ACCA F7 Practice 21/8

Question 1: Which of the following ratios are likely to DECREASE due to a significant revaluation gain on a depreciating asset at the start of the year?

(1) Return on capital employed (ROCE)

(2) Gearing (debt/equity)

(3) Operating profit margin

(4) Net asset turnover

• A. 1, 2, 3 and 4

• B. 1, 2 and 3 only

• C. 2, 3 and 4 only

• D. 1 and 4 only

1. Question 2: 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:

2. 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?

• A $144,000

• B $132,000

• C $176,000

• D $140,000

Question 3: Which TWO of the following statements are true regarding the Conceptual

1.Framework for Financial Reporting (Conceptual Framework) of the International Accounting Standards Board?

• A. It is principles-based rather than rules-based but it is not an IFRS Standard

• B. The principles contained in the Conceptual Framework overrides any IFRS Standard that exists

• C. It requires accountants to evaluate and address threats to compliance with

  fundamental ethical principles

• D. If it is revised it will not automatically lead to changes to the IFRS Standards

On 1 October 20X4, Flash Co acquired an item of plant under a five-year lease agreement. Under the terms of the agreement, an immediate deposit of $2m is payable on inception of the lease and the present value of future lease payments at that date have been calculated as $25,272,000. Annual rentals of $6 are payable on 30 September each year for five years. The agreement had an implicit rate of interest of 5% per annum.

What is the current liability for the leased plant in Flash Co's statement of financial position as at 30 September 20X5?

Answer: $................

When a parent is evaluating the assets of a potential subsidiary, certain intangible assets can be recognised separately from goodwill, even though they have not been recognised in the subsidiary's own statement of financial position.

Which of the following is an example of an intangible asset of the subsidiary which may be recognised separately from goodwill when preparing consolidated financial statements?

• A. A new research project which the subsidiary has correctly expensed to profit or loss but the directors of the parent have reliably assessed to have a substantial fair value

• B. A global advertising campaign which was concluded in the previous financial year and from which benefits are expected to flow in the future

• C. A contingent asset of the subsidiary from which the parent believes a flow of future economic benefits is possible

• D. A customer list which the directors are unable to value reliably