Which of the following costs may be included when arriving at the cost of finished goods inventory for inclusion in the financial statements of a manufacturing company?

What should the inventory value be according to IAS 2 Inventories after considering the above items?

What is the value of the company’s closing inventory of engines at 30 April 20X3?

Which of the following statements about the valuation of inventory are correct, according to IAS 2 Inventories?

What figure should appear in the company’s financial statements at 31 October 20X3 for closing inventory, based on this information?

In preparing its financial statements for the current year, a company’s closing inventory was understated by $300,000.

What will be the effect of this error if it remains uncorrected?

What inventory value should be included in Mitex Co’s financial statements at 31 December 20X1?

Which of the following statements about IAS 2 Inventories is correct?

What is the correct inventory valuation for inclusion in the financial statements?

What is the value of inventory at the year end?sells three products – Basic, Super and Luxury. The following information was available at the year end.

Basic Super Luxury

$ per unit $ per unit $ per unit

Original cost 6 9 18

Estimated selling price 9 12 15

Selling and distribution costs 1 4 5

units units units

Units of inventory 200 250 150

What is the value of inventory at the year end?

An inventory record card shows the following details.

February 1 50 units in stock at a cost of $40 per unit

7 100 units purchased at a cost of $45 per unit

14 80 units sold

21 50 units purchased at a cost of $50 per unit

28 60 units sold

What is the value of inventory at 28 February using the FIFO method?

IAS 2 Inventories defines the items that may be included in computing the value of an inventory of finished goods manufactured by a business.

Which one of the following lists consists only of items which may be included in the statement of financial position value of such inventories, according to IAS 2?

The closing inventory of X amounted to $116,400 excluding the following two inventory lines:

1. 400 items which had cost $4 each. All were sold after the reporting period for $3 each, with selling expenses of $200 for the batch.

2. 200 different items which had cost $30 each. These items were found to be defective at the end of the reporting period. Rectification work after the statement of financial position amounted to $1,200, after which they were sold for $35 each, with selling expenses totalling $300.

Which of the following total figures should appear in the statement of financial position of X for inventory?

The inventory value for the financial statements of Q for the year ended 31 December 20X4 was based on an inventory count on 4 January 20X5, which gave a total inventory value of $836,200.

Between 31 December and 4 January 20X5, the following transactions took place:

$

Purchases of goods 8,600

Sales of goods (profit margin 30% on sales) 14,000

Goods returned by Q to supplier 700

What adjusted figure should be included in the financial statements for inventories at 31 December 20X4?

A company has decided to switch from using the FIFO method of inventory valuation to using the average cost method (AVCO).

In the first accounting period where the change is made, opening inventory valued by the FIFO method was $53,200. Closing inventory valued by the AVCO method was $59,800.

Total purchases and during the period were $136,500. Using the continuous AVCO method, opening inventory would have been valued at $56,200.

What is the cost of materials that should be included in the statement of profit or loss for the period?

Which one of the following statements about the use of a continuous inventory system is INCORRECT?

The information below relates to inventory item Z.

March 1 50 units held in opening inventory at a cost of $40 per unit

17 50 units purchased at a cost of $50 per unit

31 60 units sold at a selling price of $100 per unit

Under AVCO, what is the value of inventory held for item Z at the end of March 31?

A firm has the following transactions with its product R.

1 January 20X1 Opening inventory: nil

1 February 20X1 Buys 10 units at $300 per unit

11 February 20X1 Buys 12 units at $250 per unit

1 April 20X1 Sells 8 units at $400 per unit

1 August 20X1 Buys 6 units at $200 per unit

1 December 20X1 Sells 12 units at $400 per unit

The firm uses periodic weighted average cost (AVCO) to value its inventory. What is the inventory value at the end of the year?

W is registered for sales tax. The managing director has asked four staff in the accounts department why the output tax for the last quarter does not equal 20% of sales (20% is the rate of tax). Which one of the following four replies she received was not correct?

The following information relates to Eva Co's sales tax for the month of March 20X3: $

Sales (including sales tax) 109,250

Purchases (net of sales tax) 64,000

Sales tax is charged at a flat rate of 15%. Eva Co's sales tax account showed an opening credit balance of $4,540 at the beginning of the month and a closing debit balance of $2,720 at the end of the month.

What was the total sales tax paid to regulatory authorities during the month of March 20X3?

Alana is not registered for sales tax purposes. She has recently received an invoice for goods for resale which cost $500 before sales tax, which is levied at 15%. The total value was therefore $575.

What is the correct entry to be made in Alana’s general ledger in respect of the invoice?

Information relating to Lauren Co's transactions for the month of May 20X4 is shown below:

$

Sales (including sales tax) 140,000*

Purchases (net of sales tax) 65,000

Sales tax is charged at a flat rate of 20%. Lauren Co's sales tax account had a zero balance at the beginning of the month and at the end of the month.

* Lauren Co's sales for the month of $140,000 included $20,000 of sales exempt from sales tax.

What was the total sales tax paid to regulatory authorities at the end of May 20X4 (to the nearest $)?

A business commenced with capital in cash of $1,000. Inventory costing $800 plus sales tax is purchased on credit, and half is sold for $1,000 plus sales tax, the customer paying in cash The sales tax rate is 20%.

What would the accounting equation after these transactions show?

Trade receivables and payables in the financial statements of a sales tax registered trader will appear as described by which of the following?

Which of the following correctly describe the entry in the sales account for a sale for a sales tax registered trader?

Sales (including sales tax) amounted to $27,612.50, and purchases (excluding sales tax) amounted to $18,000. What is the balance on the sales tax account, assuming all items are subject to sales tax at 17.5%?

A business had an opening inventory of $180,000 and a closing inventory of $220,000 in its financial statements for the year ended 31 December 20X5.

Which of the following entries for these opening and closing inventory figures are made when completing the financial records of the business?

On 1 September 20X6, a business had inventory of $380,000. During the month, sales totalled $650,000 and purchases $480,000. On 30 September 20X6 a fire destroyed some of the inventory. The undamaged goods in inventory were valued at $220,000. The business operates with a standard gross profit margin of 30%.

Based on this information, what is the cost of the inventory destroyed in the fire?

Which of the following statements about inventory valuation for statement of financial position purposes are correct?

1. According to IAS 2 Inventories, average cost and FIFO (first in, first out) are both acceptable methods of arriving at the cost of inventories.

2. Inventories of finished goods may be valued at labour and materials cost only, without including overheads.

3. Inventories should be valued at the lowest of cost, net realisable value and replacement cost.

4. It may be acceptable for inventories to be valued at selling price less estimated profit margin.

A firm has the following transactions with its product R.

1 January 20X1 Opening inventory: nil

1 February 20X1 Buys 10 units at $300 per unit 11 February 20X1 Buys 12 units at $250 per unit

1 April 20X1 Sells 8 units at $400 per unit

1 August 20X1 Buys 6 units at $200 per unit

1 December 20X1 Sells 12 units at $400 per unit

The firm uses FIFO to value its inventory. What is the inventory value at the end of the year?

On 30 September 20X1 part of the inventory of a company was completely destroyed by fire.

The following information is available:

– Inventory at 1 September 20X1 at cost $49,800

– Purchases for September 20X1 $88,600

– Sales for September 20X1 $130,000

– Inventory at 30 September 20X1 – undamaged items $32,000 – Standard gross profit percentage on sales 30%

Based on this information, what is the cost of the inventory destroyed?

According to IAS 2 Inventories, which TWO of the following costs should be included in valuing the inventories of a manufacturing company ?

1. Carriage inwards

2. Carriage outward

3. Depreciation of factory plant

4. General administrative overheads

Which 1 of the following statements about sales tax

is/are true?

1.Sales tax is an expense to the ultimate consumer of the goods purchased

2. Sales tax is recorded as income in the accounts of the entity selling the goods

A company values its inventory using the FIFO method. At 1 May 20X5 the company had 700 engines in inventory, valued at $190 each. During the year ended 30 April 20X6 the following transactions took place:

20X5

1 July - Purchased 500 engines at $220 each 1 November Sold 400 engines for $160,000

20X6

1 February - Purchased 300 engines at $230 each 15 April Sold 250 engines for $125,000

What is the value of the company’s closing inventory of engines at 30 April 20X6?

The annual sales of a company are $235,000 including sales tax at 17.5%. Half of the sales are on credit terms, half are cash sales. The receivables in the statement of financial position are $23,500.

What is the output tax?

The closing inventory at cost of a company at 31 January 20X3 amounted to $284,700.

The following items were included at cost in the total:

1. 400 coats, which had cost $80 each and normally sold for $150 each. Owing to a defect in manufacture, they were all sold after the reporting date at 50% of their normal price. Selling expenses amounted to 5% of the proceeds.

2. 800 skirts, which had cost $20 each. These too were found to be defective. Remedial work in February 20X3 cost $5 per skirt, and selling expenses for the batch totalled $800. They were sold for $28 each.

What should the inventory value be according to IAS 2 Inventories after considering the above items?

Which of the following statements about the valuation of inventory are correct, according to IAS 2 Inventories?

1. Inventory items are normally to be valued at the higher of cost and net realisable value.

2. The cost of goods manufactured by an entity will include materials and labour only. Overhead costs cannot be included.

3. LIFO (last in, first out) cannot be used to value inventory.

4. Selling price less estimated profit margin may be used to arrive at cost if this gives a reasonable approximation to actual cost.

A company with an accounting date of 31 October carried out a physical check of inventory on 4 November 20X3, leading to an inventory value at cost at this date of $483,700.

Between 1 November 20X3 and 4 November 20X3 the following transactions took place:

1. Goods costing $38,400 were received from suppliers.

2. Goods that had cost $14,800 were sold for $20,000.

3. A customer returned, in good condition, some goods which had been sold to him in October for $600

and which had cost $400.

4. The company returned goods that had cost $1,800 in October to the supplier, and received a credit note for them.

What figure should appear in the company's financial statements at 31st Oct. 2013 for closing inventory,

based on this information?

Brim has owned 100% of the issued share capital of Stone for many years. Brim sells goods to Stone at cost plus 20%. The companies’ revenues for the year were:

(1)Brim (1) $460,000

(2) Stone (2) $120,000

During the year Brim sold goods to Stone for $60,000, of which $18,000 were still held in inventory by Stone at the year end.

Orwell is the sole subsidiary of George. The cost of sales figures for 20X1 for George and Orwell were $11m and $10m respectively. During 20X1 George sold goods which had cost $2m to Orwell for $3m. Orwell has not yet sold any of these goods.
What is the consolidated cost of sales figure for 20X1?

he following figures related to Sanderstead and its subsidiary Croydon for the year ended 31 December 20X9:

SandersteadCroydon$$Revenue600,000300,000Cost of sales(400,000)(200,000)Gross profit200,000100,000

During the year Sanderstead sold goods to Croydon for $20,000, making a profit of $5,000. These goods were all sold by Croydon before the year end.

Match the correct amounts for revenue and gross profit in the consolidated statement of profit and loss of Sanderstead for the year ended 31 December 20X9.

Cooper owns 80% of Essen. Essen sells goods to Cooper at cost plus 50%. The total invoiced sales to Cooper by Essen in the year ended 31 December 20X1 were $900,000 and, of these sales, goods which had been invoiced at $60,000 were held in inventory by Cooper at 31 December 20X1.

What is the adjustment for unrealised profit in the consolidated profit or loss for the year ended 31 December 20X1?

Cherry owned 75% of Plum. For the year ended 31 December 20X1 Plum reported a net profit of $118,000. During 20X1 Plum sold goods to Cherry for $36,000 at cost plus 50%. At the year-end these goods are still held by Cherry.

What is the non-controlling interest in the consolidated statement of profit or loss for the year ended 31 December 20X1? (Answer in $ in the Answer box)

Hot owns 80% of the issued share capital of Warm and 40% of the issued share capital of Cold. In the individual company financial statements the tax charges for the year are:

$

(1) Hot (1)40,000

(2)Warm (2)36,000

(3) Cold (3)20,000

What is the tax charge in the consolidated statement of profit or loss? (Answer in $ in the Answer box)

Cornish Co purchased 80% of Pasty Co a number of years ago for $164,000. During the year ended 31 December 20X6 Cornish Co disposed of its entire investment in Pasty Co for $275,000. On disposal, the net assets of Pasty Co were measured at $186,000 and non-controlling interest amounted to $37,000. Goodwill remaining at the disposal date, in respect of the purchase, was $29,000.

What is the profit on disposal which will be recorded in Cornish Co’s CONSOLIDATED statement of profit or loss for the year ended 31 December 20X6?

Paprika Co purchased 75% of the equity share capital of Salt Co on 30 April 20X4. Non-controlling interests are measured at fair value.

The following additional information is provided:

1. (1) Salt Co had machinery included in its net assets at acquisition with a carrying amount of $120,000 but a fair value of $200,000. The machinery had a remaining useful life of eight years at the date of acquisition. All depreciation is charged to cost of sales.

2. (2) During the year, Salt Co sold some goods to Paprika Co for $32,000 at a margin of 25%. Three-quarters of these goods remained in inventory at the year end.

What is the cost of sales in Paprika Co’s consolidated statement of profit or loss for the year ended 30 April 20X6? (Answer in $ in the Answer box)

Alpha Co acquired 80% of the ordinary share capital of Bravo Co on 1 September 20X4 and 40% of the ordinary share capital of Charlie Co a number of years ago

On 30 November 20X4, Alpha Co sold goods to Bravo Co making a profit of $2,000. Half of these items remained in inventory at the year end.

The profit for the year ended 31 December 20X4 for each company is:
What is the amount of profit attributable to the equity shareholders of Alpha Co in the consolidated statement of profit or loss for the year ended 31 December 20X4? (Answer in $ in the Answer box)

On 1 July 20X5, Pull Co acquired 80% of the equity of Sat Co. At the date of acquisition, goodwill was valued at $10,000 and the non-controlling interest was measured at fair value.

In conducting the fair value exercise on Sat Co’s net assets at acquisition, Pull Co concluded that property, plant and equipment with a remaining life of ten years had a fair value of $300,000 in excess of its carrying amount. Sat Co had not incorporated this fair value adjustment into its individual financial statements. At the reporting date of 31 December 20X5, the goodwill was fully impaired. For the year ended 31 December 20X5, Sat Co reported a profit for the year of $200,000.

What is the Pull Group profit for the year ended 31 December 20X5 that is attributable to non-controlling interests? (Answer in $ in the Answer box)

Pearl Co has controlled an 80% owned subsidiary, Silver Co, for many years. Silver Co sold goods to Pearl Co for $120,000 at a mark-up of 20% during the year.

Pearl Co had sold half of these goods by the year end.

Which of the following statements regarding intra-group transactions in the consolidated financial statements are true or false?
(1) Revenue must be reduced by a total of $120,000
(2) Cost of sales must be reduced by a total of $110,000
(3) Non-controlling interest must be reduced by $2,000

Hillusion Co acquired 80% of Skeptik Co on 1 July 20X2. In the post-acquisition period Hillusion Co sold goods to Skeptik Co at a price of $12 million. These goods had cost Hillusion Co $9 million. During the year to 31 March 20X3 Skeptik Co had sold $10 million (at cost to Skeptik Co) of these goods for $15 million.

How will this affect group cost of sales in the consolidated statement of profit or loss of Hillusion Co for the year ended 31 March 20X3?

On 1 July 20X7, Spider Co acquired 60% of the equity share capital of Fly Co and on that date made a $10 million loan to Fly Co at a rate of 8% per annum.

What will be the effect on group retained earnings at the year-end date of 31 December 20X7 when this intragroup transaction is cancelled?

Basil Co acquired 60% of Parsley Co on 1 March 20X9. In September 20X9 Basil Co sold $46,000 worth of goods to Parsley Co. Basil Co applies a 30% mark-up to all its sales. 25% of these goods were still held in inventory by Parsley Co at the end of the year.

An extract from the draft statements of profit or loss of Basil Co and Parsley Co at 31 December 20X9 is:

All revenue and costs arise evenly throughout the year.

What will be shown as gross profit in the consolidated statement of profit or loss of Basil Co for the year ended 31 December 20X9?

Wiley Co acquired 80% of Coyote Co on 1 January 20X8. At the date of acquisition Coyote Co had a building which had a fair value $22 million and a carrying amount of $20 million. The remaining useful life of the building was 20 years.

Coyote Co's profit for the year to 30 June 20X8 was $1.6 million which accrued evenly throughout the year.

Wiley Co measures non-controlling interest at fair value. At 30 June 20X8 it estimated that goodwill in Coyote Co was impaired by $500,000.

What is the total comprehensive income attributable to the non-controlling interest at 30 June 20X8?

Brim has owned 100% of the issued share capital of Stone for many years. Brim sells goods to Stone at cost plus 20%. The companies’ revenues for the year were:

(1)Brim (1) $460,000

(2) Stone (2) $120,000

During the year Brim sold goods to Stone for $60,000, of which $18,000 were still held in inventory by Stone at the year end.

Orwell is the sole subsidiary of George. The cost of sales figures for 20X1 for George and Orwell were $11m and $10m respectively. During 20X1 George sold goods which had cost $2m to Orwell for $3m. Orwell has not yet sold any of these goods.
What is the consolidated cost of sales figure for 20X1?

he following figures related to Sanderstead and its subsidiary Croydon for the year ended 31 December 20X9:

SandersteadCroydon$$Revenue600,000300,000Cost of sales(400,000)(200,000)Gross profit200,000100,000

During the year Sanderstead sold goods to Croydon for $20,000, making a profit of $5,000. These goods were all sold by Croydon before the year end.

Match the correct amounts for revenue and gross profit in the consolidated statement of profit and loss of Sanderstead for the year ended 31 December 20X9.

Cooper owns 80% of Essen. Essen sells goods to Cooper at cost plus 50%. The total invoiced sales to Cooper by Essen in the year ended 31 December 20X1 were $900,000 and, of these sales, goods which had been invoiced at $60,000 were held in inventory by Cooper at 31 December 20X1.

What is the adjustment for unrealised profit in the consolidated profit or loss for the year ended 31 December 20X1?

Cherry owned 75% of Plum. For the year ended 31 December 20X1 Plum reported a net profit of $118,000. During 20X1 Plum sold goods to Cherry for $36,000 at cost plus 50%. At the year-end these goods are still held by Cherry.

What is the non-controlling interest in the consolidated statement of profit or loss for the year ended 31 December 20X1? (Answer in $ in the Answer box)

Hot owns 80% of the issued share capital of Warm and 40% of the issued share capital of Cold. In the individual company financial statements the tax charges for the year are:

$

(1) Hot (1)40,000

(2)Warm (2)36,000

(3) Cold (3)20,000

What is the tax charge in the consolidated statement of profit or loss? (Answer in $ in the Answer box)

Cornish Co purchased 80% of Pasty Co a number of years ago for $164,000. During the year ended 31 December 20X6 Cornish Co disposed of its entire investment in Pasty Co for $275,000. On disposal, the net assets of Pasty Co were measured at $186,000 and non-controlling interest amounted to $37,000. Goodwill remaining at the disposal date, in respect of the purchase, was $29,000.

What is the profit on disposal which will be recorded in Cornish Co’s CONSOLIDATED statement of profit or loss for the year ended 31 December 20X6?

Paprika Co purchased 75% of the equity share capital of Salt Co on 30 April 20X4. Non-controlling interests are measured at fair value.

The following additional information is provided:

1. (1) Salt Co had machinery included in its net assets at acquisition with a carrying amount of $120,000 but a fair value of $200,000. The machinery had a remaining useful life of eight years at the date of acquisition. All depreciation is charged to cost of sales.

2. (2) During the year, Salt Co sold some goods to Paprika Co for $32,000 at a margin of 25%. Three-quarters of these goods remained in inventory at the year end.

What is the cost of sales in Paprika Co’s consolidated statement of profit or loss for the year ended 30 April 20X6? (Answer in $ in the Answer box)

Alpha Co acquired 80% of the ordinary share capital of Bravo Co on 1 September 20X4 and 40% of the ordinary share capital of Charlie Co a number of years ago

On 30 November 20X4, Alpha Co sold goods to Bravo Co making a profit of $2,000. Half of these items remained in inventory at the year end.

The profit for the year ended 31 December 20X4 for each company is:
What is the amount of profit attributable to the equity shareholders of Alpha Co in the consolidated statement of profit or loss for the year ended 31 December 20X4? (Answer in $ in the Answer box)

On 1 July 20X5, Pull Co acquired 80% of the equity of Sat Co. At the date of acquisition, goodwill was valued at $10,000 and the non-controlling interest was measured at fair value.

In conducting the fair value exercise on Sat Co’s net assets at acquisition, Pull Co concluded that property, plant and equipment with a remaining life of ten years had a fair value of $300,000 in excess of its carrying amount. Sat Co had not incorporated this fair value adjustment into its individual financial statements. At the reporting date of 31 December 20X5, the goodwill was fully impaired. For the year ended 31 December 20X5, Sat Co reported a profit for the year of $200,000.

What is the Pull Group profit for the year ended 31 December 20X5 that is attributable to non-controlling interests? (Answer in $ in the Answer box)

Pearl Co has controlled an 80% owned subsidiary, Silver Co, for many years. Silver Co sold goods to Pearl Co for $120,000 at a mark-up of 20% during the year.

Pearl Co had sold half of these goods by the year end.

Which of the following statements regarding intra-group transactions in the consolidated financial statements are true or false?
(1) Revenue must be reduced by a total of $120,000
(2) Cost of sales must be reduced by a total of $110,000
(3) Non-controlling interest must be reduced by $2,000

Hillusion Co acquired 80% of Skeptik Co on 1 July 20X2. In the post-acquisition period Hillusion Co sold goods to Skeptik Co at a price of $12 million. These goods had cost Hillusion Co $9 million. During the year to 31 March 20X3 Skeptik Co had sold $10 million (at cost to Skeptik Co) of these goods for $15 million.

How will this affect group cost of sales in the consolidated statement of profit or loss of Hillusion Co for the year ended 31 March 20X3?

On 1 July 20X7, Spider Co acquired 60% of the equity share capital of Fly Co and on that date made a $10 million loan to Fly Co at a rate of 8% per annum.

What will be the effect on group retained earnings at the year-end date of 31 December 20X7 when this intragroup transaction is cancelled?

Basil Co acquired 60% of Parsley Co on 1 March 20X9. In September 20X9 Basil Co sold $46,000 worth of goods to Parsley Co. Basil Co applies a 30% mark-up to all its sales. 25% of these goods were still held in inventory by Parsley Co at the end of the year.

An extract from the draft statements of profit or loss of Basil Co and Parsley Co at 31 December 20X9 is:

All revenue and costs arise evenly throughout the year.

What will be shown as gross profit in the consolidated statement of profit or loss of Basil Co for the year ended 31 December 20X9?

Wiley Co acquired 80% of Coyote Co on 1 January 20X8. At the date of acquisition Coyote Co had a building which had a fair value $22 million and a carrying amount of $20 million. The remaining useful life of the building was 20 years.

Coyote Co's profit for the year to 30 June 20X8 was $1.6 million which accrued evenly throughout the year.

Wiley Co measures non-controlling interest at fair value. At 30 June 20X8 it estimated that goodwill in Coyote Co was impaired by $500,000.

What is the total comprehensive income attributable to the non-controlling interest at 30 June 20X8?

Which of the following statements about the requirements relating to IAS 37 Provisions,

Contingent Liabilities and Contingent Assets are correct?

1. 1. A contingent asset should be disclosed by note if an inflow Of economic benefits is

probable.

2. 2. NO disclosure Of a contingent liability is required if the possibility Of a transfer Of

economic benefits arising is remote.

3. 3. Contingent assets must not be recognised in financial statements unless an inflow of

economic benefits is virtually certain to arise.

The following items need to be considered in finalising the financial statements of Q Co:

1. 1. QCO gives warranties on its products. Q CO's statistics show that about 5% Of sales give

rise to a warranty claim.

2. 2. Q Co has guaranteed the overdraft of another entity. The likelihood of a liability arising

under the guarantee is assessed as possible.

What is the correct action to be taken in the financial statements of Q Co for these items?

Which the following statements relating to the requirements of IAS 37 Provisions,

Contingent Liabilities and Contingent Assets is correct?

Which the following statements relating to the requirements of IAS 37 Provisions,

Contingent Liabilities and Contingent Assets is correct?

Which of the following statements are correct in relation to provisions and liabilities?

1. 1. A provision will always be classified as falling due for payment within twelve months

Of the reporting date, whereas a liability may be classified as either current or non-

current.

2. 2. A provision requires judgement and estimation to quantify the amount and/or the

date Of payment, whereas a liability is normally capable Of precise calculation and the

date of payment can be determined.

3. 3. A provision meets the definition of a liability, but is subject to uncertainty regarding

the exact amount or date of the future outflow of economic benefits.

Driller Co undertakes oil and gas exploration activities. One of the conditions of the operating

licence is that Driller must make good any damage caused to the local environment as a result

of its exploration activities. As at the year-end date of 31 August 20X4, Driller Co estimated

that the cost of rectifying damage already caused at current exploration sites at $5 million.

At that date Driller Co estimated that that the cost of rectifying expected future damage at

current exploration sites at an additional $20 million. Driller Co also estimated that all

current exploration sites will operate until 20X7 or beyond that date.

How should this information be reported in the financial statements of Driller Co for the

year ended 31 August 20X4?

Recently, users of a new perfume have suffered blistering of the skin along with considerable

pain and discomfort. Following investigation by the manufacturer, Fleur Co, it appears that

product contamination occurred during the bottling process which was performed by Bottler.

Fleur CO's legal representatives have advised it that it is probable that customers will make

valid compensation claims totalling $3 million and that it is probable Fleur Co will be able to

successfully counter-claim against Bottler for the same amount.

How should this information be reported in the financial statements of Fleur Co for the

year ended 31 August 20X4?

Electrode Co manufactures vacuum cleaners and allows customers three months from the

date of purchase to return cleaners if they are dissatisfied with the product for any reason.

At 31 May 20X8, Electrode Co included a provision of in the financial statements

relating to the expected return of cleaners which had been sold before the year-end date. At

31 May 20X9, Electrode Co estimated that the amount of the provision should be changed to

$13,000.

How should this information be accounted for in Electrode CO's financial statements for

the year ended 31 May 20X9?

During the year ended 30 April 20X7 Doolittle co a number Of difficulties With

employees. On I April 20X7 Doolittle Co dismissed an employee and subsequently received

notice of a claim for unfair dismissal amounting to $50,cm. Another employee suffered

personal injury on 30 March 20X7 whilst operating machinery at work. On 30 May Doolittle

Co received notice of a claim from that employee for compensation of $100,mo. Doolittle

CO's legal representatives have advised that the claim for unfair dismissal will probably be

successful and result in a compensation award of $5000 to the employee. The lawyer also

advised that the compensation claim for injury suffered is regarded as possible, but not

probable, that compensation will be payable. In the event that compensation was payable

for personal injury suffered, an amount of $ICLOOO is a reliable estimate.

How should this information be accounted for in the financial statements of Doolittle Co

for the year ended 30 April 20X7?

Lin's business is being sued by a customer for $20,000. The lawyer advising the business has said that the customer has a good case and it is likely that Lin will have to pay $20,000 in damages and a further $4,000 in legal fees.

What is the amount of the provision that needs to be recognised in the financial statements of Lin's business?

Which of the following defines a provision in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets?

PRE Co is being sued for wrongful dismissal by an ex-employee who is claiming damages of $400,000. PRE Co faces additional legal costs of $100,000. The company has been advised that it is not probable that the ex-employee will succeed with his claim.

In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, how should PRE Co deal with this issue in the financial statements?

According to IAS 37 Provisions, contingent liabilities and contingent assets, which TWO of the following statements are associated with a provision?

Roc’s business is being sued by one of its former employees who claims that the business was negligent in preventing exposure to poisonous chemicals. The legal action is ongoing and Roc’s lawyer has advised that they will probably be fined a sum in the region of $500,000. This is likely to take longer than 12 months until it is settled.

What is the accounting entry to recognise the provision?

Following the year end, an employee had a serious accident at work. He immediately brought a legal case against his employer, Zed Co. Zed Co’s legal expert has confirmed that the employee has a good case and a material settlement is likely within 12 months.

Should this event be recognised in the financial statements and if so in what way?

Which TWO of the following pieces of information would be included in a disclosure note about provisions?

Ana’s business is being sued by a customer for $100,000. Her lawyer has informed her that there is only a 30% chance that the claim will be successful.

How should Ana treat this matter in her financial statements?

At the start of the year Rajid's statement of financial position has a warranty provision in current liabilities of $40,000. At the end of the year Rajid believes his warranty provision should be $36,000.

How should Rajid account for this change in provision?

Fin has brought a legal case against a competitor who has allegedly copied Fin’s product. Fin believes he is entitled to damages of at least $150,000 but his lawyer has advised that the claim is at best probable and more likely only possible.

How should Fin treat this issue in his financial statements?

A customer of Pern claims that, on 22 March 20X6, a fault in a product sold by Pern caused damage to its production line. The customer is seeking damages of $85,000. Pern has accepted liability and offered to pay $40,000 to repair the damage. The customer has refused this offer. The matter will be settled in a court case which is scheduled for July 20X7. Pern’s legal representative has indicated that the court is almost certain to accept the customer’s claim for $85,000.

How should this matter be dealt with in Pern’s financial statements for the year to 30 April 20X6?

On 6 March 20X7, there was a fire in Tingle’s factory. Tingle incurred $125,000 in repairing the damage. As Tingle had insurance cover, $125,000 was reported as a receivable in the draft financial statements for the year to 30 April 20X7. In May 20X7, the insurance company advised that due to non-compliance with the terms of the insurance contract, only $12,500 of the repair costs would be reimbursed.

Which of the following is the correct accounting treatment for the repair costs in the financial statements for the year to 30 April 20X7?

At the reporting date, future obligations to transfer economic benefits may be classified as:

1. 1. liabilities

2. 2. provisions

3. 3. contingent liabilities

Which of the above are recognised in the statement of financial position?

Black Co guarantees his customers they are eligible for full refund for goods returned within 14 days. He provided for sales return of $7,500 on 31^st December 20X1. The following year-end, he estimates that the provision should be $8,000

What is the amount to be included in Black Co’s Statement of Financial Position for the movement in provision of sales return?

Inspire is the defendant in a patent infringement lawsuit. Inspire’s lawyers believe that there is a 30% chance that the court will dismiss the case and Inspire will not have to make any pay-out. However, if the court rules in favour of the claimant, they believe that there is a 20% chance that Inspire will be required to pay damages of $200,000 (the amount sought by the claimant) and an 80% chance that damages will be $100,000 (the amount that was recently awarded by the same judge in a similar case). The court is expected to rule sometime in 20X7 and there is no indication that the claimant will settle out of court.

What is the best estimate of the provision for the lawsuit that should be recognised in Inspire’s statement of financial position at 31 December 20X6 in accordance with IAS 37?

Geek is developing a new product and expects to be able to capitalize the costs. Which one of the following would preclude capitalization of the costs?

Which one of the following internally-generated items may be eligible for capitalization as intangible assets in accordance with IAS 38 Intangible Assets? (Ignore business combinations.)

At 30 September 20X9 Sandown’s trial balance showed a brand at cost of $30 million, less accumulated amortisation brought forward at 1 October 20X8 of $9 million. Amortisation is based on a ten-year useful life. An impairment review on 1 April 20X9 concluded that the brand had a value in use of $12 million and a remaining useful life of three years. However, on the same date Sandown received an offer to purchase the brand for $15 million.

What should be the carrying amount of the brand in the statement of financial position of Sandown as at 30 September 20X9?

Dempsey’s year end is 30 September 20X4. Dempsey commenced the development stage of a project to produce a new pharmaceutical drug on 1 January 20X4. Expenditure of $40,000 per month was incurred until the project was completed on 30 June 20X4 when the drug went into immediate production. The directors became confident of the project’s success on 1 March 20X4. The drug has an estimated life span of five years; time apportionment is used by Dempsey where applicable.

What amount will Dempsey charge to profit or loss for development costs, including any amortisation, for the year ended 30 September 20X4?

During the current year an entity had in place $1 million of 6% loan finance and $2 million of 8% loan finance. It constructed a new factory which cost $600,000 and this was funded out of the existing loan finance. The factory took 8 months to complete. To the nearest thousand, what borrowing costs should be capitalised?

Happy Co have decided to sell their head office, and meet the held for sale criteria per IFRS5 They purchased the head office 15 years ago, at a cost of $400,000 They estimated that the head office would have a useful life of 25 years Happy Co believe that they can sell their head office for $300,000, but costs to sell will total $80,000 At what value should the asset be valued when it is classified as held for sale?

A cash-generating unit comprises the following assets:

$’000

Building 700

Plant and equipment 200

Goodwill 90

Current assets 20

1,010

One of the machines, carried at $40,000, is damaged and will have to be scrapped. The recoverable amount of the cash-generating unit is estimated at $750,000.

What will be the carrying amount of the building when the impairment loss has been recognised? (to the nearest $’000)

What is the recoverable amount of an asset?

A machine has a carrying amount of $85,000 at the year end of 31 March 20X9. Its market value is $78,000 and costs of disposal are estimated at $2,500. A new machine would cost $150,000. The company which owns the machine expects it to produce net cash flows of $30,000 per annum for the next three years. The company has a cost of capital of 8%.

What is the impairment loss on the machine to be recognised in the financial statements at 31 March 20X9?

IAS 36 Impairment of Assets suggests how indications of impairment might be recognised.

Which of the following would be external indicators that one or more of an entity’s assets may be impaired?

The following information relates to an item of plant.

(i) Its carrying amount in the statement of the financial position is $3 million.

(ii) The company has received an offer of $2.7 million from a company in Japan interested in buying the plant.

(iii) The present value of the estimated cash flows from continued use of the plant is $2.6 million.

(iv) The estimated cost of shipping the plant to Japan is $50,000.

What is the amount of the impairment loss that should be recognised on the plant?

A business which comprises a single cash-generating unit has the following assets. $m

Goodwill 3

Patent 5

Property 10

Plant and equipment 15

Net current assets 2

35

Following an impairment review it is estimated that the value of the patent is $2 million and the recoverable amount of the business is $24 million.

At what amount should the property be measured following the impairment review?

Riley acquired a non-current asset on 1 October 20W9 (ie ten years before 20X9) at a cost of $100,000 which had a useful life of ten years and a nil residual value. The asset had been correctly depreciated up to 30 September 20X4. At that date the asset was damaged and an impairment review was performed. On 30 September 20X4, the fair value of the asset less costs of disposal was $30,000 and the expected future cash flows were $8,500 per annum for the next five years. The current cost of capital is 10% and a five-year annuity of $1 per annum at 10% would have a present value of $3.79.

What amount would be charged to profit or loss for the impairment of this asset for the year ended 30 September 20X4?

The net assets of Fyngle, a cash generating unit (CGU) are:

$

Property, plant and equipment 200,000

Allocated goodwill 50,000

Product patent 20,000

Net current assets (at net realisable value) 30,000

300,000

As a result of adverse publicity, Fyngle has a recoverable amount of only $200,000.

What would be the value of Fyngle’s property, plant and equipment after the allocation of the impairment loss?

Which of the following is NOT an indicator of impairment under IAS 36 Impairment of Assets?