ACCA F7 Practice 22/8

Question 1: During the year ended 31 March 20X8, Wilrob Co incurred the following costs:

(1) $400,000 in staff costs incurred in updating a computerised record of potential customers

(2) $800,000 for the purchase of a domain name for the website of a company

making substantial online sales

(3) $4m for a patent purchased to improve the production process, with an expected useful life of three years

Which of the above costs would be capitalised as intangible assets in accordance with IAS 38 Intangible Assets?

• A. 1 only

• B. 3 only

• C. 2 and 3 only

• D. 1, 2 and 3

Question 2: At 31 December 20X4, Litch Co had, in inventory, 100 items of work in progress which had cost $14,900 to produce. It estimated that the work in progress would cost $13 per unit to complete, and that each unit would then sell for $166.

Direct selling costs are estimated at 2% of revenue.

In accordance with IAS 2 Inventories, what is the correct value of Litch Co’s inventory as at 31 December 20X4?

• A. $14,900

• B. $16,268

• C. $16,200

• D. $14,968

Question 3: The Effects of Changes in Foreign Exchange Rates defines the term ‘functional currency’.

Which of the following is the correct definition of ‘functional currency’?

• A The currency in which the financial statements are presented

• B The currency of the country where the reporting entity is located

• C The currency that mainly influences sales prices and operating costs

• D The currency of the primary economic environment in which an entity operates

On 1 October 20X4, Kalatra Co commenced drilling for oil from an undersea oilfield. Kalatra Co is required to dismantle the drilling equipment at the end of its five-year licence. This has an estimated cost of $30m on 30 September 20X9. Kalatra Co's cost of capital is 8% per annum and $1 in five years' time has a present value of 68 cents.

Selecting your answer from the pull down list, identify the provision which Kalatra Co would report in its statement of financial position as at 30 September 20X5 in respect of its oil operations?

• $32,400,000

• $22,032,000

• $20,400,000

• $1,632,000

When a single entity makes purchases or sales in a foreign currency, it will be necessary to translate the transactions into its functional currency before the transactions can be included in its financial records. In accordance with IAS 21 The Effect of Changes in Foreign Currency Exchange Rates, which of the following foreign currency exchange rates may be used to translate the foreign currency purchases and sales? (B 2020 Pre 6)

(1) The rate which existed on the day that the purchase or sale took place

(2) The rate which existed at the beginning of the accounting period

(3) An average rate for the year, provided there have been no significant fluctuations throughout the year

(4) The rate which existed at the end of the accounting period

• A (2) and (4)

• B (1) only

• C (3) only

• D (1) and (3)