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Advanced Financial Accounting

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Module Title:                                  Advanced Financial Accounting

Module Leader:                               Roba Ashraf Abdelbadie

Open/Closed Assessment:             Open

Maximum Word Count:                   1500

Release Date:                                 Autumn Term Week 9

Submission Deadline:                    TBC

Weighting:                                      50%


Important information


A penalty of five marks will be deducted for late submissions that are made within the first hour after the deadline. Submissions that are more than one hour late but within the first 24 hours of the deadline will incur a penalty of ten marks. After the first 24 hours have passed, ten marks will be deducted for every 24 hours (or part thereof) that the submission is late for a total of 5 days. After 5 days it is treated as a non-submission and given a mark of zero. The consequences of non-submission are serious and can include de-registration from the University.


If you are unable to complete your open assessment by the submission date indicated above because of Exceptional Circumstances you can apply for an extension. If unforeseeable and exceptional circumstances do occur, you must seek support and provide evidence as soon as possible at the time of the occurrence. Applications must be made before the deadline to be considered.


Full details of the Exceptional Circumstances Policy and claim form can be found here:


If you submit your open assessment on time but feel that your performance has been affected by Exceptional Circumstances you may submit an Exceptional Circumstances Affecting Assessment claim form by 7 days from the published assessment submission deadline. If you do not submit by the deadline indicated without good reason your claim will not be considered.


Please take proper precautions to safeguard your work and remember to make backup copies of your data. The University provides all its students with storage space on the University server and you should save and back up any work in progress on this server on a regular basis. Computer failure and theft of your equipment or storage media are not considered exceptional circumstances and extensions cannot be granted for work lost for these reasons.

Word count requirements


The word count for this assignment is 1500 words.


You must state on the front of your assignment the number of words used and this will be checked.


The main text for this assignment must be word-processed in Arial, font 12, double spacing, minimum 2cm margins all around.


You must observe the word count specified in this assignment brief. The School has a policy of accepting variations to the recommended word count of plus or minus 10%.


What does this mean for you?


Markers will mark your work up to the word count maximum plus 10% and then will stop marking; therefore all words which are in excess of the word count plus 10% will not be marked.


Where your word count is more than 10% below that specified, it is likely that this will result in a lack of analytical depth or relevant content, which will be reflected in the mark assigned.


What is in the word count?


The word count includes:


–         the main text, including in-text reference citations and quotations.


The word count does not include:


–       Appendices. These may be used to include supporting data, which may be too detailed or complex to include as a Table. They are not a device to incorporate material, which would otherwise cause you to exceed the word limit.


–       Title page

–       Contents page

–       Abstract/executive summary

–       Tables, figures, legends

–       Reference lists

–       Acknowledgements

This assignment consists of two questions.


Candidates should answer all parts of all questions.




Question 1


  1. Epsilon is an entity which prepares financial statements, in accordance with International Financial Reporting Standards (IFRS), to 30 September each year.

On 1 April 2018, Epsilon accepted delivery of a large and complex machine from a supplier. The agreed purchase price for the machine was £2 million. Epsilon received 10% trade discount.


On 1 April 2018, Epsilon incurred direct costs of £50,000 in handling the machine and £25,000 in installing the machine at its premises. Although the machine was ready for use from 1 April 2018, Epsilon did not bring the machine into use until 30 April 2018.


During April 2018 Epsilon incurred costs of £200,000 in training relevant staff to use the machine.


The directors of Epsilon estimate that the machine is capable of being usefully employed in the business until 31 March 2023, and that it will have no residual value at that date. Epsilon uses the straight-line method for calculating the depreciation. On 31 March 2023, Epsilon will be legally required to decommission the machine using the original supplier. The directors of Epsilon estimate that the cost of safely decommissioning the machine on 31 March 2023 will be £3 million. At an appropriate discount rate, the present value of the cost of decommissioning is expected to be £2.043 million.



Show with appropriate calculations how the above events would be reported in the financial statements of Epsilon for the year ended 30 September 2018.


 (10 marks)


  1. Thirsty plc makes a revolutionary type of can called Soak. The can has a resealable top which allows the can to be sealed after opening to prevent gas escaping. In January 2019 the idea for this new product was launched, and a loan of £5 million was obtained from Sunshine Bank in order to finance this project.


The associated costs and activities for the year ended 31 May 2020 are as shown below:


  • 01 June 2019 – 31 July 2019: £30,000 per month on market surveys to establish whether or not consumers would want such can. The market surveys suggest that there is a market for the can amongst environmentally aware consumers.
  • 01 August 2019 – 30 September 2019: £100,000 for evaluation of a number of alternative prototypes and designs.
  • End of September 2019: a design is chosen and engineers produce a plan which indicates that is technically possible to produce the Soak can.
  • 01 October 2019 -31 January 2020: £1,300,000 was spent for the design and construction of a pilot manufacturing plant. This plant is not capable of operating on a scale economically feasible for commercial production.
  • 01 February 2020 – 31 May 2020: £500,000 for testing of a pilot manufacturing plant.
  • All expenditure incurred has been confirmed by the accounting department.
  • Thirsty limited has applied to register the Soak can as a patent.




Discuss, with the reference to IAS 38: Intangible Assets, the correct accounting treatment for all the costs incurred in relation to the Soak can for the year ended 31 May 2020. (Hint use the definitions of “research” and “development”).

(20 Marks) (300 words)


  1. Star Trek Nuclear Fuels, a public limited company, disclosed the following information in its financial statements for the year ending 30 November 2019:


The company purchased an oil company during the year. As part of the purchase agreement, oil has to be supplied to the company’s former holding company at an uneconomic rate for a period of five years. As a result, a provision for future operating losses has been set up of £155m, which relates solely to the uneconomic supply of oil. Star Trek is also facing a legal claim for £300 million from a competitor who claims they have breached a patent in one of their processes. Star Trek has obtained legal advice that the claim has little chance of success and the insurance advisers have indicated that to insure against losing the case would cost £15 million as a premium.




Discuss whether the provision has been accounted for correctly under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.


  • Marks) (150 words).

Question 2


Consider yourself the financial controller of Alpha. The managing director, who is not an accountant, has recently attended a seminar and has raised the following questions for you concerning issues discussed at the seminar:


  • The notes to the financial statements say that plant and equipment is held under the ‘cost model’. However, property which is owner occupied is revalued annually to fair value. Changes in fair value are sometimes reported in profit or loss but usually in ‘other comprehensive income’. Please explain how all these treatments comply with relevant reporting standards. The manager director also added “I wonder how the revaluation model can affect the information relevancy and reliability”. (525 Words)


  • “When I looked at the note detailing the intangible assets we include in our consolidated statement of financial position, I noticed that several brand names associated with subsidiaries we acquired recently were included in this figure. Therefore, I also expected to see a figure for the Alpha brand name included within intangible assets. There doesn’t appear to be any amount for the Alpha brand name included within intangible assets and I don’t understand why. The Alpha brand name has been developed within Alpha for a number of years and is well regarded by our customers. Surely, it’s a mistake not to include it as well? In other word, I wonder whether the non-inclusion of the Alpha brand would affect the usefulness of the financial information?”. (525 Words)




Provide answers to the queries raised. You should justify your answers with reference to relevant IFRS Standards and academic literature.

(60 marks) (Word 1050).


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