Which of the following would be classified as a liability?

Which of the following would correctly describe the net realisable value of a two year old asset?

Which of the following is the underlying assumption in preparing financial statements identified in the Conceptual Framework?

The Conceptual Framework identifies four enhancing qualitative characteristics of financial information.

For which of these characteristics is disclosure of accounting policies particularly important?

Which of the following is NOT a purpose of the IASB’s Conceptual Framework?

Recognition is the process of including within the financial statements items which meet the definition of an element according to the IASB’s Conceptual Framework for Financial Reporting.

Which of the following items should be recognised as an asset in the statement of financial position of a company?

Comparability is identified as an enhancing qualitative characteristic in the IASB’s Conceptual Framework for Financial Reporting.

Which of the following does NOT improve comparability?

Identify, by clicking on the relevant boxes in the table below, the possible effect of rising prices on the following items in the financial statements.

1. Capital employed - UNDER STATED or OVER STATED

2. Profits - UNDER STATED or OVER STATED

On 1 September 20X3 Laidlaw factored (sold) $2 million of trade receivables to Finease for an immediate payment of $1.8 million and further amounts depending on how quickly Finease collects the receivables. Finease will charge a monthly administration fee and interest on the outstanding balance and any receivables not collected after four months would be sold back to Laidlaw.

How should Laidlaw account for this factoring arrangement in its financial statements for the year ended 30 September 20X3?

Which TWO of the following ratios are most likely to provide a bank with information about a potential client’s ability to make repayments on a loan?

1. Asset turnover

2. Gearing

3. Interest cover

4. ROCE

5. Gross profit margin

6. EPS

Penfold uses several properties that are leased under short-term leases.

Identify, by clicking on the relevant boxes in the table below, how the ratios would be affected if the leases were extended beyond 12 months.

1. ROCE - INCREASE Or DECREASE

2. Gearing - INCREASE Or DECREASE

Raycroft operates a nuclear power station.

The power station is due to be decommissioned on 31 December 20X8 but will be fully operational up to that date. It has been estimated that the cost of decommissioning the power station and cleaning up any environmental damage, as required by legislation, will be $60 million. Raycroft recognised a provision for the present value of this expenditure at 31 December 20X0. A suitable discount rate for evaluating costs of this nature is 12%, equivalent to a present value factor after eight years of 0.404. The decommissioning cost will be depreciated over eight years.

What is the total charge to profit or loss in respect of this provision for the year ended 31 December 20X1?

Which of the following items would qualify for treatment as a change in accounting estimate according to IAS 8 Accounting policies, changes in accounting estimates and errors?

Pisces has an asset carried at $6.5 million in its statement of financial position at 31 December 20X2. The present value of the cash flows which the asset will generate for the rest of its useful life is $5.8 million. The current cost of an identical asset of the same age is $6.1 million. Pisces has received an offer of $6.2 million for the asset. The cost of dismantling the asset and transporting it to the customer would be $200,000.

At what amount should the asset be recognised in the statement of financial position at 31 December 20X2?

The components of the cost of a major item of equipment are given below:

$

Purchase price 780,000

Import duties 117,000

VAT (refundable) 78,000

Site preparation 30,000

Installation 28,000

Testing 10,000

Initial losses before asset reaches planned performance 50,000

Discounted cost of dismantling and removal at end of useful life 40,000

1,133,000

What amount should be recognised as the cost of the asset in accordance with IAS 16 Property, plant and equipment?

Which one of the following would be included in the cost of inventories of goods for resale in accordance with IAS 2 Inventories?

A company’s statement of profit or loss showed a profit before tax of $1.8 million. After the end of the reporting period and before the financial statements were authorised for issue, the following events took place.

(i) Six weeks after the year end, the value of an investment held at the year end fell by $85,000.

(ii) A customer who owed $116,000 at the year end went bankrupt owing a total of $138,000.

(iii) Inventory valued at $161,000 in the statement of financial position was sold in year-end condition for $141,000.

(iv) Assets with a carrying amount at the year end of $240,000 were unexpectedly expropriated by the government.

What is the company’s profit before tax after making the necessary adjustments for these events?

Elite Leisure is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 20W6 (ten years before 20X6).

At 30 September 20X4 no further capital expenditure had been incurred on the ship.

In the year ended 30 September 20X4 the ship had experienced a high level of engine trouble which had cost the company considerable lost revenue and compensation costs. The measured expired life of the propulsion system at 30 September 20X4 was 30,000 hours. Due to the unreliability of the engines, a decision was taken in early October 20X4 to replace the whole of the propulsion system at a cost of $140 million. The expected life of the new propulsion system was 50,000 hours and in the year ended 30 September 20X5 the ship had used its engines for 5,000 hours.

At the same time as the propulsion system replacement, the company took the opportunity to do a limited upgrade to the cabin and entertainment facilities at a cost of $60 million and repaint the ship’s fabric at a cost of $20 million. After the upgrade of the cabin and entertainment area fittings it was estimated that their remaining life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 20X4. All residual values can be taken as nil.

At 30 September 20X4 the ship is 8 years old. What is the carrying amount of the ship at that date?

Elite Leisure is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 20W6 (ten years before 20X6).

At 30 September 20X4 no further capital expenditure had been incurred on the ship.

In the year ended 30 September 20X4 the ship had experienced a high level of engine trouble which had cost the company considerable lost revenue and compensation costs. The measured expired life of the propulsion system at 30 September 20X4 was 30,000 hours. Due to the unreliability of the engines, a decision was taken in early October 20X4 to replace the whole of the propulsion system at a cost of $140 million. The expected life of the new propulsion system was 50,000 hours and in the year ended 30 September 20X5 the ship had used its engines for 5,000 hours.

At the same time as the propulsion system replacement, the company took the opportunity to do a limited upgrade to the cabin and entertainment facilities at a cost of $60 million and repaint the ship’s fabric at a cost of $20 million. After the upgrade of the cabin and entertainment area fittings it was estimated that their remaining life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 20X4. All residual values can be taken as nil.

What is the amount of depreciation that should be charged in respect of the propulsion system for the year ended 30 September 20X5?

Elite Leisure is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 20W6 (ten years before 20X6).

At 30 September 20X4 no further capital expenditure had been incurred on the ship.

In the year ended 30 September 20X4 the ship had experienced a high level of engine trouble which had cost the company considerable lost revenue and compensation costs. The measured expired life of the propulsion system at 30 September 20X4 was 30,000 hours. Due to the unreliability of the engines, a decision was taken in early October 20X4 to replace the whole of the propulsion system at a cost of $140 million. The expected life of the new propulsion system was 50,000 hours and in the year ended 30 September 20X5 the ship had used its engines for 5,000 hours.

At the same time as the propulsion system replacement, the company took the opportunity to do a limited upgrade to the cabin and entertainment facilities at a cost of $60 million and repaint the ship’s fabric at a cost of $20 million. After the upgrade of the cabin and entertainment area fittings it was estimated that their remaining life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 20X4. All residual values can be taken as nil.

Apart from depreciation, what is the total charge to profit or loss for the year ended 30 September 20X5?

Elite Leisure is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 20W6 (ten years before 20X6).

At 30 September 20X4 no further capital expenditure had been incurred on the ship.

In the year ended 30 September 20X4 the ship had experienced a high level of engine trouble which had cost the company considerable lost revenue and compensation costs. The measured expired life of the propulsion system at 30 September 20X4 was 30,000 hours. Due to the unreliability of the engines, a decision was taken in early October 20X4 to replace the whole of the propulsion system at a cost of $140 million. The expected life of the new propulsion system was 50,000 hours and in the year ended 30 September 20X5 the ship had used its engines for 5,000 hours.

At the same time as the propulsion system replacement, the company took the opportunity to do a limited upgrade to the cabin and entertainment facilities at a cost of $60 million and repaint the ship’s fabric at a cost of $20 million. After the upgrade of the cabin and entertainment area fittings it was estimated that their remaining life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 20X4. All residual values can be taken as nil.

Elite Leisure’s ship has to have a safety check carried out every five years at a cost of $50,000 in order to be licensed to operate. How should this be accounted for?

Elite Leisure is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 20W6 (ten years before 20X6).

At 30 September 20X4 no further capital expenditure had been incurred on the ship.

In the year ended 30 September 20X4 the ship had experienced a high level of engine trouble which had cost the company considerable lost revenue and compensation costs. The measured expired life of the propulsion system at 30 September 20X4 was 30,000 hours. Due to the unreliability of the engines, a decision was taken in early October 20X4 to replace the whole of the propulsion system at a cost of $140 million. The expected life of the new propulsion system was 50,000 hours and in the year ended 30 September 20X5 the ship had used its engines for 5,000 hours.

At the same time as the propulsion system replacement, the company took the opportunity to do a limited upgrade to the cabin and entertainment facilities at a cost of $60 million and repaint the ship’s fabric at a cost of $20 million. After the upgrade of the cabin and entertainment area fittings it was estimated that their remaining life was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship can be assumed to have been completed on 1 October 20X4. All residual values can be taken as nil.

Elite Leisure is being sued for $250,000 by a passenger who slipped on one of the gangways and twisted an ankle. The company’s lawyer estimates that there is a 55% chance that it will lose the case. Legal costs for Elite Leisure will be $40,000. What amount should Elite Leisure provide in respect of this case?

The carrying amount of Julian’s property, plant and equipment at 31 December 20X3 was $310,000 and the tax written down value was $230,000.

The following data relates to the year ended 31 December 20X4:

(i) At the end of the year the carrying amount of property, plant and equipment was $460,000 and the tax written down value was $270,000. During the year some items were revalued by $90,000. No items had previously required revaluation. In the tax jurisdiction in which Julian operates revaluations of assets do not affect the taxbase of an asset or taxable profit. Gains due to revaluations are taxable on sale.

(ii) Julian began development of a new product during the year and capitalised $60,000 in accordance with IAS 38. The expenditure was deducted for tax purposes as it was incurred. None of the expenditure had been amortised by the year end.

The corporate income tax rate is 30%. The current tax charge was calculated for the year as $45,000.

Julian’s accountant is confused by the term ‘tax base’.

What is meant by ‘tax base’?

The carrying amount of Julian’s property, plant and equipment at 31 December 20X3 was $310,000 and the tax written down value was $230,000.

The following data relates to the year ended 31 December 20X4:

(i) At the end of the year the carrying amount of property, plant and equipment was $460,000 and the tax written down value was $270,000. During the year some items were revalued by $90,000. No items had previously required revaluation. In the tax jurisdiction in which Julian operates revaluations of assets do not affect the taxbase of an asset or taxable profit. Gains due to revaluations are taxable on sale.

(ii) Julian began development of a new product during the year and capitalised $60,000 in accordance with IAS 38. The expenditure was deducted for tax purposes as it was incurred. None of the expenditure had been amortised by the year end.

The corporate income tax rate is 30%. The current tax charge was calculated for the year as $45,000.

What is the taxable temporary difference to be accounted for at 31 December 20X4 in relation to property, plant and equipment and development expenditure?

The carrying amount of Julian’s property, plant and equipment at 31 December 20X3 was $310,000 and the tax written down value was $230,000.

The following data relates to the year ended 31 December 20X4:

(i) At the end of the year the carrying amount of property, plant and equipment was $460,000 and the tax written down value was $270,000. During the year some items were revalued by $90,000. No items had previously required revaluation. In the tax jurisdiction in which Julian operates revaluations of assets do not affect the tax base of an asset or taxable profit. Gains due to revaluations are taxable on sale.

(ii) Julian began development of a new product during the year and capitalised $60,000 in accordance with IAS 38. The expenditure was deducted for tax purposes as it was incurred. None of the expenditure had been amortised by the year end.

The corporate income tax rate is 30%. The current tax charge was calculated for the year as $45,000.

What amount should be charged to the revaluation surplus at 31 December 20X4 in respect of deferred tax?

The carrying amount of Julian’s property, plant and equipment at 31 December 20X3 was $310,000 and the tax written down value was $230,000.

The following data relates to the year ended 31 December 20X4:

(i) At the end of the year the carrying amount of property, plant and equipment was $460,000 and the tax written down value was $270,000. During the year some items were revalued by $90,000. No items had previously required revaluation. In the tax jurisdiction in which Julian operates revaluations of assets do not affect the taxbase of an asset or taxable profit. Gains due to revaluations are taxable on sale.

(ii) Julian began development of a new product during the year and capitalised $60,000 in accordance with IAS 38. The expenditure was deducted for tax purposes as it was incurred. None of the expenditure had been amortised by the year end.

The corporate income tax rate is 30%. The current tax charge was calculated for the year as $45,000.

What amount will be shown as tax payable in the statement of financial position of Julian at 31 December20X4?

The carrying amount of Julian’s property, plant and equipment at 31 December 20X3 was $310,000 and the tax written down value was $230,000.

The following data relates to the year ended 31 December 20X4:

(i) At the end of the year the carrying amount of property, plant and equipment was $460,000 and the tax written down value was $270,000. During the year some items were revalued by $90,000. No items had previously required revaluation. In the tax jurisdiction in which Julian operates revaluations of assets do not affect the taxbase of an asset or taxable profit. Gains due to revaluations are taxable on sale.

(ii) Julian began development of a new product during the year and capitalised $60,000 in accordance with IAS 38. The expenditure was deducted for tax purposes as it was incurred. None of the expenditure had been amortised by the year end.

The corporate income tax rate is 30%. The current tax charge was calculated for the year as $45,000.

Deferred tax assets and liabilities arise from taxable and deductible temporary differences.

Which one of the following is NOT a circumstance giving rise to a temporary difference?

In accordance with the Conceptual Framework for Financial Reporting, which of the following characteristics must information have if it is to be a faithful representation?

(i) Completeness

(ii) Predictive value

(iii) Consistency

(iv) Neutrality

A manufacturing entity buys a machine (an item of property, plant and equipment) for 20 million dinars on 1 January 20X1.

The machine is held under the cost model and has a useful life of 20 years. The entity has a reporting date of 31 December 20X1 and a functional currency of dollars ($). Exchange rates are as follows:

Dinars: $1

1 January 20X1 2.0

31 December 20X1 3.0

Average rate for year-ended 31 December 20X1 2.5

What is the carrying amount of the machine as at 31 December 20X1?

Please refer material for this question

A car was purchased by a newsagent business in May 20X0 for: $

Cost 10,000

Road tax 150

Total 10,150

The business adopts a date of 31 December as its year end.

The car was traded in for a replacement vehicle in August 20X3 at an agreed value of $5,000.

It has been depreciated at 25% per annum on the reducing balance method, charging a full year’s

depreciation in the year of purchase and none in the year of sale.

What was the profit or loss on disposal of the vehicle during the year ended December 20X3?

Y purchased some plant on 1 January 20X0 for $38,000. The payment for the plant was correctly

entered in the cash book but was entered on the debit side of the plant repairs account.

Y charges depreciation on the straight line basis at 20% per year, with a proportionate charge in the

years of acquisition and disposal, and assuming no scrap value at the end of the life of the asset.

How will Y’s profit for the year ended 31 March 20X0 be affected by the error?

Banjo Co purchased a building on 30 June 20X8 for $1,250,000. At acquisition, the useful life of the

building was 50 years. Depreciation is calculated on the straight-line basis. 10 years later, on 30 June

20Y8 when the carrying amount of the building was $1,000,000, the building was revalued to

$1,600,000. Banjo Co has a policy of transferring the excess depreciation on revaluation from the

revaluation surplus to retained earnings.

Assuming no further revaluations take place, what is the balance on the revaluation surplus at 30 June

20Y9?

Please refer material for this question

At 31 December 20X3 Q, a limited liability company, owned a building that had cost $800,000 on

1 January 20W4.

It was being depreciated at 2% per year.

On 31 December 20X3 a revaluation to $1,000,000 was recognised. At this date the building had a

remaining useful life of 40 years.

What is the balance on the revaluation surplus at 31 December 20X3 and the depreciation charge in the

statement of profit or loss for the year ended 31 December 20X4?

Depreciation charge for Revaluation surplus

year ended 31 December 20X4 as at 31 December 20X3

(statement of profit or loss) (statement of financial position)

According to IAS 38 Intangible assets, which of the following statements concerning the accounting

treatment of research and development expenditure are true?

1 Development costs recognised as an asset must be amortised over a period not exceeding five

years.

2 Research expenditure, other than capital expenditure on research facilities, should be recognised

as an expense as incurred.

3 In deciding whether development expenditure qualifies to be recognised as an asset, it is

necessary to consider whether there will be adequate finance available to complete the project.

4 Development projects must be reviewed at each reporting date, and expenditure on any project

no longer qualifying for capitalisation must be amortised through the statement of profit or loss

and other comprehensive income over a period not exceeding five years.

According to IAS 38 Intangible assets, what amount should be charged in the statement of profit or loss and other comprehensive income for research and development costs for the year ended 31 December 20X7?

The following balances existed in the accounting records of Koppa Co, at 31 December 20X7. $’000

Development costs capitalised, 1 January 20X7 180

Research and development expenditure for the year 162

In preparing the company’s statement of profit or loss and other comprehensive income and statement of

financial position at 31 December 20X7 the following further information is relevant.

The $180,000 total for development costs as at 1 January 20X7 relates to two projects: $’000

Project 836: completed project 82

(balance being amortised over the period expected to benefit from it.

Amount to be amortised in 20X7: $20,000)

Project 910: in progress 98

180

(b) The research and development expenditure for the year is made up of: $’000

Research expenditure 103

Development costs on Project 910 which continues to satisfy the

requirements in IAS 38 for capitalization 59

162

The following balances existed in the accounting records of Koppa Co, at 31 December 20X7. $’000

Development costs capitalised, 1 January 20X7 180

Research and development expenditure for the year 162

In preparing the company’s statement of profit or loss and other comprehensive income and statement of

financial position at 31 December 20X7 the following further information is relevant.

(a) The $180,000 total for development costs as at 1 January 20X7 relates to two projects: $’000

Project 836: completed project 82

(balance being amortised over the period expected to benefit from it.

Amount to be amortised in 20X7: $20,000)

Project 910: in progress 98

180

(b) The research and development expenditure for the year is made up of: $’000

Research expenditure 103

Development costs on Project 910 which continues to satisfy the

requirements in IAS 38 for capitalization 59

162

According to IAS 38 Intangible assets, what amount should be disclosed as an intangible asset in the

statement of financial position for the year ended 31 December 20X7?

Which THREE of the following statements are correct in relation to application of IAS 38 Intangible Assets?

(A) Research costs should be expenses to the statement of profit or loss.

(B) All types of goodwill can be capitalised.

(C) Capitalised development costs that no longer meet the criteria specified by IAS 38 must be written off to the statement of profit or loss.

(D) Capitalised development costs are amortised from the date the assets is available to use or sell.

(E) Research costs written off can be re-capitalised when the developed asset is feasible.

(F) Only purchased intangibles can be capitalised.

Rainbird decided to reorganise a manufacturing facility during November 20X1 and commissioned a consulting engineer to carry out a feasibility study. A provision for the reorganisation was created at 31 December 20X1.

Staff functions will change following the reorganisation, so in December 20X1 Rainbird contracted with a training company to provide retraining to take place in January 20X2. A provision for this expenditure was created at 31 December 20X1.

Rainbird hopes that reorganising its manufacturing facility will improve quality control. It gives a one-year warranty with all products and the rate of returns under warranty is 12%. 5% of the returned items can be repaired at a cost of $5 (free of charge to the customer). The other 95% are scrapped and a full refund of $30 is given. Rainbird sold 525,000 units during the year to 31 December 20X1. In five years’ time Rainbird will have to dismantle its factory and return the site to the local authority. A provision was set up for the present value of the dismantling costs when the factory was first acquired. The opening balance on the provision at 1 January 20X1 was $2.63 million. Rainbird has a cost of capital of 8%.

During January 20X2, before the financial statements for the year ended 31 December 20X1 had been finalised, a number of events took place.

Which one of these events would require an adjustment to the financial statements as at 31 December 20X1 in accordance with IAS 10 Events after the reporting period?

Rainbird decided to reorganise a manufacturing facility during November 20X1 and commissioned a consulting engineer to carry out a feasibility study. A provision for the reorganisation was created at 31 December 20X1.

Staff functions will change following the reorganisation, so in December 20X1 Rainbird contracted with a training company to provide retraining to take place in January 20X2. A provision for this expenditure was created at 31 December 20X1.

Rainbird hopes that reorganising its manufacturing facility will improve quality control. It gives a one-year warranty with all products and the rate of returns under warranty is 12%. 5% of the returned items can be repaired at a cost of $5 (free of charge to the customer). The other 95% are scrapped and a full refund of $30 is given. Rainbird sold 525,000 units during the year to 31 December 20X1.

In five years’ time Rainbird will have to dismantle its factory and return the site to the local authority. A provision was set up for the present value of the dismantling costs when the factory was first acquired. The opening balance on the provision at 1 January 20X1 was $2.63 million. Rainbird has a cost of capital of 8%.

Rainbird’s accountant is preparing the financial statements for the year to 31 December 20X1 and is not too sure about the provisions set up for the reorganisation of the facility and the staff training.

Which of these is a correct provision under IAS 37?

Using the requirements set out in IAS 10 Events after the Reporting Period, which of the following would be classified as an adjusting event after the reporting period in financial statements ended 31 March 20X4 that were approved by the directors on 31 August 20X4?