F7FR Revision Question Bank Sample j15

PL
June 2015 Edition
REVISION QUESTION BANK
ACCA
SA
Paper F7 | FINANCIAL REPORTING
Becker Professional Education has more than 20

years of experience providing lectures and learning
tools for ACCA Professional Qualifications. We
offer ACCA candidates high-quality study materials
to maximise their chances of success.
Becker Professional Education, a global leader in professional education, has been developing study materials
for ACCA for more than 20 years, and thousands of candidates studying for the ACCA Qualification have
succeeded in their professional examinations through its Platinum and Gold ALP training centers in Central and
Eastern Europe and Central Asia.*
Becker Professional Education has also been awarded ACCA Approved Content Provider Status for materials
for the Diploma in International Financial Reporting (DipIFR).
Nearly half a million professionals have advanced their careers through Becker Professional Education's
courses. Throughout its more than 50-year history, Becker has earned a strong track record of student success
through world-class teaching, curriculum and learning tools.
PL
*Platinum Moscow, Russia and Kiev, Ukraine. Gold Almaty, Kazakhstan
We provide a single destination for individuals and companies in need of global accounting certifications and
continuing professional education.
Becker Professional Education's ACCA Study Materials
All of Beckers materials are authored by experienced ACCA lecturers and are used in the delivery of classroom
courses.
Study System: Gives complete coverage of the syllabus with a focus on learning outcomes. It is designed to
be used both as a reference text and as part of integrated study. It also includes the ACCA Syllabus and Study
Guide, exam advice and commentaries and a Study Question Bank containing practice questions relating to
each topic covered.
Revision Question Bank: Exam style and standard questions together with comprehensive answers to
support and prepare students for their exams. The Revision Question Bank also includes past examination
questions (updated where relevant), model answers and alternative solutions and tutorial notes.
SA
Revision Essentials*: A condensed, easy-to-use aid to revision containing essential technical content and
exam guidance.
*Revision Essentials are substantially derived from content reviewed by ACCAs examining team.
PL
ACCA
PAPER F7
SA
M
FINANCIAL REPORTING
REVISION QUESTION BANK
For Examinations to June 2015
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
(i)
No responsibility for loss occasioned to any person acting or refraining from action as a result of any
material in this publication can be accepted by the author, editor or publisher.
This training material has been prepared and published by Becker Professional Development
International Limited:
16 Elmtree Road
Teddington
TW11 8ST
United Kingdom
Copyright 2014 DeVry/Becker Educational Development Corp. All rights reserved.

The trademarks used herein are owned by DeVry/Becker Educational Development Corp. or their
respective owners and may not be used without permission from the owner.
SA
M
PL
No part of this training material may be translated, reprinted or reproduced or utilised in any form either
in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented,
including photocopying and recording, or in any information storage and retrieval system without
express written permission. Request for permission or further information should be addressed to the
Permissions Department, DeVry/Becker Educational Development Corp.
Acknowledgement
Past ACCA examination questions are the copyright of the Association of Chartered Certified
Accountants and have been reproduced by kind permission.
(ii)
REVISION QUESTION BANK FINANCIAL REPORTING (F7)

CONTENTS
Question
Page
Answer
Marks Date worked
1
2
4
6
8
10
11
15
17
19
21
22
23
1001
1001
1002
1002
1003
1003
1003
1004
1006
1007
1007
1008
1008
14
18
10
18
12
10
28
10
18
12
12
10
20
26
27
29
1009
1009
1010
10
10
10
31
33
35
37
39
41
42
45
48
51
53
55
58
1011
1011
1012
1013
1014
1014
1015
1016
1017
1019
1019
1021
1022
16
12
12
18
10
10
18
18
22
12
14
22
22
MULTIPLE CHOICE QUESTIONS
15
16
17
SA
M
18
19
20
21
22
23
24
25
26
27
28
29
International Financial Reporting Standards

Conceptual Framework
Substance over Form
IAS 1 Presentation of Financial Statements
Accounting Policies
IAS 18 Revenue
Inventory and Biological Assets
IAS 11 Construction Contracts
IAS 16 Property, Plant and Equipment
IAS 23 Borrowing Costs
Government Grants
IAS 40 Investment Properties
IAS 38 Intangible Assets
Non-current Assets Held for Sale and
Discontinued Operations
IAS 36 Impairment of Assets
IAS 17 Leases
IAS 37 Provisions, Contingent Liabilities and
Contingent Assets
IAS 10 Events after the Reporting Period
IAS 12 Income Taxes
Financial Instruments
Regulatory Framework
Consolidated Statement of Financial Position
Consolidation Adjustments
Further Consolidation Adjustments
Consolidated Statement of Comprehensive Income
Investments in Associates
Analysis and Interpretation
IAS 7 Statement of Cash Flows
IAS 33 Earnings per Share
PL
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Section B of the Examination will include two 15 mark questions and one 30 mark question as shown
in the Specimen Exam reproduced in this Revision Question Bank. Questions with different mark
allocations are not current exam style but provided for additional syllabus coverage.
INTERNATIONAL FINANCIAL REPORTING STANDARDS
1
Standard setting process (ACCA D04 adapted)
63
1025
15
63
63
1026
1027
15
15
65
1029
15
CONCEPTUAL FRAMEWORK
2
3
Period of inflation
Rebound (ACCA J11)
SUBSTANCE OVER FORM

4
Wardle (ACCA J10)
(iii)
FINANCIAL REPORTING (F7) REVISION QUESTION BANK

Question
Page
Answer
Marks Date worked
66
68
70
72
74
1031
1032
1036
1040
1043
15
30
30
30
30
76
77
1047
1048
15
15
78
1050
15
IAS 1 PRESENTATION OF FINANCIAL STATEMENTS

5
6
7
8
9
Dexon (ACCA J08 adapted)

Pricewell (ACCA J09 adapted)
Sandown (ACCA D09 adapted)
Cavern (ACCA D10 adapted)
Highwood (ACCA J11 adapted)
ACCOUNTING POLICIES
Emerald (ACCA D07 adapted)
Tunshill (ACCA D10)
10
11
IAS 18 REVENUE
Derringdo (ACCA J03 adapted)
PL
12
IAS 11 CONSTRUCTION CONTRACTS

13
14
Linnet (ACCA J04)

Mocca (ACCA J11)
79
80
1052
1054
15
10
81
81
1055
1056
10
10
82
1057
15
83
1059
15
84
85
1060
1062
15
15
86
1063
10
86
1064
15
87
1066
15
IAS 16 PROPERTY, PLANT AND EQUIPMENT

15
16
Dearing (ACCA D08)

Flightline(ACCA J09)
SA
M
IAS 20 ACCOUNTING FOR GOVERNMENT GRANTS

17
Baxen (ACCA J12 adapted)
IAS 23 BORROWING COSTS

18
Apex (ACCA J10 adapted)
IAS 38 INTANGIBLE ASSETS

19
20
IFRS 5
21
Dexterity (ACCA J04 adapted)

Darby (ACCA D09)
DISCONTINUED OPERATIONS
Manco (ACCA D10)
IAS 36 IMPAIRMENT OF ASSETS

22
Wilderness (ACCA D05 adapted)
IAS 17 LEASES
23
(iv)
Fino (ACCA D07)

Question
Page
Answer
Marks Date worked
88
88
1068
1069
15
15
89
1070
15
IAS 37 PROVISIONS
24
25
Promoil (ACCA D08)

Borough (ACCA D11)
IAS 10 EVENTS AFTER THE REPORTING PERIOD

26
Waxwork (ACCA J09)
27
28
Pingway (ACCA J08 adapted)

Bertrand (ACCA D11)
GROUP ACCOUNTS
Parentis (ACCA J07 adapted)
Patronic (ACCA J08 adapted)
Pedantic (ACCA D08)
Pacemaker (ACCA J09 adapted)
Pandar (ACCA D09 adapted)
Premier (ACCA D10 adapted)
Prodigal (ACCA J11 adapted)
Paladin (ACCA D11)
90
91
1071
1073
15
10
91
93
95
97
99
101
103
104
1074
1077
1079
1082
1085
1087
1091
1093
30
15
30
30
25
30
20
25
106
109
111
1095
1098
1100
30
20
25
114
116
1102
1104
15
15
118
119
1106
1107
15
10
120
121
122
1108
1110
1112
15
15
15
PL
29
30
31
32
33
34
35
36
FINANCIAL INSTRUMENTS
ANALYSIS AND INTERPRETATION
Harbin (ACCA D07 adapted)

Victular (ACCA D08 adapted)
Hardy (ACCA D10)
SA
M
37
38
39
IAS 7 STATEMENT OF CASH FLOWS

40
41
Crosswire (ACCA D09 adapted)

Deltoid (ACCA J10 adapted)
IAS 33 EARNINGS PER SHARE

42
43
Savoir (ACCA J06)

Barstead (ACCA D09)
COMPOSITE IFRS QUESTIONS

44
45
46
Toogood (ACCA J07 adapted)

Errsea I (ACCA J07 adapted)
Errsea II (ACCA J07 adapted)
(v)

Question
Page
Answer
Marks Date worked
123
125
127
1114
1118
1120
30
15
15
129
1122
15
June 2012
1
Pyramid (see Specimen Exam)
2
Fresco (adapted)
3
Tangier (adapted)
4
Telepath
December 2012
1
Viagem (adapted)
2
Quincy (see Specimen Exam)
3
Quartile (adapted)
4
Lobden (adapted)
5
Shawler
RECENT EXAMS
130
131
133
1123
1124
1126
15
15
15
135
136
138
140
142
1128
1130
1134
1135
1136
15
30
15
15
15
143
145
146
148
150
151
1138
1141
1144
1145
1148
1149
30
15
15
15
15
15
Multiple Choice Questions
17
40
Tangier
Pyramid
Quincy
8
10
12
19
20
21
15
15
30
PL
June 2013
1
Paradigm (adapted)
2
Atlas (adapted)
3A
Monty I (adapted)
3B
Monty II (adapted)
4
Radar
5
Not reproduced
SA
M
December 2013
1
Polestar (adapted)
2
Moby (adapted)
3A
Kingdom I (adapted)
3B
Kingdom II (adapted)
4
Laidlaw (adapted)
5
Fundo
SPECIMEN EXAMINATION
Section A
Section B
1
2
3
(vi)
REVISION QUESTION BANK MCQ FINANCIAL REPORTING (F7)

1
INTERNATIONAL FINANCIAL REPORTING STANDARDS
1.1
Which ONE of the following is NOT a function of the IASB?

A
B
C
D
Which ONE of the following is NOT part of the process of developing a new
International Financial Reporting Standard?
1.3
Whose needs are general purpose financial statements intended to meet?

A
B
C
D
1.4
Issuing a discussion paper that sets out the possible options for a new standard
Publishing clarification of an IFRS where conflicting interpretations have developed
Drafting an IFRS for public comment
Analysing the feedback received on a discussion paper
A
B
C
D
PL
1.2
Responsibility for all IFRS technical matters

Publication of IFRSs
Overall supervisory body of the IFRS organisations
Final approval of interpretations by the IFRS Interpretations Committee
Shareholders of incorporated entities

The general public
Users of financial statements
Regulatory authorities
Which body develops International Financial Reporting Standards?

IASB
IFRS Foundation
IFRS IC
IFRS Advisory Council
SA
M
A
B
C
D
1.5
According to the International Accounting Standards Board, in whose interests are

financial reporting standards issued?
A
B
C
D
1.6
Company directors
The public
Company auditors
The government
The issue of a new IFRS means that:
(1)
(2)
(3)
(4)
An existing standard may be partially or completely withdrawn.

Issues that are not in the scope of an existing standard are covered.
Issues raised by users of existing standards are explained and clarified.
Current financial reporting practice is modified.
Which combination of the above will most likely be the result of issuing a new IFRS?
A
B
C
D
1, 2 and 3 only
2, 3 and 4 only
1, 3 and 4 only
1, 2 and 4 only
FINANCIAL REPORTING (F7) REVISION QUESTION BANK MCQ

1.7
Which ONE of the following is one of the 3Es in the value for money concept?
A
B
C
D
Earnings
Equity
Evaluation
Effectiveness
(14 marks)
CONCEPTUAL FRAMEWORK
2.1
Which ONE of the following is stated as an underlying assumption according to the

IASBs Conceptual Framework for Financial Reporting?
A
B
C
D
The International Accounting Standards Boards uses the Conceptual Framework for
Financial Reporting (Framework) to assist in developing new standards.
PL
2.2
Neutrality
Accruals
Relevance
Going concern
Which one of the following is NOT covered by the Framework?

A
B
C
D
An item meets the definition of an element in accordance with the Conceptual Framework for
Financial Reporting.
SA
M
2.3
The format of financial statements

The objective of financial statements
Concepts of capital maintenance
The elements of financial statements
Which of the following criteria must be met for item to be recognised in the financial
statements?
(1)
It is probable that any future economic benefit associated with the item will flow to
or from the entity.
(2)
The item has a cost or value that can be measured with reliability.
(3)
The rights or obligations associated with the item are controlled by the reporting
entity.
A
B
C
D
1 only
2 only
1 and 2 only
1, 2 and 3
Faithful representation means that the legal form of a transaction must be reflected
in financial statements, regardless of the economic substance.
(2)
Under the recognition concept only items capable of being measured in monetary
terms can be recognised in financial statements.
(3)
It may sometimes be necessary to exclude information that is relevant and reliable

from financial statements because it is too difficult for some users to understand.
A
B
C
D
1 only
2 only
3 only
None of these statements
Which of the following statements are correct?
(1)
(1)
The money measurement concept requires all assets and liabilities to be accounted
for at original (historical) cost.
(2)
Faithful representation means that the economic substance of a transaction should be

reflected in the financial statements, not necessarily its legal form.
(3)
The realisation concept means that profits or gains cannot normally be recognised in
the statement of profit or loss until cash has been received.
A
B
C
D
1 and 2 only
1 and 3 only
2 and 3 only
All three statements
SA
M
2.5
Which of the following statements about the characteristics of financial information is

correct?
PL
2.4
2.6
IFRS 13 Fair Value Measurement sets out a fair value hierarchy that categorises inputs into
three levels.
Which of the following inputs would have the highest authority?
A
B
C
D
2.7
Unobservable inputs
Directly observable inputs other than quoted prices
Quoted prices in active markets at the measurement date
Market-corroborated inputs
The following are possible methods of measuring assets and liabilities other than historical
cost:
(1)
(2)
(3)
(4)
Current cost
Realisable value
Present value
Replacement cost
According to the IASBs Conceptual Framework for Financial Reporting which of the
measurement bases above can be used by an entity for measuring assets and liabilities
shown in its statement of financial position?
A
B
C
D
1 and 2 only
1, 2 and 3 only
2 and 3 only
All four

2.8
The IASBs Conceptual Framework for Financial Reporting identifies qualitative

characteristics of financial statements.
Relevance
Understandability
Faithful representation
Comparability
A
B
C
D
1 and 2 only
1 and 3 only
2 and 4 only
3 and 4 only
Which of the following is the underlying assumption in the International Accounting

Standards Boards Conceptual Framework for Financial Reporting?
A
B
C
D
PL
2.9
(1)
(2)
(3)
(4)
Which TWO of the following characteristics are fundamental qualitative characteristics

according to the IASBs Framework?
Accruals
Reliability
Going concern
Relevance
(18 marks)
SUBSTANCE OVER FORM
3.1
In which of the following accounting treatments is the qualitative characteristic of

faithful representation being applied?
SA
M
A
B
C
D
3.2
An asset is depreciated on the straight-line basis

The costs of a patent are capitalised
An asset acquired through a finance lease is capitalised by the buyer
An allowance is made for irrecoverable trade receivables
Which of the following are examples of transactions which could be used to create offbalance sheet finance?
(1)
(2)
(3)
(4)
Sale and repurchase arrangements

Factoring of debts
Warranty provisions
Consignment inventories
A
B
C
D
1, 2 and 3
2, 3 and 4
1, 3 and 4
1, 2 and 4
3.4
Which one of the following descriptions most accurately describes creative

accounting?
A
Using loop-holes in the requirements of International Financial Reporting Standards

so that the financial statements are biased in a required direction
Creating fictitious assets in the statement of financial position to show a stronger

financial position
Not applying the requirements of International Financial Reporting Standards in

order to show a better year-end position
Deliberately falsifying the financial statements to show a stronger financial position
3.3
Soco revalues its properties to market value each year. One of Socos warehouses, is valued
at its market value of $1,200,000 in its statements of financial position as at September 20X3..
This building is sold on 29 September 20X4 for $900,000 with an option to repurchase after
four years at $1,093,956 ($900,000 plus compound interest for four years at 5% per annum).
PL
The warehouses market value at 29 September 20X4 was $1,380,000.
How should Soco treat this transaction in its financial statements for the year ended 30
September 20X4?
As a sale of the warehouse recording a loss on disposal of $300,000
Leave the warehouse in its statement of financial position at $1,200,000 and record
$900,000 as a loan received
Revalue the warehouse to $1,380,000 and record a loss on disposal of $480,000
Revalue the warehouse to $1,380,000 and record $900,000 as a loan received
SA
M
3.5
On 31 December 20X3 Tenby sold $100,000 of trade receivables to a factoring company, for
$90,000. If the factor has not collected the debt by 28 February 20X4 they can return the debt
to Tenby.
In respect of the above transaction what value should be placed on the receivables as at
31 December 20X3?
A
B
C
D
Nil
$10,000
$90,000
$100,000
(10 marks)

4
IAS 1 PRESENTATION OF FINANCIAL STATEMENTS
4.1
XYZ decided to change its reporting date which will result in a 15-month reporting period.
Which of the following two items must be disclosed in accordance with IAS 1
Presentation of Financial Statements?
(2)
A statement that similar entities have also changed their accounting period.
(3)
A statement that comparative amounts used in the financial statements are not
entirely comparable.
(4)
Whether the change is just for the current period or for the foreseeable future.
A
B
C
D
1 and 2 only
1 and 3 only
2 and 4 only
3 and 4 only
PL
The reason for the period being longer than 12 months.
Which of the following disclosures are specifically required by IAS 1 Presentation of

Financial Statements?
(1)
(2)
(3)
(4)
The name of the reporting entity or other means of identification.

The names of all major shareholders.
The level of rounding used in presenting amounts in the financial statements.
Whether the financial statements cover the individual entity or a group of entities.
A
B
C
D
2, 3and 4 only
1, 3 and 4 only
1, 2 and 4 only
1, 2 and 3 only
SA
M
4.2
(1)
4.3
Which item must be shown as a line item in the statement of financial position?
A
B
C
D
4.4
Intangible assets
Work in progress
Trade receivables
Taxation
Balances under the following headings are extracted from the books of Ego.
(1)
(2)
(3)
Staff costs wages and salaries

Raw materials and consumables
Own work capitalised
The accountant wishes to use a classification of expenses within profit by nature format.
Which of the above balances may be included without further analysis in the statement
of profit or loss?
A
B
C
D
1 and 2 only
1 and 3 only
2 and 3 only
All three

4.5
During the year ended 31 March 20X3 Woolf sold a leasehold building for $1,550,000. The
20-year lease was purchased on 1 July 20W0 for $100,000 but had been revalued to
$1,900,000 on 31 March 20X0. Woolf depreciates leasehold buildings on a straight line basis
over the life of the lease, with a full years amortisation in the year of acquisition and none in
the year of disposal.
Woolf revalues another leasehold building to $2,000,000 on 31 March 20X3. Its historical
cost was $1,000,000 and accumulated amortisation on the lease was $350,000.
How are these transactions reflected in other comprehensive income and profit or loss?
Bell made a profit of $183,000 for the year ended 30 June 20X7 and paid a dividend during
the year of $18,000. During the year the company wrote off development costs of $45,000
directly to retained earnings as a prior period adjustment and revalued a property with a
carrying amount of $60,000 to $135,000.
PL
4.6
Profit or loss
$1,510,000 profit
$1,510,000 profit
$30,000 profit
$30,000 profit
A
B
C
D
Other comprehensive
income
$1,350,000 gain
$500,000 loss
$1,350,000 gain
$500,000 loss
What was total comprehensive income for period ended 30 June 20X7?
$195,000
$240,000
$258,000
$318,000
SA
M
A
B
C
D
4.7
IAS 1 Presentation of Financial Statements encourages an analysis of expenses to be

presented in the statement of profit or loss. This analysis must use a classification based on
either the nature of expense, or its function, such as:
(1)
(2)
(3)
(4)
(5)
Raw materials and consumables used

Distribution costs
Employee benefit costs
Cost of sales
Depreciation and amortisation expense
Which of the above should be disclosed in the statement profit or loss if a manufacturing
entity uses analysis based on function?
A
B
C
D
1, 3 and 4 only
2 and 4 only
1 and 5 only
2, 3 and 5 only

4.8
DTs final dividend for the year ended 31 October 20X5 of $150,000 was declared on 1
February 20X6 and paid in cash on 1 April 20X6. The financial statements were approved on
31 March 20X6.
Which of the following statements reflect the correct treatment of the dividend in the
financial statements of DT?
(2)
The dividend is shown as a deduction in the statement of profit or loss for the year
ended 31 October 20X6.
(3)
The dividend is shown as an accrued liability in the statement of financial position

as at 31 October 20X6.
(4)
The $150,000 dividend was shown in the notes to the financial statements at 31
October 20X5.
(5)
The dividend is shown as a deduction in the statement of changes in equity for the
year ended 31 October 20X6.
A
B
C
D
1 and 2 only
1 and 4 only
3 and 5 only
4 and 5 only
PL
The payment settles an accrued liability in the statement of financial position as at

31 October 20X5.
Which of the following items are required be disclosed in the notes to the financial
statements?
(1)
(2)
(3)
(4)
Useful lives of assets or depreciation rates used.

Increases in asset values as a result of revaluations in the period.
Depreciation expense for the period.
Reconciliation of carrying amounts of non-current assets at the beginning and end
of period.
A
B
C
D
All four
1 and 2 only
1 and 3 only
2, 3 and 4 only
SA
M
4.9
(1)
(18 marks)
ACCOUNTING POLICIES
5.1
According to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors,

which ONE of the following is a change in accounting policy that requires retrospective
application?
The depreciation of the production facility has been reclassified from administration
expenses to cost of sales in the current and future years
The depreciation method of vehicles was changed from straight line depreciation to
reducing balance
The provision for warranty claims was changed from 10% of sales revenue to 5%
Based on information that became available in the current period a provision was
made for an injury compensation claim relating to an incident in a previous year
5.3
Which ONE of the following would require retrospective application in accordance with
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors?
A
An entity changes its method of depreciation of machinery from straight line to

reducing balance
An entity has started capitalising borrowing costs for assets in accordance with IAS
23 Borrowing Costs. The borrowing costs previously had been charged to profit or
loss
An entity changes its method of calculating the provision for warranty claims on its
products sold
An entity disclosed a contingent liability for a legal claim in the previous years
financial statements. In the current year, a provision has been made for the same
legal claim
5.2
During its 20X6 accounting year, DL made the following changes.
Increased the allowance for irrecoverable trade receivables for 20X6 from 5% to
10% of outstanding balances
Changed the depreciation of plant and equipment from straight line depreciation to
reducing balance depreciation
Changed the valuation method of inventory from FIFO to weighted average
Changed the useful economic life of its motor vehicles from six years to four years
The draft 20X5 statement of financial position of Vale reported retained earnings of
$1,644,900 and net assets of $6,957,300. Following the completion of the draft 20X5
statement of financial position it was discovered that several items of inventory had been
valued at selling price at the 20X4 year end. This meant that the opening inventory value for
20X5 was overstated by $300,000. The closing inventory had been correctly valued in the
draft 20X5 statement of financial position.
SA
M
5.4
PL
Which ONE of these changes would be classified as a change in accounting policy as

determined by IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors?
If the error is corrected before the 20X5 financial statements are finalised, what figures
will be reported for retained earnings and net assets in the statement of financial
position?
A
B
C
D
5.5
Retained earnings
$1,644,900
$1,644,900
$1,944,900
$1,944,900
Net assets
$6,657,300
$6,957,300
$6,657,300
$6,957,300
In 20X3 Falkirk identified that a fraud had been perpetrated by an employee who had been
making payments to himself amounting to $6,200,000. $1,400,000 million were payments
made in 20X3, $1,800,000 in 20X2 and $3,000,000 prior to 20X2; the double entry to the
payments had created false assets.
How much of the fraud should be recognised as an expense in 20X3 profit or loss?
A
B
C
D
Nil
$1,400,000
$3,200,000
$6,200,000

5.6
IAS 8 Accounting Policies, Changes in Accounting Estimate and Errors specifies the
definition and treatment of a number of different items.
Which of the following is NOT specified by IAS 8?
A
B
C
D
The notification that a credit customer has just gone bankrupt owing debts of $250,000
Identification of fraud relating to the current and prior years
Moving from FIFO to weighted average valuation model for inventory
The recognition of a decommissioning provision
(12 marks)
IAS 18 REVENUE
6.1
IAS 18 Revenue sets out criteria for the recognition of revenue from the sale of goods.
Which ONE of the following is NOT a criterion specified by IAS 18 for recognising
revenue from the sale of goods?
6.2
The seller no longer retains any influence or control over the goods
The cost to the seller can be measured reliably
The buyer has paid for the goods
The significant risks and rewards of ownership have been transferred to the buyer
PL
A
B
C
D
OC signed a contract to provide office cleaning services for an entity for a period of one year
from 1 October 20X8 for a fee of $500 per month.
SA
M
The contract required the entity to make one payment to OC covering all twelve months
service in advance. The contract cost to OC was estimated at $300 per month for wages,
materials and administration costs.
OC received $6,000 on 1 October 20X8.
What profit or loss on the contract should OC recognise in its statement of profit or loss
for the year ended 31 March 20X9?
A
B
C
D
6.3
$600 loss
$1,200 profit
$2,400 profit
$4,200 profit
LP received an order to supply 10,000 units of product A every month for two years. The
customer had negotiated a low price of $200 per 1,000 units and agreed to pay $12,000 in
advance every 6 months.
The customer made the first payment on 1 July 20X2 and LP supplied the goods each month
from 1 July 20X2.
LPs year end is 30 September.
10

In addition to recording the cash received, how should LP record this order, in its
financial statements for the year ended 30 September 20X2, in accordance with IAS 18
Revenue?
A
B
C
D
On 31 March, DT received an order from a new customer, XX, for products with a sales value
of $900,000. XX enclosed a deposit with the order of $90,000.
6.4
Include $6,000 in revenue for the year and create a trade receivable for $36,000
Include $6,000 in revenue for the year and create a current liability for $6,000
Include $12,000 in revenue for the year and create a trade receivable for $36,000
Include $12,000 in revenue for the year but do not create a trade receivable or
current liability
On 31 March, DT had not completed credit referencing of XX and had not despatched any
goods. DT is considering the following possible entries for this transaction in its financial
statements for the year ended 31 March:
Include $900,000 as revenue for the year;
Include $90,000 as revenue for the year;
Do not include anything as revenue for the year;
Create a trade receivable for $810,000;
Create a trade payable for $90,000.
PL
(1)
(2)
(3)
(4)
(5)
According to IAS 18 Revenue, how should DT record this transaction in its financial
statements for the year ended 31 March?
1 and 4 only
2 and 5 only
3 and 4 only
3 and 5 only
SA
M
A
B
C
D
6.5
Which of the following statements correctly describes the accounting treatment when
there are goods in transit with free on board shipping?
A
If an entity is the buyer, inventory is recognised in its financial statements when it

receives the goods from a common carrier
If an entity is the buyer, inventory cannot be recognised in its financial statements
If an entity is the buyer, inventory is recognised in its financial statements upon

shipment
If an entity is the seller, inventory is recognised in its financial statement until

delivery is completed
(10 marks)
INVENTORY AND BIOLOGICAL ASSETS
7.1
At 30 September 20X1 the closing inventory of a company amounted to $386,400. The

following items were included in this total at cost:
(1)
1,000 items which had cost $18 each. These items were all sold in October 20X1
for $15 each, with selling expenses of $800.
(2)
Five items which had been purchased for $100 each eight years ago. These items
were sold in October 20X1 for $1,000 each, net of selling expenses.
11

What figure should appear in the companys statement of financial position at 30
September 20X1 for inventory?
A
B
C
D
7.2
$382,600
$384,200
$387,100
$400,600
The inventory value for the financial statements of Q for the year ended 31 December 20X1
was based on an inventory count on 4 January 20X2, which gave a total inventory value of
$836,200.
$
8,600
14,000
700
PL
Purchases of goods
Sales of goods (profit margin 30% on sales)
Goods returned by Q to supplier
Between 31 December and 4 January 20X2, the following transactions took place:
What adjusted figure should be included in the financial statements for inventories at 31
December 20X1?
A
B
C
D
According to IAS 2 Inventories, which of the following costs should be included in

valuing the inventories of a manufacturing company?
SA
M
7.3
$818,500
$834,300
$838,100
$853,900
7.4
(1)
(2)
(3)
(4)
Carriage inwards
Carriage outwards
Depreciation of factory plant
General administrative overheads
A
B
C
D
1 and 3 only
1, 2 and 4 only
2 and 3 only
2, 3 and 4 only
IAS 2 Inventories defines the extent to which overheads are included in the cost of inventories
of finished goods.
Which of the following statements about the IAS 2 requirements relating to overheads
are true?
12
(1)
Finished goods inventories may be valued on the basis of labour and materials cost
only, without including overheads.
(2)
Factory management costs should be included in fixed overheads allocated to

inventories of finished goods.
A
B
C
D
1 only
2 only
Both 1 and 2
Neither 1 nor 2
(1)
The carrying amount of inventory should be as close as possible to net realisable

value.
(2)
The valuation of finished goods inventory must include production overheads.
(3)
Production overheads included in valuing inventory should be calculated by

reference to the companys normal level of production during the period.
(4)
In assessing net realisable value, inventory items must be considered separately, or

in groups of similar items, not by taking the inventory value as a whole.
A
B
C
D
1 and 2 only
1 and 3 only
2, 3 and 4
3 and 4 only
7.6
Which of the following are correct?
The net realisable value of inventory is defined as the actual or estimated selling price less all
costs to be incurred in marketing, selling and distribution.
PL
7.5
Which of all the following additional items should be deducted in calculating the net
realisable value of inventory?
A
B
C
D
Settlement
discounts
Yes
No
Yes
Yes
Costs to
completion
Yes
Yes
No
Yes
Which of the following costing methods for inventory valuation purposes is permissible
under both IAS 2 Inventories?
SA
M
7.7
Trade
discounts
No
Yes
Yes
Yes
A
B
C
D
7.8
Absorption costing
Direct costing
Marginal costing
Variable costing
IAS 2 Inventories allows a number of methods for determining purchase price or production
of finished goods inventory.
Which of the following valuation methods is also allowed by IAS 2?
A
B
C
D
both LIFO and weighted average

only LIFO
only weighted average
neither LIFO nor weighted average
13

7.9
During the year ended 31 December 20X6 Grasmere purchased the following items for resale.
Date
March
June
Number of items
20
20
Cost price per item

$11
$13
This was a new product line and by 31 December 20X6 twenty items were left unsold. At
that date they were being sold at $12 an item and it would have cost Grasmere $10 an item to
buy further supplies. Grasmere determines cost of inventory under the FIFO method.
A
B
C
D
$200
$220
$240
$260
Toulouse makes three different products. The following table shows the inventory valuation
for each of the products under different bases.
SA
M
Product I
Product II
Product III
PL
7.10
At what amount should finished goods inventory be shown in the statement of financial
position on 31 December 20X6?
First-infirst-out
$
10
13
9
32
Last-infirst-out
$
11
15
5
31
Net realisable
value
$
12
14
7
33
At what value should Toulouse s inventory be stated in accordance with IAS 2

Inventories?
A
B
C
D
7.11
Which of the following is NOT dealt with by IAS 41 Agriculture?

A
B
C
D
7.12
14
$28
$30
$31
$32
Sheep
Wool
Wine
Vines
XYZ Farm purchased 100 turkeys for $10,000 on 17 November 20X1. At the year end of
XYZ , 31 December 20X1, the estimated sales price of the 100 turkeys was measured at
$10,500. In addition, the following costs are expected to be incurred in respect to the sale of
the turkeys.
$
Transportation cost
700
Finance cost
300
Income taxes related to this sale
1,000

What amount should be recognised for the biological assets in XYZs statement of
financial position as at 31 December 20X1?
A
B
C
D
7.13
$8,500
$9,800
$10,000
$10,500
IAS 41 Agriculture is applied to all of the following items except one.

Which item does IAS 41 not apply to?
Which of the following is NOT an example of agricultural activity, as defined in IAS 41

Agriculture?
A
B
C
D
PL
7.14
Biological assets
Land related to agricultural activity
Agricultural produce at the point of harvest
Government grants related to agricultural activity
A
B
C
D
Cultivating orchards
Floriculture
Fish farming
Sale of harvested crops
(28 marks)
IAS 11 CONSTRUCTION CONTRACTS
8.1
Digger commenced a construction contract, X47, on 1 July 20X3 and details for the first year
of the contract were as follows:
$
Amounts invoiced
2,400
Costs to date of last certificate
1,800
Costs since last certificate
200
Amounts received
2,100
Total contract price
4,200
Estimated costs to complete
1,200
Work certified
2,625
SA
M
The company invoices the customer immediately it receives a certificate of the value of the
work done.
What should Digger include as cost of sales for the X47 contract for the year ended
30 June 20X4, assuming profit is calculated on a cost basis?. (To the nearest $)
A
B
C
D
$1,938,000
$1,971,000
$1,875,000
$2,000,000
15

8.2
Augustus is involved in a number of construction contracts at 30 September 20X3. The

company calculates profit on a sales basis.
At that date the following information is available with respect to contract ZX45.
$
225
115
65
125
145
Contract price
Costs incurred to date
Estimated further costs to completion
Work certified
Amounts invoiced
8.3
Nil
$5,000 due to customer
$5,000 due from customer
$20,000 due to customer
PL
A
B
C
D
What amount should be included in the statement of financial position of Augustus in

respect of contract ZX45 as at 30 September 20X3?
B entered into a three-year contract to build a leisure centre for an entity. The contract value
was $6 million. B recognises profit on the basis of certified work completed.
At the end of the first year, the following figures were extracted from B's accounting records:
$000
2,000
1,650
550
2,750
1,600
1,300
SA
M
Certified value of work completed (progress payments billed)

Cost of work certified as complete
Cost of work-in-progress (not included in completed work)
Estimated cost of remaining work required to complete the contract
Progress payments billed and received from entity
Cash paid to suppliers for work on the contract
What values should B record for this contract as gross amounts due from customers
and current liabilities trade and other payables?
A
B
C
D
8.4
Gross amounts due from

customers
$950,000
$950,000
$1,250,000
$2,550,000
Current liabilities trade and

other payables
$350,000
$900,000
$350,000
$900,000
C started work on a four-year contract on 24 October 20X1. C recognises profit on the basis
of the certified percentage of work completed. The contract price is $10 million.
An analysis of Cs records provided the following information for the year to 30 September
20X3:
Percentage of work completed and certified in year
Total cost incurred during the year
Estimated cost of remaining work to complete contract
Total payments made for the cost incurred during the year
25%
$1,700,000
$3,900,000
$2,000,000
In the year ended 30 September 20X2 costs of $2,900,000 had been incurred, the contract was
30% complete and a profit of $330,000 had been recognised.
16

How much profit should C recognise in its statement of profit or loss for the year ended
30 September 20X3?
A
B
C
D
Under what circumstances is it appropriate to immediately recognise a loss on a

construction contract?
A
B
C
D
After work has commenced on the contract

After 50% stage of completion of contract activity
When it is probable that total contract costs will exceed total contract revenues
All of the above
(10 marks)
8.5
$330,000
$375,000
$495,000
$825,000
IAS 16 PROPERTY, PLANT AND EQUIPMENT
9.1
On 1 January 20X1 a company purchased some plant. The invoice showed:
PL
$
48,000
400
800
49,200
Modifications to the factory building costing $2,200 were necessary to enable the plant to be
installed.
SA
M
Cost of plant
Delivery to factory
One year warranty covering breakdown during 20X1
What amount should be capitalised for the plant in the companys records in
accordance with IAS 16 Property, Plant and Equipment?
A
B
C
D
9.2
$48,000
$48,400
$50,600
$51,400
At 31 December 2014 Cutie owned a building that had cost $800,000 on 1 January 2005. It
was being depreciated at 2% per year.
On 31 December 2014 a revaluation to $1,000,000 was recognised. At this date the building
had a remaining useful life of 40 years.
Which of the following pairs of figures correctly reflects the effects of the revaluation?
A
B
C
D
Depreciation charge for

year ending 31 December 2015
$
25,000
25,000
20,000
20,000
Revaluation surplus
as at 31 December 2014
$
200,000
360,000
200,000
360,000
17
(1)
All non-current assets must be depreciated.
(2)
If goodwill is revalued, the revaluation surplus appears in the statement of changes

in equity.
(3)
If a tangible non-current asset is revalued, all tangible assets of the same class
should be revalued.
(4)
In a companys published statement of financial position, tangible assets and

intangible assets must be shown separately.
A
B
C
D
1 and 2 only
1 and 4 only
2 and 3 only
3 and 4 only
9.4
ABC has revalued its property for the first time this year. It is proposing a policy whereby
depreciation based on the original historic cost is charged as an expense to profit or loss and
the depreciation based on the revalued amount is charged directly to revaluation surplus, this
policy is known as split depreciation.
PL
9.3
Under IAS 16 Property, Plant and Equipment is this policy of split depreciation
permitted?
A
B
C
D
Thames depreciates non-current assets at 20% per annum on a reducing balance basis. All
non-current assets were purchased on 1 April 20X3. The carrying amount on 31 March 20X6
is $20,000.
SA
M
9.5
Yes, it is required
Yes, it is allowed but not required
Yes, it is allowed only in prescribed circumstances
No it is not allowed
What is the accumulated depreciation (to the nearest $000) as at that date?
A
B
C
D
9.6
$15,000
$19,000
$30,000
$39,000
The following information relates to the disposal of two machines by Halwell:
Cost
Selling price
Profit/(loss) on sale
Machine 1
$
120,000
90,000
30,000
Machine 2
$
100,000
40,000
(20,000)
What was the total accumulated depreciation on both machines sold?

A
B
C
D
18
$80,000
$100,000
$120,000
$140,000

9.7
Lydd purchased production machinery costing $100,000, having an estimated useful life of
twenty years and a residual value of $2,000. After being in use for six years the remaining
useful life of the machinery is revised and estimated to be twenty-five years, with an
unchanged residual value.
What is the annual depreciation charge on the machinery in year 7?
A
B
C
D
Upton makes up its financial statements to 31 December each year. On 1 January 20X0 it
bought a machine with a useful life of 10 years for $200,000 and started to depreciate it at
15% per annum on the reducing balance basis. On 31 December 20X3 the accumulated
depreciation was $95,600 and the carrying amount $104,400. During 20X4 the company
changed the basis of depreciation to straight line.
9.8
$3,226
$3,161
$2,824
$2,744
A
B
C
D
9.9
PL
What is the correct accounting treatment to be adopted in the financial statements of

Upton for the year ended 31 December 20X4?
Depreciation charge ($10,440)
Prior period adjustment

Extraordinary item
Nil
Nil
$15,600
$15,600
Which ONE of the following items would CM recognise as subsequent expenditure on a

non-current asset and capitalise it as required by IAS 16 Property, Plant and Equipment?
When CM purchased a furnace five years ago, the furnace lining was separately
identified in the accounting records. The furnace now requires relining at a cost of
$200,000. Once relined the furnace will be usable for a further five years
SA
M
CMs office building has been badly damaged by a fire. CM intends to restore the
building to its original condition at a cost of $250,000
CMs delivery vehicle broke down. When it was inspected by the garage it was
found to be in need of a new engine. The engine and associated labour costs are
estimated to be $5,000
CM closes its factory for two weeks every year. During this time, all plant and
equipment has an annual maintenance check and any necessary repairs are carried
out. The cost of the current years maintenance check and repairs was $75,000
10
IAS 23 BORROWING COSTS
10.1
Under what conditions can an entity capitalise borrowing costs?
(18 marks)
The borrowing costs are incurred for purchases of inventory items
The borrowing costs are directly attributable to the acquisition, construction, or

production of a qualifying asset
The borrowing costs are directly attributable to the acquisition, construction, or

production of routinely manufactured assets
The borrowing costs are incurred for purchases of property, plant and equipment
19
(1)
(2)
(3)
(4)
Premium on redemption of preference share capital.

Discount on the issue of convertible debt.
Interest expense calculated using the effective interest rate.
Finance charges related to finance leases.
A
B
C
D
1, 2 and 3 only
2, 3 and 4 only
1 and 4 only
All four
Borrowing costs from which category of borrowed funds may be capitalised (to the
extent they are directly attributable to qualifying assets)?
A
B
C
D
10.4
Funds borrowed specifically to construct a qualifying asset

Funds borrowed in advance of expenditure on qualifying assets
General borrowed funds used to finance a qualifying asset
All of the above
Which of the following is an example of an asset that would never qualify for
capitalisation of borrowing costs under IAS 23 Borrowing Costs?
A
B
C
D
Intangible assets
Financial assets
Manufacturing plants
Power generation facilities
Which qualitative characteristic is applied by IAS 23 Borrowing Costs to the

capitalisation of borrowing costs?
SA
M
10.5
10.3
Which of the following would qualify as a borrowing cost as defined in IAS 23

Borrowing Costs?
PL
10.2
A
B
C
D
10.6
Consistency
Timeliness
Materiality
Understandability
QI in incurring expenditure on project 275 which meets the definition of a qualifying asset, in
accordance with IAS 23 Borrowing Costs. The company has the following debt components:
(1)
(2)
(3)
(4)
6% $100,000 debt used specifically to finance project 274.

7% $500,000 preference share capital.
10% $80,000 short-term loan.
4% $200,000 convertible debt.
What capitalisation rate would QI apply to expenditure incurred on project 275?

A
B
C
D
7%
6.75%
6.54%
4%
(12 marks)
20

11
GOVERNMENT GRANTS
11.1
Which of the following accounting policies for grants related to assets is allowed under
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance?
A
B
C
D
All three
1 and 2 only
1 and 3 only
2 and 3 only
Under IAS 20 Accounting for Government Grants and Disclosure of Government

Assistance, what is the correct term for a loan which the lender undertakes to waive
repayment of under certain conditions?
A
B
C
D
A forgivable loan
A non-payable loan
A non-recourse loan
A recourse loan
Under IAS 20 Accounting for Government Grants and Disclosure of Government

Assistance, how are government grants related to depreciable assets treated in the profit
or loss?
A
The government grant is recognised over the period and in the proportions in which
depreciation expense on those assets is recognised
The government grant must be recognised in the year in which the depreciable asset
is received and the following year only
The government grant must be recognised over a period of five years
The government grant must be recognised over a period of no more than 10 years
SA
M
11.3
Deduct from the cost of related asset in the statement of financial position.
Include in liabilities in the statement of financial position.
Credit profit and loss immediately with cash received.
PL
11.2
(1)
(2)
(3)
11.4
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance defines
government assistance as an action by government designed to provide an economic benefit
specific to an entity qualifying under certain criteria.
Which of the following is an example of government assistance?
A
B
C
D
Free technical or marketing advice

Provision of infrastructure by improvement to the general transportation network
Supply of improved facilities such as irrigation
A cash grant to buy a new item of plant
21
(1)
The accounting policy adopted for government grants.
(2)
The nature and extent of government grants recognised in the financial statements.
(3)
Unfulfilled conditions and other contingencies attached to government assistance

that have been recognised.
A
B
C
D
1 only
1 and 2 only
1 and 3 only
1, 2, and 3
11.6
Which of the following disclosures for government grants is required under IAS 20
Accounting for Government Grants and Disclosure of Government Assistance?
On 1 January 20X1 Emex received a government grant of $100,000 to assist in the purchase
of new machinery costing $1,000,000 with a useful life of five years. The grant is repayable
on a sliding scale if the machine is sold within five year; that is the full amount if sold in the
first year, 80% if sold in the second year and so on. The management of Emex intends to use
the machine for five years.
PL
11.5
The accounting policy is to offset the grant against the cost of the asset.
What will be the depreciation expense for the year ended 31 December 20X2 and what
provision will be required for the repayment of the grant as at 31 December 20X2?
SA
M
A
B
C
D
Depreciation charge
$000
180
180
200
200
Provision
$000
60
Nil
60
Nil
(12 marks)
12
IAS 40 INVESTMENT PROPERTIES
12.1
What is the definition of an investment property according to IAS 40 Investment

Property?
12.2
An investment in land and or buildings whether let to third parties or occupied by an

entity within the group
A property owned and occupied by an entity for its own purposes
A property which is held to earn rentals or for capital appreciation
An investment in land and or buildings other than leased property
IAS 40 Investment Property gives examples of investment properties, which include some of
the following:
(1)
(2)
(3)
(4)
(5)
(6)
22
Property held for long-term capital appreciation

Property leased to another entity on a finance lease
Property leased out under one or more operating leases
Owner-occupied property
Land held for an undetermined future use
Property occupied by employees

Which of the above are listed by IAS 40 as examples of an investment property?
A
B
C
D
Which of the following qualifies as investment property under IAS 40 Investment

Property?
12.4
12.5
A building that is vacant but is held to be leased out under an operating lease
Property being constructed on behalf of third parties
Property that is leased to another entity under a finance lease
Owner-occupied property
A
B
C
D
Under IAS 40 Investment Property, which of the following transfers would result in a
change from the cost measurement basis before transfer to the fair value measurement
basis after transfer?
PL
12.3
1, 5 and 6 only
1, 3 and 5 only
2, 3 and 4 only
2, 4 and 6 only
A transfer from investment property to owner-occupied property
A transfer from inventories to investment property at the commencement of an

operating lease to another party
A transfer from investment property to inventories, when the property is intended

for sale
None of the above
Under IAS 40 Investment Property, which of the following is correct?
Investment property is property held for administrative purposes

Investment property is property held for use in the supply of services
Investment property is property held for use in the production of goods
Investment property is property held by owner to earn rental income or for capital
appreciation
(10 marks)
SA
M
A
B
C
D
13
IAS 38 INTANGIBLE ASSETS
13.1
Which one of the following could be classified as deferred development expenditure in

Ms statement of financial position as at 31 March 20X1 according to IAS 38 Intangible
Assets?
A
$120,000 spent on developing a prototype and testing a new type of propulsion

system for trains. The project needs further work on it as the propulsion system is
currently not viable
A payment of $50,000 to a local universitys engineering faculty to research new

environmentally friendly building techniques
$35,000 spent on consumer testing a new type of electric bicycle. The project is
near completion and the product will probably be launched in the next twelve
months. M is not yet certain that there is going to be a viable market for the
finished product
$65,000 spent on developing a special type of new packaging for a new energy
efficient light bulb. The packaging is expected to be used by M for many years and
is expected to reduce Ms distribution costs by $35,000 a year
23
KJH spent $50,000 on an advertising campaign in January 20X2. KJH expects the
advertising to generate additional sales of $100,000 over the period February to
April 20X2
KJH is taking legal action against a contractor for faulty work. Advice from its
legal team is that it is probable that KJH may receive $250,000 in settlement of its
claim within the next 12 months
KJH purchased the copyright and film rights to the next book to be written by a
famous author for $75,000 on 1 March 20X1. A first manuscript has already been
received and advance orders suggest that the book will be a best seller
KJH has developed a new brand name internally. The directors value the brand
name at $150,000
13.3
Which ONE of the following would most likely result in the recognition of an asset in
KJHs statement of financial position at 31 January 20X2?
IAS 38 Intangible Assets governs the accounting treatment of expenditure on research and
development.
PL
13.2
Capitalised development expenditure must be amortised over a period not exceeding

five years.
(2)
If all the conditions specified in IAS 38 are met, development expenditure may be
capitalised if the directors decide to do so.
(3)
Capitalised development costs are shown in the statement of financial position

under the heading of Intangible Assets.
(4)
Amortisation of capitalised development expenditure will appear as an item in a

companys statement of changes in equity.
A
B
C
D
1 and 3 only
1 and 4 only
2 and 3 only
3 only
SA
M
(1)
13.4
Which of the following is NOT an intangible asset?

A
B
C
D
13.5
Which of the following may be included in a companys statement of financial position

as an intangible asset under IAS 38 Intangible Assets?
A
B
C
D
24
Patents
Development costs
Short leaseholds
Licences
Payment on account of patents

Expenditure on completed research
Start-up costs
Internally-generated goodwill

13.6
Henna was incorporated on 1 January 20X6. At 31 December 20X6 the following costs had
been incurred:
(1)
(2)
(3)
(4)
(5)
Legal fees incurred in establishing the entity

Customer lists purchased from a company that has gone out of business
Goodwill created by the company
Patents purchased for valuable consideration
Costs incurred by the company in developing patents
$
80,000
100,000
80,000
70,000
60,000
A
B
C
D
The development is incomplete
The benefits flowing from the completed development are expected to be greater
than its cost
Funds are unlikely to be available to complete the development
The development is expected to give rise to more than one product
Which of the following types of expenditure must be recognised as an expense when it is

incurred?
SA
M
13.8
Which of the following conditions would preclude any part of the development
expenditure to which it relates from being capitalised?
PL
13.7
$310,000
$250,000
$230,000
$170,000
What is the total cost of intangible assets to be recognised in the statement of financial
position of Henna at 31 December 20X6 in accordance with IAS 38 Intangible Assets?
13.9
Tangible non-current assets acquired in order to provide facilities for research and
development activities
Legal costs in connection with registration of a patent
Costs of searching for possible alternative products
Costs of research work which are to be reimbursed by a customer
On 1 October 20X1 Hyena paid $500,000 deposit towards the cost of a laboratory for research
and development. On 31 December 20X1, Hyena s financial year end, the laboratory had
still not been completed.
Where should the payment of $500,000 appear in Hyenas statement of financial
position on 31 December 20X1?
A
B
C
D
Development costs under intangible assets

Payments on account under intangible assets
Payments on account under tangible non-current assets
Payments on account under current assets
25

13.10
RD s figures for research and development are as follows:

Research
Development expenditure in the year
Brought forward deferred development expenditure
Written off deferred expenditure in the year
$267,000
$215,000
$305,000
**
** To be calculated.
At 31 December 20X4 the balance carried forward for development expenditure was
$375,000.
A
B
C
D
$267,000
$412,000
$482,000
$787,000
What amount will RD charge to profit or loss for research and development for 20X4?
PL
(20 marks)
14
NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
14.1
PQ has ceased operations overseas in the current accounting period. This resulted in the
closure of a number of small retail outlets.
Which one of the following costs would be excluded from the loss on discontinued
operations?
Loss on the disposal of the retail outlets
Redundancy costs for overseas staff
Cost of restructuring head office as a result of closing the overseas operations
Trading losses of the overseas retail outlets up to the date of closure
SA
M
A
B
C
D
14.2
BN has an asset that was classified as held for sale at 31 March 20X2. The asset had a
carrying amount of $900 and a fair value of $800. The cost of disposal was estimated to be
$50.
According to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations,
which ONE of the following values should be used for the asset in BNs statement of
financial position as at 31 March 20X2?
A
B
C
D
14.3
$750
$800
$850
$900
During the year to 30 April 20X9 two companies carried out major re-organisations of their
activities. The re-organisations were as follows:
Maynard closed down its manufacturing division on 1 January 20X9. This division
accounted for 30% of Maynards revenue, Maynard will now focus all of their efforts on its
retail division.
Grant purchased a group of companies in February 20X9. One of the subsidiaries within the
group, Lytton, did not meet the profile required by Grant and therefore the intention of Grant
is to sell this subsidiary as soon as possible, and no later than 30 September 20X9.
26

Which of these re-organisations would be classified as discontinued operations for the
year ended 30 April 20X9?
A
B
C
D
14.4
Maynard
Lytton
Both Maynard and Lytton
Neither Maynard or Lytton
On 1 January 20X0 Beech purchased an asset for $500,000, the asset had a useful life of eight
years and nil residual value.
On 1 July 20X3 the asset was classified as held for sale in accordance with IFRS 5 Noncurrent Assets Held for Sale and Discontinuing Activities. On that date the fair value less cost
of disposing of the asset were assessed as $254,000.
A
B
C
D
14.5
$31,250
$56,650
$58,500
$62,500
PL
What is the total expense should be recognised in respect of this asset in the statement of
profit or loss for 20X3?
In order for an asset to be classified as held for sale in accordance with IFRS 5 Non-current
Assets Held for Sale and Discontinuing Activities the sale of the asset must be highly
probable.
Which TWO of the following are indicators that the sale of the asset is highly probable?
The asset has been advertised for sale in a trade journal.
(2)
A contract with a buyer has been signed.
(3)
The market value of similar assets is $50,000 and management hopes to sell the
asset for a profit of $30,000.
(4)
Necessary repairs to the asset will be carried out when management has signed a
contract for the sale.
A
B
C
D
1 and 2 only
2 and 3 only
3 and 4 only
1 and 4 only
SA
M
(1)
(10 marks)
15
IAS 36 IMPAIRMENT OF ASSETS
15.1
The following information relates to three assets held by a company:
Asset
Carrying amount
Fair value less costs of disposal
Value in use
A
$000
100
80
90
B
$000
50
60
70
C
$000
40
35
30
27

What is the total impairment loss?
A
B
C
D
15.2
$Nil
$10,000
$15,000
$20,000
Dodgy has a property which is currently stated at a revalued carrying amount of $253,000.
Due to a slump in property prices the value of the property is currently only $180,000.
The historical cost carrying amount of the property is $207,000.

How should the above impairment in value be reflected in the financial statements in
accordance with IAS 36 Impairment of Assets?
A
B
C
D
15.3
Other
Comprehensive
Income
Cr $46,000
Dr $46,000
Dr $73,000
PL
Profit or loss
account
Dr $73,000
Dr $27,000
Dr $73,000
Noddy has an item of equipment included in its statement of financial position at a carrying
amount of $2,750. The asset had been revalued several years ago. If the asset had not been
revalued its carrying amount would only have been $1,250.
SA
M
An impairment review of the asset has been undertaken and it is estimated that the
recoverable amount of the asset is only $1,000.
Noddy has not made any annual transfers from the revaluation surplus to retained earnings.
How much of the impairment loss should be charged to other comprehensive income in
accordance with IAS 36 Impairment of Assets?
A
B
C
D
15.4
$1,750
$1,500
$nil
$250
In 20X3 Angry revalued at $360,000 a plot of land which had been purchased in 20X1 for
$300,000 and recognised a revaluation gain of $60,000.
In 20X4 Angry revalued to $130,000 a second plot of land which had been purchased for
$100,000 in 20X2 and recognised a further revaluation gain of $30,000.
In 20X5 Angry wishes to write down the value of the first plot of land from $360,000 to
$260,000 because of an impairment in its value due to changes in market prices.
There have been no other movements on the revaluation surplus.
28

What amounts should be recognised in the financial statements for 20X5 for the
impairment loss?
A
B
C
D
Other Comprehensive Income

Nil
$60,000
$90,000
$100,000
The following measures relate to a non-current asset:

(1)
(2)
(3)
(4)
Carrying amount
Net realisable value
Value in use
Replacement cost
$20,000
$18,000
$22,000
$50,000
A
B
C
D
$18,000
$20,000
$22,000
$50,000
PL
What is the recoverable amount of the asset?
15.5
Profit or loss
$100,000
$40,000
$10,000
Nil
(10 marks)
IAS 17 LEASES
16.1
On 1 January 20X7 Melon bought a machine by way of a finance lease. The terms of the
contract were as follows:
$
Cash price
18,000
Deposit
(6,000)
12,000
Interest (9% for two years)
2,160
Balance
14,160
SA
M
16
The balance is payable in two annual instalments commencing 31 December 20X7.

The rate of interest implicit in the contract is approximately 12%.
Applying the requirements of IAS 17 Leases what is the finance charge to profit or loss
for the year ended 31 December 20X7?
A
B
C
D
$1,080
$1,440
$1,620
$2,160
29

16.2
IAS 17 Leases requires a lessee to capitalise a finance lease at which of the following
amounts?
A
B
C
D
Alpha enters into a lease with Omega of an aircraft which had a fair value of $240,000 at the
inception of the lease. The terms of the lease require Alpha to pay 10 annual rentals of
$36,000 in arrears. Alpha is totally responsible for the maintenance of the aircraft which has
a useful life of approximately fifteen years.
16.3
Fair value of the leased asset

Present value of the minimum lease payments
Lower of fair value of the leased asset and present value of the minimum lease payments
Lower of minimum lease payments and fair value of leased asset
The present value of the 10 annual rentals of $36,000 discounted at the interest rate implicit in
the lease is $220,000.
A
B
C
D
16.4
PL
Applying the requirements of IAS 17 Leases to this lease what is the increase in Alphas
non-current assets?
Nil
$220,000
$240,000
$360,000
Acor is planning to acquire a new machine, which would cost $1,750,000. The acquisition
will be financed through a finance lease agreement, which has an implicit interest rate of 13%
per annum. The lease is for four years and Acor is required to make four annual payments of
$520,000, with the first payment due on commencement of the lease agreement.
SA
M
There is uncertainty regarding title of the asset at the end of the lease period.
Acors usual policy is to depreciate similar machinery over five years on the straight line
basis.
What is the correct total charge to profit or loss for the first year of the lease?
A
B
C
D
16.5
$509,900
$577,500
$597,400
$665,000
Z entered into a finance lease agreement on 1 November 20X2. The lease was for five years,
the fair value of the asset acquired was $45,000 and the interest rate implicit in the lease was
7%. The annual payment was $10,975 in arrears.
What is the total amount owing under the lease at 31 October 20X4?
A
B
C
D
$27,212
$28,802
$29,350
$40,108
(10 marks)
30

17
IAS 37 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
17.1
TY is the main contractor employing sub-contractors to assist it when required.

TY has recently completed a contract replacing a roof on the local school. Despite this, the
roof has been leaking and some sections are now unsafe. The school is suing TY for $20,000
to repair the roof.
TY used a sub-contractor to install the roof and regards the sub-contractors work as faulty.
TY has raised a court action against the sub-contractor claiming the cost of the schools action
plus legal fees, a total of $22,000.
TY has been informed by legal advisers that it will probably lose the case brought against it
by the school and will probably win the case against the sub-contractor.
How should these items be treated in TYs financial statements?
A provision should be made for the $20,000 liability and the probable receipt of
cash from the case against the sub-contractor disclosed as a note
No provisions should be made but the $20,000 liability should be disclosed as a

note
A provision should be made for the $20,000 liability and the probable receipt of
cash from the case against the sub-contractor recognised as a current asset
PL
A provision should be made for the $20,000 liability and the case against the subcontractor ignored
MN obtained a government licence to operate a mine from 1 April 20X1. The licence
requires that at the end of the mines useful life, all buildings must be removed from the site
and the site landscaped. MN estimates that the cost of this decommissioning work will be
$1,000,000 in 10 years time using a discount factor of 8%, a 10 year discount factor at 8% is
0.463.
SA
M
17.2
According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets how much
should MN include in provisions in its statement of financial position as at 31 March
20X2?
A
B
C
D
17.3
$100,000
$463,000
$500,000
$1,000,000
Which of the following statements about provisions, contingencies and events after the
reporting period is correct?
A
A company expecting future operating losses should make provision for those
losses as soon as it becomes probable that they will be incurred
Details of all adjusting events after the reporting period must be disclosed by note in
a companys financial statements
A contingent asset must be recognised as an asset in the statement of financial

position if it is probable that it will arise
Contingent liabilities must be treated as actual liabilities and provided for when it is
probable that they will arise, if they can be measured with reliability
31
(1)
A contingent asset should be disclosed by note if an inflow of economic benefits is probable.
(2)
A contingent liability should be disclosed by note if it is probable that a transfer of

economic benefits to settle it will be required, with no provision being made.
(3)
No disclosure is required for a contingent liability if it is less than probable that a

transfer of economic benefits to settle it will be required.
A
B
C
D
1 only
2 only
3 only
None of these statements
17.5
Which of the following statements about contingent assets and contingent liabilities is
true?
IAS 37 Provisions, Contingent Liabilities and Contingent Assets deals with accounting for
contingencies. An entity has a present obligation that probably requires the outflow of
economic resources and a contingent asset where the inflow of economic benefits is probable.
PL
17.4
How should the entity treat the present obligation and contingent asset?
A
B
C
D
17.6
Present obligation
Provided for
Provided for
Disclosed, but not provided for
Disclosed, but not provided for
Contingent asset
Disclosed
Not disclosed
Disclosed
Not disclosed
The following describe potential provisions.
A provision to cover refunds. The company is in the retail sector and has a
reputation for a no questions asked policy on refunds.
SA
M
(1)
(2)
A provision to cover an onerous contract on an operating lease. The lease was on a

building which the company has subsequently vacated. The lease cannot be
terminated and cannot be re-let.
In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets in

which of the above situations would a company be allowed to recognise a provision in its
financial statements?
A
B
C
D
17.7
Neither situation
Both situations
Situation 1 only
Situation 2 only
Porter is finalising its financial statements for the year ended 30 September 20X3.
A former employee of Porter has initiated legal action for damages against the company after
being summarily dismissed in October 20X3. Porter s legal advisors feel that the employee
will probably win the case and have given the company a reasonably accurate estimate of the
damages which would be awarded. Porter has not decided whether to contest the case.
32

How should this item be classified in the financial statements of Porter for the year
ended 30 September 20X3?
A
B
C
D
Which ONE of the following would require a provision to be created by BW at its

reporting date of 31 October 20X5?
The government introduced new laws on data protection which come into force on 1
January 20X6. BWs directors have agreed that this will require a large number of
staff to be retrained. At 31 October 20X5, the directors were waiting on a report
they had commissioned that would identify the actual training requirements
At the reporting date, BW is negotiating with its insurance provider about the
amount of an insurance claim that it had filed. On 20 November 20X5, the
insurance provider agreed to pay $200,000
BW makes refunds to customers for any goods returned within 30 days of sale, and
has done so for many years
A customer is suing BW for damages alleged to have been caused by BWs product.
BW is contesting the claim and, at 31 October 20X5, the directors have been
advised by BWs legal advisers it is very unlikely to lose the case
PL
17.8
A non-adjusting event
An adjusting event
A contingent liability disclosed by way of note
A provision
(16 marks)
IAS 10 EVENTS AFTER THE REPORTING PERIOD
18.1
WDCs year end is 30 September 20X1.
SA
M
18
Which ONE of the following should be classified by WDC as a non-adjusting event

according to IAS 10 Events After The Reporting Period?
A
WDC was notified on 5 November 20X1 that one of its customers was insolvent
and was unlikely to repay any of its debts. The balance outstanding at 30
September 20X1 was $42,000
On 30 September WDC had an outstanding court action against it. WDC had made
a provision in its financial statements for the year ended 30 September 20X1 for
damages awarded against it of $22,000. On 29 October 20X1 the court awarded
damages of $18,000
On 5 October 20X1 a serious fire occurred in WDCs main production centre and
severely damaged the production facility
The year end inventory balance included $50,000 of goods from a discontinued
product line. On 1 November 20X1 these goods were sold for a net total of $20,000
33

18.2
IAS 10 Events After the Reporting Period distinguishes between adjusting and non-adjusting
events.
Which ONE of the following gives rise to an adjusting event?
A month after the year end the directors decided to cease production of one of three
product lines and to close the production facility
One month after the year end a court awarded damages of $50,000 to one of the
reporting entitys customers. The entity had expected to lose the case and made a
provision of $30,000 at the year end
Three weeks after the year end a fire destroyed the reporting entitys main
warehouse facility and most of its inventory
A dispute with workers caused all production to cease six weeks after the year end
The draft financial statements of a limited liability company are under consideration. The
accounting treatment of the following material events after the reporting period needs to be
determined:
PL
18.3
(1)
The bankruptcy of a major customer, with a substantial debt outstanding at the end
of the reporting period.
(2)
A fire destroying some of the companys inventory (the companys going concern
status is not affected).
(3)
An issue of shares to finance expansion.
(4)
Sale for less than cost of some inventory held at the end of the reporting period.
SA
M
According to IAS 10 Events After the Reporting Period, which of the above events require
an adjustment to the figures in the draft financial statements?
A
B
C
D
18.4
18.5
Which of the following events between the end of the reporting period and the date the
financial statements are authorised for issue must be adjusted in the financial
statements?
(1)
(2)
(3)
(4)
Declaration of equity dividends.

Decline in market value of investments.
The announcement of changes in tax rates.
The announcement of a major restructuring.
A
B
C
D
1 and 2 only
2 and 4 only
3 and 4 only
None of them
Which of the following events occurring after the year end is classified as a nonadjusting event in accordance with IAS 10 Events After the Reporting Period?
A
B
C
D
34
1 and 4 only
1, 2 and 3 only
2 and 3 only
2 and 4 only
A property valuation which provides evidence of a permanent diminution in value

The renegotiation of amounts owing by credit customers
The determination of the amount of bonus payments to be made to employees
Government announcing a change in tax rates

18.6
The financial statements of an entity for the year ended 31 March 20X4 were approved by the
directors on 31 August 20X4.
Which of the following would be classified as an adjusting event in accordance with IAS
10 Events after the Reporting Period/
A reorganisation of the entity proposed by a director on 31 January 20X4 was
agreed by the Board on 10 July 20X4
A strike by the workforce which started on 1 May 20X4 stopped all production for
10 weeks before working terms and conditions were settled
An insurance claim for damage caused by a fire in a warehouse on 1 January 20X4

for $2.5 million was settled with a receipt of $1.5 million on 1 June 20X4
On 3 September 20X4 the entity sold some inventory for $100,000 which had a
carrying amount at 31 March 20X4 of $122,000
(12 marks)
IAS 12 INCOME TAXES
19.1
At 1 October 20X1 DX had the following balances in respect of property, plant and
equipment:
$
Cost
$220,000
Tax written down value
$82,500
Statement of financial position:
Carrying amount
$132,000
PL
19
SA
M
DX depreciates all property, plant and equipment over five years using the straight line
method and no residual value. All assets were less than five years old at 1 October 20X1. No
assets were purchased or sold during the year ended 30 September 20X2.
The local tax regime allows tax depreciation of 50% on additions to property, plant and
equipment in the accounting period in which they are purchased. In subsequent accounting
periods tax depreciation of 25% per year of the tax written down value is allowed. Income
tax on profits is at a rate of 25%.
What should be the amount for deferred tax in DXs statement of financial position as at
30 September 20X2 in accordance with IAS 12 Income Taxes?
A
B
C
D
19.2
$5,843
$6,531
$12,375
$23,375
DF purchased its only item of plant on 1 October 20X1 for $200,000.

depreciation on a straight line basis over five years.
DF charges
Tax depreciation is allowed as follows:
50% of additions to property, plant and equipment in the accounting period in which
they are recorded;
25% per year of the written down value in subsequent accounting periods except
that in which the asset is disposed of;
35

Income tax on profits is at a rate of 25%.
What would be the amount for deferred tax in DMs statement of financial position as at
30 September 20X3, in accordance with IAS 12 Income Taxes?
A
B
C
D
The following information relating to taxation appears in the records of Stapley.

$
187,500
19.3
$3,750
$11,250
$18,750
$45,000
Balance on income tax account on 1 January 20X2

Income tax paid in 20X2 in full settlement for the year
ended 31 December 20X1
Estimated income tax for the year ended 31 December 20X2
194,300
137,600
A
B
C
D
$194,300
$144,400
$137,600
$130,800
DZ recognised a tax liability of $290,000 in its financial statements for the year ended 30
September 20X5. This was subsequently agreed with and paid to the tax authorities as
$280,000 on 1 March 20X6. The directors of DZ estimate that the tax due on the profits for
the year to 30 September 20X6 will be $320,000. DZ has no deferred tax liability.
SA
M
19.4
PL
What will the corporation tax liability be in Stapleys statement of financial position on
31 December 20X2?
What is DZs profit or loss tax charge for the year ended 30 September 20X6?
A
B
C
D
19.5
$310,000
$320,000
$330,000
$600,000
At 30 April 20X3 the non-current assets of Shades have a carrying amount of $365,700 and a
tax written down value of $220,000. The balance brought forward on the deferred tax
account at 1 May 20X2 was $33,000. The tax rate is 25%.
What is the balance on the deferred tax account at 30 April 20X3?
A
B
C
D
19.6
36
$33,000
$36,425
$55,000
$91,425
At 30 April 20X6, the carrying amount of the non-current assets of Bahno was $80,000
greater than the tax written down value, and the balance brought forward on the deferred tax
account was $24,800. The company accountant calculated that the corporation tax charge on
the reported profit for the year to 30 April 20X6 would be $53,960, based on the tax rate of
24%.

What is the total charge for taxation in the statement of profit and loss for the year to 30
April 20X6?
A
B
C
D
$48,360
$59,560
$73,160
$78,760
(12 marks)
FINANCIAL INSTRUMENTS
20.1
TS purchased 100,000 of its own equity shares in the market and classified them as treasury
shares. At the end of the accounting period TS still held the treasury shares.
20
Which ONE of the following is the correct presentation of the treasury shares in TSs
closing statement of financial position in accordance with IAS 32 Financial Instruments:
Presentation?
IAS 32 Financial Instruments: Presentation classifies issued shares as either equity

instruments or financial liabilities. An entity has the following categories of funding on its
statement of financial position:
(1)
A preference share that is redeemable for cash at a 10% premium on 30 May 20X5.
(2)
An ordinary share which is not redeemable and has no restrictions on receiving

dividends.
SA
M
20.2
As a current asset investment

As a non-current liability
As a non-current asset
As a deduction from equity
PL
A
B
C
D
(3)
A loan note that is redeemable at par in 2020.
(4)
An irredeemable loan note that pays interest at 7% a year.
Applying IAS 32, how would each of the above be categorised in the statement of
financial position?
A
B
C
D
20.3
As an equity
instrument
1 and 2 only
2 and 3 only
2 only
1, 2 and 3 only
As a financial
liability
3 and 4 only
1 and 4 only
1, 3 and 4 only
4 only
How should convertible debt be classified in accordance with IAS 32 Financial

Instruments: Presentation?
A
As either a liability or equity based on an evaluation of the substance of the

contractual arrangement
As separate liability and equity components , basing the liability element on the
present value of future cash flows
As equity in its entirety, on the presumption that all options to convert the debt into
equity will be exercised in the future
As a liability in its entirety, until it is converted into equity
37
20.5
How should the proceeds from issuing a compound instrument be allocated between
liability and equity components in accordance with IAS 32 Financial Instruments:
Presentation?
A
The liability component is measured at fair value and the remainder is allocated to
the equity component
The equity component is measured at fair value and the remainder is allocated to the
liability component
The fair values of both the components are estimated and the proceeds allocated
proportionately
The equity component is measured at its intrinsic value and the remainder is
allocated to the liability component
20.4
In the current financial year, Natamo has raised a loan for $3m. The loan is repayable in 10
equal half-yearly instalments. The first instalment is due six months after the loan was raised.
A
B
C
D
As a current liability
As a non-current liability
As equity
As both a current and a non-current liability
On 1 January 20X2 LMN issued $2,000,000 8% convertible debt at par. The debt is
repayable, or convertible, at a premium of 10% four years after issue. The effective interest
rate for the debt is 14%. The present values $1 receivable at the end of each year, based on
discount rates of 8%, 10% and 14% are:
8%
10%
14%
End of year 1
0.926
0.909
0.877
2
0.857
0.826
0.769
3
0.794
0.751
0.675
4
0.735
0.683
0.592
SA
M
20.6
PL
How should the loan be reported in Natamos next financial statements?
What is the finance charge to LMNs profit or loss for the year ended 31 December
20X3?
A
B
C
D
20.7
$160,000
$248,000
$260,000
$274,000
On 1 March 20X2 PQR purchased a debt instrument from the market for $105,000, the par
value of the instrument was $100,000. At 31 December 20X2 the fair value of the instrument
is $112,000 and the amortised cost has been calculated to be $104,000.
PQR does not hold this type of asset for contractual cash flows.
At what amount should the investment be included in PQRs statement of financial
position as at 31 December 20X2?
A
B
C
D
38
$100,000
$104,000
$105,000
$112,000

20.8
On 1 January 20X2 XYZ issued $1,000,000 4% convertible loan notes, at a discount of 95.
The loan notes are redeemable in five years at a premium of 10%.
What are the total finance costs that should be charged to profit or loss over the fiveyear term of the convertible loan notes?
A
B
C
D
A
B
C
D
In accordance with IFRS 9 Financial Instruments, under what circumstances, can an

entity classify financial assets that meet the amortised cost criteria as at fair value
through profit or loss?
Where the instrument is held to maturity
If doing so eliminates an accounting mismatch
Where the financial asset passes the contractual cash flow characteristics test
Where the business model approach is adopted
PL
20.9
$350,000
$345,000
$250,000
$200,000
(18 marks)
21
REGULATORY FRAMEWORK
21.1
Harwich holds 70,000 $1 B shares in Sall. These shares carry one vote each.
Felixstowe holds 18,000 $1 A shares in Sall. These shares carry 10 votes each.
The share capital of Sall is made up of the following:
SA
M
100,000 B shares of $1 each

20,000 A shares of $1 each
$
100,000
20,000
120,000
Of which of the following reporting entities is Sall a subsidiary undertaking?

A
B
C
D
21.2
Both Harwich and Felixstowe

Harwich
Felixstowe
Neither Harwich nor Felixstowe
Sam has a share capital of $10,000 split into 2,000 A ordinary shares of $1 each and 8,000 B
ordinary shares of $1 each. Each A ordinary share has 10 votes and each B ordinary share has
one vote. Both classes of shares have the same rights to dividends and on liquidations. Tom
owns 1,500 A ordinary shares in Sam. Dick owns 6,000 B ordinary shares in Sam.
All three companies conduct similar activities and there is no special relationship between the
companies other than that already stated. The shareholdings in Sam are held as long-term
investments and are the only shareholdings of Tom and Dick.
Which companies must prepare consolidated financial statements?
A
B
C
D
Neither Tom nor Dick

Tom only
Dick only
Both Tom and Dick
39

Answer 1 STANDARD SETTING PROCESS
(a)
IASBs Standard Setting Process
The IASB is ultimately responsible for setting International Financial Reporting Standards
(IFRS). The Board (advised by the Advisory Council) identifies a subject and appoints an
Advisory Committee to advise on the issues relevant to the given topic. Depending on the
complexity and importance of the subject matter the IASB may develop and publish
Discussion Papers for public comment. Following the receipt and review of comments the
IASB then develops and publishes an Exposure Draft for public comment. The usual
comment period for both of these is between 90 and 120 days. Finally, and again after a
review of any further comments, an IFRS is issued. The IASB also publishes a Basis for
Conclusions which explains how it reached its conclusions and gives information to help
users to apply the Standard in practice. In addition to the above the IASB will sometimes
conduct public hearings where proposed standards are openly discussed and occasionally field
tests are conducted to ensure that proposals are practical and workable around the world.
SA
M
PL
The authority of IFRS is a rather difficult area. The IASB has no power to enforce IFRS
within those countries/entities that choose to adopt them. This means that enforcement is in
the hands of the regulatory systems of the individual adopting countries. There is no doubt
the regulatory systems in different parts of the world differ from each other considerably in
their effectiveness. For example in the UK the Financial Reporting Review Panel (FRRP)
was a body that investigated departures from the UKs regulatory system (which requires the
use of IFRS for listed companies). The FRRP had wide and effective powers of enforcement,
these powers have now been subsumed into other UK bodies. However, not all countries
have equivalent bodies, thus it can be argued that IFRS is not enforced in a consistent manner
throughout the world. Complementary to IFRSs, there also exist International Auditing
Standards (ISAs) and part of the rigour and transparency that the use of IFRSs brings is that
those companies adopting IFRS are also likely to be audited in accordance with ISAs. (This
auditing aspect is part of IOSCOs requirements for financial statements to be used for crossborder listing purposes.)
Where it becomes apparent (often through press reports) that there is widespread
inconsistency in the interpretation of an IFRS, or where it is perceived that a standard is not
clear enough in a particular area, the IFRS Interpretation Committee (IFRS IC) may act to
remedy the issue by issuing an Interpretation. This adds to the body of pronouncements and
will usually (eventually) be incorporated on revision of the relevant IFRS. However, where it
becomes apparent (perhaps through a modified audit report) that a company has departed
from IFRSs there is little that the IASB can do directly to enforce their application.
All new standards are now reviewed after a two-year period, to ensure that the standard is
fulfilling its stated objective and that there are no undue concerns in the application of the
standard. An annual improvements cycle looks at making minor improvements relating to all
standards.
(b)
Success of the process
Any measure of success is really a matter of opinion. There is no doubt that the growing
acceptance of IFRSs through IOSCOs endorsement, the European Union requirement for
their use by listed companies and the ever increasing number of countries that are either
adopting IFRS outright or basing their domestic standards very closely on IFRSs is a measure
of the success of the IASB. Equally there is widespread recognition that in recent years the
quality of IFRS has improved enormously due to the improvements project and subsequent
continuing improvements.
1025
However the IASB is not without criticism. Some countries that have developed
sophisticated regulatory systems feel that IFRSs are not as rigorous as the local standards and
this may give cross-border listing companies an advantage over domestic companies. Some
requirements of IFRS are regarded as quite controversial (e.g. deferred tax (in IAS 12) and
financial instruments). Many IFRSs are complex and the benefits of applying them to smaller
entities may be outweighed by the costs. The IASB has therefore issued a standard on
financial reporting issues for small and medium sized entities. Also some securities
exchanges that are part of IOSCO require non-domestic companies that are listing by filing
financial statements prepared under IFRSs to produce a reconciliation to local GAAP. This
involves reconciling the IFRS statement of profit or loss and other comprehensive income and
statement of financial position, to what they would be if local GAAP had been used (e.g. in
the US). Critics argue that this requirement negates many of the benefits of being able to use
a single set of financial statements to list on different security exchanges. This is because to
produce reconciliation to local GAAP is almost as much work and expense as preparing
financial statements in the local GAAP which was usually the previous requirement.
PL
Despite these criticisms there is no doubt that the work of IASB has already led, and in the
future will lead, to further improvement in financial reporting throughout the world.
Answer 2 PERIOD OF INFLATION
(a)
Inventories undervalued
Inventory is stated at historical cost (or net realisable value if lower). Historical cost is
normally below the current value in times of general inflation.
SA
M
The major weakness of historical cost is the effect of charging the historical cost of inventory
against sales. Cost of sales will be lower than if current values had been charged, leading to
higher profits and higher dividend payments. There may be insufficient funds to purchase
replacement inventory, the price of which will equate to current value of inventory.
(b)
Depreciation understated
Depreciation is usually based on the historical cost of non-current assets. Replacements will
normally increase in price during a period of inflation. The annual depreciation charge,
therefore, may not reflect the amount needed to be able to replace the assets. Consequently,
the accounting profit will be overstated, and this may mean that too much profit is withdrawn
from the business. The cash resources may then prove insufficient to replace the assets at the
end of their useful life and the business may not be able to operate at the same level of
activity as it has previously experienced.
(c)
Gains and losses on net monetary assets undisclosed
Net monetary assets are monetary assets less monetary liabilities. The term monetary refers
to all liabilities of a business repayable in money and those assets which are stated in
historical cost accounts at the amount of money expected to be received (e.g. receivables are
stated at sales value less allowances for irrecoverable debts).
In a time of inflation gains can arise on monetary liabilities and losses on monetary assets.
For example, loans to or from a company are monetary items. A loan made to a company
may produce a gain to the company as, although the amount originally borrowed will be
repaid at its face value, its purchasing power will have been reduced.
The person lending the money to the company will have charged interest to cover:
(i)
(ii)
1026
the risk of making the loan; and

compensation for the fall in the purchasing power of the investment.

The interest cost will thus be charged against profits of the company, but also there should be
a gain recorded in the statement of profit or loss (that of eventually having to repay only the
same monetary amount).
(d)
Asset values unrealistic
(e)
Difficulty of meaningful periodic comparisons
Values for inventory and non-current assets are stated at historical cost (i.e. below their
current value). Many would argue that a statement of financial position should record not
only the assets in the possession of a company at the end of the reporting period but also their
current worth. To show the amount at which the company originally bought the asset is not
useful information and would never be used for decision-making purposes.
A meaningful comparison of financial reports prepared under historical cost accounting over
several accounting periods may be misleading.
PL
Many figures disclosed in accounts are not comparable. For example, profits of $100,000 in
2008 are not equivalent to profits of $100,000 in 2013 if there has been inflation between the
two dates. The worth of the 2013 profits is less than the worth of the 2008 profits. The
comparison is just as meaningless as comparing financial reports prepared in Japanese yen
with reports prepared in euros.
SA
M
In order to be able to make a meaningful comparison between financial reports prepared in

different time periods, it is desirable therefore to translate them into the same currency (i.e. to
use units of a constant purchasing power). The adjustments are similar in principle to that
used in translating dollars into euros or euros into dollars. Figures are often adjusted for
changes in a price index to achieve a measure of constant purchasing power. In many
countries, government departments issue indices in accordance with which companies must
adjust their financial statements, particularly where there is high inflation.
Answer 3 REBOUND
(a)
Conceptual Framework and Relevance
Two important and inter-related aspects of relevance are its confirmatory and predictive roles.
The Framework specifically states that to have predictive value, information need not be in
the form of an explicit forecast. The serious drawback of forecast information is that it does
not have (strong) confirmatory value; essentially it will be an educated guess.
IFRS examples of enhancing the predictive value of historical financial statements are:
The disclosure of continuing and discontinued operations. This allows users to

focus on those areas of an entitys operations that will generate its future results.
Alternatively it could be thought of as identifying those operations which will not
yield profits or, perhaps more importantly, losses in the future.
The separate disclosure of non-current assets held for sale. This informs users that
these assets do not form part of an entitys long-term operating assets.
The separate disclosure of material items of income or expense (e.g. a gain on the
disposal of a property). These are often one off items that may not be repeated in
future periods. They are sometimes called exceptional items or described in the
Framework as unusual, abnormal and infrequent items.
1027

The presentation of comparative information (and the requirement for the
consistency of its presentation such as retrospective application of changes in
accounting policies) allows for a degree of trend analysis. Recent trends may help
predict future performance.
The requirement to disclose diluted earnings per share (EPS) is often described as a
warning to shareholders of what EPS would have been if any potential (future)
equity shares such as convertibles and options had already been exercised.
The Frameworks definitions of assets (resources from which future economic

benefits should flow) and liabilities (obligations which will result in a future
outflow of economic benefits) are based on an entitys future prospects rather than
its past costs.
Tutorial note: Other relevant examples would be given credit.

Calculations
(i)
Estimated profit after tax for the year ending 31 March 2015
PL
(b)
Existing operations (continuing only) ($2 million 106)

Newly acquired operations ($450,000 12/8 months 108)
$000
2,120
729
2,849
SA
M
Tutorial note: The profit from newly acquired operations in 2014 was for only eight months;
in 2015 it will be for a full year.
(ii)
Diluted EPS on continuing operations
$2,730,000 (W1)
100
14,600,000 (W2)
2014
Comparative 2013
187 cents
$2,030,000 (W1)
100
14,000,000 (W2)
145 cents
WORKINGS (figures in brackets are in 000 or $000)
(1)
Earnings
Continuing operations:
Existing operations
Newly acquired operations
Convertible loan stock (W3)
1028
2014
$000
Comparative 2013
$000
2,000
450
280
2,730
1,750
nil
280
2,030

(2)
Weighted average number of shares (000)
At 1 April 2012
(3,000 4 (i.e. shares of 25 cents each))
Convertible loan stock (W3)
Share options (W4)
(3)
12,000
2,000
600 (six months)
14,600
12,000
2,000
nil
14,000
Convertible loan stock
On an assumed conversion there would be an increase in income of $280,000 ($5,000 8%

07 after tax).
There would be an increase in the number of shares of 2 million ($5,000/$100 40)
(4)
PL
These adjustments would apply fully to both years.

Share options
Exercising the options would create proceeds of $2 million (2,000 $1). At the market price
of $250 each this would buy 800,000 shares ($2,000/$250) thus the diluting number of
shares is 12 million (2,000 800).
This would be weighted for 6/12 in 2014 as the grant was half way through the year.
Answer 3 WARDLE
Underlying substance and legal form
SA
M
(a)
The two fundamental qualitative characteristics of useful information are faithful

representation and relevance. Faithful representation means that financial information
represents the substance of an economic phenomenon rather than merely representing its legal
form. Representing a legal form that differs from the economic substance of the underlying
economic phenomenon could not result in a faithful representation. For example, if an entity
sold an asset to a third party, but continued to enjoy the future benefits embodied in that
asset, then this transaction would not be represented faithfully by recording it as a sale (in all
probability this would be a financing transaction).
Particular attention needs to be given to underlying substance and economic reality and not
merely legal form in assessing whether an item meets the definition of an asset, liability or
equity. Taking the previous example, recognition of a sale would result in failure to
recognised an asset.
Indications that substance and economic reality may differ from legal form:
control of an asset differs from the ownership of the asset;

assets are sold at prices that are greater or less than their fair values;
options are provided for under the terms of a contractual agreement;
a series of transactions are linked;
a sale to a financial institution is not a normal transaction for this type of
institution.
Tutorial note: None of these necessarily mean there is a difference.
1029

Profit or loss (Extracts)
Reflecting legal form
Year ended
Revenue
Cost of sales
Gross profit
Finance costs
Profit for the year
(ii)
31 March
2015
$000
nil
nil
nil
nil
nil
31 March
2016
$000
10,000
(7,986)
2,014
nil
2,014
31 March
2015
$000
nil
nil
nil
(660)
(660)
31 March
2016
$000
10,000
(5,000)
5,000
(726)
4,274
Reflecting underlying substance
Year ended
31 March
2014
$000
Revenue
nil
Cost of sales
(nil)
Gross profit
nil
Finance costs
(600)
Profit for the year

(600)
Effect on financial statements
Total
$000
16,000
(12,986)
3,014
nil
3,014
Total
$000
10,000
(5,000)
5,000
(1,986)
3,014
SA
M
(c)
31 March
2014
$000
6,000
(5,000)
1,000
nil
1,000
(i)
PL
(b)
It can be seen from the above that the two treatments have no effect on the overall profit for
the year reported in the statements of profit or loss, however, the profit is reported in different
periods and the classification of costs is different. In effect the legal form creates some
element of profit smoothing and completely hides the financing cost. Although not shown,
the effect on the statements of financial position is that recording the legal form of the
transaction does not show the inventory, nor does it show what is, in substance, a loan. Thus
recording the legal form would be an example of off balance sheet (statement of financial
position) financing. The effect of this on an assessment of Wardle using ratio analysis would
be that interest cover and inventory turnover would be higher and gearing lower. All of
which may be considered as reporting a more favourable performance.
1030

Answer 5 DEXON
(a)
Redraft profit or loss for the year

$000
$000
96,700
15,500
112,200
(2,500)
(600)
Retained profit for period per question

Dividends paid (W1)
Draft profit for year ended 31 March 2014
Discovery of fraud (W2)
Goods on sale or return (W3)
Depreciation (W4) buildings (165,000/15 years)
plant (180,500 20%)
11,000
36,100
(47,100)
Increase in investments ((12,500 1,296/1,200) 12,500)

Provision for income tax
Increase in deferred tax (W5)
(b)
PL
Recalculated profit for year ended 31 March 2014
1,000
(11,400)
(800)
50,800
Statement of changes in equity for the year ended 31 March 2014
At 1 April 2013
Prior period adjustment (W2)
Ordinary
shares
$000
200,000
SA
M
Restated earnings at 1 April 2013

Rights issue (see below)
50,000
Total comprehensive income
(from (a) and (W4)
Dividends paid (W1)
At 31 March 2014
250,000
Share Revaluation Retained

premium
reserve
earnings
$000
$000
$000
30,000
18,000
12,300
(1,500)
10,800
10,000
40,000
4,800
22,800
50,800
(15,500)
46,100
Total
$000
260,300
(1,500)
60,000
55,600
(15,500)
358,900
Rights issue: 250 million shares in issue after a rights issue of one for four would mean that
50 million shares were issued (250,000 1/5). As the issue price was $120, this would create
$50 million of share capital and $10 million of share premium.
WORKINGS (figures in brackets in $000)
(1)
Dividends paid
The dividend in May 2013 would be $8 million (200 million shares at 4 cents) and in
November 2013 would be $75 million (250 million shares 3 cents). Total dividends would
therefore have been $155 million.
(2)
Fraud
The discovery of the fraud means that $4 million should be written off trade receivables. $15
million debited to retained earnings as a prior period adjustment (in the statement of changes
in equity) and $25 written off in the profit or loss for the year ended 31 March 2014.
1031

(3)
Goods on sale or return
The sales over which customers still have the right of return should not be included in
Dexons recognised revenue. The reversing effect is to reduce the relevant trade receivables
by $26 million, increase inventory by $2 million (the cost of the goods (2,600 100/130)) and
reduce the profit for the year by $600,000.
(4)
Property
(5)
The carrying amount of the property (after the years depreciation) is $174 million (185,000
11,000). A valuation of $180 million would create a revaluation surplus of $6 million of
which $12 million (6,000 20%) would be transferred to deferred tax.
Deferred tax
Answer 6 PRICEWELL
(a)
PL
An increase in the taxable temporary differences of $10 million would create a transfer
(credit) to deferred tax of $2 million (10,000 20%). Of this $12 million relates to the
revaluation of the property and is debited to the revaluation reserve. The balance, $800,000,
is charged to profit or loss.
Statement of profit or loss for the year ended 31 March 2014

Revenue (310,000 + 22,000 (W1) 6,400 (W2))
Cost of sales (W3)
SA
M
Gross profit
Distribution costs
Administrative expenses
Finance costs (4,160 (W5) + 1,248 (W6))
Profit before tax

Income tax expense (4,500 +700 (8,400 5,600 deferred tax)
Profit for the year
1032
$000
325,600
(255,100)
70,500
(19,500)
(27,500)
(5,408)
18,092
(2,400)
15,692

(b)
Statement of financial position as at 31 March 2014

Assets
Non-current assets
Property, plant and equipment (24,900 + 41,500 (W4))
Current assets
Inventory
Amount due from customer (W1)
Trade receivables
Bank
$000
$000
66,400
28,200
17,100
33,100
5,500
Total assets
83,900
150,300
Equity and liabilities:

Equity shares of 50 cents each
Retained earnings (4,900 + 15,692 per (a) 8,000)
PL
Non-current liabilities
Deferred tax
Finance lease obligation (W6)
6% Redeemable preference shares (41,600 + 1,760 (W5))
40,000
12,592
52,592
Current liabilities
Trade payables
Finance lease obligation (10,848 5,716) (W6))
Current tax payable
SA
M
Total equity and liabilities
5,600
5,716
43,360
33,400
5,132
4,500
54,676
43,032
150,300

(1)
Construction contract
Selling price
Estimated cost:
To date
To complete
Plant
Estimated profit
50,000
(12,000)
(10,000)
(8,000)
20,000
Work done is agreed at $22 million so the contract is 44% complete (22,000/50,000).
Revenue
Cost of sales (= balance)
Profit to date (44% 20,000)
Cost incurred to date materials and labour

Plant depreciation (8,000 6/24 months)
Profit to date
Cash received
Amount due from customer
22,000
(13,200)
8,800
12,000
2,000
8,800
22,800
(5,700)
17,100
1033

(2)
Revenue
Pricewell is acting as an agent (not the principal) for the sales on behalf of Trilby. Therefore
profit or loss should only include $16 million (20% of the sales of $8 million). Therefore
$64 million (8,000 1,600) should be deducted from revenue and cost of sales. It would
also be acceptable to show agency sales (of $16 million) separately as other income.
(3)
Cost of sales
234,500
13,200
(6,400)
1,800
8,500
5,000
(1,500)
255,100
(4)
PL
Per question
Contract (W1)
Agency cost of sales (W2)
Depreciation (W4) leasehold property
owned plant ((46,800 12,800) 25%)
leased plant (20,000 25%)
Surplus on revaluation of leasehold property (W4)
Non-current assets
Leasehold property
Valuation at 31 March 2013
Depreciation for year (14 year life remaining)
Carrying amount at date of revaluation
Valuation at 31 March 2014
SA
M
Revaluation surplus (to profit or loss see below)
25,200
(1,800)
23,400
(24,900)
1,500
The $15 million revaluation surplus is credited to profit or loss this is the partial reversal of
the $28 million impairment loss recognised in profit or loss in the previous period (i.e. year
ended 31 March 2013).
Plant and equipment
owned (46,800 12,800 8,500)
leased (20,000 5,000 5,000)
contract (8,000 2,000 (W1))
Carrying amount at 31 March 2014

(5)
25,500
10,000
6,000
41,500
Preference shares
The finance cost of $4,160,000 for the preference shares is based on the effective rate of 10%
applied to $416 million balance at 1 April 2013. The accrual of $1,760,000 (4,160 2,400
dividend paid) is added to the carrying amount of the preference shares in the statement of
financial position. As these shares are redeemable they are treated as debt and their dividend
is treated as a finance cost.
1034

(6)
Finance lease liability
Balance at 31 March 2013

Interest for year at 8%
Lease rental paid 31 March 2014
15,600
1,248
(6,000)
10,848
868
(6,000)
5,716
Total liability at 31 March 2014

Interest next year at 8%
Lease rental due 31 March 2015
(c)
Financial instruments
Total liability at 31 March 2015
IAS 32 Financial Instruments: Presentation defines a financial liability as a liability that is a

contractual obligation:
to deliver cash or another financial asset to another entity; or
to exchange financial assets or liabilities with another entity under conditions that
are potentially unfavourable to the entity.
PL
The essence of a financial liability is that there is a present obligation. The entity is going to
have to settle this either with a cash payment or by delivering a financial asset.
An equity instrument is defined as any contract that evidences a residual interest in the assets
of an entity after deducting all its liabilities.
SA
M
For an equity instrument there is no obligation to make a payment. The difference between
assets and liabilities (i.e. net assets) is therefore equal to equity as presented in the statement
of financial position.
Examples of financial liabilities
Trade payables
Redeemable preference shares
Loan notes (also called bonds or debentures)
Any debt which matures in the future (whether on a specific date or open ended).
Examples of equity instruments
Ordinary share capital

Share options
Irredeemable preference shares
Tutorial note: Only two examples of each were required.
1035

Answer 7 SANDOWN
(a)
Statement of profit or loss and other comprehensive income

for the year ended 30 September 2014
Gross profit
Distribution costs
Administrative expenses (50,500 12,000 (W3))
Investment income
Finance costs (W5)
PL
Profit before tax

Income tax expense (16,200 + 2,100 1,500 (W6))
Profit for the year
$000
376,000
(265,300)
110,700
(17,400)
(38,500)
1,300
(1,475)
54,625
(16,800)
37,825
Revenue (380,000 4,000 (W1))

Cost of sales (W2)
SA
M
Other comprehensive income

Gain on fair value though other comprehensive income investments (W4) 4,700

42,525
1036

Statement of financial position as at 30 September 2014
Assets
Non-current assets
Property, plant and equipment (W7)
Intangible brand (15,000 2,500 (W2))
Financial asset investments (at fair value)
Current assets
Inventory
Trade receivables
Bank
$000
67,500
12,500
29,000
109,000
38,000
44,500
8,000
Total assets
90,500
199,500
50,000
2,000
5,700
55,885
113,585
PL
Equity and liabilities

Equity option
Other reserve (W9)
Retained earnings (W8)
$000
(b)
Deferred tax (W6)
Deferred income (W1)
5% convertible loan note (W5)
SA
M
Current liabilities
Trade payables
Deferred income (W1)
Current tax payable
3,900
2,000
18,915
42,900
2,000
16,200
24,815
61,100
199,500

(1)
Servicing element
IAS 18 Revenue requires that where sales revenue includes an amount for after sales servicing
and support costs then a proportion of the revenue should be deferred. The amount deferred
should cover the cost and a reasonable profit (in this case a gross profit of 40%) on the
services. As the servicing and support is for three years and the date of the sale was 1
October 2013, revenue relating to two years servicing and support provision must be
deferred: ($12 million 2/06) = $4 million. This is shown as $2 million in both current and
non-current liabilities.
1037

(2)
Cost of sales
Per question
Depreciation
building (50,000 50 years see below)

plant and equipment (42,200 19,700) 40%))
Amortisation brand (1,500 + 2,500 see below)
Impairment of brand (see below)
246,800
1,000
9,000
4,000
4,500
265,300
The cost of the building of $50 million (63,000 13,000 land) has accumulated depreciation
of $8 million at 30 September 2013 which is eight years after its acquisition. Thus the life of
the building must be 50 years.
(3)
Dividend
PL
The brand is being amortised at $3 million per annum (30,000 10 years). The impairment
occurred half way through the year, thus amortisation of $15 million should be charged prior
to calculation of the impairment loss. At the date of the impairment review the brand had a
carrying amount of $195 million (30,000 (9,000 + 1,500)). The recoverable amount of the
brand is its fair value of $15 million (as this is higher than its value in use of $12 million)
giving an impairment loss of $45 million (19,500 15,000). Amortisation of $25 million
(15,000 3 years 6/12) is required for the second-half of the year giving total amortisation of
$4 million for the full year.
A dividend of 48 cents per share would amount to $12 million (50 million 5 (i.e. shares are
20 cents each) 48 cents). This is not an administrative expense but a distribution of profits
that should be accounted for through equity.
Fair value through other comprehensive income financial assets
SA
M
(4)
gain on disposal (11,000 proceeds 8,800 carrying amount)

Increase in fair value of remaining investments:
(29,000 26,500)
Included in other comprehensive income
2,200
2,500
4,700
The gain on the investments disposed of $4,000 (11,000 7,000) has now been realised and
can be transferred to retained earnings from other equity reserve.
(5)
Convertible loan note
The finance cost of the convertible loan note is based on its effective rate of 8% applied to
$18,440,000 carrying amount at 1 October 2013 = $1,475,000 (rounded). The accrual of
$475,000 (1,475 1,000 interest paid) is added to the carrying amount of the loan note giving
a figure of $18,915,000 (18,440 + 475) in the statement of financial position at 30 September
2014.
(6)
Deferred tax
Credit balance required at 30 September 2014 (13,000 30%)

Balance at 1 October 2013
Credit (reduction in balance) to profit or loss
1038
3,900
(5,400)
1,500

(7)
Non-current assets
Freehold property (63,000 (8,000 + 1,000)) (W2)
Plant and equipment (42,200 (19,700 + 9,000)) (W2)
Property, plant and equipment
Retained earnings
At 1 October 2013
Profit for year
Transfer from other equity reserve ((W4)
Dividend paid (W3)
Other reserve (re financial asset investments)
PL
(9)
At 1 October 2013
Other comprehensive income for year (W4)
Transfer to retained earnings ((W4)
(c)
26,060
37,825
4,000
(12,000)
55,885
(8)
54,000
13,500
67,500
5,000
4,700
(4,000)
5,700
Accounting for dividends
SA
M
IAS 10 Events After the Reporting Period prescribes the accounting for proposed dividends.
It states that dividends declared after the end of the reporting period cannot be recognised as a
liability in that reporting period.
For the year ended 30 September 2014 Sandown can only disclose the proposed dividend in
the notes to the financial statements.
When the dividend is paid in the following period it cannot be recognised as an expense in
profit or loss as it is a distribution to equity participants. The Conceptual Framework for
Financial Reporting specifically excludes incurrences of liabilities relating to such
distributions from its definition of expenses. The dividend is not an expense but an
appropriation of profits that should be deducted from retained earnings in the statement of
changes in equity.
The managing directors suggested treatment is not allowed under IFRS. He is also incorrect
in his assertion that the income tax expense will be reduced. As dividends are not deductible
for tax purposes it has no effect on the amount of tax payable.
1039

Answer 8 CAVERN
(a)

for the year ended 30 September 2014
Revenue
Cost of sales (W1)
Profit for the year
PL
Profit before tax

Income tax expense (5,600 + 900 250 (W5))
Gross profit
Distribution costs
Administrative expenses (25,000 18,500 dividends (W3))
Investment income
Finance costs (300 + 400 (w (ii)) + 3,060 (W4))
$000
182,500
(137,400)
45,100
(8,500)
(6,500)
700
(3,760)
27,040
(6,250)
20,790
Other comprehensive income

Loss on fair value through other comprehensive income investments
(15,800 13,500)
Gain on revaluation of land and buildings (W2)
Total other comprehensive losses for the year
SA
M
(2,300)
800
(1,500)
19,290
(b)
Statement of changes in equity for the year ended 30 September 2014
Balance at 1 October 2013

Rights issue (W3)
Dividends (W3)
Comprehensive income
Balance at 30 September 2014
1040
Share
capital
$000
40,000
10,000
50,000
Share
Other Revaluation Retained Total
premium equity reserve earnings equity
$000
$000
$000
$000
$000
nil
3,000
7,000 12,100 62,100
11,000
21,000
(18,500) (18,500)
(2,300)
800 20,790 19,290

11,000
700
7,800 14,390 83,890


(c)
Statement of financial position as at 30 September 2014

Assets
$000
Non-current assets
Property, plant and equipment (41,800 + 51,100 (W2))
Fair value through other comprehensive income investments
Current assets
Inventory
Trade receivables
Total assets
48,800
155,200
50,000
11,000
700
7,800
14,390
PL

Equity (see (b) above)
Share premium
Other equity reserve
Revaluation reserve
Retained earnings
92,900
13,500
106,400
19,800
29,000
$000
SA
M
Provision for decontamination costs (4,000 + 400 (W2))
8% loan note (W4)
Deferred tax (W5)
Current liabilities
Trade payables
Bank overdraft
Current tax payable
4,400
31,260
3,750
21,700
4,600
5,600
33,890
83,890
39,410
31,900
155,200
WORKINGS (monetary figures in brackets in $000)

(1)
Cost of sales
Per trial balance

Depreciation of building (36,000 18 years)
Depreciation of new plant (14,000 10 years)
Depreciation of existing plant and equipment
((67,400 10,000 13,400) 125%)
128,500
2,000
1,400
5,500
137,400
1041

(2)
The new plant of $10 million should be grossed up by the provision for the present value of
the estimated future decontamination costs of $4 million to give a gross cost of $14 million.
The unwinding of the provision will give rise to a finance cost in the current year of
$400,000 (4,000 10%) to give a closing provision of $44 million.
The gain on revaluation and carrying amount of the land and building will be:
Carrying amount before revaluation

Revaluation 30 September 2014
Gain on revaluation
43,000
(2,000)
41,000
41,800
800
Valuation 30 September 2013

Building depreciation (W1)
(3)
12,600
38,500
51,100
PL
The carrying amount of the plant and equipment will be:

New plant (14,000 1,400)
Existing plant and equipment (67,400 10,000 13,400 5,500)
Rights issue/dividends paid
SA
M
Based on 250 million (50 million 5 as shares are 20 cents each) shares in issue at 30
September 2014, a rights issue of 1 for 4 on 1 April 2014 would have resulted in the issue of
50 million new shares (250 million (250 million 4/5)). This would be recorded as share
capital of $10 million (50,000 20 cents) and share premium of $11 million (50,000 (42
cents 20 cents)).
The dividend of 3 cents per share paid on 30 November 2013 would have been based on 200
million shares and been $6 million. The dividend of 5 cents per share paid on 31 May 2014
would have been based on 250 million shares and been $125 million. Therefore the total
dividends paid, incorrectly included in administrative expenses, were $185 million.
(4)
Loan note
The finance cost of the loan note, at the effective rate of 10% applied to the carrying amount
of the loan note of $306 million, is $306 million. The interest actually paid is $24 million.
The difference between these amounts of $660,000 (3,060 2,400) is added to the carrying
amount of the loan note to give $3126 million (30,600 + 660) for inclusion as a non-current
liability in the statement of financial position.
(5)
Deferred tax
Provision required at 30 September 2014 (15,000 25%)

Provision at 1 October 2013
Credit (reduction in provision) to profit or loss
1042
3,750
(4,000)
250

(d)
Financial assets
IFRS 9 requires that all financial assets be placed into one of three categories:
Fair value through profit or loss
Fair value through other comprehensive income
Amortised cost
Fair value through profit or loss is the default category, with the other two exceptions to the
default. As the title implies the financial asset is measured at fair value at each reporting date,
reference should be made to IFRS 13 Fair Value Measurement to find fair value, with any
change in fair value being recognised as income or expense in the profit or loss.
PL
For an asset to be classed as fair value through other comprehensive income the whole
instrument must be an equity instrument of another entity, the asset is being held for the long
term and the entity must have designated, documented, the asset at fair value through other
comprehensive income. The asset is again measured at fair value and any change in fair value
is this time taken to other comprehensive income.
For the asset to be classified at amortised cost the asset must be held within a business model
whose objective is to hold assets in order to collect contractual cash flows, in other words it is
a debt asset; and the contractual terms of the asset gives rise to cash flows that are solely
payments of principal and interest on the principal outstanding, it must be simple debt.
The amortised cost model takes the initial amount of the asset adds to that the interest income
based on the effective interest rate and then deducts any cash interest received.
Answer 9 HIGHWOOD

for the year ended 31 March 2014
SA
M
(a)
Revenue
Cost of sales (W1)
Gross profit
Distribution costs
Administrative expenses (30,700 1,300 + 600 (W4))
Finance costs (W5)
Profit before tax
Income tax expense (19,400 800 + 400 (W6))
Profit for the year
Other comprehensive income:
Gain on revaluation of property (W2)
Deferred tax on revaluation (W2)
$000
339,650
(216,950)
122,700
(27,500)
(30,000)
(2,848)
62,352
(19,000)
43,352
15,000
(3,750)
54,602
1043

(b)
Statement of changes in equity for the year ended 31 March 2014
Balance at 1 April 2013 (see below)

8% Loan note issue (W5)
Dividend paid (W7)
Comprehensive income
Equity Revaluation Retained Total

option reserve earnings equity
$000
$000
$000
$000
nil
nil
7,000 63,000
1,524
1,524
(5,600) (5,600)
11,250 43,352 54,602

56,000
1,524 11,250 44,752 113,526

Balance at 31 March 2014
Share
capital
$000
56,000
Tutorial note: The retained earnings of $14 million in the trial balance is after deducting
the dividend paid of $56 million, therefore the retained earnings at 1 April 2013 amounted to
$7 million.
PL
(c)
Assets
Non-current assets
Property, plant and equipment (77,500 + 40,000) (W1)
Current assets
Inventory (36,000 2,700 + 6,000) (W1)
Trade receivables (47,100 + 10,000 600 (W4))
Total assets
$000
117,500
39,300
56,500
SA
M

Equity (see (ii))
Other component of equity equity option
Revaluation reserve
Retained earnings
1044
95,800
213,300
56,000
1,524
11,250
44,752
113,526
Deferred tax (W6)
8% Convertible loan note (28,476 + 448) (W5)
Current liabilities
Trade payables
Liability to Easyfinance (W4)
Bank overdraft
Current tax payable
$000
6,750
28,924
24,500
8,700
11,500
19,400
35,674
64,100
213,300

(1)
Cost of sales and non-current assets

$000
207,750
2,500
10,000
(3,300)
216,950
(2)
Depreciation
Freehold property
Cost of sales (given)

Depreciation building (W2)
plant and equipment (W2)
Adjustment/increase to closing inventory (W3)
PL
The revaluation of the property will create an initial revaluation reserve of $15 million
(80,000 (75,000 10,000)).
$375 million of this (25%) will be transferred to deferred tax leaving a net revaluation
reserve of $1125 million. The building valued at $50 million will require a depreciation
charge of $25 million (50,000/20 years remaining) for the current year. This will leave a
carrying amount in the statement of financial position of $775 million (80,000 2,500).
Plant and equipment
1 April 2013
Charge for year ((74,500 24,500) 20%)
SA
M
31 March 2014
Cost
$000
74,500
74,500
Accumulated depreciation
$000
24,500
10,000
34,500
The carrying amount in the statement of financial position is $40 million.

(3)
Inventory adjustment
Goods delivered (deduct from closing inventory)

Cost of goods sold (7,800 100/130) (add to closing inventory)
Net increase in closing inventory

(4)
(2,700)
6,000
3,300
Factored receivables
As Highwood still bears the risk of the non-payment of the receivables, the substance of this
transaction is a loan. Thus the receivables must remain on Highwoods statement of financial
position and the proceeds of the sale treated as a current liability. The difference between
the factored receivables (10,000) and the loan received (8,700) of $13 million, which has
been charged to administrative expenses, should be reversed except for $600,000 which
should be treated as an allowance for uncollectible receivables.
1045

(5)
8% convertible loan note
This is a compound financial instrument having a debt (liability) and an equity component.
These must be quantified and accounted for separately:
2014
2015
2016
Liability component
Equity component (balance)
Proceeds of issue
Outflow
$000
2,400
2,400
32,400
10%
091
083
075
Present value
$000
2,184
1,992
24,300
28,476
1,524
30,000
Year ended 31 March
PL
The finance cost for the year will be $2,848,000 (28,476 10% rounded). Thus $448,000
(2,848 2,400 interest paid) will be added to the carrying amount of the loan note in the
statement of financial position.
The equity component of $1,524 could have been reduced and retained earnings increased by
a transfer of the difference between the interest expense of $2,848 and the interest cash paid
of $2,400.
(6)
Deferred tax
SA
M
Credit balance required at 31 March 2014 (27,000 25%)

Revaluation of property (W1)
Balance at 1 April 2013
Charge to profit or loss
(7)
6,750
(3,750)
(2,600)
400
Dividend
The dividend paid in November 2013 was $56 million. This is based on 112 million shares
in issue (56,000 2 the shares are 50 cents each) times 5 cents.
(d)
Impact of revaluation
The marketing directors statements are both incorrect.

Depreciation must be charged on all depreciable assets; land is the only non-depreciable asset.
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful
life. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its
residual value.
So if an asset is revalued this will increase its depreciable amount which, in turn, will increase
the depreciation expense for the year. Revaluation does not negate the requirement to
depreciate depreciable assets and IA8 Property. Plant and Equipment does not allow nondepreciation in the event of revaluation.
IAS 33 Earnings per Share states that the earnings figure to be used in the calculation is
profit or loss attributable to ordinary equity holders (i.e. after tax).
1046

Any revaluation gain is recognised in other comprehensive income which is presented below
profit or loss in the statement of total comprehensive income. A revaluation gain is not part
of the profit for the period and therefore does not inflate profits. Hence EPS will not improve
as a result of the revaluation.
Answer 10 EMERALD
(a)
Asset definition
PL
The Framework defines an asset as a resource controlled by an entity as a result of past

transactions or events from which future economic benefits (normally net cash inflows) are
expected to flow to the entity. However assets can only be recognised (on the statement of
financial position) when those expected benefits are probable and can be measured reliably.
The Framework recognises that there is a close relationship between incurring expenditure
and generating assets, but they do not necessarily coincide. Development expenditure,
perhaps more than any other form of expenditure, is a classic example of the relationship
between expenditure and creating an asset. Clearly entities commit to expenditure on both
research and development in the hope that it will lead to a profitable product, process or
service, but at the time that the expenditure is being incurred, entities cannot be certain (or it
may not even be probable) that the project will be successful. Relating this to accounting
concepts, if there is doubt that a project will be successful the application of faithful
representation would dictate that the expenditure is charged (expensed) to profit or loss.
SA
M
At the stage where management becomes confident that the project will be successful, it
meets the definition of an asset and the accruals/matching concept would mean that it should
be capitalised (treated as an asset) and amortised over the period of the expected benefits.
IAS 38 Intangible Assets interprets this as writing off all research expenditure and only
capitalising development costs from the point in time where they meet strict conditions which
effectively mean the expenditure meets the definition of an asset.
(b)
Accounting entries
30 September 2014
Statement of profit or loss
$000
Amortisation of development expenditure
335
(W2)
30 September 2013
$000
135
(W1)
Statement of financial position

Development expenditure
1,195
(W4)
1,130
(W3)
Statement of changes in equity
Prior period adjustment (credit required to restate retained earnings at 1 October 2012)
(cumulative carrying amount at 2012 of 300 + 165)
465
WORKINGS (All figures in $000)
Year ended
2011
Expenditure
300
Amortisation (25%) nil

nil
nil
Total amortisation
nil
Carrying amount
300
Cumulative
Cumulative
2012
2013
2013
2014
2014
240
800
1,340
400
1,740
(75)
(75)
(150)
(75)
(225)
nil
(60)
(60)
(60)
(120)
nil
nil
nil
(200)
(200)
(75) (W1) (135)

(210) (W2) (335)
(545)
165
665 (W3) 1,130
65 (W4) 1,195
1047

(c)
Extracts from financial statements for the year ended 31 March 2014
(Figures in brackets in $000)
$000
Depreciation of office building (A) (2,000 20 years 6/12)
Gain on investment properties: A (2,340 2,300)
B (1,650 1,500)
Other comprehensive income (A see below)
(50)
40
150
350
Non-current assets
Investment properties (A and B) (2,340 + 1,650)
3,990
350
PL
Equity
Revaluation reserve (A) (2,300 (2,000 50))
In Speculates consolidated financial statements property B would be accounted for under

IAS 16 Property, Plant and Equipment and classified as owner-occupied. Further
information is required to determine the depreciation charge.
Answer 11 TUNSHILL
(a)
Choice of accounting policy
SA
M
Managements choices of which accounting policies they may adopt are not as wide as
generally thought. Where an International Financial Reporting Standard, IAS or IFRS (or an
Interpretation) specifically applies to a transaction (or event) the accounting policy used must
be as prescribed in that Standard (taking in to account any Implementation Guidance within
the Standard). In the absence of a Standard, or where a Standard contains a choice of policies,
management must use its judgement in applying accounting policies that result in information
that is relevant and faithfully represents the circumstances of the transactions and events. In
making such judgements, management should refer to guidance in the Standards related to
similar issues and the definitions, recognition criteria and measurement concepts for assets,
liabilities, income and expenses in the IASBs Conceptual Framework for Financial
Reporting. Management may also consider pronouncements of other standard-setting bodies
that use a similar conceptual framework to the IASB.
A change in an accounting policy usually relates to a change of principle, basis or rule being
applied by an entity. Accounting estimates are used to measure the carrying amounts of
assets and liabilities, or related expenses and income. A change in an accounting estimate is a
reassessment of the expected future benefits and obligations associated with an asset or a
liability. Thus, for example, a change from non-depreciation of a building to depreciating it
over its estimated useful life would be a change of accounting policy. To change the estimate
of its useful life would be a change in an accounting estimate.
1048

(b)
Transactions
(i)
Useful life of non-current asset
(ii)
PL
The main issue here is the estimate of the useful life of a non-current asset. Such estimates
form an important part of the accounting estimate of the depreciation charge. Like most
estimates, an annual review of their appropriateness is required and it is not unusual, as in this
case, to revise the estimate of the remaining useful life of plant. It appears, from the
information in the question, that the increase in the estimated remaining useful life of the
plant is based on a genuine reassessment by the production manager. This appears to be an
acceptable reason for a revision of the plants life, whereas it would be unacceptable to
increase the estimate simply to improve the companys reported profit. That said, the
assistant accountants calculation of the financial effect of the revised life is incorrect. Where
there is an increase (or decrease) in the estimated remaining life of a non-current asset, its
carrying amount (at the time of the revision) is allocated over the new remaining life (after
allowing for any estimated residual value). The carrying amount at 1 October 2013 is $12
million ($20 million $8 million accumulated depreciation) and this should be written off
over the estimated remaining life of six years (eight years in total less two already elapsed).
Thus a charge for depreciation of $2 million would be required in the year ended 30
September 2014 leaving a carrying amount of $10 million ($12 million $2 million) in the
statement of financial position at that date. A depreciation charge for the current year cannot
be avoided and there will be no credit to profit or loss as suggested by the assistant
accountant. The incremental effect of the revision to the estimated life of the plant would be
to improve the reported profit by $2 million being the difference between the depreciation
based on the old life ($4 million) and the new life ($2 million).
Inventory valuation
SA
M
The appropriateness of the proposed change to the method of valuing inventory is more
dubious than the previous example. Whilst both methods (FIFO and AVCO) are acceptable
methods of valuing inventory under IAS 2 Inventories, changing an accounting policy to be
consistent with that of competitors is not a convincing reason. Generally changes in
accounting policies should be avoided unless a change is required by a new or revised
International Financial Reporting Standard or the new policy provides more reliable and
relevant information regarding the entitys position. In any event the assistant accountants
calculations are again incorrect and would not meet the intention of improving reported profit.
The most obvious error is that changing from FIFO to AVCO will cause a reduction in the
value of the closing inventory at 30 September 2014 effectively reducing, rather than
increasing, both the valuation of inventory and reported profit. A change in accounting policy
must be accounted for as if the new policy had always been in place (retrospective
application). In this case, for the year ended 30 September 2014, both the opening and
closing inventories would need to be measured at AVCO which would reduce reported profit
by $400,000 (($20 million $18 million) ($15 million $134 million) i.e. the movement
in the values of the opening and closing inventories). The other effect of the change will be
on the retained earnings brought forward at 1 October 2013. These will be restated (reduced)
by the effect of the reduced inventory value at 30 September 2013 i.e. $16 million ($15
million $134 million). This adjustment would be shown in the statement of changes in
equity.
1049

Answer 12 DERRINGDO
(a)
Income recognition
Under the Framework revenue recognition issues are approached from the definitions of
assets and liabilities. Income and expenses are defined as increases or decreases in net assets
other than those resulting from transactions with owners. The Framework can therefore be
said to take a balance sheet approach to income recognition. In effect a recognisable
increase in an asset results in a gain.
The more traditional view, which is largely the basis used in IAS 18 Revenue, is that (net)
revenue recognition is part of a transactions-based accruals or matching process with the
statement of financial position recording any residual assets or liabilities such as receivables
and payables. The issue of revenue recognition arises out of the need to report company
performance for specific periods.
The Framework identifies three stages in the recognition of assets (and liabilities):
initial recognition, when an item first meets the definition of an asset;
(2)
subsequent measurement, which may involve changing the value (with a

corresponding effect on income) of a recognised item; and
(3)
possible derecognition, where an item no longer meets the definition of an asset.
PL
(1)
SA
M
For many simple transactions both the Frameworks approach and the traditional approach
(IAS 18) will result in the same profit (net income). If an item of inventory is bought for
$100 and sold for $150, net assets have increased by $50 and the increase would be reported
as a profit. The same figure would be reported under the traditional transactions based
reporting (sales of $150 less cost of sales of $100). However, in more complex areas the two
approaches can produce different results. An example of this would be deferred income. If a
company received a fee for a 12 month tuition course in advance, IAS 18 would treat this as
deferred income (on the statement of financial position) and release it to income as the
tuition is provided and matched with the cost of providing the tuition. Thus the profit would
be spread (accrued) over the period of the course. If an asset/liability approach were taken,
then the only liability the company would have after the receipt of the fee would be for the
cost of providing the course. If only this liability is recognised in the statement of financial
position, the whole of the profit on the course would be recognised on receipt of the income.
This is not a prudent approach and has led to criticism of the Framework for this very reason.
Arguably the treatment of government grants under IAS 20 (as deferred income) does not
comply with the Framework as deferred income does not meet the definition of a liability.
Other standards that may be in conflict with the Framework are the use of the accretion
approach in IAS 11 Construction Contracts and a deferred tax liability in IAS 12 Income Tax
may not fully meet the Frameworks definition of a liability.
(b)
Sale of goods
Sales made by Derringdo of goods from Gungho must be treated under two separate
categories. Sales of the A grade goods are made by Derringdo acting as an agent of Gungho.
For these sales Derringdo must only record in profit or loss the amount of commission
(125%) it is entitled to under the sales agreement. There may also be a receivable or payable
for Gungho in the statement of financial position. Sales of the B grade goods are made by
Derringdo acting as a principal, not an agent. Thus they will be included in sales with their
cost included in cost of sales.
1050
Sales revenue (4,600 (W1) + 11,400 (W2))

Cost of sales (W2)
Gross profit
$000
16,000
(8,550)
7,450
WORKINGS: (all figures in $000)

Opening inventory
Transfers/purchases
Closing inventory
Cost of sales
Selling price (to give 50% gross profit)
(2)
PL
Gross profit
Commission (125% 36,800)
A grade
2,400
18,000
20,400
(2,000)
18,400
36,800
18,400
4,600
(1)
Opening inventory
Transfers/purchases
Closing inventory
SA
M
Cost of sales
Selling price (8,550 4/3 see below)
B grade
1,000
8,800
9,800
(1,250)
8,550
11,400
A gross profit margin of 25% is equivalent to a mark-up on cost of 1/3. Thus if cost of sale is
multiplied by 4/3 this will give the relevant selling price.
(c)
Accounting policies
On first impression, it appears that the company has changed its accounting policy from
recognising carpet sales at the point of fitting to recognising them at the point when they are
ordered and paid for. If this were the case then the new accounting policy should be applied
as if it had always been in place and the income recognised in the year to 31 March 2014
would be $23 million. Without the change in policy, sales would have been $226 million
(23m + 12m 16m). Sales made from the retail premises during the current year, but not
yet fitted ($16 million) will not be recognised until the following period. A corresponding
adjustment is made recognising the equivalent figure ($12 million) from the previous year.
The difference between the $23 million and $226 million would be a prior year adjustment
(less the cost of sales relating to this amount). This analysis assumes that the figures are
material.
Despite first impressions, the above is not a change of accounting policy. This is because a
change of accounting policy only occurs where the same circumstances are treated differently.
In this case there are different circumstances. Derringdo has changed its method of trading; it
is no longer responsible for any errors that may occur during the fitting of the carpets. An
accounting policy that is applied to circumstances that differ from previous circumstances is
not a change of accounting policy. Thus the amount to be recognised in income for the year
to 31 March 2014 would be $242 million (23m + 12m). Whilst this appears to boost the
current years income it would be mitigated by the payments to the sub-contractors for the
carpet fitting.
1051

Answer 13 LINNET
(a)
Recognition principles
Construction contracts tend to span more than one accounting period. This leads to the
problem of determining how the uncompleted transactions should be dealt with over the life
of the contract. Normal sales are not recognised until the production and sales cycle is
complete. Where the outcome of a construction contract cannot be reasonably foreseen due to
inherent uncertainty, the completed contracts basis should be applied. The effect of this is
that sales revenue earned to date is matched to the cost of sales and no profit is taken nor loss
recognised. This lack of bias (i.e. neutrality) is one of the three characteristics that contributes
to faithful representation.
SA
M
PL
The problem with the above is that for say a three-year contract it can lead to a situation
where no profits are recognised, possibly for two years, and in the year of completion the
whole of the profit is recognised (assuming the contract is profitable). This seems consistent
with the principle that only realised profits should be recognised in the statement of profit or
loss. The problem is that the overriding requirement is for financial statements to show a
faithful representation of the events and transactions occurring in the period and there is an
implication that financial statements should reflect the economic reality of these events. In
the above case it can be argued that the company has been involved in a profitable contract
for a three-year period, but its financial statements over the three years show a profit in only
one period. This also leads to volatility of profits which many companies feel is undesirable
and not favoured by analysts. An alternative approach is to apply the matching/accruals
concept which underlies the percentage of completion method. This approach requires the
percentage of completion of a contract to be assessed (there are several methods of doing this)
and then recognising in the statement of profit or loss that percentage of the total estimated
profit on the contract. This method has the advantage of more stable profit recognition and
can be argued shows a more faithful representation of the events than the completed contract
method. A contrary view is that this method can be criticised as being a form of profit
smoothing which, in other circumstances, is considered to be an (undesirable) example of
creative accounting. IAS 11 Construction Contracts requires the use of the percentage of
completion method where the outcome of the contract is reasonably foreseeable. Where a
contract is expected to produce a loss, the whole of the loss must be recognised as soon as it is
anticipated.
(b)
Statement of profit or loss (extract) for the year to 31 March 2014

$m
70
(81)
(11)
Sales revenue
Cost of sales (64 +17)
Loss for period
Linnet statement of financial position extracts as at 31 March 2014

Current assets
Gross amounts due from customers for contract work (W3)
1052
59

WORKINGS
Sales
Cost of sales
Rectification costs
Profit/(loss)
Amounts
for year
$m
70
(64)
(17)
(11)
Contract sales
(1)
Cumulative
Cumulative
1 April 2013 31 March 2014
$m
$m
150
(W1) 220
(112)
(W2) (176)
nil
(17)
38
(W2) 27
Progress payments received are $180 million. This is 90% of the work certified (at 28
February 2014); therefore the work certified at that date was $200 million. The value of the
further work completed in March 2014 is given as $20 million, giving a total value of contract
sales at 31 March 2014 of $220 million.
Total estimated profit (excluding rectification costs)
PL
(2)
Contract price
Cost to date
Estimated cost to complete
Estimated total profit
$m
300
(195)
(45)
60
SA
M
The degree of completion (by the method given in the question) is 220/300.
Costs recognised to date are based on total expected cost of $240 million 220/300 = $176
million less costs recognised in prior period of $112 million to arrive at costs recognised this
period of $64 million. However, the rectification costs, of $17 million, are an abnormal cost
and they must be charged against profits in the year they are incurred, they cannot be spread
over the term of the contract. Therefore costs to be recognised this period are $81 million (64
+ 17), leading to a loss recognised for this period of $11 million.
(3)
Gross amount due from customers
The gross amounts due from customers is actual costs incurred to date ($195 million + $17
million) plus cumulative profit ($27 million) less progress billings ($180 million) = $59
million. Of this $59 million $20 million (200 180) would be recognised as a receivable asset
under IFRS 9 Financial Instruments and the remaining $39 million would be the gross amount
due from customers under IAS 11.
1053

Answer 14 MOCCA
Statement of profit or loss year ended 31 March 2014 (extracts)
$000
4,625
(3,515)
1,110
Revenue recognised ((65% (W1) 12,500) 3,500 in 2013)

Contract expenses recognised ((65% 9,500) 2,660 in 2013)
Profit recognised
Statement of financial position as at 31 March 2014 (extracts)

Non-current assets
Plant (8,000 2,500 (W3))
Current assets
Receivables (8,125 7,725)
Amounts due from customers (Note)
5,500
PL
400
1,125
Disclosure Note Amounts due from customers

Contract costs incurred (W3)
Recognised profits (840 + 1,110)
Progress billings
Amounts due from customers
SA
M
WORKINGS (in $000)

(1)
Percentage complete
Agreed value of work completed at year end

Contract price
Percentage completed (8,125/12,500 100)
(2)
Total costs
$000
4,000
5,500
9,500
Contract costs incurred

Other costs
1054
8,125
12,500
65%
Estimated total costs

Other costs
(3)
7,300
1,950
9,250
(8,125)
1,125
2,500
4,800
7,300

Answer 15 DEARING
Extracts from the financial statements
Carrying amount
2013
$000
270
20
2014
$000
119
20
290
139
920
(180)
740
920
(450)
470
670
(119)
551
PL

Cost
2012
$000
180
20
(42)
40
198
Year ended 30 September

Statement of profit or loss
Depreciation (see workings)
Maintenance (60,000 3 years)
Discount received (840,000 5%)
Staff training
WORKINGS
Manufacturers base price
Less: Trade discount (20%)
SA
M
Base cost
Freight charges
Electrical installation cost
Pre-production testing
Initial capitalised cost
$000
1,050
(210)
840
30
28
22
920
The depreciable amount is $900,000 (920,000 20,000 residual value) and, based on an
estimated machine life of 6,000 hours, this gives depreciation of $150 per machine hour.
Therefore depreciation for the year ended 30 September 2012 is $180,000 ($150 1,200
hours) and for the year ended 30 September 2013 is $270,000 ($150 1,800 hours).
Tutorial note: Early settlement discount, staff training in use of machine and maintenance
are all revenue items and cannot be part of capitalised costs.
Carrying amount at 1 October 2013
Subsequent expenditure
Revised cost
$000
470
200
670
The revised depreciable amount is $630,000 (670,000 40,000 residual value) and with a
revised remaining life of 4,500 hours, this gives a depreciation charge of $140 per machine
hour. Therefore depreciation for the year ended 30 September 2014 is $119,000 ($140 850
hours).
1055

Answer 16 FLIGHTLINE
Statement of profit or loss for the year ended 31 March 2014
$000
13,800
6,000
3,000
2,000
Depreciation (W1)
Loss on write off of engine (W3)
Repairs engine
exterior painting
Accumulated Carrying
depreciation
amount
$000
$000
84,000
36,000
21,500
8,000
3,700
16,100
109,200
60,100
$000
120,000
29,500
19,800
169,300
PL
Exterior (W1)
Cabin fittings (W2)
Engines (W3)
Cost
Non-current asset Aircraft

(1)
Depreciation
The exterior of the aircraft is depreciated at $6 million per annum (120,000 20 years). The
cabin is depreciated at $5 million per annum (25,000 5 years). The engines would be
depreciated by $500 ($18 million/36,000 hours) i.e. $250 each, per flying hour.
SA
M
Carrying amount of aircraft at 1 April 2013
(2)
Cost
depreciation
amount
$000
$000
$000
Exterior (13 years old)
120,000
78,000
42,000
Cabin (3 years old)
25,000
15,000
10,000
Engines (used 10,800 hours)
18,000
5,400
12,600
163,000
98,400
64,600
Depreciation for year to 31 March 2014:

$000
Exterior (no change)
6,000
Cabin fittings six months to 30 September 2013(5,000 6/12)
2,500
six months to 31 March 2014(W2)
4,000
Engines
six months to 30 September 2013(500 1,200 hours)
600
six months to 31 March 2014 ((400 + 300) W3)
700
13,800
Cabin fittings
Cabin fittings at 1 October 2013 the carrying amount of the cabin fittings is $75 million
(10,000 2,500). The cost of improving the cabin facilities of $45 million should be
capitalised as it led to enhanced future economic benefits in the form of substantially higher
fares. The cabin fittings would then have a carrying amount of $12 million (7,500 + 4,500)
and an unchanged remaining life of 18 months. Thus depreciation for the six months to 31
March 2014 is $4 million (12,000 6/18).
1056

(3)
Engines
PL
Engines before the accident the engines (in combination) were being depreciated at a rate of
$500 per flying hour. At the date of the accident each engine had a carrying amount of $6
million ((12,600 600)/2). This represents the loss on disposal of the written off engine. The
repaired engines remaining life was reduced to 15,000 hours. Thus future depreciation on
the repaired engine will be $400 per flying hour, resulting in a depreciation charge of
$400,000 for the six months to 31 March 2014. The new engine with a cost of $108 million
and a life of 36,000 hours will be depreciated by $300 per flying hour, resulting in a
depreciation charge of $300,000 for the six months to 31 March 2014. Summarising both
engines:
Cost
depreciation
amount
$000
$000
$000
Old engine
9,000
3,400
5,600
New engine
10,800
300
10,500
19,800
3,700
16,100
Tutorial note: Marks are awarded for clear calculations rather than for detailed
explanations. Full explanations are given for tutorial purposes.
Answer 17 BAXEN
(a)
Advantages of adopting IFRS
There are several aspects of Baxens business strategy where adopting IFRS would be
advantageous.
SA
M
It is unclear how sophisticated or developed the local standards which it currently uses are,
however, it is widely accepted that IFRS are a set of high quality and transparent global
standards that are intended to achieve consistency and comparability across the world. They
have been produced in co-operation with other internationally renowned standard setters, with
the aspiration of achieving consensus and global convergence. Thus if Baxen does adopt
IFRS it is likely that its status and reputation (e.g. an improved credit rating) in the eyes of
other entities would be enhanced.
Other more specific advantages
Its own financial statements would be comparable with other companies that use
IFRS. This would help the company to better assess and rank prospective
investments in its foreign trading partners.
Should Baxen acquire (as a subsidiary) any foreign companies, it would make the
task of consolidation much simpler as there would be no need to reconcile its
foreign subsidiarys financial statements to the local generally accepted accounting
principles (GAAP) that Baxen currently uses. The use of IFRSs may make the audit
fee less expensive.
If Baxen needs to raise finance in the future (highly likely because of its ambitions),
it will find it easier to get a listing on any security exchange that is a member of the
International Organisation of Securities Commissions (IOSCO) as they recognise
IFRS for listing purposes. This flexibility to raise funding also means that Baxens
financing costs should be lower.
1057

(b)
Government grants
(i)
Policy
(ii)
PL
The IASBs Framework defines liabilities as obligations to transfer economic benefits as a

result of past transactions. Such transfers of economic benefits are to third parties and
normally as cash payments. Traditionally and in compliance with IAS 20 Accounting for
Government Grants and Disclosure of Government Assistance, capital based government
grants are treated as deferred credits and spread over the life of the related assets. This is the
application of the matching concept. A strict interpretation of the Framework would not
normally allow deferred credits to be treated as liabilities as there is usually no obligation to
transfer economic benefits. In this particular example the only liability that may occur in
respect of the grant would be if Baxen were to sell the related asset within four years of its
purchase. A possible argument would be that the grant should be treated as a reducing
liability (in relation to a potential repayment) over the four-year claw back period. On closer
consideration this would not be appropriate. The repayment would only occur if the asset
were sold, thus it is potentially a contingent liability. As Baxen has no intention to sell the
asset there is no reason to believe that the repayment will occur, thus it is not a reportable
contingent liability. The implication of this is that the companys policy for the government
grant does not comply with the definition of a liability in the Framework. Applying the
guidance in the Framework would require the whole of the grant to be included in income as
it is earned (i.e. in the year of receipt).
Accounting treatment applying the companys policy
Statement of profit or loss extract year to 31 March 2014

Depreciation plant
((800,000 120,000 estimated residual value)/10 years 6/12) Dr
Government grant ((800,000 30%)/10 years 6/12) Cr
SA
M
Statement of financial position extracts as at 31 March 2014

Non-current assets:
Plant at cost
Current liabilities:
Government grant (240,000 10 years)
34,000
12,000
800,000
(34,000)
766,000
24,000
Non-current liabilities:
Government grant (240,000 12,000 24,000)
204,000
Accounting treatment applying the Framework

Statement of profit or loss extract year to 31 March 2014
Depreciation plant
((800,000 120,000 estimated residual value)/10 years 6/12) Dr
Government grant (whole amount) Cr
Statement of financial position extracts as at 31 March 2014
Non-current assets:
Plant at cost
1058
34,000
240,000
800,000
(34,000)
766,000

Answer 18 APEX
(a)
Intangibles
Where an intangible asset other than goodwill is acquired as a separate transaction, the
treatment is relatively straightforward. It should be capitalised at cost and amortised over its
estimated useful economic life. The fair value of the purchase consideration paid to acquire
an intangible is deemed to be its cost. If the asset has an indefinite useful life then it is not
amortised, but is tested annually for impairment. IAS 38 does allow the subsequent
revaluation of intangible assets as long as there is an active market for that class of
intangibles.
PL
Intangibles purchased as part of the acquisition of a business should be recognised separately

to goodwill if the fair value of the intangible can be measured reliably. Reliable measurement
does not have to be at market value, techniques such as valuations based on multiples of
turnover or notional royalties are acceptable. This test is not meant to be overly restrictive
and is likely to be met in valuing intangibles such as brands, publishing titles, patents etc.
Any intangible not capable of reliable measurement will be subsumed within goodwill. The
impact of IFRS 3 and the revised IAS 38 has been to recognise far more separate intangibles
than the previous standard; this has had the effect of reducing the amount of goodwill
identified in the business combination.
Recognition of internally developed intangibles is much more restrictive. IAS 38 states that
internally generated goodwill, brands, mastheads, publishing titles, customer lists and similar
items should not be recognised as intangible assets as these items cannot be distinguished
from the cost of developing the business as a whole. The Standard does require development
costs to be capitalised if they meet detailed recognition criteria. Those criteria being:
the technical feasibility of completing the intangible asset so that it will be available
for use or sale;
SA
M
(b)
its intention to complete the intangible asset and use it or sell it;
its ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset; and
its ability to measure the expenditure attributable to the intangible asset during its
development reliability.
Capitalising borrowing costs
Where borrowing costs are directly incurred on a qualifying asset, they must be capitalised
as part of the cost of that asset. A qualifying asset may be a tangible or an intangible asset
that takes a substantial period of time to get ready for its intended use or eventual sale.
Property construction would be a typical example, but it can also be applied to intangible
assets during their development period. Borrowing costs include interest based on its
effective rate (which incorporates the amortisation of discounts, premiums and certain
expenses) on overdrafts, loans and (some) other financial instruments and finance charges on
finance leased assets. They may be based on specifically borrowed funds or on the weighted
average cost of a pool of funds. Any income earned from the temporary investment of
specifically borrowed funds would normally be deducted from the amount to be capitalised.
1059

Capitalisation should commence when expenditure is being incurred on the asset, which is not
necessarily from the date funds are borrowed. Capitalisation should cease when the asset is
ready for its intended use, even though the funds may still be incurring borrowing costs. Also
capitalisation should be suspended if there is a suspension of active development of the asset.
Any borrowing costs that are not eligible for capitalisation must be expensed. Borrowing
costs cannot be capitalised for assets measured at fair value.
(c)
Calculation of borrowing costs
The finance cost of the loan must be calculated using the effective rate of 75%, so the total
finance cost for the year ended 31 March 2014 is $750,000 ($10 million 75%). As the loan
relates to a qualifying asset, the finance cost (or part of it in this case) must be capitalised
under IAS 23 Borrowing Costs.
In summary
PL
The Standard says that capitalisation commences from when expenditure is being incurred (1
May 2013) and must cease when the asset is ready for its intended use (28 February 2014); in
this case a 10-month period. However, interest cannot be capitalised during a period where
development activity is suspended; in this case the two months of July and August 2013.
Thus only eight months of the years finance cost can be capitalised = $500,000 ($750,000
8
/12). The remaining four months finance costs of $250,000 must be expensed. IAS 23 also
says that interest earned from the temporary investment of specific loans should be deducted
from the amount of finance costs that can be capitalised. However, in this case, the interest
was earned during a period in which the finance costs were NOT being capitalised, thus the
interest received of $40,000 would be credited to profit or loss and not to the capitalised
finance costs.
$000
SA
M
Profit or loss for the year ended 31 March 2014

Finance cost (debit)
Investment income (credit)
(250)
40

Property, plant and equipment (finance cost element only)
500
Answer 19 DEXTERITY
(a)
Allocation of purchase consideration
$m
15
2
10
8
35
The difficulty here is the potential value of the patent if the trials are successful. In effect this
is a contingent asset and on an acquisition contingencies have to be valued at their fair value.
There is insufficient information to make a judgment of the fair value of the contingent asset
and in these circumstances it would be prudent to value the patent at $10 million. The
additional $5 million is an example of where an intangible cannot be measured reliably and
thus it should be subsumed within goodwill. The other issue is that although research cannot
normally be treated as an asset, in this case the research is being done for another company
and is in fact work in progress and should be recognised as such.
Net tangible assets
Work in progress
Patent
Goodwill
1060

(b)
New drug
(c)
Operating license
This is an example of an internally developed intangible asset and although the circumstances
of its valuation are similar to the patent acquired above it cannot be recognised at Leadbrands
valuation. Internally generated intangibles can only be recognised if they meet the definition
of development costs in IAS 38. Internally generated intangibles are permitted to be carried
at a revalued amount (under the revaluation model) but only where there is an active market
of homogeneous assets with prices that are available to the public. By their very nature drug
patents are unique (even for similar types of drugs) therefore they cannot be part of a
homogeneous population. Therefore the drug would be recorded at its development cost of
$12 million, as long as the 6 recognition criteria mentioned in part (a) have been met..
(d)
PL
This is an example of a granted asset. It is neither an internally developed asset nor a

purchased asset. In one sense it is recognition of the standing of the company that is part of
the companys goodwill. IAS 38s general requirement requires intangible assets to be
initially recorded at cost and specifically mentions granted assets. IAS 38 also refers to IAS
20 Accounting for Government Grants and Disclosure of Government Assistance in this
situation. This standard says that both the asset and the grant can be recognised at fair value
initially (in this case they would be at the same amount). If fair values are not used for the
asset it should be valued at the amount of any directly attributable expenditure (in this case
this is zero). It is unclear whether IAS 38s general restrictive requirements on the
revaluation of intangibles are intended to cover granted assets under IAS 20.
Skilled workforce
SA
M
There is no doubt that a skilled workforce is of great benefit to a company. In this case there
is an enhancement of revenues and a reduction in costs and if resources had been spent on a
tangible non-current asset that resulted in similar benefits they would be eligible for
capitalisation. However the Standard specifically excludes this type of expenditure from
being recognised as an intangible asset and it describes highly trained staff as pseudoassets. The main reason is the issue of control (through custody or legal rights).
Part of the definition of any asset is the ability to control it. In the case of employees (or, as
in this case, training costs of employees) the company cannot claim to control them, as it is
quite possible that employees may leave the company and work elsewhere.
(e)
Advertising campaign
The benefits of effective advertising are often given as an example of goodwill (or an
enhancement of it). If this view is accepted then such expenditures are really internally
generated goodwill which cannot be recognised. In this particular case it would be reasonable
to treat the unexpired element of the expenditure as a prepayment (in current assets) this
would amount to 3/6 of $5 million i.e. $25 million. This represents the cost of the advertising
that has been paid for, but not yet taken place. In the past some companies have treated
anticipated continued benefits as deferred revenue expenditure, but this is no longer permitted
as it does not meet the Standards recognition criteria for an asset.
1061

Answer 20 DARBY
(a)
Non-current assets definition

There are four elements to the assistants definition of a non-current asset and he is
substantially incorrect in respect of all of them.
The term non-current assets will normally include intangible assets and certain investments;
the use of the term physical asset would be specific to tangible assets only.
Whilst it is usually the case that non-current assets are of relatively high value this is not a
defining aspect. A waste paper bin may exhibit the characteristics of a non-current asset, but on
the grounds of materiality it is unlikely to be treated as such. Furthermore the past cost of an
asset may be irrelevant; no matter how much an asset has cost, it is the expectation of future
economic benefits flowing from a resource (normally in the form of future cash inflows) that
defines an asset according to the IASBs Conceptual Framework for Financial Reporting.
PL
The concept of ownership is no longer a critical aspect of the definition of an asset. It is

probably the case that most non-current assets in an entitys statement of financial position are
owned by the entity; however, it is the ability to control assets (including preventing others
from having access to them) that is now a defining feature. For example: this is an important
characteristic in treating a finance lease as an asset of the lessee rather than the lessor.
SA
M
It is also true that most non-current assets will be used by an entity for more than one year and a
part of the definition of property, plant and equipment in IAS 16 Property, Plant and Equipment
refers to an expectation of use in more than one period, but this is not necessarily always the case.
It may be that a non-current asset is acquired which proves unsuitable for the entitys intended use
or is damaged in an accident. In these circumstances assets may not have been used for longer
than a year, but nevertheless they were reported as non-current during the time they were in use.
A non-current asset may be within a year of the end of its useful life but (unless a sale agreement
has been reached under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations)
would still be reported as a non-current asset if it was still giving economic benefits. Another
defining aspect of non-current assets is their intended use (i.e. held for continuing use in the
production, supply of goods or services, for rental to others or for administrative purposes).
(b)
Issues
(i)
Training course
The expenditure on the training courses may exhibit the characteristics of an asset in that they
have and will continue to bring future economic benefits by way of increased efficiency and
cost savings to Darby. However, the expenditure cannot be recognised as an asset on the
statement of financial position and must be charged as an expense as the cost is incurred. The
main reason for this lies with the issue of control; it is Darbys employees that have the
skills provided by the courses, but the employees can leave the company and take their
skills with them or, through accident or injury, may be deprived of those skills. Also the
capitalisation of staff training costs is specifically prohibited under International Financial
Reporting Standards (specifically IAS 38 Intangible Assets).
(ii)
Research and development expenditure
The question specifically states that the costs incurred to date on the development of the new
processor chip are research costs. IAS 38 states that research costs must be expensed. This is
mainly because research is the relatively early stage of a new project and any future benefits
are so far in the future that they cannot be considered to meet the definition of an asset
(probable future economic benefits), despite the good record of success in the past with
similar projects.
1062
(iii)
Installation contract
Although the work on the automatic vehicle braking system is still at the research stage, this
is different in nature from the previous example as the work has been commissioned by a
customer, As such, from the perspective of Darby, it is work in progress (a current asset) and
should not be written off as an expense. A note of caution should be added here in that the
question says that the success of the project is uncertain which presumably means it may not
be completed. This does not mean that Darby will not receive payment for the work it has
carried out, but it should be checked to the contract to ensure that the amount it has spent to
date ($24 million) will be recoverable. In the event that say, for example, the contract stated
that only $2 million would be allowed for research costs, this would place a limit on how
much Darby could treat as work in progress. If this were the case then, for this example,
Darby would have to expense $400,000 and treat only $2 million as work in progress.
PL
The question suggests the correct treatment for this kind of contract is to treat the costs of the
installation as a non-current asset and (presumably) depreciate it over its expected life of (at
least) three years from when it becomes available for use. In this case the asset will not come
into use until the next financial year/reporting period and no depreciation needs to be
provided at 30 September 2014.
The capitalised costs to date of $58,000 should only be written down if there is evidence that
the asset has been impaired. This occurs where the recoverable amount of an asset is less than
its carrying amount. The assistant appears to believe that the recoverable amount is the future
profit, whereas (in this case) it is the future (net) cash inflows. Thus any impairment test at 30
September 2014 should compare the carrying amount of $58,000 with the expected net cash
flow from the system of $98,000 ($50,000 per annum for three years less future cash outflows
to completion the installation of $52,000 (see note below)). As the future net cash flows are
in excess of the carrying amount, the asset is not impaired and it should not be written down
but shown as a non-current asset (under construction) at cost of $58,000.
SA
M
Tutorial note: As the contract is expected to make a profit of $40,000 on income of $150,000,
the total costs must be $110,000, with costs to date at $58,000 this leaves completion costs of
$52,000.
Answer 21 MANCO
From the information in the question, the closure of the furniture making operation is a restructuring as
defined in IAS 37 Provisions, Contingent Liabilities and Contingent Assets and, due to the timing of the
decision, a provision for the closure costs will be required in the year ended 30 September 2013.
Although the Standard says that a Board of directors decision to close an operation is alone not
sufficient to trigger a provision the other actions of the management, informing employees, customers
and a press announcement indicate that this is an irreversible decision and that therefore there is an
obligating event.
(i)
Factory and plant
At 30 September 2013 these assets cannot be classed as held-for-sale as they are still in
use (i.e. generating revenue) and therefore are not available for sale. Both assets will
therefore continue to be depreciated.
Despite this, it does appear that the plant is impaired. Based on its carrying amount of $28
million, an impairment charge of $23 million ($28 million $05 million) would be
required (subject to any further depreciation for the three months from July to September
2013). The expected gain on the sale of the factory cannot be recognised or used to offset the
impairment charge on the plant. The impairment charge is not part of the restructuring
provision, but should be reported with the depreciation charge for the year.
1063
E
PL
ABOUT BECKER PROFESSIONAL EDUCATION
Becker Professional Education provides a single destination

for candidates and professionals looking to advance their
careers and achieve success in:
Accounting
International Financial Reporting
Project Management
Continuing Professional Education
Healthcare
SA
For more information on how Becker Professional Education can

support you in your career, visit www.becker.com.
This ACCA Revision Question Bank has been reviewed

by ACCA's examining team and includes:
The most recent ACCA examinations with suggested answers
Past examination questions, updated where relevant
Model answers and suggested solutions
Tutorial notes
SA
PL
www.becker.com/ACCA | acca@becker.com
2015 DeVry/Becker Educational Development Corp. All rights reserved.

F7FR Revision Question Bank Sample j15

Diunggah oleh

Informasi Dokumen

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

F7FR Revision Question Bank Sample j15

Diunggah oleh

Hak Cipta:

Format Tersedia

PL

June 2015 Edition

REVISION QUESTION BANK

Paper F7 | FINANCIAL REPORTING

Becker Professional Education has more than 20

*Platinum Moscow, Russia and Kiev, Ukraine. Gold Almaty, Kazakhstan

Becker Professional Education's ACCA Study Materials

REVISION QUESTION BANK

For Examinations to June 2015

Copyright 2014 DeVry/Becker Educational Development Corp. All rights reserved.

REVISION QUESTION BANK FINANCIAL REPORTING (F7)

Marks Date worked

MULTIPLE CHOICE QUESTIONS

International Financial Reporting Standards

Standard setting process (ACCA D04 adapted)

SUBSTANCE OVER FORM

Wardle (ACCA J10)

FINANCIAL REPORTING (F7) REVISION QUESTION BANK

Marks Date worked

IAS 1 PRESENTATION OF FINANCIAL STATEMENTS

Dexon (ACCA J08 adapted)

IAS 11 CONSTRUCTION CONTRACTS

Linnet (ACCA J04)

IAS 16 PROPERTY, PLANT AND EQUIPMENT

Dearing (ACCA D08)

IAS 20 ACCOUNTING FOR GOVERNMENT GRANTS

Baxen (ACCA J12 adapted)

IAS 23 BORROWING COSTS

Apex (ACCA J10 adapted)

IAS 38 INTANGIBLE ASSETS

Dexterity (ACCA J04 adapted)

IAS 36 IMPAIRMENT OF ASSETS

Wilderness (ACCA D05 adapted)

Fino (ACCA D07)

REVISION QUESTION BANK FINANCIAL REPORTING (F7)

Marks Date worked

Promoil (ACCA D08)

IAS 10 EVENTS AFTER THE REPORTING PERIOD

Waxwork (ACCA J09)

Pingway (ACCA J08 adapted)

ANALYSIS AND INTERPRETATION

Harbin (ACCA D07 adapted)

IAS 7 STATEMENT OF CASH FLOWS

Crosswire (ACCA D09 adapted)

IAS 33 EARNINGS PER SHARE

Savoir (ACCA J06)

COMPOSITE IFRS QUESTIONS

Toogood (ACCA J07 adapted)

FINANCIAL REPORTING (F7) REVISION QUESTION BANK

Marks Date worked

Multiple Choice Questions

REVISION QUESTION BANK MCQ FINANCIAL REPORTING (F7)

INTERNATIONAL FINANCIAL REPORTING STANDARDS

Which ONE of the following is NOT a function of the IASB?

Whose needs are general purpose financial statements intended to meet?

Responsibility for all IFRS technical matters

Shareholders of incorporated entities

Which body develops International Financial Reporting Standards?

According to the International Accounting Standards Board, in whose interests are

The issue of a new IFRS means that:

An existing standard may be partially or completely withdrawn.

FINANCIAL REPORTING (F7) REVISION QUESTION BANK MCQ

Which ONE of the following is stated as an underlying assumption according to the

Which one of the following is NOT covered by the Framework?