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Financial Reporting

QUESTION 31

The financial statements of Louise Ltd for the year ended 31 December 2012 were approved for publication on 20 May, 2013. The following events occurred after the reporting period:

 

(i) The directors declared a dividend of 50c per ordinary share on 17 February 2013. Louise Ltd has 200,000 $1 ordinary shares in issue.

 

(ii) An insurance claim for storm damage to property, caused by unusually high winds, was under negotiation at the end of the reporting period. The claim was settled with the insurers in March 2013 leaving uninsured damage amounting to $75,000.

 

What liabilities should berecognizedin the financial statements of Louise Ltd for the year ended 31 December 2012 in accordance with IAS 10 Events after the Reporting Period?

 

A.

Dividend = $100,000; Storm damage = $Nil

B.

Dividend = $100,000; Storm damage = $75,000

C.

Dividend = $Nil; Storm damage = $Nil

D.

Dividend = $Nil; Storm damage = $75,000

 

Correct Answer: D

 

 

QUESTION 32

IAS 17 Leasesstandardizesthe accounting treatment and disclosure of assets held under lease. IAS 17 Leases requires a lessee tocapitalizea finance lease at the amount of the

 

A.

Fair value

B.

Present value of the minimum lease payments

C.

Higher of fair value or present value of minimum lease payments

D.

Lower of fair value or present value of minimum lease payments

 

Correct Answer: D

 

 

QUESTION 33

Rochester pIc has entered into a fixed price contract for the provision of services to Adele Ltd. The contract commenced in September 2012 and will be completed in 2013. The contract price is $2 million and costs are recoverable as incurred. At 31 December 2012, Rochester plc’s year ends, costs of $500,000 have been incurred. The contract has been assessed as 30% complete; however, costs to complete cannot be estimated reliably. In accordance with IAS 18 Revenue, how much revenue should be included in Rochester plc’s statement of comprehensive income for the year ended 31 December 2012 in respect of this contract?

 

A.

Nil

B.

$500,000

C.

$600,000

D.

$2 million

 

Correct Answer: B

 

 

QUESTION 34

Gene Ltd has the following assets and liabilities at 31 December 2005.

 

Note$

 

Fixtures and fittings at carrying amount(1)10,000

 

Receivables(2)8,000

 

Cash and cash equivalents1,000

 

Payable(5,000)

 

14,000

 

Notes

 

(1) The fixtures and fittings have been held for three years and had an estimated useful life of six years. If the fixtures and fittings were to be sold on 31 December 2005 they would realise $14,000

 

(2) If Gene Ltd was to cease trading it is
estimated that an allowance against receivables of $500 would need to be made

 

At what amount would the net assets be stated in the statement of financial position of Gene Ltd at 31 December 2005 under the breakup basis?

 

A.

$17,500

B.

$13,500

C.

$14,000

D.

$15,000

 

Correct Answer: A

 

 

QUESTION 35

Veronica plc prepares its financial statement
s to 31 December. During 2012 Veronica plc made sales of $850,000 and incurred costs of $610,500. At the beginning of 2012 customers owed

 

$125,500 and at the end of the year they owed $135,400. At the beginning of 2012

 

Veronica plc owed $45,500 to its suppliers and employees and at the end of the year it owed $35,700.

 

During 2012 Veronica plc received interest of $14,500 and paid interest of $500.

 

In accordance with IAS 7 Statement of Cash Flows, what was Veronica plc’s net cash from operating activities under the direct method for the year ended 31 December 2012?

 

A.

$258,700

B.

$233,800

C.

$219,800

D.

$219,300

 

Correct Answer: D

 

 

QUESTION 36

Bony plc purchased equipment on 1 April 2010 for $100,000. The equipment was depreciated using the reducing balance method at 25% per annum. Bony plc prepares accounts to 31 March annually. Depreciation was charged up to and including 31 March 2012. At that date, the recoverable amount of this equipment was $42,000. According to IAS 36 Impairment of Assets, what was the impairment loss on this equipment calculated on 31 March 2012?

 

A.

Nil

B.

$8,000

C.

$14,250

D.

$25,000

 

Correct Answer: C

 

 

QUESTION 37

Parrot Ltd had the following balances in its accounts at 30 April 2006 and 30 April 2007.

 

30 April 200630 April 2007

 

$$

 

Cash in hand1,0001,100

 

Bank overdraft41,627-

 

Cash at bank-21,932

 

Long term bank loan50,00025,000

 

In accordance with IAS 7 Statement of Cash Flows, what amount should be shown under net change in cash and cash equivalents in the company’s statement of cash flows for the year ended 30 April 2007?

 

A.

$16,695 decrease

B.

$63,659 increase

C.

$63,559 increase

D.

$20,295 decrease

 

Correct Answer: B

 

 

QUESTION 38

Measurement of the elements of financial position is the process of determining the monetary amounts at which the elements of the financial statements are to berecognizedand carried in the statement of financial position and statement of comprehensive income. There are number of basis of measurement that companies use in preparing financial statements. Which of the following best explains the `current cost accounting’?

 

A.

Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of t
heir acquisition.

B.

The amount of cash or cash equivalents that would have to be paid if an equivalent asset was acquired currently.

C.

The amount of cash or cash equivalents that was paid if an equivalent asset was acquired currently.

D.

The amount of cash or cash equivalents that could currently be obtained by selling an asset in an orderly disposal.

 

Correct Answer: C

 

 

QUESTION 39

Harriet Ltd has proposed the following changes to its current accounting practices to be used in its next financial statements.

 

(i) Motor vehicles have always been depreciated on a straight-line basis. The company has now decided to change to the reducing balance basis as it now believes that this better reflects the consumption of economic benefits.

 

(ii) In preparing its statement of comprehensive income, Harriet Ltd has previously classified depreciation on motor vehicles as administrative expenses. These depreciation charges are now to be classified under cost of sales as the company now believes that this gives a more reliable and relevant presentation.

 

According to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – which, if any, of these changes represent a change in accounting policy?

 

A.

(i) only

B.

(ii) only

C.

Neither of the above

D.

Both of the above

 

Correct Answer: B

 

 

QUESTION 40

Kia Co produces cellular phone and first-in first-out (FIFO) method valuation is used for its inventories. At the start of January it had 500 units in inventory. These had cost $30 each. During January, the following transactions took place:

 

ReceiptsIssues

 

DateUnitsCost per unitDateUnits

 

5230$327640

 

15380$3417450

 

What is the value of Kia Co’s inventory at the end of January?

 

A.

$600

B.

$640

C.

$680

D.

$720

 

Correct Answer: C

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