11/5

Procker Co held 270 units of work in progress (WIP) within inventories at 31 May 20X3. To date, WIP has cost a total of $21,600. It is estimated that costs to complete are $19 per unit and that the finished goods would sell for $114 per unit. Direct selling costs are estimated at $5 per unit. 

In accordance with IAS 2 Inventories, what is the correct valuation of Procker Co's WIP at 31 May 20X3? 

A. $21,600 

B. $24,300 

C. $26,730 

D. $29,430

• A

• B

• C

• D

Answer explanation

The correct answer is A. 

As we are given most information as an amount per unit, we first calculate cost per unit as $80 per unit ($21,600 ÷ 270 units). 

With costs to complete, we must remember that the calculation of NRV takes account of both costs to sell and costs to complete. NRV is $90 per unit ($114 - $19 - $5) and so we have an expected profitable final product. 

Cost is lower and, therefore, the total valuation is $21,600.  

Scotswood Co purchased a herd of 600 bison on 1 February 20X5 and correctly recognised this transaction at $90,000. At 30 June 20X5, the year-end date, the market price for a similar size of herd was $175 per bison. All trading of bison incurs costs of 8% plus an additional fixed charge of $1 per bison. 

In accordance with IAS 41 Agriculture, what is the carrying amount for the herd of bison at 30 June 20X5? 

A. $90,000 

B. $96,000 

C. $96,600 

D. $104,400

• A

• B

• C

• D

Answer explanation

The correct answer is B. 

The fair value at year end is $175 per bison and the selling costs include an 8% deduction on selling price as well as a fixed charge of $1 per bison: 

 Fair value less costs to sell = (600 bison x [92% x $175]) - (600 bison x $1) = $96,000

On 1 February 20X7, Kahama Co invested in the ordinary (equity) shares of Bagamoyo Co, paying $7.2m for the shares and an additional $0.8m in broker’s fees. The shareholding was less than 1% of Bagamoyo Co’s ordinary (equity) share capital. Kahama Co made the irrevocable election to classify this investment as ‘’fair value through other comprehensive income” at the recognition date. At 31 December 20X7, the fair value of the investment was $8.4m and this was correctly accounted for. On 31 March 20X8, Kahama Co sold the entire investment for a cash consideration of $8.9m.

Calculate the gain (or loss) on the investment, to be recognised in Kahama Co's statement of profit or loss and other comprehensive income for the year ended 31 December 20X8 (to one decimal place). 

$ _____ m

Answer explanation

The correct answer is $0.5m.

In accordance with IFRS 9, at initial recognition, an entity may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument. Therefore, the change in fair value at 31 March 20X8 is recognised in other comprehensive income: 

Fair value gain at disposal date = $8.9m - $8.4m = $0.5m 

Kasulu Co's operating profit margin has decreased from 15% for the year ended 30 September 20X1 to 11% for the year ended 30 September 20X2. 

Which TWO of the following could explain this decrease?

A. Kasulu Co’s providers of finance increased the rate of interest on loans payable 

B. Following a review of non-current assets, Kasulu Co revised the useful lives of plant and equipment downwards 

C. Kasulu Co successfully negotiated trade discounts for bulk buying raw materials from its existing suppliers 

D. Kasulu Co increased the salaries of administrative staff following new government guidance on a ‘living wage’

• A

• B

• C

• D

Answer explanation

The correct answers are B and D. 

A decrease in the useful life of plant and equipment means that depreciation charges increase; in turn, cost of sales/operating expenses increase and the operating profit margin decreases (B). 

An increase in the salaries of administrative staff means that administrative expenses increase; in turn, operating expenses increase and the operating profit margin decreases (D).

Various methods had been proposed by Pingshan Co for measuring the progress of the contract with Luoho Co: 

(1) Fair value method 

(2) Input method 

(3) Output method 

(4) Effective interest method 

In accordance with IFRS 15, which of the above methods would be appropriate methods for measuring the progress of the contract with Luoho Co? 

A. 2 or 3 

B. 1 or 3 

C. 1 or 4 

D. 2 or 4

• A

• B

• C

• D

Answer explanation

The correct answer is A.

In accordance with IFRS 15, appropriate methods of measuring progress include output methods and input methods