Which of the following statements about research and development expenditure are correct according to IAS 38 Intangible Assets? I.     If certain conditions are met, an entity may decide to capitalise development expenditure. II.    Capitalised development expenditure must be amortised over a period not exceeding five years. III.  Research expenditure, other than capital expenditure on research facilities, must be written off as incurred. IV.  Capitalised development expenditure must be classified in the statement of financial position under intangible non-current assets.

Which of the following should be capitalised as development expenditure?

In the current year High Co. has developed a new heat retaining fabric from which clothing suitable for high altitudes will be made. The project meets the IAS 38 criteria for capitalisation and by 30 June 20X8, $210 000 had been capitalised. The fabric is expected to generate revenue for 10 years from the date on which commercial production commenced on 1 November 20X7, although in the first year only half of the revenue of subsequent years is anticipated. What amount is charged to profit or loss in respect of the fabric in the year ended 30 June 20X8

Cranford Co. has incurred $40 000 researching chemical compounds in the year ended 30 June 20X8. It has also spent $90 000 developing a new product. The product's development was completed on 28 February but management has decided to delay commercial production until July 20X8. The product is expected to have a useful life of five years. The development project meets the IAS 38 capitalisation criteria. How should these costs be treated in the year ended 30 June 20X8?

Which of the following four statements is correct?

Which of the following are IAS 38 criteria which must be met in order to capitalise an intangible non-current asset? I.     The asset must be capable of separate disposal. II.    The asset must be within the control of the entity. III.  It is probable that future economic benefits will flow to the entity as a result of the asset.

Which of the following is correct?

Choc Co. acquires a chocolate bar brand from a competitor for $900 000 on 1 August 20X9. The brand is considered by Choc Co. to have a useful life of 25 years, and in order to maintain its market position, Choc Co. have, since acquisition, spent $100 000 on a marketing campaign. What intangible asset is recognised in Choc Co.'s statement of financial position at 31 December 20X9?

Clever Co. has incurred the following costs in the course of the year ended 30 June 20X9: ·      $400 000 training selected staff members to be 'World Class Knowledge Holders' (an internal qualification which is believed to result in increased sales). ·      $100 000 acquiring patents. ·      $200 000 advertising new products. The advertising is expected to result in a doubling of sales in the coming year. What amount should Clever Co. capitalise as an intangible asset in respect of these items in the year ended 30 June 20X9?

Which of the following represents the correct treatment of a revaluation surplus arising on a property and an impairment loss on an asset which has not previously been revalued?

At 1 May 20X4 the revaluation surplus of Bloxden was $1 257 000. This was in respect of the company's head office. During the year to 30 April 20X5 the value of the head office increased by a further $82 000. In the same period, the company's factory suffered an impairment of $90 000. What is the value of the revaluation surplus at 30 April 20X5?

Which of the following statements about IAS 36 Impairment of Assets are correct? I.     Non-current assets must undergo an annual impairment test. II.    If individual assets cannot be tested for impairment, it may be necessary to test a group of assets as a unit. III.  An impairment loss must be recognised immediately in profit or loss, except that all or part of a loss on a revalued asset should be charged against any related revaluation surplus.

A cash-generating unit comprises the following: Building $20m, Plant and equipment $10m, Goodwill $5m & Current Assets $10m = $45m. Following a downturn in the market, an impairment review has been undertaken and the recoverable amount of the cash-generating unit is estimated to be $25m. What is the carrying amount of the building after adjusting for the impairment loss?

On 1 January 20X5 Plane Co. acquired 60 per cent of the equity share capital of Sycamore Co. Goodwill of $100 000 arose on the acquisition. Sycamore Co.'s performance for the years ended 31 December 20X5 and 31 December 20X6 slightly exceeded budget. However, in the year ended 31 December 20X7 it made substantial losses that had not been forecast. The goodwill arising on the acquisition of Sycamore Co. should be reviewed for impairment:

Man Co. bought a property on 1 April 20X5 costing $700 000 and commenced depreciation over a 50-year period. On 1 April 20X7, the property was revalued to $960 000 and depreciation continued over the remaining useful life. Man Co. makes an annual reserve transfer in respect of excess depreciation. On 31 March 20X8, as the result of fire damage, the property was found to be impaired with a recoverable amount of $600 000. Which of the following is correct for the year ended 31 March 20X8?

Skipton Co. bought land 11 years ago in 20W8 at a cost of $300 000. In 20X3 the land was revalued to $350 000 and in 20X6 it was revalued again to $400 000. At the end of 20X9 the land had a value in use of $270 000 and the fair value less costs of disposal was $285 000. How is the resulting impairment loss recorded?

18   Pannal Co. recorded an impairment of its goodwill five years ago, reducing the carrying amount by half. The management of Pannal now believes that the value of goodwill has increased again to 75 per cent of its original value. Which of the following is correct?

19   Denton Co. acquired a piece of machinery on 1 July 20X7 for $80 000 and commenced depreciation on a straight-line basis over 10 years. At 31 December 20X8, the machine was tested for impairment as a result of a downturn in the market. It was found to have a value in use of $66 000 and the fair value less costs of disposal was $60 000. What was the depreciation charge on the machine in the year ended 31 December 20X9 assuming that there was no change in useful life?

Which of the following statements is correct? I.     An intangible asset with an indefinite useful life must be tested for impairment at the end of each reporting period. II.    A head office building which is shared by a number of cash-generating units is always tested for impairment on an individual basis.

On 31 March 20X7, DT received an order from a new customer, XX, for products with a sales value of $900 000. XX enclosed a deposit with the order of $90 000. On 31 March 20X7, DT had not completed credit referencing of XX and had not despatched any goods. DT is considering the following possible entries for this transaction in its financial statements for the year ended 31 March 20X7. I.     Recognise a liability for $90 000, II.    Include $90 000 in revenue for the year, III.  Include $900 000 in revenue for the year, IV.  Recognise a trade receivable for $810 000, V.   Do not include anything in revenue for the year. According to IFRS 15 Revenue from Contracts with Customers, how should DT record this transaction in its financial statements for the year ended 31 March 20X7?

London Co. sells air conditioning systems, providing one year's free servicing with every system sold. The servicing could be purchased separately for $500. How should London Co. account for the $4000 sales price of each system?

3     Which of the following statements regarding revenue recognition are correct? I.     Revenue should ignore any settlement discounts. II.    Tuition fees received by a college are recognised as income on the day the tuition commences. III.  Revenue from the sale of goods on a sale or return basis is recognised when the goods are sold to a third party.

4     Leo Co. is liable to corporate income tax at a rate of 30 per cent. The following information is relevant: Y/e 30 November 20X7, Profit before tax $490,000, Taxable prfits $502,000, Tax paid 20X8 in respect of the year $149,000. Y/e 30 November 20X8 Profit before tax $523,000, taxable profit $582,000, Tax paid in 20X9 in respect of year $170,000. What is the tax charge in the statement of profit or loss and other comprehensive income for the year ended 30 November 20X8?

5     At 30 September 20X2 the statement of financial position of CBN Co. included a liability for deferred tax of $128 500. At 30 September 20X3 the non-current assets had a carrying amount of $2 650 000 and a tax written down value of $1 872 000. The tax rate is 20 per cent. What is the balance on the deferred tax account at 30 September 20X3?

6     A company in its first year of trading has significantly higher capital allowances (tax depreciation) than the accounting depreciation charged to profit or loss on the same assets. What would be the effect of recognising a liability for deferred taxation in respect of these assets?

7     At 30 November 20X4 the carrying amount of the non-current assets of Reynard Co. was $3 570 000 and the tax written down value was $2 450 000. The liability for deferred tax brought forward was $250 000. The tax rate is 22 per cent. What should be reported in the statement of profit or loss and other comprehensive income in respect of deferred tax?

8     At 30 April 20X6, the carrying amount of the non-current assets of Bahno Co. was $80 000 greater than the tax written down value, and the balance brought forward on the deferred tax account was $24 800. The company accountant calculated that the income tax charge on the reported profit for the year to 30 April 20X6 would be $53 960, based on the tax rate of 24 per cent. What is the total charge for taxation in the statement of profit or loss and other comprehensive income for the year to 30 April 20X6?

9     Which of the following statements about deferred taxation is correct?

10   Kelt Co. makes a tax-adjusted loss in its 20X8 financial year of $320 000. $120 000 of these losses are carried back to relieve against the profits of 20X7 and $15 000 are used in the current year to relieve other income. The remainder are carried forward. In 20X9 Kelt Co. is expected to make significant profits as a result of the launch of a new product. Kelt Co.'s tax rate is 25 per cent. What is the deferred tax implication, if any, in 20X8 of the loss made?

11 Which of the following statements are correct? I. A deferred tax liability is the result of a deductible temporary difference. II. The tax base of an asset is the future amount which is deductible from profits. III. A revaluation will result in the recognition of a deferred tax movement in profit or loss. IV. Where the carrying amount of an asset exceeds its tax base there will be a taxable temporary difference

12   Parker Co. has non-current assets with an original cost of $580 000. As at 31 January 20X9, accumulated depreciation provided on these assets amounts to $80 000 and tax allowances given amount to $130 000. On this date, Parker recognised a $100 000 revaluation surplus in respect of a factory included within the above. The original cost of the factory was $190 000, accumulated depreciation to date was $20 000 and tax allowances $30 000. Parker's tax rate is 20 per cent and the deferred tax liability brought forward in respect of accelerated capital allowances was $9000. How are movements in deferred tax recognised in the statement of profit or loss and other comprehensive income?

13 Extracts from the financial statements of Rasputin Co. are as follows: Tax charge to profits $47 500 Company income tax liability for the year $56 000 Deferred tax liability at start of year $34 000 Deferred tax liability at end of year $28 000 Rasputin has always paid its tax due on time. What is the under or over-provision relating to the previous year?

1 Which of the following statements, in respect of foreign currency translation, are correct according to IAS 21 The Effects of Changes in Foreign Exchange Rates? I. The functional currency of an entity is selected by management II. The presentation currency of an entity is selected by management III. The functional currency of an entity is identified by reference to the circumstances of the business IV. The presentation currency of an entity is identified by reference to the circumstances of the business

BLX Co. holds several investments in subsidiaries. One of these, CMY Co., is located abroad. CMY Co. prepares its financial statements in its local currency, the crown. Several years ago, when the exchange rate was 5 crowns = $1, CMY Co. purchased land at a cost of 170 000 crowns. On 1 June 20X5, when the exchange rate was 6.5 crowns = $1 the land was revalued at a fair value of 600 000 crowns. The exchange rate at the group's year end, 31 December 20X5, was 7 crowns = $1. In accordance with the requirements of IAS 21 The Effects of Changes in Foreign Exchange Rates, at what value in $ should the land be recognised in BLX Co.'s group financial statements at 31 December 20X5?

Street Co. purchased goods for €450 000 from an overseas supplier on 30 November 20X6. Street Co. paid for the goods on 31 January 20X7. They were not sold to third parties until February 20X7. Exchange rates were: 30 November 20X6 1.5 31 December 20X6 1.45 31 January 20X7 1.55 What is the exchange difference that should be reported in profit or loss for the year ended 31 December 20X6 and at what amount should the goods be included in inventory in the statement of financial position at that date?

Parent Co. has three overseas subsidiaries: 1. A Co. is 80 per cent owned. A Co. does not normally enter into transactions with Parent Co., other than to pay dividends. It operates as a fairly autonomous entity on a day to day basis although Parent Co. controls its long-term strategy. 2. B Co. is 100 per cent owned and has been set up in order to assemble machines from materials provided by Parent Co. These are then transferred to Parent Co., which sells them to third parties. 3. C Co. is 75 per cent owned and is located in France. It manufactures and sells its own range of products locally. It negotiates its own day to day financing needs with French banks. Which of the subsidiaries are likely to have a different functional currency from Parent Co.?

Archway Co. has an overseas subsidiary in Sweden. This subsidiary is 75 per cent owned and operates semi-independently of its parent. The exchange gain arising from the translation of the subsidiary's financial statements for the year ended 30 June 20X4 was $20 000. On 1 June 20X4 Archway Co. purchased raw materials from a European supplier for €250 000. It paid for the materials on 31 July 20X4. Relevant exchange rates were: €=$1 1 June 20X4 1.6 30 June 20X4 1.61 31 July 20X4 1.63 In respect of these items, what is the exchange gain that should be included in the consolidated statement of profit or loss for the year ended 30 June 20X4?

6 When a parent has a subsidiary that is a foreign operation, which rates of exchange should be used to translate the items below into the parent's local currency?

10 Which of the following is correct?

Murray leased a car on 1 January 20X4 with two payments due on 31 December 20X4 and 31 December 20X5 of $14 160 each. The present value of the lease payments is $24 000 and the interest rate implicit in the lease is 12 per cent. What is the lease liability that will be shown as a current liability as at 31 December 20X4?

Which of the following situations would require a right-of-use asset to be recognised under IFRS 16? I. A lease for a term of 10 years II. A lease for a term of six months III. A lease for an asset that has a low value when new

Mutley leased an item of equipment on 1 January 20X4 under a lease for a term of five years with an initial deposit of $200 000 and five annual rentals of $600 000 due at the end of the year. The present value of the future cash flows is $2 500 000 and the interest rate implicit in the lease is 10 per cent. What is the finance charge that will be recognised in profit or loss for the year ended 31 December 20X4?

Mutley leased an item of equipment on 1 January 20X4 under a lease for a term of five years with an initial deposit of $200 000 and five annual rentals of $600 000 due at the end of the year. The present value of the future cash flows is $2 500 000 and the interest rate implicit in the lease is 10 per cent. What is the lease liability that will be shown as a current liability as at 31 December 20X4?

Sammy enters into a five year lease for an asset with a useful life of six years. Sammy pays an initial deposit of $10 000 and the present value of the future cash flows is $65 000. The ownership of the asset will transfer over to Sammy at the end of the lease. What is the carrying value of the asset at the end of the first year?