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Q1. GUI Q2. Delta prepares financial statements to 31 March each year. Delta applies IAS 12 Income Taxes and IAS 41 Agriculture in the preparation

Q1. GUI

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Q2. Delta prepares financial statements to 31 March each year. Delta applies IAS 12 Income Taxes and IAS 41 Agriculture in the preparation of its financial statements. IAS 12 requires that entities recognise deferred tax liabilities on taxable temporary differences and, in certain circumstances, deferred tax assets on deductible temporary differences. Temporary differences are determined by comparing the carrying amount of an asset or liability with its tax base. IAS 41 sets out the principles of recognition and measurement for biological assets and harvested produce. Note 1 Temporary differences On 1 October 20X4, Delta purchased an item of plant for $4 million. The estimated useful life of the plant was five years, with no residual value. Under tax legislation in the country in which Delta is located, purchases of plant attract a tax deduction of 50% of the cost in the accounting period in which the plant is purchased and 25% of the cost in each of the following two accounting periods. On 1 July 20X4, Delta borrowed $20 million from a bank. The loan attracts interest at a rate of 8% per annum on the $20 million borrowed. The interest is payable annually in arrears. The loan is repayable on 30 June 20X9. Under tax legislation in the country in which Delta is located, a tax deduction for the interest on loans is available in the accounting periods in which the interest is actually paid. On 1 April 20X4, Delta purchased some land for $15 million. Delta uses the revaluation model to measure land in its financial statements. On 31 March 20X5, Delta estimated that the value of the land was $18 million and this amount was recognised in Deltas financial statements. Under tax legislation in the country in which Delta is located, gains on the value of land are not taxable unless or until the land is sold. Delta has no intention of disposing of this land in the foreseeable future. The rate of corporate income tax in the country in which Delta is located is 20% per annum. The directors of Delta anticipate that Delta will make taxable profits for the foreseeable future. Delta had no temporary differences at 31 March 20X4. (12 marks) Note 2 Agricultural activity Delta is a farming entity specialising in milk production. Cows are milked on a daily basis. Milk is kept in cold storage immediately after milking and sold to retail distributors on a weekly basis. On 1 April 20X4, Delta had a herd of 500 cows which were all three years old. During the year, some of the cows became sick and on 30 September 20X4 20 cows died. On 1 October 20X4, Delta purchased 20 replacement cows at the market for $210 each. These 20 cows were all one year old when they were purchased. On 31 March 20X5, Delta had 1,000 litres of milk in cold storage which had not been sold to retail distributors. The market price of milk at 31 March 20X5 was $2 per litre. When selling the milk to distributors, Delta incurs selling costs of 10 cents per litre. These amounts did not change during March 20X5 and are not expected to change during April 20X5. Information relating to fair value and costs to sell is given below: Date Fair value of a dairy cow which is: Costs to sell a cow at market 1 year old 1 years old 3 years old 4 years old $ $ $ $ $ 1 April 20X4 200 220 270 250 10 1 October 20X4 210 230 280 260 10 31 March 20X5 215 235 290 265 11

Gamma prepares financial statements to 31 March each year. The following exhibits, available on the left-hand side of the screen, provide information relevant to the question: 1. Lease of machine - information on the lease of a machine during the year ended 31 March 20X5. 2. Purchase of property - details of a property purchased during the year ended 31 March 20X5. 3. Additional information - further information regarding the financial statements of Gamma for the year ended 31 March 20X5 This information should be used to answer the question requirements within your chosen response option(s). On 1 October 20X4 Gamma began to lease a machine. The lease gave Gamma the sole right to direct the use of the machine and receive all the economic benefits arising from its use. The lease was for a five-year term, with annual rentals of $200,000 being payable in advance. The first rental was paid on 1 October 20X4 and the final rental is due for payment on 1 October 20X8. The total estimated useful life of the machine on 1 October 20X4 was ten years. There are no terms in the lease agreement that allow the lease to be extended beyond the five-year term. The annual rate of interest implicit in the lease is 8%. On 1 October 20X4 when the first rental was paid Gamma debited $200,000 to profit or loss. Gamma has made no other entries regarding this lease in its draft financial statements for the year ended 31 March 20X5. 8% discount factors which may be relevant are as follows: Cumulative present value of $1 payable in: $ 1 year 0.926 2 years 1.783 2.577 years 3-312 3.993 3 years 4 5 years On 1 April 20X4 Gamma purchased an overseas property on credit for 4-4 million crowns. Of the initial carrying amount, 60% of the value of the property was attributed to the buildings element. On 1 April 20X4 Gamma estimated that the useful life of the buildings element was 40 years. On 30 June 20X4 Gamma paid 4-4 million crowns to the seller. Gamma uses the revaluation model to measure property. On 31 March 2005 Gamma estimated that the fair value of the property was 4-8 million crowns. The only entries made by Gamma in its draft financial statements regarding the purchase of the property were to record the cash paid on 30 June 20X4 as an operating expense in the statement of profit or loss. Relevant exchange rates are: Date Exchange Rate 1 April 20X4 2 crowns to $1 30 June 2004 1.76 crowns to $1 31 March 20X5 1-60 crowns to $1 1. 2. The draft financial statements of Gamma for the year ended 31 March 20x5 show a profit after tax of $10 million. This amount is before taking account of the implications of the information in exhibits 1 and 2. On 1 April 20X4 Gamma had 70 million ordinary shares and 50 million preference shares in issue. The preference shares are irredeemable, and any preference dividends are discretionary. On 1 October 20X4 Gamma made a 1 for 4 rights issue. The new shares were issued at a price of $1 per share. On 1 October 20X4 the shares of Gamma had a listed price of $1-50 immediately before the rights issue. The rights issue was fully taken up. On 31 December 20X4 Gamma paid a dividend of $3 million to its ordinary shareholders and $2 million to its preference shareholders. These were the only dividends paid by Gamma in the year ended 31 March 20X5. 3. 4. (a) Using the information in exhibits 1 and 2, explain and show how the lease of machine and purchase of property would be reported in the financial statements of Gamma for the year ended 31 March 20X5. Marks will be awarded for BOTH calculations AND explanations. (b) Using the information in exhibit 3 and the adjustments for the lease and purchase of property in part (a), compute the earnings per share of Gamma for the year ended 31 March 20X5. Comparative figures and explanations of your calculations are not required

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