13/5

Saguaro Co acquired 25% of the equity shares in Cactus Co for $400,000 on 1 March 20X1. In July 20X1, Cactus Co paid a dividend of $36,000. Cactus Co's profit for the year ended 31 December 20X1 was $115,200. All profits accrued evenly over the year. 

What is the carrying amount of the investment in the associate in Saguaro Co's consolidated statement of financial position as at 31 December 20X1?

$ ____________

Answer explanation

The investment in the associate was made two months into the financial year and so only 10 months’ profit is accrued during the current financial year (for consolidation purposes). 

The initial cost of investment of $400,000 is increased by the group’s share of profit of $24,000 (25% x 10/12 months x $115,200) and decreased by the group’s share of the dividend of $9,000 (25% x $36,000).

A company commenced work on the construction of a significant asset for one of its customers on 1 May 20X5. Construction is scheduled to run for two years and the total contract price is $5m. 

At 31 December 20X5, the following details are obtained in relation to the contract: 

• The percentage complete was 50%. 

• Amounts invoiced to the customer totaled $1.7m. 

• Amounts received from the customer totaled $0.8m. 

What is the total amount that should be included in the statement of financial position as at 31 December 20X5 as a contract asset or contract liability? 

$ ____________

Answer explanation

The correct answer was a contract asset of $800,000 

There is a contract asset as the revenue earned of $2.5m (50% x $5m) exceeds the amounts invoiced of $1.7m. This gives, effectively, accrued income (a type of contract asset) of $0.8m ($2.5m - $1.7m)

On 1 January 20X5, Factman Co acquired a piece of equipment at a cost of $25m. The equipment has a useful life of five years and the company must decommission the equipment at the end of the five-year period. The estimated cost of this decommissioning in five years' time is $10m. Factman Co's cost of capital is 10% per annum. The present value of $1 receivable in five years' time at a discount rate of 10% per annum is $0.621. Factman Co has correctly capitalised the equipment and recognised a provision for decommissioning costs at the correct amount. What is the total charge to profit or loss relating to the equipment and decommissioning provision which will be required for the year ended 31 December 20X5 (to the nearest $'000)?

$ ____________ ,000

Answer explanation

The correct answer was $6,863,000

Which TWO of the following statements are true regarding the Conceptual 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

• A

• B

• C

• D

Answer explanation

The correct responses were: 

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

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

Which TWO of the following criteria are required before an entity should account for a contract in accordance with IFRS 15 Revenue from Contracts with Customers?

A. All parties to the contract have approved the contract 

B. The contract must be in writing 

C. The contract must have commercial substance 

D. It is possible that the consideration will be collected from the customer

• A

• B

• C

• D