PFR 3-1

54. Concord has prepared its draft financial statements for the year ended 30 September 2019. It has included the following transactions in revenue at the amounts stated below.

Which of these has been correctly included in revenue according to IFRS 15 Revenue from Contracts with Customers?

55. Which TWO of the following are acceptable methods of accounting for a government grant relating to an asset in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance?

1          Add the grant to the carrying amount of the asset

2          Credit the amount received to profit or loss

3          Set up the grant as deferred income

4          Deduct the grant from the carrying amount of the asset

56. Yale entered into a contract to construct an asset for a customer on 1 January 2019 which is expected to last 24 months. The agreed price for the contract is $5 million. At 30 September 2019, the costs incurred on the contract were $1.6 million and the estimated remaining costs to complete were $2.4 million. On 20 September 2019, Yale received a payment from the customer of $1.8 million which was equal to the full amount billed Yale calculates contract progress using the output method, on the basis of amount billed compared to the contract price.

What amount would be reported as a contract asset in Yale’s statement of financial position as at 30 September 2019?

57. Consignment inventory is an arrangement whereby inventory is held by one party but owned by another party. It is common in the motor trade

Which TWO of the following indicate that the inventory in question is consignment inventory?

1          Manufacturer bears obsolescence risk

2          Dealer has no right of return of the inventory

3          Dealer bears slow movement risk

4          Manufacturer can require dealer to return the inventory

58. Which of the following items has correctly been included in Nelson Bay’s revenue for the year to 31 December 2017?

59. InfoTech Co receives a government grant of $500,000 on 1 April 2018 to facilitate purchase on the same day of an asset which costs $700,000. The asset has a five-year useful life and is depreciated on a 25% reducing balance basis. Company policy is to account for all grants received as deferred income.

What amount of income will be recognised in respect of the grant in the year to 31 March 2020?

60. Hilston entered into a long‐term contract to build an asset for a customer, Ray Hilston will satisfy the performance obligation over time and has measured the progress towards satisfying the performance obligation at 45% at the year end.

The price of the contract is $8 million. Hilston has spent $4.5 million to date, but the estimated costs to complete are $5.5 million. To date, Ray has paid Hilston $3.2 million.

What is the net liability that should be recorded in Hilston’s statement of financial position?

61. Liscome Co successfully receives a government grant of $1,800,000 on 1 January 2019 allowing it to purchase an asset which costs $750,000, also on 1 January 2019. The asset has a ten-year useful life and is depreciated on a 15% reducing balance basis. Company policy is to account for all grants received as deferred income.

What amount of income will be recognised in respect of the grant in the year to 31 December 2019?

62. Which of the following is the criterion for treatment of an investment as an associate?

63. IFRS 10 Consolidated Financial Statements provides a definition of control and identifies three separate elements of control. Which of the following is NOT one of these elements of control?

64. BAC Systems Co owns 100% of the share capital of the following companies. The directors are unsure of whether the investments should be consolidated.

In which of the following circumstances would the investment NOT be consolidated?

65. IFRS 3 Business Combinations requires an acquirer to measure the assets and liabilities of the acquiree at the date of consolidation at fair value. IFRS 13 Fair Value Measurement provides guidance on how fair value should be established.

Which of the following is a non relevant factor to be considered according to IFRS 13 when arriving at the fair value of a non-financial asset?

66. Which TWO of the following situations are unlikely to represent control over an investee?

1          Owning 40% of the shares but having majority of voting rights within the investee

2          Owning 51%, but the constitution requires that decisions need the unanimous consent of shareholders

3          Owning 55% and being able to elect 4 of the 7 directors

4          Owning 35% of the ordinary shares and 80% of the preference shares of the investee

67. James acquires 80% of the share capital of Williams on 1 August 2020 and is preparing its group financial statements for the year ended 31 December 2020.

How will Williams’s results be included in the group statement of profit or loss?

68. Which of the following statements regarding consolidated financial statements is correct?

69. When a bargain purchase arises, IFRS 3 Business Combinations requires that the amounts involved in computing the bargain purchase should first be reassessed. When the amount of the bargain purchase has been confirmed, how should it be accounted for?

70. Which of the following are NOT classed as financial instruments?

71. Ray owns two financial asset investments in the shares of listed companies. Details of which are as follows:

Investment 1 – Acquired 1 September 2020 at a cost of $50,000 for the purpose of trading. It’s fair value at year-end is $60,000.

Investment 2 – Acquired 1 August 2020 at a cost of $25,000to hold indefinitely. Its fair value at year–end is $20,000.

What are the amounts to appear in the financial statements for the year ended 30 September 2020?

72. On 1 January 20X1 Oberon Co purchased a debt instrument at its fair value of $500,000. It had a principal amount of $550,000 and was due to mature in five years. The debt instrument carries fixed interest of 6% paid annually in arrears and has an effective interest rate of 8%. It is held at amortised cost.

At what amount will the debt instrument be shown in the statement of financial position of Oberon Co as at 31 December 20X2?

73. Orelian bought 100,000 shares in a listed entity on 1 May 2018 for $420,000, incurring transaction costs of $10,000. The shares were not acquired for the purpose of trading but to realize the gains in the future. On the 30 June 2018 reporting date, the fair value of a share was $5.10.

What are the amounts to appear in the financial statement for the year-ended 30 June 2018?

74. BAY purchased 11,500 shares on 1 September 2019, making the election to use the alternative treatment under IFRS 9 Financial Instruments. The shares cost $3.50 each. Transaction costs associated with the purchase were $750.

At 31 December 2019, the shares are trading at $4.50 each.

What is the gain to be recognised on these shares for the year ended 31 December 2019?

75. When Marina PLC entered into a 4 year lease agreement on 30 April, 2019 the fair price of the asset was $380,000. The lease terms involved Marina PLC making a payment on 30 April, 2019 of $130,000 followed by 3 annual payments on 30 April of $101,000. The asset has an estimated useful life of 5 years and the rate implicit in the lease is 10%.

What amount will be charged to the statement of profit or loss in respect of this asset in the year to 30 November, 2019? (Answer to the nearest $000)

76. Berrylian enters into the lease of a piece of machinery for $1,250 per annum for 5 years. Berrylian is granted a rent-free period in the first year and elects to apply the low-value exemption in IFRS 16 leases.

Calculate the annual lease rental expense to be recognized through profit and loss

77. Sawtell enters into lease of a piece of machinery for $1,800 per annum for 5 years on 1 July 2019. Sawtell is granted a rent-free period in the first year and elects to apply the low-value exemption in IFRS 16 leases.

Calculate the annual lease rental expense to be recognized through profit and loss for the year ended 31 December 2019?

78. A right of use asset acquired under a lease is measured at which amount according to IFRS 16 Leases?

79. The objective of IFRS 16 Leases is to prescribe the appropriate accounting treatment and required disclosures in relation to leases.

Which TWO of the following are among the criteria set out in IFRS 16 for an arrangement to be classified as a lease?

1          The lease term is for substantially all of the estimated useful life of the asset

2          The agreement concerns an identified asset which cannot be substituted.

3          The lessor has the right to direct the use of the asset.

4          The lessee has the right to substantially all of the economic benefits from use of the asset.

80. IFRS 16 Leases permits certain assets to be exempt from the recognition treatment for right‐ of‐use assets. Which of the following assets leased to an entity would be permitted to be exempt?

81. On 1 January 2018 Diamond Co entered into a lease agreement. The initial lease liability was $720,400 and a deposit of $240,000 was payable on 1 January 2018 with three further instalments of $200,000 payable on 31 December 2018, 31 December 2019 and 31 December 2020. The rate of interest implicit in the lease is 12%

What will be the amount of the finance charge arising from this lease which will be charged to profit or loss for the year ended 31 December 2019?

82. On 1 April 2019 Pigeon entered into a five‐year lease agreement for a machine with an estimated life of 7 years. Which of the following conditions would require the machine to be depreciated over 7 years?

83. Xroot leases an asset with an estimated useful life of 6 years for an initial period of 5 years, and an optional secondary period of 2 years during which a nominal rental will be payable. The present value of the initial period lease payments is $180,000.

What will be the carrying amount of the right‐of‐use asset in Xroot’s statement of financial position at the end of the second year of the lease?

84. On 1 January 2019 Marco Co hired a machine under a four year lease. A deposit of $350,000 was payable on the commencement of the lease on 1 January 2019. The present value of the future lease payments was $935,550. A further 3 instalments of $350,000 are payable annually in advance. The interest rate implicit in the lease is 6%.

What amount will appear under non-current liabilities in respect of this lease in the statement of financial position of Marco Co at 31 December 2019? [Answers to nearest $’000]

85. Which of the following events taking place after the year end but before the financial statements were authorised for issue would require adjustment in accordance with IAS 10 Events after the Reporting Period?

86. Which TWO of the following events which occur after the reporting date of a company but before the financial statements are authorised for issue are classified as ADJUSTING events in accordance with IAS 10 Events After the Reporting Period?

87. Identify which of the following statements is FALSE in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets?

88. Should details of material adjusting or material non-adjusting events after the Statement of Financial Position date be disclosed in the notes to financial statements according to IAS 10 Events after the reporting period?

89. Which of the following material events after the reporting period and before the financial statements are approved are adjusting events? (Select all that apply)

90. If a material non-adjusting event occurs after the reporting date but before the financial statements are approved, which information should be disclosed in the financial statements?

91. Which of the following material events after the reporting period and before the financial statements are approved are adjusting events? (Select all that apply)

92. Which of the following would require a provision for a liability to be created by Calton at its reporting date of 31 October 2020?

93. Cameray is preparing its financial statements for the year ended 30 September 2019. Cameray is facing a number of legal claims from its customers with regards to a faulty product sold. The total amount being claimed is $2.6 million. Cameray’s lawyers say that the customers have an 80% chance of being successful.

According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, what amount, if any, should be recognised in respect of the above in Cameray’s statement of financial position as at 30 September 2019?

94. Which TWO of the following statements about provisions are true?

95. In which of the following situations is the net realizable value of a line of inventory likely to be greater than cost?

96. According to the standard on Inventory, some costs should not be included within the inventory valuation.

Which of the following costs may be included?

97. According to IAS 2 Inventories, which of the following costs should be included in valuing the inventories of a manufacturing company?

1          Carriage inwards

2          Carriage outwards

3          Depreciation of factory machine

4          General administrative overheads

98. Which of the following statements about inventory valuation for Statement of Financial Position purposes are correct?

1          According to IAS Inventories, average cost and FIFO (first in and first out) are both acceptable methods of arriving at the cost of inventories.

2          Inventories of finished goods may be valued at labour and materials cost only, without including overheads.

3          Inventories should be valued at the lowest of cost, NRV and replacement cost.

4          It may be acceptable for inventories to be valued at selling price less estimated profit margin.

99. At what amount is a biological asset measured on initial recognition in accordance with IAS 41 Agriculture?

100. Which of the following is NOT the outcome of a biological transformation according to IAS 41?

101. In preparing financial statements for the year ended 31 March 2019, the inventory count was carried out on 4 April 2019. The value of inventory counted was $24 million. Between 31 March and 4 April goods with a cost of $1.9 million were received into inventory and sales of $6 million were made at a mark-up on cost of 25%.

Select at what amount inventory should be stated in the statement of financial position as at 31 March 2019?

102. Liscome Co’s accounting records shown the following:

Income tax payable for the year                                      $75,000

Over provision in relation to the previous year            $5,400

Opening provision for deferred tax                                 $3,200

Closing provision for deferred tax                                   $4,100

What is the income tax expense that will be shown in the statement of profit or loss for the year?

103. The trial balance of Cross wood Co at 31 March 2019 showed credit balances of $1,600,000 on current tax and $5.2 million on deferred tax. A property was revalued during the year giving rise to deferred tax of $7. 5 million. This has been included in the deferred tax provision of $13.5 million at 31 March 2019.

The income tax liability for the year ended 31 March 2019 is estimated at $38.8 million. 

What will be shown as the income tax charge in the statement of profit or loss of Cross wood at 31 March 2019?

104. Volton Co’s trial balance shows a debit balance of $1.9million brought forward on current tax and a credit balance of $6.3 million on deferred tax. The tax charge for the current year is estimated at $15.8 million and the carrying amounts of net assets are $11 million in excess of their tax base. The income tax rate is 30%

What amount will be shown as income tax in the statement of profit or loss of Volton Co for the year?

105. Cola Co’s trial balance at 31 December 2019 shows a debit balance of $900,000 on current tax and a credit balance of $9,200,000 on deferred tax. The directors have estimated the provision for income tax for the year at $7.7 million and the required deferred tax provision is $5.6 million, $1.8 million of which relates to a property revaluation.

What is the tax liability recognised in Cola Co’s statement of financial position for the year ended 31 December 2019?