IFRS 3, IFRS 10 & IAS 37

Q1:

Which of the following statements is correct?

A provision is:

a)    An amount owing to a creditor that will be settled 60 days after the invoice date.

b)    An accrual for leave pay owing to employees.

c)    A liability of uncertain timing or amount.

d)    A possible obligation arising from a past event.

e)    A contract where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under the contract.

• A & C

• B & C

• C & D

• C & E

Q2:
Which of the following transactions or events meet the definition of contingent liability?

a)    A present obligation arising from a past event where the outflow of resources may not be probable.

b)    Provision for expected operating losses in a newly opened branch.

c)    A possible obligation unrelated to a past event whose existence will be confirmed by the occurrence of an uncertain event not wholly within the control of the entity.

d)    Obligation to repair defective goods free of charge.

e)    A present obligation arising from management’s announcement that customers will be refunded for contaminated goods purchased from the entity that cannot be measured reliably.

• B & E

• A & E

• D & E

• A & C

Q3:

AYE Construction Ltd (AYE) has an obligation to remove silos that it installed on 1 March 2022 when the expected life of the silos was 10 years.  At 1 March 2022 the estimated cost to remove the silos was R 3 000 000 and it was expected that the silos would be able to be sold for R500 000 on 28 February 2032.  The prime interest rate on 1 March 2022 was 8.5% per annum. The tax rate on 1 March 2022 was 28% and this was reduced to 27% for all tax years beginning on or after 1 March 2023.

The amount of the provision reported in AYE’s financial statements at 29 February 2024 was:

• R1 562 008

• R1 301 674

• R1 853 368

• R1 326 856

Q4:

Bee Ltd (Bee) a retailer guarantees that it will refund customer for any goods returned within 21 days from the purchase date.

On 1 March 2023 the provision for returns was correctly measured at R1 200 000.

During the 2024 financial year refunds to customers totaled R 800 000 and the provision for returns on 29 February 2024 amounted to R1 500 000.

The amount recognised in Bee’s statement of profit or loss and other comprehensive income for the financial year ended 29 February 2024 in respect of the guarantee for refund was:

• R800 000

• R2 300 000

• R1 100 000

• R300 000

Q5:

Which of the following scenarios would most likely result in the recognition of a provision under IAS 37, "Provisions, Contingent Liabilities and Contingent Assets"?

a) A company has a contractual obligation to deliver goods to a customer in six months but is uncertain about the customer's ability to pay.

b) A company anticipates a decrease in the market value of its inventory due to changing economic conditions.

c) A company is involved in ongoing litigation, and although it is possible that they may lose the case, the probability is assessed as remote.

d) A company is planning to expand its operations in the next year and has already allocated funds for this purpose.

e) A company has a history of making charitable donations at the end of each fiscal year but has not yet decided on the amount for the current year.

• Option A

• Option B

• Option C

• Option D

• Option E

Q6:

The financial statements of the parent and its subsidiaries are being consolidated. Should the end of the reporting periods of the companies (parent and subsidiary/ies) differ, the subsidiary should:

1.      Never be included in the consolidation

2.      Change it’s year end to match the parents year end

3.      Prepare financial statements as of the same date as the financial statements of the parent for consolidation purposes

4.      Prepare financial statements as of the same date as the financial statements of the parent to be included in the financial statements as an addendum

Which of the statements are true?

• Option 1

• Option 3

• Option 1 & 4

• Option 4

The following information relates to both question 7 and 8:

Rose Ltd acquired a 75 % interest in Daisy Ltd a company in the retail industry, on 1 January 2023 for R1 100 000. On the date of acquisition Daisy Ltd.'s share capital was R1 000 000 (1 000 000 shares of R1 each) and the retained earnings was R105 000. All the identifiable net assets were fairly valued except for machinery which had a carrying amount of R175 000 and fair value of R250 000. The machine had a remaining useful life of 3 years and is depreciated on the straight-line basis over its useful.

Additional information

-          The group has a 31 December year end.

-          Non-controlling interest is measured according to the fair value method.

-          Daisy Ltd.'s shares had a fair value of R1,50 on 1 January 2023

-          Assume a normal tax rate of 27% and a capital gains inclusion rate of 80%.

Q7:

The journal entry to eliminate the equity at acquisition is?

• Option A

• Option B

• Option C

The following information relates to both question 7 and 8:

Rose Ltd acquired a 75 % interest in Daisy Ltd a company in the retail industry, on 1 January 2023 for R1 100 000. On the date of acquisition Daisy Ltd.'s share capital was R1 000 000 (1 000 000 shares of R1 each) and the retained earnings was R105 000. All the identifiable net assets were fairly valued except for machinery which had a carrying amount of R175 000 and fair value of R250 000. The machine had a remaining useful life of 3 years and is depreciated on the straight-line basis over its useful.

Additional information

-          The group has a 31 December year end.

-          Non-controlling interest is measured according to the fair value method.

-          Daisy Ltd.'s shares had a fair value of R1,50 on 1 January 2023

-          Assume a normal tax rate of 27% and a capital gains inclusion rate of 80%.

Q8:

Assume the same information as in question 2, except for the fact that the NCI is measured at the proportionate share of the net assets. The journal entry to eliminate the equity at acquisition is?

• Option A

• Option B

• Option C

Q9:

Which of the following are true when an investor controls the investee:

 

1.      Power over the investee.

2.      Owns a share in the investee.

3.      Exposure, or rights, to variable returns from its involvement with the investee, and

4.      The ability to use its power over the investee to affect the amount of the investor's returns.

• 1,2 & 3

• 1,2 & 4

• 1,3 & 4

• All of the above.

Which topic is stressing you out the most for Financial Accounting...