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Financial Reporting

QUESTION 41

On 1 July 2012 Verity Ltd entered into a finance lease agreement. The terms of the agreement provided for annual payments of $5,000 on 1 July each year. The asset had a fair value at the inception of the lease of $25,000. $750 of interest in relation to this agreement was paid and charged to the income statement in the year ended 30 June 2013. In addition to the above transaction, on 1 October 2012 Verity Ltd purchased a machine for cash of $6,500. In accordance with IAS 7 Statement of Cash Flows, how should the above transactions be reflected in Verity Ltd’s statement of cash flows for the year ended 30 June 2013?

 

A.

$31,500 as investing outflows

B.

$6,500 as an investing outflow, $5,000 as a financing outflow

C.

$6,500 as an investing outflow, $4,250 as a financing outflow, $750 as an operating outflow

D.

$10,750 as investing outflows, $750 as an operating outflow

 

Correct Answer: C

 

QUESTION 42

According to the IASB’s Conceptual Framework for Financial Reporting, which one of the following statements represents the underlying assumption relating to financial statements?

 

A.

The accounts have been prepared on an accrual basis

B.

Users are assumed to have sufficient knowledge to be able to understand the financial statements

C.

The accounting policies used have been disclosed

D.

The business is expected to continue in operation for the foreseeable future

 

Correct Answer: D

 

 

QUESTION 43

For the year to 31 December 2012, the profit or loss statement of Little Co shows a profit before tax of $150,500 after charging depreciation of $55,000 and interest of $12,200. The company does not hold any inventory and company’s policy is not to grant credit to customers. Trade payables at 31 December 2012 were $15,200 greater than the amount owed at 31 December 2011. During the year the taxation liability of $9,500 was paid. No interest was owed at 31 December 2011 and at 31 December 2012. What should be the `Net cash from operating activities’ in the cash flow statement for the year to 31 December 2012?

 

A.

$153,200

B.

$208,200

C.

$211,200

D.

$223,400

 

Correct Answer: C

 

 

QUESTION 44

POXITplc controls another entity, DOBE Ltd, owning 60% of that company’s ordinary share capital. At the group’s year end,
31 December 2012, DOBE Ltd included $6,000 in its receivables in respect of goods supplied to POXIT plc. However, the payables of POXITplc included only $4,000 in respect of amounts due to DOBE Ltd. The difference arose because, on 31 December 2012, POXITplc sent a cheque for $2,000 to DOBE Ltd, which was not received by DOBE Ltd until 3 January 2013. Which of the following sets of consolidation adjustments to current assets and current liabilities is correct?

 

A.

Deduct $6,000 from both consolidated receivables and consolidated payables

B.

Deduct $3,600 from both consolidated receivables and consolidated payables

C.

Deduct $6,000 from consolidated receivables and $4,000 from consolidated payables, and include cash in transit of $2,000

D.

Deduct $6,000 from consolidated receivables and $4,000 from consolidated payables, and include inventories in transit of $2,000

 

Correct Answer: C

 

 

 

 

 

 

 

QUESTION 45

All of the gains and losses that affect the plan obligation and plan asset must berecognized. The components of defined benefit cost must berecognizedas follows in the statement of profit or loss and other comprehensive income except:

 

A.

Component: Service cost;Recognizedin: Profit or loss

B.

Component: Net interest on the net defined benefit liability;Recognizedin: Other comprehensive income

C.

Component: Net interest on the net defined benefit liability;Recognizedin: Profit or loss

D.

Component: Re-measurements of the net defined benefit liability;Recognizedin: Other comprehensive income

 

Correct Answer: B

 

 

QUESTION 46

For the year ended 31 December 2012, the board of directors of USP Inc. is considering the treatment of the following issues in their financial statements.

 

(i) On 1 March 2013 one of the machine used for manufacturing trading goods met the criteria to classify as held for sale. The carrying amount of the machine at 31 December was $50,000 and its fair value was $52,000. Costs to sell would amount to $4,600.

 

(ii) On 15 April 2013, USP Inc. settled a court case with a former employee, paying him $30,000. At the reporting date, the financial statement included a provision of $20,000 in respect of this case.

 

The financial statements were approved on 30 April 2013.

 

How should the issues above be dealt with?

 

A.

(i) Non-adjusting event. Classified as a non-current asset held for sale at $47,400 with a disclosure resulting an impairment loss of $2,600.

(ii) Adjusting event. Provision should be adjusted to $30,000, resulting in a charge to profits of $10,000.

B.

(i) Non-adjusting event. Classified as a non-current asset held at its carrying value of $50,000 with a disclosure resulting an impairment loss of $2,600.

(ii) Adjusting event. Provision should be adjusted to $30,000, resulting in a charge to profits of $10,000.

C.

(i) Adjusting event. Classified as a non-current asset held for sale at $47,400 with a disclosure resulting an impairment loss of $2,600.

(ii) Adjusting event. Provision should be adjusted to $30,000, resulting in a charge to profits of $10,000.

D.

(i) Non-adjusting event. Classified as a non-current asset held for sale at $47,400 with a disclosure resulting an impairment loss of $2,600.

(ii) Non-adjusting event. Provision should be unadjusted. A charge of $10,000 to profits should be made in the following year end financial statements.

 

Correct Answer: B

 

 

 

 

 

 

QUESTION 47

Consider the following statements:

 

(i) Some operating segments meet all the aggregation criteria.

 

(ii) Identified reportable segments account for 75 percent of the entity’s revenue.

 

How these should be reported under IFRS 8 Operating Segments?

 

A.

(i) Reportable segments to be disclosed provided that they meet the quantitative thresholds.

(ii) Aggregate remaining segments into `all other segments’ category.

B.

(i) Aggregate remaining segments into `all other segments’ category.

(ii) Reportable segments to be disclosed provided that they meet the quantitative thresholds.

C.

(i) This is not a reportable segment to be disclosed.

(ii) Aggregate remaining segments into `all other segments’ category.

D.

(i) Aggregate remaining segments into `all other segments’ category.

(ii) This is not a reportable segment to be disclosed.

 

Correct Answer: A

 

 

QUESTION 48

Close members of the family of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

 

They may include:

 

(a) The individual’s domestic partner and children

 

(b) Children of the domestic partner; and

 

(c) Dependants of the individual or the domestic partner.

 

When considering each possible related party relationship, attention must be paid to the substance of the relationship, not merely the legal form.

 

Which of the following are not related parties?

 

(i) Two enterprises simply because they have a director or other key management in common.

 

(ii) Twoventures, simply because they share joint control over a joint venture.

 

(iii) Providers of finance

 

(iv) Trade unions

 

(v) Government departments and agencies

 

A.

(i), (iii), and (v)

B.

(ii), (iv) and (v)

C.

(i), (iii), (iv) and (v)

D.

(i), (ii), (iii), (iv) and (v)

 

Correct Answer: D

 

QUESTION 49

A company is developing a new production process. During 2012, expenditure incurred was $100,000, of which $90,000 was incurred before 1 December 2012 and $10,000 between 1 December 2012 and 31 December 2012. The company can demonstrate that, at 1 December 2012, the production process met the criteria for recognition as an intangible asset. The recoverable amount of the know-how embodied in the process is estimated to be $50,000. How should the expenditure be treated?

 

A.

$100,000 isrecognizedas an intangible asset.

B.

$90,000 isrecognizedas an intangible asset and $10,000 is expensed.

C.

$90,000 is expensed and $10,000 isrecognizedas an intangible asset.

D.

$100,000 is expensed.

 

Correct Answer: C

 

 

QUESTION 50

According to IAS 1 Presentation of Financial Statements, which of the following statements is / are correct?

 

(i) The accounting policies adopted by a company must be disclosed in the notes to the financial statements

 

(ii) Inappropriate accounting policies can be rectified by disclosure of the policies used or by the inclusion of explanatory material

 

(iii) Companies may choose to prepare their financial statements (except for the statement of cash flows) on either the accrual basis or the cash basis

 

A.

(i), (ii) and (iii)

B.

(i) and (ii) only

C.

(ii) and (iii) only

D.

(i) only

 

Correct Answer: D

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