Financial Reporting v6.0 (FR)

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Total 84 questions

On 1 January 2012, Sigma Ltd purchased a non-current asset for cash of $100,000 and received a grant of $20,000 towards the cost of the asset. Sigma Ltds accounting policy is to treat the grant as deferred income. The asset has a useful life of 5 years.
What will be the accounting entries to record the asset and the grant in the year ended 31
December 2012?

  • A. DebitCredit Non-current asset at 1 January 2012$100,000 Cash at 1 January 2012$20,000 Depreciation expense at 31 December 2012$20,000 Deferred income at 31 December 2012$4,000 Cash at 1 January 2012$100,000 Deferred income at 1 January 2012$20,000 Accumulated depreciation at 31 December 2012$20,000 Operating expenses$4,000
  • B. DebitCredit Non-current asset at 1 January 2012$100,000 Depreciation expense at 31 December 2012$20,000 Deferred income at 31 December 2012$4,000 Cash at 1 January 2012$100,000 Accumulated depreciation at 31 December 2012$20,000 Operating expenses$4,000
  • C. DebitCredit Non-current asset at 1 January 2012$100,000 Cash at 1 January 2012$20,000 Depreciation expense at 31 December 2012$20,000 Cash at 1 January 2012$100,000 Deferred income at 1 January 2012$20,000 Accumulated depreciation at 31 December 2012$20,000
  • D. DebitCredit Non-current asset at 1 January 2012$100,000 Cash at 1 January 2012$20,000 Depreciation expense at 31 December 2012$20,000 Equity reserve at 31 December 2012$4,000 Cash at 1 January 2012$100,000 Deferred income at 1 January 2012$20,000 Accumulated depreciation at 31 December 2012$20,000 Operating expenses$4,000


Answer : A

Roadrunner is a large motor-race track construction company. The finance director is working on the published accounts for the year ended 31 March 2013. The following cases have to be resolved before the accounts can befinalized.
(i)One of Roadrunners customers using the tracks was injured during a race. The customer claims that the accident was Roadrunners fault due to there being a cleft on track. Roadrunners lawyers have advised that the customer has a very strong case, but will be unable to estimate the financial outcome until further medical evidence becomes available.
(ii)Roadrunner has recently expanded its overseas market building motor racing tracks in areas with no such activity. It is expected that the tracks will be abandoned in five years time. At that point the tracks will need to be dismantled and the area restored to its original condition in accordance with current legislation. The estimated cost of restoration is expected to be $4 million. The cost of capital of the company is 10%.
Which of the following options is correct in relation to the above two facts in respect of
Roadrunner?

  • A. (i) A provision should be made; (ii) Should be treated as contingent liability
  • B. (i) A liability for the future costs should berecognizedimmediately; (ii) Should be treated as contingent liability
  • C. (i) Should be treated as a contingent liability and disclosed in a note to the financial statements; (ii) A liability for the future costs should berecognizedimmediately
  • D. (i) A liability for the future costs should berecognizedimmediately; (ii) Should be treated as a contingent liability and disclosed in note to the financial statements


Answer : C

In 2012 Fiona Co had a basic EPS of 105c based on earnings of $105,000 and 100,000 ordinary $1 shares. It also had in issue $40,000 15% Convertible Loan Stock which is convertible in two years' at the rate of 4 ordinary shares for every $5 of stock. The rate of tax is 30%. In 2012 gross profit of $200,000 and expenses of $50,000 were recorded, including interest payable of $6,000.
What is the dilution in earnings?

  • A. 22.3c
  • B. 25.5c
  • C. 28.6c
  • D. 82.7c


Answer : A

The aim of IAS 7 is to provide information to users of financial statements about the entity's ability to generate cash and cash equivalents, as well as indicating the cash needs of the entity.
Which one of the following statements gives the best definition of cash equivalents as set out in IAS 7 Statement of Cash Flows?

  • A. Cash equivalents are cash, overdrafts, short-term deposits, options and other financial instruments and equities traded in an active market
  • B. Cash equivalents are short-term highly liquid investments subject to insignificant risks of change in value
  • C. Cash equivalents are readily disposable investments
  • D. Cash equivalents are investments which are traded in an active market


Answer : B

NORMAN plc has one subsidiary. On 1 January 2012 NORMAN plc purchased 30% of the ordinary share capital of SEA Ltd for $12 million. Thesummarizedstatement of financial position of SEA Ltd as at 31 December 2012 was as follows.
$m
Net asset (at carrying amount)30
Ordinary share capital ($1 share)10
Retained earnings 1 January 201215
Net profit for the year ended 31 December 20125
At 1 January 2012 the fair value of the net assets of SEA Ltd was $5 million greater than their carrying amount. The difference, which has not been recorded in SEA Ltd's books, relates to land which is still owned by SEA Ltd at 31 December 2012.
At what amount should the investment in SEA Ltd be included in NORMAN plc's consolidated statement of financial position as at 31 December 2012?

  • A. $12 million
  • B. $13.5 million
  • C. $17 million
  • D. $9 million


Answer : B

An asset is recorded in S Cos books at its historical cost of $4,000. On 1 January 2012 P
Co bought 80% of S Cos equity. Its directors attributed a fair value of $3,000 to the asset as at that date. It had been depreciated for two years out of an expected life of four years on the straight line basis. There was no expected residual value. On 30 June 2012 the asset was sold for $2,600.
What is the profit or loss on disposal of this asset to be recorded in P Cos consolidated accounts for the year ended 31 December 2012?

  • A. Profit on disposal for consolidation: $350
  • B. Loss on disposal for consolidation: $400
  • C. Profit on disposal for consolidation: $600
  • D. Profit on disposal for consolidation: $1,100


Answer : A

View-Find Inc. manufactures and sells complex electronic microscope for scientific research projects. It usually produces standard type andcustomizedmicroscope. The sale contract states that View-find Inc. will undertake the entire installation process. During
December 2012, View-find Inc. undertakes acustomizedoffer from State Metallurgical
Engineering University of Nowhere. The contract states that View-Find Inc. will manufacture, install and maintain the whole consignment for a period of one year. The total cost of making the changes during the maintenance period cannot be reasonably estimated at the time of the installation.
When should the revenue from sale of this special machine berecognized?

  • A. When the machinery is produced.
  • B. When the machinery is produced and delivered.
  • C. When the installation is complete.
  • D. When the maintenance period as per the contract of sale expires.


Answer : D

Which of the following are roles of the IFRS Foundation?
(1)To issue IFRS
(2)To examine any identified or alleged departures from IFRS
(3)To guide the International Accounting Standards Board (IASB)
(4)To secure finance

  • A. (1) and (2)
  • B. (1) and (3)
  • C. (2) and (4)
  • D. (3) and (4)


Answer : D

The income statement of Haggle for the year to 30 November 2012 reported a profit before tax of $132,593, after charging depreciation of $8,742 and interest of $5,844.
The company does not hold any inventory, and no credit is granted to customers. The amount owed to suppliers at 30 November 2012 was $9,429 greater than the amount owed at 30 November 2011. During the year the taxation liability of $7,374 was paid. Neither any interest was owed at 30 November 2011, nor at 30 November 2012.
What amount should be reported as Net cash from operating activities in the cash flow statement for the year to 30 November 2012?

  • A. $125,906
  • B. $137,546
  • C. $143,390
  • D. $150,764


Answer : C

Which of the following items would appear in the reconciliation of profit before tax to cash generated from operations in a statement of cash flows prepared in accordance withIAS 7
Statement of Cash Flows?
(i)Increase in provision for warranty costs
(ii)Decrease in income tax payable
(iii) Depreciation charge
(iv) Dividends paid

  • A. (i) and (ii)
  • B. (i) and (iii)
  • C. (ii) and (iii)
  • D. (ii) and (iv)


Answer : B

On 30 September 2012 the directors of Diego pIc decided to sell the company's services division and the division was classified as held for sale. The sale is expected to be completed, along with the sales of related assets, in early December 2012. One item of plant within this division had originally cost $30,000 and had a carrying amount of $15,000 on 1 November 2011. Diego plc will carry on using this plant until it is sold. Diego pIc has a year end of 31 October and depreciates all plant on a monthly straight-line basis using a monthly rate of 1%.
In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, what amount will berecognizedin the statement of financial position of Diego pIc as at 31
October 2012 in respect of this plant?

  • A. $11,400 in non-current assets held for sale
  • B. $11,400 in current assets
  • C. $11,700 in non-current assets held for sale
  • D. $11,700 in non-current assets


Answer : C

Plateau Co has the following construction contract in progress:
$m

Total contract price750 -

Costs incurred to date225 -
Estimated costs to completion340
Progress payments invoiced and received290
Calculate the amounts to berecognizedfor the contract in the statement of profit or loss and statement of financial position using the proportion of costs incurred method.
Statement of profit or lossStatement of financial position

  • A. $74m$9m
  • B. $111m$46m
  • C. $9m$74m
  • D. $185m$120m


Answer : A

On 1 January 2008 Sudden Ltd purchased a freehold office block for $2.5 million. At the date of acquisition the useful life was estimated to be 50 years and the residual value
$250,000. The company policy is to depreciate freehold property on the straight-line basis.
On 31 December 2013 the residual value of the offices was estimated at $450,000 due to an increase in commercial property prices. The estimated useful life of the property remained unchanged.
What amount will berecognizedin profit or loss as depreciation in respect of the freehold property in the year to 31 December 2013?

  • A. $41,000
  • B. $40,556
  • C. $45,000
  • D. $45,555


Answer : B

The finance director of ENT Ltd has calculated that the corporation tax liability on the profits for the year to 31 December 2012 is $392,000. The provision reported on the balance sheet at 31 December 2011 was $372,000. When the liability was agreed, there was an over-provision of $36,000. The required payment was made in August 2012.
What amount should be reported in ENT Ltds Cash Flow Statement for the year to 31
December 2012 for corporation tax?

  • A. $336,000
  • B. $356,000
  • C. $408,000
  • D. $428,000


Answer : A

The requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations result in the separation of the financial position and financial performance of those activities which will continue into the future from those which will not. This provides a clearer base for projections into the future than if the position and performance of both types of activity were merely amalgamated.
Which of the following qualitative characteristics has been reflected in the formulation of
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations?

  • A. Understandability
  • B. Relevance
  • C. Reliability
  • D. Comparability


Answer : B

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Total 84 questions