Q1. GUI

Q2.

Gamma prepares consolidated financial statements to 31 March each year. Notes 1 and 2 contain information relevant to these financial statements: Note 1 Impairment of goodwill On 1 April 20X3, Gamma purchased 75% of the equity shares of subsidiary X for a cash payment of $99 million. The fair value of the net assets of subsidiary X on that date was $108 million. Gamma measured the non-controlling interest in subsidiary X using the proportionate method. On 31 March 20X4, Gamma reviewed the goodwill on acquisition of subsidiary X for impairment but no impairment was evident. On 31 March 20X5, the carrying amount of the net assets of subsidiary X in the consolidated financial statements of Gamma (excluding goodwill on acquisition) was $115 million. Subsidiary X is a single cash-generating unit for impairment purposes. On 31 March 20X5, the value in use of subsidiary X was $135 million and its fair value less costs of disposal was $130 million. (8 marks) Note 2 Purchase of machine On 1 January 20X4, Gamma entered into a firm commitment to purchase a machine from a supplier whose functional currency is the kroner. This firm commitment was not an onerous contract. The cost of the machine was 144 million kroner and the agreed delivery date was 30 June 20X4. Gamma was due to pay 144 million kroner to the supplier on 31 July 20X4. On 1 January 20X4, Gamma entered into a forward exchange contract with a bank to purchase 144 million kroner for $144 million on 31 July 20X4. The forward exchange contract was entered into so as to provide a hedge against the currency risk associated with the firm commitment to purchase the machine. On 30 June 20X4, Gamma took delivery of the machine and immediately brought the machine into use. Gamma estimated that the machine would have a useful life of five years from 30 June 20X4, with no residual value. On 31 July 20X4, Gamma paid 144 million kroner to the supplier of the machine and received payment of $360,000 from the bank in settlement of the forward exchange contract (see below). Gamma designated the forward exchange contract as a hedge of the cash flows expected to arise on the purchase of the machine. This contract was a perfectly effective hedge of those cash flows. Gamma wishes to use hedge accounting to reflect the above transactions in its financial statements. Relevant exchange rates and fair values of the forward exchange contract are as follows: Date Exchange rate Fair value of forward contract (kroners to $1) (favourable to Gamma) $000 1 January 20X4 10 Nil 31 March 20X4 96 60 30 June 20X4 9 160 31 July 20X4 8 360 (17 marks) Required: Using the information in notes 1 and 2, explain and show how the two events would be reported in the consolidated financial statements of Gamma for the year ended 31 March 20X5. Note: The mark allocations are indicated in each note above. Marks will be awarded for explanations as well as for computations.

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