Financial Accounting 1 (ACCO 3032)

2022 - 2023
Financial
Accounting 1
(ACCO 3032)
1, INTRODUCTION TO THE COURSE
Financial Accounting 1 are designed to develop knowledge and skills in understanding and
applying accounting standards and the theoretical framework in the preparation of financial
statements of entities and to enhance the students’ ability to understand and to analyse
published financial statements logically and coherently
1.1, LEARNING OUTCOMES
DETAILED IN DETALIED IN
NO OUTCOME
LIST OF TOPIC ASSESSMENT
Demonstrate a knowledge of the regulatory
Final exam,
1 environment within which accounting procedures Topic 1
test
and reporting practices operate
Appreciate the role of the conceptual framework
Final exam,
2 for financial reporting and understand and apply Topic 1
test
its components to practical situations
Be aware of the place of national statutory, listing
and professional regulations in the context of Final exam,
3 Topic 1
international reporting and international test
accounting standards
4 Be aware of the structure of accounting standards Topic 1 Final test, test
Apply specific international accounting standards Final test
Topic
5 relating to concepts of recognition, measurement
2,3,4,5,6,7,8,9
and disclosures of financial statement elements
Prepare and present financial statements relating Final test
to single business entities by applying generally
6 Topic 8,9
accepted accounting principles and relevant
International accounting standards
7 Use excel in preparing financial statement Topic 8,9 Group work
1.2, LEARNING AND TEACHING ACTIVITY
Overall
NO LIST OF TOPIC Hours
percentages
1 Scheduled teaching & group work 66 25%
2 Guided independent study 189 75%
Total 302 100%
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2, ASSESSMENT DETAILS
2.1, Detailed assessment
Weigh
No Assessment title towards Requirement/ length & content
final grade
1 Performance 10% Regular
Closed test, 120’
Content of exam:
IAS 02;
2 Test 15% IAS 16;
IAS 38;
IAS 40;
IAS 36
3 Group work (*) 15% 1,000 words report for a group
Closed exam, 180’
Content of exam:
IAS 16
IAS 36
IFRS 15
4 Final exam 60%
IAS 01 (including adjustment related to
IAS 16; IAS 36; IFRS 15)
IAS 07
IAS 10
Conceptual framework
Total 100%
To gain a pass in this subject, students MUST:
− Achieve a passing grade in the final examination.

− Attempt ALL areas of assessment; and achieve a total result of 50% or better overall.
(*) Requirement for group work
− Each group has MAXIUM 5 members (no exception)
− Detailed work of each group including
− 1, Choose 1 company in IN FORTUNE 500 (https://fortune.com/fortune500/)
(deadline for choosing the company at the end of second week) (REMEMBER:
ensure that the company prepared financial statement in accordance to IFRSs
and you can download all related documentation for
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− 2, Explain nature of operation of the company (its key operation, main product,
main market). This part is extremely important because it enable to understated
how the accounting standards applied in the company chosen.
− 3, Explain how the accounting standards (those you have studied in this
subjected) applied in the financial statement of their company in most recent
financial statement (including separate financial statement and consolidated
financial statement)
− Required outcomes of group work
• Maximum 20 mins presentation and answer questions (50% amount of final mark for
group work)
• A business report 1500 words (50% of final mark)
(*) Criterias for presentation assessment
− (*) Criterias for presentation assessment
Criterias for assessment Detailed content
Content (30%) Included all requirement for group work.
Speaking skills (20%) The criteria include: poise, clear articulation, proper volume,
steady rate, good posture, eye contact, enthusiasm, and
confidence. The speakers do not read (e.g., note cards, read
the overhead transparencies).
Question This criteria pertains to your team’s ability to anticipate

responsiveness (50%) questions from the management team and to address the
questions that they raise. You do not necessarily have to be
able to answer every question. You should be able to
understand and, if necessary, indicate that you need to
conduct additional analysis.
(*) Criterias for report assessment
Mark Number
Main part Detailed requirement
allocate of words
Part 1: Introduction of the group
40 marks
Overview of the entity overview the entity, illustrate by timeline key

5 50 - 70
and its key operation development stage of the entity
illustrate by pie chart and appropriate picture
Main product 10 20 - 40
revenue of each products in most recent year
illustrate by pie chart and appropriate picture
Main market 5 20 - 40
revenue in each market in most recent year
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Compare with key Graph illustrate comparison between the
5 20 - 50
competitor entity with 2 main competitors
Explain key business operation characteristic
of the entity and how those characteristic
Characteristic of the
impact on choosing and applying accounting 15 250 - 350
operation
standard of the entity (include: inventory,
asset, revenue)
How to apply IFRS
60 marks
10 100 - 200
Pie chart of the component of inventory over
2
3 years
Line chart change of inventory over 3 years
IAS 02: Inventory and highlight reasons for significant change in 3
inventory over 3 years
Explain key accounting policy of the entity
related to inventory and compare the policy 5
entity chosen with 2 other competitors
15 150 - 250
List and explain how the entity classified PPE
and nature of each main categories of PPE of 1
the entity
Pie chart of the component of PPE over 3
2
years
IAS 16: PPE
Line chart change of PPE over 3 years and
highlight reasons for significant change in PPE 2
over 3 years
related to PPE and compare the policy entity 10
chosen with 2 other competitors
15 150 - 200
List and explain how the entity classified
intangible asset and nature of each main 1
categories of intangible asset
Pie chart of the component of intangible asset
2
over 3 years
IAS 38: Intangible asset
Line chart change of intangible asset over 3
years and highlight reasons for significant 2
change in PPE over 3 years
related to intangible asset and compare the 10
policy entity chosen with 2 other competitors
20 200 - 300
List and explain how the entity classified
IFRS 15: Revenue revenue and nature of each main categories of 5
intangible asset
Pie chart of the component of revenue over 3
3
years
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Line chart change of revenue over 3 years and
highlight reasons for significant change in PPE 2
over 3 years
Explain how the entity apply accounting
standard in recognize revenue with each type 15
of income
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3, LIST OF TOPICS
3.1, List of topics
Topic Content
1 Regulatory and Conceptual Framework of Financial Reporting
2 IAS 02: Inventories
3 IAS 16: Property, Plant and Equipment
4 IAS 38: Intangible assets
5 IAS 40: Investment property
6 IAS 36: Impairment of Assets
7 IFRS 15: Revenue
8 IAS 10: Events After the Reporting Period
9 IAS 01: Preparation and presentation of Financial Statements
10 IAS 07: Statement of cash flow
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3.2, Objectives of each topic
Topic Detailed learning objective
1 Regulatory and Conceptual Framework of Financial Reporting
(1) A conceptual framework for financial reporting.
(2) Relevance and faithful representation and describe the qualities that enhance
these characteristics.
(3) Understandability and verifiability in relation to the provision of financial
information.
(4) The importance of comparability and timeliness to users of financial
statements.
(5) Define what is meant by ‘recognition’ in financial statements and discuss the
recognition criteria.
(6) Apply the recognition criteria to: i) assets and liabilities. & ii) income and
expenses.
(7) Explain and compute amounts using the following measures: i) historical cost
& ii) current cost & iii) value in use & iv) fair value
(8) d) Discuss the advantages and disadvantages of historical cost accounting.
2 IAS 02: Inventories

(1) Recognise the need for adjustments for inventory in preparing financial
statements.
(2) Record opening and closing inventory.
(3) Identify the alternative methods of valuing inventory.
(4) Understand and apply the IASB requirements for valuing inventories.
(5) Recognise which costs should be included in valuing inventories.
(6) Understand the use of continuous and period end inventory records.
(7) Calculate the value of closing inventory using FIFO (first in, first out) and AVCO
(average cost) – both periodic weighted average and continuous weighted
average.
(8) Understand the impact of accounting concepts on the valuation of inventory.
(9) Identify the impact of inventory valuation methods on profit and on assets.
3 IAS 16: Property, Plant and Equipment

(1) Record depreciation in the statement of profit or loss and statement of
financial position.
(2) Define and compute the initial measurement of a non-current asset
(3) Identify subsequent expenditure that may be capitalised, distinguishing
between asset and expense items.
(4) Discuss the requirements of relevant IFRS Standards in relation to the
revaluation of non-current assets.
(5) Account for revaluation and disposal gains and losses for non-current assets.
(6) Compute depreciation based on the cost and revaluation models and on assets
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that have two or more significant parts (complex assets).
4 IAS 38: Intangible assets

(1) Recognise the difference between tangible and intangible non-current
assets.
(2) Identify types of intangible assets.
(3) Identify the definition and treatment of “research costs” and
“development costs” in accordance with IFRS ® Standards.
(4) Calculate amounts to be capitalised as development expenditure or to be
expensed from given information.
(5) Explain the purpose of amortisation.
(6) Calculate and account for the charge for amortisation.
5 IAS 40: Investment property

(1) Definition and recognition of investment property
(2) Explain how to record investment property
(3) List and explain how to account investment property in accordance to fair value
model and cost model?
(4) Explain how to account derecognition of investment property
(5) Explain how to account when transferring between asset including inventory,
property plant and equipment and investment property.
(6) Explain meaning of fair value and how to determine fair value
6 IAS 36: Impairment of Assets

(1) Define, calculate and account for an impairment loss.
(2) account for the reversal of an impairment loss on an individual asset
(3) Identify the circumstances that may indicate impairments to assets.
(4) Describe what is meant by a cash generating unit.
(5) State the basis on which impairment losses should be allocated and allocate an
impairment loss to the assets of a cash generating unit.
7 IFRS 15: Revenue

(1) Explain and apply the principles of recognition of revenue including (i)
Identification of contracts ; (ii) Identification of performance obligations ; (iii)
Determination of transaction price ; (iv) Allocation of the price to performance
obligations ; (v) Recognition of revenue when/as performance obligations are
satisfied.
(2) Explain and apply the criteria for recognising revenue generated from contracts
where performance obligations are satisfied over time or at a point in time.
(3) Describe the acceptable methods for measuring progress towards complete
satisfaction of a performance obligation.
(4) Explain and apply the criteria for the recognition of contract costs.
(5) Apply the principles of recognition of revenue, and specifically account for the
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following types of transaction: i) principal versus agent;
(6) Prepare financial statement extracts for contracts where performance obligations
are satisfied over time.
8 IAS 10: Events After the Reporting Period

(1) Define an event after the reporting period in accordance with IFRS Standards.
(2) Classify events as adjusting or non-adjusting.
(3) 3. Distinguish between how adjusting and non-adjusting events are reported in
the financial statements.
9 IAS 01: Preparation and presentation of Financial Statements

(1) Recognise how the accounting equation, accounting treatments (as stipulated
within relevant IAS 02, 16, 38, 40, 36, IFRS 15, IAS 10) and business entity
concept underlie the statementof financial position.
(2) Prepare a statement of financial position or extracts as applicable from given
information using accounting treatments as stipulated within relevant IAS 02, 16, 38,
40, 36, IFRS 15, IAS 10
(3) Understand why the heading retained earnings appears in a company
statement of financial position.
(4) Prepare a statement of profit or loss and other comprehensive income or
extracts as applicable from given information using accounting treatments as
stipulated within relevant IAS 02, 16, 38, 40, 36, IFRS 15, IAS 10
(5) Calculate revenue, cost of sales, gross profit, profit for the year, and total
comprehensive income from given information.
(6) Record income tax in the statement of profit or loss of a company.
(7) Understand the interrelationship between the statement of financial position
and the statement of profit or loss and other comprehensive income.
10 IAS 07: Statement of cash flow

(1) Understand differentiate between profit and cash flow.
(2) Understand the need for management to control cash flow.
(3) Recognize the benefits and drawbacks to users of the financial statements of a
statement of cash flows.
(4) Classify the effect of transactions on cash flows
(5) ii) Calculate Cash flows from investing activities
(6) iii) Calculate Cash flows from financing activities
(7) Calculate the cash flow from operating activities using the indirect and direct
method.
(8) Prepare statements of cash flows and extracts from statements of cash flows
from given information.
(9) Identify the treatment of given transactions in a company’s statement of cash
flows.
(10)Explain meaning of statement of cash flow
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5, SESSION PLAN
Duration Group work
Week Lecture Description
(hours)
1 1 IAS 02 Inventories (1) 3
2 2 IAS 02 Inventories (2) 2
List of group
2 3 IAS 16 Property, Plant and Equipment (1)
3 member
3 4 IAS 16 Property, Plant and Equipment (2) 2
3 5 IAS 38 Intangible asset 3
4 6 IAS 40 Investment property 2
4 7 IAS 36 Impairment of Assets (1) 3
Part 1:
5 8 IAS 36 Impairment of Assets (2)
2 Introduction
IFRS 15: Revenue from contract with customer
5 9
(1) 3
IFRS 15: Revenue from contract with customer Part 2: IAS 02
6 10
(2) 2 Inventory
6 11
(3) 3
7 12
(4) 2
Part 2: IAS 16
7 13 IAS 10 Events After the Reporting Period
3 PPE
Correct question on question book (all the
8 14
question has not yet corrected) 2
15 Prepare financial statement (1) 3
9 Self-study for middle term test
9 Middle term test
10 16 Preparing financial statement (2) 3
Part 2: IAS 38
Intangible asset
10 17 IAS 07: Statement of cash flow (1)
& IFRS 15
2 Revenue
11 18 IAS 07: Statement of cash flow (3) 3
Send Full draft
11 19 Preparing financial statement (2)
2 report (1)
12 20 Correct group work (1) 3
Send Full draft
12 21 The Regulatory and Conceptual Framework
2 report (2)
13 22 Correct group work (2) 3
13 23 Revision for final exam 1 2
14 24 Revision for final exam 2 3
14 25 Presentation 1 2
15 26 Presentation 2 3
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15 27 Presentation 3
FINAL EXAM
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6, SESSION REQUIRED READING
The SET TEXT is FINANCIAL REPORTING WORKBOOK (BBP Learning Media, Most update
version).
Reading is essential for students in order to understand fully the technical and conceptual
aspects of the various topics. It is expected that self-motivated students will consult a variety of
texts, journals and websites. Make sure that texts relate to IFRS.
Author Title Publisher
Elliott Financial Accounting and Pearson
and Reporting
Elliott
BPP ACCA Financial Reporting BPP

(International)
Study text
IASB IFRS standards http://www.ifrs.org/issued-standards/list-of-
standards/
IAS Plus Summaries of standards http://www.iasplus.com/standard/standard.htm

(Deloitte)
7, OTHER INFORMATION
ENTRY REQUIREMENT
The student must pass Principle of Accounting and achieve 5.5 IELTS or successfully completed
the IELTS Foundation at IIFE before taking part in Financial Accounting 1.
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CHAPTER 1: IAS 02 INVENTORY
LEARNING OBJECTIVE
1. Recognise the need for adjustments for inventory in preparing financial statements.
2. Record opening and closing inventory.
3. Identify the alternative methods of valuing inventory.
4. Understand and apply the IASB requirements for valuing inventories.
5. Recognise which costs should be included in valuing inventories.
6. Understand the use of continuous and period end inventory records.
7. Calculate the value of closing inventory using FIFO (first in, first out) and AVCO (average cost) –
both periodic weighted average and continuous weighted average.
8. Understand the impact of accounting concepts on the valuation of inventory.
9. Identify the impact of inventory valuation methods on profit and on assets.
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IAS 02 INVENTORY
KEY DEFINITION COST OF INVENTORY
Inventories are assets: A, Costs of purchase include: Purchase price, Import duties
and other taxes, Transport, handling and any other cost
1, Held for sale in the ordinary course of directly attributable to the acquisition of finished goods,
business services and materials LESS any trade discounts, rebates and
2, In the process of production for such sale other similar amounts
3, In the form of materials or supplies to be B, Costs of conversion: Costs directly related to the units of
consumed in the production process or in the production, eg direct materials, direct labour
rendering of services C, Other costs incurred in bringing the inventories to their
present location and condition: Carriage inward
Net realisable value is the estimated selling
price in the ordinary course of business less the Cost which would not be included.
estimated costs of completion and the • Abnormal amounts of wasted
estimated costs necessary to make the sale. • Storage costs (except in production process)
• Administrative overheads
• Selling costs: carriage outward
INTERCHANGEABLE ITEMS CLOSING INVENTORY COST OF GOOD SOLD
FIFO: Assume that components Principle: Lower between cost and Opening inventory + purchases –
are used in the order in which they NRV closing inventory
are received from suppliers. Situations in which NRV is likely to
be less than cost.
Weighted average cost (AVCO): JOURNAL ENTRY
1, increase in costs
purchase prices change with each
new consignment. A recalculation 2, fall in selling price
can be made after each purchase 3, A physical deterioration in the Purchases Dr Purchase
(cumulative AVCO), or condition of inventory Cr Payable
alternatively only at the period 4, Obsolescence of products Closing Dr P&L
end (periodic AVCO) 5, A decision as part of the inventory Cr Inventory
Same technique for similar nature company's marketing strategy to
Opening Dr P&L
and use. manufacture and sell products at a
inventory Cr Inventory
loss
LIFO not permitted by IAS 2. 6, Errors in production or Sale Dr Revenue
purchasing inventory Cr Trade receivable
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STANDARD ANSWER FOR IAS 02
QUESTION 1: RECORD TRANSACTION RELATED TO INVENTORY

No Date of Journal entry (Dr / Cr) Amount
transaction
QUESTION 2: DETERMINE CLOSING INVENTORY

Item Quantity Item Net realizable Value of closing inventory
value per unit
QUESTION 3: DETERMINE CLOSING INVENTORY IF COUNTING DATE AFTER

REPORTING DATE
$
Closing inventory at reporting date (formulation: ....)
Adjustment:
Add: Purchase of inventory
Add: Inventory returned from customer
Less: Purchase returned
Less: Sale inventory
Inventory at counting date
QUESTION 4: AJDUSTMENT INCORRECT ENTRY IN INVENTORY RECOGNTION
Journal entry
Correct entry
Incorrect entry
Adjustment entry
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PART A: THEORY QUESTION
Question 1:
What is inventory in accordance to IAS 02? (2 marks)
Question 2:
List and explain 5 types inventory of an:
- Real estate company
- Film production company
- A car manufacturing company
- A university
- A trading company
Question 3:
List and explain method of valuation closing inventory?
Question 4: Explain how to determine net realizable value?
Question 5: List 4 example indicators of net realiable value lower than cost and explain how to
obtain evidence for those indicators?
Question 6: Explain with appropriate journal entry the main difference between periodical and
perpetual inventory? How to determine cost of goods sold in accordance these methods?
Question 7: Explain why LIFO is not permitted in accordance to IAS 02?
Question 8: Explain how these transaction below impact on value of closing inventory
i. The production cost of the item has been falling.
ii. The selling price of the item has been rising.
iii. The item is becoming obsolete.
iv. Demand for the item is increasing.
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Question 9:
Which of the following costs may be included when arriving at the cost of finished goods inventory
for inclusion in the financial statements of a manufacturing company? Explain why? (2 marks per
items)
YES NO
Carriage inwards
Carriage outwards
Depreciation of factory plant
Finished goods storage costs
Factory supervisors' wages
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PART B: PRACTICE QUESTION
Question 1:
A company values its inventory using the first in, first out (FIFO) method. At 1 May 20X2 the company
had 700 engines in inventory, valued at $190 each.
During the year ended 30 April 20X3 the following transactions took place:
20X2
1 July Purchased 500 engines at $220 each
1 November Sold 400 engines for $160,000
20X3
1 February Purchased 300 engines at $230 each
15 April Sold 250 engines for $125,000
Required:
a. Explain, with journals, the accounting treatment of the above transactions,
b. Determine following elements on financial statement
• Value of closing inventory
• Cost of sale in statement of profit or loss
Question 2:
An inventory record card shows the following details. The entity use FIFO method for valuation of closing
inventory.
February 1 50 units in stock at a cost of $40 per unit
7 100 units purchased on credit at a cost of $45 per unit
14 80 units sold on credit at a price of $60 per unit
21 50 units purchased on credit at a cost of $50 per unit
28 60 units sold on credit at a price of $65 unit
Required:
a. Explain, with journals, the accounting treatment of the above transactions, and prepare
extracted financial statements for the year. (12 marks)
b. If net realizable value of closing inventory $25 per unit, determine closing inventory, cost of
sale, gross profit? and provide necessary journal entry? (5 marks)
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Question 3:
The information below relates to inventory item Z. The entity AVCO (periodic) for valuation of closing
inventory.
1.March 50 units held in opening inventory at a cost of $40 per unit
17.March 50 units purchased at a cost of $50 per unit
31.March 60 units sold at a selling price of $100 per unit
Required:
extracted financial statements for the year (8 marks)
b. If net realizable value of closing inventory $25 per unit, determine closing inventory, cost of
sale, gross profit? and provide necessary journal entry?
Question 4:
A firm has the following transactions with its product R. The entity periodic weighted average cost
(AVCO) for valuation of closing inventory.
1 January 20X1 Opening inventory: nil
1 February 20X1 Buys 10 units at $300 per unit
11 February 20X1 Buys 12 units at $250 per unit
1 April 20X1 Sells 8 units at $400 per unit
1 August 20X1 Buys 6 units at $200 per unit
1 December 20X1 Sells 12 units at $400 per unit
Required:
extracted financial statements for the year (15 marks)
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Question 5:
ABC has year end at 30 June 20X3, however, the accountant has prepared financial statement based on
inventory counted 7 July 20X3 with corresponding sale and cost of sale to this date. Value of closing
inventory counted at 7 July 20X3 was $500,000.
Between 30 June and 7 July 20X6, the following transactions took place.
$
Purchase of goods 11,750
Sale of goods (mark up on cost at 15%) 14,950
Goods returned by ABC to supplier 1,500
Required: Determine value of closing inventory for the year ended 30 June 20X3 (15 marks)
Question 6:
ABC has year end at 31 October 20X3, however, the accountant has prepared financial statement based on
inventory counted 4 November 20X3 with corresponding sale and cost of sale to this date. Value of closing
inventory counted at 4 November 20X3 was $500,000.
Between 1 November 20X3 and 4 November 20X3 the following transactions took place:
1. Goods costing $38,400 were received from suppliers.
2. Goods that had cost $14,800 were sold for $20,000.
3. A customer returned some goods which had been sold to him in October for $600 and which had
cost $400.
4. The company returned goods that had cost $1,800 in October to the supplier, and received a
credit note for them.
Required: Determine value of closing inventory for the year ended 31 October 20X3 (15 marks)
Question 7:
ABC has year end at 31 December 20X1, however, the accountant has prepared financial statement based
on inventory counted 4 January 20X2 with corresponding sale and cost of sale to this date. Value of
closing inventory counted at 4 January 20X2 was $527,300.
The following transactions occurred between January 1 and January 4.
$
Purchases of goods 7,900
Sales of goods (gross profit margin 40% on sales) 15,000
Goods returned to a supplier 800
Required: Determine value of closing inventory for the year ended 31 December 20X1 (15 marks)
Question 8
At 31 March 20X7 Tentacle had 12,000 units of product W32 in inventory, included at cost of $6 per unit.
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During April and May 20X7 units of W32 were being sold at a price of $5.40 each, with sales staff
receiving a 15% commission on the sales price of the product.
Required:
a, Calculate net reliable value of closing inventory at year end
b, Determine value of correct value closing inventory in accordance to IAS 02
c, Propose adjustment accounting entry if necessary in accordance to IAS 02
Question 9:
The closing inventory at cost of a company at 31 January 20X3 amounted to $284,700.
The following items were included at cost in the total:
400 item A, which had cost $80 each and normally sold for $150 each. Owing to a defect in manufacture,
they were all sold after the reporting date at 50% of their normal price. Selling expenses amounted to 5%
of the proceeds.
800 item B, which had cost $20 each. These too were found to be defective. Remedial work in February
20X3 cost $5 per item, and selling expenses totaled $800. They were sold for $26 each.
Required:
Question 10:
The closing inventory of X amounted to $116,400 excluding the following two inventory lines:
400 items which had cost $4 each. All were sold after the reporting period for $3 each, with selling
expenses of $200 for the batch.
200 different items which had cost $30 each. These items were found to be defective at the end of the
reporting period. Rectification work after the statement of financial position amounted to $1,200, after
which they were sold for $35 each, with selling expenses totaling $300.
Required:
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Question 11:
You are preparing the financial statements for a business. The cost of the items in closing inventory is
$41,875. This includes some items which cost $1,960 and which were damaged in transit. You have
estimated that it will cost $360 to repair the items, and they can then be sold for $1,200.
Required:
Question 12:
S sells three products – Basic, Super and Luxury. The following information was available at the year end.
Basic Super Luxury
$ per unit $ per unit $ per unit
Original cost 6 9 18
Estimated selling price 9 12 15
Selling and distribution 1 4 5

costs
units units units
Units of inventory 200 250 150
Required:
Question 13:
In preparing its financial statements for the current year, a company's closing inventory was understated by
$300,000.
Required: Explain the effect of this error on current year profit and next year profit if it remains
uncorrected (4 marks)
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Question 14:
An entity has the following products in inventory at the year end.
Product Quantity Cost Selling price Selling cost
A 1,000 $40 $55 $8
B 2,500 $15 $25 $4
C 800 $21 $23 $5
Required:
c, Propose adjustment accounting entry if necessary, in accordance to IAS 02
Question 15:
An entity restores and sell vintage motorcycles. At 30.11.2006, the entity has 3 types of inventory:
MODEL DETAILS
A This item cost $4,800, and at 30 November 2006 tony had also spent
$750 on repairs. the entity has not sold it but confident that it will be
able to sell in January 2007 for $7,500. it will cost the entity $400 to
transport the motorcycle to the event.
B The entity bought for $6,800, at that date, it estimated repairs cost of
$1,100. By 30 November 2006, the entity has spent $1,800 on repairs
and expected sell on 2 December 2006 for $8,000
C The entity bought this item for $8,500. It estimated that it will have to
spend $1,200 on repairs, after which it could be sell for $11,500
Required:
c, Propose adjustment accounting entry if necessary, in accordance to IAS 02
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Question 16:
An entity’s trial balance as at 31 December 20X8 indicated the entity has $8.6m inventory at 31 December
20X8.
The inventory count was completed on 31 December 20X8, but two issues have been noted. First, products
with a sales value of $0·6m had been incorrectly excluded from the count. Second, items costing $0·2m
which had been included in the count were damaged and could only be sold for 50% of the normal selling
price. Diaz Co makes a mark-up of 50% on both of these items.
Required:
c, Propose adjustment accounting entry, if necessary, in accordance to IAS 02
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CHAPTER 2: IAS 16 PROPERTY PLAN AND EQUIPMENT
LEARNING OBJECTIVE
1. Record depreciation in the statement of profit or loss and statement of financial position.
2. Define and compute the initial measurement of a non-current asset
3. Identify subsequent expenditure that may be capitalized, distinguishing between asset and
expense items.
4. Discuss the requirements of relevant IFRS Standards in relation to the revaluation of non-current
assets.
5. Account for revaluation and disposal gains and losses for non-current assets.
6. Compute depreciation based on the cost and revaluation models and on assets that have two or
more significant parts (complex assets).
Page 25 of 158
IAS 16 PROPERTY PLANT AND EQUIPMENT
KEY DEFINITION RECOGNTION CRITERIA
Property, are tangible assets that: (a) It is probable that future economic benefits associated
plant and with the asset will flow to the entity.
– Are held by an entity for use in
equipment
the production or supply of goods or (b) The cost of the asset to the entity can be measured
services, for rental to others, or for reliably.
administrative purposes
– Are expected to be used during
more than one period INITAL RECOGNTION
Cost is the amount of cash or cash
equivalents paid or the fair value of
the other consideration given to 1, Purchase price, including any import duties paid, but
acquire an asset at the time of its excluding any trade discount and sales tax paid
acquisition or construction.
2, Initial estimate of the costs of dismantling and
Fair value is the price that would be received to
sell an asset or paid to transfer a
removing the item and restoring the site on which it is
liability in an orderly transaction located
between market participants at the
3, Directly attributable costs of bringing the asset to
measurement date.
working condition for its intended use
Carrying is the amount at which an asset is
amount recognised after deducting any
accumulated depreciation and
impairment losses. SUBSEQUENT COSTS
The residual is the net amount which the entity
value expects to obtain for an asset at the
end of its useful life after deducting
CAPITALIZED: probable that future economic benefits, in
the expected costs of disposal. excess of the originally assessed standard of performance of
the existing asset, will flow to the enterprise.
Useful life is either: • extend its useful life, including increased capacity
• The period over which a
• Improve the quality of output
depreciable asset is expected
to be used by the enterprise; • Large reductions in operating costs
or
Subsequent cost recorded as expense
• The number of production or
similar units expected to be All other subsequent expenditure is simply recognised as an
obtained from the asset by the expense in the period in which it is incurred.
enterprise.
Depreciation Spreading the cost of a non-

current asset over its useful life
in order to match the cost of the
asset with the consumption of
the asset’s economic benefits.
Page 26 of 158
IAS 16
DEPRECIATION DISPOSAL PPE
ASSET DEPRECIATION Profit or loss on disposal of PPE

• Are expected to be used during more than one The carrying amount of the asset at the time
accounting period of its sale
• Have a limited useful life
LESS net sale price, which is the price minus
• Are held by an enterprise for use in the production or
any costs of making the sale
supply of goods and service, for rental to others, or for
administrative purposes Journal entry
Purchase PPE Dr PPE / Cr Payable or cash
AMOUNT OF DEPRECIATION: historical cost LESS
the estimated residual value. Closing Dr Inventory account / Cr Profit
DEPRECIATION METHOD inventory or loss account
A, The straight line method: (Cost of asset LESS residual Opening Dr Profit or loss account / Cr
value)/ Expected useful life of the asset inventory Inventory
B, The reducing balance method: fixed percentage of the
carrying amount of the asset, as at the end of the previous
accounting period. EXCHANGE
(i) DEBIT Disposal PPE asset account
of non-current
C, Change in method of depreciation CREDIT Non-current asset account
• Depreciation method reviewed periodically.
Cost
withoftheancost
itemof obtained through (part)
the asset disposed of. exchange
• significant change in the expected pattern of is the fair value of the asset received (unless this
economic benefits from those assets, the method (ii) DEBIT
cannot Accumulated
be measured depreciation account
reliably).
should be changed to suit this new pattern. CREDITentry
Journal Disposal of non-current asset account
with the accumulated
Carrying depreciation
Dr Disposal on the asset as
/ Cr PPE
D, Change in expected useful life or residual value of at the date of sale.
an asset amount of
asset disposal
(iii) DEBIT Receivable account or cash book
New depreciation = (Carrying amount – residual value)/
Revised useful life CREDIT Disposal of non-current asset account
FV of new Dr PPE / Cr Disposal
JOURNAL ENTRY asset received
Dr Depreciation expense / Cr Accumulated depreciation Difference Profit or loss on disposal of PPE
OR = Carrying amount LESS fair
Dr P&L / Cr PPE value
Page 27 of 158
Question 1: Give definition of PPE in accordance to IAS 16?
Question 2: List recognition criteria of PPE in accordance to IAS 16?
Question 3: List and explain following depreciation method:

a. Straight line method
b. Reducing balance method
c. Production unit
Question 4: Explain following term:

d. Useful life
e. Residual value
f. Carrying amount
Question 5: Explain circumstances of derecognition of PPE in accordance to IAS 16?
Question 6: Explain 3 circumstance in which subsequence costs are capitalized as PPE in accordance to
IAS 16?
Question 7: What are the main differences between revaluation model and cost model in accordance to
IAS 16?
Page 28 of 158
Question 1:
The plant and machinery at cost account of a business for the year ended 30 June 20X4 was as follows:
PLANT AND MACHINERY – COST
$ $
20X3 20X3
1 Jul Balance 240,000 30 Sep Transfer disposal account 60,000
20X4 20X4
1 Jan Cash – purchase of plant 160,000 30 Jun Balance 340,000
400,000 400,000
The company's policy is to charge depreciation at 20% per year on the straight line balance basis, with
proportionate depreciation in the years of purchase and disposal.
Required:
A, Explain key transactions incurred with non-current asset during the year? (4 marks)
B, Determine the depreciation charge for the year ended 30 June 20X4 (show working)? (4 marks)
Question 2:
An entity purchased a machine with an estimated useful life of 10 years for $76,000 on 30 September 20X5.
The machine had a residual value of $16,000.
Required: Explain, with journals, the accounting treatment of the above transactions, and prepare
extracted financial statements for the year 31 December 20X6 (5 marks)
Question 3:
B acquired a lorry on 1 May 20X0 at a cost of $30,000. The lorry has an estimated useful life of four
years, and an estimated resale value at the end of that time of $6,000. B charges depreciation on the
straight line basis, with a proportionate charge in the period of acquisition.
extracted financial statements for the year 30 September 20X0?
Page 29 of 158
Question 4:
Gamma purchases a motor vehicle on 30 September 20X1 for $15,000 on credit. Gamma has a policy of
depreciating motor vehicles using the reducing balance method at 15% per annum, pro rata in the years of
purchase and sale.
extracted financial statements for the year 30 November 20X1? (4 marks)
Question 5:
A purchase an asset for $250,000 on 1.1.X1. It has an estimated useful life of 5 years and depreciated using
reducing balance method at rate 40%. On 1.1.20X2 it was decided to change the method to straight line.
extracted financial statements for the year 31.12.20X1 and 31.12.20X2?
Question 6:
Baxter Co purchased an asset for $100,000 on 1.1.X1. It had an estimated useful life of 5 years and it was
depreciated using the straight line method. On 1.1.X2 Baxter Co revised the remaining estimated useful life to
8 years.
Question 7:
The entity planned to scrap the machine at the end of its useful life and estimated that the scrap value at the
purchase date was $4,000. On 1 October 20X8, the entity revised the scrap value to $2,000 due to the
decreased value of scrap metal.
extracted financial statements for the year 30.9.20X9?
Question 8:
The entity planned to scrap the machine at the end of its useful life and estimated that the scrap value at the
purchase date was $4,000. On 1 October 20X6, the entity revised the scrap value to $2,000 due to the
decreased value of scrap metal.
extracted financial statements for the year 30 September 20X6 and 30 September 20X7 (15 marks)
Question 9:
Page 30 of 158
A company purchased an asset on 1 January 20X3 at a cost of $1,000,000. It is depreciated over 50 years by
the straight line method (nil residual value), with a proportionate charge for depreciation in the year of
acquisition and the year of disposal. At 31 December 20X3 the asset was re-valued to $1,200,000. There was
no change in the expected useful life of the asset. The asset was sold on 30 June 20X4 for $1,195,000.
extracted financial statements for the year 31.12.20X3, 31.12.20X4
Question 10:
A company bought a property four years ago on 1 January.20X0 for $ 170,000. Since then property prices
have risen substantially and the property has been revalued at $210,000 at 31.12.20X0.
The property was estimated as having a useful life of 20 years when it was purchased.
Question 11:
Gusna Co purchased a building on 1 January 20X1 for $750,000. At the date of acquisition, the useful life of
the building was estimated to be 25 years and depreciation is calculated using the straight-line method. At 31
December 20X2, an independent valuer valued the building at $1,000,000 and the revaluation was recognised
in the financial statements. Gusna’s accounting policies state that excess depreciation arising on revaluation of
non-current assets can be transferred from the revaluation surplus to retained earnings.
extracted financial statements for the year 31.12.20X2
Question 12:
Banjo Co purchased a building on 30 June 20X8 for $1,250,000. At acquisition, the useful life of the building
was 50 years. Depreciation is calculated on the straight-line basis. 10 years later, on 30 June 20Y8 when the
carrying amount of the building was $1,000,000, the building was revalued to $1,600,000. Banjo Co has a
policy of transferring the excess depreciation on revaluation from the revaluation surplus to retained earnings.
extracted financial statements for the year 30 June 20Y9 (10 marks)
Page 31 of 158
Question 13:
Alpha sells machine B for $50,000 cash on 30 April 20X4. Machine B cost $100,000 when it was purchased
and has a carrying amount of $65,000 at the date of disposal.
extracted financial statements for the year 30 April 20X4?
Question 14:
At 30.6.20X3, a non-current asset (cost $15,000, accumulated depreciation $10,000 at 31 December 20X2
with useful life 5 years) is given in part exchange for a new asset costing $20,500. The agreed trade-in value of
asset given was $5,500, remaining amount paid by cash. New asset has useful life 8 years.
extracted financial statements for the year 31.12.20X3.
Question 15:
The carrying amount of a company's non-current assets was $200,000 at 1 August 20X0. During the year
ended 31 July 20X1, the company sold non-current assets for $25,000 on which it made a loss of $5,000. The
depreciation charge for the year was $20,000.
extracted financial statements for the year 31 July 20X1?
Question 16:
A manufacturing company receives an invoice on 29 February 20X2 for work done on one of its machines.
$25,500 of the cost is actually for a machine upgrade, which will improve efficiency. The accounts department
do not notice and charge the whole amount to maintenance costs. Machinery is depreciated at 25% per annum
on a straight-line basis, with a proportional charge in the years of acquisition and disposal.
Question 17:
Wetherby purchased a machine on 1 July 20X7 for $500,000. It is being depreciated on a straight line basis
over its expected life of ten years. Residual value is estimated at $20,000. On 1 January 20X8, following a
change in legislation, Wetherby fitted a safety guard to the machine. The safety guard cost $25,000 and has a
useful life of five years with no residual value.
extracted financial statements for the year 31 March 20X8?
Question 18:
Page 32 of 158
A business purchased a motor car on 1 July 20X3 for $20,000. It is to be depreciated at 20 per cent per year on
the straight line basis, assuming a residual value at the end of five years of $4,000, with a proportionate
depreciation charge in the years of purchase and disposal.
The $20,000 cost was correctly entered in the cash book but posted to the debit of the motor vehicles repairs
account.
extracted financial statements for the year 30.6.20X4? (8 marks)
Question 19:
Y purchased some plant on 1 January 20X0 for $38,000. The payment for the plant was correctly entered in
the cash book but was entered on the debit side of the plant repairs account.
Y charges depreciation on the straight line basis at 20% per year, with a proportionate charge in the years of
acquisition and disposal, and assuming no scrap value at the end of the life of the asset.
extracted financial statements for the year 31 March 20X0?
Question 20:
On 1 October 20X5 Dearing acquired a machine under the following terms.
Manufacturer's base price 1,050,000
Trade discount (applying to base price only) 20%
Freight charges 30,000
Electrical installation cost 28,000
Staff training in use of machine 40,000
Pre-production testing 22,000
Purchase of a three-year maintenance contract 60,000
On 1 October 20X6 Dearing decided to upgrade the machine by adding new components at a cost of $200,000.
This upgrade led to a reduction in the production time per unit of the goods being manufactured using the
machine.
The machine has useful life 10 years with residual value $10,000
Question 21
Page 33 of 158
Foster has built a new factory incurring the following costs:
$'000
Land 1,200
Materials 2,400
Labour 3,000
Architect's fees 25
Surveyor's fees 15
Site overheads 300
Apportioned administrative overheads 150
Testing of fire alarms 10
Business insurance for first year 12
Required:
a, Determine amount capitalized in respect of the factory? and explain why above items should
be included or excluded in cost of the factory?
b, Explain how to record other cost that not included in cost of the factor?
Page 34 of 158
CHAPTER 3: IAS 38 INTANGIBLE ASSET
LEARNING OBJECTIVE
1. Recognise the difference between tangible and intangible non-current assets.

2. Identify types of intangible assets.
3. Identify the definition and treatment of “research costs” and “development costs” in accordance with
IFRS ® Standards.
4. Calculate amounts to be capitalised as development expenditure or to be expensed from given
information.
5. Explain the purpose of amortisation.
6. Calculate and account for the charge for amortisation.
Page 35 of 158
IAS 38 INTANGBILE ASSET
RECOGNTION CRITERIAS MEASUREMENT AFTER RECOGNITION
1, COST MODEL: Cost –Accumulated Depreciation –

An identifiable non-monetary asset without physical
accumulated impairment losses
substance and MUST BE
2, REVALUATION MODEL: Revalued amount (Fair value –
1, CONTROL AS RESULT OF EVENTS IN PAST:
subsequent accumulated depreciation – any accumulated
Power to obtain the future economic benefits (Revenue
impairment loss
from the sale of products, services or processes OR Cost
PRINCIPLE IN APPLY REVALUATION MODEL
savings or other benefits from use of an asset) flowing from
+, WHEN USED: Only allowed IF ACTIVE MARKET exists
the asset
MEET all the following conditions:
AND to restrict the access of others to those benefits
• The items traded within the market are homogeneous
2, IDENTIFIABLE: Separable from the entity OR Arises from
• Willing buyers and sellers can normally be found at any
contractual/ legal rights
time, and
3, probable future economic benefits attributable to the
• Prices are available to the public
asset – flow to the entity
+ ENTIRE CLASS OF THAT TYPES must be revalued at same
4, cost of asset – measured reliably
time
+ If one asset in class could not revalue because no active
AMORTIZATION market => the asset should carry at cost less accumulated
amortization and impairment loss
+ Regularity that carrying amount not differ from that which
1, IA with FINITE USEFUL LIFE: Amortized over expected useful would be determined using fair value at year end
life
1, Amortization method should reflect the pattern of benefits.
2, If the pattern cannot be determined reliably, amortise by
the straight line method
MEASUREMENT AFTER RECOGNITION
3, Amortisation period should be reviewed at least annually.
4, WHEN BEGIN: available for use (in location and condition
RESEARCH PHASE: investigation of gaining new scientific or
necessary for it to be capable of operating in manner intended
technical knowledge & understanding.
by management)
2, IA with INDEFINIED USEFUL LIFE (no foreseeable limit to DEVELOPMENT PHASE : Application of research findings
the period over which the asset is expected to generate net 1, CRITERIAS FOR CAPITALIZED
cash inflow): No amortization + Checked for IMPAIRMENT (IAS Capitalize start at time when all 6 criteria below met (if one of
36) 6 criteria not met, do not capitalize)
1, Tested for impairment on an annual basis
1, PROBABLE future economic benefit
2, Also considers whether the intangible continues to have
an indefinite life. 2, INTENTION to complete/use/sell asset
3, The change in the useful life assessment for as a change 3, RESOURCES adequate and available to complete and
in an accounting estimate use/sell asset
4, ABILITY to use/sell asset
5, TECHNICAL feasibility of completing asset for use/sell
JOURNAL ENTRY
6, EXPENDITURE can be measure reliably
Acquired intangible asset Dr Intangible asset / Cr Payable 2, AMOUNT CAPITALIZED:
Amortization Dr P&L / Cr Intangible asset Directly attribute OR
Research cost Dr P&L / Cr Payable Allocated on a reasonable AND
Capitalized development Dr Intangible asset / Cr Payable
Consistent basis
cost
TO CREATING, PRODUCING OR PREPARING the asset for its
intended use
BUT NOT EXCEED future economic benefit
3, WHEN CAPITALIZED: First meet the recognition criteria
Page 36 of 158
STANDARD ANSWER FOR IAS 38 INTANGBILE ASSET
QUESTION 1: INTANGIBLE ASSET RECOGNTION
1, Recognized or not recognized as intangible asset
Case 1: The asset should be recognized as intangible asset (1 mark)
Case 2: The asset should not be recognized as intangible asset (1 mark)
2, Criteria for recognizing intangible asset

• Cost of the asset measured reliably because ...........
• The asset has probable future economic benefit because ...........
• The asset is identifiable because ........(separate with entity)
• The entity control the asset because..........(the entity could use the patent to .....)
QUESTION 2: RESEARCH AND DEVELOPMENT COST
1, Research cost should be accounted as expense when incurred

Research stage of the new project START at ..... and STOP at ....., all expense in research stage
should be RECORDED AS EXPENSE
2, Determine total amount of expense related to research cost

Total expense related to research phase: ..........
3, Journal entry of research expense

Dr Expense (P&L) / Cr Cash or payable ......
4, Determine period of not capitalized development cost

From ....., the project is on development phase, however expense in development phase should be
recorded as expense until ...... (when it met capitalization criteria)
5, Determine total uncapitalized development cost

Total development cost not capitalized: ......
6, Journal entry of uncapitalized development cost

Dr Expense (P&L) / Cr Cash or payable ........
7, Determine period of capitalized development cost

From ......., development cost should be CAPITALIZED because it meet all capitalization criteria
included:
• 1, Probable future economic benefit
• 2, Intention to complete/use/sell asset
• 3, Resources adequate and available to complete and use/sell asset
Page 37 of 158
• 4, Ability to use/sell asset
• 5, Technical feasibility of completing asset for use/sell
• 6, Expenditure can be measure reliably
7, Determine total amount capitalized

Total development capitalized for the year: ......
8, Journal entry of capitalized development cost

Dr Intangible asset / Cr Cash or payable ......
9, Determine amount of intangible asset amortized for the period

Capitalized development expenditure amortized for the period should be: .......
Journal entry: Dr Expense (P&L) / Cr Intangible asset ......
10, Presented in financial statement

Total expense related to research and development cost presented in statement of profit or loss for
the period should be: $....
Carrying amount of intangible asset in statement of financial position should be: ....
QUESTION 3: RECOGNTION OF INTANGBILE ASSET
1, Initial purchase of intangible asset

Dr Intangible asst / Cr Cash or payable
2, Amortization of intangible asset for the year

Amortization of intangible asset for the year $......
Journal entry: Dr P&L (amortization expense) / Cr Intangible asset $......
3, Determine carrying amount of intangible at year end

Carrying amount of the intangible asset at year end: $......
4, Presentation in financial statement

Statement of profit or loss
• Amortization expense $........
Statement of financial position

• Intangible asset $.........
Page 38 of 158
Question 1: Give definition of intangible asset in accordance to IAS 38?
Question 2: List and explain recognition criteria of intangible asset in accordance to IAS 38?
Question 3: List recognition criteria for capitalized of internal generated intangible asset?
Question 4: Explain accounting treatment for expenditure on research phases and expenditure on
development phases?
Question 5: Explain key difference for accounting treatment with finite and indefinite useful life
intangible asset?
Question 6:
According to IAS 38 Intangible assets, explain why the following should not should not recognize as
intangible non-current assets in the financial statements of Iota Co?
a, A patent for a new glue purchased for $20,000
b, A licence to broadcast a television series, purchased for $150,000
c, A patent purchased by Green Ltd for $40,000 which allowing them to manufacture a specific
vaccine for the next ten years.
d, Sunshine Publishing has developed several titles over the last decade. The most recent of these
was a daily paper called ‘Healthy life’. The costs associated with developing this title were $210,000.
e, Software that is embedded in computer-controlled equipment that cannot operate without it is an
integral part of the related hardware
f, Application software that is being used on a computer
Question 7:
According to IAS 38 Intangible assets, which of the following statements about research and
development expenditure are correct? Explain why?
a, Research expenditure should be recognized as an expense as incurred.
b, It is necessary to consider whether there will be adequate finance available to complete the project
to decide whether development expenditure qualifies to be recognized as an asset.
c, Development expenditure recognized as an asset must be amortized over a period not exceeding
five years.
d, If certain conditions are met, an entity may decide to capitalize development expenditure.
Page 39 of 158
e, Capitalized development expenditure must be disclosed in the statement of financial position under
intangible non-current assets.
Question 8:
Which following cost should include or exclude from initial cost of an intangible asset
1. its purchase price,
2. import duties
3. non-refundable purchase taxes,
4. trade discounts
5. rebates
6. costs of employee benefits arising directly from bringing the asset to its working
condition;
7. professional fees arising directly from bringing the asset to its working condition; and
8. costs of testing whether the asset is functioning properly.
9. costs of introducing a new product or service, including costs of advertising and promotional
activities;.
10. costs of conducting business in a new location or with a new class of customer, including
costs of staff training;
11. administration and other general overhead costs;
12. costs incurred in using or redeploying an intangible asset;
13. costs incurred while an asset capable of operating in the manner intended by
management has yet to be brought into use; and
14. initial operating losses, such as those incurred while demand for the asset’s output builds up.
15. training costs,
16. advertising and promotional activities
17. relocation or reorganisation costs
Page 40 of 158
Question 1:
Theta Co purchased a patent on 1 July 20X3 for $250,000. Theta Co expects to use the patent for ten years,
after which it will be valueless.
extracted financial statements for the year 31.12.20X3? (2 marks)
Question 2:
PF purchased a quota for carbon dioxide emissions for $15,000 on 30 April 20X6 and capitalised it as an
intangible asset in its statement of financial position. PF estimates that the quota will have a useful life of 3
years.
extracted financial statements for the year 31 December 20X6?
Question 3:
PF purchased 30 quota for carbon dioxide emissions for $15,000 per quota on 1.4.20X6 and capitalised it as
an intangible asset in its statement of financial position. PF estimates that the quota will have a useful life of 5
years.
Question 4:
Beta Ltd is a taxi firm which owns a number of taxi licenses issued by the city. On 1.1.20X2, the Company
bought 40 licenses for $1,000 per license from another taxi firm. Each license is valid for 20 years.
Question 5:
At 1.1.20X1 XY Co has development expenditure of $500,000. Its policy is to amortise development
expenditure at 2% per annum. Accumulated amortisation at 1.1.20X1 is $20,000.
Page 41 of 158
Question 7:
A company had $20 million of capitalized development expenditure at cost brought forward at 1 October
20X7 in respect of products currently in production (accumulated amortization of capitalized development
expenditure at 1 October 20X7 is 0) and a new project began on the same date.
The research stage of the new project lasted until 31 December 20X7 and incurred $1.4 million of costs. From
that date the project incurred development costs of $800,000 per month. On 1 April 20X8 the directors became
confident that the project would be successful and yield a profit well in excess of costs. The project was still in
development at 30 September 20X8. Capitalised development expenditure is amortised at 20% per annum
using the straight line method.
Question 8:
Dempsey's year end is 30 September 20X4. Dempsey commenced the development stage of a project to
produce a new pharmaceutical drug on 1 January 20X4. Expenditure of $40,000 per month was incurred until
the project was completed on 30 June 20X4 when the drug went into immediate production. The directors
became confident of the project's success on 1 March 20X4. The drug has an estimated life span of five years;
time apportionment is used by Dempsey where applicable.
Question 9 (ACCO 1115 - July.2022)

On 1 January 2020, Zosia Ltd purchased a licence that enables it to use a more
efficient manufacturing process to make the plastic that it uses in its products. The licence
is for 5 years and cost Zosia £800,000.
Zosia Ltd is also undertaking its own research to explore unique manufacturing processes
that it could use instead of the process under the licence. Because Zosia was exploring its
own manufacturing processes, it was unclear whether the licence would be used for the full
5 years.
During the year ended 31 August 2021, Zosia determined that its own process to make
plastic would be feasible and therefore the useful life of the licence is 2 years from 1
September 2020.
Zosia’s own manufacturing process had the following amounts of money spent on it:
£’000
Costs incurred 1 January 2020 – 31 August 2020 340
Costs incurred 1 September 2020 – 31 August 2021 734
Depreciation on machine used in the development of the new
26
process for the year ended 31 August 2021
Page 42 of 158
Consultancy fees in July 2021 to confirm environmental impact for
40
marketing purposes
Finance was secured for Zosia’s own manufacturing process on 1 September 2020 and
management allocated staff resources to complete the project. The new manufacturing
process will be used from 1 September 2022.
Required: Explain the accounting treatment in the years ended 31 August 2020 and
31 August 2021 of:
i. The licence; and (11 marks)
ii. Zosia’s own manufacturing process (8 marks)
Journals are not required.
Page 43 of 158
CHAPTER 4: IAS 40 INVESTMENT PROPERTIES
LEARNING OBJECTIVE
1, Definition and recognition of investment property

2, Explain how to record investment property
3, List and explain how to account investment property in accordance to fair value model and cost model?
4, Explain how to account derecognition of investment property
4, Explain how to account when transferring between asset including inventory, property plant and equipment
and investment property.
5, Explain meaning of fair value and how to determine fair value
Page 44 of 158
IAS 40 INVESTMENT PROPERTY
DEFINITION RECOGNITION CRITERIAS
Recognition criteria
Property (land or a building - or part of a building - or both
(owner or by lessee as a right of use) 1, Probable - future economic benefits
Held to earn rentals or for capital appreciation or both, 2, Cost measured reliably
rather than for:
(a) use in the production or supply of goods or services or
for administration (IAS 16); or
INITIAL RECOGNITION
(b) Sale in the ordinary course of business (IAS 2) Initial measured at cost (directly attribute expenditure and
transactions costs
MEASUREMENT AFTER RECOGNITION

TRANSFERS TO OR FROM IP
MODEL 1: FAIR VALUE MODEL
1, WHEN: change in use + EVIDENCE OF THE CHANGE IN
1, Change in FV report in P&L USE
2, NOT depreciation IAS 40 => IAS 16/IAS 02
MODEL 2: COST MODEL 1, FV at date of change of use
2, Apply IAS 16, IAS 2, IFRS 16 = date of change of use
1, similar to IAS 16 – unless held for sale (IFRS 05) or
leased (IFRS 16) IAS 16/IFRS 16 => IAS 40
1, apply IAS 16/IFRS 16 UP TO date of change of use
1 MODEL APPLY FOR ALL INVESTMENT PROPERTY
2, date of change => revalue to FAIR VALUE
3, DIFFERENCE => revaluation under IAS 16
JOURNAL ENTRY INVENTORY to IP (FV)
Any difference between the FV at the date of transfer & it
Initial recognition Dr Investment property / Cr previous carrying amount should be RECOGNIZED IN
Payable PROFIT OR LOSS.
Increase in FV of Dr Investment property / Cr P&L COMPLETES CONSTRUCTION/DEVELOPMENT OF AN
investment property INVESTMENT PROPERTY THAT WILL BE CARRIED AT FAIR
Reduce in FV of Dr P&L / Cr Investment property VALUE
investment property
Any difference between the FV at the date of transfer & the
Rental income Dr Receivable / Cr P&L
previous CA should be RECOGNIZED IN PROFIT OR LOSS.
received
Transfer from Dr Inventory / Cr Investment
investment property property
to inventory
Transfer from Dr PPE / Cr Investment property
investment property
to PPE
Transfer inventory to Dr Investment property / Cr
investment property Inventory
Dr or Cr P&L (depend on gain or
loss)
Transfer PPE to Dr Investment property / Cr PPE
investment property Dr or Cr Revaluation surplus
(depend on gain or loss)
Page 45 of 158
1, Account before transfer between IASs

Before ......, the property is recorded under IAS 16/ IAS 02
IAS 16
The asset should be depreciated until asset transferred to investment property
Depreciation of the property from ...... to ....: $......
Journal entry: Dr Expense / Cr PPE $........
Accumulated depreciation of the building at transferring date .....: $.....
Carrying amount of building at ......: $.......
IAS 02
The asset should be accounted at cost until asset transferred to investment property
2, Account at transferring date

At ...., the asset transfer to investment property, change in fair value should be recorded in (revaluation
surplus / Profit or loss)
Change in fair value of asset: $..........
Journal entry: Dr Investment property / Cr PPE or Inventory / Cr Revaluation surplus or P&L
3, After transfer to investment property
After transfer to investment property, the asset should be accounted under fair value model.
Rental income from investment property
Rental income from investment property should be recorded as income in the period
Rental income recorded in the period: $.....
Journal entry: Dr Receivable / Cr P&L $.....
Apply fair value model for investment property
Investment property under fair value model should not be depreciated
At year end, investment property should be remeasured at fair value with change in fair value recorded in
profit or loss
Change in fair value of investment property at year end: .........
Journal entry: Dr Investment property / Cr P&L
Investment property $...........
Depreciation expense $..........
Page 46 of 158
Rental income $...........
Change in FV of investment property $..........
Other comprehensive income
Revaluation surplus $..............
Page 47 of 158
Question 1: Give definition of investment property in accordance to IAS 40?
Question 2: List and explain recognition criteria of investment property in accordance to IAS 40?
Question 3: What are the main differences between fair value model and cost model in accordance to IAS 40?
Question 4: What are the main differences between fair value model in IAS 40 and revaluation model in IAS
16?
Question 5: How to record below items in financial statement?

a, A property intended for sale in the ordinary course of business
b, A property being constructed for a customer
Question 6: Which one of the following is TRUE OR FALSE? Explain why?

a, Following initial recognition, investment property can be held at either cost or fair value.
b, If an investment property is held at fair value, this must be applied to all of the entity's investment property.
c, An investment property is initially measured at cost, including transaction costs.
d, A gain or loss arising from a change in the fair value of an investment property should be recognised in
other comprehensive income.
Page 48 of 158
Question 1:
On 1 Jan 2010, An entity bought an administration building with $10m, this building has expected useful life
40 years and nil residual value.
On 31.12.2012, the entity no longer needs this building and decided convert this building for rental. At this
date it assessed fair value of the building $15m
The entity earned rental income from the building for the year ended 31.12.2013 was $2m and fair value of the
building at 31.12.2013 was $16m
The entity earned rental income from the building for 3 month from January 2014 to march 2014 was $1m and
decided sell the building at 1.4.2014 for $20m in cash
Required:
Explain, with journals, the accounting treatment of the above transactions, and prepare extracted
financial statements for the year ended 31.12.2010, 31.12.2011, 31.12.2012, 31.12.2013, 31.12.2014
Question 2:
On 1 Jan 20X0, Carter acquired a 30-floor-office building and used for an administrative purpose. The
building had cost of $9m, was useful economic life of 30 years. On 30 June 20X8, the company converted 10
floors of this building and let it out to a third party to earn annual rental fee of $0.5m. The fair value of this
building was judged to be of $0.3m per floor on 30 June 20X8. At the year-end date of 31 December 20X8 the
fair value of the building was estimated at $0.32 million per floor.
Carter uses the fair value model for investment property.
Assumption: value of each floor is equal
Required:
financial statements for the year ended 31 December 20X8 (10 marks)
Page 49 of 158
Question 3:
The draft financial statements of an entity for the year to 31 December 20X9 are being prepared and the
accountant has requested your advice on dealing with the following issues.
An entity has an administration building which it no longer needs. On 1 July 20X9 the entity entered
into an agreement to lease the building out to another company. The building cost $600,000 on 1
January 20X0 and is being depreciated over 50 years, based on the IAS 16 cost model. The entity
applies the fair value model under IAS 40 Investment property and the fair value of the building was
judged to be $800,000 on 1 July 20X9. This valuation had not changed at 31 December 20X9.
The entity owns another building which has been leased out for a number of years. It had a fair value
of $550,000 at 31 December 20X8 and $740,000 at 31 December 20X9.
Required:
Question 4:
An entity owns the following properties at 1 April 2012:
Property A: On 1 April 2012, the entity purchased an office building and used for administrative purposes
with a depreciated historical cost of $2 million, useful economic life of 20 years. On 1 October 2012, the entity
decided to let it out to a third party and reclassified as an investment property applying the entity’s policy of
the fair value model. An independent valuer assessed the property to have a fair value of $2·3 million at 1
October 2012, which had risen to $2·34 million at 31 March 2013.
Property B: Another office building used for normal commercial rent. At 1 April 2012, it had a fair value of
$1·5 million which had risen to $1·65 million at 31 March 2013.
Required:
a, Explain, with journals, the accounting treatment of the above transactions, and prepare
extracted financial statements for the year ended 31 March 2013. (10 marks)
b, On 1.5.2014, the entity disposal property B for $2m in cash. Explain, with journals, the
accounting treatment of this transaction. (2marks)
Page 50 of 158
CHAPTER 5: IAS 36 IMPAIRMENT OF ASSET
LEARNING OBJECTIVE
1. Define, calculate and account for an impairment loss.

2. account for the reversal of an impairment loss on an individual asset
3. Identify the circumstances that may indicate impairments to assets.
4. Describe what is meant by a cash generating unit.
5. State the basis on which impairment losses should be allocated and allocate an impairment loss to the
assets of a cash generating unit.
Page 51 of 158
IAS 36 IMPAIRMENT OF ASSET
SCOPE WHAT IS IMPAIRMENT
Apply for all ASSET EXCEPT FOR:

IMPAIRMENT: CARRYING AMOUNT > RECOVERABLE
AMOUNT
IAS 02, deferred tax asset, IAS 19, IFRS 09 financial asset,
IAS 40 under fair value model; IAS 41 under FV less cost to RECOVERABLE AMOUNT = HIGHER BETWEEN
sell, IFRS 05 non-current asset held for sale
1, FV (IFRS 13) less COST TO DISPOSAL
What: price that would be received to sell the asset in orderly
INDICATOR OF IMPAIRMENT transactions between market participants at measurement
date less direct incremental cost (attribute to the disposal of
the asset)
Internal indicator
2, VALUE IN USE: PRESENT VALUE of the DIRECTLY future NET
1, Observable indicator => value decline significant more cash flows (pre-tax) included net disposal value at end of
than expected due to passage of time or normal use expected useful life
2, Changes in technology, market, economic, legal
3, Increase rates, rate of return affect discount rate
ACCOUNT TREATMENT
4, Carrying amount net asset > market capitalization
External indicator
1, If RECOVERABLE AMOUNT of individual asset could be
1, Evidence of obsolescence/ physical damage estimated?
2, Significant change with adverse affect (asset become + Set-off from SURPLUS: If the assets was previously REVALUED
idle, restructure, plants to disposal, reassessing useful life) and has a SURPLUS
3, Asset perform worse than expected + Write off as EXPENSE
2, If RECOVERABLE AMOUNT of individual asset could NOT be

estimated?
JOURNAL ENTRY Based on: CASH GENERATING UNIT (CGU)

Group of smallest identifiable net assets which
Impairment of Dr P&L / Cr Asset • that generates cash inflows from continuing use, and
specific asset • that are largely independent of the cash inflows from other
Impairment of Dr Specific asset impaired assets or groups of assets
cash generated Dr Goodwill
unit Dr Others non-current asset How to allocate impairment of CGU
Cr P&L 1, Asset specified impaired
2, Goodwill allocate to CGU
3, Other assets of the unit pro rata on the basis on carrying
amount
Should not below HIGHERS
+ Recoverable amount (if determinable) and
+ Zero
(usually assumed current asset already stated at recoverable
amount)
Page 52 of 158
QUESTION 1: IMPAIRMENT OF A SPECIFIC ASSET
1, Account before impairment date

Amortization/ depreciation from begining of the year to impairment review date: .......
Carrying amount of asset at impairment date: $.....
Journal entry: Dr P&L / Cr Asset $....
2, Account at impairment date

At ...., the asset has impairment reviewed
Value in use of the asset at this date: $....
Fair value less cost to sell of the asset at this date: $....
Recoverable amount is higher between value in use $.... and fair value less cost to sell $....,
recoverable amount should be $....
Carrying amount of asset at ..... ($....) is higher than recoverable amount ($....), the asset
has been impaired by $....
Amount of impairment: $....
3, Account after impairment review

After impairment: carrying amount of asset is $.... and is depreciated over .... years (revised
useful life of asset)
Depreciation of the asset for period from impairment review date to year end: $.....
Carrying amount of the asset at the year end: $.....

• Depreciation expense
• Impairment loss
• PPE or Intangible asset
Page 53 of 158
QUESTION 2: IMPAIRMENT OF CASH GENERATED UNIT
1, Cash generated unit impaired

Carrying amount of the cash generated unit $...... is more than recoverable amount
$......, the asset has been impaired with amount of $....
2, How to allocate impairment loss of cash generated unit

Impairment should be allocated to asset specific impaired first
Remained should be allocated to goodwill
The impairment balance should be allocated to other non-current asset based on pro-
rata basic
Current asset has not impaired because it reflects its net reliable value
3, Apply allocate impairment loss to cash generated unit

Asset specific impaired
Impairment loss allocated to asset impairment loss should be: $.....
Goodwill
Impairment, then, should be allocated to goodwill first with amount of $....
Journal entry: Dr P&L / Cr Goodwill $....
Asset specific impaired
Impairment remained $..... should be allocated to building, plant and equipment based
on their carrying amount
Impairment allocated to building should be: $.....
After impairment review, carrying amount of building should be $.....
Journal entry: Dr P&L / Cr Building $....
Impairment allocated to plant and equipment should be: $
After impairment review, carrying amount of plant and equipment should be $.....
Journal entry: Dr P&L / Cr Plant and equipment $....
Page 54 of 158
Question 1: If an impairment review is carried out, how to measure a potentially impaired asset?
Question 2: Explain how to determine the recoverable amount of an asset?
Question 3: When does the company need to carry the impairment review for
- PPE
- Investment property
- Intangible asset (IA with finite UFL)
- Intangible asset (IA with infinite UFL and goodwill)
Question 4: List and explain 3 external indicators that indicate impairment of asset (6 marks)
Question 5: List 3 internal indicators that indicate impairment of asset (6 marks)
Question 6: Why do we need to test impairment of cash generating unit? (2 marks)
Question 7: When does the company need to carry the impairment review for Cash Generating unit?
Question 8:
Which one of the following would be internal evidence of impairment? Explain why it is an indicator of
impairment?
a, The economic performance of the machine had declined.
b, There were legal and regulatory changes affecting the operating of the machine.
c, There was an unexpected fall in the market value of the machine.
d, New technological innovations were producing better machines.
e, An unusually significant fall in the market value of one or more assets
f, Evidence of obsolescence of one or more assets
g, An increase in market interest rates used to calculate value in use of the assets
h, Advances in the technological environment in which an asset is employed have an adverse impact on its
future use
i, An increase in interest rates which increases the discount rate an entity uses
k, The carrying amount of an entity's net assets is lower than the entity's number of shares in issue multiplied
by its share price
Page 55 of 158
l, The estimated net realisable value of inventory has been reduced due to fire damage although this value is
greater than its carrying amount
Page 56 of 158
Question 1:
On 30 September 20X7 the impairment review was carried out. The following amounts were established in
respect of the machine:
Carrying amount 850,000
Value in use 760,000
Fair value 850,000
Costs of disposal 30,000
Required: Explain, with journals, the accounting treatment of the above transactions in accordance to
IAS 36 Impairment of asset, and prepare extracted financial statements for the year ended 30
September 20X7 (10 marks)
Question 2:
A machine has a carrying amount of $85,000 at the year end of 31 March 20X9. Its market value is $78,000
and costs of disposal are estimated at $2,500. A new machine would cost $150,000. The company which owns
the machine expects it to produce net cash flows of $30,000 per annum for the next three years. The company
has a cost of capital of 8%.
Required: Explain, with journals, the accounting treatment of the above transactions in accordance to
IAS 36 Impairment of asset, and prepare extracted financial statements for the year ended 31 March
20X9 (10 marks)
Question 3:
The following information relates to an item of plant at 31 December 20X9
(i) Its carrying amount in the statement of the financial position is $3 million.
(ii) The company has received an offer of $2.7 million from a company in Japan interested in buying the plant.
(iii) The present value of the estimated cash flows from continued use of the plant is $2.6 million.
(iv) The estimated cost of shipping the plant to Japan is $50,000.
Required:
Explain, with journal entry, how to account for above transaction in accordance to IAS 36: Impairment
of asset and prepare extracted financial statements for the year ended 31.12.20X9? (10 marks)
Page 57 of 158
Question 4:
At 30 September 20X9, an entity's trial balance showed a brand at cost of $30 million, less accumulated
amortisation brought forward at 1 October 20X8 of $9 million. Amortization is based on a ten-year useful life.
An impairment review on 1 April 20X9 concluded that the brand had a value in use of $12 million and a
remaining useful life of three years. However, on the same date Sandown received an offer to purchase the
brand for $15 million.
Required:
Question 5:
An entity acquired a non-current asset on 1 October 20X0 at a cost of $100,000 which had a useful life of ten
years and a nil residual value. The asset had been correctly depreciated up to 30 September 20X4. At that date
the asset was damaged and an impairment review was performed. On 30 September 20X4, the fair value of the
asset less costs of disposal was $30,000 and the expected future cash flows were $8,500 per annum for the next
five years. The current cost of capital is 10%.
Required:
Question 6:
A business which comprises a single cash-generating unit has the following assets at 31 December 20X9
$'m
Goodwill 3
Patent 5
Property 10
Plant and equipment 15
Net current assets 2
Following an impairment review it is estimated that the value of the patent is $2 million and the recoverable
amount of the business is $24 million.
Required: Explain, with journal entry, how to account for above transaction in accordance to IAS 36:
Impairment of asset and prepare extracted financial statements for the year ended 31 December 20X9
(10 marks)
Page 58 of 158
Question 7:
The draft financial statements of Plethora plc for the year to 30 June 20X0 are being prepared and the
accountant has requested your advice on dealing with the following issues.
Plethora plc owns a retail business which has suffered badly during the recession. Plethora plc treats this
business as a separate cash generating unit.
The carrying amounts of the assets comprising the retail business are:
$’000
Building 900
Inventory 70
Other current assets 130
Goodwill 40
An impairment review has been carried out as at 30 June 20X0 and the recoverable amount of the cash
generating unit is estimated at $1.3m.
Required:
of asset and prepare extracted financial statements for the year ended 30 June 20X0 (10 marks)
Question 8:
A cash-generating unit at 31 July 20X0 comprises the following assets:
$'000
Building 700
Goodwill 90
Current assets 20
One of the machines, carried at $40,000, is damaged and will have to be scrapped. The recoverable amount of
the cash-generating unit is estimated at $750,000.
Required:
of asset and prepare extracted financial statements for the year ended 31 July 20X0 (10 marks)
Page 59 of 158
Question 9:
The net assets of Fyngle, a cash generating unit (CGU) at 31 March 20X6 are:
Property, plant and equipment 200,000
Allocated goodwill 50,000
Product patent 20,000
Net current assets (at net realisable value) 30,000
As a result of adverse publicity, Fyngle has a recoverable amount of only $200,000.

Required:
of asset and prepare extracted financial statements for the year ended 31 March 20X6 (10 marks)
Page 60 of 158
CHAPTER 6: IFRS 15 REVENUE
LEARNING OBJECTIVE
1) Explain and apply the principles of recognition of revenue: (i) Identification of contracts ; (ii)
Identification of performance obligations; (iii) Determination of transaction price; (iv) Allocation of
the price to performance obligations; (v) Recognition of revenue when/as performance obligations
are satisfied.
2) Explain and apply the criteria for recognising revenue generated from contracts where performance
obligations are satisfied over time or at a point in time.
3) Describe the acceptable methods for measuring progress towards complete satisfaction of a
performance obligation.
4) Explain and apply the criteria for the recognition of contract costs.
5) Apply the principles of recognition of revenue, and specifically account for the following types of
transaction: i) principal versus agent; ii) consignments
6) Prepare financial statement extracts for contracts where performance obligations are satisfied over
time.
Page 61 of 158
IFRS 15 REVENUE FROM CONTRACT WITH CUSTOMER
5 STEPS IN REVENUE RECOGNTION SPECIAL CASE IN IFRS 15
STEP 1: IDENTIFY CONTRACT WITH CUSTOMER

Contract: an agreement between two or more parties that creates PRINCIPLE AND AGENTS
enforceable rights and obligations.
APPLY IFRS 15 MODEL WHEN
1, Contract exits (agreement => create enforceable rights & 1, PRINCIPLE: CONTROL goods/service BEFORE transfer to
obligations) customer
2, All following criteria met => CPA IP Revenue = gross amount
- The contract has COMMERICAL SUBTANCE (risk, timing,
amount of cash flow) CONTROL OF GOODS INCLUDED
- PROBABLE collect the consideration (customer’s ability and + 1, primary responsible for fulfilling the promise
intention to pay)
- Parties APPROVED to the contract + 2, has inventory risk
- Each PARTY’S RIGHTS IDENTIFIED + 3, discretion in establishing the price specified goods/service
- Identify PAYMENT TERMS
3, AGENT: ARRANGE for goods/service to be provided by other
party
STEP 2: IDENTIFY PERFORMANCE OBLIGATION Revenue = fee or commission
PERFORMANCE OBLIGATIONS (POS)
A promise in contract EITHER
• good/service is distinct OR CONSTRUCTION CONTRACT
• series of distinct goods/service substantially the same +
same pattern of transfer to customer
IDENTIFY PO FOR EACH PROMISE TRANSFER TO CUSTOMER EITHER Key journal entry:
1, A good or service that is DISTINCT
Cost incurred for the Dr Construction in progress /
• customer can benefit from good/service on its own OR contract Cr Payable
together with other ready available resources &
• promise separate identifiable from other promise in contract Cost of sale recognized Dr Cost of sale / Cr
Construction in progress
Revenue incurred Dr Construction in progress /

STEP 3: DETERMINE TRANSACTION PRICE Cr Revenue
TRANSACTION PRICE: amount of consideration EXPECTS to be Invoice to customer Dr Receivable / Cr

entitled (excluded amount collect on behalf third parties) Construction in progress
STEP 4: ALLOCATE TRANSACTION PRICE TO PO

On the basis of STANDARD ALONE SELLING PRICE (SASP) TO
ALLOCATE
SAP: the price at which an entity would sell a promised good or
service separately to a customer.
STEP 5: RECOGNIZED REVENUE WHEN PO SATISFIED

WHEN RECOGNIZED => PO is satisfied = TRANSFER promised goods
or service to customer
1, SATISFIED AT POINT OF TIME => Asset considered transferred
when customer obtains CONTROL of that assets
1, Control: Ability to direct the use of and obtain substantially all of
remaining benefits from the asset
Factor consider:
+ 1, present right to payment for the asset
+ 2, customer has legal title of the asset
+ 3, transfer physical possession of the asset
+ 4, customer has significant risk & rewards of ownership
+ 5, customer accepted the asset
2, SATISFIED OVER TIME
Method 1: input or output method
Page 62
Method of 158 on straight line over period contract (customer
2: recognized
simultaneously receives & consume benefits)
STANDARD ANSWER FOR IFRS 15
QUESTION 1: CONTRACT WITH MORE THAN PO

1, Determine performance obligations in the contract
There are .... performance obligations in the contract:
Performance obligation 1: ..... (Transfer mobile phone handset)
Performance obligation 2: ..... (Provide network service to customer for 3 years)
2, Determine transaction price and allocate transaction price to PO

Transaction price of the contract: $...... and should be allocated to PO based on standard alone
price
Transaction price SAP (standard alone price)
PO1:
PO2:
Total
3, Recognized revenue
PO related to goods
PO1 related .... satisfied when the entity transfer control of the handset and memory card to
customer.
When the entity transfer ..... to customer at ...., revenue related to PO1 recognized with amount
$.....
Journal entry: Dr Contract asset / Cr Revenue $....
PO2 related to service which satisfy over .... years, this PO should recognize revenue over ....
years
After first year of service, revenue recognized related to network service: $.....
Journal entry: Dr Cash / Cr Revenue / Cr Contract asset $....
4, Presentation in financial statement

Total revenue recognized in statement of profit or loss for the contract: $....
Contract asset with amount $..... is presented as (current asset/ non-current asset) in statement
of financial position
Page 63 of 158
QUESTION 2: CONSTRUCTION CONTRACT
1, Determine percentage of completion

% completed of the contract: .....%
2, Determine elements in financial statement related to construction contract

Revenue
Revenue recognized for the year ended: $......
Journal entry: Dr Contract asset / Cr Revenue
Cost of sale
Cost of sale for the year: $........
Journal entry:
• Cost incurred: Dr Construction contract/ Cr Cash or payable
• Cost of sale: Dr Cost of sale / Cr Contract asset
• Issued invoice to customer: Dr Receivable / Cr Construction contract
Contract asset / liability
Total amount expected received from the contract at year end: Profit ($....) + Cost to date
($....) = $.....
This amount MORE/LESS than amount of invoice to customer ($....), hence there is an contract
(ASSET/ LIABILITY)
Contract ASSET / LIABILITY: $.......

Receivable is presented as current asset in statement of financial position: $.......
Contract asset is presented as current asset in statement of financial position: $......
Contract liability is presented as current liability in statement of financial position: $......
Revenue in statement of profit or loss: $......
Cost of sale in statement of profit or loss: $......
Page 64 of 158
QUESTION 3: CORRECT MISSTATEMENT IN REVENUE RECOGNTION –
PRINCIPLE AND AGENT
1, Principle
Correct entry for principle
Incorrect entry for principle
Adjustment entry for principle:
2, Agent
Correct entry for agent:
Incorrect entry for agent:
Adjustment entry for agent:
QUESTION 4: CORRECT MISSTATEMENT RELTED TO CONTRACT WITH MORE

THAN 1 PO
Correct entry for principle
Incorrect entry for principle
Adjustment entry for principle:
Adjusted financial statement:
Page 65 of 158
Question 1: List and explain 5 principles of recognition of revenue (5 marks)
Question 2: Explain the meaning of performance obligation? (2marks)
Question 3: How can a performance obligation be satisfied in case of:

- Sales of goods
- Providing telecommunication services
- Perform construction contract
Page 66 of 158
Question 1:
On 1 Jan 20X0, a mobile phone company gives customers a free handset when they sign a two-year contract
for provision of network services. The handset has a stand-alone price of $100 and the contract is for $20 per
month, paid in arrears on annual basis.
Required:
Required: Explain, with journal entry, how to account for above transaction in accordance to IFRS 15:
Revenue from contract with customer and prepare extracted financial statements for the year ended 31
December 20X0 and 31 December 20X1 (10 marks)
Question 2:
On 1 April 20X0, A mobile phone company gives customers a handset WITH $500 when they sign a THREE-
year contract for provision of network services. The handset has a stand-alone price of $1500 and the contract
is for $150 per month, paid in arrears on annual basis.
Required:
Explain, with journal entry, how to account for above transaction in accordance to IFRS 15: Revenue
from contract with customer and prepare extracted financial statements for the year ended 31 March
20X1 and 31 March 20X2 (10 marks)
Question 3:
On 1.4.20X7, a mobile phone company gives customers a FREE handset AND a memory card when they sign
a THREE-year contract for provision of network services with price $160 per months. The handset has a
stand-alone price of $1000, the memory card has standard alone price $50 and the network service has
standard alone price is for $400 per quarter. The payment is made in arrears on annual basis.
Required:
from contract with customer and prepare extracted financial statements for the year ended 31 March
20X8 and 31 March 20X9 (10 marks)
Question 4:
A company entered into a contract on 1 January 20X5 to build a factory. The total contract revenue was $2.8
million. At 31 December 20X5 the contract was certified as 35% complete. Costs incurred during the year
were $740,000 and costs to complete are estimated at $1.4 million. $700,000 has been billed to the customer
but not yet paid.
December 20X5 (10 marks)
Page 67 of 158
Question 5:
The following details apply to a contract where performance obligations are satisfied over time at 31
December 20X5.
Total contract revenue 120,000
Costs to date 48,000
Estimated costs to completion 48,000
Amounts invoiced 50,400
The contract is agreed to be 45% complete at 31 December 20X5.

Required:
from contract with customer and prepare extracted financial statements for the year ended 31
Question 6:
Springthorpe entered into a three-year contract on 1 January 20X2 to build a factory. This is a contract where
performance obligations are satisfied over time. The percentage of performance obligations satisfied is
measured according to certificates issued by a surveyor. The contract price was $12 million. At 31 December
20X2 details of the contract were as follows.
$m
Costs to date 9
Estimated costs to complete 6
Amounts invoiced 4
Certified complete 40%
Required:
from contract with customer and prepare extracted financial statements for the year ended 31
Page 68 of 158
Question 7:
An entity entered into a contract in respect of which performance obligations are satisfied over time on 1
January 20X4. The contract is expected to last 24 months. The price which has been agreed for the contract is
$5 million. At 30 September 20X4 the costs incurred on the contract were $1.6 million and the estimated
remaining costs to complete were $2.4 million. On 20 September 20X4, the entity received a payment from the
customer of $1.8 million which was equal to the total of the amounts invoiced. The entity calculates the stage
of completion of its performance obligations on contracts on the basis of amounts invoiced to the contract
price.
Sep 20X4 (10 marks)
Question 8:
An entity entered into a contract in respect of which performance obligations are satisfied over time on
1/4/20X4. The contract is expected to last 24 months. The price which has been agreed for the contract is $5
million. At 30 September 20X4 the costs incurred on the contract were $1 million and the estimated remaining
costs to complete were $60,000 per month for remained months. On 20 September 20X4, the entity received a
payment from the customer of $1.8 million which was $200,000 below to the total of the amounts invoiced.
The entity calculates the stage of completion of its performance obligations on contracts on the basis of cost
incurred.
Question 9:
An entity entered into a contract in respect of which performance obligations are satisfied over time on 1
January 20X4. The contract is expected to last 24 months. The price which has been agreed for the contract is
$5 million. At 30 September 20X4 the costs incurred on the contract were $1.6 million and the estimated
remaining costs to complete were $4.4 million. On 20 September 20X4, the entity received a payment from the
customer of $1.8 million which was equal to the total of the amounts invoiced. The entity calculates the stage
of completion of its performance obligations on contracts on the basis of amounts invoiced to the contract
price.
Page 69 of 158
Question 10:
Haggrun Co has a construction contract in progress, the details of which are as follows
Start contruction of the asset: 1.4.20X2 Happy Happy

31.12.20X2 31.12.X3
(first year) (second year)
$'000 $'000
Total contract revenue 300 320
Costs incurred to date 90 120
Estimated costs to completion 135 100
Payments invoiced 116 160
Amount received 110 140
Agreed work certified 150 240
Required:
a. Explain, with journal entry, how to account for above transaction in accordance to IFRS 15:
Revenue from contract with customer and prepare extracted financial statements for the year
ended 31 December 20X2 (10 marks)
b. Explain, with journal entry, how to account for above transaction in accordance to IFRS 15:
Revenue from contract with customer and prepare extracted financial statements for the year
ended 31 December 20X3 (10 marks)
Page 70 of 158
Question 11:
Bridgenorth has undertaken a $5 million contract to repair a railway tunnel. The contract was signed on 1 April
20X8 and the work is expected to take two years. This is a contract where performance obligations are
satisfied over time and progress in satisfying performance obligations is to be measured according to % of
work completed as certified by a surveyor. Bridgenorth has an enforceable right to payment for performance
completed to date.
At 31 December 20X9 the details of the contract were as follows:
20X9 ($) 20X8 ($)
Total contract value 5,000,000 5,000,000
Costs to date 3,600,000 2,300,000
Estimated costs to completion 700,000 2,100,000
Work invoiced to date 3,000,000 2,000,000
Cash receive d to date 2,400,000 1,500,000
% certified complete 75% 40%
Required:
a. Explain, with journal entry, how to account for above transaction in accordance to IFRS
15: Revenue from contract with customer and prepare extracted financial statements for
the year ended 31 December 20X8 (5 marks)
b. Explain, with journal entry, how to account for above transaction in accordance to IFRS
15: Revenue from contract with customer and prepare extracted financial statements for
the year ended 31 December 20X9 (5 marks)
Page 71 of 158
Question 12:
Newmarket's revenue as shown in its draft statement of profit or loss for the year ended 31 December 20X9 is
$27 million. This includes $8 million for a consignment of goods sold on 31 December 20X9 on which
Newmarket will incur ongoing service and support costs for two years after the sale.
The supply of the goods and the provision of service and support are separate performance obligations under
the terms of IFRS 15 Revenue from contracts with customers.
The cost of providing service and support is estimated at $800,000 per annum. Newmarket applies a 30%
mark-up to all service costs.
Amount of $8million was invoiced to customer and fully received on 31 December 20X9.
Question 13:
$270 million.
Revenue includes an amount of $20 million for cash sales made through Newmarket 's retail outlets during the
year on behalf of Francais (Newmarket received $2m commisison fee related to this sale). Newmarket, acting
as agent, is entitled to a commission of 10% of the selling price of these goods.
Question 14:
$270 million with cost of sale $200m and closing inventory $30m
Revenue includes an amount of $22 million related to 20m inventory transfer to Francais 's retail outlets.
Francais will sell this inventory with price of $22m (Franciais received 10% commisison fee related to sale).
At year end, Francais has sold 80% of inventory and received cash, but this amount has not paid to
Newmarket.
Page 72 of 158
CHAPTER 7: IAS 10 EVENT AFTER REPORTING PERIOD
LEARNING OBJECTIVE
1) Define an event after the reporting period in accordance with IFRS Standards.
2) Classify events as adjusting or non-adjusting.
3) Distinguish between how adjusting and non-adjusting events are reported in the financial
statements.
Page 73 of 158
IAS 10 EVENTS AFTER REPORTING DATE
ADJUSTING EVENT NON-ADJUSTING EVENTS
WHAT: Provide additional evidence of conditions WHAT: Do not affect the situation at the reporting date, should
existing at the reporting date, will cause adjustments not be adjusted for, but should be disclosed in the financial
to be made to the assets and liabilities in the financial statements
statements
EXAMPLE:
EXAMPLE
1, Acquisition or disposal of subsidiary
1, Settlement of a court case
2, Announcement of restruction plan
2, Information that asset impaired
3, purchase or disposal of asset
3, determine proceeds of asset disposal or cost
4, destruction of asset through accident
4, Bonus payment if constructive obligation
5, issue share
5, fraud or error
6, change in asset price, exchange rate, tax rate
6, After reporting date entity will cease trading => not
prepare on going concern basis 7, commencement of litigation arise even after reporting date
8, declaration of dividends
DISCLOSURE:
+ Nature
+ Estimate financial effect OR reason why could not reasonable
estimated
Page 74 of 158
Question 1: what is an event after reporting period in accordance with IAS10? (2marks)
Question 2: What is the difference between adjusting events and non-adjusting events in accordance
with IAS10. Give one example for each type of event. (2marks)
Page 75 of 158
Question 1
1. After reporting date, the entity received valuation report and valuation of property providing
evidence of impairment in value at the reporting period
2. Sale of inventory held at the end of the reporting period for less than cost
3. Discovery of fraud or error affecting the financial statement
4. The insolvency of a customer with a debt owing at the end of the reporting period which is still
outstanding
Required:
Explain, with journal entry (if any), how to account for above transaction in accordance to IFRS 10:
Events after reporting period (8 marks)
Question 2
The accounting treatment of the following material events after the reporting period needs to be determined.
1. The bankruptcy of a major customer, with a substantial debt outstanding at the end of the
reporting period
2. A fire destroying some of the company's inventory (the company's going concern status is not
affected)
3. An issue of shares to finance expansion after reporting date
4. Sale for less than cost of some inventory held at the end of the reporting period
5. Sale for MORE than cost of some inventory held at the end of the reporting period
Required:
Page 76 of 158
Question 3
In finalising the financial statements of a company for the year ended 30 June 20X4, which of the
following material matters should be adjusted for? and explain how these transactions are recorded in
financial statement?
1. A customer who owed $180,000 at the end of the reporting period went bankrupt in July 20X4.
2. The sale in August 20X4 for $400,000 of some inventory items valued in the statement of
financial position at $500,000.
3. The sale in August 20X4 for $600,000 of some inventory items valued in the statement of
financial position at $500,000
4. A factory with a value of $3,000,000 was seriously damaged by a fire in July 20X4. The factory was
back in production by August 20X4 but its value was reduced to $2,000,000.
5. The company issued 1,000,000 ordinary shares in August 20X4.
Required:
Question 4
The financial statements of Overexposure Co for the year ended 31 December 20X1 are to be approved
on 31 March 20X2. Before they are approved, the following events take place.
1. On 14 February 20X2 the directors took the strategic decision to sell their investment in Quebec
Co despite the fact that this investment generated material revenues.
2. On 15 March 20X2, a fire occurred in the eastern branch factory which destroyed a material
amount of inventory. It is estimated that it will cost $505,000 to repair the significant damage
done to the factory.
3. On 17 March 20X2, a customer of Overexposure Co went into liquidation. Overexposure has
been advised that it is unlikely to receive payment for any of the outstanding balances owed by
the customer at the year end.
Required:
Page 77 of 158
Question 5:
The financial statements of Four Seasons Ltd. for the year ended 31 December 20X1 are to be approved
on 31 March 20X2. The following events take place after the reporting period and before the financial
statement are approved:
1. The insolvency of a customer with a debt owing at the Statement of Financial Position date which
is still outstanding.
2. Sale of inventory held at the Statement of Financial Position date for less than cost
3. A valuation of property providing evidence of impairment in value at the Statement of Financial
Position date.
4. Discovery of fraud or error affecting the financial statements
Required:
Question 6:
The financial statements of Four Seasons Ltd. for the year ended 31 December 20X1 are to be approved on 31
March 20X2. The following events take place after the reporting period and before the financial statement are
approved:
1. A factory with a value of $1,000,000 was destroyed by fire
2. Some inventory in the Statement of Financial Position at $300,000 was sold for $290,000
3. The company issued 1,000,000 ordinary shares
Required: Explain, with journal entry (if any), how to account for above transaction in accordance to
IAS 10: Events after reporting period (8 marks)
Question 7:
Explain, with journal entry (if any), how to account for above transaction in accordance to IAS 10 for
the period ended 31.12.2020?
1, Fire on 5.2.2021, inventory with $200,000 has been destroyed.
2, On 13.2.2021, a customer with receivable balance $30,000 declare bankruptcy
3, On 15.3.2021, market value of share price of the entity reduce significantly
4, On 31.12.2020, the entity has BGP 100,000 at exchange rate of $1.2 per 1 BGP. This amount recognized as
$120,000 in financial statement at 31.12.2020. At 15.3.2021, exchange rate change to $1 = 1 BGP.
5, On 31.12.2020, the entity has one investment recorded at cost $100,000 with annual income $70,000 per
annum, this investment account 20% total asset and income of the entity. At 15.3.2021, the entity sell this
investment for $500,000. At 15.3.2021, the entity identify some plants lost which identified after counting
asset.
6, On 15.3.2021, the entity identify a machine has been impaired at 31.12.2020
Page 78 of 158
7, At year end, the entity has 100,000 unit inventory with cost $3 per unit. On 15.1.2021, the entity sell 30,000
unit with sale price $2.5 per unit and cost to sell $0.2 per unit
8, At year end, the entity has 100,000 unit inventory with cost $3 per unit. On 15.1.2021, the entity sell 30,000
unit with sale price $3.5 per unit and cost to sell $0.2 per unit.
At year end, the entity capitalized a R&D cost as intangible asset of $80,000. The R&D project start from
1.3.2020 with cost per month $10,000. The project in development progress at year end. On 15.3.2021,
accountant identify date the project meet capitalized criteria 1.10.2020.
Page 79 of 158
CHAPTER 8: PRESENTATION FINANCIAL STATEMENT
LEARNING OBJECTIVE
1. Statements of financial position

a) Recognise how the accounting equation, accounting treatments (as stipulated within relevant IAS 02, 16, 38,
40, 36, IFRS 15, IAS 10) and business entity concept underlie the statementof financial position.
b) Understand the nature of reserves.
c) Identify and report reserves in a companystatement of financial position.
d) Prepare a statement of financial position or extracts as applicable from given information using accounting
treatments as stipulated within relevant IAS 02, 16, 38, 40, 36, IFRS 15, IAS 10
e) Understand why the heading retained earnings appears in a company statement of financial position.
2. Statements of profit or loss and other comprehensive income
a) Prepare a statement of profit or loss and other comprehensive income or extracts as applicable from given
information using accounting treatments as stipulated within relevant IAS 02, 16, 38, 40, 36, IFRS 15, IAS 10
b) Understand how accounting concepts apply to revenue and expenses.
c) Calculate revenue, cost of sales, gross profit, profit for the year, and total comprehensive income from given
information.
d) Disclose items of income and expenditure in the statement of profit or loss.
e) Record income tax in the statement of profit or loss of a company.
f) Understand the interrelationship between the statement of financial position and the statement of profit or
loss and other comprehensive income.
g) Identify items requiring separate disclosure on the face of the statement of profit or loss.
Page 80 of 158
IAS 01 PRESENTATION FINANCIAL STATEMENT
STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS COMPRISES
CURRENT ASSETS Statement of financial position;

+ Expected to be realised in the entity's normal operating cycle Statement of profit and loss and other comprehensive income for the period;
+ Held for trading Statement of changes in equity for the period;
+ Realised within 12 months after the reporting period Statement of cash flows for the period;
+ Cash and cash equivalents Notes, comprising a summary of significant accounting policies and other explanatory
information;
CURRENT LIABILITIES
COMPARATIVE INFORMATION: applies an accounting policy retrospectively
+ settled within the entity's normal operating cycle or makes a retrospective restatement of items in its financial statements, or when it
+ Settled within 12 months reclassifies items in its financial statements
+ the entity does not have an unconditional right to defer

settlement beyond 12 months
GENERAL REQUIREMENT
STATEMENT OF COMPERHENSIVE
INCOME going concern: management shall make an assessment of an entity’s ability to
continue as a going concern.
STATEMENT OF PROFIT OR LOSS: An entity may present accrual basis of accounting

the profit or loss section in a separate statement of profit or loss. separately each material class of similar items
THE OTHER COMPREHENSIVE INCOME: not offset assets and liabilities or income and expenses
+ will not be reclassified subsequently to profit or loss; and present at least annually
+ will be reclassified subsequently to profit or loss when specific
conditions are met.
NOTES
+ Present information about the basis of preparation of the

financial statements and the specific accounting policies used
+ evaluate the entity’s objectives, policies and processes for
managing capital.
+ additional disclosures on puttable financial instruments
classified as equity instruments.
Page 81 of 158
STANDARD FORMART FOR PREPARE FINANCIAL STATEMNT
1, Non-current asset
$’000
Opening Land and building at cost
add: Opening plant and equipment at cost
Less: Opening accumulated decrepitation of building
Less: Opening accumulated decrepitation of plant and equipment
Adjustment:
Less: Depreciation of building (working 2)
Less: Depreciation of plant and equipment (working 3)
Add: Revaluation surplus of land (working 2)
Add: Revaluation surplus of building (working 2)
Less: Impairment loss (working 4)
Non-current asset in statement of financial position at year end
2, Current asset
$’000
Inventory at 31.3.20X3
Add: Receivable
Adjustment:
Add: Contract asset (Working 1)
Current asset in SOFP as at year end
3, Revenue
$’000
Revenue reported on trial balance
Adjustment:
Add: Revenue from construction contract (working 1)
Page 82 of 158
Less: Misstatement in revenue recognition
Revenue for the period ended at year end
4, Cost of sale
$’000
Cost of sale reported on trial balance
Adjustment:
Add: Cost of sale from construction contract (working )
Add: Depreciation expense of building, plant, equipment (working )
Less: Incorrect cost of sale recognition (working )
Cost of sale for the period ended at year end
5, Distribution expense
$’000
Distribution expense reported in trial balance
Adjustment:
Add: Depreciation of building (working 2)
Add: Depreciation of plant and equipment (working 3)
Add: Impairment loss of asset (working 4)
Revenue in SOPL for the period ended
6, Equity
$’000
Ordinary share
Add: Share premium
Add: Opening retained earning
Adjustment
Add: Revaluation surplus (working 2)
Add: Profit for the year
Page 83 of 158
Less: Dividend paid
Equity in statement of financial position as at year end
Page 84 of 158
Question 1:
Fresco : Trial balance as at 31 March 20X2 $'000 $'000

Equity shares of 50 cents each 45,000
Share premium 74,200
Retained earnings at 1 April 20X1 5,100
Property (12 years) – at cost 48,000
Plant and equipment – at cost 47,500
Investment property - fair value at 1 April 20X1 10,000
Accumulated amortisation of property at 1 April 20X1 16,000
Accumulated depreciation of plant and equipment at 1 April 20X1 33,500
Inventory at 31 March 20X2 25,200
Trade receivables 28,500
Bank (liability) 1,400
Trade payables 27,300
Revenue 280,800
Cost of sales 280,800
Distribution costs 16,100
Administrative expenses 26,900
Bank interest 300
The following notes are relevant:
(i) Revenue as shown in its draft statement of profit or loss includes $8 million for a consignment of goods
sold on 31 March 20X2 on which the entity will incur ongoing service and support costs for two years
after the sale.
The supply of the goods and the provision of service and support are separate performance obligations
under the terms of IFRS 15 Revenue from contracts with customers.
The cost of providing service and support is estimated at $800,000 per annum. The entity applies a 30%
mark-up to all service costs.
(ii) Non-current assets:
To reflect a marked increase in property prices, Fresco decided to revalue its property on 1 April 20X1.
The directors accepted the report of an independent surveyor who valued the property at $36 million on
that date. Fresco has not yet recorded the revaluation.
1, The remaining life of the property is eight years at the date of the revaluation.
2, Fresco makes an annual transfer to retained profits to reflect the realization of the revaluation surplus.
3, Plant and equipment is depreciated at 20% per annum using the reducing balance method.
4, No depreciation/amortisation has yet been charged on any non-current asset for the year ended 31
March 20X2. Depreciation and amortisation are charged to cost of sales.
(iii) The investment property has fair value at 31.3.20X2 was $12m.
(iv) The above figures do not include the estimated provision for income tax on the profit for the year
$3m.
Page 85 of 158
Required:
(a) Prepare the statement of profit or loss and other comprehensive income for Fresco for the year
ended 31 March 20X2. (8 marks)
(b) Prepare the statement of financial position of Fresco as at 31 March 20X2. (12 marks)
Page 86 of 158
Question 2:
Fresco : Trial balance as at 31 March 20X2 $'000 $'000

Investment property - fair value at 1 April 20X1 10,000
Accumulated amortisation of property at 1 April 20X1 16,000
Bank (liability) 1,400
Revenue 280,800
Bank interest 300
(i) Non-current assets:
To reflect a marked increase in property prices, Fresco decided to revalue its property on 31.3.20X2. The
directors accepted the report of an independent surveyor who valued the property at $34 million on that
date. Fresco has not yet recorded the revaluation.
The remaining life of the property is eight years at 1.4.20X1. Fresco does not makes an annual transfer to
retained profits to reflect the realization of the revaluation surplus.
Plant and equipment is depreciated at 15% per annum using the reducing balance method.
No depreciation/amortisation has yet been charged on any non-current asset for the year ended 31 March
20X2. Depreciation and amortisation are charged to administration expense.
(ii) The investment property has fair value at 31.3.20X2 was $8m.
(iii) The above figures do not include the estimated provision for income tax on the profit for the year
$1.5m.
(iv) At year end, a part of inventory obsoleted, this inventory has cost of $3m and net realizable value of
$2.8m. The entity currently recoded closing inventory at cost.
(v) During the year, entity perform a research and development project, the project commence at 1.9.20X2
with cost of $40,000 per month. At 1.1.20X3, director was confident that project commercial success and
the project still continue development at year end. However, the entity has recoded all research and
development cost in cost of sale for the year.
(vi) At 31.3.20X2, the entity disposal a part of investment property with consideration of $1.5m (this
investment property has carrying amount $1.4m– which just after recorded at fair value at year end). The
entity has not received cash from this transaction, hence the accountant has not record this transaction.
Page 87 of 158
(vi) The accountant determine closing inventory at 5/4/20X2 and use this amount to determine closing
inventory and cost of sale. However, there are some transactions incurred between 31.3.20X2 and
5/4/20X2:
- Purchase inventory with cost of $10,000
- Sale inventory for $18,000 and margin of 20%
- Customer returned goods which has sale to customer for $30,000 and mark up 20%
Required: Determine following items in financial statement of the entity for the year ended
31 March 20X2:
a. Revenue
b. Cost of sale
c. Administration expense
d. Distribution expense
e. Finance cost
f. Non-current asset
g. Inventory
h. Trade receivable
i. Equity
Page 88 of 158
Question 3:
Lotus: Trial balance as at 31 March 20X4 $'000 $'000

Share premium 5,000
Accumulated depreciation of property at 1 April 20X3 16,000
Bank 1,400
Revenue 539,500
Bank interest 300
(i) Revenue includes an amount of $20 million for cash sales made through Xtol's retail outlets during the
year on behalf of Francais. Xtol, acting as agent, is entitled to a commission of 10% of the selling price of
these goods.
By 31 March 20X4, Xtol had remitted to Francais $15 million (of the $20 million sales) and recorded this
amount in cost of sales.
(ii) At 31 March 20X4, an equipment has a carrying amount of $65,000 at the year end of 31 March 20X9.
Its market value is $78,000 and costs of disposal are estimated at $2,500. A new machine would cost
$150,000. The company which owns the machine expects it to produce net cash flows of $30,000 per
annum for the next three years. The company has a cost of capital of 8%.
(ii) Plant and equipment is depreciated at 12½% per annum on the reducing balance basis. All
amortisation and depreciation of non-current assets is charged to cost of sales.
(iii) A provision of $28 million is required for current tax for the year ended 31 March 20X4.
(iv) At 3 Apr 20X4, a customer of business declare bankrupt, this client own the entity $15,000.
Required: with appropriate working determine following items:
a. Revenue (5 marks)
b. Cost of sale (5 marks)
c. Plant and equipment (2 marks)
d. Tax expense for the year (2 marks)
e. Receivable (2 marks)
f. Administration expense (5 marks)
g. Equipment (5 marks)
Page 89 of 158
Question 4:
Bagio: Trial balance as at 31 March 20X3 $'000 $'000

long-term contract 4,000
Land and buildings – at cost (land $10 million) 60,000
Accumulated depreciation at 1 April 20X2 buildings 20,000
Accumulated depreciation at 1 April 20X2 plant and equipment 24,500
Bank 8,800
Revenue 694,400
Dividends paid 20,000
Bank interest 300
The following notes are relevant.
(i) The balance on the long-term contract is made up of the following items.
Cost incurred to date $14 million
Value of invoices issued (work certified) $10 million
The contract commenced on 1 October 20X2 and is for a fixed price of $25 million. Performance
obligations are satisfied over time. The costs to complete the contract at 31 March 20X3 are estimated at
$6 million. Moby's policy is to recognise satisfaction of performance obligations (and therefore accrue
profits) on such contracts based on a stage of completion given by the work certified as a percentage of the
contract price.
On 1 April 20X2, the directors of Atlas decided that the financial statements would show an improved
position if the land and buildings were revalued to market value. At that date, an independent valuer valued
the land at $12 million and the buildings at $35 million and these valuations were accepted by the
directors. The remaining life of the buildings at that date was 14 years. Atlas does not make a transfer to
retained earnings for excess depreciation. Ignore deferred tax on the revaluation surplus.
Plant and equipment is depreciated at 20% per annum using the reducing balance method and time
apportioned as appropriate. All depreciation is charged to cost of sales, but none has yet been charged on
any non-current asset for the year ended 31 March 20X3.
(iii) Atlas estimates that an income tax provision of $27.2 million is required for the year ended 31 March
20X3.
Required
Page 90 of 158
(a) Prepare the statement of profit or loss and other comprehensive income for Atlas for the year
ended 31 March 20X3. (5 marks)
(b) Prepare the statement of financial position of Atlas as at 31 March 20X3. (5 marks)
Page 91 of 158
Question 5:

long-term contract 4,000
Bank 8,800
Revenue 694,400
Bank interest 300
Following information relevant to the question
(i) The balance on the long-term contract ($4m) is made up of the following items.
Cost incurred to date $14 million
Value of invoices issued (work certified) $10 million
The contract commenced on 1 October 20X2 and is for a fixed price of $25 million. Performance
obligations are satisfied over time. The costs to complete the contract at 31 March 20X3 are estimated at
$6 million. Moby's policy is to recognise satisfaction of performance obligations (and therefore accrue
profits) on such contracts based on a stage of completion given by the work certified as a percentage of
the contract price.
On 1 April 20X2, the directors of Atlas decided that the financial statements would show an improved
directors. The remaining life of the buildings at that date was 14 years. Atlas does not make a transfer to
retained earnings for excess depreciation. Ignore deferred tax on the revaluation surplus.
Plant and equipment is depreciated at 20% per annum using the reducing balance method and time
apportioned as appropriate. All depreciation is charged to cost of sales, but none has yet been charged on
any non-current asset for the year ended 31 March 20X3.
Working 2 (Note 2): PPE
(iii) Atlas estimates that an income tax provision of $27.2 million is required for the year ended 31
March 20X3.
Page 92 of 158
Required: Determine following items on financial statement as at 31.3.20X3
2, Current asset
3, Revenue
4, Cost of sale
Page 93 of 158
Question 6:

Bank 8,800
Revenue 694,400
Following information related to question:
1, Revenue includes an amount of $20 million for cash sales made through the entity's retail
outlets during the year on behalf of its customer. The entity, acting as agent, is entitled to a
commission of 15% of the selling price of these goods. By 31 March 20X4, the entity had paid to
the customer $15 million (of the $20 million sales) and recorded this amount in cost of sales.
2, On 31.3.20X3, the directors of Atlas decided that the financial statements would show an improved
directors. The remaining life of the buildings at 1.4.20X2 was 20 years. Atlas transfer to retained earnings
for excess depreciation. Ignore deferred tax on the revaluation surplus.
3, Plant and equipment is depreciated at 25% per annum using the reducing balance method and time
apportioned as appropriate.
4, All depreciation is charged to distribution expense, but none has yet been charged on any non-current
asset for the year ended 31 March 20X3.
5, At 31.3.20X3, the entity perform impairment review with a plant (with cost of $40,000 and accumulated
depreciation of $15,000 at 1.4.20X2. A study at the year end concluded that the present value of
the future estimated net cash flows from the plant at 31 March 20X3 is $20,000;
however, Downing Co also has a confirmed offer of $22,000 to sell the plant immediately at that
date.
Required: Determine following items on financial statement as at 31.3.20X3
2, Current asset
3, Revenue
Page 94 of 158
4, Cost of sale
5, Distribution expense
6, Equity (Correct profit after tax of the entity for the period $150,000)
Page 95 of 158
Question 7:
Bagio: Trial balance as at 31 March 20X3
$'000 $'000
Bank 8,800
Revenue 694,400
Using trial balance in question 1 and determine relevant items in financial statement based on
following information:
1, Revenue includes an amount of $16 million for a sale made on 1.12.20X2. The sale relates to a
single product and includes ongoing servicing from Downing Co for four years. The normal
selling price of the product and the servicing would be $20 million and $500,000 per annum ($2
million in total) respectively.
2, The balance on long term contract is comprised of contract costs incurred at 31 March 20X3 of
$15 million less a payment of $11 million from the customer. The agreed transaction price for the
total contract is $30 million and the total expected costs are $24 million. Downing Co uses an
input method based on costs incurred to date relative to the total expected costs to determine the
progress towards completion of its contracts.
2, The remaining life of the buildings at 1.4.20X2 was 20 years.
3, Plant and equipment is depreciated at 20% per annum using the reducing balance method and time
apportioned as appropriate.
4, All depreciation is charged to administration expense, but none has yet been charged on any non-current
asset for the year ended 31 March 20X3.
5, At 31.3.20X3, the entity perform impairment review with a plant (with cost of $40,000 and accumulated
depreciation of $15,000 at 1.4.20X2), the plant have recoverable amount of $18,000 at 31.12.20X3.
6, At 1.5.20X4, the entity has sold 500 items A of inventory with net realisable value of $50, these
inventory has cost of $80 per unit (which is reflected on financial statement at 31.12.20X3)
7, The entity commenced a research and development project on 1.4.20X2. It spent $1 million per
month on research until 31.7.20X2, at which date the project passed into the development stage.
From this date it spent $1·6 million per month until the year end (31.3.20X3), at which date
development was completed. However, it was not until 1 May 2015 that the directors of Moston
Page 96 of 158
were confident that the new product would be a commercial success. The accountant has
recorded these expense as cost of sale in the period.
8, At 31.3.20X3, the entity decided to convert a building with cost of $5m and accumulated
depreciation of $2m to investment property. At this date, fair value of the investment property
was $6m.
Page 97 of 158
CHAPTER 9: IAS 07 STATEMENT OF CASH FLOW
LEARNING OBJECTIVE
1) Understand differentiate between profit and cash flow.

2) Understand the need for management to control cash flow.
3) Recognize the benefits and drawbacks to users of the financial statements of a statement of
cash flows.
4) Classify the effect of transactions on cash flows.
5) Calculate Cash flows from investing activities
6) Calculate Cash flows from financing activities
7) Calculate the cash flow from operating activities using the indirect and direct method.
8) Prepare statements of cash flows and extracts from statements of cash flows from given
information.
9) Identify the treatment of given transactions in a company’s statement of cash flows.
10) Explain meaning of statement of cash flow
Page 98 of 158
IAS 07 STATEMENT OF CASH FLOW
KEY DEFINITION CASH FLOW OPERATING ACTIVITY
Cash comprises cash on hand and demand deposits. (a) Cash receipts from the sale of goods and the rendering of services
(b) Cash receipts from royalties, fees, commissions and other revenue
Cash equivalents are short-term, highly liquid investments that
are readily convertible to known amounts of cash and which are (c) Cash payments to suppliers for goods and services
subject to an insignificant risk of changes in value. (d) Cash payments to and on behalf of employees
Cash flows are inflows and outflows of cash and cash
equivalents.
Operating activities are the principal revenue-producing activities
of the entity and other activities that are not investing or financing
CASH FLOW INVESTING ACTIVITY
activities.
Investing activities are the acquisition and disposal of non-current (a) Cash payments to acquire property, plant and equipment, intangibles and other
assets and other investments not included in cash equivalents. non-current assets,
Financing activities are activities that result in changes in the size including those relating to capitalised development costs and self-constructed
and composition of the equity capital and borrowings of the entity. property, plant and
equipment
(b) Cash receipts from sales of property, plant and equipment, intangibles and other
non-current
assets
(c) Cash payments to acquire shares or debentures of other entities
(d) Cash receipts from sales of shares or debentures of other entities
(e) Cash advances and loans made to other parties
(f) Cash receipts from the repayment of advances and loans made to other parties
CASH FLOW FINANCING ACTIVITY
(a) Cash proceeds from issuing shares

(b) Cash payments to owners to acquire or redeem the entity's shares
(c) Cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other
short or long-
term borrowings
(d) Principal repayments of amounts borrowed under finance leases
Page 99 of 158
STANDARD ANSWER FOR STATEMENT OF CASH FLOW
1, CASH FLOW FROM OPERATING ACTIVIITES

Cash flow from operating activities $’000
Profit before interest and tax
Adjustment
Add: Depreciation / amortization expense
Add: Impairment loss
Add/Less: Increase/decrease in FV of investment property
Add/ Less: Profit/loss on disposal of NCA
Add: Finance cost
Add/Less: Decrease/ increase in inventory
Add/Less: Decrease/ increase in receivable
Less/ Add: Decrease/ increase in payable
Less: Interest paid
Less: Tax paid
Net cash flow from operating activities
2, CASH USED IN INVESTING ACTIVITIES

Cash used in investing activities $’000
Proceeds from disposal of NCA
Purchase of NCA
Net cash used in investing activity
3, CASH FLOW FROM FINANCING ACTIVITES

Cash flow from financing activities $’000
Page 100 of 158

Proceeds from issuing share
Proceeds from issuing loan note
Repayment of loan note
Dividend paid
Cash flow from investing activities
THEORY QUESTION
Question 1: Explain what cash and cash equivalent in accordance IAS 07 are: Statement of
cash flow
Question 2: Explain why inventory impairment (when net realizable value of inventory
lower than cost) has not appear on adjustment in statement of operating activity?
Question 3: Explain why bad debt expense has not appear on adjustment in statement of
operating activity?
Question 4: Explain meaning and component of cash flow from operating activities?
Question 5: Explain meaning and component of cash flow from investing activities?
Question 6: Explain meaning and component of cash flow from financing activities?
Question 7: Explain similarity and difference between statement of cash flow prepared in
accordance direct method and indirect method?
Question 8: Explain why it need to add equity share and share premium and compare
between closing and opening balance to determine amount of cash received from issuing
share?
Question 9: List reasons for increasing in PPE during the period which not arise cash?
Question 10: List reasons for increasing in investment property during the period which
not arise cash?
Question 11: An entity has opening loan note liability $10m and closing loan note $8m.
Explain why the entity has not cash inflow and cash outflow related to loan note liability?
Page 101 of 158

Question 1:
Set out below are the financial statements of Emma, a limited liability company. You have been asked to
prepare the company's statement of cash flows, implementing IAS 7 Statement of cash flows.
EMMA statement of profit or loss for the year ended 31 December 20X2
$’000
Sales revenue 2,553
Cost of sales 1,814
Gross profit 739
Distribution costs 125
Administrative expenses 264
Operating profit 350
Interest income 25
Interest expense 75
Profit before tax 300
Income tax expense 240
Profit for the year 60
EMMA - statements of financial position as at 31 December
20X2 20X1
$'000 $'000
Non-current assets
Tangible assets 380 305
Intangible assets 250 200
Investments – 25
630 530
Current assets
Inventories 150 102
Receivables 390 315
Short-term investments 50 –
Cash in hand 2 1
592 418
1,222 948
Equity and liabilities
Share capital ($1 ordinary shares) 200 150
Share premium account 160 150
Revaluation surplus 100 91
Retained earnings 160 100
620 491
Non-current liabilities
Page 102 of 158

Long-term loan 100 –
Current liabilities
Trade payables 127 119
Bank overdraft 85 98
Taxation 290 240
502 457
1,222 948
The following information is available.
(a) The proceeds of the sale of non-current asset investments amounted to $30,000.
(b) Fixtures and fittings, with an original cost of $85,000 and a carrying amount of $45,000, were sold for
$32,000 during the year.
(c) The current asset investments fall within the definition of cash equivalents under IAS 7. (short term
investment in current asset
(d) The following information relates to property, plant and equipment.
31.12.20X2 31.12.20X1
$'000 $'000
Cost 720 595
Accumulated depreciation 340 290
Carrying amount 380 305

Required
Prepare a statement of cash flows for the year to 31 December 20X2 (15 marks)
Page 103 of 158

Question 2:
The following information is available for Sioux, a limited liability company:
Statements of financial position 31 December
20X4 20X3
$'000 $'000 $'000 $'000
Non-current assets
Cost or valuation 11,000 8,000
Accumulated depreciation (5,600) (4,800)
Carrying amount 5,400 3,200
Current assets
Inventories 3,400 3,800
Receivables 3,800 2,900
Cash at bank 400 100
7,600 6,800
13,000 10,000
Capital and reserves
Ordinary share capital 1,000 1,000
Revaluation surplus 1,500 1,000
Retained earnings 3,110 2,200
5,610 4,200
10% Loan notes 3,000 2,000
Current liabilities
Trade payables 3,700 3,200
Interest payable 10 -
Income tax 700 600
4,400 3,800
13,000 10,000
Summarised statement of profit or loss for the year ended 31 December 20X4
$'000
Profit from operations 2,650
Finance cost (loan note interest) (310)
2,340
Income tax expense (700)
Net profit for the year 1,640
Notes
1 During the year non-current assets which had cost $800,000, with a carrying amount of $350,000, were
sold for $500,000.
Page 104 of 158

2 The revaluation surplus arose from the revaluation of some land that was not being depreciated.
3 The 20X3 income tax liability was settled at the amount provided for at 31 December 20X3.
4 The additional loan notes were issued on 1 January 20X4. Interest was paid on 30 June 20X4 and 31
December 20X4.
5 Dividends paid during the year amounted to $750,000.
Required:
a. Prepare extract cash flow from operating activity 31 December 20X4 (show your working)
(10 marks)
b. Prepare cash flow from investing 31 December 20X4 (show your working) (5 marks)
c. Prepare cash flow from financing activity 31 December 20X4 (show your working) (5
marks)
Page 105 of 158

Question 3:
The following information has been extracted from the draft financial statements of Snowdrop, a limited
liability company.
SNOWDROP - statements of financial position as at 31 May
20X5 20X4
$'000 $'000 $'000 $'000
Non-current assets 4,598 2,700
Current assets
Inventory 580 500
Trade receivables 360 230
Bank 0 170
940 900
Total assets 5,538 3,600
Equity
Share premium 300 150
Retained earnings 1,050 470
4,850 2,990
10% Loan note (redeemable 31 May 20X5) 0 100
Current liabilities
Trade payables 450 365
Taxation 180 145
Bank overdraft 58 0
688 510
5,538 3,600
Additional information
(a) The statement of profit or loss for the year ended 31 May 20X5 shows the following.
$'000
Operating profit 1,040
Interest payable (10)
Profit before taxation 1,030
Taxation (180)
Profit for financial year 850
(b) During the year dividends paid were $270,000.

(c) Profit before taxation had been arrived at after charging $700,000 for depreciation on non-current
assets.
Page 106 of 158

(d) During the year non-current assets with a net book value of $200,000 were sold for $180,000.
(e) During the year, an asset with carrying amount of $25,000 has impaired by $2,000.
Required:
(10 marks)
marks)
Page 107 of 158

Question 4:
Geofost is preparing its statement of cash flows for the year ended 31 October 20X7. You have been
presented with the following information.
GEOFOST - statement of profit or loss for the year ended 31 October 20x7
$'000
Finance cost (730)
Profit before tax 15,000
Taxation (4,350)
Profit for the year 10,650
Statements of financial position as at 31 October
20X7 20X6
$'000 $'000 $'000 $'000
Current assets
Inventory 3,560 9,635
Trade receivables 6,405 4,542
Cash 559 1,063
10,524 15,240
Equity
Share premium account 3,365 2,496
34,994 23,961
9% loan notes 8,000 10,300
Current liabilities
Bank overdraft 1,230 429
Interest payable 120 100
Taxation 3,020 2,760
11,812 7,553
Total equity and liabilities 54,806 41,814
(a) During the year dividends paid were $1,486,000.
(b) Summary schedule of changes to non-current assets during 20X7.
Page 108 of 158

Accumulated Carrying
Cost
depreciation value
$'000 $'000 $'000
Balance b/f 33,218 6,644 26,574
Additions 24,340 24,340
Disposals (2,964) (990) (1,974)
Depreciation 4,658 (4,658)
Balance c/f 54,594 10,312 44,282
(c) The total proceeds from the disposal of non-current assets were $2,694,000.
Required:
(10 marks)
marks)
Page 109 of 158

Question 4:
Geofost is preparing its statement of cash flows for the year ended 31 October 20X7. You have been
presented with the following information.
$'000
Finance cost (730)
Taxation (4,350)
20X7 20X6
$'000 $'000 $'000 $'000 $'000
Current assets
Cash 559 1,063
10,524 15,240
Equity
34,994 23,961
9% loan notes 8,000 10,300
Current liabilities
11,812 7,553
Note 1: Detailed non-current asset
Non-current asset 20X7 20X6
$’000 $’000
Page 110 of 158

PPE 30,282 16,574
Investment property 6,000 5,000
Intangible asset 8,000 5,000
Total 44,282 26,574
Note 2: Detailed profit before tax
$’000
Depreciation of PPE 12,000
Amortization of intangible asset 1,000
Impairment of PPE 5,000
Impairment of intangible asset 800
Change in fair value of investment property (reduce) 1,500
Note 3: At year end, the entity transfers an investment property with fair value $1.5m to PPE
Note 4: Entity has disposal an PPE with carrying amount of $250,000 with cash received $300,000
Page 111 of 158

Question 6:
$'000
Finance cost (730)
Taxation (4,350)
20X7 20X6
$'000 $'000 $'000 $'000 $'000
Current assets
Cash 559 1,063
10,524 15,240
Equity
34,994 23,961
9% loan notes 8,000 10,300
Current liabilities
11,812 7,553
$’000 $’000
PPE 30,282 16,574
Page 112 of 158

Total 44,282 26,574
$’000
Impairment of PPE 500
Change in fair value of investment property (reduce) 1,000
Note 3: At year end, the entity transfers an investment property with fair value $1.8m to PPE
Note 4: Entity has disposal an PPE with carrying amount of $250,000 with cash received $350,000
Page 113 of 158

Question 7:
$'000
Finance cost (730)
Taxation (4,350)
20X7 20X6
$'000 $'000 $'000 $'000 $'000
Current assets
Cash 559 1,063
10,524 15,240
Equity
34,994 23,961
9% loan notes 8,000 10,300
Current liabilities
11,812 7,553
$’000 $’000
PPE 30,282 16,574
Page 114 of 158

Total 44,282 26,574
$’000
At year end, a PPE with carrying amount of $300,000 has recoverable amount of
$270,000
Increase in fair value of investment property 1,000
Note 3: At year end, the entity transfers PPE to investment property with fair value $1.8m
Note 4: Entity has disposal an intangible asset with carrying amount of $250,000 with cash received
$350,000
Note 5: At year end, the entity transfer an investment property with fair value $1.3m to inventory
Note 6: The entity has issued loan note at year end and received $5m in cash
Note 7: Closing inventory has cost of $4m with net realizable value of $3.56m
Note 8: During the year, a customer with receivable balance of $20,000 has bankrupt and the entity has
recorded as the expense in the period
Page 115 of 158

CHAPTER 10: CONCEPTUAL FRAMEWORK
LEARNING OBJECTIVE
1. The need for a conceptual framework and the characteristics of useful information
a) A conceptual framework for financial reporting.
b) Relevance and faithful representation and describe the qualities that enhance these characteristics.
c) Understandability and verifiability in relation to the provision of financial information.
d) The importance of comparability and timeliness to users of financial statements.
e) The principle of comparability in accounting for changes in accounting policies.
2. Recognition and measurement
a) Define what is meant by ‘recognition’ in financial statements and discuss the recognition criteria.
b) Apply the recognition criteria to: i) assets and liabilities; ii) income and expenses.
Page 116 of 158

CONCEPTUAL FRAMEWORK
OBJECTIVES OF FINANCIAL QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL
REPORTING INFORMATION
• Provide financial information FUNDAMENTAL QUALITATIVE CHARACTERISTICS

• Exiting & potential investors, lenders, other 1, Relevance:
creditor (primary users) • Relevant financial information is capable of making a difference in the
decisions made by users. It has predictive & confirmative value.
• Making decision about providing resources:
• Consider materiality: if omitting or misstating it could influence decisions
need information about:
of primary users.
economic resources of entity, claims against the 2, Faithful representation – reflects economic substance rather than legal form:
entity & changes in those resources & claims • Completeness: all information necessary for understanding
• Neutrality: without bias, supported by exercise of prudence (exercise of
Management’s stewardship: how efficiency & caution when making judgements under conditions of uncertainty)
effectively entity’s management discharged • freedom from error: process & descriptions without error
responsibilities to use economic resources ENHANCING QUALITATIVE CHARACTERISTICS
Comparability – enables users to identify & understand similarities in, and
differences among, items.
ELEMENTS ON FINANCIAL REPORTING • Disclosure of accounting policies
• Change in accounting policies need apply retrospectively => usefully
compared
ASSET: present economic resource controlled by • Policies could be changed => more reliable and relevant information OR
the entity as a result of past events required by an IFRS
1, Economic resource: right has potential to Verifiability – different knowledgeable & independent observers could reach
produce economic benefit consensus, although not necessarily complete agreement, that a particular
depicition is a faithful representation. Help assure users that information represents
2, Economic benefits: include economic phenomena it purpose to represent.
• Cash flow (e.g: inventory count, valuation by specialist)
Timeliness – means that information is available to decision-makers in time to be
• Exchange of goods (trading, selling goods,
capable of influencing their decisions.
provide service) Need a balance between timeliness & provision of reliably information
• Reduction or avoidance of liability (paying Understandability – classifying, characterising & presenting information clearly
loans) & consicely makes it understandable.
Prepare for reasonable knowledge of business & economic activities
LIABILITY: a present obligation of the entity to
transfer an economic resource as a result of past
event
RECOGNTION & DERECOGNTION
1, Obligation: duty that no practical ability to avoid
2, Present obligation exist as result of past event if
RECOGNITION AN ELEMENTS
Already obtained economic or taken action the entity
will or may have to transfer resources A, Meet definition of an element
EQUITY: residual interest in asset after deduct all B, Recognition of that element provides users of financial statement with
liabilities information that is useful with
INCOME: - Relevant information about elements
- A Faithful representation of the elements
• increase in asset/ decrease in liability => result in
increase in equity C, Subject to cost constrations: benefits of information provided justify costs of
• other than contributions from holder of equity recognizing that elements
claims DERECOGNITION AN ELEMENTS
EXPENSE: Asset => control lost
• Decrease in asset/ increase in liability => result in Liability => no longer a present obligation
decrease in equity
• other than those relating to distributions to holders
of equity claims
Page 117 of 158

Question 1:
Define asset in accordance to the Conceptual Framework? (2 marks)
Question 2:
List criterias for recognition of asset in accordance to the Conceptual Framework (4 marks)
Question 3:
Define liability in accordance to the Conceptual Framework? (2 marks)
Question 4:
Define income in accordance to the Conceptual Framework? (2 marks)
Question 5:
Define expense in accordance to the Conceptual Framework? (2 marks)
Question 8:
Discuss what is meant by relevance and faithful representation and describe the qualities that
enhance these characteristics.
Question 9:
Discuss what is meant by understandability and verifiability in relation to the provision of
financial information.
Question 10:
Discuss the importance of comparability and timeliness to users of financial statements.
-------------------------- THE END ____________________
Page 118 of 158

APPENDIX 1: SAMPEL MIDDLE TERM TEST
Question 1 (20 marks)
Mobistart restores and sell vintage motorcycles. At 30.11.2006, the entity has 3 motorcycles in
inventory:
MODEL DETAILS
M The entity bought for $7,000, at that date, it estimated repairs cost of $1,200. On 2 December
2006, the entity had sold the product for $9,000
S The entity bought this item for $8,200. It estimated that it will have to spend $1,100 on
repairs, after which it could be sell for $10,500
B The entity bought for $9,500, at that date, it estimated repairs cost of $1,100 and expected
sell on 2 December 2006 for $10,500
Required:
For each of the three motorcycles, calculate following values at 30 November 2006:
i, Cost (4 marks) (show your working)
ii, Net realizable value (4 marks) (show your working)
iii, Inventory value (2 marks) (show your working)
Total 10 marks
Note: Answer in following format with appropriate working
Product Cost Net realizable value Inventory value
M
S
B
b,
Senakuta Co purchased a machine with an estimated useful life of 5 years for $35,000 on 1
October 2017. Senakuta Co planned to scrap the machine at the end of its useful life and
estimated that the scrap value at the purchase date was $5,000. On 1 October 2018, Senakuta
revised the scrap value to $2,000 due to the decreased value of scrap metal.
Required:
i, Determine depreciation charged for the year ended 30 September 2018? (show your
working) (4 marks)
ii, Determine depreciation charged for the year ended 30 September 2019? (show your
working) (4 marks)
iii, Determine carrying amount of the machine at 30 September 2019? (show your working)
Page 119 of 158

(2 marks)
Total 10 marks
Carter converted an office building and let it out to a third party on 30 June 2018. The building
had an original cost of $1,000,000 on 1 January 2018 and was being depreciated over 20 years. It
was judged to have a fair value on 30 June 2018 of $1.1 m. On 31 December 2018 the fair value
of the building was estimated at $1.5 million. Carter uses the fair value model for investment
property.
Required:
i, Explain, with journal, how to treatment with the property for the financial statement
ended 31 December 2018? (15 marks)
ii, Prepare extract financial statement for the year ended 31 December 2018 (5 marks)
Note: Format of financial statements
Statement of profit or loss for the period ended: …..
$’000
Depreciation
Change in fair value of investment property
Other comprehensive income for the period ended: …..
$’000
Revaluation surplus
Statement of financial position as at: …..
$’000
Non-current asset: Investment property
Equity: Revaluation surplus
Dempsey's year end is 30 September 2014. Dempsey commenced the development stage of a
project to produce a new pharmaceutical drug on 1 October 2013. Expenditure of $40,000 per
month was incurred until the project was completed on 1 July 2014 when the drug went into
immediate production. The directors became confident of the project's success on 1 March 2014.
The drug has an estimated life span of ten years; time apportionment is used by Dempsey where
applicable.
Required: Explain, with journal entry, how to account for research and development costs
Page 120 of 158

for the year ended 30 September 2014 in accordance to IAS 38: Intangible asset? (20 marks)
The draft financial statements of Plethora plc for the year to 31 December 2019 are being
prepared and the accountant has requested your advice on dealing with the following issues.
Plethora plc owns a retail business which has suffered badly during the recession. Plethora plc
treats this business as a separate cash generating unit.
The carrying amounts of the assets comprising the retail business are:
$’000
Building 800
Inventory 40
Other current assets 130
Goodwill 60
An impairment review has been carried out as on 31 December 2019 and the fair value less cost
to sell of the cash generating unit is estimated at $950,000 and value in use of $900,000.
Required: Explain, with journal entry, how to account for above transactions for the year
ended 31 December 2019 in accordance to IAS 36: Impairment of asset? (20 marks)
a,
List and explain 4 recognition criteria to recognize PPE in accordance to IAS 16: Property,
plant and equipment? (10 marks)
b,
List and explain 4 recognition criteria to recognize intangible asset in accordance to IAS 38:
Intangible asset? (10 marks)
APPENDIX 2: SAMPLE FINAL EXAM

ABB: Trial balance as at 31 March 20X2
$'000 $'000
Page 121 of 158

Debit Credit
Building (20 years) – at cost 48,000
Accumulated depreciation of building at 1 April 20X1 16,000
Revenue 350,000
Administration expense 30,560
Retained earnings 31 March 20X1 25,000
Dividend paid 3,000
Profit for the year ended 31.3.20X2 (exclude adjustment in note 1
to 4 15,000
1, Plant and equipment is depreciated 25% per annum (reducing balance method). Depreciation
of plant and equipment are charged to administration expense.
2, Depreciation of building is charged to cost of sale
3, At 31 March 20X2, an equipment has a carrying amount of $65,000 at the year end of 31
March 20X1. Its market value is $58,000 and costs of disposal are estimated at $2,500. A new
machine would cost $150,000. The company which owns the machine expects it to produce net
cash flows of $20,000 per annum for the next three years. The company has a cost of capital of
8%. Impairment expense of equipment is charged to administration expense.
Required: Determine following information in financial statement of the entity for the year
ended 31 March 20X2 (with appropriate working):
i. Cost of sale (5 marks)
ii. Administration expense (7 marks)
iii. PPE (5 marks)
iv. Retained earning (8 marks)
(Total 25 marks)
a.
Riley acquired a non-current asset on 1 October 20X1 at a cost of $250,000 which had a useful
life of 10 years and a nil residual value. The asset had been correctly depreciated up to 30
September 20X4. At that date the asset was damaged and an impairment review was
performed. On 30 September 20X4, the fair value of the asset less costs of disposal was $80,000
and the expected future cash flows were $20,000 per annum for the four years. The current cost
of capital is 10%.
Required: Explain, with journal entry, how to account for above transaction in
accordance to IAS 36: Impairment of asset (12 marks) and prepare extracted financial
statements for the year ended 30.9.20X4 (3 marks)?
Page 122 of 158

b.
Explain why followings are indicators of impairment? (10 marks)
1, Advances in the technological environment in which an asset is employed have a reduction
on its future useful life (2.5 marks)
2, An increase in interest rates which increases the discount rate an entity uses (2.5 marks)
3, The economic performance of the machine had declined. (2.5 marks)
4, There were legal and regulatory changes. This increased operating expense of the machine.
(2.5 marks)

a.
Springthorpe entered a three-year contract on 1 January 20X2 to build a factory. This is a contract
where performance obligations are satisfied over time. The percentage of performance
obligations satisfied is measured according to certificates issued by a surveyor. At 31 December
20X2 details of the contract were as follows.
$’m
Contract price 15
Costs to date 9
Estimated costs to complete 5
Amounts invoiced 4
Cash received from the customer 3
Valuation certified complete work 4.5
Required: Explain, with journal entry, how to account for above transaction in accordance
to IFRS 15: Revenue from contract with customer (10 marks) and prepare extracted
b. List 3 examples of transferring control goods to customer in accordance to IFRS 15 (6 marks)
c. Explain “transaction price” and how to determine transaction price in accordance to IFRS 15 (4
marks)

a.
Explain the difference in accounting treatment between adjusting events and
non-adjusting events in accordance IAS 10: Events after reporting date (6 marks)
b.
Explain, with journal entry (if any), how to account for below transaction in
accordance to IFRS 10: Events after reporting period (4 marks)
1, After reporting date, the entity sold inventory held at the end of the reporting period for less
than cost (2 marks)
2, After reporting date, the insolvency of a customer with a debt owing at the end of the reporting
period which is still outstanding (2 marks)
Page 123 of 158

c.
Follow financial statements related to company A for the year ended 31.12.20X1 and
31.12.20X2
Extract statement of financial position 20X2 20X1
$'000 $'000
Non-current assets
Tangible assets 415 205
Intangible assets 495 245
Share capital ($1 ordinary shares) 300 150
Share premium account 560 140
Revaluation surplus of tangible asset 85 91
Retained earnings 142 120
Long-term loan 100 10
The following information is available.
1, A tangible asset, with an original cost of $85,000 and accumulated depreciation of $45,000,
were sold for $42,000 in the year.
2, Depreciation of the tangible asset during the year: $80,000.
3, Amortization of intangible for the year: $24,000
4, During the year, an intangible asset has impaired and impairment cost has recorded in financial
statement. The asset has carrying amount of 300,000 and recoverable amount of $220,000.
5, The entity has repayment of $50,000 related to long term loan in the period
6, Profit after tax for the year 20X2: $40,000
Required: Prepare extract cash flow from financing & cash flow from investing activity (15
marks)
Page 124 of 158

APPENDIX 3: SAMPLE GROUP WORK 1
Microsoft Financial Report
COURSE: FINANCE ACCOUNTING 1
TEACHER: PH.D NGO NHU VINH
GROUP: 1
WORD COUNT:
Contents
INTRODUCTION ............................................................................................................................. 126

Background information ................................................................................................................ 126
Business model and key operations .............................................................................................. 128
ACOUNTING IN ACORDANCE WITH IAS & IFRS ................................................................. 130
IAS 02: Inventory........................................................................................................................... 130
IAS 16: PPE.................................................................................................................................... 133
IFRS 15: Revenue from contract customers................................................................................. 135
IAS 38: Intangible asset ................................................................................................................. 138
Page 125 of 158

INTRODUCTION
Background information
Microsoft is a technology company whose mission is to empower every person and every
organization on the planet to achieve more, bring technology and products together into
experiences and solutions that unlock value for the customers.
Microsoft Timeline:
Microsoft develop and support software, services, devices, and solutions that deliver new value
for customers and help people and businesses realize their full potential.
Microsoft offer an array of services, including cloud-based solutions that provide customers
with software, services, platforms, and content, and we provide solution support and consulting
services.
Lists of products include operating systems, cross-device productivity applications, server

applications, business solution applications, desktop and server management tools, software
development tools, and video games. Microsoft also design and sell devices, including PCs,
tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.
Example of some products and services that Microsoft offers:

- Products:
o Physical products:
Page 126 of 158

▪ Xbox console series: Xbox, Xbox 360, Xbox One, Xbox Series X
▪ Surface laptop series: Surface, Surface Book, Surface Pro, Surface
Studio, Etc..
▪ Tech accessories: Surface headphones, mouse, Surface keyboard,
Xbox controller, Microsoft Webcams, Etc.…
o Applications:
▪ Word, PowerPoint, Excel,
▪ Teams, Outlook,
▪ Etc.
- Services:
o Office 365: Contains all the application above and access to them for a
monthly/yearly fee.
o One Drive: a sync/Cloud storage service used to transfer one’s data
throughout various applications of Microsoft.
The following is a sample breakdown of Revenue for Microsoft products and services:
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Business model and key operations
Microsoft business model:
Key Operations:
- Microsoft operate their business and report their financial performance using three
segments: Productivity and Business Processes, Intelligent Cloud, and More
Personal Computing.
- The segments provide management with a comprehensive financial view of
Microsoft key businesses, enable the alignment of strategies and objectives across
the development, sales, marketing, and services organizations, provide a framework
for timely and rational allocation of resources within businesses.
- Productivity and business process:
o consists of products and services in Microsoft portfolio of productivity,
communication, and information services, spanning a variety of devices and
platforms.
o The Segment is responsible for:
▪ Managing Office 365 subscriptions for commercial and personal uses.
▪ Marketing and sales.
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▪ Communications with other businesses and enterprises.
- Intelligent cloud:
o consists of Microsoft’s public, private, and hybrid server products and cloud
services that can power modern business and developers.
o The segment is responsible for:
▪ Windows Server, Visual Studio, System Center, etc.
▪ Enterprise Services, including Premier Support Services and Microsoft
Consulting Services.
- More Personal computing:

o consists of products and services that put customers at the center of the
experience with Microsoft technology.
o The Segment is responsible for:
▪ Windows, including Windows OEM licensing, and other non-volume
licensing of the Windows operating system.
▪ Devices, including Surface and PC accessories.
▪ Gaming, including Xbox hardware and Xbox content and services,
comprising digital transactions and subscriptions, royalties.
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ACOUNTING IN ACORDANCE WITH IAS & IFRS
IAS 02: Inventory
Recognition:
stated at average cost,
subject to the lower of
cost or net realizable
value.
Inventory
Impairment:
Net realizable value: Cost of inventory: a reduction in utility
is the estimated below carrying value
materials, labor, and
selling price less manufacturing overhead -> reduces the
estimated costs of related to the purchase inventory value to a
completion, disposal, and production new cost basis
and transportation. through a charge to
cost of revenue.
Microsoft Inventory is divided into 3 categories: Raw materials, Work in process, Finished
good.
- Microsoft acquires raw materials from multiple suppliers, these materials include
minerals or parts required to create a physical product.
- Work in process are costs required to convert the raw materials into finished
products, these include estimated hours of work needed, as well as other resources
like machinery or administration for each type of physical product.
- Finished goods includes all physical products that Microsoft offers, these include
Laptops, gaming console, PC accessories, etc.
The graph below shows the changes in Microsoft different types of Inventories:
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MICROSOFT INVENTORY
Raw materials Work in process Finished goods
1800 1611 Covid restriction
1600 starts
1367
1400
$ (IN MILLIONS)
1112
1200 1190
1000
800 700
600 399
400
200 53 83 79
0
2019 2020 2021
YEAR
- A huge decrease in finished goods between 2019 to 2020, $499 million (31%), This is
due to Microsoft stopping many of its production lines and facilities because of
Covid.
- An increase of $490 million (70%) in raw materials and $225 million (23%) in finished
goods with Work in Process stayed the same from 2020 to 2021. These increases are
most likely from Microsoft recovering as Covid restrictions was slowly lifted in the
first quarter of 2021.
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Inventory revenue and Gross margin of Microsoft
$80,000
$71,074
$70,000 $68,041
$66,069
$60,000
$52,024 $52,855
$49,796
$50,000
$ (in millions)
$40,000
$30,000
$20,000 $18,219
$16,273 $16,017
$10,000
$-
2019 2020 2021
CoS Rev Gross margin
- From 2020 to 2021, both cost of sale and revenue experienced an increase of $2,202
million (14%) and $3,033 million (4%) thanks to Microsoft resuming some production
lines after Covid.
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IAS 16: PPE
Property, plant, and equipment is stated at cost less accumulated depreciation, and
depreciated using the straight-line method over the shorter of the estimated useful life of the asset
or the lease term.
Finance leases are included in property and equipment, other current liabilities, and other
long-term liabilities in Microsoft consolidated balance sheets.
Useful lives of property and equipment (as estimated):
Properties Useful life
computer software 3-7 years
Computer equipment 2-4 years
Buildings and improvements 5-15 years
Leasehold improvements 3-20 years
Furniture and equipment 1-10 years
Land Does not depreciate
Change in accounting estimate:
Microsoft completed an assessment at year end July 2020 of the useful lives of the server and
network equipment (both are included in PPE) and determined:
- Increase the estimated useful life of server equipment from three years to four years
- Increase the estimated useful life of network equipment from two years to four
years
This change in accounting estimate was effective beginning fiscal year 2021.
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The graph below shows the value of each asset in Property, plant and Equipment:
Component value of property and equipment

$60,000
$51,250
$50,000 $43,928
$41,261
$40,000 $33,995
Million
$30,000
$20,000
$6,884
$5,487 $5,344
$4,782 $3,660
$10,000 $1,823
$-
2020 2021
Land Buildings and improvements
Leasehold improvements Computer equipment and software
Furniture and equipment
- Out of the $9.9 billion (29%) increase in Building and improvements, $9.5 billion was
used for the construction of new buildings, building improvements, and leasehold
improvements as of June 30, 2021.
- For Computer equipment and software, a similar increase of $9.9 billion are most
likely also due new facilities being open as well as replacing/adding new equipment
for better productivity.
- Due to the change in estimated useful lives of our server and network equipment as
mentioned above, depreciation expense for 2021 was $9.3 billion, a decrease from
2020 which was $10.7 billion.
- Microsoft also recorded an impairment charge of $186 million to Property and
Equipment, primarily to leasehold improvements, due to the closing of some
Microsoft Store physical locations.
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IFRS 15: Revenue from contract customers
Types of Revenue:
There are 2 main types of revenue: Product Revenue, Service and Other revenue.
Revenue
Recognition:
upon transfer of control of
Unearned
promised products or revenue:
services to customers in an
amount that reflects the Cost of revenue:
consideration Microsoft
expect to receive in exchange
for those products or - mainly related to volume
services. licensing programs, which
Costs associated with may include Software
the delivery of Assurance and cloud
Manufacturing, consulting services, and services.
distribution and the amortization of
- includes payments for
capitalized software
operating for other offerings for which
development costs.
Microsoft has been paid in
production and Capitalized software
advance and earn the
services. development costs are
revenue when the control
amortized over the
of the product or service is
Costs incurred to estimated lives of the
transferred.
support and maintain products.
online products and
services
- Product revenue:
Product revenue includes sales from operating systems, cross-device productivity

applications, server applications, business solution applications, desktop and server
management tools, software development tools, video games, and hardware such as PCs,
tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.
Microsoft hardware is highly dependent on with the underlying operating system and
cannot be properly used without one => the hardware and software license are accounted for
as a single performance obligation => revenue is recognized at the point in time when
ownership is transferred to resellers or directly to end customers through retail stores and
online marketplaces.
- Service and Other revenue:
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Service and other revenue includes sales from cloud-based solutions that provide
customers with software, services, platforms, and content such as Office 365, Azure,
Dynamics 365, and Xbox; solution support; and consulting services.
Customers may purchase perpetual licenses or subscribe to licenses, which provide the
same functionality and differ mainly in the duration over which the customer benefits from
the software. => Revenue is recognized upfront at the point in time when the software is
made available to the customer.
If Revenue is allocated to software updates => The revenue is recognized as the updates
are provided, which is generally ratably over the estimated life of the related device or
license.
Revenue related to cloud services provided on a subscription basis is recognized ratably

over the contract period. (The revenue is based on a consumption basis, such as the amount of
storage used in a period.)
Service and other revenue also includes sales from online advertising and LinkedIn. =>
Revenue from search advertising is recognized when the advertisement appears in the search
results or when the action necessary to earn the revenue has been complete.
How Microsoft recognize revenue in contracts:
Microsoft enter contracts that can include various combinations of products and services,
which are generally capable of being distinct and accounted for as separate performance
obligations.
- Microsoft contracts with customers often include promises to transfer multiple
products and services to a customer.
- For a cloud-based service that includes both on-premises software licenses and
cloud services: Microsoft is required to determine whether the software license is
considered distinct and accounted for separately, or not distinct and accounted
together with the cloud service and recognized over time.
- Certain cloud services, primarily Office 365, depend on a significant level of
integration, interdependency, and interrelation between the desktop applications
and cloud services, and are accounted for together as one performance obligation.
=> Revenue is recognized ratably over the period in which the cloud services are
provided.
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- The stand-alone selling price (“SSP") for each distinct performance obligation is
required to be determined by Microsoft:
o For items that are not sold separately, including on-premises licenses sold
with Software Assurance or software updates with no additional charge =>
Microsoft uses single amount to determine SSP.
o For when each product and services are sold separately and need to
determine whether if there is a discount to be allocated based on the relative
SSP of the various products and services. => Microsoft uses a range amount
to determine SSP
o If SSP is not directly observable, such as when product or service are not sold
separately => Microsoft determine the SSP using information that may
include market conditions and other observable inputs.
Below is the graph showing the Revenue of Microsoft:
Revenue of Microsoft
$120,000
$100,000 $97,014
$80,000 $74,974
$71,074
$66,069 $68,041
$59,774
Million
$60,000
$40,000
$20,000
$-
2019 2020 2021
Product Service and other
- Revenue for Service and other experienced a big jump in revenue each yeah, an
increase of $15.2 billion from 2019 to 2020 and $22 billion from 2020 to 2021. =>
This is due to the effects of the pandemic, as the demand for services for working as
well as access to information remotely has exponentially increased.
Page 137 of 158

IAS 38: Intangible asset
Microsoft intangible assets are subject to amortization and are amortized using the straight-
line method over the asset’s estimated period of benefit, ranging from one to 20 years.
The recoverability of intangible assets is periodically evaluated by considering events or

circumstances that may warrant revised estimates of useful lives or that indicate the asset may be
impaired.
If intangible assets or goodwill are impaired, Microsoft uses their Fair Value Measurements,
which is categorized as Level 3 fair value – The assets are generally unobservable and typically
reflect management’s estimates of assumptions that market participants would use in pricing the
asset or liability.
Intangible assets include 4 different types: Technology-based, Customer-related, Marketing-

related, contract-based.
The following is a graph representing the Net carrying amount of Intangible assets:
Microsoft Intangible assets
$15
Contract-based
$42
$2,914
Marketing-related
$2,570
$2,099
Customer-related
$2,647
$2,772
Technology-based
$1,779
$- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500

Million
2021 2020
- A significant increase of $993 million (56%) in Technology-based assets => Microsoft

adapting to changes in working environments and process post Covid
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- During fiscal year 2020 and 2021, no significant impairment was identified.
- Intangible assets amortization expense for 2020 and 2021 was $1.6 billion for each
year.
Research and Development:
Research and development expenses include payroll, employee benefits, stock-based

compensation expense, and other headcount-related expenses associated with product
development. It also include third-party development and programming costs, localization costs
incurred to translate software for international markets, and the amortization of purchased
software code and services content.
Microsoft develop most of the products and services internally through the following
engineering groups:
Engineering group Main focus
Increase the productivity and efficiency of IT professionals,

developers, and their systems through development of cloud
Cloud and AI infrastructure, server, database, CRM, ERP, management and
development tools, AI cognitive services, and other business process
applications and services for enterprises.
Establish a unifying product characteristic across our end-user

Experiences and
experiences and devices, including Office, Windows, Enterprise
Devices
Mobility + Security, and Surface.
AI innovations and other forward-looking research and development

AI and research
efforts spanning infrastructure, services, applications, and search.
services that transform the way customers hire, market, sell, and
LinkedIn
learn.
Development of hardware, content, and services across a large range

Gaming of platforms to help grow the user base through game experiences
and social interaction.
Internal development allows Microsoft to maintain competitive advantages that come

from product differentiation and closer technical control over the products and services, as well as
Page 139 of 158

the freedom to decide which modifications and enhancements are most important and when they
should be implemented.
Costs incurred internally in research and development, in this case, a computer software
product, are charged to expense until technological feasibility has been established for the
product. Once technological feasibility is established, software costs are capitalized until the
product is available for general release to customers.
Microsoft determined that technological feasibility for software products is reached after
all high-risk development issues have been resolved through coding and testing.
The amortization of these costs is included in cost of revenue over the estimated life of
the products.
R&D expense of Microsoft

$21,000
$20,716
$20,500
$20,000
Million
$19,500
$19,269
$19,000
$18,500
Research and development
2020 2021
- Research and development expenses from 2020 to 2021 increased by $1.4 billion
(8%), due to Microsoft investments in cloud engineering.
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APPENDIX 4: SAMPLE GROUP WORK 2
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Contents
1, INTRODUCTION TO THE COURSE ................................................................................................. 1
2, ASSESSMENT DETAILS..................................................................................................................... 2
3, LIST OF TOPICS ................................................................................................................................... 6
5, SESSION PLAN ................................................................................................................................... 10
6, SESSION REQUIRED READING..................................................................................................... 12
7, OTHER INFORMATION.................................................................................................................... 12
CHAPTER 1: IAS 02 INVENTORY ...................................................................................................... 13
LEARNING OBJECTIVE ................................................................................................................... 13
STANDARD ANSWER FOR IAS 02 ................................................................................................ 14
PART A: THEORY QUESTION........................................................................................................ 16
PART B: PRACTICE QUESTION..................................................................................................... 18
CHAPTER 2: IAS 16 PROPERTY PLAN AND EQUIPMENT ......................................................... 25
CHAPTER 3: IAS 38 INTANGIBLE ASSET ....................................................................................... 35
CHAPTER 4: IAS 40 INVESTMENT PROPERTIES .......................................................................... 44
CHAPTER 5: IAS 36 IMPAIRMENT OF ASSET ................................................................................ 51
CHAPTER 6: IFRS 15 REVENUE ......................................................................................................... 61
STANDARD ANSWER FOR IFRS 15 .............................................................................................. 62
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CHAPTER 7: IAS 10 EVENT AFTER REPORTING PERIOD ......................................................... 73
CHAPTER 8: PRESENTATION FINANCIAL STATEMENT .......................................................... 80
STANDARD FORMART FOR PREPARE FINANCIAL STATEMNT ....................................... 81
CHAPTER 9: IAS 07 STATEMENT OF CASH FLOW ...................................................................... 98
STANDARD ANSWER FOR STATEMENT OF CASH FLOW ................................................... 99
THEORY QUESTION .......................................................................................................................101
PART B: PRACTICE QUESTION...................................................................................................102
CHAPTER 10: CONCEPTUAL FRAMEWORK ...............................................................................116
LEARNING OBJECTIVE .................................................................................................................116
PART A: THEORY QUESTION......................................................................................................117
APPENDIX 1: SAMPEL MIDDLE TERM TEST ..............................................................................119
APPENDIX 2: SAMPLE FINAL EXAM.............................................................................................121
Page 157 of 158

Financial Accounting 1 (ACCO 3032)

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2022 - 2023

− Achieve a passing grade in the final examination.

(*) Criterias for presentation assessment

− (*) Criterias for presentation assessment

Criterias for assessment Detailed content

Content (30%) Included all requirement for group work.

Question This criteria pertains to your team’s ability to anticipate

(*) Criterias for report assessment

Overview of the entity overview the entity, illustrate by timeline key

1 Regulatory and Conceptual Framework of Financial Reporting

2 IAS 02: Inventories

3 IAS 16: Property, Plant and Equipment

4 IAS 38: Intangible assets

5 IAS 40: Investment property

6 IAS 36: Impairment of Assets

7 IFRS 15: Revenue

8 IAS 10: Events After the Reporting Period

9 IAS 01: Preparation and presentation of Financial Statements

10 IAS 07: Statement of cash flow

2 IAS 02: Inventories

3 IAS 16: Property, Plant and Equipment

4 IAS 38: Intangible assets

5 IAS 40: Investment property

6 IAS 36: Impairment of Assets

7 IFRS 15: Revenue

8 IAS 10: Events After the Reporting Period

9 IAS 01: Preparation and presentation of Financial Statements

10 IAS 07: Statement of cash flow

BPP ACCA Financial Reporting BPP

IAS Plus Summaries of standards http://www.iasplus.com/standard/standard.htm

KEY DEFINITION COST OF INVENTORY

INTERCHANGEABLE ITEMS CLOSING INVENTORY COST OF GOOD SOLD

QUESTION 1: RECORD TRANSACTION RELATED TO INVENTORY

QUESTION 2: DETERMINE CLOSING INVENTORY

QUESTION 3: DETERMINE CLOSING INVENTORY IF COUNTING DATE AFTER

Question 4: Explain how to determine net realizable value?

Question 7: Explain why LIFO is not permitted in accordance to IAS 02?

Depreciation of factory plant

Finished goods storage costs

Factory supervisors' wages

1 January 20X1 Opening inventory: nil

1 February 20X1 Buys 10 units at $300 per unit

11 February 20X1 Buys 12 units at $250 per unit

1 April 20X1 Sells 8 units at $400 per unit

1 August 20X1 Buys 6 units at $200 per unit

1 December 20X1 Sells 12 units at $400 per unit

Basic Super Luxury

$ per unit $ per unit $ per unit

Estimated selling price 9 12 15

Selling and distribution 1 4 5

units units units

Units of inventory 200 250 150

Product Quantity Cost Selling price Selling cost

A 1,000 $40 $55 $8

B 2,500 $15 $25 $4

C 800 $21 $23 $5

KEY DEFINITION RECOGNTION CRITERIA

Depreciation Spreading the cost of a non-

DEPRECIATION DISPOSAL PPE

ASSET DEPRECIATION Profit or loss on disposal of PPE

PART A: THEORY QUESTION

Question 1: Give definition of PPE in accordance to IAS 16?

Question 2: List recognition criteria of PPE in accordance to IAS 16?