eusp

THE UNIVERSITY OF THE

SOUTH PACIFIC

AF210: Financial Accounting

FBE/SOAF

Final Examination
Semester 1 2017

Face to Face Mode

Duration of Exam: 3 hours + 10 minutes

Reading Time: 10 minutes

Wliting Time: 3 hours

Instructions:

Number of sections and questions to be answered in the answer booklet provided

50% of coursework and overall mark

This paper has 16 pages

This is a closed book examination

You may use a silent, non-programmable calculator.

Section A Multiple Choice 40 marks

Answer these questions on the special answer sheet provided. Each question is w0l1h 2 marks.
You should spend about an hour on this section.

1. Which of the following are considered in the AASB framework as primary qualitative
characteristics?
A. Relevance, faithful representation, materiality and comparability.
B. Relevance, faithful representation, timeliness and understandability.
C. Relevance, faithful representation, understandability and comparability.
D. Materiality, faithful representation, understandability and comparability.

2. When preparing financial rep0l1s, 'users are assumed to have a reasonable knowledge of the
business and economic activities and accounting and a willingness to study the infonnation
with reasonable diligence'. This statement is consistent with the qualitative characteristic of:
A. Matel1ality.
B. Faithful representation.
C. Understandability.
D. Comparability.

3. The following items relate to Fiji Gas Ltd:

I Changes in inventories
II Changes in operating receivables
III Non-cash items
IV Changes in operating payables
V Purchase of property plant and equipment
VI Issue of ordinary shares
Which of the following combinations includes all the items that will detelmine cash flows
from operating activities of Fiji Gas Ltd?

A. I, II, III, IV and V

B. I, II, III, IV and VI
C. I, II, III and IV
D. I, II and III

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4. The following information was extracted from Randwick Ltd's Statement of financial
position:

2010 2009

$ $

Cash 25000 19 DOC

Accounts receivable 176000 82 DOC

Inventory 117000 64 DOC

Buildings 31 000 51 DOC

Accounts payable 107000 62 DOC

Accmed expenses 5000 600C

Interest payable 5000 200e

Income tax payable 10 000 400e

If Randwick had the following expenses in its statement of profit or loss, which of them was
probably paid for with cash during the period?

I. Wages expense

II. Interest expense

III. Income tax expense

IV. Other expenses

A. I only
B. II only
C. IV only
D. III and IV only

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5. The prepaid insurance account for Darlinghurst Ltd had an opening balance of $4 000 and a
closing balance of $15 000. The following items were extracted from the statement of profit
or loss:

Bad debt expense 15000

Insurance expense 9000

Other expenses 198000

Interest expense 25000

Loss on disposal of land 18000

Which of the following amounts would appear as a debit in the prepaid insurance account?

A. Cash paid for insurance $9000

B. Closing balance $15 000
C. Insurance expense $9000
D. Cash paid for insurance 520 000

6. Apco Ltd is preparing a statement of cash flows for the year ended 30 June 2014. You are the
accountant of the entity and have collected the following data:

Gain on sale of equipment 12000

Proceeds hom sale of equipment 20000
Purchase of Qo':ernment bonds idated 30 June 2014. face value of $400000) 360 000
D~idends declared 90000
Dilldends paid 76000
Proceeds from issue of share capital 150000

What is the amount of net cash used in investing and financing activities respectively?
A. $20 000; ($286 000)
B. $(340000); $74 000
C. $(348 000); ($22 000)
D. $(380000); $74 000

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7. If a reporting entity finds that an elTar had been made in a prior period:
A. the error should be rectified by including the item of income or expense in the peIiod in
which the enor was discovered.
B. the standards do not cover this concept and so no ently is required.
C. the error should be corrected via an adjustment to opening balance of retained eal11ings.
D. material errors discovered in the CU11"ent repOliing peliod must be included in that period's
statement of profit or loss and other comprehensive income, while non-material el1"ors
may be corrected with an adjustment to opening retained eal11ings.

8. Where a change in accounting estimates occurs, the following should be disclosed:

A. the fact that the amount of the effect on future periods will not be disclosed because
estimating that amount is impracticable.
B. the reason for the change and comparative data to show the effect with and without the
change.
C. the nature of the change and the impact on previous income statements.
D. the fact that the amount of the effect on future periods will not be disclosed because
estimating that amount is impracticable and the reason for the change and comparative
data to show the impact with and without the change.

9. Which of the following is not required to be shown on the face of the statement of profit or
loss and other comprehensive income?
A. Tax expense.
B. Revenue.
C. Share of profit or loss of associates and joint ventures using the equity method.
D. Share of profit or loss of associates and joint ventures using the propOliional
consolidation method.

10. When there is a change made to the useful life of an asset:

A. It must be recognised as a change in an accounting estimate and the impact of the
repOlied change must be disclosed in the notes to the accounts.
B. It must be recognised as an enor and all previous financial statements must be restated.
C. Ii must be recognised as an enor and opening retained eal11ings and opening balances of
the asset must be restated.
D. It is recognised as a change in an accounting estimate and the opening retained eal11ings
and opening balances of the asset must be restated.

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11. Chacco company owns 40% of the shares in CadbUly Ltd. 5% is owned by Punjas company,
6 % owned by Shreedhar company while the other 49 % of ownership lies with small
individual investors which do not own more than 2% shares each. Which of the following is
cOlTect?
A. Chacco Ltd controls CadbUly Ltd
B. Punj as controls Cadbury Ltd
C. Shreedhar controls CadbUly Ltd
D. Small individual investors control Cadbury Ltd

12. Mani Ltd is owed a material amount by Sunny Partnership. Sunny is heavily in debt to
Mani Ltd, but due to an unexpected economic downtum is unable to make repayments
according to schedule. The board of Mani Ltd believes that Sunny has a good chance of
trading out of its CUl1"ent economic difficulties as its management and product are sound
and the cun·ent problems stem from extemal factors that are expected to pass within the
next 12 to 18 months. Mani Ltd enters into an alTangement with Sunny to manage its
finances until the economic situation reverses. At this stage it is not perceived as necessary
for Mani Ltd to be otherwise involved in the running of Sunny.

Given the situation described, what is Mani Ltd most likely to be required to do to account
for Sunny?
A. As the control achieved is only temporary, Mani would not be required to consolidate
Sunny.
B. Mani Ltd should consolidate Sunny because it has control over it by the definition of
'control' in the standards.
e. Mani Ltd should not be required to consolidate Sunny as it does not have control
D. Mani Ltd has temporary control of Sunny, but since Sunny is a partnership Mani is not
required to include it in a consolidated set of financial statements.

13. Control can be defined as:

A. Goveming the financial, operating and sustainability policies of an entity so as to benefit
from its activities.
B. The capacity of an entity to dominate the decision making of another entity by virtue of a
majority shareholding or controlling ownership interest in some form.
e. The capacity and willingness to direct the decision making of another entity with respect
to its financial and operating policies to improve the perfOlmance and position of the
controlling entity.
D. The power to govem the financial and operating policies of an entity so as to benefit from
its activities

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14. Which of the following statements is 110t cOlTect?
A. A group comprises a parent and all of its subsidiaries.
B. Consolidated financial statements are financial statements of a group of entities presented
as if that group was acting as a single economic entity.
C. A subsidiary is an entity that is controlled by another entity.
D. A parent is an entity that has more than one subsidimy

15. Loop Company declared a dividend of $90 000 for the period ended 30 June 2014. Joop
Company owns 100% of the equity of Loop Company. Loop Company aCClUes dividends
when they are declared by its subsidiaries. What elimination entry would be required to
prepare the consolidated financial statements for the group for the period ended 30 June
2014?

A. Dr Cash 90000
Cr Di'.idend declared ~'O 000

Dr Dr.ide:1j recei-;able 90 000

Cr Cash 90000

Dr Di'.ldend pa;,'able 90000

Cr Di\iclend declared 90 000
B.
Dr Di':idend income 90000
Cr Oi'.ldend recei'.able 90000

Dr Di.idend income 90 aGO

C. Cr Di·:idend ext:ense 90000

Dr Dr.idend ~'a)'able 90000

Cr OLidend receivable 90000

Dr Dilidend declared 90000

D. Cr Di.idend receivable 90000

Dr Di·.idend payable 90000

Cr Oiddend income 90000

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16. Apple Ltd being the parent company issued 5000 10% debentures of $100 at nominal value
on 1st October 2020. Pear Ltd which is the subsidiary acquired 300 of these. Interest is
payable half yearly on 31 March and 30 September and the consolidation period is from 1
July 2020 to 30 June 2021. What are the elimination amounts for (a) debentures and (b)
interest income for the period?
A. (a) $50000; (b) $5000
B. (a) $30000; (b) $2250
C. (a) $50000; (b) $2250
D. (a) $2250; (b) $30000

17. A statement of profit or loss and other comprehensive income that includes revenue, other
income, employee benefits and costs and motor vehicle expenses would have been prepared
using the:
A. Nature of expense method.
B. NatTative method.
C. Revenues and gains approach.
D. Function of expense approach.

18. A non-cutTent asset was sold by Subsidiary Limited to Parent Limited dUling the 2013/14
financial year. The carrying amount of the asset at the time of the sale was $700 000. As PaJ1
of the consolidation process, the following joumal entty was passed.

30 June 201.1
Dr Profit on sale of asset 200 000
Dr Asset 300 000
Cr A:cun1ulated dfpr-?ciation 500 000

What (a) amount did Parent Limited pay SubsidiaJY Limited for the asset; (b) was the cost
of the asset as shown in the books of SubsidiaJY Limited?
A. (a) $900 000; (b) $1400 000
B. (a) $900 000; (b) $1200 000
C. (a) $700 000; (b) $1 200 000
D. (a) $900 000; (b) $800 000

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19. A deposit in foreign cUlTency made by an Fijian entity should be translated at the following
dates for repO!iing purposes of the entity:
A. Only at the date the deposit is made with the foreign banle
B. Only at reconciliation between the end of the first financial year after making the deposit
with the foreign bank and no fUliher subsequent adjustments.
C. At the date of the deposit and then adjusted for a gain or loss based on the initial deposit
rate at the beginning of the financial year.
D. At the date of the deposit, and then a gain or loss should be recorded at the end of the
financial year.

20. A foreign cUlTency transaction shall be recorded on initial recognition in the:

A. Presentation cUlTency.
B. Local CUlTency.
C. Foreign cUlTency.
D. Functional cUlTency.

Page 9 of 16
Section B 60 marks

This section has 4 questions each worth 15 Marks. You should spend about 30 minutes on each
question. Show calculations as pat1ial marks maybe awarded.

Question 21 Financial Statements 15 marks

There are two pat1S to this question, Pat1 A and Pat1 B. You are to answer both pal1s.

Part A

Refer to the following Statement of changes in equity. Study the statement and answer the
following questions.

Eremasi Ltd
Statement of Changes in Equity
Forthe year ended 30June 2016
Share General Revaluation
capital Retained Earnings Reserve Surplus Total

Opening Balance 350,000 300,000 250,000 400,000 1,300,000

A 100,000
B (75,000)
C 200,000
D (260,000)
E 100,000 (100,000)
Closing Balance 450,000 340,000 150,000 325,000 1,265,000

Required:

Rows A, B, C, D and E represents a change in the equity section of Eremasi Ltd. Provide an
explanation for each for rows B, C, D and E. Each explanation is to be lIsed only once. The
explanation for Row A is provided below as an example. (4 marks)

Row A Explanation: Eremasi Ltd issued ordinary shares worth $ 100,000.

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PartB

Given below are excerpts from Sione's Statement of Financial Position and Financial
Perfol1nance.

Excerpt from Sione's Position Statement as at 30 June 2015

Assets 2015 2014

Cash 20,000 (5,000)
Accounts receivable 3,000 4,000
Inventory 5,000 4,500
Vehicle 8,000 7,000

Liabilities
Accounts Payable 12,000 9,500
Accrued expense 5,000 5,500
Interest payable 3,000 2,900
Loan 6,000 8,000

Excerpt from Sione's Performance Statement for year end 30 June 2015

2015 2014

Finance lease interest revenue 2,000 1,500

Depreciation 1,500 1,000
Net Profit 800 600

Required:

A. Prepare a note to reconcile the profit for the year with the net cash flow from operating
activities. (7 marks)
B. One of your fliends said "I don't understand why companies need to prepare a Statement
of Cash Flows if they're using acclUal accounting." Briefly outline:
1. how acclUal accounting facilitates decision making (2 marks)
11. how the Statement of Cash Flows improves decision making (2 marks)

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Question 22 Accounting for Group Structures 15 marks

On I July Joji Ltd bought 100% of the shares in James Ltd for a consideration of $989,000. The
share capital and reserves of James Ltd at the date of acquisition are:

Share Capital 110,000

Retained Eamings 100,000
Revaluation Surplus 200,000

There are no transactions between the entities and all assets are fairly valued at the date of
acquisition, except for the plant which has a fair value of $650,000

The financial statements of Joji Ltd and James Ltd at 30 June 2021 (one year after acquisition)
are as follows.

Required:

I. Asceltain what the goodwill is and indicate whether it is positive or negative (2.5 marks)
2. Show the elimination entries at acquisition date (2.5 marks)
3. Complete the consolidation worksheet on Page 13. (10 marks)

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 Joji Ltd James Ltd Consolidation
DR (000) CR (000)
(000) (000) (000)
Reconciliation of opening and
closing retained earnings
Profit before tax 500 350
Tax -150 -105
Profit after tax 350 245
Retained earnings -lJuly 2020 200 100
Retained earnings -30 June 2021 550 345

Statement of financial position

Sharehalders equity
Retained earnings 550 345
Share capital 1000 110
Revaluation surplus 300 200

Current liabilities
Accounts payable 70 40
Non current liabilities
Loans 550 165

2470 860

Current assets
Cash 75 45
Accounts receivable 400 95

Non current assets

Goodwill
Land 256 120
Plant 750 600
Investment in James Ltd 989
2470 860

NAME:

STUDENTS ID:

COURSE CODE:

PLEASE TEAR THIS AND SECURE IT SAFELY TO YOUR ANSWER BOOKLET

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Question 23 Consolidations 15 marks

Judy Ltd owns all of the shares of Jale Ltd having acquired its ownership interest on I July 2021.
The accountant, Mr. Glen is preparing the consolidation worksheet for the economic entity at 30
June 2022 and is analysing the intragroup transactions between the parent and its subsidiary.

The intragroup transactions between the parent and the subsidiaIY are as follows.

a. On 26 June 2022, Judy Ltd sold inventOlY costing $12,000 to Jale Ltd for $15,000. By 30
June 2022, Jale Ltd has sold one third of these to others outside the group and has not
paid Judy Ltd.
b. On 1 January 2022, Jale Ltd sold a brand new item of inventOlY that costs $60,000, to
Judy Ltd for $70,000 cash. Judy Ltd treats that item as machinery. Judy Ltd and Jale Ltd
depreciate machinery at 10% and 15% per annum respectively.
c. Refer to a. above. the group eliminates the unrealised profit in opening inventOlY on 30
June 2023.
d. On 1 March 2022, Judy Ltd sold equipment to Jale Ltd for $120,000. The equipment was
acquired for $200,000. Judy Ltd has depreciated the machine by $40,000 and the machine
has a remaining useful life of 5 years.

Required

A. Prepare the consolidation worksheet entries at 30 June 2016 to adjust for the effects of
the above inter-entity transactions. (10 marks)
B. Compare and contrast the entlies between a. and c. clearly explaining the differences
bel\veen them. (3 marks)
C. Supposed that Judy Ltd declared dividend of$3,000 and Jale Ltd also declared dividend
of $5,000. Once dividend is declared, it is accrued. Clearly show the elimination entries if
any. (2 marks)

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Question 24 Foreign Translation 15 marks

The two pmts of this question are independent.

On the I July 2018, Bula Ltd, a Fijian company, bought TOP $300,000 w01th of inventory from
Malo Ltd, a Tongan company. The amount is payable on December 31, 2018.

A forward exchange contract for the delivelY of $300,000 TOP is taken out with BSP on 1
August 2018. BSP bank requires delivery of the foreign cUlTency on 31 December, 2018. Bula
Ltd has a 30 October end ofrepOlting period.

Additional infonnation:

TOP - Tongan Pa' anga the local currency for Tonga

The relevant exchange rates are as follows:

Date FJD TOP

l-Jul-18 $1.00 1.03
l-Aug-18 $1.00 1.02
31-0ct-18 $1.00 1.00
31-Dec-18 $1.00 0.98

Required:

I. Prepare the joumal entries for Bula Ltd to account for the cash flow hedge (8 marks)
2. Provide evidence of whether or not hedge accounting in the above situation was
beneficial (2 marks)

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Vinaka Ltd, a Fijian company acquires all the shares of Lelei Ltd a company incOlporated in
Tonga. The functional CUlTency of Lelei Ltd is the Tongan Pa'anga but the presentation cUlTency
for the group is the FJD.

Lelei Ltd
Performance Statement for 30 June 2019
TOP
Sales 3,000
Cost of Soles
Inventory (Beg) 450
Purchases 3000
3450
Inventory (End) -700
2,750
250
Expenses
Administration -30
Depreciation -160
-190
60
income tax expense 25
Profit After Tax 35

Required:

Using the rates outlined below, translate the financial statements fi'om the foreign operation of
the Lelei Ltd into the presentation cUlTency of the group. (5 marks)

Rates TOP FJD

I-Jul-18 1.00 1.04
Average 1.00 1.06
Ending inventory 1.00 1.08
30-Jun-19 1.00 1.10

THE END

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 Name:

eusp
THE C>iIVERSITY OF TJ-I E
SOUTH mC:IFIC
ID:

Tutorial Time and Day:

Multiple Choice Answer Sheet

Answer all the qnestions (2 mark each x 20 = 40 marks)

Answer all the questions by putting a circle around your choice in this answer sheet and each
question is wOIth two (2) marks.

1 A B C D
2 A B C D
3 A B C D
4 A B C D
5 A B C D
6 A B C D
7 A B C D
8 A B C D
9 A B C D
10 A B C D
11 A B C D
12 A B C D
13 A B C D
14 A B C D
15 A B C D
16 A B C D
17 A B C D
18 A B C D
19 A B C D
20 A B C D