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Financial Reporting

QUESTION 11

MacDougal Cereal sold 100 barrels of Cereal No 1 to the Scots Bank, on 30 June 2013 for $100 per barrel. When Cereal No 1 is mature in two years, it will be worth $500 per barrel. MacDougal retains custody of the barrels. The sale contract contains a clause requiring MacDougal to repurchase the barrels on 30 June 2015 for $150 per barrel. How should this transaction berecognized?

 

A.

$100 per barrelrecognizedas sales revenue in 2013 and $150 as the value of inventory in 2015.

B.

Record $100 per barrel cash received from the bank as loan andrecognizebarrels as inventory. $50 per barrel should be accounted for as loan interest over the two year period.

C.

Only record $50 per barrel as the value of inventory in 2015.

D.

$100 per barrelrecognizedas sales revenue in 2013 and $500 as the value of inventory in 2015.

 

Correct Answer: B

 

 

QUESTION 12

Sparrow plc owns a building, currently carried in its accounting records at $800,000. It has agreed to exchange this building for a building owned by Turner Ltd. The building currently owned by Sparrow plc has a fair value of $1 million. The building currently owned by Turner Ltd has a fair value of $1.1 million. Sparrow plc has agreed to pay the legal costs of the transfer which amount to $10,000. According to IAS 16 Property, Plant and Equipment, at what value should the building currently owned by Turner Ltd be recorded initially in Sparrow plc’s accounting records?

 

A.

$800,000

B.

$1 million

C.

$1.1 million

D.

$990,000

 

Correct Answer: B

 

 

QUESTION 13

Worcester Ltd had a balance of $2 million as its total equity at 1 January 2012. During the year ended 31 December 2012 the company:

 

clip_image002Revalued property with a cost of $2 million and accumulated depreciation of $1,600,000 to $1.5 million

clip_image002[1]Issued shares with a nominal value of $500,000 at a premium of $100,000

clip_image002[2]Made a profit for the year of $750,000

 

In accordance with IAS 1 Presentation of Financial Statements, what is the closing balance on total equity in Worcester Ltd’s statement of changes in equity for the year ended 31 December 2012?

 

A.

$4,350,000

B.

$4,450,000

C.

$4,200,000

D.

$3,850,000

 

Correct Answer: B

 

 

QUESTION 14

The summarised statements of financial position of Track plc and Way plc at 31 December 2012 were as follows:

 

Track plcWay plc

 

$’000 $’000

 

Total assets 60,000 29,000

 

Share capital 20,000 10,000

 

Retained earnings 24,000 4,000

 

Equity 44,000 14,000

 

Current liability 16,000 15,000

Total equity and liabilities 60,000 29,000

 

On 1 January 2013 Track pIc bought all the share capital of Way plc for $17,000,000 in cash. The carrying amounts of Way plc’s assets are considered to be fair values. The amount of retained earnings to be included in the consolidated statement of financial position as at 1 January 2013 is __________.

 

A.

$21,000,000

B.

$24,000,000

C.

$25,000,000

D.

$28,000,000

 

Correct Answer: B

 

 

QUESTION 15

Relied Ltd owns a factory with an opening carrying value of $60m. At 1 January 2012 the directors decided to sell the property, but have continued to use the factory for manufacturing during the year. As they have made no positive moves towards disposal, they are well aware that the property is not held for sale. They wish to classify the building as an investment property and recognise a loss of $10m in the income statement based on a market value at 31 December 2012 of $50m. It is estimated that the factory has a remaining life of 20 years and the estimated cost to sells would be $50,000. Relied Ltd applies the cost model to their other factories. How should be the factoryrecognizedin the statement of Relied Ltd?

 

A.

Fair value model should be applied with a loss of $10mrecognizedin the statement of other comprehensive income and $50m in the statement of financial position as at 31 December 2012.

B.

Cost model should be applied with a $10m reduction in the revaluation reserve and $57mrecognizedin the statement of financial position as at 31 December 2012.

C.

Recognizedunder IAS 16 with a depreciation charge of $3m in the statement of profit or loss and $57m in the statement of financial position as at 31 December 2012.

D.

Recognizedunder IFRS 5 property held for sale with $49.95m in the statement of financial position and a charge of $10.05m in the statement of profit or loss for the year ended 31 December 2012.

 

Correct Answer: C

 

 

QUESTION 16

Debra Ltd. has the following loan finance in place during the year ended 31 December 2012:

 

$2 million of 6% loan finance

 

$4 million of 8% loan finance

 

It constructed a new factory which cost $900,000 and this was funded out of the existing loan finance.

 

The factory took eight months to complete.

 

What borrowing costs should be capitalised in the year ended 31 December 2012?

 

A.

$65,970

B.

$43,980

C.

$36,000

D.

$30,000

 

Correct Answer: B

 

 

QUESTION 17

IAS 19 is intended to prescribe when the cost of employee benefits should berecognizedas a liability or an expense and the amount of the liability or expense that should berecognized.

 

Which of the following statements regarding IAS 19 is correct?

 

i) A liability should berecognizedwhen an employee has provided a service in exchange for benefits to be received by the employee at some time in the future.

 

ii) An expense should berecognizedwhen the entity enjoys the economic benefits from a service provided by an employee regardless of when the employee received or will receive the benefits from providing the service.

 

A.

(i) and (ii) both are correct

B.

(i) is correct but (ii) is incorrect

C.

(i) is incorrect but (ii) is correct

D.

(i) and (ii) both are incorrect

 

Correct Answer: A

 

 

QUESTION 18

The consolidated financial statements of Paulo plc for the year ended 31 March 2013 showed the following. Non-controlling interest in the consolidated statement of financial position at 31 March 2013 was $6 million ($3.6 million at 31 March 2012). Non-controlling interest in the consolidated income statement for the year ended 31 March 2013 was $2 million. During the year ended 31 March 2013, the group acquired a new 75% subsidiary whose net assets at the date of acquisition were $6.4 million. On 31 March 2013, the group revalued all its properties and the non-controlling interest in the revaluation surplus was $1.5 million. There were no dividends payable to non-controlling shareholders at the beginning or end of the year. In accordance with IAS 7 Statement of Cash Flows, what was the dividend paid to non-controlling shareholders that will be shown in the consolidated statement of cash flows of Paulo plc for the year ended 31 March 2013?

 

A.

$1.2 million

B.

$2.7 million

C.

$4.5 million

D.

$7.5 million

 

Correct Answer: B

 

 

QUESTION 19

One plc has owned 100% of Ten Ltd and 60% of Six Ltd for many years. At 31 December 2012 the trade receivables and trade payables shown in the individual company statements of financial position were as follows.

 

One plcTen LtdSix Ltd

$000$000$000

 

Trade receivable 503040

 

Trade payable 301520

 

Trade payable are made up as follows

 

Amount owning to

 

One—

 

Ten 2-4

 

Six 3–

 

Other suppliers251516

 

301520

 

The intra-group accounts agreed after taking into account the following.

 

1) An invoice for $3,000 posted by Ten Ltd on 31 December 2012 was not received by One pIc until 2 January 2013

 

2) A cheque for $2,000 posted by One pIc on 30 December 2012 was not received by Six Ltd until 4 January 2013.

 

What amount should be shown as trade receivables in the consolidated statement of financial position of One plc for the year ended 31 December 2012?


 

A.

$56,000

B.

$106,000

C.

$109,000

D.

$111,000

 

Correct Answer: B

 

 

QUESTION 20

On 1 April 2012, Hunting plc acquired 70% of the ordinary shares of ICM Ltd. The following figures relate to the year ended 31 December 2012.

 

Hunting plcICM Ltd

 

$$

 

Revenue769,000600,000

 

Cost of sales568,500420,000

 

Gross profit200,500180,000

 

On 15 November 2012 ICM Ltd sold goods which cost it $5,000 to Hunting plc for $7,000. These goods were still held by Hunting plc at 31 December 2012.

What is the amount for gross profit in the consolidated income statement of Hunting plc for the year ended 31 December 2012?

 

A.

$335,500

B.

$333,500

C.

$983,500

D.

$985,500

 

Correct Answer: B

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