INTERNATIONAL ACCOUNTING

– FINAL TEST 2020

Faisel Mohamed Pallikkattil

 Kyiv National Economic University named after Vadym Hetman
Department of international accounting and audit
International accounting Course
Final Test (total 30 marks)

1. (5 marks)

In February 2019, a major fire broke out in Jeffers Co’s property and warehouse. Jeffers Co has
no insurance, and now the management of the company believes it is unable to continue trading.
How should this be reflected in Jeffers Co’s financial statements for the year ended 31 December
2020?

No adjustment should be made to the figures in the financial statements, however, this
A
event must be disclosed in the notes

B The financial statements can no longer be prepared on a going concern basis

No disclosure is required in the financial statements, however, this event must be reflected
C
in the financial statements for the year ended 31 December 2019

The financial statements should continue to be prepared using the going concern basis,
D
with an impairment loss recognized against the non-current assets

Answer

B. The financial statements can no longer be prepared on a going concern basis

 2. (5 marks)

An entity purchased property for $6 million on 1 July 2016. The value of the land was $1 million
and the buildings $5 million. The expected life of the building was 50 years and its residual
value nil. On 30 June 2018 the property was revalued to $7 million (land $1.24 million, buildings
$5.76 million). On 30 June 2020, the property was sold for $6.8 million. What is the gain on
disposal of the property that would be reported in the statement of profit or loss for the year to 30
June 2020?

A
Gain $40,000

B Loss $200,000

C Gain $1,000,000

D
Gain $1,240,000

Answer

A. Gain $40,000

Land Buildings Total

$million $million $million

At 30 June 2018

Carrying amount 1.00 4.80 5.80

Building depreciation = 5 million/50 years = 100000 per year

Revalued amount 1.24 5.76 7.00

Transfer of revaluation reserves 1.20

As 30 June 2020

Carrying amount 1.24 5.52 6.76

Building depreciation = 5.76 million/50 years = 120000 per year

Disposal value 6.80

Gain on disposal 0.40

 3. (5 mark)

Bracy company – subsidiary of other company - acquired a new piece of construction equipment
on January 1, 2019 at a cost of $ 100 000. The equipment was expected to have a 10 years’
useful life and a residual value of $ 20 000 and depreciated on a straight-line basis. On
December 31, 2019 the equipment was appraised and determined to have fair value 0f $ 101 000,
a salvage value of $ 20 000 and a remaining useful life of 9 years. According to parent’s
accounting policies noncurrent assets must be presented in consolidated financial statements at
historical cost model.

What amounts of depreciation expenses and book value of equipment should be shown in
income statements and balance sheet for the period ended 30 December 2020 based on local
and parent’s requirements?

Balance sheet, $ Income Statements, $

Local GAAP 91111.11 8888.89

Parent’s accounting 91111.11 8888.89

policies

Straight line depreciation = 100000-20000/9 = 8888.89

Book value = 100000 – 8888.89 = 91111.11

A historical cost is a measure of value used in accounting in which the value of an asset on the
balance sheet is recorded at its original cost when acquired by the company. The historical cost
method is used for fixed assets in the United States under generally accepted accounting
principles (GAAP).
 4. (5 mark)

Which TWO of the following items should be capitalized within the initial carrying amount
(cost) of an item of plant?

A
Cost of transporting the plant to the factory

B Cost of installing a new power supply required to operate the plant

C A deduction to reflect the estimated realizable value

D
Cost of a three-year maintenance agreement

E Cost of a three-week training course for staff to operate the plant

Answer

A. Cost of transporting the plant to the factory

B. Cost of installing a new power supply required to operate the plant
 5. (5 mark)

Which of the following CANNOT be recognized as an intangible non-current asset in GHK’s

consolidated statement of financial position at 30 September 2020?

GHK spent $132,000 developing a new type of product. In June 2020 management
A worried that it would be too expensive to fund. The finances to complete the project came
from a cash injection from a benefactor received in November 2020

. GHK purchased a subsidiary during the year. During the fair value exercise, it was found
B that the subsidiary had a brand name with an estimated value of $50,000 but was not
recognized by the subsidiary as it was internally generated.

C GHK purchased a brand name from a competitor on 1 November 2019, for $65,000

GHK spent $21,000 during the year on the development of a new product, after
D management concluded it would be viable in November 2019. The product is being
launched on the market on 1 December 2020 and is expected to be profitable.

Answer

A. GHK spent $132,000 developing a new type of product. In June 2020 management worried
that it would be too expensive to fund. The finances to complete the project came from a cash
injection from a benefactor received in November 2020
 6. (5 mark)

As at 30 September 2019 Dune’s property in its statement of financial position was:

Property at cost (useful life 15

$45 million
years)

Accumulated depreciation $6 million

On 1 April 2020, Dune decided to sell the property. The property is being marketed by a
property agent at a price of $42 million, which was considered a reasonably achievable price at
that date.

The expected costs to sell have been agreed at $1 million. Recent market transactions
suggest that actual selling prices achieved for this type of property in the current market
conditions are 10% less than the price at which they are marketed.

At 30 September 2020 the property has not been sold. At what amount should the property be
reported in Dune’s statement of financial position as at 30 September 2020?

Answer (in millions)

CV 45 – 6 = 39 – (45/15 * 6/12) = 37.5

FV – Cost of Sell = (42*0.9) – 1 = 36.8 million

The amount 36.8 million should be reported for the property in Dune’s statement of
financial position as at 30 September 2020.
Lecturer Prof. O.V.Nebyltsova