Question 1

Which of the following should be accounted for as subsidiaries in the consolidated financial
statements of Preece Co?
(1) Gilber Co Preece Co currently owns 40% of the share capital of Gilber Co and holds options to
purchase another 20% which it can exercise immediately
(2) Grovez Co Preece Co owns 60% of Grovez Co and has appointed the majority of the board of
directors
(3) Roge Co Preece Co owns 80% of Roge Co. Roge Co is loss-making and Preece Co is considering
selling it in the near future
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3

Question 2

Boat Co acquired 60% of Anchor Co on 1 January 20X4. At the date of acquisition, the carrying
amount of Anchor Co’s net assets were the same as their fair values, with the exception of an item of
machinery which had a carrying amount of $90,000 a fair value of $160,000 and a remaining useful life of
five years. Non-controlling interests are valued at fair value.

What is the journal entry required to reflect this fair value adjustment in the consolidated
statement of financial position of Boat Co as at 31 December 20X6?

A. Dr Retained earnings $25,200

Dr Non-controlling interest $16,800
Dr Property, plant and equipment $28,000
Cr Goodwill $70,000
B Dr Retained earnings $8,400
Dr Non-controlling interest $5,600
Dr Property, plant and equipment $56,000
Cr Goodwill $70,000
C Dr Retained earnings $57,600
Dr Non-controlling interest $38,400
Dr Property, plant and equipment $64,000
Cr Goodwill $160,000
D Dr Retained earnings $42,000
Dr Property, plant and equipment $28,000
Cr Goodwill $70,000

Question 3

Bella Co sold goods with a list price of $30,000 on credit to Twilight Co on 22 August 20X9. Twilight Co
has a 30 day payment period and can get a 5% prompt payment discount if payment is made within 15
days. Twilight Co has always paid within 15 days and availed this discount in the past.

How will Bella Co recognize this sale transaction at 22 August 20X9?

A. Dr. Receivables $30,000 Cr. Sales $30,000

B. Dr. Receivables $28,500 Cr. Sales $28,500

C. Dr. Receivables $30,000 Cr. Discount liability $1,500

 Cr. Sales $28,500

D. Dr. Discount allowed $1,500 Cr. Sales $30,000

Dr. Receivables $28,500

Question 4

New Designs Co is considering the following potential assets for inclusion in its statement of financial
position.
Indicate which of the options below should be recognised as intangible assets by dragging and
dropping the appropriate options into the grey target boxes.

OPTIONS Intangible Assets

Brand name developed by New $2m spent on an advertising

Designs Co worth $10m campaign expected to increase
revenue by $20m

$2.5m spent on new equipment to $3m paid to acquire the brand

develop a new successful product name Fast Designs

$3m spent on a licence to operate $1m spent on the construction of a

a production facility for six years product prototype before its launch

$1.5m spent on training customer $2m paid as goodwill when

service staff expected to increase acquiring Unique Co
revenue by $5m

Question 5

During the year ended 31 December 20X4, Bloop Co incurred expenditure on two projects:

Project 1 costs relate to the evaluation of alternatives for improved production systems to be implemented
during 20X5 and 20X6. The company spent $1m on related salaries and materials and $2m on design
equipment (which had an expected life of four years).

Project 2 involves the testing of a new product which will be introduced to the market in 20X5 and is
expected to generate profits over a four-year period. The company spent $4m on salaries and materials.

The policy is to charge a full year’s depreciation on assets.

What is the TOTAL charge to profit or loss for the year ended 31 December 20X4?
A $5.5m
B $3.0m
C $1.5m
D $1.0m
Question 6

Tonton Co acquired 9,000 shares in Pogo Co on 1 August 20X3 at a cost of $6.40 per share. Tonton Co
incurred transaction costs of $9,000 for this transaction. Tonton Co elected to hold these shares at fair
value through other comprehensive income.
At 31 December 20X3, the fair value of the Pogo Co shares was $7.25 per share and selling costs were
expected to be 4%.
What is the value of the Pogo Co shares in Tonton Co’s individual financial statements at 31
December 20X3?
A $65,250
B $74,250
C $62,640
D $66,600

Question 7

On 1 September 20X8, Paper Co acquired 75% of Stone Co's ordinary share capital. The fair values of
the net assets of Stone Co at the date of acquisition were equal to their carrying amounts, with the
exception of a liability, which had a carrying amount of $20,000 below the fair value. Stone Co had not
accounted for this fair value adjustment in its individual financial statements.
It is the group policy to measure non-controlling interests at acquisition at fair value.
As a result of the above consolidation adjustment, what would be the impact on the goodwill
amount at the date of acquisition?
A. Increase by $15,000
B. Decrease by $15,000
C. Increase by $20,000
D. Decrease by $20,000

Question 8

In accordance with IAS 16 Property, Plant and Equipment, which of the following is true?
A If an entity decides to use the revaluation model, then all of its non-current assets must be revalued
B An entity must transfer excess depreciation from the revaluation surplus to retained earnings on an
annual basis in respect of any property which it revalues
C If an entity decides to revalue property annually, then this property will not need to be depreciated
D There is no requirement for an entity to revalue property on an annual basis

Question 9
An entity has decided to adopt the revaluation model for the first time from 31 December 20X6.
At that date, details relating to two properties were as follows:
Asset at 31 December 20X6: Carrying amount Fair value
($'000) ($'000)
Head Office 10,200 10,800
Factory 7,875 7,500

What is the total gain to be recorded in the revaluation surplus at 31 December 20X6?
A $0
B $225,000
C $375,000
D $600,000
Question 10

A company purchased an item of plant for $40,000 on 1 September 20X1. The plant had an estimated life
of five years and an estimated residual value of $5,000. The plant is depreciated on a straight-line basis.
Local tax law does not allow depreciation as an expense, but a tax allowance of 60% of the cost of the
asset can be claimed in the year of purchase and 20% per annum on a reducing balance basis in the
following years. The rate of income tax is 30%.

What charge or credit for deferred taxation should be recorded in the company’s profit or loss for
the year to 31 August 20X2?
A $17,000 charge
B $5,100 charge
C $5,100 credit
D $17,000 credit

Question 11

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?
A $16.000
B $12,000
C $35,000
D $15,000

Question 12
Zayn Co spent $500,000 on 1 January 20X6 sending its key staff on a one-day training course which took
place at the beginning of the current financial year. Zayn Co is expected to benefit from this training for
the next two years.
This training course was partly funded by a government scheme and Zayn Co received $50,000 from the
government before the training commenced. The remaining balance of $50,000 is due to be received on
31 December 20X7. Current circumstances indicate that the receipt of the second instalment is virtually
certain.
What amount should be charged to Zayn Co’s statement of profit or loss for the year ended 31
December 20X6 to reflect the above transactions?
A $150,000
B $200,000
C $450,000
D $400,000

Question 13
Which of the following meet(s) the recognition criteria for an asset and/or a liability?
(1) Green Co spent $100,000 providing health and safety training to its staff
(2) Green Co has been told by a brand consultancy that the value of its internally created brands is
$2,000,000
(3) Green Co is suing a supplier for $450,000 for losses that it suffered due to faulty goods. Greene Co is
likely, though not certain, to win the court case
(4) Green Co has sold goods subject to a five-year warranty on which it expects some claims will be
made

A 1 and 2
B 3 and 4
C 2 only
D 4 only

Question 14
Fifer Co has a current ratio of 1·2:1 which is below the industry average. Fifer Co wants to increase its
current ratio by the year end.
Which of the following actions, taken before the year end, would lead to an increase in the current
ratio?
A Return some inventory which had been purchased for cash and obtain a full refund on the cost
B Make a bulk purchase of inventory for cash to obtain a large discount
C Make an early payment to suppliers, even though the amount is not due
D Offer early payment discounts in order to collect receivables more quickly

Question 15
In accordance with the Conceptual Framework for Financial Reporting of the International Accounting
Standards Board, which of the following is/are true in relation to the enhancing characteristic of
comparability?

(1) Permitting alternative accounting treatments for the same economic phenomenon enhances
comparability
(2) Comparability requires uniformity

A Both 1 and 2
B Neither 1 nor 2
C 1 only
D 2 only
The following scenario relates to questions 16–20.

Duglin Co prepares financial statements for the year ended 30 June 20X2. Following is the information
available for the preparation of financial statements:

Borrowing cost
On 1 July 20X1, Duglin Co commenced construction of a factory building for its own use. On the same
date it issued a 5% debenture for $0 million. The entire proceeds of the bond were used immediately to
pay for the land and to purchase building materials for the project. Construction work commenced on 1
September 20X1 and continued throughout the year, except for a month’s break for Christmas and New
year.

Foreign currency transaction

Duglin Co has ‘$-Dollar’ as its functional currency. On 31 May 20X2, it sold goods to a UK customer at an
agreed price of GBP £120,000. At the reporting date 30 June, the balance remained payable. The
relevant exchange rates were as follows:
31 May 20X2: $1 = GBP £0.98
30 June 20X2: $1 = GBP £0.93

16. Which of the following amounts should be capitalised as borrowing costs under IAS 23?
(a) $4,000,000
(b) $3,666,666
(c) $3,333,334
(d) $3,000,000.

17. What amount will be recognized in as sale in the statement of profit or loss of Duglin Co for
the foreign currency sale?
A. $122,449
B. $129,032
C. $120,000
D. $117,600

18. What is the amount of exchange gain or loss that would appear in the financial statements of
Duglin Co for year ended 30 June 20X2?

A. $6,583 loss
B. $6,583 gain
C. $9,033 loss
D. $9,033 gain.

19. Which TWO of the following statements regarding IAS 10 Events after the Reporting Period are
correct?
A. If an entity declares dividends after the reporting period, the entity shall not recognize those dividends
as a liability at the end of the reporting period.
B. Non-adjusting events do not need to be reflected in any part of an entity’s financial statements or
annual report
 C. An entity shall not prepare its financial statements on a going concern basis if management determines
after the reporting period either that it intends to liquidate the entity or to cease trading
D. ‘Events after the reporting period’ are deemed to be all events from the date the financial statements
are authorised for issue up until the date of the annual meeting with the shareholders

20. When considering the objective of general purpose financial reporting, which of the following
concepts has been reintroduced by the Board?
A. Stewardship
B. Prudence
C. Substance over form
D. Faithful representation

The following scenario relates to questions 21–25.

On 1 October 20X1, Debbie Co acquired acquired 60% shares in Ray Co. At 31 March 20X2, the
individual financial statements included the following information:

a) Debbie Co ($) Ray Co ($)

Current Assets 700,000 500,000
Current Liabilities 300,000 200,000
Neither company had a bank overdraft at 31 March 20X2.

During the year ended 31 March 20X2, Debbie Co made $100,000 sales on credit to Ray Co.
Ray Co had one-quarter of these goods in inventory at 31 March 20X2. Debbie Co makes a 20% gross
profit margin on all sales.

On 31 March 20X2, Ray Co sent a cheque for $50,000 to pay all of the outstanding balance due to
Debbie Co. Debbie Co did not receive this cheque until 2 April 20X2.

Debbie Co’s policy for in-transit items is to adjust for them in the parent company.

b) At 1 April 20X1, the credit balances on the revaluation surpluses relating to Debbie Co and Ray Co’s
equity financial asset investments stood at $6,400 and $4,400 respectively.

The following extract was taken from the financial statements for the year ended 31 March 20X2:
Debbie Co Ray Co
$ $
Other comprehensive income: loss on fair value of equity financial investments (1,400) (800)
Assume the losses accrued evenly throughout the year.

21. In respect of current assets, what amount will be reported in Debbie Co’s consolidated
statement of financial position at 31 March 20X2?

$ ___________,000
22. In respect of current liabilities, what amount will be reported in Debbie Co’s consolidated
statement of financial position at 31 March 20X2?

$ ___________ million

23. What is the amount of the revaluation surplus in the consolidated statement of financial
position of Debbie Co as at 31 March 20X2?
A $4,520
B $4,760
C $5,240
D $9,160

24. Which of the following is NOT an example of intra-group balance at reporting date?
A. A loan made by parent company to its subsidiary
B. A trade payable owing to a subsidiary by its parent company
C. A trade receivable owing to a subsidiary by a customer
D. A loan note interest payable by parent company to its subsidiary company

25. In the goodwill calculation, the fair value of Ray’s identifiable net assets was deemed to be $340
million. Of this, $60 million related to Ray’s non-depreciable land. However, on 1 February 20X2, a survey
was received which revealed that the fair value of this land was actually only $40 million as at the
acquisition date.

What will be the impact of the change in value of land on the consolidated financial statements of
Debbie group?

A. No adjustments will be made to financial statements as information received after the date of
acquisition
B. Retrospective correction will be made to increase the goodwill by $20 million
C. Retrospective correction will be made to decrease the goodwill by $20 million
D. Prospective correction will be made to decrease consolidated retained earnings by $20 million
The following scenario relates to questions 26–30.

There are specific assets on which Cornet Co needs calculation as per the relevant Standards.

Cornet Co entered into an eight-year lease agreement on 1 July 20X4 for Plant A. The lease requires
annual payments of $750,000 in arrears. The present value of the lease payments at 1 July 20X4,
discounted at a rate of 6% is $4,657,500. Additionally, Cornet Co paid directly attributable costs of
$37,500 on 1 July 20X4.

Cornet Co entered into a lease for Plant B on 1 April 20X4 which required payments of $15,000 to be
made annually in arrears. The present value of the lease payments was estimated to be $100,650 at the
inception of the lease and the rate of interest implicit in the lease was 8%. Both the lease term and the
plant’s estimated useful life was ten years.

26. What will be the value of right of use asset for Plant A at 1 July 20X4?

$ _________,000

27. What is the total charge to the statement of profit or loss for the year ended 30 June 20X5 in
respect of the right-to-use asset?

A. $586,875

B. $866,325

C. $279,450

D. $1,029,450

28. What will be the total value of lease liability for Plant A to be shown in statement of financial
position at 30 June 20X5?

$ _____________

29. For Plant B, what is the total amount that should be charged to profit or loss for the year
ended 31 December 20X4?
A $11,250
B $6,039
C $7,549
D $13,588
30. The treatment of sale and leaseback transactions depends on whether or not the ‘sale’ constitutes the
satisfaction of a relevant performance obligation under IFRS 15 – Revenue from Contracts with
Customers.

Identify the following accounting treatments as TRUE/FALSE, if the transaction does constitute a
‘sale’ under IFRS 15?

TRUE FALSE
The seller-lessee shall recognise only the amount of any gain or loss that relates TRUE
to the rights transferred to the buyer-lessor
The buyer-lessor shall account for the purchase of the asset applying applicable TRUE
Standards, and for the lease applying the lessor accounting requirements in
IFRS 16
If the fair value of the consideration for the sale of an asset does not equal the FALSE
fair value of the asset, any above-market terms shall be accounted for as a
prepayment of lease payments to measure the sale proceeds at fair value
Question 31

Given below are the summarised financial statements for Singer, Leather and Azro for the year ended 31
December 20X2.
Statements of financial position as at 31 December 20X2
Singer Leather Azro
$'000 $'000 $'000
Non-current assets
Property, plant and equipment 46,000 31,200 20,800
Investments 29,000 – __ –
75,000 31,200 20,800
Current assets 36,000 16,800 9,200
Total assets 111,000 48,000 30,000
Equity
Share capital – ordinary shares of $1 each 30,000 4,000 4,000
Revaluation surplus 4,000 – –
Retained earnings 58,000 38,000 20,400
92,000 42,000 24,400
Current liabilities 19,000 6,000 5,600
Total equity and liabilities 111,000 48,000 30,000

Statements of profit or loss and other comprehensive income for the year ended 31 December
20X2
Singer Leather Azro
$'000 $'000 $'000
Revenue 144,000 56,000 38,000
Cost of sales (100,000) (40,000) (26,000)
Gross profit 44,000 16,000 12,000
Operating expenses (14,000) (4,000) (2,000)
Profit before tax 30,000 12,000 10,000
Income tax expense (8,000) (4,000) (3,000)
PROFIT FOR THE YEAR 22,000 8,000 7,000
Other comprehensive income:
Gain on revaluation of property 1,000 – –__
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 23,000 8,000 7,000

The following information is relevant:

1) On 1 January 20X0, Singer acquired 3.2 million $1 ordinary shares in Leather at a cost of $24.6
million. At the date Leather had retained earnings of $21 million.
On 1 July 20X0, Singer acquired 1.2 million $1 ordinary shares in Azro at a cost of $4.4 million
when the retained earnings of Azro stood at $8 million.
2) The fair value of Leather’s assets was equal to their carrying values at the date of acquisition
with the exception of its plant which had a fair value of $4 million in excess of its carrying value.
The remaining life of the plant had been 5 years at the date of acquisition. Depreciation of plant
is on the straight line basis and charged to cost of sales. Leather has not adjusted the value of its
plant as a result of the fair value exercise.
 3) During the year Leather sold goods to Singer with a selling price of $16 million. These sales were
made at a profit margin of 25%. At 31 December 20X2 one quarter of these goods were still in
the inventories of Singer.
4) During the year Azro sold goods to Singer for $3.6 million. These goods were sold at a mark-up
on cost of 20%. At 31 December 20X2 Singer still held all of these goods in its inventories.
5) At 31 December 20X2 the directors of Singer carried out an impairment review and determined
that the recognised goodwill in Leather had been impaired by $0.4 million. There had been no
impairment loss on the investment in Azro.
6) Fair value of non-controlling interests in Leather at the date of acquisition was $6m.

Required
(a) Prepare a consolidated statement of profit or loss and other comprehensive income for Singer for
the year ended 31 December 20X2. (8 marks)

(b) Prepare a consolidated statement of financial position for Singer as at 31 December 20X2.
(12 marks)

(Total: 20 marks)
QUESTION 32

Below are extracts from the statements of profit or loss and statements of financial position for the
Fruitil group and Fruitil Co for the years ending 30 June 20X2 and 20X1 respectively.

Statement of profit or loss – For the year ended 30 June 20X2 30 June 20X1
(Consolidated) (Fruitil Co individual)
$’000 $’000
Revenue 1,500,000 1,080,000
Cost of sales (1,200,000) (900,000)
Gross profit 300,000 180,000
Operating expenses (156,000) (136,000)
Finance costs (48,000) Nil
Profit before tax 96,000 44,000
Income tax expense (at 25%) (24,000) (8,000)
Profit for the period 72,000 36,000

Statement of financial position – As at 30 June 20X2 30 June 20X1

(Consolidated) (Fruitil Co individual)
Assets $’000 $’000
Non-current assets
Property, plant and equipment 1,340,000 560,000
Current assets
Inventory 150,000 90,000
Trade receivables 78,000 48,000
Bank Nil 84,000
228,000 222,000
Total assets 1,568,000 782,000

Equity and liabilities

Equity shares of $1 each 600,000 600,000
Retained earnings 84,000 72,000
684,000 672,000
Non-current liabilities
8% loan notes 620,000 20,000
Current liabilities
Bank overdraft 102,000 Nil
Trade payables 138,000 78,000
Current tax payable 24,000 12,000
264,000 90,000
Total equity and liabilities 1,568,000 782,000
 Other information

On 1 July 20X1 Fruitil purchased the whole of the net assets of Passu for $300 million, which was equal
to the fair value of its net assets at the date. The contribution of the purchase to Fruitil’s results for the
year ended 30 June 20X2 was:
$000
Revenue 420,000
Cost of sales (360,000)
Gross profit 60,000
Operating expenses (72,000)
Profit before tax (12,000)

There were no disposals of non-current assets during the year.

On reviewing the above financial statements, Fruitil Co’s chief executive officer (CEO) made the
following observations:

 We negotiated a great deal in buying Passu at $300 million.

 I see a very pleasant increase in overall sales revenue of group i.e. 39% from previous year
 The gross profit margin increased from 16·7% to 20%
 The acquisition has had a synergistic effect. The group performance has been superb as net profit
for the period has doubled from previous year.
 Acquiring Passu was an excellent management decision as the performance of group has drastically
improved. The personnel involved in this decision should be rewarded separately.

The following ratios were calculated for Fruitil for the year ended 30 June 20X1:

Return on capital employed 6.3%

Net asset (equal to capital employed) turnover 1·56
Net profit (before tax) margin 4·1%
Current ratio 2·5
Closing inventory holding period (in days) 37
Trade receivables’ collection period (in days) 16
Trade payables’ payment period (based on cost of sales) (in days) 32
Gearing (debt over debt plus equity) 2.9%

Required:

(a) Calculate ratios for Fruitil for the year ended 30 June 20X2 equivalent to those calculated for the
year ended 30 June 20X1 (showing your workings).
(b) Assess the financial performance and position of Fruitil for the year ended 30 June 20X2
compared to the previous year. Your answer should refer to the information in the Chief
Executive’s report and the impact of the purchase of the net assets of Passu.