问题详情

SectionB–TWOquestionsONLYtobeattempted
(a)Cateisanentityinthesoftwareindustry.Catehadincurredsubstantiallossesinthefinancialyears31May2004to31May2009.Inthefinancialyearto31May2010Catemadeasmallprofitbeforetax.Thisincludedsignificantnon-operatinggains.In2009,Caterecognisedamaterialdeferredtaxassetinrespectofcarriedforwardlosses,whichwillexpireduring2012.Cateagainrecognisedthedeferredtaxassetin2010onthebasisofanticipatedperformanceintheyearsfrom2010to2012,basedonbudgetspreparedin2010.Thebudgetsincludedhighgrowthratesinprofitability.Catearguedthatthebudgetswererealisticastherewerepositiveindicationsfromcustomersaboutfutureorders.Catealsohadplanstoexpandsalestonewmarketsandtosellnewproductswhosedevelopmentwouldbecompletedsoon.Catewastakingmeasurestoincreasesales,implementingnewprogramstoimprovebothproductivityandprofitability.Deferredtaxassetslessdeferredtaxliabilitiesrepresent25%ofshareholders’equityat31May2010.TherearenotaxplanningopportunitiesavailabletoCatethatwouldcreatetaxableprofitinthenearfuture.(5marks)
(b)At31May2010CateheldaninvestmentinandhadasignificantinfluenceoverBates,apubliclimitedcompany.CatehadcarriedoutanimpairmenttestinrespectofitsinvestmentinaccordancewiththeproceduresprescribedinIAS36,Impairmentofassets.Catearguedthatfairvaluewastheonlymeasureapplicableinthiscaseasvalue-in-usewasnotdeterminableascashflowestimateshadnotbeenproduced.Catestatedthattherewerenoplanstodisposeoftheshareholdingandhencetherewasnobindingsaleagreement.CatealsostatedthatthequotedsharepricewasnotanappropriatemeasurewhenconsideringthefairvalueofCate’ssignificantinfluenceonBates.Therefore,CateestimatedthefairvalueofitsinterestinBatesthroughapplicationoftwomeasurementtechniques;onebasedonearningsmultiplesandtheotherbasedonanoption–pricingmodel.Neitherofthesemethodssupportedtheexistenceofanimpairmentlossasof31May2010.(5marks)
(c)At1April2009Catehadadirectholdingofsharesgiving70%ofthevotingrightsinDate.InMay2010,Dateissuednewshares,whichwerewhollysubscribedforbyanewinvestor.Aftertheincreaseincapital,Cateretainedaninterestof35%ofthevotingrightsinitsformersubsidiaryDate.Atthesametime,theshareholdersofDatesignedanagreementprovidingnewgovernancerulesforDate.Basedonthisnewagreement,CatewasnolongertoberepresentedonDate’sboardorparticipateinitsmanagement.AsaconsequenceCateconsideredthatitsdecisionnottosubscribetotheissueofnewshareswasequivalenttoadecisiontodisinvestinDate.CatearguedthatthedecisionnottoinvestclearlyshoweditsnewintentionnottorecovertheinvestmentinDateprincipallythroughcontinuinguseoftheassetandwasconsideringsellingtheinvestment.DuetothefactthatDateisaseparatelineofbusiness(withseparatecashflows,managementandcustomers),CateconsideredthattheresultsofDatefortheperiodto31May2010shouldbepresentedbasedonprinciplesprovidedbyIFRS5Non-currentAssetsHeldforSaleandDiscontinuedOperations.(8marks)
(d)Inits2010financialstatements,Catedisclosedtheexistenceofavoluntaryfundestablishedinordertoprovideapost-retirementbenefitplan(Plan)toemployees.CateconsidersitscontributionstothePlantobevoluntary,andhasnotrecordedanyrelatedliabilityinitsconsolidatedfinancialstatements.Catehasahistoryofpayingbenefitstoitsformeremployees,evenincreasingthemtokeeppacewithinflationsincethecommencementofthePlan.ThemaincharacteristicsofthePlanareasfollows:
(i)thePlanistotallyfundedbyCate;
(ii)thecontributionsforthePlanaremadeperiodically;
(iii)thepostretirementbenefitiscalculatedbasedonapercentageofthefinalsalariesofPlanparticipantsdependentontheyearsofservice;
(iv)theannualcontributionstothePlanaredeterminedasafunctionofthefairvalueoftheassetslesstheliabilityarisingfrompastservices.
CatearguesthatitshouldnothavetorecognisethePlanbecause,accordingtotheunderlyingcontract,itcanterminateitscontributionstothePlan,ifandwhenitwishes.TheterminationclausesofthecontractestablishthatCatemustimmediatelypurchaselifetimeannuitiesfromaninsurancecompanyforalltheretiredemployeeswhoarealreadyreceivingbenefitwhentheterminationofthecontributioniscommunicated.(5marks)
Required:
DiscusswhethertheaccountingtreatmentsproposedbythecompanyareacceptableunderInternationalFinancialReportingStandards.
Professionalmarkswillbeawardedinthisquestionforclarityandqualityofdiscussion.(2marks)
Themarkallocationisshownagainsteachofthefourpartsabove.


请帮忙给出正确答案和分析，谢谢！