Briefly explain each of the following and how they will be treated in the statement of financial position and the statement of comprehensive income. A. Borrowing costs (as they relate to the acquisition of PPE) B. Inventories C. Investment property D. A financial liability such as a loan E. Revenue F. The discovery of an error after the reporting period QUESTION 3 (30 marks) The statements of financial position of Mars plc and Jupiter plc at 3 I December 20X2 are as follows: Mars Jupiter ASSETS Non-current assets at cost 550,000 225,000 Depreciation 220,000 67,500 330,000 157,500 Investment in Jupiter Current assets 187,500 Inventories 225,000 67,500 Trade receivables 180,000 90,000 Current account - Jupiter 22,500 Bank 36,000 18,000 463,500 175,500 Total assets 981,000 333,000 EQUITY AND LIABILITIES Capital and reserves I common shares 196,000 90,000 General reserve 245,000 31,500 Retained earnings 225,000 135,000 Current liabilities 666,000 256,500 Trade payables 283,500 40,500 Taxation 31,500 13,500 Current account - Mars 22,500 315,000 76,500 Total equity and liabilities 981,000 333,000 Statements of comprehensive income for the year ended 31 December 20X2 Mars Jupiter Sales 1,440,000 270,000 Cost of sales 1,045,000 135,000 Gross profit 395,000 135,000 Expenses 123,500 90,000 Dividends received from Jupiter 9,000 NIL Profit before tax 280,500 45,000 Income tax expense 31,500 13,500 Profit for the period 249,000 31,500 Dividends paid 180,000 11,250 69,000 20,250 Retained earnings brought forward from previous years 156,000 114,750 225,000 135,000 Mars acquired 80% of the shares in Jupiter on I January 20X0 when Jupiter's retained earnings were 80,000 and the balance on Jupiter's general reserve was 18,000. Non-controlling interests are measured using Method 1(that is, at the proportionate share of net assets at the date of acquisition). During the year Mars sold Jupiter goods for I 8,000 which represented cost plus 50%. Half of these goods were still in stock at the end of the year. During the year Mars and Jupiter paid dividends of 180,000 and 11,250 respectively. The opening balances of retained earnings for the two companies were 156,000 and 114,750 respectively. Required: A. Prepare a consolidated statement of income for the year ended 31/12/20x2 and a statement of financial position as at that date. B. How would your answer to (a) above differ if Mars had only acquired 30% of the shares in Jupiter? (No calcualations required just explain how the accounting treatment would differ). C. Why is it necessary to prepare consolidated financial statements? QUESTION 4 (30 marks) The following are the statements of financial position and income for Riddle plc. Statements of financial position as at 31 March 20x8 20x9 000 000 000 000 Non-current assets: Property, plant and equipment, at cost 540 720 Less accumulated depreciation (145) 395 (190) 530 Investments Current assets: Inventory 315 115 418 140 Trade receivables 412 438 Bank 48 775 51 907 Total assets Capital and reserves: Ordinary shares 640 1,285 855 1,577 Retained earnings Non-current liabilities: 12% debentures 217 857 250 311 1,166 200 Current liabilities: Trade payables 139 166 Taxation 39 178 45 211 Total equity and liabilities 1,285 1,577 Statement of income for the year ended 31 March 20X9 000 000 Revenue 2,460 Cost of sales 1,780 Gross profit 680 Distribution costs (124) Administration expenses (300) (424) Operating profit 256 Interest on debentures (24) Profit before tax 232 Tax (48) Profit after tax 184 Note: The statement of changes in equity disclosed a dividend of 90,000 Required: A. Prepare the statement of cash flows for the year ended 31 March 20x9. You may use either the direct method or the indirect method. B. IAS 7 encourages entities to report operating cash flows using the direct method. Why? C. Why are statements of cash flows necessary? Briefly explain any two points to consider or discuss when analysing a statement of cash flows