March 2024 Reed Paper

Question 1

Which of the following items does NOT represent the correct accounting treatment in accordance with IFRS 15 Revenue from Contracts with Customers?

Answer 1

Recognizing no revenue in relation to a three year service contract until the service is completed at the end of the third year.

Question 2

Which of the following conditions must be met in order to capitalize borrowing costs per IAS 23?

(i) Expenditure for the asset is being incurred.
(ii) The loan to finance the construction of the asset has been taken out.
(iii) Borrowing costs are being incurred.
(iv) Activities necessary to prepare the asset for its intended use or sale are in progress.

Answer 2

All of them.

Question 3

How do you calculate Diluted Earnings Per Share?

Answer 3

Earnings + (Interest or Tax)/Shares + (Shares Issued)

Question 4

Which of the following will be the immediate effect of changing to the break‐up basis?

Answer 4

All fixtures and fittings are transferred from non‐current to current assets.

Question 5

Which ONE of the following would NOT usually explain a fall in the return on capital
employed?

• A dividend has been paid to shareholders
• Profit has fallen in the year
• Properties have been revalued upwards during the year
• Assets have been acquired under a lease during the year

Answer 5

A dividend has been paid to shareholders

Question 6

Which, if any, of the following statements regarding the agency sale is/are correct?
Statement 1: Revenue should be reduced by $10 million
Statement 2: Cost of sales should be reduced by $8.5 million

Answer 6

Statement 2 only.

Revenue should be reduced, but not by $10 million. Millar should reduce revenue by
$8.5 million, as it can record the $1.5 million commission in revenue.

Question 7

What should be recorded in other comprehensive income in relation to the property
revaluations?

Answer 7

$3 million gain
The gain on revaluation of properties should be recorded in other comprehensive income.
The loss on fair value of investment properties would be taken through the statement of
profit or loss.

Question 8

Which of the following items should be added to profit from operations in order to
calculate cash generated from operations?

Answer 8

The increase in payables should be added, as it is good for cash. The increases in inventories
and receivables will have a negative impact on cash.

Question 9

Which, if any, of the statements below regarding the lease of plant is/are correct?
Statement 1: If the plant was only to be leased for two years, there would be no need to capitalise the right‐of‐use asset.
Statement 2: If ownership of the plant transfers to Padgate Co at the end of the lease, the plant should be depreciated over seven years

Answer 9

Statement 2 only
Padgate Co should depreciate the asset over its useful life if ownership of the asset transfers. There is an exemption from the requirement to recognise leased assets where the lease period is 12 months or lower or if the lease is for a low‐value asset, so statement 1 is
incorrect.

Question 10

What is the value of the right‐of‐use asset recognised by Padgate Co immediately following the sale and leaseback transaction?

Answer 10

The right‐of‐use asset is calculated as the proportion of the rights retained multiplied by the carrying amount, so ($4m / $6.0m) × $2.4m = $1.6m

Question 10

What will the non‐current liability be in relation to the leased plant at 31 March 20X6?

Answer 10

$257,696
The non‐current liability is the figure to the right of the payment in the next year.
b/f Payment Subtotal Interest c/f
31 March 20X6 431,200 (100,000) 331,200 26,496 357,696
31 March 20X7 357,696 (100,000) 257,696

Question 11

What is the impact on the statement of profit or loss for the year ended 31 March 20X6 of the lease of office furniture?

Answer 11

$2,500
The exemption applied under IFRS 16 Leases permits the cost to be written off on a straightline basis over the lease period. Thus six months of rent would be charged in the period, $5,000 × 6/12 = $2,500.

Question 12

Which, if any, of the statements below regarding the lease of assets is/are correct?
Statement 1: All leases will result in the recognition of a right‐of use asset.
Statement 2: If a sale and leaseback arrangement does not meet the definition of satisfaction of a performance obligation, the receipt of cash should be accounted for as the receipt of a loan.

Answer 12

Statement 2 only
Statement 1 is false as IFRS 16 Leases permits a simplified accounting treatment to be adopted for short‐life and low‐value assets, whereby the cost can be written off on a straightline basis. Statement 2 is true. If the apparent sale of an asset does not include satisfaction of a performance obligation, there is no sale transaction. Consequently, the asset continues
to be recognised and depreciated as normal, with the receipt of cash accounted for as a receipt of a loan.

Question 13

Calculate the goodwill arising on the purchase of Sunflower Co as at 1 October 20X4.

Answer 13

Share exchange (64,000 × 2/4) × $5 160,000
NCI fair value at acquisition: (80,000 – 64,000) × $2.44 39,040
Subsidiary’s net assets at acquisition (W2) (173,000)

Total goodwill at acquisition 26,040

Question 14

On 1 October 20X8 Paula acquired 80% of the one million equity shares in Stella, by way of a share exchange of 2 new shares in Paula for every 5 acquired in Stella. On this date the fair value of Stella’s net assets was $2,000,000, Paula’s share price was $5.40, and the fair value of the non‐controlling interest in Stella was $850,000. In the year ended 31 March 20X9 goodwill had been impaired by $200,000. Paula measures goodwill using the fair value method.

Answer 14

Cost of investment:
Share exchange ((1,000,000 × 80%) × 2/5) × $5.40 = 1,728,000
Fair value of NCI 850,000
–––––––––
2,578,000
Less: net assets at acquisition (2,000,000)
–––––––––
Goodwill on acquisition (1.10.X8) 578,000

Question 15

In the year ended 31 March 20X6 Connect revalued its properties at the year‐end for the first time.
Which of the following ratios would be distorted when comparing the year‐on‐year
performance and position of Connect?
(i) Current ratio
(ii) Asset turnover
(iii) Gearing
(iv) Return on capital employed

Answer 15

Asset Turnover
Gearing
Return on Capital Employed

Question 16

Comparability is identified in the IASB’s Conceptual Framework as an enhancing qualitative characteristic.
Which of the following WILL improve comparability?

Answer 16

Separately disclosing discontinued operations within the financial statements.

Question 17

immediately, being the first of five equal annual rentals in advance. The present value of the remaining lease payments at 1 April 20X8 was $155,000. The lease has an implicit interest rate of 10%, and the machine has a useful life of five years.
What amount in total is charged to Danielle’s statement of profit or loss for the year ended 31 March 20X9 in respect of the above lease?

Answer 17

1 Depreciation – 200,000/5 years = $40,000
2 Lease interest:
Year b/f Interest 10% c/f
20X9 155,000 15,500 170,500
Therefore total charge = $40,000 + $15,500 = $55,500.

Question 18

Which of the following is true concerning the treatment of borrowing costs under IAS 23 Borrowing costs?
A Only borrowing costs on a qualifying asset can be capitalised
B Capitalisation of borrowing costs should be suspended if construction is suspended for an extended period
C Borrowing costs can continue to be capitalised once activities to prepare the asset for use are complete, if the asset is not yet in use
D Borrowing costs capitalised are net of any temporary investment income from the funds borrowed

Answer 18

A Only borrowing costs on a qualifying asset can be capitalised
B Capitalisation of borrowing costs should be suspended if construction is suspended for an extended period
D Borrowing costs capitalised are net of any temporary investment income from the
funds borrowed

Question 19

Which of the following are TRUE in accordance with IAS 36 Impairment of Assets?
(1) A cash generating unit is the smallest identifiable group of assets for which individual cash flows can be identified and measured.
(2) When considering the impairment of a cash generating unit, the calculation of the
carrying amount and the recoverable amount does not need to be based on exactly the same group of assets.
(3) When it is not possible to calculate the recoverable amount of a single asset, then that of its cash generating unit should be measured instead.

Answer 19

Statements (1) and (3)

Question 20

In accordance with IAS 36 Impairment of Assets, which of the following explains the
impairment of an asset and how to calculate its recoverable amount?

Answer 20

its carrying amount exceeds its recoverable amount and the recoverable amount is the
higher of its fair value less costs of disposal and its value in use

Question 21

Which of the following meet the definition of a financial asset in accordance with IFRS 9 Financial Instruments?
(1) An equity instrument of another entity.
(2) A contract to exchange financial instruments with another entity under conditions which are potentially favourable.
(3) A contract to exchange financial instruments with another entity under conditions which are potentially unfavourable.
(4) Cash.

Answer 21

Only (1), (2) and (4)

Question 22

In respect of the financial liability of Stankovic, what is the finance cost to be recognised in the statement of profit or loss for the year ended 31 December 20X5?

Answer 22

The finance cost would be calculated using the effective rate of interest for six months.
$40 million × 7 × 6/12 = $1.4 million

Question 23

What are the five steps for revenue recognition within IFRS 15 Revenue From Contracts With Customers?

Answer 23

(i) Identify the contract
(ii) Identify the performance obligations under the contract
(iii) Identify the contract price
(iv) Allocate the price to the performance obligations
(v) Recognise revenue as the performance obligations are satisfied

Question 24

How do you calculate Goodwill?

Answer 24

Fair Value of Investment: £87m
Net Assets at acq: £70m
Total £17m
Impairment (60%) £10.2m
Goodwill £6.8m

Question 25

How do you calculate Convertible Loan?

Answer 25

Cash Flow x Discounted Value = PV
Go through the years up until the last year
That value is the cash
The difference between Liability and the Cash is the equity component

Question 26

IFRS 10 Consolidated Financial Statements states that ‘A parent shall prepare consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances’. Which of the following situations requires an adjustment because of this constraint?

Answer 26

A subsidiary carries its assets at historical cost but the parent’s assets are carried at revalued amounts

Question 27

What is the balance on the revaluation surplus of Topsy Co as at 30 April 20X6 after the required adjustments have been made?

Answer 27

At 30 April 20X5 705,000
Increase in value of land in the year (900,000-750,000) 150,000 855,000
Annual transfer to retained earnings
Depreciation on revalued amt ($1.5m/50) 30,000
Depreciation based on historic cost (15,000) (15,000)
At 30 April 20X6 840,000

Question 28

Which of the following statements is NOT true?
- In some countries, accounting standards can be a detailed set of rules which companies must follow
- Local accounting standards can be influenced by the tax regime within a country
- Accounting standards on their own provide a complete system of regulation
- Accounting standards are particularly important where a company’s shares are publicly traded

Answer 28

Accounting standards on their own provide a complete system of regulation

Question 29

In accordance with IAS 33 Earnings Per Share, what is the weighted average number of shares in issue for the year ended 31 December 20X9?

Answer 29

1 Jan 20X9-30 Sep 20X9 2,000,000 x 3.25/2.84 x 9/12 1,716,549
1 Oct 20X9-31 Dec 20X9 2,500,000 x 3/12 625,000

2,341,549

Question 30

Which TWO of the following are appropriate OUTPUT methods of measuring progress?

Answer 30

Physical milestones reached as a percentage of physical completion

Surveys of performance completed to date as a percentage of total contract revenue

Question 31

Q14 On 1 July 20X7, Lime Co acquired 90% of Soda Co’s equity share capital. On this date, Soda Co had an internally generated customer list which was valued at $35m by an independent team of experts. At 1 July 20X7, Soda Co was also in negotiations with a potential new major customer. If the negotiations are successful, the new customer will sign the contract on 15 July 20X7 and the value of the total customer base would then be worth $45m.
What amount would be recognised for the customer list in the consolidated statement of financial position of Lime Co as at 1 July 20X7?

Answer 31

The correct answer is $35m

Question 32

In accordance with IAS 38, which of the following is true when Artem Co moves to the production and testing stage of the prototype during the year ended 30 June 20X5?

Answer 32

The project has moved to the development stage. If the IAS 38 development expenditure criteria are met, Artem Co must recognise the $80,000 costs as an intangible non-current asset

Question 33

In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, what is the carrying amount of the plant in Maykorn Co’s statement of financial position as at 30 September 20X3?

Answer 33

The asset should be held at the lower of the carrying amount and the fair value less costs to sell. Carrying amount at 1 April is $455,000 (490-(490/7 x 6/12))

Question 33

Which of the following items should be classed as an asset held for sale under IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations?

Answer 33

A chain of retail outlets are currently advertised for sale. Maykorn Co has provisionally accepted a bid, subject to surveys being completed. The surveys are not expected to highlight any problems. The outlets are currently empty

Question 34

In accordance with IAS 32 Financial Instruments: Presentation, which of the following describes an equity instrument?

Answer 34

A contract which is evidence of a residual interest in the assets of an entity after deducting all of its liabilities

Question 35

In accordance with IAS 32, how should the issue of the convertible loan notes be recognised in Vitrion Co’s financial statements?

Answer 35

As debt and equity because the convertible loan notes contain elements of both

Question 36

What amount in respect of the loan notes will be shown under non-current liabilities in Vitrion Co’s statement of financial position as at 1 April 20X2 (to the nearest $1,000)?

Answer 36

120,000 x 0.917 110,040
120,000 x 0.842 101,040
2,120,000 x 0.772 1,636,640

                             1,847,720

Question 37

In accordance with IFRS 9 Financial Instruments, at what amount will the Gowhizzo Co shares be shown under ‘investments in equity instruments’ in Vitrion Co’s statement of financial position as at 31 March 20X4?

Answer 37

The correct answer is $350,000 (50,000 shares at $7 each)

Question 38

Where should the gain on the investment in Gowhizzo Co and its dividend be recognised in Vitrion Co’s financial statements for the year ended 31 March 20X4?

Answer 38

Both in profit or loss

Question 39

Batley Co owns a machine, which is carried in the financial statements at $2,880,000. The machine could be sold for $1,920,000, incurring marketing costs of $48,000. It would cost $2,400,000 to replace and the expected discounted future cash flows that the machine will produce amount to $2,280,000.

What is the amount of the impairment loss suffered by the asset?

Answer 39

Fair value less disposal cost (1,920,000 - 48,000) 1,872,000
Value in use 2,280,000

So recoverable amount (higher) is $2,280,000, giving an impairment loss of 2,880,000 – 2,280,000 = $600,000.

The replacement cost of the machine is not relevant.

Question 40

On 1 September 20X4, Moor Co sold an item of heavy plant to a customer for $460,000. The plant was delivered immediately. The customer paid a deposit of $50,000 immediately and Moor Co provided the customer with 2 years’ interest free credit on the balance of the cost. An appropriate discount rate is 6%.

What revenue should Moor Co recognise in the year ended 31 December 20X4?

Answer 40

Revenue should be recognised at a point in time when the plant is delivered. It is measured at the amount of the deposit, plus the present value of the deferred consideration:

Deposit 50,000
Present value of deferred consideration ($410,000/1.062) 364,899

414,899

Question 41

On 1 July 20X5, Banana Co acquired 160,000 of the 200,000 $1 shares of Lemon Co. At the date of acquisition, the retained earnings of Lemon Co were $1,560,000. Consideration comprised the following:

$680,000 cash payable immediately
$960,000 payable on 1 July 20X6
1 share in Banana Co for every 2 shares acquired in Lemon Co. The market value of each share in Banana Co on 1 July 20X5 was $2.40 and their nominal value was $1.
Banana Co’s cost of capital is 6%.

Banana Co measures non-controlling interests at fair value. The fair value of the non-controlling interest at 1 July 20X5 was estimated to be $425,000.

What was the goodwill arising on acquisition?

Answer 41

Consideration transferred: $ $
Cash 680,000
Deferred consideration (960,000 / 1.06) 905,660
Shares (80,000 × $2.40) 192,000
1,777,660
Fair value of non-controlling interest 425,000
2,202,660
Fair value of net assets:
Shares 200,000
Retained earnings 1,560,000
(1,760,000)
442,660

Question 42

On 1 July 20X8 FieldFarm Co received a $90,000 grant from local government to support its expansion. The grant was used to acquire a tractor costing $240,000 on 1 August 20X8. The tractor has a useful life of ten years.

Which statement correctly reflects the accounting treatment permitted by IAS 20 Accounting for Government Grants and Disclosure of Government Assistance?

Answer 42

Grant received 90,000
Grant income in P/L 1 August – 31 December 20X8 (5/12 x 90,000/10) (3,750)
________
Carrying amount of liability at 31 December 20X8 86,250

Question 43

In the year ended 31 October 20X8, Mizzle Co incurred the following expenditure:

$330,000 to buy the rights to a soft drink formula on 1 January 20X8. The rights were determined to have an indefinite useful life.
$12,000 to register its legal right to the formula on the day it was acquired. The right has no termination date.
$45,000 to build up a list of customers and their preferences. The list was completed on 1 March 20X8 and expected to be useful for five years.
$150,000 to acquire technology on 1 July 20X8. It was expected to be used by Mizzle Cofor 10 years.

What amount should Mizzle Co report as intangible assets at 31 October 20X8 in respect of this expenditure?

Answer 43

Purchased rights 330,000
Cost to register rights 12,000
Acquired technology (150,000 – (150,000/10 x 4/12m) 145,000 487,000

Question 44

On 1 April 20X8, Pemberley Co, a manufacturing company sold one of its factories to Bakewell Co, for its fair value of $12,600,000, and immediately leased it back. At the date of the agreement, the carrying amount of the factory was $11,900,000.

The present value of the future lease payments is $11,238,150 and the transaction constitutes a sale in accordance with IFRS 15 Revenue from Contracts with Customers.

How much should Pemberley Co recognise in profit or loss on 1 April 20X8 in respect of this transaction?

Answer 44

Following IFRS 16 Leases, Pemberly Co should recognise the gain on the rights transferred, calculated as follows:
Gain on sale = $12,600,000 – $11,900,000 = $700,000
Gain on rights retained = $700,000 x $11,238,150 /$12,600,000 = $624,342

Gain on rights transferred = $700,000 – $624,342 = $75,658

Question 45

Dennison Co had issued share capital of 2,000,000 ordinary shares as at 1 July 20X8. The company made a profit for the year ended 30 June 20X9 of $6,000,000. On 1 January20X9, Dennison Co had a bonus issue of 1 for 5.

Calculate the basic EPS of Dennison Co for the year ended 30 June 20X9, to 2 decimal places.

Answer 45

Shares
1 July 20X8 – 31 Dec 20X8 2,000,000 x 6/5 x 6/12 months 1,200,000
Bonus issue 400,000
1 Jan 20X9 – 30 June 20X9 2,400,000 x 6/12 months 1,200,000

2,400,000

EPS = $6,000,000 / 2,400,000 = $2.50

Question 46

At what amount will the $10 million 5% bond appear in the statement of financial position as at 31 December 20X4?

Answer 46

Proceeds (10m – 0.25m) 9,750,000
Interest 7% 682,500
Interest paid (10m × 5%) (500,000)
Balance 31 December 20X4 9,932,500

Question 47

How much will be credited to equity on 1 January 20X4 in respect of the convertible loan notes?

Answer 47

Interest $20m x 6% x (0.94 + 0.87 + 0.82 + 0.76 + 0.71) 4.92
Repayment $20m x 0.71 14.20
Debt component 19.12
Equity component 0.88
20.00

Question 48

When calculating diluted EPS for Ashleigh for the year ended 31 December 20X4, which weighted average number of ordinary shares should be used in the calculation?

Answer 48

1 January 20X4 - 30 September 20X4 100,000,000 x 9/12 , 8.20/8.06(W) 76,302,730
Rights issue 25,000,000
1 October 20X4 - 31 December 20X4 125,000,000 x 3/12 31,250,000
107,552,730
Plus ordinary shares on conversion of convertible loan:
$20,000,000/100 x 20 4,000,000
111,552,730

(W) TERP: 4 old shares x $8.20 32.80
1 new share x $7.50 7.50
5 40.30

TERP = $40.30/5 = $8.06

Question 49

Which statement best reflects the accounting treatment that Hickson Co must apply when it adopts the revaluation model, assuming that the fair value of property remains in excess of carrying amount?

Answer 49

The revaluation surplus gives rise to a taxable temporary difference and related deferred tax is recognised in other comprehensive income.

Question 50

How should the lease liability have been measured initially?

Answer 50

At the present value of the fixed lease payments and the termination penalty.

Question 51

What revenue should Hickson Co have recognised in the year ended 30 June 20X6 in respect of the sales contract?

Answer 51

$ 12000

This is a bill and hold arrangement; control of the goods has transferred to the customer since:
- There is a substantive reason for Hickson Co continuing to have physical possession of the goods.
- The goods have been separately identified and cannot be used by Hickson Co.
- The goods are ready for immediate despatch.

Therefore revenue is recognised when the sale is made.

Question 52

Which of the following must apply for the sale to be considered highly probable?

Answer 52

(2) The asset must be marketed at a price that is reasonable in relation to fair value

(3) Management must be committed to a plan to sell the asset

Question 53

At what amount should an asset classified as ‘held for sale’ be measured?

Answer 53

Lower of carrying amount and fair value less costs to sell

Question 54

Which statement regarding the factory’s plant is correct?

Answer 54

A depreciation charge of $510,000 and an impairment charge of $140,000 are recognised in the year ended 31 December 20X5 in respect of the plant.

Carrying amount 1 January 20X5 6,800,000
Depreciation to date of classification as held for sale (6.8m/10 x 9/12m) (510,000)
Carrying amount at 1 October 20X5 6,290,000
FV less costs to sell at 1 October 20X5 (6.2m - 50,000) 6,150,000
Impairment charge 140,000

Question 55

How should the loan be treated in the financial statements of Apex for the year ended 31 March 20X8?

Answer 55

Amortised cost

Question 56

Which TWO of the statements below regarding IAS 23 Borrowing Costs are correct?

Answer 56

A Borrowing costs must be capitalised if they are directly attributable to qualifying assets
B Borrowing costs should cease to be capitalised once the related asset is substantially complete

Question 57

How much should be recorded as finance costs in the statement of profit or loss for the year ended 31 March 20X8 relating to borrowing costs?

Answer 57

Loan $10m
Interest 7.5%
$10m x 7.5% = $750,000 interest
Borrowing costs stopped 10 months into the year
$750,000/12*2 = $125,000

Question 58

How much interest should be capitalised as part of property, plant and equipment as at 31 March 20X8?

Answer 58

Loan $10m
Interest 7.5%
$10m x 7.5% = $750,000 interest
Borrowing costs stopped 10 months into the year
$750,000/12*10 = $625,000

Question 59

Apex decided that not all of the funds raised were needed immediately and temporarily
invested some of the funds in April 20X7, earning $40,000 interest.

How should the $40,000 be accounted for in the financial statements of Apex?

Answer 59

Taken to the statement of profit or loss as investment income

Question 60

IAS 36 Impairment of Assets contains a number of examples of internal and external events which may indicate the impairment of an asset.

In accordance with IAS 36, which TWO of the following would definitely NOT be an indicator of the potential impairment of an asset (or group of assets)?

Answer 60

A A reduction in Aphrodite’s cost of capital

D The carrying amount of an entity’s net assets being below the entity’s market capitalisation

Question 61

The accountant has decided that it is too difficult to reliably attribute cash flows to this one machine and that it would be more accurate to calculate the impairment on the basis of the factory as a cash‐generating unit.

In accordance with IAS 36 Impairment of Assets, which TWO of the following are TRUE regarding cash generating units?

Answer 61

D A cash‐generating unit is the smallest identifiable group of assets for which independent cash flows can be identified.

E Assets in a cash‐generating unit should never be impaired below their recoverable amount.

Question 62

Which THREE of the following criteria need to be satisfied in order to recognise an asset as held for sale in accordance with IFRS 5 Non‐Current Assets Held for Sale and Discontinued
Operations?

Answer 62

B Asset is being actively marketed
D The plan to sell the asset is unlikely to be withdrawn
E Asset is likely to be sold within twelve months

Question 63

What provision should be recorded in relation to the office closure?

Answer 63

Redudancy

Question 64

What would be the carrying amount of the right‐of‐use plant asset as at 30 September 20X7?

Answer 64

Cost $350,000
Life 4 years
Depn $87,500
Depn over 6 months $43,750
Cost minus depn
$306,250

Question 65

What interest would be charged to Fino’s statement of profit or loss for the year ended 30 September 20X7 in respect of the plant lease?

Answer 65

Cost $350,000
Payment $100,000 (Immediately)
Carrying amount $250,000
10% Interest $25,000

Question 66

Bailey’s assistant has also enquired about changing the way of measuring the progress of contracts.

Complete the following to show how the change should be applied.

Answer 66

As a change in accounting estimate , applied prospectively.

Question 67

Creg’s sales director is close to selling another large machine, offering free service, therefore selling the entire machine for $560,000. Creg never sells servicing separately.

How should this discount be applied in relation to the sale of the machinery?

Answer 67

Machine Discount
Installation Discount
Service Discount

Discounts should be applied evenly across the components of a sale unless any one element is regularly sold separately at a discount.

Question 68

On 31 December 20X7 Creg sold some maturing goods to a bank for $3 million. The estimated value of the goods at that date was $5 million, which is expected to keep rising. Creg keeps the goods on its premises and has the option to repurchase the goods on 31 December 20X9 for $3.63 million.

Which of the following outlines the correct treatment for the maturing inventory?

Answer 68

D Treat the $3 million as a loan with 10% compound interest accruing over the 2 years

Therefore this will be treated as a $3 million loan. The additional $630,000 represents interest of 10% a year over two years on the $3 million.

Question 69

Select the correct category for the events listed below in relation to IAS 10 Events After the Reporting Period.

Answer 69

Fire in the warehouse Non-adjusting
Sale of inventory Adjusting

Question 70

On 18 November 20X8 the government announced tax changes which have the effect of increasing Promoil’s deferred tax liability by $650,000 as at 30 September 20X8.

Which of the following is correct in respect of IAS 10 Events After the Reporting Period regarding the tax changes?

Answer 70

C This is neither an adjusting or non‐adjusting event

Question 71

What is a contingent liability?

Answer 71

IAS 37 outlines the accounting for provisions (liabilities of uncertain timing or amount)

Question 72

Which description is most representative of the accounting framework used under IFRS Standards?

Answer 72

It is a principles‐based framework TRUE
It is a legal obligation FALSE

Question 73

Comparability is identified as an enhancing qualitative characteristic in the International Accounting Standards Board’s Conceptual Framework for Financial Reporting.

Which of the following does NOT improve comparability?

Answer 73

D Applying an entity’s current accounting policy to a transaction which an entity has not engaged in before.

Question 74

What amount in total would be charged to Hyper’s statement of profit or loss for the year ended 30 September 20X4 in respect of the above transactions?

Answer 74

Depreciation of leased plant $68,000 ($340,000/5 years)
Finance cost $25,000 (($340,000 – $90,000) × 10%)
Rental of equipment $13,500 ($18,000 × 9/12)
Total $106,500.

Question 75

Z entered into a five year lease agreement on 1 November 20X2, paying $10,975 per annum, commencing on 31 October 20X3. The present value of the lease payments was $45,000 and the interest rate implicit in the lease was 7%.

Answer 75

Bf Interest Payment C/f
45000 3150 -10975 37175
37175 2602 -10975 28802

Question 76

What will be recorded in Rabbit’s financial statements at 31 December 20X4 in respect of the lease liability?

Answer 76

Bf Payment Interest c/f
X3 86240 -20000 5299 71539
X4 71539 -20000 4123 55662
X5 55662 -20000 35,662

Question 77

What expense should be recorded in relation to the loan notes for the year ended 31 December 20X9?

Answer 77

Net Proceeds Interest Finance
19400 7% 1358