INTERMEDIATE FINANCIAL REPORTING

FINAL EXAM REVIEW QUESTIONS

QUESTION 1

Mandeville Limited (ML) constructed a distillery on January 1, 2021. The distillery is estimated
to have a useful life of 30 years (nil residual value) from the date it was completed and ready to
be used. The distillery was operational on April 1, 2021, but the entity actually commenced use
of the distillery on June 30,2021. The distillery was self-constructed and ML incurred the
following costs:
• direct material, $200 million
• direct labour $150 million
• overheads $250 million

Of the total overheads incurred, 20% represents cost overruns due to inefficiencies by the project
manager and $5,000,000 represents general administrative overheads. To support with
appropriate usage of the distillery, the entity incurred an additional $20million to train all the
operators to use the distillery. The costs incurred in constructing the asset are expected to increase
efficiencies and yield significant future economic benefits.

Required:
a) Determine the depreciation charge for the period ended December 31, 2021. (2marks)
b) Determine the carrying amount of the asset as at December 31, 2022. (4marks)
c) Differentiate between capital and revenue expenditure giving an example of each from the
scenario above (5 marks)

QUESTION 2

On January 1, 2021 Manhattan Traders Limited has 5 million shares in issue and issued options
for another 1,000,000 shares. For the same year, the company had net income of $4,750,000.
Preference shares dividend paid and declared during the period amounted to $250,000.

At the end of that financial year, on December 31,2021 the average market price of each share was
$6 and the option could be exercised for $4.00

Required:
a) Calculate the basic EPS for 2021
b) Calculate the diluted EPS for 2021
c) Explain how the calculation of diluted EPS enhances the predictive value of the financial
statements.
QUESTION 3

For the year ended 31 July 2021 Casey Limited (CL) made taxable trading profits of $6,410,000
on which income tax is payable at 40%.

1. A transfer of $150,000 will be made to the deferred taxation account. The balance on this
account was $230,000 before making any adjustments for items listed in this paragraph.
2. The estimated tax on profits for the year ended 31 July 2016 was $220,000, but tax for that
year has now been agreed at $205,000.
3. Tax on profits for the year to 31 July 2020 is payable on 1 May 2021.
4. In the year to 31 July 2021 the company made a capital gain of $190,000 on the sale of
property. This gain is taxable at a rate of 25%.

Required:

a) Calculate the tax charge for the year to 31 July 2021.

b) Calculate the tax liabilities in the statement of financial position of CL as at 31 July 2021.
c) Explain the concept of deferred taxation