FinancialReporting (FR) Flashcards
QuestionBank/ BPP/ Kaplan/ Mock/ Extras
(QUESTION BANK)
Heron purchased a property for $2.5 million on 1 October 20X9. The property had a useful life of twenty years. On 1 October 20Y3, the property was revalued to $4 million. Its useful life
remained unchanged. On 30 September 20Y4, the property was sold for $4.5 million.
=> Calculate the profit on disposal that should be included in profit or loss for the year ended 30 September 20Y4.
$750,000
=> CV @30.Dec.20Y4= [4m- (4m/16)]
= 3.75m
Sales Proceeds= 4.5m
∴ Profit on Disposal= 0.75m
= $750,000
(QUESTION BANK)
Alton purchased an item of plant for $440,000 on 1 October 20X4. The useful life was anticipated as being eight years and the residual value was estimated as $120,000. Alton depreciates plant on a straight line basis. The residual value was still considered to be $120,000
at 1 October 20X8 but the remaining useful life was reassessed to be five years.
=> Calculate the depreciation charge for the item of plant for the current year to 30 September 20X9
$32,000
=> CV @1.Oct.20X8= [440k-(440k-120k/8)*4]
= 280k
∴ Dep. @30.Sep.20X9= (280k-120k/5)
= 32k
= $32,000
(QUESTION BANK)
A cash generating unit (CGU) has assets with the following carrying amounts: (in $000)
Goodwill —————500
Other intangible assets —————250
Property, plant and equipment —————1,750
=2,500
The recoverable amount of the CGU has been assessed at $1,800,000. The other intangible assets have a combined fair value less costs of disposal of $220,000.
=> How much of the impairment loss should be allocated to property, plant and equipment?
$175,000
=> [Before, Impairment and After calculation. No change to values since given RA ($220k) is lower then recorded RA ($225k)]
(QUESTION BANK)
On 1 October 20X9 Bamford purchased an office building for $1.4 million. At that date it had an estimated useful life of 25 years. During 20Y1 Bamford began to let the building to a third party, reclassifying it as an investment property and adopting the fair value model. On 1 July 20Y4, Bamford began to use the office block for its own operations again. An independent valuer estimated that useful life of the building was 25 years from 1 July 20Y4 and provided the following additional information:
Fair value of the property: (in $000)
At 1 October 20Y3 —————2,100
At 1 July 20Y4 —————1,900
At 30 September 20Y4 —————1,950
Bamford has adopted the cost model for all other items of property, plant and equipment.
=> What is the total charge to profit or loss in respect of the office building for the year ended 30 September 20Y4?
$219,000
=> Total expense in PnL:
+Loss on IP—————-200k
+Depreciation————–19k
TOTAL————————$219k
(QUESTION BANK)
Riley acquired a non-current asset on 1 October 20X9 at a cost of $100,000 which had a useful economic life of ten years and a nil residual value. The asset had been correctly depreciated up to 30 September 20Y4. At that date the asset was damaged and an impairment review was performed. On 30 September 20Y4, the fair value of the asset less costs to sell was $30,000 and
the expected future cash flows were $8,500 per annum for the next five years. The current cost of capital is 10% and a five-year annuity of $1 per annum at 10% would have a present value of
$3.79.
=> What amount would be charged to profit or loss for the impairment of this asset for the year ended 30 September 20Y4?
$17,785
=> CV @30.Sep.20Y4= 50k «
NRV @30.Sep.20Y4= 30k
Value in Use= 8.5k * 3.79
= 33,215 <<
∴Impairment (PnL)= 50,000- 33,215
= $17,785
(QUESTION BANK)
Tibet acquired a new office building on 1 October 20X4. Its initial carrying amount consisted of: (in $000)
Land————— 2,000
Building structure————— 10,000
Air conditioning system————— 4,000
TOTAL—————16,000
The estimated lives of the building structure and air conditioning system are 25 years and 10 years respectively. When the air conditioning system is due for replacement, it is estimated that the old system will be dismantled and sold for $500,000. Depreciation is time apportioned where appropriate.
=> At what amount will the office building be shown in Tibet’s statement of financial position as at 31 March 20X5?
$15,625
=> (Time apportion all amounts except land)
2m+ 9.8m+ 3.8m+ 0.025m= $15,625
(QUESTION BANK)
The following trial balance extract elates to a property which is owned by Veeton as at 1 April 20X4: (in $000)
Property at cost (20-year original life)————— 12,000
Accumulated depreciation as at 1 April 20X4————— 3,600
On 1 October 20X4, following a sustained increase in property prices, Veeton revalued its property to $10.8 million.
=> Calculate the depreciation charge in Veeton’s statement of profit or loss for the year ended 31 March 20X5?
$700,000
=> Dep. @01.Oct.20X4= (12,000/20)6/12
=$300,000
Dep. from revaluation date to @31.Mar.20X5= (10,800/13.5) 6/12
= $400,000
Total Dep. @31.Mar.20X5= 400k + 300k
= $700,000
(BPP)
Which TWO of the following statements about accounting for government grants are true?
(A) A government grant related to the purchase of an asset must be deducted from the carrying amount of the asset in the statement of financial position
(B) A government grant related to the purchase of an asset should be recognised in profit or loss over the life of the asset
(C) Free marketing advice provided by a government department is excluded from the definition of government grants
(D) Any required repayment of a government grant received in an earlier reporting period is treated as prior period adjustment
(B) A government grant related to the purchase of an asset should be recognised in profit or loss over the life of the asset
(C) Free marketing advice provided by a government department is excluded from the definition of government grants
(QUESTION BANK)
An entity measures an asset at the present value of the cash flows expected to derive from its
use and ultimate disposal.
=> What measurement basis does this describe?
(A) Current cost
(B) Fair value
(C) Net realisable value
(D) Value in use
(D) Value in use
(QUESTION BANK)
Thompson commenced the development stage of a project to produce a new type of building insulation on 1 February 20X4. On 1 April 20X4 the directors obtained the additional finance without which it would have been impossible to complete the project. Expenditure of $30,000 per month was incurred until the project was completed on 31 August 20X4. The new material went into immediate production on 1 September 20X4 and is expected to be profitable for at least four years. Thompson time-apportions depreciation and ammortisation charges where applicable.
=> What amount will Thompson charge to profit or loss for development costs, including any ammortisation, for the year ended 30 September 20X4?
$63,125
=> Feb. to Mar.= 30k2= 60k
Ammortisation (Apr. to Sep.)
= 30k5*1/12
= 3,125
∴ Total expense to PnL= 60k+ 3,125
= $63,125
(BPP)
Drexler acquired an item of plant on 1 October 20X2 at cost o $500,000. It has a useful life of five years (straight-line depreciation) and an estimated residual value of 10% of its historical cost or current cost as appropriate. As at 30 September 20X4, the manufacturer of the plant still makes the same item of plant and its current price is $600,000.
=> What is the correct carrying amount to be shown in the SOFP of Drexler as at 30 September 20X4 under historical cost and current cost?
HC= $320,000
CC= $384,000
=> HC] Depreciation= (500k90%/5)2
= 180k
Carrying amount= 500k- 180k
= $320,000
=> CC] Depreciation= (600k90%/5)2
= 216k
Carrying amount= 500k- 216k
= $384,000
(BPP)
Under current value measurement basis, what is the definition of fulfillment value?
(A) The amount of consideration receive to incur the liability, less transaction costs
(B) The price that would be paid to settle the liability at the measurement date
(C)The consideration that would be received for incurring an equivalent liability at the measurement date
(D) The present value of the estimated cash flows needed to fulfill a liability
(A) The amount of consideration receive to incur the liability, less transaction costs
=>(D) The present value of the estimated cash flows needed to fulfill a liability——[MOST PROBABLY]
(EXTRA)
Scold Co reported a profit before tax for the year ending 31 December 20X9 of $118,000.
This was arrived at after charging/crediting the following transactions:
(i) Depreciation on a revalued asset of $15,000 (depreciation based on original cost $10,000)
(ii) An asset previously revalued by $40,000 was sold at a profit of $6,000. The asset was revalued on 31 December 20X8 and sold on 1 January 20X9. Scold Co does not charge any depreciation in the year of disposal.
=> What would the profit before tax have been if Scold Co had followed the cost model in accordance with IAS 16 Property, Plant and Equipment?
$163,000
=> Retained profit—————118,000
Additional depreciation —————5,000
Realisation of property revaluations—————40,000
∴ PBT at cost= 118k+ 5k+ 40k
= $163,000
(EXTRA)
Which of the following items could be held at revalued amounts?
(i) Taxi licence
(ii) Airport landing rights
(iii) Specialised plant and equipment
(iv) Drug patent
(A) I and III only
(B) I and II
(C) I, II and III only
(D) All of the above
(C) I, II and III only
=> (i), (ii) and (iv) are intangible assets which are likely to have a finite useful life (a set period of time over which they are expected to generate economic benefits).
Therefore, they will be amortised over their useful lives. These intangible assets
should be reviewed on an annual basis to ensure that their carrying amount is
accurate. However, their carrying amounts are also tested for impairment on an annual basis. There is no active market for patents as they are unique, therefore patents are not revalued.
The plant and equipment, which are tangible non-current assets, may be revalued in accordance with IAS 16.
Conversely, if there are signs or indications of impairment, then the carrying amount should be revised to reflect the recoverable amount of the
assets.
(EXTRA)
The following information is available for Judd Co during a year:
(i) Profit for the year—————753,000
(ii) Dividends paid and declared—————27,000
(iii) Fall in value of investment property held under fair value model—————150,000
(iv) Upward revaluation of freehold land and buildings—————68,000
(v) Provision for onerous contracts—————34,000
(vi) Impairment losses on capitalised development costs—————12,000
=> What is the total comprehensive income reported in the statement of profit or loss and other comprehensive income of Judd Co?
$821,000
=> Total comprehensive income= 753k+68K= 821,000
(i) This is the total of the profit or loss for the year as per the statement of profit or
loss and other comprehensive income
(ii) Not a gain or loss – equity movement
(iii) Already in (i) [PnL]
(iv) Unrealised gain – recognised in other comprehensive income [OCI]
(v) Already in (i)
(vi) Already in (i)
(EXTRA)
IAS 16 Property, Plant and Equipment requires property, plant and equipment to be depreciated using:
(A) The straight-line method or any similar method
(B) The straight-line or reducing balance method
(C) A method that allocates the cost to match the expected pattern of benefits
(D) A method that allocates the depreciable amount to match the expected pattern of benefits
(D) A method that allocates the depreciable amount to match the expected pattern of benefits
=> ‘The depreciable amount of an item of property, plant and equipment should be allocated on a systematic basis over its useful life’ (IAS 16: para. 50).
‘The depreciation method used shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity’ (IAS 16: para. 60).
(EXTRA)
Which of the following is necessary for the recognition of a liability under the Conceptual Framework for Financial Reporting?
(i) An obligation must exist at the year end
(ii) The potential economic transfer must result in a payment made in cash
(iii) It must be possible to quantify the amount of the liability
(iv) The potential economic transfer must be highly likely to occur
(A) I only
(B) I and IV only
(C) I, II and III only
(D) I, III and IV only
(A) I only
=>To recognise a liability, the obligation does not need to be highly likely or certain, ‘it is only necessary that the obligation already exists, and that, in at least one circumstance, it would require the entity to transfer an economic resource’ (Conceptual Framework: para. 4.37).
However, it does need to represent an
obligation that was in place at the year end.
The obligation does not need to be quantified, instead, the entity must recognise the fact that the obligation exists (as a minimum) even when the value cannot be specified exactly. In such cases, there may be a disclosure note to recognise this fact.
The transfer of economic resources need not be in cash, for example it could
represent the transfer of another non-cash asset or provision of a service.
(EXTRA)
Which of the following is NOT TRUE about the standard-setting process?
(A) A Discussion Paper is only issued if considered necessary by the Board
(B) An IFRS Standard becomes effective if approved by a majority of the International Accounting Standards Board (the Board)
(C) The IFRS Interpretations Committee issues IFRIC Interpretations independently from the Board
(D) An Exposure Draft must be issued before a final IFRS Standard can be issued
(C) The IFRS Interpretations Committee issues IFRIC Interpretations independently from the Board
=> IFRS Interpretations must be approved by the Board before issue.
(BPP)
At 30 September 20X9, Sandown Co’s trial balance showed a brand at cost of $30 million, less accumulated amoritisation bought forward at 1 October 20X8 of $9 million. Amortisation is based on a 10-year useful life. An impairment review on 1 April 20X9 concluded that the brand hd a value in use of$12 million and a remaining useful life of three years. However, on the same date Sandown Co. received an offer to purchase the brand for $15 million.
=> What should be the carrying amount of the brand in the statement of financial position of Sandown Co. as at 30 September 20X9? (answer to the nearest $’000.)
$12,500
=> NRV—————-15m
Depreciation= 15m6/312
= 2.5m
CV= 15m- 2.5m
= 12.5m
= $12,500
(BPP)
Lichen Co. owns a machine that has a carrying amount of $85,000 at the year end of 31 March 20X9. Its market value is $78,000 and cost of disposal are estimated $2,500. A new machine would cost $150,000. Lichen Co. expects it to produce net cash flow of $30,000 per annum for the next three years. The cost of capital of Lichen Co. is 8%.
=> What is the impairment loss on the machine to be recognised in the financial statements at 31 March 20X9? (Answer to the nearest whole $)
$7,687
=> NRV= 78k- 2.5k
= 75,700
Value in use= (30k* 3)/ (1+ 8%)^3
= 77,313———-RA
∴ Impairment= CV-RA= 85,000- 77,313
= $7,687
(BPP)
Riley Co. acquires a non-current asset on1 October 20W9 (ten years before 20X9) at a cost of $100,000 which had a useful life of ten years and a nil residual value. The asset had correctly depreciated up to 30 September 20X4. At that date the asset was damaged and an impairment review was performed. On 30 September 20X4, the fair value of the asset less cost of disposal was $30,000 and the expected future cash flows were $8,500 per annum for the next five years. The current cost of capital is 10% and a five-year annuity of $1 per annum at 10% would have a present value of $3.79.
=>What amount would be charged to profit or loss for the impairment of this asset for the year ended 30 September 20X4?
(QUESTION BANK)
Only one of the following four statements is true. Identify that statement, and mark the
remaining ones as false.
(A) All intangible assets must be carried at amortised cost or at an
impaired amount; they cannot be revalued upwards
(B) The development of a new process which is not expected to
increase sales revenues may still be recognised as an intangible
asset
(C) Expenditure on the prototype of a new engine cannot be classified
as an intangible asset because the prototype has been assembled
and has physical substance
(D) Impairment losses for a cash generating unit are first applied to
goodwill and then to other intangible assets before being applied to
tangible assets
(B) The development of a new process which is not expected to
increase sales revenues may still be recognised as an intangible
asset
=> Development may either increase revenue of decrease cost.
(QUESTION BANK)
Zayn Co spent $500,000 on 1 January 20X6 sending its key staff on a one-day training course which took place at the beginning of the current financial year. Zayn Co is expected to benefit from this training for the next two years.
This training course was partly funded by a government scheme and Zayn Co received $50,000 from the government before the training commenced. The remaining balance of $50,000 is due
to be received on 31 December 20X7. Current circumstances indicate that the receipt of the second instalment is virtually certain.
=> What amount should be charged to Zayn Co’s statement of profit or loss for the year ended 31 December 20X6 to reflect the above transactions?
$400,000
=> Training cost is expensed to PnL
Since second installment is virtually certain, total government grant to be offset to PnL is $100,000
(QUESTION BANK)
Wye acquired 100% of the equity share capital of Derwent on 1 July 20X3. For the year ended 30 June 20X4, the cost of sales of Wye was $250,000 and the cost of sales of Derwent was $130,000.
During the year ended 30 June 20X4, Wye sold goods costing $25,000 to Derwent for $35,000. At the year-end, half these goods were still in inventory.
What is the consolidated cost of sales for the year ended 30 June 20X4?
$350,000
=> 250,000 + 130,000 – 35,000 sale + PUP of 5,000 ((35,000 – 25,000) × ½)
Remember to DEDUCT the value of sale/purchase and ADD the PUP adjustment to the cost of
sales in the consolidated statement of profit and loss.
(QUESTION BANK)
Hayes Co owns 80% of the equity shares in Smith Co. For the year ended 30 June 20X9 Hayes Co
made a profit of $400,000 and Smith Co made a profit of $250,000.
During the year, Smith Co sold goods to Hayes Co for $180,000. Smith Co makes a mark-up on
cost of 20% on all sales. At the end of the year, half these goods were still in Hayes Co’s
inventory.
What is the profit attributable to the owners of the parent for the year ended 30 June 20X8?
$588,000
=> Year ended 30 June 20X9 = 400&250
PUP ((180,000 × 20/120) ÷ 2) = (15)
Smith Co (80% × 235) =188
Subsidiary= 235
Parent = 400+ 188= 588
(QUESTION BANK)
Paprika Co purchased 75% of the equity share capital of Salt Co on 30 April 20X4. Non controlling
interests are measured at fair value.
The cost of sales of both companies for the year ended 30 April 20X6 are as follows:
Paprika= 60,000
Salt= 100,000
The following additional information is provided:
1. Salt Co had machinery included in its net assets at acquisition with a carrying amount of
$120,000 but a fair value of $200,000. The machinery had a remaining useful life of eight
years at the date of acquisition. All depreciation is charged to cost of sales.
2. During the year, Salt Co sold some goods to Paprika Co for $32,000 at a margin of 25%.
Three-quarters of these goods remained in inventory at the year end.
What is the cost of sales in Paprika Co’s consolidated statement of profit or loss for the year
ended 30 April 20X6?
$144,000
=> Paprika= 60,000
Salt= 100,000
Additional depreciation (FV adjustment)= (200,000 – 120,000)/8= 10,000
Intra-group purchases= (32,000)
URP in inventory= (32,000 × 25% x 3/4)= 6,000
TOTAL COS= 144
(QUESTION BANK)
On 1 July 20X5, Pull Co acquired 80% of the equity of Sat Co. At the date of acquisition, goodwill
was valued at $10,000 and the non-controlling interest was measured at fair value. In
conducting the fair value exercise on Sat Co’s net assets at acquisition, Pull Co concluded that
property, plant and equipment with a remaining life of ten years had a fair value of $300,000 in
excess of its carrying amount. Sat Co had not incorporated this fair value adjustment into its
individual financial statements. At the reporting date of 31 December 20X5, the goodwill was
fully impaired. For the year ended 31 December 20X5, Sat Co reported a profit for the year of
$200,000.
What is the Pull Group profit for the year ended 31 December 20X5 that is attributable to
non-controlling interests?
$15,000
=> Subsidiary profits= ($200,000 × 6/12)= 100,000
Write-off of goodwill= (10,000)
Additional depreciation= (300,000/10 × 6/12)= (15,000)
TOTAL PROFIT= 75,000
NCI @ 20%= 15,000
(QUESTION BANK)
On 1 January 20X4 Howe purchased an asset for $30,000. It had a useful life of 5 years and was
depreciated on a straight-line basis. On 31 December 20X5 an impairment review showed that
the recoverable amount of the asset was $12,000. Its useful life was unchanged.
On 31 December 20X6, a further review showed that the recoverable amount of the asset had
increased to $15,000.
What is the credit to profit or loss following the reversal of the impairment?
$4,000
(QUESTION BANK)
As at 30 September 20X3 Dune’s property in its statement of financial position was:
Property at cost (useful life 15 years) $45 million
Accumulated depreciation $6 million
On 1 April 20X4, Dune decided to sell the property. The property is being marketed by a
property agent at a price of $42 million, which was considered a reasonably achievable price at
that date. The expected costs to sell have been agreed at $1 million. Recent market transactions
suggest that actual selling prices achieved for this type of property in the current market
conditions are 10% less than the price at which they are marketed.
At 30 September 20X4 the property has not been sold.
At what amount should the property be reported in Dune’s statement of financial position as
at 30 September 20X4?
$36.8 million
=> CV= 35.7m
NRV= (42m*90%)-1m
= $36.8 million
∴Record= NRV
(QUESTION BANK)
Oriel Co acquired a property on 1 January 20X4. The property cost $5.5m of which $2.2m
related to land. On 1 January 20X9, the property was revalued to $7.6m of which $3.1m related
to land. On 1 January 20X4 the property had a useful life of 25 years and this did not change as a
result of the revaluation.
=> What is the depreciation charge for the year ended 31 December 20X9?
$225,000
=> Cost= 7.6m- 3.1m= 4.5m
∴ Depreciation= 4.5m/ 20 years
= $225,000
(QUESTION BANK)
MN obtained a government licence to operate a mine from 1 April 20X7. The licence requires
that, at the end of the mine’s 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
ten years’ time (present value at 1 April 20X7 $463,000) using a discount factor of 8%.
Calculate the amount that MN should include in provisions in its statement of financial
position as at 31 March 20X8.
$500,000
=> @1.Apr.20X7= 463k
Unwinding = 463k * 8%
= 37k
∴ @1Apr.20X8= 463k + 37k
= 500k
(QUESTION BANK)
Flute Co undertakes drilling activities and has a widely publicised environmental policy stating
that it will incur costs to restore land to its original condition once drilling activities have been
completed.
Drilling commenced on a particular piece of land on 1 July 20X8. At this time, Flute Co estimated
that it would cost $3m to restore the land when drilling was completed in five years’ time. Flute
Co’s cost of capital is 7% and the appropriate present value factor is 0.713.
At what amount will the provision for restoration costs be measured in Flute Co’s statement
of financial position as at 31 December 20X8?
$2.21m
=>@1.July.20X8 [initial]= 3m * 0.713
= 2.139m
Unwinding= 2.139m * 7%
= 0.075m
∴ @31.Dec.20X8 [y/e]= 2.139m + 0.075m
= 2.214m
= $2.21m
