Which of the following is NOT a duty of the IFRS Interpretations Committee?
A.To interpret the application of International Financial Reporting Standards
B.To work directly with national standard setters to bring about convergence with IFRS
C.To provide guidance on financial reporting issues not specifically addressed in IFRSs
D.To publish draft interpretations for public comment
Which of the following will be treated as a subsidiary of Poulgo Co as at 31 December 20X7?
(1) The acquisition of 60% of Zakron Co’s equity share capital on 1 March 20X7. Zakron Co’s activities are significantly different from the rest of the Poulgo group of companies
(2) The offer to acquire 70% of Unto Co’s equity share capital on 1 November 20X7. The negotiations were finally signed off during January 20X8
(3) The acquisition of 45% of Speeth Co’s equity share capital on 31 December 20X7. Poulgo Co is able to appoint three of the ten members of Speeth Co’s board
B.2 and 3
D.1 and 2
On 1 January 20X6, Gardenbugs Co received a $30,000 government grant relating to equipment which cost $90,000 and had a useful life of six years. The grant was netted off against the cost of the equipment. On 1 January 20X7, when the equipment had a carrying amount of $50,000, its use was changed so that it was no longer being used in accordance with the grant. This meant that the grant needed to be repaid in full but by 31 December 20X7, this had not yet been done.
Which journal entry is required to reflect the correct accounting treatment of the government grant and the equipment in the financial statements of Gardenbugs Co for the year ended 31 December 20X7?
The following two issues relate to Spiko Co’s mining activities:
Issue 1: Spiko Co began operating a new mine in January 20X3 under a five-year government licence which required Spiko Co to landscape the area after mining ceased at an estimated cost of $100,000.
Issue 2: During 20X4, Spiko Co’s mining activities caused environmental pollution on an adjoining piece of government land. There is no legislation which requires Spiko Co to rectify this damage, however, Spiko Co does have a published environmental policy which includes assurances that it will do so. The estimated cost of the rectification is $1,000,000.
In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which of the following statements is correct in respect of Spiko Co’s financial statements for the year ended 31 December 20X4?
A.A provision is required for the cost of both issues 1 and 2
B.Both issues 1 and 2 require disclosure only
C.A provision is required for the cost of issue 1 but issue 2 requires disclosure only
D.Issue 1 requires disclosure only and issue 2 should be ignored
Parket Co acquired 60% of Suket Co on 1 January 20X7. The following extract has been taken from the individual statements of profit or loss for the year ended 31 March 20X7: Parket Co consistently made sales of $20,000 per month to Suket Co throughout the year. At the year end, Suket Co held $20,000 of this in inventory.
Parket Co made a mark-up on cost of 25% on all sales to Suket Co.
What is Parket Co’s consolidated cost of sales for the year ended 31 March 20X7?
A company has decided to change its depreciation method to better reflect the pattern of use of its equipment.
Which of the following correctly reflects what this change represents and how it should be applied?
A.It is a change of accounting policy and must be applied prospectively
B.It is a change of accounting policy and must be applied retrospectively
C.It is a change of accounting estimate and must be applied retrospectively
D.It is a change of accounting estimate and must be applied prospectively
Included within the financial assets of Zinet Co at 31 March 20X9 are the following two recently purchased investments in publically-traded equity shares:
Investment 1 – 10% of the issued share capital of Haruka Co. This shareholding was acquired as a long-term investment as Zinet Co wishes to participate as an active shareholder of Haruka Co.
Investment 2 – 10% of the issued share capital of Lukas Co. This shareholding was acquired for speculative purposes and Zinet Co expects to sell these shares in the near future.
Neither of these shareholdings gives Zinet Co significant influence over the investee companies.
Wherever possible, the directors of Zinet Co wish to avoid taking any fair value movements to profit or loss, so as to minimise volatility in reported earnings.
How should the fair value movements in these investments be reported in Zinet Co’s financial statements for the year ended 31 March 20X9?
A.In profit or loss for both investments
B.In other comprehensive income for both investments
C.In profit or loss for investment 1 and in other comprehensive income for investment 2
D.In other comprehensive income for investment 1 and in profit or loss for investment 2
Shiba Co entered into a non-cancellable four-year operating lease to hire a photocopier on 1 January 20X7. The terms of the lease agreement were as follows:
What is the charge in the statement of profit or loss of Shiba Co for the year ended 31 December 20X7 in respect of this operating lease?
Trasten Co operates in an emerging market with a fast-growing economy where prices increase frequently.
Which of the following statements are true when using historical cost accounting compared to current value accounting in this type of market?
(1) Capital employed which is calculated using historical costs is understated compared to current value capital employed
(2) Historical cost profits are overstated in comparison to current value profits
(3) Capital employed which is calculated using historical costs is overstated compared to current value capital employed
(4) Historical cost profits are understated in comparison to current value profits
A.1 and 2
B.1 and 4
C.2 and 3
D.3 and 4
Patula Co acquired 80% of Sanka Co on 1 October 20X5. At this date, some of Sanka Co’s inventory had a carrying amount of $600,000 but a fair value of $800,000. By 31 December 20X5, 70% of this inventory had been sold by Sanka Co.
The individual statements of financial position at 31 December 20X5 for both companies show the following:
What will be the total inventories figure in the consolidated statement of financial position of Patula Co as at 31 December 20X5?
The following scenario relates to questions 1–5.
Aphrodite Co has a year end of 31 December and operates a factory which makes computer chips for mobile phones. It purchased a machine on 1 July 20X3 for $80,000 which had a useful life of ten years and is depreciated on the straight-line basis, time apportioned in the years of acquisition and disposal. The machine was revalued to $81,000 on 1 July 20X4. There was no change to its useful life at that date.
A fire at the factory on 1 October 20X6 damaged the machine leaving it with a lower operating capacity. The accountant considers that Aphrodite Co will need to recognise an impairment loss in relation to this damage. The accountant has ascertained the following information at 1 October 20X6:
(1) The carrying amount of the machine is $60,750.
(2) An equivalent new machine would cost $90,000.
(3) The machine could be sold in its current condition for a gross amount of $45,000. Dismantling costs would amount to $2,000.
(4) In its current condition, the machine could operate for three more years which gives it a value in use figure of $38,685.
In accordance with IAS 16 Property, Plant and Equipment, what is the depreciation charged to Aphrodite Co’s profit or loss in respect of the machine for the year ended 31 December 20X4?
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 of the following would definitely NOT be an indicator of the potential impairment of an asset (or group of assets)?
A.An unexpected fall in the market value of one or more assets
B.Adverse changes in the economic performance of one or more assets
C.A significant change in the technological environment in which an asset is employed making its software effectively obsolete
D.The carrying amount of an entity’s net assets being below the entity’s market capitalisation
What is the total impairment loss associated with Aphrodite Co’s machine at 1 October 20X6?
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, which of the following is TRUE regarding cash generating units?
A.A cash-generating unit to which goodwill has been allocated should be tested for impairment every five years
B.A cash-generating unit must be a subsidiary of the parent
C.There is no need to consistently identify cash-generating units based on the same types of asset from period to period
D.A cash-generating unit is the smallest identifiable group of assets for which independent cash flows can be identified
On 1 July 20X7, it is discovered that the damage to the machine is worse than originally thought. The machine is now considered to be worthless and the recoverable amount of the factory as a cash-generating unit is estimated to be $950,000.
At 1 July 20X7, the cash-generating unit comprises the following assets:
In accordance with IAS 36, what will be the carrying amount of Aphrodite Co’s plant and equipment when the impairment loss has been allocated to the cash-generating unit?
The following scenario relates to questions 6–10.
On 1 January 20X5, Blocks Co entered into new lease agreements as follows:
Agreement one This finance lease relates to a new piece of machinery. The fair value of the machine is $220,000. The agreement requires Blocks Co to pay a deposit of $20,000 on 1 January 20X5 followed by five equal annual instalments of $55,000, starting on 31 December 20X5. The implicit rate of interest is 11·65%.
Agreement two This three-year operating lease relates to a fleet of vans. The fair value of the vans is $120,000 and they have an estimated useful life of five years. The agreement requires Blocks Co to make no payment in year one and $48,000 in years two and three.
Agreement three This sale and leaseback relates to a cutting machine purchased by Blocks Co on 1 January 20X4 for $300,000. The carrying amount of the machine as at 31 December 20X4 was $250,000. On 1 January 20X5, it was sold to Cogs Co for $370,000 and Blocks Co will lease the machine back for five years, the remainder of its useful life, at $80,000 per annum.
According to IAS 17 Leases, which of the following is generally considered to be a characteristic of an operating, rather than a finance, lease?
A.Ownership of the assets is passed to the lessee by the end of the lease term
B.The lessor is responsible for the general maintenance and repair of the assets
C.The present value of the lease payments is approximately equal to the fair value of the asset
D.The lease term is for a major part of the useful life of the asset
For agreement one, what is the finance cost charged to profit or loss for the year ended 31 December 20X6?
The following calculations have been prepared for agreement one: How will the finance lease obligation be shown in the statement of financial position as at 31 December 20X7?
A.$44,120 as a non-current liability and $49,271 as a current liability
B.$49,271 as a non-current liability and $44,120 as a current liability
C.$93,391 as a non-current liability
D.$93,391 as a current liability
For agreement two, what would be the correct statement of profit or loss entries for the year ended 31 December 20X5?
A.Depreciation of $24,000 and no lease rental expense
B.No depreciation and lease rental expense of $32,000
C.Depreciation of $24,000 and lease rental expense of $32,000
D.No depreciation and lease rental expense of $48,000
For agreement three, what profit should be recognised for the year ended 31 December 20X5 as a result of the sale and leaseback?