Which of the following is correct?

Intangible assets with an indefinite useful life must be reviewed for impairment annually.

An intangible asset must be amortised.

Market share may be recognised as an intangible asset.

Internally generated goodwill can be recognised in the financial statements by reference to the amount of purchased goodwill of a similar company.

Which of the following represents the correct treatment of a revaluation surplus arising on a property and an impairment loss on an asset which has not previously been revalued?

Revaluation surplus: Other comprehensive income - Impairment Loss: Profit or Loss

Revaluation surplus: Profit or Loss - Impairment Loss: Profit or Loss

Revaluation surplus: Profit or Loss - Impairment Loss: Other comprehensive income

Revaluation surplus: Other comprehensive income - Impairment Loss: Other comprehensive income

Man Co. bought a property on 1 April 20X5 costing $700 000 and commenced depreciation over a 50-year period. On 1 April 20X7, the property was revalued to $960 000 and depreciation continued over the remaining useful life. Man Co. makes an annual reserve transfer in respect of excess depreciation. On 31 March 20X8, as the result of fire damage, the property was found to be impaired with a recoverable amount of $600 000. Which of the following is correct for the year ended 31 March 20X8?

An impairment loss of $340 000 arises, $282 000 is debited to the revaluation surplus and $58 000 to profit or loss

An impairment loss of $340 000 arises, $288 000 is debited to the revaluation surplus and $64 000 to profit or loss

An impairment loss of $340 800 arises, $282 800 is debited to the revaluation surplus and $58 000 to profit or loss

An impairment loss of $340 800 arises, $288 000 is debited to the revaluation surplus and $52 800 to profit or loss

Skipton Co. bought land 11 years ago in 20W8 at a cost of $300 000. In 20X3 the land was revalued to $350 000 and in 20X6 it was revalued again to $400 000. At the end of 20X9 the land had a value in use of $270 000 and the fair value less costs of disposal was $285 000. How is the resulting impairment loss recorded?

C $100 000 as other comprehensive income and $15 000 in profit or loss

A $50 000 as other comprehensive income and $65 000 in profit or loss

B $50 000 as other comprehensive income and $80 000 in profit or loss

$100 000 as other comprehensive income and $30 000 in profit or loss

18 Pannal Co. recorded an impairment of its goodwill five years ago, reducing the carrying amount by half. The management of Pannal now believes that the value of goodwill has increased again to 75 per cent of its original value. Which of the following is correct?

A The reversal of the impairment loss cannot be recognised.

B The reversal of the impairment loss should be recognised in profit or loss.

C The reversal of the impairment loss should be recognised in other comprehensive income.

The reversal of the impairment loss is recognised in either other comprehensive income or profit or loss depending on how the initial impairment was recognised.

London Co. sells air conditioning systems, providing one year's free servicing with every system sold. The servicing could be purchased separately for $500. How should London Co. account for the $4000 sales price of each system?

$3560 should be recognised as revenue when each system is delivered to the customer and $440 should be spread over the first year of sale.

$4000 should be recognised as revenue spread over the first year after sale.

$4000 should be recognised as revenue when each system is delivered to the customer.

$4000 should be recognised as revenue when each system is delivered to the customer and $500 recognised as revenue over the first year after sale.

6 A company in its first year of trading has significantly higher capital allowances (tax depreciation) than the accounting depreciation charged to profit or loss on the same assets. What would be the effect of recognising a liability for deferred taxation in respect of these assets?

Profit after tax: Decrease - Net Assets: Decrease

Profit after tax: Increase - Net Assets: Increase

Profit after tax: Decrease - Net Assets: Increase

Profit after tax: Increase - Net Assets: Decrease

9 Which of the following statements about deferred taxation is correct?

B Deferred taxation is an accounting item used to apply the accruals concept to taxation charges in the accounts.

A Deferred tax is an amount of tax certain to be payable at a future date.

C Deferred taxation is an accounting item used to apply the consistency concept to taxation charges in the accounts.

D Deferred tax liabilities are shown in the statement of financial position of a company as part of the taxation current liability.

10 Kelt Co. makes a tax-adjusted loss in its 20X8 financial year of $320 000. $120 000 of these losses are carried back to relieve against the profits of 20X7 and $15 000 are used in the current year to relieve other income. The remainder are carried forward. In 20X9 Kelt Co. is expected to make significant profits as a result of the launch of a new product. Kelt Co.'s tax rate is 25 per cent. What is the deferred tax implication, if any, in 20X8 of the loss made?

A A deferred tax asset of $46 250

B A deferred tax asset of $50 000

C A deferred tax liability of $46 250

D A deferred tax liability of $50 000

12 Parker Co. has non-current assets with an original cost of $580 000. As at 31 January 20X9, accumulated depreciation provided on these assets amounts to $80 000 and tax allowances given amount to $130 000. On this date, Parker recognised a $100 000 revaluation surplus in respect of a factory included within the above. The original cost of the factory was $190 000, accumulated depreciation to date was $20 000 and tax allowances $30 000. Parker's tax rate is 20 per cent and the deferred tax liability brought forward in respect of accelerated capital allowances was $9000. How are movements in deferred tax recognised in the statement of profit or loss and other comprehensive income?

Profit or loss: $1000 charge - Asother coprehensive income: $20,000 charge

Profit or loss: $8000 credit - As other comprehensive income: $22,000 charge

Profit or loss: $1000 credit - As other comprehensive income: $22,000 charge

Profit or loss: $10000 charge - As other comprehensive income: $30,000 charge

Street Co. purchased goods for €450 000 from an overseas supplier on 30 November 20X6. Street Co. paid for the goods on 31 January 20X7. They were not sold to third parties until February 20X7. Exchange rates were: 30 November 20X6 1.5 31 December 20X6 1.45 31 January 20X7 1.55 What is the exchange difference that should be reported in profit or loss for the year ended 31 December 20X6 and at what amount should the goods be included in inventory in the statement of financial position at that date?

Exchange difference: $10 345 loss Inventory $300 000

Exchange difference: $9677 gain Inventory $290 323

Exchange difference: $9677 gain Inventory $300 000

Exchange difference: $10 345 loss Inventory $310 345

6 When a parent has a subsidiary that is a foreign operation, which rates of exchange should be used to translate the items below into the parent's local currency?

Non-current assets: closing rate. Receivables: closing rate. Non-current liabilities: closing rate

Non-current assets: histoical rate. Receivables: closing rate. Non-current liabilities: closing rate

Non-current assets: histoical rate. Receivables: historical rate. Non-current liabilities: closing rate

Non-current assets: histoical rate. Receivables: historical rate. Non-current liabilities: historical rate

10 Which of the following is correct?

C Unrealised exchange differences on the retranslation of monetary items in an entity's individual accounts are recognised in profit or loss.

A Monetary items include all types of current assets.

B Non-monetary items denominated in a foreign currency are never retranslated in an entity's statement of financial position.

D An exchange difference arising on the retranslation of a foreign currency loan is recognised in other comprehensive income in an individual entity's financial statements.

4. CPA Finanical Accounting and Reporting Mod 4

Authored by Rachel Collins

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Professional Development

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4. CPA Finanical Accounting and Reporting Mod 4

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MULTIPLE CHOICE QUESTION

5 mins • 1 pt

XY Co. has development expenditure of $500 000. Its policy is to amortise development expenditure at 2 per cent per annum. Accumulated amortisation brought forward is $20 000. What is the amount shown in the statement of financial position at the year end for development expenditure?

$470 000

$480 000

$490 000

$500 000

MULTIPLE CHOICE QUESTION

5 mins • 1 pt

Which of the following statements about research and development expenditure are correct according to IAS 38 Intangible Assets? I. If certain conditions are met, an entity may decide to capitalise development expenditure. II. Capitalised development expenditure must be amortised over a period not exceeding five years. III. Research expenditure, other than capital expenditure on research facilities, must be written off as incurred. IV. Capitalised development expenditure must be classified in the statement of financial position under intangible non-current assets.

I and II only

II and IV only

III and IV only

I, III and IV only

MULTIPLE CHOICE QUESTION

5 mins • 1 pt

Which of the following should be capitalised as development expenditure?

A Co. has incurred $140 000 investigating whether a newly identified plant has medicinal properties, and found that it does.

B Co. has found that a particular chemical compound may be useful in combating flu. A number of large pharmaceutical companies are providing financial backing for B Co.

C Co. has produced a prototype of a new product however trials in its use have revealed a number of flaws. C Co. is currently working on overcoming these flaws with little success.

D Co. has spent $90 000 making a new fabric resistant to the sun's rays for use in children's clothing. Several large manufacturers are interested in the fabric which will be ready for production in the coming year.

MULTIPLE CHOICE QUESTION

5 mins • 1 pt

In the current year High Co. has developed a new heat retaining fabric from which clothing suitable for high altitudes will be made. The project meets the IAS 38 criteria for capitalisation and by 30 June 20X8, $210 000 had been capitalised. The fabric is expected to generate revenue for 10 years from the date on which commercial production commenced on 1 November 20X7, although in the first year only half of the revenue of subsequent years is anticipated. What amount is charged to profit or loss in respect of the fabric in the year ended 30 June 20X8

7368

$11 053

$14 000

$21 000

MULTIPLE CHOICE QUESTION

5 mins • 1 pt

Cranford Co. has incurred $40 000 researching chemical compounds in the year ended 30 June 20X8. It has also spent $90 000 developing a new product. The product's development was completed on 28 February but management has decided to delay commercial production until July 20X8. The product is expected to have a useful life of five years. The development project meets the IAS 38 capitalisation criteria. How should these costs be treated in the year ended 30 June 20X8?

$130 000 should be written off to profit or loss

$46 000 should be written off to profit or loss and $84 000 recognised as an intangible asset

$40 000 should be written off to profit or loss and $90 000 recognised as an intangible asset

$100 000 should be written off to profit or loss and $30 000 recognised as an intangible asset

MULTIPLE CHOICE QUESTION

5 mins • 1 pt

Which of the following four statements is correct?

Capitalised development expenditure must be amortised over a period not exceeding five years.

Capitalised development costs are classified in the statement of financial position as non- current assets.

Amortisation of capitalised development expenditure will appear as an item in a company's statement of changes in equity.

If all the conditions specified in IAS 38 Intangible Assets are met, the directors can choose whether to capitalise the development expenditure or not.

MULTIPLE CHOICE QUESTION

5 mins • 1 pt

Which of the following are IAS 38 criteria which must be met in order to capitalise an intangible non-current asset? I. The asset must be capable of separate disposal. II. The asset must be within the control of the entity. III. It is probable that future economic benefits will flow to the entity as a result of the asset.

I and II only

I and III only

II and III only

I, II and III

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