
– finance lease payments as operating lease.
Depreciation/amortisation
■ This has fallen by 10·5% ((8·5 – 9·5)/9·5 × 100). This could be valid (e.g. if Yates has significant assets already fully
depreciated or the asset base is lower since last year’s restructuring). However, there is a risk of understatement if, for
example:
– not all assets have been depreciated (or depreciated at the wrong rates, or only for 11 months of the year);
– cost of non-current assets is understated (e.g. due to failure to recognise capital expenditure)1;
– impairment losses have not been recognised (as compared with the prior year).
Tutorial note: Depreciation on vehicles and transport equipment represents only 7% of cost. If all items were being
depreciated on a straight-line basis over eight years this should be 12·5%. The depreciation on other equipment looks more
reasonable as it amounts to 14% which would be consistent with an average age of vehicles of seven years (i.e. in the middle
of the range 3 – 13 years).
Other expenses
■ These have fallen by 15·5% ((19·6 – 23·2)/23·2 × 100). They may have fallen (e.g. following the restructuring) or may be
understated due to:
– expenses being misclassified as materials expense;
– underestimation of accrued expenses (especially as the financial reporting period has not yet expired).
Intangibles
■ Intangible assets have increased by $1m (16% on the prior year). Although this may only just be material to the
financial statements as a whole (see (a)) this is the net movement, therefore additions could be material.
■ Internally-generated intangibles will be overstated if:
– any of the IAS 38 recognition criteria cannot be demonstrated;
– any impairment in the year has not yet been written off in accordance with IAS 36 ‘Impairment of Assets’.
Tangible assets
■ The net book value of property (at cost) has fallen by 5%, vehicles are virtually unchanged (increased by just 2·5%)
and other equipment (though the least material category) has fallen by 20·4%.
■ Vehicles and equipment may be overstated if:
– disposals have not been recorded;
– depreciation has been undercharged (e.g. not for a whole year);
– impairments have not yet been accounted for.
■ Understatement will arise if finance leases are treated as operating leases.
Receivables
■ Trade receivables have increased by just 2·2% (although sales increased by 11·8%) and may be understated due to a
cutoff error resulting in overstatement of cash receipts.
■ There is a risk of overstatement if sufficient allowances have not been made for the impairment of individually significant
balances and for the remainder assessed on a portfolio or group basis.
Restructuring provision
■ The restructuring provision that was made last year has fallen/been utilised by 10·2%. There is a risk of overstatement
if the provision is underutilised/not needed for the purpose for which it was established.
Finance lease liabilities
■ Although finance lease liabilities have increased (by $1m) there is a greater risk of understatement than overstatement
if leased assets are not recognised on the balance sheet (i.e. capitalised).
■ Disclosure risk arises if the requirements of IAS 17 ‘Leases’ (e.g. in respect of minimum lease payments) are not met.
Trade payables
■ These have increased by only 5·3% compared with the 17·8% increase in materials expense. There is a risk of
understatement as notifications (e.g. suppliers’ invoices) of liabilities outstanding at 30 June 2006 may have still to be
received (the month of June being an unexpired period).
Other (employee) liabilities
■ These may be understated as they have increased by only 7·5% although staff costs have increased by 14%. For
example, balances owing in respect of outstanding holiday entitlements at the year end may not yet be accurately
estimated.
Tutorial note: Credit will be given to other financial statements risks specific to the scenario. For example, ‘time-sensitive
delivery schedules’ might give rise to penalties or claims, that could result in understated provisions or undisclosed
contingent liabilities. Also, given that this is a new audit and the result has changed significantly (from loss to profit) might
suggest a risk of misstatement in the opening balances (and hence comparative information).
1 Tutorial note: This may be unlikely as other expenses have fallen also.

第11题：

(b) (i) Discuss the relationship between the concepts of ‘business risk’ and ‘financial statement risk’; and

(4 marks)

正确答案：
(b) (i) Business risk is defined as a threat which could mean that a business fails to meet an ongoing business objective.
Business risks represent problems which are faced by the management of a business, and these problems should be
identified and assessed for their possible impact on the business.
Financial statement risk is the risk that components of the financial statements could be misstated, through inaccurate
or incomplete recording of transactions or disclosure. Financial statement risks therefore represent potential errors or
deliberate misstatements in the published accounts of a business.
There is usually a direct relationship between business risk and financial statement risk. Generally a business risk, if not
addressed by management, will have an impact on specific components of the financial statements. For example, for
Medix Co, declining demand for metal surgical equipment has been identified as a business risk. An associated financial
statement risk is the potential over-valuation of obsolete inventory.
Sometimes business risks have a more general effect on the financial statements. Weak internal systems and controls
are often identified as a business risk. Inadequacies in systems and controls could lead to errors or misstatements in
any area of the financial statements so auditors would perceive this as a general audit risk factor.
Business risks are often linked to going concern issues, because if a business is failing to meet objectives such as cash
generation, or revenue maximisation, then it may struggle to continue in operational existence. In terms of financial
statement risk, going concern is a very specific issue, and the risk is normally the inadequate disclosure of going concern
problems. In the extreme situation where a business is definitely not a going concern, then the risk is that the financial
statements have been prepared on the wrong basis, as in this case the ‘break up basis’ should be used.
Business risk and financial statement risk concepts can both be used by auditors in order to identify areas of the financial
statements likely to be misstated at the year end. The business risk approach places the auditor ‘in the shoes’ of
management, and therefore provides deeper insight into the operations of the business and generates extensive business
understanding.

第12题：

单选题

The Rules state that certain factors are to be taken into account when determining safe speed. One of the factors is the（）.

A

radio communications that are available

B

maximum speed of your vessel

C

temperature

D

current

正确答案： D

解析：暂无解析

第13题：

(ii) Discuss whether gains and losses that have been reported initially in one section of the performance

statement should be ‘recycled’ in a later period in another section and whether only ‘realised’ gains and

losses should be included in such a statement. (9 marks)

正确答案：
(ii) Recycling is an issue for both the current performance statements and the single statement. Recycling occurs where an
item of financial performance is reported in more than one accounting period because the nature of the item has in some
way changed. It raises the question as to whether gains and losses originally reported in one section of the statement
should be reported in another section at a later date. An example would be gains/losses on the retranslation of the net
investment in an overseas subsidiary. These gains could be reported annually on the retranslation of the subsidiary and
then again when the subsidiary was sold.
The main arguments for recycling to take place are as follows:
1. when unrealised items become realised they should be shown again
2. when uncertain measurements become certain they should be reported again
3. all items should be shown in operating or financing activities at some point in time as all items of performance are
ultimately part of operating or financing activities of an entity.
There is no conceptual justification for recycling. Once an item has been recognised in a statement of financial
performance it should not be recognised again in a future period in a different part of that statement. Once an item is
recognised in the statement there is an assumption that it can be reliably measured and therefore it should be recognised
in the appropriate section of the statement with no reason to show it again.
Gains and losses should not be based on the notion of realisation. Realisation may have been a critical event historically
but given the current financial exposures of many entities, such a principle has limited value. A realised gain reflects the
same economic gain as an unrealised gain. Items should be classified in the performance statement on the basis of
characteristics which are more useful than realisation. The effect of realisation is explained better in the cash flow
statement. Realisation means different things in different countries. In Europe and Asia it refers to the amount of
distributable profits but in the USA it refers to capital maintenance. The amount of distributable profits is not an
accounting but a legal issue, and therefore realisation should not be the overriding determinant of the reporting of gains
and losses.
An alternative view could be that an unrealised gain is more subjective than a realised gain. In many countries, realised
gains are recognised for distribution purposes because of their certainty because this gives more economic stability to
the payment of dividends.

第14题：

(c) Discuss how the manipulation of financial statements by company accountants is inconsistent with their

responsibilities as members of the accounting profession setting out the distinguishing features of a

profession and the privileges that society gives to a profession. (Your answer should include reference to the

above scenario.) (7 marks)

Note: requirement (c) includes 2 marks for the quality of the discussion.

正确答案：
(c) Accounting and ethical implications of sale of inventory
Manipulation of financial statements often does not involve breaking laws but the purpose of financial statements is to present
a fair representation of the company’s position, and if the financial statements are misrepresented on purpose then this could
be deemed unethical. The financial statements in this case are being manipulated to show a certain outcome so that Hall
may be shown to be in a better financial position if the company is sold. The retained earnings of Hall will be increased by
$4 million, and the cash received would improve liquidity. Additionally this type of transaction was going to be carried out
again in the interim accounts if Hall was not sold. Accountants have the responsibility to issue financial statements that do
not mislead the public as the public assumes that such professionals are acting in an ethical capacity, thus giving the financial
statements credibility.
A profession is distinguished by having a:
(i) specialised body of knowledge
(ii) commitment to the social good
(iii) ability to regulate itself
(iv) high social status
Accountants should seek to promote or preserve the public interest. If the idea of a profession is to have any significance,
then it must make a bargain with society in which they promise conscientiously to serve the public interest. In return, society
allocates certain privileges. These might include one or more of the following:
– the right to engage in self-regulation
– the exclusive right to perform. particular functions
– special status
There is more to being an accountant than is captured by the definition of the professional. It can be argued that accountants
should have the presentation of truth, in a fair and accurate manner, as a goal.

第15题：

Required:

Discuss the principles and practices which should be used in the financial year to 30 November 2008 to account

for:(b) the costs incurred in extending the network; (7 marks)

正确答案：
Costs incurred in extending network
The cost of an item of property, plant and equipment should be recognised when
(i) it is probable that future economic benefits associated with the item will flow to the entity, and
(ii) the cost of the item can be measured reliably (IAS16, ‘Property, plant and equipment’ (PPE))
It is necessary to assess the degree of certainty attaching to the flow of economic benefits and the basis of the evidence available
at the time of initial recognition. The cost incurred during the initial feasibility study ($250,000) should be expensed as incurred,
as the flow of economic benefits to Johan as a result of the study would have been uncertain.
IAS16 states that the cost of an item of PPE comprises amongst other costs, directly attributable costs of bringing the asset to the
location and condition necessary for it to be capable of operating in a manner intended by management (IAS16, para 16).
Examples of costs given in IAS16 are site preparation costs, and installation and assembly costs. The selection of the base station
site is critical for the optimal operation of the network and is part of the process of bringing the network assets to a working
condition. Thus the costs incurred by engaging a consultant ($50,000) to find an optimal site can be capitalised as it is part of
the cost of constructing the network and depreciated accordingly as planning permission has been obtained.
Under IAS17, ‘Leases’, a lease is defined as an agreement whereby the lessor conveys to the lessee, in return for a payment or
series of payments, the right to use an asset for an agreed period of time. A finance lease is a lease that transfers substantially all
the risks and rewards incidental to ownership of the leased asset to the lessee. An operating lease is a lease other than a finance
lease. In the case of the contract regarding the land, there is no ownership transfer and the term is not for the major part of the
asset’s life as it is land which has an indefinite economic life. Thus substantially all of the risks and rewards incidental to ownership
have not been transferred. The contract should be treated, therefore, as an operating lease. The payment of $300,000 should be
treated as a prepayment in the statement of financial position and charged to the income statement over the life of the contract on
the straight line basis. The monthly payments will be expensed and no value placed on the lease contract in the statement of
financial position

第16题：

8 Which of the following statements about accounting concepts and conventions are correct?

(1) The money measurement concept requires all assets and liabilities to be accounted for at historical cost.

(2) The substance over form. convention means that the economic substance of a transaction should be reflected in

the financial statements, not necessarily its legal form.

(3) The realisation concept means that profits or gains cannot normally be recognised in the income statement until

realised.

(4) The application of the prudence concept means that assets must be understated and liabilities must be overstated

in preparing financial statements.

A 1 and 3

B 2 and 3

C 2 and 4

D 1 and 4.

正确答案：B

第17题：

(b) Discuss FOUR factors that distinguish service from manufacturing organisations and explain how each of

these factors relates to the services provided by the Dental Health Partnership. (5 marks)

正确答案：
(b) The major characteristics of services which distinguish services from manufacturing are as follows:
– Intangibility.
When a dentist provides a service to a client there are many intangible factors involved such as for example the
appearance of the surgery, the personality of the dentist, the manner and efficiency of the dental assistant. The output
of the service is ‘performance’ by the dentist as opposed to tangible goods.
– Simultaneity.
The service provided by the dentist to the patient is created by the dentist at the same time as the patient consumed it
thus preventing any advance verification of quality.
– Heterogeneity.
Many service organisations face the problem of achieving consistency in the quality of its output. Whilst each of the
dentists within the Dental Health Partnership will have similar professional qualifications there will be differences in the
manner they provide services to clients.
– Perishability.
Many services are perishable. The services of a dentist are purchased only for the duration of an appointment.

第18题：

(b) Briefly discuss how stakeholder groups (other than management and employees) may be rewarded for ‘good’

performance. (4 marks)

正确答案：
(b) Good performance should result in improved profitability and therefore other stakeholder groups may be rewarded for ‘good
performance’ as follows:
– Shareholders may receive increased returns on equity in the form. of increased dividends and /or capital growth.
– Customers may benefit from improved quality of products and services, and possibly lower prices.
– Suppliers may benefit from increased volumes of purchases.
– Government will benefit from increased amounts of taxation.

第19题：

(ii) Explain the income tax (IT), national insurance (NIC) and capital gains tax (CGT) implications arising on

the grant to and exercise by an employee of an option to buy shares in an unapproved share option

scheme and on the subsequent sale of these shares. State clearly how these would apply in Henry’s

case. (8 marks)

正确答案：
(ii) Exercising of share options
The share option is not part of an approved scheme, and will not therefore enjoy the benefits of such a scheme. There
are three events with tax consequences – grant, exercise and sale.
Grant. If shares or options over shares are sold or granted at less than market value, an income tax charge can arise on
the difference between the price paid and the market value. [Weight v Salmon]. In addition, if options can be exercised
more than 10 years after the date of the grant, an employment income charge can arise. This is based on the market
value at the date of grant less the grant and exercise priced.
In Henry’s case, the options were issued with an exercise price equal to the then market value, and cannot be exercised
more than 10 years from the grant. No income tax charge therefore arises on grant.
Exercise. On exercise, the individual pays the agreed amount in return for a number of shares in the company. The price
paid is compared with the open market value at that time, and if less, the difference is charged to income tax. National
insurance also applies, and the company has to pay Class 1 NIC. If the company and shareholder agree, the national
insurance can be passed onto the individual, and the liability becomes a deductible expense in calculating the income
tax charge.
In Henry’s case on exercise, the difference between market value (￡14) and the price paid (￡1) per share will be taxed
as income. Therefore, ￡130,000 (10,000 x (￡14 – ￡1)) will be taxed as income. In addition, national insurance will
be chargeable on the company at 12·8% (￡16,640) and on Henry at the rate of 1% (￡1,300).
Sale. The base cost of the shares is taken to be the market value at the time of exercise. On the sale of the shares, any
gain or loss arising falls under the capital gains tax rules, and CGT will be payable on any gain. Business asset taper
relief will be available as the company is an unquoted trading company, but the relief will only run from the time that
the share options are exercised – i.e. from the time when the shares were acquired.
In Henry’s case, the sale of the shares will immediately follow the exercise of the option (6 days later). The sale proceeds
and the market value at the time of exercise are likely to be similar; thus little to no gain is likely to arise.

第20题：

(b) (i) Advise Andrew of the income tax (IT) and capital gains tax (CGT) reliefs available on his investment in

the ordinary share capital of Scalar Limited, together with any conditions which need to be satisfied.

Your answer should clearly identify any steps that should be taken by Andrew and the other investors

to obtain the maximum relief. (13 marks)

正确答案：
(b) (i) Andrew may be able to take advantage of tax reliefs under the enterprise investment scheme (EIS) provided the
necessary conditions are met. The conditions that have to be satisfied before full relief is available fall into three areas,
and broadly require that a ‘qualifying individual’ subscribes for ‘eligible shares’ in a ‘qualifying company’.
‘Qualifying Individual’
To be a qualifying individual, Andrew must not be connected with the EIS company. This means that he should not be
an employee (or, at the time the shares are issued, a director) or have an interest in (i.e. control) 30% or more of the
capital of the company. These conditions need to be satisfied throughout the period beginning two years before the share
issue and three years after the ‘relevant date’. Where the relevant date is defined as the later of the date the shares were
issued and the date on which the company commenced trading.
Andrew does not intend to become an employee (or director) of Scalar Limited, but he needs to exercise caution as to
how many shares he subscribes for. If only three investors subscribe for 100% of the shares, each will hold 33% of the
share capital. This exceeds the 30% limit and will mean that EIS relief (other than deferral relief) will not be available.
Therefore, Andrew and the other two investors should ensure not only that the potential fourth investor is recruited, but
that s/he subscribes for sufficient shares, such that none of them will hold 30% or more of the issued share capital, as
only then will they all attain qualifying individual status.
‘Eligible shares’
Qualifying shares need to be new ordinary shares which are subscribed for in cash and fully paid up at the time of issue.
The shares must not be redeemable for at least three years from the relevant date, and not carry any preferential rights
to dividends. On the basis of the information provided, the shares of Scalar Limited would qualify as eligible shares.
‘Qualifying Company’
The company must be unquoted, not controlled by another company, and engaged in qualifying business activities. The
latter requires that the company engage in a trading activity, which is carried on wholly or mainly in the UK, throughout
the three years following the relevant date. While certain trading activities, such as dealing in shares or trading in land,
are excluded, the manufacturing trade Scalar Limited proposes to carry on will qualify.
However, it is also necessary for at least 80% of the money raised to be used for the qualifying business activity within
12 months of the relevant date and the remaining 20% to be so used within the following 12 months. Andrew and the
other investors will thus have to ensure that Scalar Limited has not raised more funds than it is able to employ in the
business within the appropriate time periods.
Reliefs available:
Andrew can claim income tax relief at 20% income tax relief on the amount invested up to a maximum of ￡200,000
in any one tax year. The relief is given in the form. of a tax reducing allowance, which can reduce the investor’s income
tax liability to nil, but cannot be used to generate a tax refund. If the investment is made prior to 6 October in the tax
year, then 50% of the amount invested (up to a maximum of ￡25,000) can be treated as having been made in the
previous tax year.
Any capital gains arising on the sale of EIS shares will be fully exempt from capital gains tax provided that income tax
relief was given on the investment when made and has not been withdrawn. If the EIS shares are disposed of at a loss,
capital losses are still allowable, but reduced by the amount of any EIS relief attributable to the shares disposed of.
In addition, gains from the disposal of other assets can be deferred against the base cost of EIS shares acquired within
one year before and three years after their disposal. Such gains will, thus, not normally become chargeable until the EIS
shares themselves are disposed of. Further, for deferral relief to be available, it is not necessary for the investment to
qualify for EIS income tax relief, i.e. deferral is available even where the investor is not a qualifying individual. Thus,
Andrew could still defer the gain arising on the disposal of the residential property lease made in order to raise part of
the funds for his EIS investment, even if no fourth investor were to be found and his shareholding were to exceed 30%
of the issued share capital of Scalar Limited. Does not require the existence of income tax relief in order to be claimed.
Withdrawal of relief:
Any EIS relief claimed by Andrew will be withdrawn (partially or fully) if, within three year of the relevant date:
(1) he disposes of the shares;
(2) he receives value from the company;
(3) he ceases to be a qualifying individual; or
(4) Scalar Limited ceases to be a qualifying company.
With regard to receiving value from the company, the definition excludes dividends which do not exceed a normal rate
of return, but does include the repayment of any loans made to the company before the shares were issued, the provision
of benefits and the purchase of assets from the company at an undervalue. In this regard, Andrew and the other
subscribers should ensure that the ￡50,000 they are to invest in Scalar Limited as loan capital is appropriately timed
and structured relative to the issue of the EIS shares.

第21题：

(b) Using the information provided, state the financial statement risks arising and justify an appropriate audit

approach for Indigo Co for the year ending 31 December 2005. (14 marks)

正确答案：
(b) Financial statement risks
Assets
■ There is a very high risk that inventory could be materially overstated in the balance sheet (thereby overstating profit)
because:
? there is a high volume of metals (hence material);
? valuable metals are made more portable;
? subsidy gives an incentive to overstate purchases (and hence inventory);
? inventory may not exist due to lack of physical controls (e.g. aluminium can blow away);
? scrap metal in the stockyard may have zero net realisable value (e.g. iron is rusty and slow-moving);
? quantities per counts not attended by an auditor have increased by a third.
■ Inventory could be otherwise misstated (over or under) due to:
? the weighbridge being inaccurate;
? metal qualities being estimated;
? different metals being mixed up; and
? the lack of an independent expert to identify/measure/value metals.
■ Tangible non-current assets are understated as the parts of the furnaces that require replacement (the linings) are not
capitalised (and depreciated) as separate items but treated as repairs/maintenance/renewals and expensed.
■ Cash may be understated due to incomplete recording of sales.
■ Recorded cash will be overstated if it does not exist (e.g. if it has been stolen).
■ Trade receivables may be understated if cash receipts from credit customers have been misappropriated.
Liabilities
■ The provision for the replacement of the furnace linings is overstated by the amount provided in the current and previous
year (i.e. in its entirety).
Tutorial note: Last replacement was two years ago.
Income statement
■ Revenue will be understated in respect of unrecorded cash sales of salvaged metals and ‘clinker’.
■ Scrap metal purchases (for cash) are at risk of overstatement:
? to inflate the 15% subsidy;
? to conceal misappropriated cash.
■ The income subsidy will be overstated if quantities purchased are overstated and/or overvalued (on the quarterly returns)
to obtain the amount of the subsidy.
■ Cash receipts/payments that were recorded only in the cash book in November are at risk of being unrecorded (in the
absence of cash book postings for November), especially if they are of a ‘one-off’ nature.
Tutorial note: Cash purchases of scrap and sales of salvaged metal should be recorded elsewhere (i.e. in the manual
inventory records). However, a one-off expense (of a capital or revenue nature) could be omitted in the absence of
another record.
■ Expenditure is overstated in respect of the 25% provision for replacing the furnace linings. However, as depreciation
will be similarly understated (as the furnace linings have not been capitalised) there is no risk of material misstatement
to the income statement overall.
Disclosure risk
■ A going concern (‘failure’) risk may arise through the loss of:
? sales revenue (e.g. through misappropriation of salvaged metals and/or cash);
? the subsidy (e.g. if returns are prepared fraudulently);
? cash (e.g. if material amounts stolen).
Any significant doubts about going concern must be suitably disclosed in the notes to the financial statements.
Disclosure risk arises if the requirements of IAS 1 ‘Presentation of Financial Statements’ are not met.
■ Disclosure risk arises if contingent liabilities in connection with the dumping of ‘clinker’ (e.g. for fines and penalties) are
not adequately disclosed in accordance with IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’.
Appropriate audit approach
Tutorial note: In explaining why AN audit approach is appropriate for Indigo it can be relevant to comment on the
unsuitability of other approaches.
■ A risk-based approach is suitable because:
? inherent risk is high at the entity and financial assertion levels;
? material errors are likely to arise in inventory where a high degree of subjectivity will be involved (regarding quality
of metals, quantities, net realisable value, etc);
? it directs the audit effort to inventory, purchases, income (sales and subsidy) and other risk areas (e.g. contingent
liabilities).
■ A systems-based/compliance approach is not suited to the risk areas identified because controls are lacking/ineffective
(e.g. over inventory and cash). Also, as the audit appointment was not more than three months ago and no interim
audit has been conducted (and the balance sheet date is only three weeks away) testing controls is likely to be less
efficient than a substantive approach.
■ A detailed substantive/balance sheet approach would be suitable to direct audit effort to the appropriate valuation of
assets (and liabilities) existing at balance sheet date. Principal audit work would include:
? attendance at a full physical inventory count at 31 December 2005;
? verifying cash at bank (through bank confirmation and reconciliation) and in hand (through physical count);
? confirming the accuracy of the quarterly returns to the local authority.
■ A cyclical approach/directional testing is unlikely to be suitable as cycles are incomplete. For example the purchases
cycle for metals is ‘purchase/cash’ rather than ‘purchase/payable/cash’ and there is no independent third party evidence
to compensate for that which would be available if there were trade payables (i.e. suppliers’ statements). Also the cycles
are inextricably inter-related to cash and inventory – amounts of which are subject to high inherent risk.
■ Analytical procedures may be of limited use for substantive purposes. Factors restricting the use of substantive analytical
procedures include:
? fluctuating margins (e.g. as many factors will influence the price at which scrap is purchased and subsequently
sold, when salvaged, sometime later);
? a lack of reliable/historic information on which to make comparisons.

第22题：

3 (a) Financial statements often contain material balances recognised at fair value. For auditors, this leads to additional

audit risk.

Required:

Discuss this statement. (7 marks)

正确答案：
3 Poppy Co
(a) Balances held at fair value are frequently recognised as material items in the statement of financial position. Sometimes it is
required by the financial reporting framework that the measurement of an asset or liability is at fair value, e.g. certain
categories of financial instruments, whereas it is sometimes the entity’s choice to measure an item using a fair value model
rather than a cost model, e.g. properties. It is certainly the case that many of these balances will be material, meaning that
the auditor must obtain sufficient appropriate evidence that the fair value measurement is in accordance with the
requirements of financial reporting standards. ISA 540 (Revised and Redrafted) Auditing Accounting Estimates Including Fair
Value Accounting Estimates and Related Disclosures and ISA 545 Auditing Fair Value Measurements and Disclosures
contain guidance in this area.
As part of the understanding of the entity and its environment, the auditor should gain an insight into balances that are stated
at fair value, and then assess the impact of this on the audit strategy. This will include an evaluation of the risk associated
with the balance(s) recognised at fair value.
Audit risk comprises three elements; each is discussed below in the context of whether material balances shown at fair value
will lead to increased risk for the auditor.
Inherent risk
Many measurements based on estimates, including fair value measurements, are inherently imprecise and subjective in
nature. The fair value assessment is likely to involve significant judgments, e.g. regarding market conditions, the timing of
cash flows, or the future intentions of the entity. In addition, there may be a deliberate attempt by management to manipulate
the fair value to achieve a desired aim within the financial statements, in other words to attempt some kind of window
dressing.
Many fair value estimation models are complicated, e.g. discounted cash flow techniques, or the actuarial calculations used
to determine the value of a pension fund. Any complicated calculations are relatively high risk, as difficult valuation techniques
are simply more likely to contain errors than simple valuation techniques. However, there will be some items shown at fair
value which have a low inherent risk, because the measurement of fair value may be relatively straightforward, e.g. assets
that are regularly bought and sold on open markets that provide readily available and reliable information on the market prices
at which actual exchanges occur.
In addition to the complexities discussed above, some fair value measurement techniques will contain significant
assumptions, e.g. the most appropriate discount factor to use, or judgments over the future use of an asset. Management
may not always have sufficient experience and knowledge in making these judgments.
Thus the auditor should approach some balances recognised at fair value as having a relatively high inherent risk, as their
subjective and complex nature means that the balance is prone to contain an error. However, the auditor should not just
assume that all fair value items contain high inherent risk – each balance recognised at fair value should be assessed for its
individual level of risk.
Control risk
The risk that the entity’s internal monitoring system fails to prevent and detect valuation errors needs to be assessed as part
of overall audit risk assessment. One problem is that the fair value assessment is likely to be performed once a year, outside
the normal accounting and management systems, especially where the valuation is performed by an external specialist.
Therefore, as a non-routine event, the assessment of fair value is likely not to have the same level of monitoring or controls
as a day-to-day business transaction.
However, due to the material impact of fair values on the statement of financial position, and in some circumstances on profit,
management may have made great effort to ensure that the assessment is highly monitored and controlled. It therefore could
be the case that there is extremely low control risk associated with the recognition of fair values.
Detection risk
The auditor should minimise detection risk via thorough planning and execution of audit procedures. The audit team may
lack experience in dealing with the fair value in question, and so would be unlikely to detect errors in the valuation techniques
used. Over-reliance on an external specialist could also lead to errors not being found.
Conclusion
It is true that the increasing recognition of items measured at fair value will in many cases cause the auditor to assess the
audit risk associated with the balance as high. However, it should not be assumed that every fair value item will be likely to
contain a material misstatement. The auditor must be careful to identify and respond to the level of risk for fair value items
on an individual basis to ensure that sufficient and appropriate evidence is gathered, thus reducing the audit risk to an
acceptable level.

第23题：

单选题

The Rules state that certain factors are to be taken into account when determining safe speed. Those factors include（）.

A

state of wind，sea，and current，and the proximity of navigational hazards

B

maximum attainable speed of your vessel

C

temperature

D

aids to navigation that are available

正确答案： A

解析：暂无解析

(b) (i) Discuss the main factors that should be taken into account when determining how to treat gains andlosses arising on tangible non-current assets in a single statement of financial performance. (8 marks)

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