ACCA/CAT考试答案7辑 第1辑

6 Sergio and Gerard each inherited a half interest in a property, ‘Hilltop’, in October 2005. ‘Hilltop’ had a probate value

of £124,000, but in November 2005 it was badly damaged by fire. In January 2006 the insurance company made

a payment of £81,700 each to Sergio and Gerard. In February 2006 Sergio and Gerard each spent £55,500 of the

insurance proceeds on restoring the property. ‘Hilltop’ was worth £269,000 following the restoration work. In July

2006, Sergio and Gerard sold ‘Hilltop’ for £310,000.

Sergio is 69 years old and a widower with three adult children and seven grandchildren. His annual income consists

of a pension of £9,900 and interest of £300 on savings of £7,600 in a bank deposit account. Sergio owns his home

but no other significant assets. He plans to buy a domestic rental property with the proceeds from the sale of ‘Hilltop’,

such that on his death he will have a significant asset which can be sold and divided between the members of his


Gerard is 34 years old. He is employed by Fizz plc on a salary of £66,500 per year together with a performance

related bonus. Gerard estimates that he will receive a bonus in December 2007 of £4,500, in line with previous

years, and that his taxable benefits in the tax year 2007/08 will amount to £7,140. He also expects to receive

dividends from UK companies of £1,935 and bank interest of £648 in the tax year 2007/08. Gerard intends to set

up a personal pension plan in August 2007. He has not made any pension contributions in the past and proposes to

use part of the proceeds from the sale of ‘Hilltop’ to make the maximum possible tax allowable contribution.

Fizz plc has announced that it intends to replace the performance related bonus scheme with a share incentive plan,

also linked to performance, with effect from 6 April 2008. Gerard estimates that Fizz plc will award him free shares

worth £2,100 each year. He will also purchase partnership shares worth £700 each year and, as a result, will be

awarded matching shares (further free shares) worth £1,400.


(a) Calculate the chargeable gains arising on the receipt of the insurance proceeds in January 2006 and the sale

of ‘Hilltop’ in July 2006. You should assume that any elections necessary to minimise the gain on the receipt

of the insurance proceeds have been submitted. (4 marks)



(c) Acting as an external consultant to Semer, discuss the validity of the proposed strategy to increase gearing, and explain whether or not the estimates produced in (b) above are likely to be accurate. (10 marks)


(c) Report on the proposed adjustment of gearing through the repurchase of ordinary shares
The effect of capital structure on the value of a company is not fully understood.
Increasing the proportion of debt in the capital structure may reduce the overall cost of capital due to the interest on debt being a tax allowable expense. Even if a company is in a non-tax paying position, mixing additional low cost debt with relatively expensive equity might reduce the weighted average cost of capital. In such circumstances the proposed strategy to increase gearing would have some validity. However, increasing gearing can also bring problems. Risk to investors, and therefore the required returns on equity and debt, will increase as gearing increases. Very high levels of gearing might lead to
direct and indirect bankruptcy costs, with a detrimental effect on cash flow and corporate value. Any benefits from increasing the proportion of debt in the capital structure will be to some extent offset as a result of increased risk with high gearing.
The revised estimates of the effect on the cost of capital and value of Semer are not likely to be accurate. Reasons for this include:
(i) The company will not be able to repurchase the necessary shares at their current market value. Approximately £240 million value of equity would need to be repurchased, or more than one third of the existing market value of equity.
As repurchases take place it is likely that the share price will significantly increase.
(ii) The cost of debt is unlikely to remain constant. As more debt is issued lenders will demand a higher interest rate to compensate for the extra risk resulting from higher gearing levels. The cost of equity will also increase with higher gearing. These effects will increase the weighted average cost of capital to a higher level than that estimated.
(iii) The precise market values of debt and equity after the repurchase are unknown, and again will reflect the market attitude
to the new risk of the higher gearing.
The value of the company is likely to be much lower than that estimated, as the weighted average cost of capital is likely to be underestimated.

5 GE Railways plc (GER) operates a passenger train service in Holtland. The directors have always focused solely on

the use of traditional financial measures in order to assess the performance of GER since it commenced operations

in 1992. The Managing Director of GER has asked you, as a management accountant, for assistance with regard to

the adoption of a balanced scorecard approach to performance measurement within GER.


(a) Prepare a memorandum explaining the potential benefits and limitations that may arise from the adoption of

a balanced scorecard approach to performance measurement within GER. (8 marks)

(a) To: Board of directors
From: Management Accountant
Date: 8 June 2007
The potential benefits of the adoption of a balanced scorecard approach to performance measurement within GER are as
A broader business perspective
Financial measures invariably have an inward-looking perspective. The balanced scorecard is wider in its scope and
application. It has an external focus and looks at comparisons with competitors in order to establish what constitutes best
practice and ensures that required changes are made in order to achieve it. The use of the balanced scorecard requires a
balance of both financial and non-financial measures and goals.
A greater strategic focus
The use of the balanced scorecard focuses to a much greater extent on the longer term. There is a far greater emphasis on
strategic considerations. It attempts to identify the needs and wants of customers and the new products and markets. Hence
it requires a balance between short term and long term performance measures.
A greater focus on qualitative aspects
The use of the balanced scorecard attempts to overcome the over-emphasis of traditional measures on the quantifiable aspects
of the internal operations of an organisation expressed in purely financial terms. Its use requires a balance between
quantitative and qualitative performance measures. For example, customer satisfaction is a qualitative performance measure
which is given prominence under the balanced scorecard approach.
A greater focus on longer term performance
The use of traditional financial measures is often dominated by financial accounting requirements, for example, the need to
show fixed assets at their historic cost. Also, they are primarily focused on short-term profitability and return on capital
employed in order to gain stakeholder approval of short term financial reports, the longer term or whole life cycle often being
The limitations of a balanced scorecard approach to performance measurement may be viewed as follows:
The balanced scorecard attempts to identify the chain of cause and effect relationships which will provide the stimulus for
the future success of an organisation.
Advocates of a balanced scorecard approach to performance measurement suggest that it can constitute a vital component
of the strategic management process.
However, Robert Kaplan and David Norton, the authors of the balanced scorecard concept concede that it may not be suitable
for all firms. Norton suggests that it is most suitable for firms which have a long lead time between management action and
financial benefit and that it will be less suitable for firms with a short-term focus. However, other flaws can be detected in
the balanced scorecard.
The balanced scorecard promises to outline the theory of the firm by clearly linking the driver/outcome measures in a cause
and effect chain, but this will be difficult if not impossible to achieve.
The precise cause and effect relationships between measures for each of the perspectives on the balanced scorecard will be
complex because the driver and outcome measures for the various perspectives are interlinked. For example, customer
satisfaction may be seen to be a function of several drivers, such as employee satisfaction, manufacturing cycle time and
quality. However, employee satisfaction may in turn be partially driven by customer satisfaction and employee satisfaction
may partially drive manufacturing cycle time. A consequence of this non-linearity of the cause and effect chain (i.e., there is
non-linear relationship between an individual driver and a single outcome measure), is that there must be a question mark
as to the accuracy of any calculated correlations between driver and outcome measures. Allied to this point, any calculated
correlations will be historic. This implies that it will only be possible to determine the accuracy of cause and effect linkages
after the event, which could make the use of the balanced scorecard in dynamic industries questionable. If the market is
undergoing rapid evolution, for example, how meaningful are current measures of customer satisfaction or market share?
These criticisms do not necessarily undermine the usefulness of the balanced scorecard in presenting a more comprehensive
picture of organisational performance but they do raise doubts concerning claims that a balanced scorecard can be
constructed which will outline a clear cause and effect chain between driver and outcome measures and the firm’s financial

(b) (i) Explain, by reference to Coral’s residence, ordinary residence and domicile position, how the rental

income arising in respect of the property in the country of Kalania will be taxed in the UK in the tax year

2007/08. State the strategy that Coral should adopt in order to minimise the total income tax suffered

on the rental income. (7 marks)

(b) (i) UK tax on the rental income
Coral is UK resident in 2007/08 because she is present in the UK for more than 182 days. Accordingly, she will be
subject to UK income tax on her Kalanian rental income.
Coral is ordinarily resident in the UK in 2007/08 as she is habitually resident in the UK.
Coral will have acquired a domicile of origin in Kalania from her father. She has not acquired a domicile of choice in the
UK as she has not severed her ties with Kalania and does not intend to make her permanent home in the UK.
Accordingly, the rental income will be taxed in the UK on the remittance basis.
Any rental income remitted to the UK will fall into the basic rate band and will be subject to income tax at 22% on the
gross amount (before deduction of Kalanian tax). Unilateral double tax relief will be available in respect of the 8% tax
suffered in Kalania such that the effective rate of tax suffered by Coral in the UK on the grossed up amount of income
remitted will be 14%.
In order to minimise the total income tax suffered on the rental income Coral should ensure that it is not brought into or
used in the UK such that it will not be subject to income tax in the UK.
Coral should retain evidence, for example bank statements, to show that the rental income has not been removed from
Kalania. Coral can use the money whilst she is on holiday in Kalania with no UK tax implications.

(e) Briefly provide five reasons to the management of Bailey’s why financial rewards could be considered to improve motivation. (5 marks)

(e) There are issues at Bailey’s as a consequence of poor pay. Although non-financial motivation has an important role to play in encouraging commitment, the fact remains that financial rewards act as a strong motivating factor, especially in what has been a low pay business. Financial rewards are all encompassing and apply to all employees at all levels, are universally applicable, able to satisfy all types of need and simple to apply and understand. At Bailey’s, financial rewards have a greater effect because they can provide recognition and prestige if pay is improved, are seen as the most important hygiene factor(especially in a business with a history of low pay and low morale) and are a measure of achievement against goals, especially if some form. of bonus or performance related pay is introduced by the new management at Bailey’s. In addition, financial rewards are a basis for satisfaction and are often used as a form. of professional or social comparison outside the organisation.

(ii) State when the inheritance tax (IHT) calculated in (i) would be payable and by whom. (2 marks)

(ii) Inheritance tax administration
The tax on Debbie’s estate (personalty and realty) would be paid by the personal representatives, usually an executor.
Inheritance tax is due six months from the end of the month in which death occurred (31 December 2005) or the date
on which probate is obtained (if earlier). However, an instalment option is available for certain assets, which includes
land and buildings i.e. the residence whereby the tax can be paid in 10 equal annual instalments.

(b) ‘opinion shopping’; (5 marks)

(b) ‘Opinion shopping’
Explanation of term
‘Opinion shopping’ occurs when management approach auditing firms (other than their incumbent auditors) to ask their views
on the application of accounting standards or principles to specific circumstances or transactions.
Ethical risks
The reasons for ‘opinion shopping’ may be:
■ to find alternative auditors; or
■ to get advice on a matter of contention with the incumbent auditor.
The member who is not the entity’s auditor must be alert to the possibility that their opinion – if it differs from that of the
incumbent auditor – may create undue pressure on the incumbent auditor’s judgement and so threaten the objectivity of the
Furthermore, by aligning with the interests of management when negotiating taking on an engagement, an incoming auditor
may compromise their objectivity even before the audit work commences. There is a risk that the audit fee might be seen to
be contingent upon a ‘favourable’ opinion (that is, the audit judgement coinciding with management’s preferences).
Employed professional accountants (accountants in industry) who support their company’s management in seeking second
opinions may call into question their integrity and professional behaviour.
Sufficiency of current ethical guidance
Current ethical guidance requires that when asked to provide a ‘second opinion’ a member should seek to minimise the risk
of giving inappropriate guidance, by ensuring that they have access to all relevant information.
The member should therefore:
■ ascertain why their opinion is being sought;
■ contact the auditor to provide any relevant facts;
■ with the entity’s permission, provide the auditor with a copy of their opinion.
The member’s opinion is more likely to differ if it is based on information which is different (or incomplete) as compared with
that available to the incumbent auditor. The member should therefore decline to act if permission to communicate with the
auditor is not given.
‘Opinion shopping’ might be less prevalent if company directors had no say in the appointment and remuneration of auditors.
If audit appointments were made by an independent body ‘doubtful accounting practices’ would (arguably) be less of a
negotiating factor. However, to be able to appoint auditors to multi-national/global corporations, such measures would require
the backing of regulatory bodies worldwide.
Statutory requirements in this area could also be more stringent. For example, an auditor may be required to deposit a
‘statement of circumstances’ (or a statement of ‘no circumstances’) in the event that they are removed from office or resign.
However, disclosure could be made more public if, when a change in accounting policy coincides with a change of auditors,
the financial statements and auditor’s report highlight the change and the auditors state their concurrence (or otherwise) with
the change. This could be made a statutory requirement and International Standards on Auditing (ISAs) amended to give
guidance on how auditors should report on changes.
Further, if the incoming auditor were to have a statutory right of access to the files and working papers of the outgoing auditors
they would be able to make a better and informed assessment of the desirability of the client and also appreciate the validity
(or otherwise) of any ‘statement’ issued by the outgoing auditor.

16 Which of the following events between the balance sheet date and the date the financial statements are

authorised for issue must be adjusted in the financial statements?

1 Declaration of equity dividends.

2 Decline in market value of investments.

3 The announcement of changes in tax rates.

4 The announcement of a major restructuring.

A 1

A 1 only

B 2 and 4

C 3 only

D None of them


(ii) The percentage change in revenue, total costs and net assets during the year ended 31 May 2008 that

would have been required in order to have achieved a target ROI of 20% by the Beetown centre. Your

answer should consider each of these three variables in isolation. State any assumptions that you make.

(6 marks)

(ii) The ROI of Beetown is currently 13·96%. In order to obtain an ROI of 20%, operating profit would need to increase to
(20% x $3,160,000) = $632,000, based on the current level of net assets. Three alternative ways in which a target
ROI of 20% could be achieved for the Beetown centre are as follows:
(1) Attempts could be made to increase revenue by attracting more clients while keeping invested capital and operating
profit per $ of revenue constant. Revenue would have to increase to $2,361,644, assuming that the current level
of profitability is maintained and fixed costs remain unchanged. The current rate of contribution to revenue is
$2,100,000 – $567,000 = $1,533,000/$2,100,000 = 73%. Operating profit needs to increase by $191,000
in order to achieve an ROI of 20%. Therefore, revenue needs to increase by $191,000/0·73 = $261,644 =
(2) Attempts could be made to decrease the level of operating costs by, for example, increasing the efficiency of
maintenance operations. This would have the effect of increasing operating profit per $ of revenue. This would
require that revenue and invested capital were kept constant. Total operating costs would need to fall by $191,000
in order to obtain an ROI of 20%. This represents a percentage decrease of 191,000/1,659,000 = 11·5%. If fixed
costs were truly fixed, then variable costs would need to fall to a level of $376,000, which represents a decrease
of 33·7%.
(3) Attempts could be made to decrease the net asset base of HFG by, for example, reducing debtor balances and/or
increasing creditor balances, while keeping turnover and operating profit per $ of revenue constant. Net assets
would need to fall to a level of ($441,000/0·2) = $2,205,000, which represents a percentage decrease
amounting to $3,160,000 – $2,205,000 = 955,000/3,160,000 = 30·2%.

ACCA/CAT考试答案7辑 第2辑

19 Which of the following statements about intangible assets in company financial statements are correct according

to international accounting standards?

1 Internally generated goodwill should not be capitalised.

2 Purchased goodwill should normally be amortised through the income statement.

3 Development expenditure must be capitalised if certain conditions are met.

A 1 and 3 only

B 1 and 2 only

C 2 and 3 only

D All three statements are correct


(b) For this part, assume today’s date is 1 May 2010.

Bill and Ben decided not to sell their company, and instead expanded the business themselves. Ben, however,

is now pursuing other interests, and is no longer involved with the day to day activities of Flower Limited. Bill

believes that the company would be better off without Ben as a voting shareholder, and wishes to buy Ben’s

shares. However, Bill does not have sufficient funds to buy the shares himself, and so is wondering if the

company could acquire the shares instead.

The proposed price for Ben’s shares would be £500,000. Both Bill and Ben pay income tax at the higher rate.


Write a letter to Ben:

(1) stating the income tax (IT) and/or capital gains tax (CGT) implications for Ben if Flower Limited were to

repurchase his 50% holding of ordinary shares, immediately in May 2010; and

(2) advising him of any available planning options that might improve this tax position. Clearly explain any

conditions which must be satisfied and quantify the tax savings which may result.

(13 marks)

Assume that the corporation tax rates for the financial year 2005 and the income tax rates and allowances

for the tax year 2005/06 apply throughout this question.


(b) [Ben’s address]                                                                                                     [Firm’s address]
Dear Ben                                                                                                                              [Date]
A company purchase of own shares can be subject to capital gains treatment if certain conditions are satisfied. However, one
of these conditions is that the shares in question must have been held for a minimum period of five years. As at 1 May 2010,
your shares in Flower Limited have only been held for four years and ten months. As a result, the capital gains treatment will
not apply.
In the absence of capital gains treatment, the position on a company repurchase of its own shares is that the payment will
be treated as an income distribution (i.e. a dividend) in the hands of the recipient. The distribution element is calculated as
the proceeds received for the shares less the price paid for them. On the basis that the purchase price is £500,000, then the
element of distribution will be £499,500 (500,000 – 500). This would be taxed as follows:

(ii) Following on from your answer to (i), evaluate the two purchase proposals, and advise Bill and Ben

which course of action will result in the highest amount of after tax cash being received by the

shareholders if the disposal takes place on 31 March 2006. (4 marks)



(b) ‘opinion shopping’; (5 marks)

(b) ‘Opinion shopping’
Explanation of term
‘Opinion shopping’ occurs when management approach auditing firms (other than their incumbent auditors) to ask their views
on the application of accounting standards or principles to specific circumstances or transactions.
Ethical risks
The reasons for ‘opinion shopping’ may be:
■ to find alternative auditors; or
■ to get advice on a matter of contention with the incumbent auditor.
The member who is not the entity’s auditor must be alert to the possibility that their opinion – if it differs from that of the
incumbent auditor – may create undue pressure on the incumbent auditor’s judgement and so threaten the objectivity of the
Furthermore, by aligning with the interests of management when negotiating taking on an engagement, an incoming auditor
may compromise their objectivity even before the audit work commences. There is a risk that the audit fee might be seen to
be contingent upon a ‘favourable’ opinion (that is, the audit judgement coinciding with management’s preferences).
Employed professional accountants (accountants in industry) who support their company’s management in seeking second
opinions may call into question their integrity and professional behaviour.
Sufficiency of current ethical guidance
Current ethical guidance requires that when asked to provide a ‘second opinion’ a member should seek to minimise the risk
of giving inappropriate guidance, by ensuring that they have access to all relevant information.
The member should therefore:
■ ascertain why their opinion is being sought;
■ contact the auditor to provide any relevant facts;
■ with the entity’s permission, provide the auditor with a copy of their opinion.
The member’s opinion is more likely to differ if it is based on information which is different (or incomplete) as compared with
that available to the incumbent auditor. The member should therefore decline to act if permission to communicate with the
auditor is not given.
‘Opinion shopping’ might be less prevalent if company directors had no say in the appointment and remuneration of auditors.
If audit appointments were made by an independent body ‘doubtful accounting practices’ would (arguably) be less of a
negotiating factor. However, to be able to appoint auditors to multi-national/global corporations, such measures would require
the backing of regulatory bodies worldwide.
Statutory requirements in this area could also be more stringent. For example, an auditor may be required to deposit a
‘statement of circumstances’ (or a statement of ‘no circumstances’) in the event that they are removed from office or resign.
However, disclosure could be made more public if, when a change in accounting policy coincides with a change of auditors,
the financial statements and auditor’s report highlight the change and the auditors state their concurrence (or otherwise) with
the change. This could be made a statutory requirement and International Standards on Auditing (ISAs) amended to give
guidance on how auditors should report on changes.
Further, if the incoming auditor were to have a statutory right of access to the files and working papers of the outgoing auditors
they would be able to make a better and informed assessment of the desirability of the client and also appreciate the validity
(or otherwise) of any ‘statement’ issued by the outgoing auditor.

6 Ordan received a statement from one of its suppliers, Alta, showing a balance due of $3,980. The amount due

according to the payables ledger account of Alta in Ordan’s records was only $230.

Comparison of the statement and the ledger account revealed the following differences:

1 A cheque sent by Ordan for $270 has not been allowed for in Alta’s statement.

2 Alta has not allowed for goods returned by Ordan $180.

3 Ordan made a contra entry, reducing the amount due to Alta by $3,200, for a balance due from Alta in Ordan’s

receivables ledger. No such entry has been made in Alta’s records.

What difference remains between the two companies’ records after adjusting for these items?

A $460

B $640

C $6,500

D $100

3,980 – 270 – 180 – 3,200 = 330 : difference 100

(ii) Advise Benny of the amount of tax he could save by delaying the sale of the shares by 30 days. For the

purposes of this part, you may assume that the benefit in respect of the furnished flat is £11,800 per

year. (3 marks)



(c) Outline the problems with references. (7 marks)

(15 marks)

Part (c)
There can be significant problems with references, these include the fact that most referees are well known to the applicant and
hesitate to say anything critical. However, the more skilful reference reader learns to look for what is conspicuous by omission
although there is always the risk that the writer merely forgot.
Often there are glowing tributes designed to aid the candidate on their way and some can be too ambiguous to be useful.
It is also important to note that references are poor predictors of future performance, are time consuming for the referee and the
subsequent reader. A particular problem is that employers who want to rid themselves of unsatisfactory employees could write an
enthusiastic reference, or at best one which leaves a lot unsaid.
However, care should be taken when providing references. Potentially, there can be legal consequences if a reference is misleading
or misrepresents the person for whom the reference is provided.
In addition, problems can arise when references are sought too early in the recruitment process and therefore breach confidentiality.

5 An enterprise has made a material change to an accounting policy in preparing its current financial statements.

Which of the following disclosures are required by IAS 8 Accounting policies, changes in accounting estimates

and errors in these financial statements?

1 The reasons for the change.

2 The amount of the consequent adjustment in the current period and in comparative information for prior periods.

3 An estimate of the effect of the change on future periods, where possible.

A 1 and 2 only

B 1 and 3 only

C 2 and 3 only

D All three items


(c) Temporary staff assignments. (6 marks)

(c) Temporary staff assignments
Lending staff on a temporary basis to an audit client will create the following ethical threats:
Management involvement – Assuming that the manager or senior is seconded to the finance function of the audit client, it
is likely that the individual would be in some way involved in decision making in relation to the accounting systems,
management accounts or financial statements.
Self-review – On returning to the audit firm, a seconded individual could be a member of the audit team for the client to
which they seconded. This would create a self- review threat whereby they would be unlikely to be critical of their own work
performed or decisions made. Even if the individual were not assigned to the client where they performed a temporary
assignment, the audit team assigned may tend to over rely on areas worked on by a colleague during the period of their
temporary assignment.
Familiarity – if the individual is working at the client at any time during the audit, there will be a familiarity threat, whereby
audit team members will be unlikely to sufficiently challenge, and therefore not exercise enough professional scepticism when
dealing with work performed by the seconded individual.
In addition, due to the over-staffing problem of Becker & Co, the seconded individuals may feel that if they were not on the
secondment, they could be made redundant. This may cause them to act in such as way as not to jeopardise the secondment,
even if the action were not in the best interests of the firm.
The threats discussed above are increased where a senior person likely to make significant decisions is involved with the
temporary assignment, as in this case where audit managers or seniors will be the subjects of the proposed secondment.
In practice, assistance can be provided to clients, especially in emergency situations, but only on the understanding that the
firm’s personnel will not be involved with:
– Making management decisions,
– Approving or signing agreements or similar documents, and
– Having the authority to enter into commitments on behalf of the company.
In addition, the individual seconded to a client should not then be involved in any way with the audit of that client when they
return to the audit firm. This may be a difficult area, as presumably the client would prefer to have an individual seconded
to them who has knowledge and experience of their business, i.e. a member of the audit team, and most likely in this scenario
to be the audit manager. If this were the case the manager would then have to be reassigned to a different client, causing
internal problems for the audit firm. This problem is likely to outweigh any benefits, financial or otherwise, to Becker & Co.
If the temporary staff assignment were to a non-finance department of the client then the threats would be reduced.
If Becker & Co decides to go ahead with the secondment programme, the firm must ensure that the staff are suitably
experienced and qualified to carry out the work given to them by the client. There could be a risk to the reputation of Becker
& Co if the seconded staff are not competent or do not perform. as well as expected by the client.
One advantage of a secondment is that the individual concerned can benefit from exposure to a different type of work and
work environment. This will provide some valuable insights into accounting within a business and the individual may bring
some new skills and ideas back into the audit firm.
However, the staff seconded could be offered a permanent position at the client. This would lead to the loss of key members
of staff, and be detrimental for Becker & Co in the long run.
The other benefit for the audit firm is that a programme of secondments will ease the problem of an over-staffed audit
department, and should have cash flow benefits.
Tutorial note: In answering this question it is relevant to briefly mention corporate governance implications i.e. the client may
not be able to accept the services offered by their auditor for ethical, particularly objectivity, reasons.

ACCA/CAT考试答案7辑 第3辑

5 The directors of Quapaw, a limited liability company, are reviewing the company’s draft financial statements for the

year ended 31 December 2004.

The following material matters are under discussion:

(a) During the year the company has begun selling a product with a one-year warranty under which manufacturing

defects are remedied without charge. Some claims have already arisen under the warranty. (2 marks)


Advise the directors on the correct treatment of these matters, stating the relevant accounting standard which

justifies your answer in each case.

NOTE: The mark allocation is shown against each of the three matters

(a) The correct treatment is to provide for the best estimate of the costs likely to be incurred under the warranty, as required by
IAS37 Provisions, contingent liabilities and contingent assets.

(b) (i) Advise Benny of the income tax implications of the grant and exercise of the share options in Summer

Glow plc on the assumption that the share price on 1 September 2007 and on the day he exercises the

options is £3·35 per share. Explain why the share option scheme is not free from risk by reference to

the rules of the scheme and the circumstances surrounding the company. (4 marks)

(b) (i) The share options
There are no income tax implications on the grant of the share options.
In the tax year in which Benny exercises the options and acquires the shares, the excess of the market value of the
shares over the price paid, i.e. £11,500 ((£3·35 – £2·20) x 10,000) will be subject to income tax.
Benny’s financial exposure is caused by the rule within the share option scheme obliging him to hold the shares for a
year before he can sell them. If the company’s expansion into Eastern Europe fails, such that its share price
subsequently falls to less than £2·20 before Benny has the chance to sell the shares, Benny’s financial position may be
summarised as follows:
– Benny will have paid £22,000 (£2·20 x 10,000) for shares which are now worth less than that.
– He will also have paid income tax of £4,600 (£11,500 x 40%).

17 A business income statement for the year ended 31 December 2004 showed a net profit of $83,600. It was later

found that $18,000 paid for the purchase of a motor van had been debited to motor expenses account. It is the

company’s policy to depreciate motor vans at 25 per cent per year, with a full year’s charge in the year of acquisition.

What would the net profit be after adjusting for this error?

A $106,100

B $70,100

C $97,100

D $101,600

83,600 + 18,000 – 4,500 = 97,100

6 Proposed ISA 600 (Revised and Redrafted) The Audit of Group Financial Statements is likely to substantially increase

the formal requirements in the area of group audits.


(a) Outline the significant issues that are being addressed in the IAASB’s project on group audits. (5 marks)

Tutorial note: The answer which follows is indicative of the range of points which might be made. Other relevant material will be
given suitable credit.
(a) Significant issues
Tutorial note: The objective of the IAASB’s project on the audit of group financial statements (‘group audits’) was to deal
with special considerations in group audits and, in particular, the involvement of other auditors. The re-exposure of ISA 600
(Revised and Redrafted) in March 2006 (following initial publication of a proposed revised ISA in December 2003 and an
exposure draft in March 2005) reflects the significance of the issues that the IAASB has sought to address.
Sole vs divided responsibility
The IAASB has concluded that the group auditor has sole responsibility for the group audit opinion. Thus the exposure drafts
eliminate the distinction between sole and divided responsibility. Therefore no reference to another auditor (e.g. of significant
components) should be made in the group auditor’s report. The practice of referring to another auditor may, arguably, be more
transparent to users of group financial statements. However, it may also mislead users to believe that the group auditor does
not have sole responsibility.
Definition of group auditor
The group auditor is the auditor who signs the auditor’s report on the group financial statements. The project has sought to
clarify whether, for example, an auditor from another office of the group engagement partner’s firm is a member of the group
engagement team or an ‘other auditor’.
‘Related’ vs ‘unrelated’ auditors
IAASB recognises that the nature, timing and extent of procedures performed by the group auditor, including the review of
the other auditor’s audit documentation, are affected by the group auditor’s relationship with the other audit. (For example,
if the other auditor operates under the quality control policies and procedures of the group auditor.) However, IAASB
acknowledges that a consistent distinction between ‘related’ and ‘unrelated’ auditors cannot be made due to the varying
structures of audit firms and their networks. Consequently, the only distinction that is made is between the ‘group’ and ‘other’
Acceptance/continuance as group auditor
A group auditor should only accept or continue an engagement if sufficient appropriate evidence is expected to be obtained
on which to base the group audit opinion. Acceptance and continuance as group auditors therefore requires an assessment
of the risk of misstatement in components. IAASB has therefore proposed guidance on the benchmarks that might be used
in identifying significant components.
Access to information
IAASB has concluded that a group audit engagement should be refused (or resigned from) if the group engagement partner
concludes that it will not be possible to obtain sufficient appropriate audit evidence, the result of which would be a disclaimer.
However, if the group engagement partner is prohibited from refusing or resigning an engagement, the group audit opinion
must be disclaimed.
Aggregation of components
Sufficient appropriate audit evidence must be obtained in respect of components that are not individually significant (but
significant in aggregate). This requires that components be selected for audit procedures (e.g. on specified account balances).
Analytical procedures are required to be performed on components that are not selected. IAASB has therefore identified factors
to be considered in selecting components that are not individually significant.
Responsibilities of other auditors
Historically, other auditors, knowing the context in which their work will be used by the group auditor, have been required to
cooperate with the group auditor. However, the project did not address guidance for other auditors. Therefore, in providing
guidance on the group audit, the IAASB requires the group auditor to obtain an understanding of the requirements for other
auditors to cooperate with the group auditor and provide access to relevant documentation.

(c) You have just been advised of management’s intention to publish its yearly marketing report in the annual report

that will contain the financial statements for the year ending 31 December 2005. Extracts from the marketing

report include the following:

‘Shire Oil Co sponsors national school sports championships and the ‘Shire Ward’ at the national teaching

hospital. The company’s vision is to continue its investment in health and safety and the environment.

‘Our health and safety, security and environmental policies are of the highest standard in the energy sector. We

aim to operate under principles of no-harm to people and the environment.

‘Shire Oil Co’s main contribution to sustainable development comes from providing extra energy in a cleaner and

more socially responsible way. This means improving the environmental and social performance of our

operations. Regrettably, five employees lost their lives at work during the year.’


Suggest performance indicators that could reflect the extent to which Shire Oil Co’s social and environmental

responsibilities are being met, and the evidence that should be available to provide assurance on their

accuracy. (6 marks)

(c) Social and environmental responsibilities
Performance indicators
■ Absolute ($) and relative (%) level of investment in sports sponsorship, and funding to the Shire Ward.
■ Increasing number of championship events and participating schools/students as compared with prior year.
■ Number of medals/trophies sponsored at events and/or number awarded to Shire sponsored schools/students.
■ Number of patients treated (successfully) a week/month. Average bed occupancy (daily/weekly/monthly and cumulative
to date).
■ Staffing levels (e.g. of volunteers for sports events, Shire Ward staff and the company):
? ratio of starters to leavers/staff turnover;
? absenteeism (average number of days per person per annum).
1 Withdrawal of the new licence would not create a going concern issue.
2 May also be described as ‘exploration and evaluation’ costs or ‘discovery and assessment’.
■ Number of:
– breaches of health and safety regulations and environmental regulations;
– oil spills;
– accidents and employee fatalities;
– insurance claims.
Tutorial note: As there is a wide range of performance indicators that candidates could suggest, there is always a wide range
of possible sources of audit evidence. As the same evidence may contribute to providing assurance on more than one
measure they are not tabulated here, to avoid duplication. However, candidates may justifiably adopt a tabular layout. Also
note, that where measures may be expressed as evidence (e.g. trophies awarded) marks should be awarded only once.
■ Actual level of investment ($) compared with budget and budget compared with prior period.
Tutorial note: Would expect actual to be at least greater than prior year if performance in these areas (health and
safety) has improved.
■ Physical evidence of favourable increases on prior year, for example:
? medals/cups sponsored;
? number of beds available.
■ Increase in favourable press coverage/reports of sponsored events. (Decrease in adverse press about
■ Independent surveys (e.g. by marine conservation organisations, welfare groups, etc) comparing Shire favourably with
other oil producers.
■ A reduction in fines paid compared with budget (and prior year).
■ Reduction in legal fees and claims being settled as evidenced by fee notes and correspondence files.
■ Amounts settled on insurance claims and level of insurance cover as compared with prior period.

(iii) cheese. (4 marks)

(iii) Cheese
■ Examine the terms of sales to Abingdon Bank – confirm the bank’s legal title (e.g. if GVF were to cease to trade
and so could not exercise buy-back option).
■ Obtain a direct confirmation from the bank of the cost of inventory sold by GVF to Abingdon Bank and the amount
re-purchased as at 30 September 2005 (the net amount being the outstanding loan).
■ Inspect the cheese as at 30 September 2005 (e.g. during the physical inventory count) paying particular attention
to the factors which indicate the age (and strength) of the cheese (e.g. its location or physical appearance).
■ Observe how the cheese is stored – if on steel shelves discuss with GVF’s management whether its net realisable
value has been reduced below cost.
■ Test check, on a sample basis, the costing records supporting the cost of batches of cheese.
■ Confirm that the cost of inventory sold to the bank is included in inventory as at 30 September 2005 and the
nature of the bank security adequately disclosed.
■ Agree the repurchase of cheese which has reached maturity at cost plus 7% per six months to purchase invoices
(or equivalent contracts) and cash book payments.
■ Test check GVF’s inventory-ageing records to production records. Confirm the carrying amount of inventory as at
30 September 2005 that will not be sold until after 30 September 2006, and agree to the amount disclosed in
the notes to inventory as a ‘non-current’ portion.

(ii) An evaluation of the environmental and sustainability implications of the Giant Dam Project; (8 marks)

(ii) Environmental and sustainability implications of the Giant Dam Project
In our preparation for the bid to act as principal contractor for the Giant Dam Project, we established that there were
two prominent negative implications of the project but these are, in our view, more than offset by two major
environmental positives.
The environmental arguments against the Giant Dam Project both concern the flooding of the valley behind the dam.
Regrettably, it seems that there will be some loss of important habitats. This, in turn, may mean the removal of balanced
environmental conditions for certain animal and plant species. In addition, the flooding of the valley will result in the
loss of productive farmland. This will mean reduced capacity for the host country to grow food and thus support citizens
such as the members of First Nation. From our point of view, as the board of R&M, however, we would remind
shareholders and other observers that the decisions involving the size and positioning of the Giant Dam were taken by
the client, the government. It is R&M’s job, having won the contract as principal contractor, to now carry out the plans,
regardless of our own views.
Happily, however, there are two very powerful environmental arguments in favour of the Giant Dam Project. It will create
a large source of clean energy for economic development that will be sustainable, as it will create no carbon emissions
nor will it consume any non-renewable resources as it does so (compared to, for example, fossil fuels).
At a time when people are becoming very concerned about greenhouse gases produced from conventional power
generation, the Giant Dam Project will contribute to the East Asian country’s internationally agreed carbon reduction
targets. This, in turn, will contribute to the reduction of greenhouse gases in the environment.
It is clear that the construction of the Giant Dam Project is an environmental conundrum with strong arguments on both
sides. The deciding factor may be the opinion that we each have of the desirability of economic growth in the East Asian
country (which the energy from the dam is intended to support). It seems that Stop-the-dam values the preservation of
the original environment more than the economic growth that the energy from the dam would support. The client does
not agree with this assessment and we are happy to be involved with a project that will create such a useful source of
renewable and non-polluting energy.

(c) Advise Alan on the proposed disposal of the shares in Mobile Ltd. Your answer should include calculations

of the potential capital gain, and explain any options available to Alan to reduce this tax liability. (7 marks)



However, an exemption from corporation tax exists for any gain arising when a trading company (or member of a trading
group) sells the whole or any part of a substantial shareholding in another trading company.
A substantial shareholding is one where the investing company holds 10% of the ordinary share capital and is beneficially
entitled to at least 10% of the
(i) profits available for distribution to equity holders and
(ii) assets of the company available for distribution to equity holders on a winding up.
In meeting the 10% test, shares owned by a chargeable gains group may be amalgamated. The 10% test must have been
met for a continuous 12 month period during the 2 years preceding the disposal.
The companies making the disposals must have been trading companies (or members of a trading group) throughout the
12 month period, as well as at the date of disposal. In addition, they must also be trading companies (or members of a trading
group) immediately after the disposal.
The exemption is given automatically, and acts to deny losses as well as eliminate gains.
While Alantech Ltd has owned its holding in Mobile Ltd for 33 months, its ownership of the Boron holding has only lasted
for 10 months (at 1 June 2005) since Boron was acquired on 1 July 2004. Selling the shares in June 2005 will fail the
12 month test, and the gain will become chargeable.
It would be better for the companies to wait for a further month until July 2005 before selling the amalgamated shareholding.
By doing so, they will both be able to take advantage of the substantial shareholdings relief, thereby saving tax of £29,625
assuming a corporation tax rate of 19%.

(b) You are the manager responsible for the audit of Poppy Co, a manufacturing company with a year ended

31 October 2008. In the last year, several investment properties have been purchased to utilise surplus funds

and to provide rental income. The properties have been revalued at the year end in accordance with IAS 40

Investment Property, they are recognised on the statement of financial position at a fair value of $8 million, and

the total assets of Poppy Co are $160 million at 31 October 2008. An external valuer has been used to provide

the fair value for each property.


(i) Recommend the enquiries to be made in respect of the external valuer, before placing any reliance on their

work, and explain the reason for the enquiries; (7 marks)

(b) (i) Enquiries in respect of the external valuer
Enquiries would need to be made for two main reasons, firstly to determine the competence, and secondly the objectivity
of the valuer. ISA 620 Using the Work of an Expert contains guidance in this area.
Enquiries could include:
– Is the valuer a member of a recognised professional body, for example a nationally or internationally recognised
institute of registered surveyors?
– Does the valuer possess any necessary licence to carry out valuations for companies?
– How long has the valuer been a member of the recognised body, or how long has the valuer been licensed under
that body?
– How much experience does the valuer have in providing valuations of the particular type of investment properties
held by Poppy Co?
– Does the valuer have specific experience of evaluating properties for the purpose of including their fair value within
the financial statements?
– Is there any evidence of the reputation of the valuer, e.g. professional references, recommendations from other
companies for which a valuation service has been provided?
– How much experience, if any, does the valuer have with Poppy Co?
Using the above enquiries, the auditor is trying to form. an opinion as to the relevance and reliability of the valuation
provided. ISA 500 Audit Evidence requires that the auditor gathers evidence that is both sufficient and appropriate. The
auditor needs to ensure that the fair values provided by the valuer for inclusion in the financial statements have been
arrived at using appropriate knowledge and skill which should be evidenced by the valuer being a member of a
professional body, and, if necessary, holding a licence under that body.
It is important that the fair values have been arrived at using methods allowed under IAS 40 Investment Property. If any
other valuation method has been used then the value recognised in the statement of financial position may not be in
accordance with financial reporting standards. Thus it is important to understand whether the valuer has experience
specifically in providing valuations that comply with IAS 40, and how many times the valuer has appraised properties
similar to those owned by Poppy Co.
In gauging the reliability of the fair value, the auditor may wish to consider how Poppy Co decided to appoint this
particular valuer, e.g. on the basis of a recommendation or after receiving references from companies for which
valuations had previously been provided.
It will also be important to consider how familiar the valuer is with Poppy Co’s business and environment, as a way to
assess the reliability and appropriateness of any assumptions used in the valuation technique.
Enquiries could include:
– Does the valuer have any financial interest in Poppy Co, e.g. shares held directly or indirectly in the company?
– Does the valuer have any personal relationship with any director or employee of Poppy Co?
– Is the fee paid for the valuation service reasonable and a fair, market based price?
With these enquiries, the auditor is gaining assurance that the valuer will perform. the valuation from an independent
point of view. If the valuer had a financial interest in Poppy Co, there would be incentive to manipulate the valuation in
a way best suited to the financial statements of the company. Equally if the valuer had a personal relationship with a
senior member of staff at Poppy Co, the valuer may feel pressured to give a favourable opinion on the valuation of the
The level of fee paid is important. It should be commensurate with the market rate paid for this type of valuation. If the
valuer was paid in excess of what might be considered a normal fee, it could indicate that the valuer was encouraged,
or even bribed, to provide a favourable valuation.

ACCA/CAT考试答案7辑 第4辑

(b) Discuss the limitations of the above estimates. (6 marks)


(b) The estimates are based upon unrealistic assumptions and are subject to a considerable margin of error. Possible limitations
(i) Sales, operating costs, replacement investments, and dividends are unlikely to increase by the same amount.
(ii) Forecasts of future growth rates may not be accurate. Paxis is unlikely to have access to enough internal information
about the activities of Wragger to make accurate projections.
(iii) The expected reduction in operating costs might not be achieved.
(iv) The estimates are based upon present values to infinity of expected free cash flows. A shorter time horizon might be
more realistic.
(v) The cost of capital for the combined company could differ from that estimated, depending how the market evaluates the
risk of the combined entity.
(vi) The analysis is based upon the assumption that the initial offer price is accepted.
(vii) There is no information about the fees and other costs associated with the proposed acquisition. In many cases these
are substantial, and must be included in the analysis.
(viii) The post acquisition integration of organisations often involves unforeseen costs which would reduce the benefit of any
potential synergy.

(b) Assuming that Thai Curry Ltd claims relief for its trading loss against total profits under s.393A ICTA 1988,calculate the company’s corporation tax liability for the year ended 30 September 2005. (10 marks)


2 The draft financial statements of Choctaw, a limited liability company, for the year ended 31 December 2004 showed

a profit of $86,400. The trial balance did not balance, and a suspense account with a credit balance of $3,310 was

included in the balance sheet.

In subsequent checking the following errors were found:

(a) Depreciation of motor vehicles at 25 per cent was calculated for the year ended 31 December 2004 on the

reducing balance basis, and should have been calculated on the straight-line basis at 25 per cent.

Relevant figures:

Cost of motor vehicles $120,000, net book value at 1 January 2004, $88,000

(b) Rent received from subletting part of the office accommodation $1,200 had been put into the petty cash box.

No receivable balance had been recognised when the rent fell due and no entries had been made in the petty

cash book or elsewhere for it. The petty cash float in the trial balance is the amount according to the records,

which is $1,200 less than the actual balance in the box.

(c) Bad debts totalling $8,400 are to be written off.

(d) The opening accrual on the motor repairs account of $3,400, representing repair bills due but not paid at

31 December 2003, had not been brought down at 1 January 2004.

(e) The cash discount totals for December 2004 had not been posted to the discount accounts in the nominal ledger.

The figures were:


Discount allowed 380

Discount received 290

After the necessary entries, the suspense account balanced.


Prepare journal entries, with narratives, to correct the errors found, and prepare a statement showing the

necessary adjustments to the profit.

(10 marks)


Assume that the rates and allowances for 2004/05 apply throughout this part.

(b) Explain the consequences of filing the VAT returns late and advise Fred how he should deal with the

underpayment and bad debt for VAT purposes. Your explanation should be supported by relevant

calculations. (10 marks)

(b) Late filing of VAT returns
The late filing of two or more VAT returns within the period of one year will give rise to a default surcharge. This occurs when
– The return is late and/or
– The payment is late.
Customs & Excise will serve a surcharge liability notice on the taxpayer when a single return is filed late and/or the VAT due
is paid late. The surcharge period will run from the date of notice to the anniversary of the quarter end of the period in which
the trader is in default.
Any further defaults within the surcharge period will extend the surcharge period.
If there is a late payment of VAT in the surcharge period, a surcharge will be levied at the rate of 2% on the first occasion,
rising progressively to a maximum of 15% if there are several defaults. One complete year of correct compliance is necessary
to escape the default surcharge regime.
For Flop Ltd, the surcharge period originally ran to 31 December 2005 but was extended to 31 March 2006 as the second
return is late. This could be extended again if the June return is late. The second default (31 March return) will give rise to
a 2% surcharge, based on the tax paid late of £24,000. This gives a surcharge of £480. This exceeds the de minimus level
of £400, so will be collected.
To avoid a further surcharge, the VAT return to 30 June 2005 should be submitted by 31 July at the latest. This would save
5% x £8,250 = £412.
In addition, Flop Ltd should obtain a refund of the VAT on the bad debt. Relief is available where;
(i) the debt is more than six months old, and
(ii) the debt has been written off in the creditor’s accounts.
The claim must be made within three years. The amount of VAT repayable is 17·5% of £50,000 = £8,750. If this is claimed
though the VAT return to 30 June 2005, there should be a net VAT repayment of (£8,250 - £8,750) = £500. Even if this
return is submitted late, the fact that no VAT is outstanding means that there will be no surcharge actually payable (as
calculated above), but the surcharge period will nevertheless be extended.

4 All organisations require trained employees. However, training can take many forms, some of which are internal to the organisation.


Explain what is meant by the terms:

(a) Computer based training. (3 marks)

4 All organisations need appropriately trained employees. Due to the nature of modern business, especially the professions, much of this training is internal and often on a one to one basis. Accountants as managers should therefore be able to understand the different approaches to training and which of them is the most appropriate and cost effective for the training requirements of the organisation.
(a) Computer based training can be inexpensive and is based upon user friendly interactive computer programs designed to enable trainees to train on their own and at their own pace.

(e) Internal controls are very important in a complex civil engineering project such as the Giant Dam Project.


Describe the difficulties of maintaining sound internal controls in the Giant Dam Project created by working

through sub-contractors. (4 marks)

(e) Control and sub-contractors
Specifically in regard to the maintenance of internal controls when working with sub-contractors, the prominent difficulties
are likely to be in the following areas:
Configuring and co-ordinating the many activities of sub-contractors so as to keep progress on track. This may involve taking
the different cultures of sub-contractor organisations into account.
Loss of direct control over activities as tasks are performed by people outside R&M’s direct employment and hence its
management structure.
Monitoring the quality of work produced by the sub-contractors. Monitoring costs will be incurred and any quality problems
will be potentially costly.
Budget ‘creep’ and cost control. Keeping control of budgets can be a problem in any large civil engineering project (such the
construction of the new Wembley Stadium in the UK) and problems are likely to be made worse when the principal contractor
does not have direct control over all activities.
Time limit over-runs. Many projects (again, such as the new Wembley Stadium, but others also) over-run significantly on time.
Tutorial note: only four difficulties need to be described.

4 You are a senior manager in Becker & Co, a firm of Chartered Certified Accountants offering audit and assurance

services mainly to large, privately owned companies. The firm has suffered from increased competition, due to two

new firms of accountants setting up in the same town. Several audit clients have moved to the new firms, leading to

loss of revenue, and an over staffed audit department. Bob McEnroe, one of the partners of Becker & Co, has asked

you to consider how the firm could react to this situation. Several possibilities have been raised for your consideration:

1. Murray Co, a manufacturer of electronic equipment, is one of Becker & Co’s audit clients. You are aware that the

company has recently designed a new product, which market research indicates is likely to be very successful.

The development of the product has been a huge drain on cash resources. The managing director of Murray Co

has written to the audit engagement partner to see if Becker & Co would be interested in making an investment

in the new product. It has been suggested that Becker & Co could provide finance for the completion of the

development and the marketing of the product. The finance would be in the form. of convertible debentures.

Alternatively, a joint venture company in which control is shared between Murray Co and Becker & Co could be

established to manufacture, market and distribute the new product.

2. Becker & Co is considering expanding the provision of non-audit services. Ingrid Sharapova, a senior manager in

Becker & Co, has suggested that the firm could offer a recruitment advisory service to clients, specialising in the

recruitment of finance professionals. Becker & Co would charge a fee for this service based on the salary of the

employee recruited. Ingrid Sharapova worked as a recruitment consultant for a year before deciding to train as

an accountant.

3. Several audit clients are experiencing staff shortages, and it has been suggested that temporary staff assignments

could be offered. It is envisaged that a number of audit managers or seniors could be seconded to clients for

periods not exceeding six months, after which time they would return to Becker & Co.


Identify and explain the ethical and practice management implications in respect of:

(a) A business arrangement with Murray Co. (7 marks)

4 Becker & Co
(a) Joint business arrangement
The business opportunity in respect of Murray Co could be lucrative if the market research is to be believed.
However, IFAC’s Code of Ethics for Professional Accountants states that a mutual business arrangement is likely to give rise
to self-interest and intimidation threats to independence and objectivity. The audit firm must be and be seen to be independent
of the audit client, which clearly cannot be the case if the audit firm and the client are seen to be working together for a
mutual financial gain.
In the scenario, two options are available. Firstly, Becker & Co could provide the audit client with finance to complete the
development and take the product to market. There is a general prohibition on audit firms providing finance to their audit
clients. This would create a clear financial self-interest threat as the audit firm would be receiving a return on investment from
their client. The Code states that if a firm makes a loan (or guarantees a loan) to a client, the self-interest threat created would
be so significant that no safeguard could reduce the threat to an acceptable level.
The provision of finance using convertible debentures raises a further ethical problem, because if the debentures are ultimately
converted to equity, the audit firm would then hold equity shares in their audit client. This is a severe financial self-interest,
which safeguards are unlikely to be able to reduce to an acceptable level.
The finance should not be advanced to Murray Co while the company remains an audit client of Becker & Co.
The second option is for a joint venture company to be established. This would be perceived as a significant mutual business
interest as Becker & Co and Murray Co would be investing together, sharing control and sharing a return on investment in
the form. of dividends. IFAC’s Code of Ethics states that unless the relationship between the two parties is clearly insignificant,
the financial interest is immaterial, and the audit firm is unable to exercise significant influence, then no safeguards could
reduce the threat to an acceptable level. In this case Becker & Co may not enter into the joint venture arrangement while
Murray Co is still an audit client.
The audit practice may consider that investing in the new electronic product is a commercial strategy that it wishes to pursue,
either through loan finance or using a joint venture arrangement. In this case the firm should resign as auditor with immediate
effect in order to eliminate any ethical problem with the business arrangement. The partners should carefully consider if the
potential return on investment will more than compensate for the lost audit fee from Murray Co.
The partners should also reflect on whether they want to diversify to such an extent – this investment is unlikely to be in an
area where any of the audit partners have much knowledge or expertise. A thorough commercial evaluation and business risk
analysis must be performed on the new product to ensure that it is a sound business decision for the firm to invest.
The audit partners should also consider how much time they would need to spend on this business development, if they
decided to resign as auditors and to go ahead with the investment. Such a new and important project could mean that they
take their focus off the key business i.e. the audit practice. They should consider if it would be better to spend their time trying
to compete effectively with the two new firms of accountants, trying to retain key clients, and to attract new accounting and
audit clients rather than diversify into something completely different.

(b) Peter, one of Linden Limited’s non-executive directors, having lived and worked in the UK for most of his adult

life, sold his home near London on 22 March 2006 and, together with his wife (a French citizen), moved to live

in a villa which she owns in the south of France. Peter is now demanding that the tax deducted from his director’s

fees, for the board meetings held on 18 April and 16 May 2006, be refunded, on the grounds that, as he is no

longer resident in the UK, he is no longer liable to UK income tax. All of the company’s board meetings are held

at its offices in Cambridge.

Despite Peter’s assurance that none of the other companies of which he is a director has disputed his change of

tax status, Damian is uncertain whether he should make the refunds requested. However, as Peter is a friend of

the company’s founder, Linden Limited’s managing director is urging him to do so, stating that if the tax does

have to be paid, then Linden Limited could always bear the cost.


Advise Damian whether Peter is correct in his assertion regarding his tax position and in the case that there

is a UK tax liability the implications of the managing director’s suggestion. You are not required to consider

national insurance (NIC) issues. (4 marks)

(b) Peter will have been resident and ordinarily resident in the UK. When such individuals leave the UK for a purpose other than
to take up full time employment abroad, they normally continue to still be so regarded unless their absence spans a complete
tax year. But, where someone intends to live permanently abroad or to do so for a period of at least three tax years, they may
be treated as non-resident and non-ordinarily resident from the day after the date of their departure, if they can provide
evidence to HMRC of that intention. Selling a residence in the UK and setting up home abroad will normally constitute such
evidence. However to retain non-resident status the intention must actually be fulfilled, and visits to the UK must not exceed
182 days in any tax year or average more than 90 days per year over a period of four tax years. Given that Peter would appear
to have several company directorships in the UK, it is possible that he might fail to satisfy the 90 day average ‘substantial
visits’ rule.
Even if Peter is classed as non-resident, any remuneration earned in the UK will still be liable to UK income tax, and subject
to PAYE, unless it is for duties incidental to an overseas employment, which is unlikely to be the case for fees paid to a nonexecutive
director for attending board meetings. Thus, income tax should still be deducted from the fees under PAYE. Where
PAYE should have been deducted from a director’s emoluments and it has not been, but the tax is nevertheless accounted
for by the company to HMRC, then to the extent that the tax is not reimbursed by the director, he will be treated as receiving
a benefit equivalent to the amount of tax.

(iii) State the value added tax (VAT) and stamp duty (SD) issues arising as a result of inserting Bold plc as

a holding company and identify any planning actions that can be taken to defer or minimise these tax

costs. (4 marks)

You should assume that the corporation tax rates for the financial year 2005 and the income tax rates

and allowances for the tax year 2005/06 apply throughout this question.

(iii) Bold plc will be making a taxable supply of services, likely to exceed the VAT threshold. It should therefore consider
registering for VAT – either immediately on a voluntary basis, or when its cumulative taxable supplies in the previous
twelve months exceed £60,000.
As an alternative, the new group can apply for a group VAT registration. This will simplify its VAT administration as intragroup
transactions are broadly disregarded for VAT purposes, and only one VAT return is required for the group as a
Stamp duty normally applies at 0·5% on the consideration payable in respect of transactions in shares. However, an
exemption is available in the case of a takeover, reconstruction or amalgamation where there is no real change in
ownership, i.e. the new shareholdings mirror the old shareholdings, and the transaction is for commercial purposes. The
insertion of a new holding company over an existing company, as proposed here, would qualify for this exemption.
There is no VAT on transactions in shares.

ACCA/CAT考试答案7辑 第5辑

In January 2008 Arti entered in a contractual agreement with Bee Ltd to write a study manual for an international accountancy body’s award. The manual was to cover the period from September 2008 till June 2009, and it was a term of the contract that the text be supplied by 30 June 2008 so that it could be printed in time for September. By 30 May, Arti had not yet started on the text and indeed he had written to Bee Ltd stating that he was too busy to write the text.

Bee Ltd was extremely perturbed by the news, especially as it had acquired the contract to supply all of the

accountancy body’s study manuals and had already incurred extensive preliminary expenses in relation to the publication of the new manual.


In the context of the law of contract, advise Bee Ltd whether they can take any action against Arti.

(10 marks)


The essential issues to be disentangled from the problem scenario relate to breach of contract and the remedies available for such breach.
There seems to be no doubt that there is a contractual agreement between Arti and Bee Ltd. Normally breach of a contract occurs where one of the parties to the agreement fails to comply, either completely or satisfactorily, with their obligations under it. However, such a definition does not appear to apply in this case as the time has not yet come when Arti has to produce the text. He has merely indicated that he has no intention of doing so. This is an example of the operation of the doctrine of anticipatory breach.
This arises precisely where one party, prior to the actual due date of performance, demonstrates an intention not to perform. their contractual obligations. The intention not to fulfil the contract can be either express or implied.
Express anticipatory breach occurs where a party actually states that they will not perform. their contractual obligations (Hochster v De La Tour (1853)). Implied anticipatory breach occurs where a party carries out some act which makes performance impossible
Omnium Enterprises v Sutherland (1919)).
When anticipatory breach takes place the innocent party can sue for damages immediately on receipt of the notification of the other party’s intention to repudiate the contract, without waiting for the actual contractual date of performance as in Hochster v De La Tour. Alternatively, they can wait until the actual time for performance before taking action. In the latter instance, they are entitled to make preparations for performance, and claim the agreed contract price (White and Carter (Councils) v McGregor (1961)).
It would appear that Arti’s action is clearly an instance of express anticipatory breach and that Bee Ltd has the right either to accept the repudiation immediately or affirm the contract and take action against Arti at the time for performance (Vitol SA v Norelf Ltd (1996)). In any event Arti is bound to complete his contractual promise or suffer the consequences of his breach of contract.
Remedies for breach of contract

(i) Specific performance It will sometimes suit a party to break their contractual obligations, even if they have to pay damages. In such circumstances the court can make an order for specific performance to require the party in breach to complete their part of the contract. However, as specific performance is not available in respect of contracts of employment or personal service Arti cannot be legally required to write the book for Bee Ltd (Ryan v Mutual Tontine Westminster Chambers Association (1893)). This means that the only remedy against Arti lies in the award of damages.
(ii) Damages A breach of contract will result in the innocent party being able to sue for damages.
Bee Ltd, therefore, can sue Bob for damages, but the important issue relates to the extent of such damages.
The estimation of what damages are to be paid by a party in breach of contract can be divided into two parts: remoteness and measure.
Remoteness of damage
The rule in Hadley v Baxendale (1845) states that damages will only be awarded in respect of losses which arise naturally, or which both parties may reasonably be supposed to have contemplated when the contract was made, as a probable result of its breach.

The effect of the first part of the rule in Hadley v Baxendale is that the party in breach is deemed to expect the normal consequences of the breach, whether they actually expected them or not. Under the second part of the rule, however, the party in breach can only be held liable for abnormal consequences where they have actual knowledge that the abnormal consequences might follow (Victoria Laundry Ltd v Newham Industries Ltd (1949)).

Measure of damages
Damages in contract are intended to compensate an injured party for any financial loss sustained as a consequence of another party’s breach. The object is not to punish the party in breach, so the amount of damages awarded can never be greater than the actual loss suffered. The aim is to put the injured party in the same position they would have been in had the contract been properly performed. In order to achieve this end the claimant is placed under a duty to mitigate losses. This means that the injured party has to take all reasonable steps to minimise their loss (Payzu v Saunders (1919)). Although such a duty did not appear to apply in relation to anticipatory breach as decided in White and Carter (Councils) v McGregor (1961)(above).
Applying these rules to the fact situation in the problem it is evident that as Arti has effected an anticipatory breach of his contract with Bee Ltd he will be liable to them for damages suffered as a consequence, if indeed they suffer damage as a result of his breach. As Bee Ltd will be under a duty to mitigate their losses, they will have to commit their best endeavours to find someone else to produce the required text on time. If they can do so at no further cost then they would suffer no loss, but any additional costs in producing the text will have to be borne by Arti.
However, if Bee Ltd is unable to produce the required text on time the situation becomes more complicated.
(i) As regards the profits from the contract to supply the accountancy body with all its text, the issue would be as to whether this was normal profit or amounted to an unexpected gain, as it was not part of Bee Ltd’s normal market when the contract was signed. If Victoria Laundry Ltd v Newham Industries Ltd were to be applied it is unlikely that Bee Ltd would be able to claim that loss of profit from Arti. However, it is equally plausible that the contract was an ordinary commercial one and that Arti would have to recompense Bee Ltd for any losses suffered from its failure to complete contractual performance.
(ii) As for the extensive preliminary expenses Arti would certainly be liable for them, as long as they were in the ordinary course of Bee Ltd’s business and were not excessive (Anglia Television v Reed (1972)).

You are the audit supervisor of Maple & Co and are currently planning the audit of an existing client, Sycamore Science Co (Sycamore), whose year end was 30 April 2015. Sycamore is a pharmaceutical company, which manufactures and supplies a wide range of medical supplies. The draft financial statements show revenue of $35·6 million and profit before tax of $5·9 million.

Sycamore’s previous finance director left the company in December 2014 after it was discovered that he had been claiming fraudulent expenses from the company for a significant period of time. A new finance director was appointed in January 2015 who was previously a financial controller of a bank, and she has expressed surprise that Maple & Co had not uncovered the fraud during last year’s audit.

During the year Sycamore has spent $1·8 million on developing several new products. These projects are at different stages of development and the draft financial statements show the full amount of $1·8 million within intangible assets. In order to fund this development, $2·0 million was borrowed from the bank and is due for repayment over a ten-year period. The bank has attached minimum profit targets as part of the loan covenants.

The new finance director has informed the audit partner that since the year end there has been an increased number of sales returns and that in the month of May over $0·5 million of goods sold in April were returned.

Maple & Co attended the year-end inventory count at Sycamore’s warehouse. The auditor present raised concerns that during the count there were movements of goods in and out the warehouse and this process did not seem well controlled.

During the year, a review of plant and equipment in the factory was undertaken and surplus plant was sold, resulting in a profit on disposal of $210,000.


(a) State Maples & Co’s responsibilities in relation to the prevention and detection of fraud and error. (4 marks)

(b) Describe SIX audit risks, and explain the auditor’s response to each risk, in planning the audit of Sycamore Science Co. (12 marks)

(c) Sycamore’s new finance director has read about review engagements and is interested in the possibility of Maple & Co undertaking these in the future. However, she is unsure how these engagements differ from an external audit and how much assurance would be gained from this type of engagement.


(i) Explain the purpose of review engagements and how these differ from external audits; and (2 marks)

(ii) Describe the level of assurance provided by external audits and review engagements. (2 marks)


(a) Fraud responsibility

Maple & Co must conduct an audit in accordance with ISA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements and are responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error.

In order to fulfil this responsibility, Maple & Co is required to identify and assess the risks of material misstatement of the financial statements due to fraud.

They need to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses. In addition, Maple & Co must respond appropriately to fraud or suspected fraud identified during the audit.

When obtaining reasonable assurance, Maple & Co is responsible for maintaining professional scepticism throughout the audit, considering the potential for management override of controls and recognising the fact that audit procedures which are effective in detecting error may not be effective in detecting fraud.

To ensure that the whole engagement team is aware of the risks and responsibilities for fraud and error, ISAs require that a discussion is held within the team. For members not present at the meeting, Sycamore’s audit engagement partner should determine which matters are to be communicated to them.

(b) Audit risks and auditors’ responses

(c) (i) Review engagements

Review engagements are often undertaken as an alternative to an audit, and involve a practitioner reviewing financial data, such as six-monthly figures. This would involve the practitioner undertaking procedures to state whether anything has come to their attention which causes the practitioner to believe that the financial data is not in accordance with the financial reporting framework.

A review engagement differs to an external audit in that the procedures undertaken are not nearly as comprehensive as those in an audit, with procedures such as analytical review and enquiry used extensively. In addition, the practitioner does not need to comply with ISAs as these only relate to external audits.

(ii) Levels of assurance

The level of assurance provided by audit and review engagements is as follows:

External audit – A high but not absolute level of assurance is provided, this is known as reasonable assurance. This provides comfort that the financial statements present fairly in all material respects (or are true and fair) and are free of material misstatements.

Review engagements – where an opinion is being provided, the practitioner gathers sufficient evidence to be satisfied that the subject matter is plausible; in this case negative assurance is given whereby the practitioner confirms that nothing has come to their attention which indicates that the subject matter contains material misstatements.

(ii) Calculate the probability of the net profit being less than £75 million. (2 marks)


(b) Provide the directors of Acrux Ltd with a detailed explanation of the maximum rate of tax that will be suffered

on both the distributed and non-distributed profits of the non-UK resident investee companies where:

(1) there is a double tax treaty between the UK and the country in which the individual companies are

resident; and

(2) there is no such double tax treaty.

Note: you are not required to explain the position of the overseas resident branches. (6 marks)

(b) Rate of tax on profits of non-UK resident investee companies
Undistributed profits
The companies will be subject to tax in the countries in which they are resident; this is because of their residency status or
because they have a permanent establishment in that country. Undistributed profits will not be taxed in the UK.
The rate of tax on undistributed profits will therefore be the rate of tax in the country of residency of the respective companies.
Distributed profits with double tax treaty
The dividends received by Acrux Ltd from each of the overseas companies will be grossed up in respect of underlying tax (the
overseas corporation tax paid on the distributed profits) because Acrux Ltd will own at least 10% of the overseas companies.
The gross amount will then be included in Acrux Ltd’s profits chargeable to corporation tax.
The treaty will provide double tax relief in the UK for the overseas tax suffered in respect of each dividend up to a maximum
of the UK tax on the grossed up overseas dividend. As a result of the double tax relief, the overall rate of tax suffered will be
the higher of the UK rate paid by Acrux Ltd and the overseas tax rate borne by the overseas company.
Where the rate of overseas tax in respect of a particular dividend exceeds the rate of corporation tax in the UK, excess foreign
tax will arise. This can be relieved, via onshore pooling, against the UK tax due on those dividends where the rate of tax in
the UK exceeds the rate overseas. This will reduce the overall rate of tax suffered on the total overseas profits of the overseas
companies as a whole.
Distributed profits with no double tax treaty
Where there is no double tax treaty, unilateral double tax relief will be available in the UK. This relief will operate in the same
way as double tax relief under a double tax treaty such that the overall rate of tax on each dividend will be the higher of the
UK rate paid by Acrux Ltd and the overseas rate borne by the overseas company. Relief via onshore pooling will also be

This information was taken from an internal newsletter of The Knowledge Partnership LLP (TKP), a company which offers project and software consultancy work for clients based in Zeeland. The newsletter was dated 2 November 2014 and describes two projects currently being undertaken by the partnership.

Project One

In this project, one of our clients was just about to place a contract for a time recording system to help them monitor and estimate construction contracts when we were called in by the Finance Director. He was concerned about the company supplying the software package. ‘They only have an annual revenue of $5m’, he said, ‘and that worries me.’ TKP analysed software companies operating in Zeeland. It found that 200 software companies were registered in Zeeland with annual revenues of between $3m and $10m. Of these, 20 went out of business last year. This compared to a 1% failure rate for software companies with revenues of more than $100m per year. We presented this information to the client and suggested that this could cause a short-term support problem. The client immediately re-opened the procurement process. Eventually they bought a solution from a much larger well-known software supplier. It is a popular software solution, used in many larger companies.

The client has now asked us to help with the implementation of the package. A budget for the project has been agreed and has been documented in an agreed, signed-off, business case. The client has a policy of never re-visiting its business cases once they have been accepted; they see this as essential for effective cost control. We are currently working with the primary users of the software – account managers (using time and cost data to monitor contracts) and the project support office (using time and cost data to improve contract estimating) – to ensure that they can use the software effectively when it is implemented. We have also given ‘drop in’ briefing sessions for the client’s employees who are entering the time and cost data analysed by the software. They already record this information on a legacy system and so all they will see is a bright new user interface, but we need to keep them informed about our implementation. We are also looking at data migration from the current legacy system. We think some of the current data might be of poor quality, so we have established a strategy for data cleansing (through offshore data input) if this problem materialises. We currently estimate that the project will go live in May 2015.

Project Two

In this project, the client is the developer of the iProjector, a tiny phone-size projector which is portable, easy to use and offers high definition projection. The client was concerned that their product is completely dependent on a specialist image-enhancing chip designed and produced by a small start-up technology company. They asked TKP to investigate this company. We confirmed their fears. The company has been trading for less than three years and it has a very inexperienced management team. We suggested that the client should establish an escrow agreement for design details of the chip and suggested a suitable third party to hold this agreement. We also suggested that significant stocks of the chip should be maintained. The client also asked TKP to look at establishing patents for the iProjector throughout the world. Again, using our customer contacts, we put them in touch with a company which specialises in this. We are currently engaged with the client in examining the risk that a major telephone producer will launch a competitive product with functionality and features similar to the iProjector.

The iProjector is due to be launched on 1 May 2015 and we have been engaged to give advice on the launch of the product. The launch has been heavily publicised, a prestigious venue booked and over 400 attendees are expected. TKP have arranged for many newspaper journalists to attend. The product is not quite finished, so although orders will be taken at the launch, the product is not expected to ship until June 2015.

Further information:

TKP only undertakes projects in the business culture which it understands and where it feels comfortable. Consequently, it does not undertake assignments outside Zeeland.

TKP has $10,000,000 of consultant’s liability insurance underwritten by Zeeland Insurance Group (ZIG).


(a) Analyse how TKP itself and the two projects described in the scenario demonstrate the principles of effective risk management. (15 marks)

(b) Describe the principle of the triple constraint (scope, time and cost) on projects and discuss its implications in the two projects described in the scenario. (10 marks)


(a) The first stages of risk management are the identification, descriptions and assessment of the risk. This assessment is primarily concerned with the likelihood of them occurring and the severity of impact on the organisation or project should they occur. Sometimes the likelihood is a subjective probability, the opinions of experienced managers or experts in the field. On other occasions, there is some statistical evidence on which to base the assessment. For example, in project 1, TKP identified that 20 IT software companies with annual revenues between $3m and $10m went out of business last year. This represented 10% of the total number of software companies reporting such revenues. Its report to the client suggested that there was a 10% chance of the current preferred supplier (who had a turnover of $5m) ceasing business and this would have a significant short-term support implication. This compared to a business failure rate of 1% for software companies with an annual revenue exceeding $100m. The client felt that the probability of supplier failure was too high, so eventually bought a software solution from a much larger, well-known, software supplier. In this case, the likelihood of the risk led the client to changing its procurement decision. The risk itself does not go away, large companies also fail, but the probability of the risk occurring is reduced.

The avoidance (or prevention) of a risk is a legitimate risk response. In project 1, the client could avoid the risk ‘failure of the supplier’ by commissioning an in-house bespoke solution. Similarly, TKP itself avoids the risks associated with trading in different cultures, by restricting its projects to clients based in Zeeland.

There are three further responses to risks.

Risk mitigation (or risk contingency) actions are what the organisation will do to counter the risk, should the risk take place. Mitigation actions are designed to lessen the impact on the organisation of the risk occurring. In project 2, TKP recommends that the producers of the iProjector should establish an escrow agreement with the company which produces the chip which enhances the quality of the projected image. It was agreed that design details of this chip should be lodged with a third party who would make them available to the producers of the iProjector should the company which owned the enhanced image technology cease trading. This is a mitigation approach to the risk ‘failure of the supplier’. The supplier is relatively high risk (less than three years of trading, inexperienced management team), and the product (the iProjector) is completely dependent upon the supply of the image enhancing chip. The failure of the business supplying the chips would have significant impact on iProjector production. If the escrow agreement had to be enacted, then it would take the producers of the iProjector some time to establish alternative production. Consequently (and TKP have suggested this), it might be prudent to hold significant stocks of the chips to ensure continued production. In such circumstances, the need to mitigate risk is more important than implementing contemporary just-in-time supply practices. In some instances a mitigation action can be put in place immediately. In other instances risk mitigation actions are only enacted should the risk occur. The risk has been recognised and the organisation has a rehearsed or planned response. For example, in project 1, TKP has identified ‘poor quality of current data’ as a risk associated with the migration of data from the current systems to the proposed software package solution. It has established a strategy for data cleansing if that risk actually materialises. Importantly, the client knows in advance how to respond to a risk. It avoids making a hasty, ill-thought out response to an unforeseen event.

Risk transfer actions are concerned with transferring the risk and the assessment and consequences of that risk to another party. This can be done in a number of ways. TKP itself has liability insurance which potentially protects the company from the financial consequences of being sued by clients for giving poor advice. TKP has identified this as a risk, but is unlikely to be able to assess either the probability of that risk occurring or establishing meaningful mitigation measures to minimise the effect of that risk. Consequently, the responsibility for both of these is transferred to an insurance company. They establish the risk, through a series of questions, and compute a premium which reflects the risk and the compensation maximum which will have to be paid if that risk occurs. TKP pays the insurance premiums. TKP itself also transfers risks in project 2. It is unsure about how to establish patents and so it refers the client to another company. Transferring avoids the risk associated with ‘establishing the patent incorrectly’ and the financial consequences of this.

Finally, risk may be identified but just accepted as part of doing business. Risk acceptance is particularly appropriate when the probability of the risk is low or the impact of that risk is relatively insignificant. Risks may also be accepted when there are no realistic mitigation or transfer actions. In project 2, the producers of the iProjector are concerned that there is ‘a risk that a major telephone producer will launch a product with features and functionality similar to ours’. This is a risk, but there is little that can be done about it. Risks of competition are often best accepted.

The discussion above is primarily concerned with deciding what action to take for each risk. Once these actions are agreed, then a plan may be required to put them into place. For example, establishing an escrow agreement will require certain activities to be done.

Risks must also be monitored. For example, in project 2, the risk of supplier failure can be monitored through a company checking agency. Many of these companies offer a continuous monitoring service which evaluates financial results, share prices and other significant business movements. Reports are produced, highlighting factors which may be of particular concern. Risks will also disappear once certain stages of the project have been completed and, similarly, new ones will appear, often due to changes in the business environment. Many organisations use a risk register or risk log to document and monitor risks and such logs often specify a risk owner, a person responsible for adequate management of the risk.

(b) Every project is constrained in some way by its scope, time and cost. These limitations are often called the triple constraint. The scope concerns what has to be delivered by the project, time is when the project should deliver by, and cost is concerned with how much can be spent on achieving the deliverable (the budget). Quality is also an important feature of projects. Some authors include quality in their triple constraint (instead of scope), others add it as a further constraint (quadruple constraint), whilst others believe that quality considerations are inherent in setting the scope, time and cost goals of a project. How a particular project is managed depends greatly on the pressures in the triple constraint.

In project 1, the reluctance of the company to re-visit the business case means that the budget (or cost) of the solution is fixed. The implementation date might be desirable, but it does not seem to be business critical. It is an internal system and so any delays in implementation will not affect customers. It will also be a relatively seamless transition for most employees in the company. They already record the time record details which the new system will collect and so all they will see is a changed user interface. Only the direct users of the output (account managers and the project office) will be affected by any delay. The scope of the software package is also pre-defined. If it fails to meet requirements, then the users will have to adjust their expectations or business methods. There is no money to finance customisation or add-on systems, so in this sense the scope of the solution is also fixed. The quality of the software, in terms of its reliability and robustness, should also be good, as it is a popular software solution used in many large companies.

In project 2, the launch date is fixed. It has been heavily publicised, the venue is booked and over 400 attendees are expected, including newspaper journalists. Thus the time of the project is fixed. However, although orders will be taken at the launch, the product is not expected to ship until a month after launch. Thus the scope of the product shown at the launch date might be restricted and inherent quality problems might not yet be solved. Any defects can be explained away (this is a pre-production model) or, more effectively, they may be avoided by ensuring that the product is demonstrated to attendees, not used by them. The project manager must ensure that key functionality of the product is available on launch date (such as producing an image of a certain quality), but other functionality, not central to the presentation (for example, promised support for all image file formats) could be delayed until after the presentation. The company should make extra funds available to ensure that the launch date is successful.

5 Your manager has heard of Maslow’s hierarchy of needs theory and how it has some relevance to motivational techniques.


(a) Explain Maslow’s hierarchy of needs theory. (10 marks)


5 The way in which managers’ duties are undertaken can significantly influence the satisfaction that employees derive from their work. Abraham Maslow suggested that individuals have a hierarchy of personal needs which are identifiable, universally applicable and can be satisfied in the workplace. Understanding this concept provides guidance to management as to the appropriateness of
motivational techniques.
(a) Maslow’s theory of motivation is a content theory. Its basic idea is that each individual has a set of needs which have to be
satisfied in a set order of priority.
Maslow suggested that individuals have five needs:
(or self fulfilment)
Esteem needs
(or ego)
Social needs
Safety needs
Physiological needs
These needs are arranged in a hierarchy of importance and movement is upwards, from physiological needs to selfactualisation.Any individual will always want more; each need must be satisfied before the next is sought. However – andcritically so far as motivation in the workplace is concerned – a satisfied need is no longer a motivator.
The theory is usually presented in the shape of a triangle, with physiological needs at its base and self-actualisation at itsapex. The triangle shape has a clear significance. As an individual moves up toward the apex, the needs thin out, that isphysiological needs are far greater than self-actualisation needs. For many individuals, reaching social needs is often thehighest need to be satisfied. The theory is sometimes presented as a staircase; again with self-actualisation at the top. Thissecond diagrammatic form. reflects the application of the theory to more modern situations, where it can reasonably beassumed that those within the organisation have already achieved physiological and safety needs. For such individuals, socialand esteem needs may well be greater.
Physiological needs are the basic survival needs which, although part of the theory, probably have less relevance today. Theseneeds are usually seen as food, shelter (which is sometimes noted as a safety need), warmth and clothing.
Safety needs are the desire for security, order, certainty and predictability in life and freedom from threat. The above two so-called ‘lower order needs’ dominate until satisfied.
Social needs are the gregarious needs of mankind, the need for friendship, relationships and affection. This is often seen as the desire to be part of a family.
Esteem needs are the desire for recognition and respect, often associated with status, especially in the modern world.
Self-actualisation (self fulfilment) is the ultimate goal. Once this state is achieved the individual has fulfilled personal potential.
However, later work by Maslow has suggested that there are two additional needs; freedom of enquiry (free speech and justice) and knowledge (the need to explore and learn). These additional needs are a further development of social needs and recognise the changing nature of modern life.

3 At a recent international meeting of business leaders, Seamus O’Brien said that multi-jurisdictional attempts to

regulate corporate governance were futile because of differences in national culture. He drew particular attention to

the Organisation for Economic Co-operation and Development (OECD) and International Corporate Governance

Network (ICGN) codes, saying that they were, ‘silly attempts to harmonise practice’. He said that in some countries,

for example, there were ‘family reasons’ for making the chairman and chief executive the same person. In other

countries, he said, the separation of these roles seemed to work. Another delegate, Alliya Yongvanich, said that the

roles of chief executive and chairman should always be separated because of what she called ‘accountability to


One delegate, Vincent Viola, said that the right approach was to allow each country to set up its own corporate

governance provisions. He said that it was suitable for some countries to produce and abide by their own ‘very

structured’ corporate governance provisions, but in some other parts of the world, the local culture was to allow what

he called, ‘local interpretation of the rules’. He said that some cultures valued highly structured governance systems

while others do not care as much.


(a) Explain the roles of the chairman in corporate governance. (5 marks)

(a) Roles of the chairman in corporate governance
The chairman is the leader of the board of directors in a private or public company although other organisations are often run
on similar governance lines. In this role, he or she is responsible for ensuring the board’s effectiveness as a unit, in the service
of the shareholders. This means agreeing and, if necessary, setting the board’s agenda and ensuring that board meetings
take place on a regular basis.
The chairman represents the company to investors and other outside stakeholders/constituents. He or she is often the
‘public face’ of the organisation, especially if the organisation must account for itself in a public manner. Linked to this,
the chairman’s roles include communication with shareholders. This occurs in a statutory sense in the annual report
(where, in many jurisdictions, the chairman must write to shareholders each year in the form. of a chairman’s statement)
and at annual and extraordinary general meetings.
Internally, the chairman ensures that directors receive relevant information in advance of board meetings so that all
discussions and decisions are made by directors fully apprised of the situation under discussion. Finally, his or her role
extends to co-ordinating the contributions of non-executive directors (NEDs) and facilitating good relationships between
executive and non-executive directors.

(ii) the directors agree to disclose the note. (4 marks)

(ii) If the directors agree to disclose the note, it should be reviewed by the auditors to ensure that it is sufficiently detailed.
In evaluating the adequacy of the disclosure in the note, the auditor should consider whether the disclosure explicitly
draws the reader’s attention to the possibility that the entity may not be able to continue as a going concern in the
foreseeable future. The note should include a description of conditions giving rise to significant doubt, and the directors’
plans to deal with the conditions. If the note provided contains adequate information then there is no breach of financial
reporting standards, and so no disagreement with the directors.
If the disclosure is considered adequate, then the opinion should not be qualified. The auditors should consider a
modification by adding an emphasis of matter paragraph to highlight the existence of the material uncertainties, and to
draw attention to the note to the financial statements. The emphasis of matter paragraph should firstly contain a brief
description of the uncertainties, and also refer explicitly to the note to the financial statements where the situation has
been fully described. The emphasis of matter paragraph should re-iterate that the audit opinion is not qualified.
However, it could be the case that a note has been given in the financial statements, but that the details are inadequate
and do not fully explain the significant uncertainties affecting the going concern status of the company. In this situation
the auditors should express a qualified opinion, disagreeing with the preparation of the financial statements, as the
disclosure requirements of IAS 1 have not been followed.

19 Which of the following statements about intangible assets in company financial statements are correct according

to international accounting standards?

1 Internally generated goodwill should not be capitalised.

2 Purchased goodwill should normally be amortised through the income statement.

3 Development expenditure must be capitalised if certain conditions are met.

A 1 and 3 only

B 1 and 2 only

C 2 and 3 only

D All three statements are correct


ACCA/CAT考试答案7辑 第6辑

3 Fran?ois, Demetris, José and Giuseppe are a group of students from different Mediterranean countries, taking their

MBA in a large UK city. As part of their course requirements, the group has to come up with an innovative business

idea, research into the feasibility of that idea and then present their business plan to a panel. After considerable

brainstorming they have come up with the idea of a themed restaurant based around Mediterranean cooking, menus

and service provisionally called ‘Casa del Mediterraneo’ and located in the city centre.

Initial research has revealed suitable premises to rent, but also the severe competition they will face in a city that is

very cosmopolitan and well provided for with restaurants serving cuisine from many parts of the world. The city has

a student population of around 100,000 and this, together with a young working population, means that there is a

very vibrant social life and a real willingness to sample food from different parts of the world.


(a) Identify and evaluate the critical success factors and associated competences that the group should consider

in developing their business plan for the restaurant. (12 marks)


(a) New ventures are notoriously risky and it is vital that the group has a clear idea of the factors that will be critical to the
restaurant’s success and the capabilities and competences needed to achieve their critical success factors. Johnson, Scholes
and Whittington define critical success factors as ‘those product (or service) features that are particularly valued by a group
of customers, and, therefore where the organisation must excel to outperform. the competition’. The group have chosen to
enter a highly competitive market and one where it is very difficult to create a distinctive product or service for the customer.
It is important in establishing what factors are important that they know the features their potential customers will particularly
value in the restaurant business. All too often firms design products or services on the basis of what the ‘expert’ inside the
company thinks the customer wants. One of the major problems in setting up a new restaurant is that customers can easily
compare one restaurant with another. Often they are in close proximity making all aspects of the service, particularly price,
easily open to customer evaluation.
Clearly, service will be a critical factor but precisely how will it be defined? Does the customer look for fast food service with
an emphasis on being served quickly? This seems unlikely and a more likely requirement is that the table service replicates
the friendly ambience experienced at restaurants on the Mediterranean. Many of their customers will have experienced this
first-hand and this would reinforce the Mediterranean theme. To deliver this service the waiters/waitresses will need
appropriate training. The menu and quality of food will be key factors – they lie at the heart of the reason for setting up the
business. How is distinctiveness to be achieved? The quality of the chef and kitchen staff will determine the quality of the
food served. The design of the restaurant and its layout and seating are also features, which it is important to get right. Aboveall, there is the need to create a price/value combination that is difficult for competitors to beat.

The critical success factors will stem from using the restaurant’s resources in a distinctive way. In Hamel and Prahalad’s
terms, there are three tests that can identify core competences in a company. Firstly, the core competence has the potential
for transfer across a variety of markets – less likely in a small business. Secondly, a core competence should make a significant
contribution to the perceived customer benefits of the end product or service. Finally, the core competence will be difficult for
a competitor to imitate. In service businesses such as restaurants, imitation of less tangible factors such as the quality of tableservice may be much more difficult to copy than the features designed into a tangible product.

(ii) Advise Mr Fencer of the income tax implications of the proposed financing arrangements. (2 marks)

(ii) The income tax implications of the proposed financing arrangements
Mr Fencer has borrowed money from a UK bank in order to make a loan to Rapier Ltd, a close company. The interest
paid by Mr Fencer to the bank will be an allowable charge on income as long as he continues to hold more than 5% of
Rapier Ltd. Charges on income are deductible in arriving at an individual’s statutory total income.
Mr Fencer will receive interest from Rapier Ltd net of 20% income tax. The gross amount of interest will be subject to
income tax at either 10%, 20% or 40% depending on whether the income falls into Mr Fencer’s starting rate, basic rate
or higher rate tax band. Mr Fencer will obtain a tax credit for the 20% income tax suffered at source.

(b) Briefly explain THREE limitations of negotiated transfer prices. (3 marks)

(b) Negotiated transfer prices suffer from the following limitations:
– The transfer price which is the final outcome of negotiations may not be close to the transfer price that would be optimal
for the organisation as a whole since it can be dependent on the negotiating skills and bargaining powers of individual
– They can lead to conflict between divisions which may necessitate the intervention of top management to mediate.
– The measure of divisional profitability can be dependent on the negotiating skills of managers who may have unequal
bargaining power.
– They can be time-consuming for the managers involved, particularly where large numbers of transactions are involved.

(ii) the recent financial performance of Merton plc from a shareholder perspective. Clearly identify any

issues that you consider should be brought to the attention of the ordinary shareholders. (15 marks)


(ii) Discussion of financial performance
It is clear that 2006 has been a difficult year for Merton plc. There are very few areas of interest to shareholders where
anything positive can be found to say.
Return on capital employed has declined from 14·4% in 2005, which compared favourably with the sector average of
12%, to 10·2% in 2006. Since asset turnover has improved from 1·5 to 1·6 in the same period, the cause of the decline
is falling profitability. Gross profit margin has fallen each year from 27·5% in 2004 to 25% in 2006, equal to the sector
average, despite an overall increase in turnover during the period of 10% per year. Merton plc has been unable to keep
cost of sales increases (14% in 2006 and 10% in 2005) below the increases in turnover. Net profit margin has declined
over the same period from 9·7% to 6·2%, compared to the sector average of 8%, because of substantial increases in
operating expenses (15·4% in 2006 and 10·6% in 2005). There is a pressing need here for Merton plc to bring cost
of sales and operating costs under control in order to improve profitability.
Gearing and financial risk
Gearing as measured by debt/equity has fallen from 67% (2005) to 63% (2006) because of an increase in
shareholders’ funds through retained profits. Over the same period the overdraft has increased from £1m to £8m and
cash balances have fallen from £16m to £1m. This is a net movement of £22m. If the overdraft is included, gearing
has increased to 77% rather than falling to 63%.
None of these gearing levels compare favourably with the average gearing for the sector of 50%. If we consider the large
increase in the overdraft, financial risk has clearly increased during the period. This is also evidenced by the decline in
interest cover from 4·1 (2005) to 2·8 (2006) as operating profit has fallen and interest paid has increased. In each year
interest cover has been below the sector average of eight and the current level of 2·8 is dangerously low.
Share price
As the return required by equity investors increases with increasing financial risk, continued increases in the overdraft
will exert downward pressure on the company’s share price and further reductions may be expected.
Investor ratios
Earnings per share, dividend per share and dividend cover have all declined from 2005 to 2006. The cut in the dividend
per share from 8·5 pence per share to 7·5 pence per share is especially worrying. Although in its announcement the
company claimed that dividend growth and share price growth was expected, it could have chosen to maintain the
dividend, if it felt that the current poor performance was only temporary. By cutting the dividend it could be signalling
that it expects the poor performance to continue. Shareholders have no guarantee as to the level of future dividends.
This view could be shared by the market, which might explain why the price-earnings ratio has fallen from 14 times to
12 times.
Financing strategy
Merton plc has experienced an increase in fixed assets over the last period of £10m and an increase in stocks and
debtors of £21m. These increases have been financed by a decline in cash (£15m), an increase in the overdraft (£7m)
and an increase in trade credit (£6m). The company is following an aggressive strategy of financing long-term
investment from short-term sources. This is very risky, since if the overdraft needed to be repaid, the company would
have great difficulty in raising the funds required.
A further financing issue relates to redemption of the existing debentures. The 10% debentures are due to be redeemed
in two years’ time and Merton plc will need to find £13m in order to do this. It does not appear that this sum can be
raised internally. While it is possible that refinancing with debt paying a lower rate of interest may be possible, the low
level of interest cover may cause concern to potential providers of debt finance, resulting in a higher rate of interest. The
Finance Director of Merton plc needs to consider the redemption problem now, as thought is currently being given to
raising a substantial amount of new equity finance. This financing choice may not be available again in the near future,
forcing the company to look to debt finance as a way of effecting redemption.
The evidence produced by the financial analysis above is that Merton plc is showing some symptoms of overtrading
(undercapitalisation). The board are suggesting a rights issue as a way of financing an expansion of business, but it is
possible that a rights issue will be needed to deal with the overtrading problem. This is a further financing issue requiring
consideration in addition to the redemption of debentures mentioned earlier.
Ordinary shareholders need to be aware of the following issues.
1. Profitability has fallen over the last year due to poor cost control
2. A substantial increase in the overdraft over the last year has caused gearing to increase

3. It is possible that the share price will continue to fall
4. The dividend cut may warn of continuing poor performance in the future
5. A total of £13m of debentures need redeeming in two year’s time
6. A large amount of new finance is needed for working capital and debenture redemption
Appendix: Analysis of key ratios and financial information

(ii) Receivables, showing separately the deduction of the allowance for receivables.


5 The directors of Blaina Packaging Co (BPC), a well-established manufacturer of cardboard boxes, are currently

considering whether to enter the cardboard tube market. Cardboard tubes are purchased by customers whose

products are wound around tubes of various sizes ranging from large tubes on which carpets are wound, to small

tubes around which films and paper products are wound. The cardboard tubes are usually purchased in very large

quantities by customers. On average, the cardboard tubes comprise between 1% and 2% of the total cost of the

customers’ finished product.

The directors have gathered the following information:

(1) The cardboard tubes are manufactured on machines which vary in size and speed. The lowest cost machine is

priced at $30,000 and requires only one operative for its operation. A one-day training course is required in order

that an unskilled person can then operate such a machine in an efficient and effective manner.

(2) The cardboard tubes are made from specially formulated paper which, at times during recent years, has been in

short supply.

(3) At present, four major manufacturers of cardboard tubes have an aggregate market share of 80%. The current

market leader has a 26% market share. The market shares of the other three major manufacturers, one of which

is JOL Co, are equal in size. The product ranges offered by the four major manufacturers are similar in terms of

size and quality. The market has grown by 2% per annum during recent years.

(4) A recent report on the activities of a foreign-based multinational company revealed that consideration was being

given to expanding operations in their packaging division overseas. The division possesses large-scale automated

machinery for the manufacture of cardboard tubes of any size.

(5) Another company, Plastic Tubes Co (PTC) produces a narrow, but increasing, range of plastic tubes which are

capable of housing small products such as film and paper-based products. At present, these tubes are on average

30% more expensive than the equivalent sized cardboard tubes sold in the marketplace.


(a) Using Porter’s five forces model, assess the attractiveness of the option to enter the market for cardboard

tubes as a performance improvement strategy for BPC. (10 marks)

(a) In order to assess the attractiveness of the option to enter the market for spirally-wound paper tubes, the directors of BPC
could make use of Michael Porter’s ‘five forces model’.
In applying this model to the given scenario one might conclude that the relatively low cost of the machine together with the
fact that an unskilled person would only require one day’s training in order to be able to operate a machine, constitute
relatively low costs of entry to the market. Therefore one might reasonably conclude that the threat of new entrants might be
high. This is especially the case where the market is highly fragmented.
The fact that products are usually purchased in very large quantities by customers together with the fact that there is little real
difference between the products of alternative suppliers suggests that customer (buyer) power might well be very high. The
fact that the paper tubes on average only comprise between 1% and 2% of the total cost of the purchaser’s finished product
also suggests that buyer power may well be very high.
The threat from suppliers could be high due to the fact that the specially formulated paper from which the tubes are made is
sometimes in short supply. Hence suppliers might increase their prices with consequential diminution in gross margin of the
firms in the marketplace.
The threat from competitive rivals will be strong as the four major players in the market are of similar size and that the market
is a slow growing market. The market leader currently has 26% of the market and the three nearest competitors hold
approximately 18% of the market.
The fact that Plastic Tubes Co (PTC) produces a narrow range of plastic tubes constitutes a threat from a substitute product.
This threat will increase if the product range of PTC is extended and the price of plastic tubes is reduced.
The fact that a foreign-based multinational company is considering entering this market represents a significant threat from a
potential new entrant as it would appear that the multinational company might well be able to derive economies of scale from
large scale automated machinery and has manufacturing flexibility.
Low capital barriers to entry might appeal to BPC but they would also appeal to other potential entrants. The low growth
market, the ease of entry, the existence of established competitors, a credible threat of backward vertical integration by
suppliers, the imminent entry by a multi-national, a struggling established competitor and the difficulty of differentiating an
industrial commodity should call into question the potential of BPC to achieve any sort of competitive advantage. If BPC can
achieve the position of lowest cost producer within the industry then entry into the market might be a good move. In order
to assess whether this is possible BPC must consider any potential synergies that would exist between its cardboard business
and that of the tubes operation.
From the information available, the option to enter the market for cardboard tubes appears to be unattractive. The directors
of BPC should seek alternative performance improvement strategies.

2 Plaza, a limited liability company, is a major food retailer. Further to the success of its national supermarkets in the

late 1990s it has extended its operations throughout Europe and most recently to Asia, where it is expanding rapidly.

You are a manager in Andando, a firm of Chartered Certified Accountants. You have been approached by Duncan

Seymour, the chief finance officer of Plaza, to advise on a bid that Plaza is proposing to make for the purchase of

MCM. You have ascertained the following from a briefing note received from Duncan.

MCM provides training in management, communications and marketing to a wide range of corporate clients, including

multi-nationals. The ‘MCM’ name is well regarded in its areas of expertise. MCM is currently wholly-owned by

Frontiers, an international publisher of textbooks, whose shares are quoted on a recognised stock exchange. MCM

has a National and an International business.

The National business comprises 11 training centres. The audited financial statements show revenue of

$12·5 million and profit before taxation of $1·3 million for this geographic segment for the year to 31 December

2004. Most of the National business’s premises are owned or held on long leases. Trainers in the National business

are mainly full-time employees.

The International business has five training centres in Europe and Asia. For these segments, revenue amounted to

$6·3 million and profit before tax $2·4 million for the year to 31 December 2004. Most of the International business’s

premises are held on operating leases. International trade receivables at 31 December 2004 amounted to

$3·7 million. Although the International centres employ some full-time trainers, the majority of trainers provide their

services as freelance consultants.


(a) Define ‘due diligence’ and describe the nature and purpose of a due diligence review. (4 marks)

(a) Nature and purpose of a ‘due diligence’ review
■ ‘Due diligence’ may be defined as the process of systematically obtaining and assessing information in order to identify
and contain the risks associated with a transaction (e.g. buying a business) to an acceptable level.
■ The nature of such a review is therefore that it involves:
? an investigation (e.g. into a company whose equity may be sold); and
? disclosure (e.g. to a potential investor) of findings.
■ A due diligence assignment consists primarily of inquiry and analytical procedures.
Tutorial note: It will not, for example, routinely involve tests of control or substantive procedures.
* As the timescale for a due diligence review is often relatively short, but wider in scope than the financial statements
(e.g. business prospects, market valuation), there may be no expression of assurance.
■ Its purpose is to find all the facts that would be of material interest to an investor or acquirer of a business. It may not
uncover all such factors but should be designed with a reasonable expectation of so doing.
■ Professional accountants will not be held liable for non-disclosure of information that failed to be uncovered if their
review was conducted with ‘due diligence’.

2 (a) Explain the term ‘backflush accounting’ and the circumstances in which its use would be appropriate.

(6 marks)

(a) Backflush accounting focuses upon output of an organisation and then works backwards when allocating costs between cost
of goods sold and inventories. It can be argued that backflush accounting simplifies costing since it ignores both labour
variances and work-in-progress. Whilst in a perfect just-in-time environment there would be no work-in-progress at all, there
will in practice be a small amount of work-in-progress in the system at any point in time. This amount, however, is likely to
be negligible in quantity and therefore not significant in terms of value. Thus, a backflush accounting system simplifies the
accounting records by avoiding the need to follow the movement of materials and work-in-progress through the manufacturing
process within the organisation.
The backflush accounting system is likely to involve the maintenance of a raw materials and work-in–progress account
together with a finished goods account. The use of standard costs and variances is likely to be incorporated into the
accounting entries. Transfers from raw materials and work-in-progress account to finished goods (or cost of sales) will probably
be made at standard cost. The difference between the actual inputs and the standard charges from the raw materials and
work-in-progress account will be recorded as a residual variance, which will be recorded in the profit and loss account. Thus,
it is essential that standard costs are a good surrogate for actual costs if large variances are to be avoided. Backflush
accounting is ideally suited to a just-in-time philosophy and is employed where the overall cycle time is relatively short and
inventory levels are low. Naturally, management will still be eager to ascertain the cause of any variances that arise from the
inefficient usage of materials, labour and overhead. However investigations are far more likely to be undertaken using nonfinancial
performance indicators as opposed to detailed cost variances.

(b) Discuss the key issues which will need to be addressed in determining the basic components of an

internationally agreed conceptual framework. (10 marks)

Appropriateness and quality of discussion. (2 marks)

(b) There are several issues which have to be addressed if an international conceptual framework is to be successfully developed.
These are:
(i) Objectives
Agreement will be required as to whether financial statements are to be produced for shareholders or a wide range of
users and whether decision usefulness is the key criteria or stewardship. Additionally there is the question of whether
the objective is to provide information in making credit and investment decisions.
(ii) Qualitative Characteristics
The qualities to be sought in making decisions about financial reporting need to be determined. The decision usefulness
of financial reports is determined by these characteristics. There are issues concerning the trade-offs between relevance
and reliability. An example of this concerns the use of fair values and historical costs. It has been argued that historical
costs are more reliable although not as relevant as fair values. Additionally there is a conflict between neutrality and the
traditions of prudence or conservatism. These characteristics are constrained by materiality and benefits that justify
(iii) Definitions of the elements of financial statements
The principles behind the definition of the elements need agreement. There are issues concerning whether ‘control’
should be included in the definition of an asset or become part of the recognition criteria. Also the definition of ‘control’
is an issue particularly with financial instruments. For example, does the holder of a call option ‘control’ the underlying
asset? Some of the IASB’s standards contravene its own conceptual framework. IFRS3 requires the capitalisation of
goodwill as an asset despite the fact that it can be argued that goodwill does not meet the definition of an asset in the
Framework. IAS12 requires the recognition of deferred tax liabilities that do not meet the liability definition. Similarly
equity and liabilities need to be capable of being clearly distinguished. Certain financial instruments could either be
liabilities or equity. For example obligations settled in shares.
(iv) Recognition and De-recognition
The principles of recognition and de-recognition of assets and liabilities need reviewing. Most frameworks have
recognition criteria, but there are issues over the timing of recognition. For example, should an asset be recognised when
a value can be placed on it or when a cost has been incurred? If an asset or liability does not meet recognition criteria
when acquired or incurred, what subsequent event causes the asset or liability to be recognised? Most frameworks do
not discuss de-recognition. (The IASB’s Framework does not discuss the issue.) It can be argued that an item should be
de-recognised when it does not meet the recognition criteria, but financial instruments standards (IAS39) require other
factors to occur before financial assets can be de-recognised. Different attributes should be considered such as legal
ownership, control, risks or rewards.
(v) Measurement
More detailed discussion of the use of measurement concepts, such as historical cost, fair value, current cost, etc are
required and also more guidance on measurement techniques. Measurement concepts should address initial
measurement and subsequent measurement in the form. of revaluations, impairment and depreciation which in turn
gives rise to issues about classification of gains or losses in income or in equity.
(vi) Reporting entity
Issues have arisen over what sorts of entities should issue financial statements, and which entities should be included
in consolidated financial statements. A question arises as to whether the legal entity or the economic unit should be the
reporting unit. Complex business arrangements raise issues over what entities should be consolidated and the basis
upon which entities are consolidated. For example, should the basis of consolidation be ‘control’ and what does ‘control’
(vii) Presentation and disclosure
Financial reporting should provide information that enables users to assess the amounts, timing and uncertainty of the
entity’s future cash flows, its assets, liabilities and equity. It should provide management explanations and the limitations
of the information in the reports. Discussions as to the boundaries of presentation and disclosure are required.

ACCA/CAT考试答案7辑 第7辑

(d) Advise on any lifetime inheritance tax (IHT) planning that could be undertaken in respect of both Stuart and

Rebecca to help reduce the potential inheritance tax (IHT) liability calculated in (c) above. (7 marks)

Relevant retail price index figures are:

May 1994 144·7

April 1998 162·6

(d) Stuart is not making use of his nil rate band, as all assets are transferred, exempt from inheritance tax (IHT), to Rebecca (as
spouse) on death. He should consider altering his will to transfer an amount equivalent to the nil rate band to his son, Sam.
If Stuart dies before altering his will, Rebecca can elect to make a Deed of Variation in favour of Sam instead. This will have
the same effect as the above.
Care should be taken in determining which assets are subject to this legacy. The Omega plc shares should not be transferred
to Sam as they currently attract 50% BPR. Instead, assets not subject to any reliefs (such as the insurance payout or cash
deposits) should be used instead. By doing this, IHT of £105,200 (£263,000 x 40%) could be saved on the ultimate death
of Rebecca.
It is too late for Stuart to make use of potentially exempt transfers (PETs) as no relief is obtained until three years have passed,
and full relief only occurs seven years after making the gifts. The same would also apply to Rebecca if she were to die on 1
March 2008. However, as she is currently in good health, she may decide to make lifetime gifts, although she should also
not gift the Omega plc shares for the reasons stated above as any gift other than of the entire holding will result in the loss
of BPR on the remainder.
Both individuals should make use of their annual exemptions (£3,000 per person per year). The annual exemptions not used
up in the previous year can be used in this current year. This would give a saving of £2,400 each (3,000 x 2 x 40%).
Exemptions for items such as small gifts (£250 per donee per year) are also available.
Gifts out of normal income should also be considered. After making such gifts, the individual should be left with sufficient
income to maintain their usual standard of living. To obtain the exemption, it is usually necessary to demonstrate general
evidence of a prior commitment to make the gifts, or a settled pattern of expenditure.
While there are no details of income, both Stuart and Rebecca are wealthy in their own right, and are likely to earn reasonable
sums from their investments. They should therefore be able to satisfy the conditions on that basis.
If Rebecca were to make substantial lifetime gifts, the donees would be advised to consider taking out insurance policies on
Rebecca’s life to cover the potential tax liabilities that may arise on any PETs in the event of her early death.
Tutorial note: the answer has assumed that the shares could be bought for £2·10, their value for IHT.

5 Which of the following factors could cause a company’s gross profit percentage on sales to fall below the expected


1 Understatement of closing inventories.

2 The incorrect inclusion in purchases of invoices relating to goods supplied in the following period.

3 The inclusion in sales of the proceeds of sale of non-current assets.

4 Increased cost of carriage charges borne by the company on goods sent to customers.

A 3 and 4

B 2 and 4

C 1 and 2

D 1 and 3


In relation to company law, explain:

(a) the limitations on the use of company names; (4 marks)

(b) the tort of ‘passing off’; (4 marks)

(c) the role of the company names adjudicators under the Companies Act 2006. (2 marks)


(a) Except in relation to specifically exempted companies, such as those involved in charitable work, companies are required to indicate that they are operating on the basis of limited liability. Thus private companies are required to end their names, either with the word ‘limited’ or the abbreviation ‘ltd’, and public companies must end their names with the words ‘public limited company’ or the abbreviation ‘plc’. Welsh companies may use the Welsh language equivalents (Companies Act (CA)2006 ss.58, 59 & 60).
Companies Registry maintains a register of business names, and will refuse to register any company with a name that is the same as one already on that index (CA 2006 s.66).
Certain categories of names are, subject to the decision of the Secretary of State, unacceptable per se, as follows:
(i) names which in the opinion of the Secretary of State constitute a criminal offence or are offensive (CA 2006 s.53)
(ii) names which are likely to give the impression that the company is connected with either government or local government authorities (s.54).
(iii) names which include a word or expression specified under the Company and Business Names Regulations 1981 (s.26(2)(b)). This category requires the express approval of the Secretary of State for the use of any of the names or expressions contained on the list, and relates to areas which raise a matter of public concern in relation to their use.
Under s.67 of the Companies Act 2006 the Secretary of State has power to require a company to alter its name under the following circumstances:
(i) where it is the same as a name already on the Registrar’s index of company names.
(ii) where it is ‘too like’ a name that is on that index.
The name of a company can always be changed by a special resolution of the company so long as it continues to comply with the above requirements (s.77).

(b) The tort of passing off was developed to prevent one person from using any name which is likely to divert business their way by suggesting that the business is actually that of some other person or is connected in any way with that other business. It thus enables people to protect the goodwill they have built up in relation to their business activity. In Ewing v Buttercup
Margarine Co Ltd (1917) the plaintiff successfully prevented the defendants from using a name that suggested a link with
his existing dairy company. It cannot be used, however, if there is no likelihood of the public being confused, where for example the companies are conducting different businesses (Dunlop Pneumatic Tyre Co Ltd v Dunlop Motor Co Ltd (1907)
and Stringfellow v McCain Foods GB Ltd (1984). Nor can it be used where the name consists of a word in general use (Aerators Ltd v Tollitt (1902)).
Part 41 of the Companies Act (CA) 2006, which repeals and replaces the Business Names Act 1985, still does not prevent one business from using the same, or a very similar, name as another business so the tort of passing off will still have an application in the wider business sector. However the Act introduced a new procedure to deal specifically with company names. As previously under the CA 1985, a company cannot register with a name that was the same as any already registered (s.665 Companies Act (CA) 2006) and under CA s.67 the Secretary of State may direct a company to change its name if it has been registered in a name that is the same as, or too like a name appearing on the registrar’s index of company names. In addition, however, a completely new system of complaint has been introduced.

(c) Under ss.69–74 of CA 2006 a new procedure has been introduced to cover situations where a company has been registered with a name
(i) that it is the same as a name associated with the applicant in which he has goodwill, or
(ii) that it is sufficiently similar to such a name that its use in the United Kingdom would be likely to mislead by suggesting a connection between the company and the applicant (s.69).
Section 69 can be used not just by other companies but by any person to object to a company names adjudicator if a company’s name is similar to a name in which the applicant has goodwill. There is list of circumstances raising a presumption that a name was adopted legitimately, however even then, if the objector can show that the name was registered either, to obtain money from them, or to prevent them from using the name, then they will be entitled to an order to require the company to change its name.
Under s.70 the Secretary of State is given the power to appoint company names adjudicators and their staff and to finance their activities, with one person being appointed Chief Adjudicator.
Section 71 provides the Secretary of State with power to make rules for the proceedings before a company names adjudicator.
Section 72 provides that the decision of an adjudicator and the reasons for it, are to be published within 90 days of the decision.
Section 73 provides that if an objection is upheld, then the adjudicator is to direct the company with the offending name to change its name to one that does not similarly offend. A deadline must be set for the change. If the offending name is not changed, then the adjudicator will decide a new name for the company.
Under s.74 either party may appeal to a court against the decision of the company names adjudicator. The court can either uphold or reverse the adjudicator’s decision, and may make any order that the adjudicator might have made.

2 The Rubber Group (TRG) manufactures and sells a number of rubber-based products. Its strategic focus is channelled

through profit centres which sell products transferred from production divisions that are operated as cost centres. The

profit centres are the primary value-adding part of the business, where commercial profit centre managers are

responsible for the generation of a contribution margin sufficient to earn the target return of TRG. The target return is

calculated after allowing for the sum of the agreed budgeted cost of production at production divisions, plus the cost

of marketing, selling and distribution costs and central services costs.

The Bettamould Division is part of TRG and manufactures moulded products that it transfers to profit centres at an

agreed cost per tonne. The agreed cost per tonne is set following discussion between management of the Bettamould

Division and senior management of TRG.

The following information relates to the agreed budget for the Bettamould Division for the year ending 30 June 2009:

(1) The budgeted output of moulded products to be transferred to profit centres is 100,000 tonnes. The budgeted

transfer cost has been agreed on a two-part basis as follows:

(i) A standard variable cost of $200 per tonne of moulded products;

(ii) A lump sum annual charge of $50,000,000 in respect of fixed costs, which is charged to profit centres, at

$500 per tonne of moulded products.

(2) Budgeted standard variable costs (as quoted in 1 above) have been set after incorporating each of the following:

(i) A provision in respect of processing losses amounting to 15% of material inputs. Materials are sourced on

a JIT basis from chosen suppliers who have been used for some years. It is felt that the 15% level of losses

is necessary because the ageing of the machinery will lead to a reduction in the efficiency of output levels.

(ii) A provision in respect of machine idle time amounting to 5%. This is incorporated into variable machine

costs. The idle time allowance is held at the 5% level partly through elements of ‘real-time’ maintenance

undertaken by the machine operating teams as part of their job specification.

(3) Quality checks are carried out on a daily basis on 25% of throughput tonnes of moulded products.

(4) All employees and management have contracts based on fixed annual salary agreements. In addition, a bonus

of 5% of salary is payable as long as the budgeted output of 100,000 tonnes has been achieved;

(5) Additional information relating to the points in (2) above (but NOT included in the budget for the year ending

30 June 2009) is as follows:

(i) There is evidence that materials of an equivalent specification could be sourced for 40% of the annual

requirement at the Bettamould Division, from another division within TRG which has spare capacity.

(ii) There is evidence that a move to machine maintenance being outsourced from a specialist company could

help reduce machine idle time and hence allow the possibility of annual output in excess of 100,000 tonnes

of moulded products.

(iii) It is thought that the current level of quality checks (25% of throughput on a daily basis) is vital, although

current evidence shows that some competitor companies are able to achieve consistent acceptable quality

with a quality check level of only 10% of throughput on a daily basis.

The directors of TRG have decided to investigate claims relating to the use of budgeting within organisations which

have featured in recent literature. A summary of relevant points from the literature is contained in the following


‘The use of budgets as part of a ‘performance contract’ between an organisation and its managers may be seen as a

practice that causes management action which might lead to the following problems:

(a) Meeting only the lowest targets

(b) Using more resources than necessary

(c) Making the bonus – whatever it takes

(d) Competing against other divisions, business units and departments

(e) Ensuring that what is in the budget is spent

(f) Providing inaccurate forecasts

(g) Meeting the target, but not beating it

(h) Avoiding risks.’


(a) Explain the nature of any SIX of the eight problems listed above relating to the use of budgeting;

(12 marks)

2 Suggested answer content for each of the eight problems contained within the scenario is as follows:
(a) The nature of each of the problems relating to the use of budgeting is as follows:
Meeting only the lowest targets
– infers that once a budget has been negotiated, the budget holder will be satisfied with this level of performance unless
there is good reason to achieve a higher standard.
Using more resources than necessary
– Once the budget has been agreed the focus will be to ensure that the budgeted utilisation of resources has been adhered
to. Indeed the current system does not provide a specific incentive not to exceed the budget level. It may be, however,
that failure to achieve budget targets would reflect badly on factors such as future promotion prospects or job security.
Making the bonus – whatever it takes
– A bonus system is linked to the budget setting and achievement process might lead to actions by employees and
management which they regard as ‘fair game’. This is because they view the maximisation of bonuses as the main
priority in any aspect of budget setting or work output.
Competing against other divisions, business units and departments
– Competition may manifest itself through the attitudes adopted in relation to transfer pricing of goods/services between
divisions, lack of willingness to co-operate on sharing information relating to methods, sources of supply, expertise, etc.
Ensuring that what is in the budget is spent
– Management may see the budget setting process as a competition for resources. Irrespective of the budgeting method
used, there will be a tendency to feel that unless the budget allowance for one year is spent, there will be imposed
reductions in the following year. This will be particularly relevant in the case of fixed cost areas where expenditure is
viewed as discretionary to some extent.
Providing inaccurate forecasts
– This infers that some aspects of budgeting problems such as ‘Gaming’ and ‘misrepresentation’ may be employed by the
budget holder in order to gain some advantage. Gaming may be seen as a deliberate distortion of the measure in order
to secure some strategic advantage. Misrepresentation refers to creative planning in order to suggest that the measure
is acceptable.
Meeting the target but not beating it
– There may be a view held by those involved in the achievement of the budget target that there is no incentive for them
to exceed that level of effectiveness.
Avoiding risks
– There may be a prevailing view by those involved in the achievement of the budget target that wherever possible
strategies incorporated into the achievement of the budget objective should be left unchanged if they have been shown
to be acceptable in the past. Change may be viewed as increasing the level of uncertainty that the proposed budget
target will be achievable.

(b) continuous auditing; (5 marks)

(b) Continuous auditing
Continuous auditing is a methodology that enables independent auditors to give written assurance on a subject matter (e.g.
inventory levels, receivables balances, financial statements) using a series of auditor’s reports issued simultaneously with (or
a short period of time after) the occurrence of events underlying the subject matter. Thus it increases the frequency of
reporting (e.g. may be issued daily, weekly).
Technological development is making increasingly sophisticated information systems available to more entities at a decreasing
cost. This has promoted a more widespread dependence on technology to produce more timely information. This has
increased the demand for timely assurance on the information provided. Auditors have had to respond with highly automated
procedures and audit tools that are integrated with the entity’s systems and controls.
Tutorial note: XBRL (eXtensible Business Reporting Language) increases the viability of continuous auditing. It provides a
widely agreed-upon set of descriptors for elements in a business report that can be read and interpreted by computer
systems. It allows an auditor to review data at any stage and determine the origin of the information and the controls that
have been incorporated.
Results of automated audit procedures must be communicated promptly, particularly if anomalies or errors identified require
that follow-up procedures be performed by audit personnel. Secure electronic communication links are therefore essential.
As entities’ reporting has moved from annual and interim reports to the monthly/daily/weekly reporting of key performance
indicators (‘KPIs’)/critical success factors (‘CSFs’), the professional accountant’s assignment has expanded from the audit of
financial statements. For example, to review reports (e.g. on interim financial statements), special purpose reports (e.g. on
the effectiveness of [outsourced] control procedures) to continuous auditing reports.
For continuous audits, auditors’ reports need to be produced automatically and safeguarded against unauthorised changes.
Reports may be ‘evergreen’ (i.e. always available to users and dated at the time of access to the information) or ‘on demand’
(i.e. available when specifically requested and dated at the time of request).
Auditors must be technically proficient to handle any engagement undertaken. For continuous audit assurance engagements
that will require a high level of expertise in various aspects of information technology as well as a sound grasp of the subject
matter being audited.
Continuous audit work requires the frequent or continuous use of audit tools integrated with the client’s systems. For example
embedded audit modules (EAMs) are subroutines that perform. control or audit procedures concurrently with the client’s
normal application processing.

(b) Explain in the context of Flavours Fine Foods, what is meant by:

(i) responsibility; (4 marks)

(b) (i) RESPONSIBILITY is the liability of a person to be called to account for their actions and results, and is therefore an obligation to take some action to discharge that responsibility. Unlike authority, responsibility cannot be delegated. There is however some discussion on the extent to which this statement is true: the idea that responsibility cannot be delegated is too simplistic. Any task contains an element of responsibility. It is the idea of accountability and the direction of responsibility that is the relevant concept and is the problem at Flavours Fine Foods; ultimate responsibility resides with the owners. It is self evident that it is impossible to exercise authority without responsibility because this could lead to problems of control and therefore undesirable outcomes for the organisation. However, the superior (the owner) is always ultimately responsible for the actions of his or her subordinates. The key element here is the recognition of discretion by virtue of the person’s position. This underlines the doctrine of absolute responsibility; the superior is always ultimately accountable.

In relation to the law of contract, distinguish between and explain the effect of:

(a) a term and a mere representation; (3 marks)

(b) express and implied terms, paying particular regard to the circumstances under which terms may be implied in contracts. (7 marks)


This question requires candidates to consider the law relating to terms in contracts. It specifically requires the candidates to distinguish between terms and mere representations and then to establish the difference between express and implied terms in contracts.
(a) As the parties to a contract will be bound to perform. any promise they have contracted to undertake, it is important to distinguish between such statements that will be considered part of the contract, i.e. terms, and those other pre-contractual statements which are not considered to be part of the contract, i.e. mere representations. The reason for distinguishing between them is that there are different legal remedies available if either statement turns out to be incorrect.
A representation is a statement that induces a contract but does not become a term of the contract. In practice it is sometimes difficult to distinguish between the two, but in attempting to do so the courts will focus on when the statement was made in relation to the eventual contract, the importance of the statement in relation to the contract and whether or not the party making the statement had specialist knowledge on which the other party relied (Oscar Chess v Williams (1957) and Dick
Bentley v Arnold Smith Motors (1965)).
(b) Express terms are statements actually made by one of the parties with the intention that they become part of the contract and
thus binding and enforceable through court action if necessary. It is this intention that distinguishes the contractual term from
the mere representation, which, although it may induce the contractual agreement, does not become a term of the contract.
Failure to comply with the former gives rise to an action for breach of contract, whilst failure to comply with the latter only gives rise to an action for misrepresentation.

Such express statements may be made by word of mouth or in writing as long as they are sufficiently clear for them to be enforceable. Thus in Scammel v Ouston (1941) Ouston had ordered a van from the claimant on the understanding that the balance of the purchase price was to be paid ‘on hire purchase terms over two years’. When Scammel failed to deliver the van Ouston sued for breach of contract without success, the court holding that the supposed terms of the contract were too
uncertain to be enforceable. There was no doubt that Ouston wanted the van on hire purchase but his difficulty was that
Scammel operated a range of hire purchase terms and the precise conditions of his proposed hire purchase agreement were
never sufficiently determined.
Implied terms, however, are not actually stated or expressly included in the contract, but are introduced into the contract by implication. In other words the exact meaning and thus the terms of the contract are inferred from its context. Implied terms can be divided into three types.
Terms implied by statute
In this instance a particular piece of legislation states that certain terms have to be taken as constituting part of an agreement, even where the contractual agreement between the parties is itself silent as to that particular provision. For example, under s.5 of the Partnership Act 1890, every member of an ordinary partnership has the implied power to bind the partnership in a contract within its usual sphere of business. That particular implied power can be removed or reduced by the partnership agreement and any such removal or reduction of authority would be effective as long as the other party was aware of it. Some implied terms, however, are completely prescriptive and cannot be removed.
Terms implied by custom or usage
An agreement may be subject to terms that are customarily found in such contracts within a particular market, trade or locality. Once again this is the case even where it is not actually specified by the parties. For example, in Hutton v Warren (1836), it was held that customary usage permitted a farm tenant to claim an allowance for seed and labour on quitting his tenancy. It should be noted, however, that custom cannot override the express terms of an agreement (Les Affreteurs Reunnis SA v Walford (1919)).
Terms implied by the courts Generally, it is a matter for the parties concerned to decide the terms of a contract, but on occasion the court will presume that the parties intended to include a term which is not expressly stated. They will do so where it is necessary to give business efficacy to the contract.

Whether a term may be implied can be decided on the basis of the officious bystander test. Imagine two parties, A and B, negotiating a contract, when a third party, C, interrupts to suggest a particular provision. A and B reply that that particular term is understood. In just such a way, the court will decide that a term should be implied into a contract.
In The Moorcock (1889), the appellants, owners of a wharf, contracted with the respondents to permit them to discharge their ship at the wharf. It was apparent to both parties that when the tide was out the ship would rest on the riverbed. When the tide was out, the ship sustained damage by settling on a ridge. It was held that there was an implied warranty in the contract that the place of anchorage should be safe for the ship. As a consequence, the ship owner was entitled to damages for breach of that term.
Alternatively the courts will imply certain terms into unspecific contracts where the parties have not reduced the general agreement into specific details. Thus in contracts of employment the courts have asserted the existence of implied terms to impose duties on both employers and employees, although such implied terms can be overridden by express contractual provision to the contrary.

(b) Determine whether your decision in (a) would change if you were to use each of the Maximin and Minimax

regret decision criteria.

Your answer should be supported by relevant workings. (6 marks)


16 Which of the following events between the balance sheet date and the date the financial statements are

authorised for issue must be adjusted in the financial statements?

1 Declaration of equity dividends.

2 Decline in market value of investments.

3 The announcement of changes in tax rates.

4 The announcement of a major restructuring.

A 1

A 1 only

B 2 and 4

C 3 only

D None of them