lOMoARcPSD|11910936

ACCA Financial Reporting (FR) Course Exam 1 Questions

2019
accounting (Học viện Tài chính)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by Haran Bootiya (dudeakhi05@gmail.com)
 lOMoARcPSD|11910936

ACCA Financial Reporting (FR)

Course Exam 1
Questions

Questions

Time allowed: 1 hour and 30 minutes

(indicative timing based on the examination time)

ALL questions are compulsory and MUST be attempted

Sept19/Dec19/Mar20/June20 EDITION

Downloaded by Haran Bootiya (dudeakhi05@gmail.com)

 lOMoARcPSD|11910936

2 Sept19/Dec19/Mar20/June20 EDITION

Downloaded by Haran Bootiya (dudeakhi05@gmail.com)

 lOMoARcPSD|11910936

Financial Reporting Course Exam 1

Section A – all 10 questions are compulsory.

Each question is worth 2 marks.

1 Faithful representation is a fundamental qualitative characteristic of useful information within

the IASB's Conceptual Framework for Financial Reporting.
Which of the following accounting treatments correctly applies the principle of faithful
representation?
 Reporting a transaction based on its legal status rather than its economic substance
 Excluding a subsidiary from consolidation because its activities are not compatible with
those of the rest of the group
 Recording the whole of the net proceeds from the issue of a loan note which is
potentially convertible to equity shares as debt (liability)
 Allocating part of the sales proceeds of a motor vehicle to interest received even though
it was sold with 0% (interest-free) finance

2 Metric Co owns an item of plant which has a carrying amount of $248,000 as at 1 April 20X4.
It is being depreciated at 12.5% per annum on a reducing balance basis.
The plant is used to manufacture a specific product which has been suffering a slow decline
in sales. Metric Co has estimated that the plant will be retired from use on 31 March 20X7.
The estimated net cash flows from the use of the plant and their present values are:
Net cash flows Present values
$ $
Year to 31 March 20X5 120,000 109,200
Year to 31 March 20X6 80,000 66,400
Year to 31 March 20X7 52,000 39,000
252,000 214,600

On 1 April 20X5, Metric Co had an alternative offer from a rival to purchase the plant for
$200,000.
At what value should the plant appear in Metric Co's statement of financial position as
at 31 March 20X5?
$
3 Hindberg Co is a car retailer. On 1 April 20X4, Hindberg Co sold a car to Latterly Co on the
following terms:
The selling price of the car was $25,300. Latterly Co paid $12,650 (half of the cost) on
1 April 20X4 and would pay the remaining $12,650 on 31 March 20X6 (2 years after the
sale). Hindberg Co's cost of capital is 10% per annum.
What is the total amount which Hindberg Co should credit to profit or loss in respect
of this transaction in the year ended 31 March 20X5?
 $23,105
 $23,000
 $20,909
 $24,150

Sept19/Dec19/Mar20/June20 EDITION 3

Downloaded by Haran Bootiya (dudeakhi05@gmail.com)

 lOMoARcPSD|11910936

4 On 31 March 20X7, Delta Co received an order from a new customer, Xavier Co, for
products with a sales value of $900,000. Xavier Co enclosed a deposit with the order of
$90,000.
On 31 March 20X7, Delta Co had not completed credit referencing of Xavier Co and had not
despatched any goods. Delta Co is considering the following possible entries for this
transaction in its financial statements for the year ended 31 March 20X7.
Select the correct accounting entry from the options below to record the transaction
with Xavier Co for the year ended 31 March 20X7? (Options may be used more than
once.)

Dr

Cr

Cash $90,000

Deferred income $810,000

Revenue $900,000

Trade receivables

5 Germane Co has a number of relationships with other companies.

In which of the following relationships is Germane Co necessarily the parent
company?
(i) Foll Co has 50,000 non-voting and 100,000 voting equity shares in issue, with each
share receiving the same dividend. Germane Co owns all of Foll Co's non-voting shares
and 40,000 of its voting shares.
(ii) Kipp Co has 1 million equity shares in issue, of which Germane Co owns 40%.
Germane Co also owns $800,000 out of $1 million 8% convertible loan notes issued by
Kipp Co. These loan notes may be converted on the basis of 40 equity shares for each
$100 of loan note, or they may be redeemed in cash at the option of the holder.
(iii) Germane Co owns 49% of the equity shares in Polly Co and 52% of its non-redeemable
preference shares. As a result of these investments, Germane Co receives variable
returns from Polly Co and has the ability to affect these returns through its power over
Polly Co.
 (i) only
 (i) and (ii) only
 (ii) and (iii) only
 All three

4 Sept19/Dec19/Mar20/June20 EDITION

Downloaded by Haran Bootiya (dudeakhi05@gmail.com)

 lOMoARcPSD|11910936

6 Jackson Co acquired 8 million of the 10 million issued share capital of Darna Co on

1 October 20X1 for $14.8 million, when the balance on retained earnings was $6 million.
On 30 September 20X8 Jackson Co sold all of its holding for $17 million.
Non-controlling interests at acquisition was measured at the proportionate share of net
assets. Goodwill on acquisition was recognised as 70% impaired by the disposal date.
An extract from the statement of financial position of Darna Co as at 30 September 20X8 is
as follows:
$'000
Share capital 10,000
Retained earnings 8,900
18,900
Selecting the correct answer from the options provided, identify the gain or loss on
disposal to be included in the group financial statements for the year ended 30
September 20X8?

$560,000 Gain

$1,280,000 Loss

$1,880,000

$2,440,000

7 Zebb Co issues 6% redeemable preference shares on 31 December 20X3.

Which ONE of the following statements is TRUE?
 The issue is classified as equity because shares certificates are issued.
 The dividend payable on these shares will be included in the statement of changes in
equity.
 The issue will be recorded by debiting investment and crediting bank.
 The dividend payable will be included in Zebb Co's finance cost as an expense in the
year.

8 Lucindy Co issued a debt instrument on 1 January 20X4 at its nominal value of $4,000,000.
The instrument carries a fixed coupon interest rate of 6%, which is payable annually in
arrears. Transaction costs associated with the issue were $200,000. The effective interest
rate applicable to this instrument has been calculated at approximately 8.4%.
What are the amounts that should be recorded as the opening liability on
1 January 20X4 and the finance cost in the statement of profit or loss for the year
ended 31 December 20X4?
 Liability $3,800,000 Finance cost $228,000
 Liability $4,000,000 Finance cost $240,000
 Liability $4,200,000 Finance cost $352,800
 Liability $3,800,000 Finance cost $319,200

Sept19/Dec19/Mar20/June20 EDITION 5

Downloaded by Haran Bootiya (dudeakhi05@gmail.com)

 lOMoARcPSD|11910936

9 On 1 January 20X7 Edina Co leased a machine with 2 payments of $7,080 made on

31 December 20X7 and 20X8.
The present value of the lease payments is $12,000 and the interest rate implicit in the lease
is 12%.
Select the correct finance charge in the statement of profit or loss of Edina Co for the
year ended 31 December 20X7, using the pull down list provided?


Pull down list
$590
$1,310
$1,440
$6,360
10 IFRS 16 Leases provides guidance to assess whether an agreement should be classified as
a lease.
Which TWO of the following statements are among the indicators set out in IFRS 16
for an arrangement to be classified as a lease?

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

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

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

The agreement concerns an identified asset which cannot be substituted throughout

the period of use.
(Total = 20 marks)

6 Sept19/Dec19/Mar20/June20 EDITION

Downloaded by Haran Bootiya (dudeakhi05@gmail.com)

 lOMoARcPSD|11910936

Section B – all questions are compulsory

Each question is worth 2 marks.
The following scenario relates to questions 11–15.
Darby Co is preparing its financial statements for the year ended 30 September 20X9 and has
encountered the following matters.
(i) Staff training
Darby Co spent $200,000 sending its staff on training courses during the year. This has
already led to an improvement in the company's efficiency and resulted in cost savings. The
organiser of the course has stated that the benefits from the training should last for a
minimum of four years.
(ii) Research and development
During the year the company started research work with a view to the eventual development
of a new processor chip. By 30 September 20X9 it had spent $1.6 million on this project.
Darby Co has a past history of being particularly successful in bringing similar projects to a
profitable conclusion.
Darby Co was also commissioned by a customer to research and, if feasible, produce a
computer system to install in motor vehicles that can automatically stop the vehicle if it is
about to be involved in a collision. It is expected that the project will take 3 years to complete
and at 30 September 20X9, Darby Co had spent $0.4 million on this project, and planned to
spend a further $2.6 million in 20Y0. At the current time they were uncertain if the project
would be successful.
(iii) Satellite dish system
Darby Co signed a contract (for an initial three years) in August 20X9 with a company called
Media Today to install a satellite dish and cabling system to a newly built group of residential
apartments. Media Today will provide telephone and television services to the residents of
the apartments via the satellite system and pay Darby Co $50,000 per annum commencing
in December 20X9.
The cost of the installation incurred by Darby Co to 30 September 20X9 was $58,000 and
this was correctly recorded as a non-current asset. Previous experience with similar
contracts indicates that Darby Co will make a total profit of $40,000 over the 3 years on this
initial contract.
Darby Co is concerned that the asset is impaired and has confirmed that the fair value of the
asset is the same as its cost, with negligible costs to sell.
The contract is not a lease. Ignore discounting.

11 According to IAS 38 Intangible Assets which TWO of the following statements are
required for the costs of the asset to be capitalised as an intangible asset?

It must be a non-monetary asset

It must be separable and arising from a contractual or legal right

It must result in a flow of economic benefit to the entity

Its cost should be able to be measured reliably

Sept19/Dec19/Mar20/June20 EDITION 7

Downloaded by Haran Bootiya (dudeakhi05@gmail.com)

 lOMoARcPSD|11910936

12 How should the training costs be treated in the financial statements for the year
ended 30 September 20X9?
 Capitalise the $200,000 and amortise over 4 years
 Capitalise the $200,000 and review annually for impairment as the useful life is
indefinite
 Expense the $200,000 to the profit or loss
 Expense the $200,000 to the profit or loss and recognise a separate intangible asset
equal to the increase in value of the staff as a result of the training received
13 According to IAS 38 Intangible Assets which THREE of the following statements are
part of the criteria that should be demonstrated to capitalise the expenditure on a
development project?

The entity should have adequate resources to complete the asset

The expenditure on the asset should be able to be measured reliably

Completion of the asset must be technically feasible

The entity must be intending to use the asset on completion

14 In respect of the automatic stopping system that Darby Co has been paid to research,
how much should be capitalised in the statement of financial position as an intangible
asset as at 30 September 20X9?
 $Nil
 $0.6 million
 $1.0 million
 $2.4 million
15 By how much should the satellite system be impaired by at 30 September 20X9?
Select the answer from the pull down list provided


Pull down list
$Nil
$6,000
$8,000
$18,000
(Total = 10 marks)

8 Sept19/Dec19/Mar20/June20 EDITION

Downloaded by Haran Bootiya (dudeakhi05@gmail.com)

 lOMoARcPSD|11910936

Section C – the one question is compulsory

16 On 1 October 20X0 Prodigal Co purchased 75% of the equity shares in Sentinel Co. The
acquisition was through a share exchange of two shares in Prodigal Co for every three
shares in Sentinel. The stock market price of Prodigal Co's shares at 1 October 20X0 was
$4 per share.
The summarised statements of profit or loss and other comprehensive income for the two
companies for the year ended 31 March 20X1 are:
Prodigal Co Sentinel Co
$'000 $'000
Revenue 450,000 240,000
Cost of sales (260,000) (110,000)
Gross profit 190,000 130,000
Distribution costs (23,600) (12,000)
Administrative expenses (27,000) (23,000)
Finance costs (1,500) (1,200)
Profit before tax 137,900 93,800
Income tax expense (48,000) (27,800)
Profit for the year 89,900 66,000
Other comprehensive income
Gain on revaluation of land (Note 1) 2,500 1,000
Loss on fair value of equity financial asset investment (700) (400)
_ 1,800 __ 600
Total comprehensive income for the year 91,700 66,600

The following information for the equity of the companies at 1 April 20X0 (ie before the share
exchange took place) is available:
$'000 $'000
Equity shares of $1 each 250,000 160,000
Share premium 100,000 nil
Revaluation surplus (land) 8,400 nil
Other equity reserve (re equity financial asset 3,200 2,200
investment)
Retained earnings 90,000 158,000
Notes
The following information is relevant:
1 Prodigal Co's policy is to revalue the group's land to market value at the end of each
accounting period. Prior to its acquisition Sentinel Co's land had been valued at
historical cost. During the post-acquisition period Sentinel Co's land had increased in
value over its value at the date of acquisition by $1 million. Sentinel Co has recognised
the revaluation within its own financial statements.
2 Immediately after the acquisition of Sentinel Co on 1 October 20X0, Prodigal Co
transferred an item of plant with a carrying amount of $4 million to Sentinel Co at an
agreed value of $5 million. At this date the plant had a remaining life of two and half
years. Prodigal Co had included the profit on this transfer as a reduction in its
depreciation costs. All depreciation is charged to cost of sales.
3 After the acquisition Sentinel Co sold goods to Prodigal Co for $40 million. These goods
had cost Sentinel Co $30 million. $12 million of the goods sold remained in Prodigal
Co's closing inventory.
4 Prodigal Co's policy is to value the non-controlling interest of Sentinel Co at the date of
acquisition at its fair value which the directors determined to be $100 million.

Sept19/Dec19/Mar20/June20 EDITION 9

Downloaded by Haran Bootiya (dudeakhi05@gmail.com)

 lOMoARcPSD|11910936

5 The goodwill of Sentinel Co has not suffered any impairment.

6 All items in the above statements of profit or loss and other comprehensive income are
deemed to accrue evenly over the year unless otherwise indicated.
Required
(a) Calculate the goodwill on acquisition of Sentinel Co.
(b) Prepare the consolidated statement of profit or loss and other comprehensive income of
Prodigal Co for the year ended 31 March 20X1.
The following mark allocation is provided as guidance for this question:
(a) 4 marks
(b) 16 marks
(Total = 20 marks)

10 Sept19/Dec19/Mar20/June20 EDITION

Downloaded by Haran Bootiya (dudeakhi05@gmail.com)