WorksheetsFoundational Knowlesge Financial Accounting IAS 38 & IAS 10
Total questions: 5
Worksheet time: 10mins
Q1: A Ltd exchanges Patent A, which has a carrying amount of R20 000 and a fair value of R30 000, for Patent B with a fair value of R35 000. The fair value of patent B is more clearly evident than that of Patent A.
At which amount should Patent B be recognised in A Ltd’s financial statements?
R20 000
R30 000
R35 000
R50 000
Q2: On 1 March 2022, Construct Co acquired the Build it Quick (BIQ) patent at a cost of R996 000 to manufacture a specialized machine. Legal costs incurred to register the patent amounted to R85 000. Construct Co incurred advertising costs amounting to R30 000 to advertise the sale of the new machine. The patent was available for use as intended by management, from acquisition date. It is estimated that the patent has an expected useful life of 13 years, with no residual value. Construct Co’s year end is 28 February 2023
Prepare the journal entry to account for the amortization on the patent.
Option A
Option B
Option C
Option D
Q3: Broadcast Ltd acquired a broadcasting license for a local radio station. The following additional costs were incurred in connection with this acquisition:
Fees of professional broadcasting consultant (incl VAT) – R23 000
Allocation of cost of time spent by management (employee benefit cost) – R60 000
It was agreed that the purchase price would be settled by issuing 200 000 shares in Broadcast Ltd, and the shares were trading at R4,00 per share when the settlement was affected.
Taking the above into account, and assuming that Broadcast Ltd is a registered VAT vendor, calculate the amount at which the broadcasting license must be capitalized at.
R800 000
R883 000
R880 000
R83 000
Q4: Company ABC has a current financial year end on 31 December 2023. Their annual financial statements are authorised for issue on 31 March 2024.
On 15 Jan 2024, a leak in the warehouse was discovered by the warehouse manager. All inventory items of Company ABC are kept in this warehouse. On 15 Jan 2024 an inspection revealed that the leak has been present since the 15 November 2023.
Upon inspection Company ABC realises that its inventory is damaged, however it can be sold to a third party for 50% of its original selling price.
How does the following event affect Company ABC financials for the year ended 31 December 2023:
No effect because the leak was only found after the year ended 31 December 2023, thus this is a non-adjusting event in terms of IAS 10.
Inventory is impaired and must be written down to its net realisable value as this is an adjusting event in terms of IAS 10.
Inventory is always carried at cost; net realisable value is not considered.
Inventory must be disposed of, and the relevant accounting journal entries must be processed.
Q5: Which of the following criteria distinguishes adjusting events from non-adjusting events under IAS 10?
The event occurs after the reporting period.
The event is material in nature.
The event occurs after the reporting period and before the annual financial statements are authorised for issue and provides evidence of conditions existing at the end of the reporting period.
The event has a significant impact on future cash flows.
