Bộ Đề thi câu hỏi môn kế toán tài chính tiếng anh (financial reporting)

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• Question 11 mark

Section A: Multiple Choice Questions – Single Option

This section has 42 questions worth 1 mark each (total of 42 marks)

At 1 July 20X3, XYZ Ltd purchased specialised tooling at a cost of $120,000 It is being depreciated over 10 years Due to technological advancements, the asset was deemed to be impaired by $14,000

B is correct because there is an impairment loss of $5,000, which is calculated as follows:

Step 1: Calculate original Depreciation for 3 years (1 July 20X3 to 30 June 20X6)

$120,000 / 10 years = $12,000 per year x 3 years = $36,000

Step 2: Calculate Carrying Amount (CA) at 30 June 20X6:

Step 3: Calculate new depreciation for 2 years from 1 July 20X6 to 30 June 20X8:

$70,000 CA / 7 years remaining = $10,000 per year x 2 years

Step 4: Calculate CA for 30 June 20X8 before revaluation

$70,000 from 30 June 20X6

- $20,000 accumulated depreciation

= $50,000 CA before revaluation

Step 5: Compare Revaluation to Carrying Amount

The Carrying Amount of $50,000 is $5,000 higher than the revalued amount of $45,000

Therefore the impairment is $50,000 - $45,000 = $5,000

• Question 20 marks

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At 1 July 20X3, XYZ Ltd purchased specialised tooling at a cost $120,000 It is being depreciated over

10 years Due to technological advancements, the asset was deemed to be impaired by $14,000 on

30 June 20X6

A formal estimate of the asset’s recoverable value was made at 30 June 20X8 and the asset was revalued to $45,000 Two years later a formal estimate of the asset’s recoverable value was made at

30 June 20Y0 and the asset was revalued to $40,000

The useful life of the tooling remained unchanged during this period

What is the amount of the impairment reversal adjustment at 30 June 20Y0?

A $4,000

B $9,000

C $10,000

D $13,000

B is correct as the reversal of impairment is $9,000 ($36,000 - $27,000) since the reversal can only

be written up to the lower amount of $36,000

This is calculated as follows:

Step 1: Calculate original Depreciation for 3 years (1 July 20X3 to 30 June 20X6)

$120,000 / 10 years = $12,000 per year x 3 years = $36,000

Step 2: Calculate Carrying Amount (CA) at 30 June 20X6:

Step 3: Calculate new depreciation for 2 years from 1 July 20X6 to 30 June 20X8:

$70,000 CA / 7 years remaining = $10,000 per year x 2 years

Step 4: Calculate CA for 30 June 20X8 before revaluation

$70,000 from 30 June 20X6

- $20,000 accumulated depreciation

= $50,000 CA before revaluation

Step 5: Compare Revaluation to Carrying Amount

The Carrying Amount of $50,000 is $5,000 higher than the revalued amount of $45,000

Therefore the impairment is $50,000 - $45,000 = $5,000

Step 6: Compare 20Y0 Carrying Amount to Revalued amount of $40,000

$45,000 Recoverable value 30 June 20X8

- $18,000 Depreciation for 1 July 20X8 - 30 June 20Y0 ($45,000 recoverable value / 5 years remaining life ) x 2 years

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= $27,000 Carrying Amount

This is $13,000 lower than the revalued amount of $40,000 so it looks like there needs to be a reversal

of impairment

Step 7: Determine the reversal of impairment

We cannot just reverse the $13,000 IAS 36 states that the reversal of impairment can only be written

up to the LOWER of:

• its recoverable amount, as estimated at the time the reversal indicators were identified; and

• the carrying amount that the asset would be if the original impairment loss were not recognised

So, we need to calculate the carrying amount as if there were never any impairments

Unadjusted notional CA = $120,000 original cost – $84,000 of depreciation (7 years of $12,000 per year) = $36,000

So reversal of impairment is limited to the $36,000 carrying amount This means the reversal is $9,000 ($36,000 – $27,000)

Entity X sells robotic vacuum cleaners for $500 each The company has a policy which allows customers to get a full refund within 20 days if they are not completely satisfied with the product For the month of January, Entity X sold 200 vacuum cleaners

Past experience indicates the following:

– 30% chance that there will be no returns;

– 45% chance that there would be 50 returns;

– 15% chance that there would be 60 returns; and

– 10% chance that there would be 65 returns

What is the revenue that should be recognised if Entity X uses the expected value method allowed by IFRS 15?

probability-Based on the following calculations:

Revenue from no returns: ((200-0) x $500) x 30% = $30,000

Revenue from 50 returns: ((200-50) x $500) x 45% = $33,750

$30,000 + $33,750 + $10,500 = $6,750 = $81,000

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The total revenue is therefore $81,000

Entity X sells robotic vacuum cleaners for $500 each The company has a policy which allows customers to get a full refund within 20 days if they are not completely satisfied with the product For the month of January, Entity X sold 200 vacuum cleaners

Past experience indicates the following:

– 30% chance that there will be no returns;

– 45% chance that there would be 50 returns;

– 15% chance that there would be 60 returns; and

– 10% chance that there would be 65 returns

What is the revenue that should be recognised if Entity X uses the most likely amount method allowed

In this case the 45% chance of 50 vacuums being returned is the most likely of all the outcomes

So, the calculation will be based on 150 (i.e 200 - 50) vacuums being sold: 150 x $500 = $75,000

The calculation of taxable profit and current tax for Sunshine Ltd was as follows:

Sunshine Ltd operates in a country that has very lenient tax laws The tax rate is 25% and tax losses can be carried forward indefinitely However, carry-back of tax losses is not permitted

On 1 January 20X1, Sunshine purchased an asset for $10,000 Management estimated that the asset has a useful life of 5 years The asset is depreciated at 25% for tax purposes

At the end of each year, management was unable to establish the probability of the company making future taxable profits, except for the reversal of taxable temporary differences

Which of the following tax-effect journals for 20X1 is correct?

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A DR Deferred tax asset $125 | CR Current tax income $125

B DR Deferred tax expense $150 | CR Deferred tax liability $150

C DR Deferred tax expense $1,250 | CR Current tax income $1,250

D DR Deferred tax asset $1,375 | CR Deferred tax income $1,375

A is correct because the probability criterion requires the recognition of DTA only to the extent that it

is probable that there would be future taxable profits against which the DTA can be utilised

At the end of 20X1, the only taxable profits that could be proved related to the future reversal of taxable temporary difference of $500 for the extra depreciation

BE CAREFUL HERE: The tax rate in this question is only 25%

$500 taxable temporary difference x 25% = $125 DTL

Hence the DTA that is recognised is limited to the amount of $125

The correct journal is:

Dr DTA 125

Cr Current tax income 125

Sunshine Ltd operates in a country that has very lenient tax laws The tax rate is 25% and tax losses can be carried forward indefinitely However, carry-back of tax losses is not permitted On 1 January 20X1, Sunshine purchased an asset for $10,000 Management estimated that the asset has a useful life of 5 years The asset is depreciated at 25% for tax purposes

What is the movement in the deferred tax liability account in 20X2?

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$500 taxable temporary difference x 25% = $125 movement

On 1 January 20X1, Happy Ltd purchased a widget-producing asset for $500,000 The asset is depreciated over a useful life of 10 years for accounting purposes and at a rate of 15% for tax purposes

Happy Ltd accounts for the asset using the revaluation model

The CGT cost base is $520,000

The tax rate is 30% and capital gains tax is applicable

In 20X5, there was an increase in the demand for widgets and a shortage of supply of both widgets and the asset that produces it Accordingly, on 31 December 20X5, the asset had a fair value of

A is correct because the DTL = $37,500 ($125,000 x 30%)

Step 1: Determine depreciation

Accounting depreciation: $500,000 original cost / 10 years = 50,000 per year

5 years of depreciation = $250,000 (5 years x $50,000)

Tax depreciation: $500,000 original cost x 15% per year = $75,000 per year

Step 2: Determine the asset carrying amount prior to revaluation

500,000 Original Cost

less ($250,000) Accumulated Accounting Depreciation (calculated in Step 1)

= $250,000 Carrying Amount (CA)

Step 3: Determine the tax base prior to revaluation

$500,000 Original Tax Cost

less ($375,000) Accumulated Tax Depreciation (calculated in Step 1)

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$125,000 Temporary Difference x 30% tax rate = $37,500

This is a DTL because it is a taxable temporary difference, and the carrying amount is greater than the tax base

You will pay less tax now (because of higher tax depreciation which lowers taxable profit) but you will pay more tax later when it reverses So, you have a present obligation to pay more tax later

A is correct based on the following calculations:

Tax base (TB) of assets = Carrying amount + Future deductions – Future taxable amounts

Future deductions = tax cost – accumulated tax depreciation

Future deductions = Original tax cost of $500,000 – $375,000 in depreciation = $125,000

So substituting into the first formula:

TB of assets = Carrying amount + Future deductions – Future taxable amounts

$125,000 = $600,000 (CA) + $125,000 (Future deductible amounts) - $600,000 (Future taxable amounts)

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If you are unsure about these steps review the Module 4 Part C webinar recording and flowcharts that guide you through these steps

The tax rate is 30% and capital gains tax is applicable In 20X5, there was an increase in the demand for widgets and a shortage of supply of both widgets and the asset that produces it Accordingly, on

31 December 20X5, the asset had a fair value of $600,000

Ignoring tax effects, which of the following represents the correct journal to record the revaluation adjustment?

A DR Asset $300,000 | CR Gain on revaluation (P&L) $300,000

B DR Asset $350,000 | CR Revaluation surplus (OCI) $350,000

C DR Asset $350,000 | CR Gain (P&L) $250,000 | CR Revaluation surplus (OCI) $100,000

D DR Accumulated depreciation $200,000 | DR Asset $600,000 | CR Revaluation reserve (OCI)

$800,000

B is correct because the revaluation of the asset is $350,000 and this revaluation will be taken to OCI Assets carrying amount prior to revaluation:

less ($250,000) Accumulated Accounting Depreciation

Fair value (FV) is $600,000

Difference between FV and CA is the revaluation of $350,000 [$600,000 - $250,000]

The journal is DR Asset | CR Revaluation Surplus (OCI) as shown on page 193

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$600,000

Considering the revaluation adjustment only, what would be the related tax effect journal if management intend to recover the asset through sale?

A DR OCI- revaluation surplus $99,000 | CR Deferred tax liability $99,000

B DR Deferred tax asset $105,000 | CR Deferred tax income $105,000

C DR OCI- revaluation surplus $136,500 | CR Deferred tax liability $136,500

D DR Deferred tax asset $180,000 | CR Deferred tax income $180,000

A is correct because the revaluation for accounting purposes was $350,000 and for tax purposes it was $20,000 so the temporary difference on the revaluation was $330,000 This difference x 30% gives a DTL of $99,000

This is based on the calculations shown below:

Step 1: Carrying amount revaluation:

less ($250,000) Accumulated Accounting Depreciation

Fair value (FV) is $600,000

Difference between FV and CA is the revaluation of $350,000 [$600,000 - $250,000]

Step 2: Tax base before revaluation (use normal formula):

Future deductions = Original tax cost of $500,000 – $375,000 in depreciation = $125,000

TB of assets = Carrying amount + Future deductions – Future taxable amounts

$125,000 = $600,000 (CA) + $125,000 (Future deductible amounts) - $600,000 (Future taxable amounts)

Step 3: Tax base after the revaluation (use the adjusted formula):

The formula for the tax base when CGT is applicable and there is recovery through sale is:

Tax base = Carrying amount + Future tax deductions (CGT cost base - accumulated tax depreciation)

- Future taxable amounts (full revalued amount)

Carrying amount: The asset had a fair value of $600,000 and this becomes the carrying amount as it

is accounted for using the revaluation model

Future tax deductions (CGT cost base - accumulated tax depreciation):

CGT Cost base is $520,000

Annual tax depreciation is 15% x $500,000 original cost = $75,000

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There have been 5 years of depreciation so 5 x $75,000 = $375,000 accumulated tax depreciation

So, future tax deductions is $520,000 - $375,000 = $145,000

Future taxable amount (full revalued amount): This is $600,000, as this is the fair value and we are using the revaluation model

Apply the formula: CGT Tax base = $600,000 + $145,000 - $600,000 = $145,000

Step 4: Work out the revaluation for tax purposes

The original tax base $125,000 and the CGT Tax base is $145,000 so the revaluation had to be

$20,000

Step 5: Work out the temporary difference and deferred tax

Revaluation for accounting purposes was $350,000 (see step 1) and for tax purposes it was $20,000 (see step 4)

Temporary difference on the revaluation was $330,000 ($350,000 - $20,000)

This difference x 30% gives a DTL of $99,000

This is a DTL because it is a taxable temporary difference, and the carrying amount is greater than the tax base

You will pay less tax now (because of higher tax depreciation which lowers taxable profit) but you will pay more tax later when it reverses So, you have a present obligation to pay more tax later

On 30 June, the fair value of Parent Ltd’s initial 20% shareholding was $15,000 and the fair value of the non-controlling interests (NCI) was $23,000

The fair value of the net identifiable assets was $90,000

What would be the amount of NCI included in the goodwill calculation if the partial goodwill method is

used?

A $11,000

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B $15,000

C $18,000

D $23,000

C is correct because when calculating goodwill using the partial goodwill method, the NCI is calculated

by multiplying the net identifiable assets by the NCI percentage holding

This is $90,000 x 20% = $18,000

Partial goodwill method:

$100,000 FV of purchase price

+ $15,000 FV of previous held interests

+ $18,000 Non- controlling interests

On 30 June, the fair value of Parent Ltd’s initial 20% shareholding was $15,000 and the fair value of the non-controlling interests (NCI) was $23,000 The fair value of the net identifiable assets was

For more guidance please watch the Module 5 Part A Webinar

On 30 December 20X6, the following information was available for Entity A:

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– Statement of Comprehensive Income: $170,000

– Statement of Profit or Loss: $158,000

The Statement of Financial Position included the following balances which were equal to the relevant tax bases:

– Machinery (carrying amount): $250,000

– Equipment (carrying amount): $130,000

On 31 December 20X6, the following information became available:

– The fair value of machinery and equipment was $260,000 and $135,000 respectively

Entity A adopts the revaluation model for property, plant and equipment

What is the total of Other Comprehensive Income for the year ended 31 December 20X6 assuming the applicable tax rate is 30%?

A $12,000

B $15,500

C $22,500

D $27,000

C is correct based on the following calculations:

Step 1: (pages 83 - 88 of Module 2) 30 December 20X6: Total comprehensive income (the combination

of P&L and OCI) was $170,000 We also know know that the P&L was $158,000 so OCI must be

$170,000 - $158,000 = $12,000

Step 2: (Pages 193 - 194 of Module 4)

Machinery increased by $10,000 (i.e $260,000 - $250,000) This increase would go to revaluation surplus in OCI The deferred tax liability on this would be $3,000 (i.e $10,000 x 30%)

Equipment increased by $5,000 (i.e $135,000 - $130,000) This would go to revaluation surplus in OCI

The deferred tax liability on this would be $1,500 (i.e $5,000 x 30%)

What is the consolidation elimination journal entry amount for opening retained earnings on 1 January 20X8 assuming the applicable tax rate is 30%?

A $5,600

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B $6,300

C $7,000

D $10,000

A is correct, based on the following explanation

The consolidation journals on 31 December 20X7 would be as follows:

- DR Profit on sale of machine: $10,000

So, the net income statement effect is a reduction of $6,300 (i.e $10,000 - $1,000 - $2,700)

But the question asks for the adjustment for opening retained earnings for 1 January 20X8 This means

we need to further account for the effects on profit during the 20X7 financial year

During 20X7, all that we would need to do is realise the intra-group profit through depreciation of 1,000 (10,000 unrealised profit / 10 years)

The tax on this is 300 (1,000 x 30%)

So the combined adjustment to opening retained earnings in 20X8 is 5,600 (6,300 - 1,000 + 300)

If you are unsure about these calculations please review the webinar tasks and webinar solutions recording for Module 5 Part B (intra-group transactions)

When classifying financial instruments which of the following are accurate?

I If a financial instrument fails the fixed-for-fixed test it will most likely be classified as a liability

II When a financial instrument allows for the settlement of a fixed dollar amount with a fixed number

of shares this would most likely be classified as an equity instrument

III When a financial instrument has to pay a variable amount of shares depending on the current share price to met a fixed obligation this would fail the fixed-for-fixed test

IV When the fixed-for-fixed test is met it is likely to be a compound financial instrument

A I and II only

B I and III only

C I, II and III only

D I, II and IV only

C is correct because options I, II and III are all accurate statements, while option IV is not accurate Item IV is not accurate because when the fixed-for-fixed test is met it is likely to be classified as an equity instrument as this exposes the instrument to variable returns (because a fixed number of shares

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may may vary in price over time) This exposes the instrument to the residual interest in the net assets

of the entity

Sun Ltd acquired 90% of the shares of Moon Ltd on 1 January 20X1 This gave Sun Ltd control over Moon Ltd On 1 January 20X2, Moon Ltd sold a machine with a carrying amount of $30,000 to Sun Ltd for $50,000 Moon Ltd’s policy is to depreciate fixed assets over a useful life of 8 years, while Sun Ltd depreciates its fixed assets over a useful life of 10 years

Assume the applicable tax rate is 30%

What is the consolidation elimination journal amount for opening retained earnings on 31 December 20X3?

Depreciation according to Sun Ltd $5,000 ($50,000 x 10%)

Depreciation according to the group $3,000 ($30,000 x 10%)

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Carrying amount of asset decreased by $18,000 ($20,000 - $2,000)

Tax base has no movement = $0

Dr Retained earning $12,600 (i.e $20,000 - $2,000 - $5,400)

In terms of IFRS 15, how would you treat a consideration payable to a customer as an incentive for the customer to make a purchase with the entity?

A No effect on the revenue to be recognised

B Account for it as a purchase from a supplier

C Reduce the transaction price by the consideration payable

D Treat it as a financing component and adjust for the time value of money

C is correct because IFRS 15, para 70 requires the transaction price to be reduced by consideration payable to the customer unless the consideration payable to the customer is in exchange for a distinct good or service

Can contracts for non-financial items ever be classified as financial instruments?

A Yes, if the contract is to be settled net in cash

B Yes, if it is used for the intended purpose of purchase

C No, because it is expressly excluded from the scope of IAS 32

D No, because it does not meet the definition of financial instruments

A is correct because a contract with non-financial items which will be settled net in cash is a financial instrument

B is incorrect because if it is used for the intended purpose, then it would specifically not be classified

as a financial instrument in terms of IAS 39, para 5

C is incorrect because IAS 32, para 8 does include this

D is incorrect because in some instances, contracts for non-financial items do satisfy the definition of financial instruments

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Entity A is a mining company that is considering raising a liability or provision for the rehabilitation of the land at the completion of a particular mining project Environmentalists have reliably estimated the costs of rehabilitation but the timing and probability of future outflows of economic benefits is uncertain Which of the following in relation to IAS 37 is correct?

A A provision should be recognised since the timing is uncertain

B A liability should be recognised as the costs can be reliably measured

C A provision cannot be recognised as the probability criterion is not satisfied

D A liability cannot be recognised because environmental costs are scoped out of IAS 37

C is correct because it does not meet the requirements if IAS 37, para 14(b)

For a provision to be recognised: (a) an entity has a present obligation (legal or constructive) as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will

be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation (IAS 37, para 14)

A provision is a liability with uncertain amount or timing (IAS 37, para 10) So, it is possible that a liability / provision exists in this situation

However, the probability criterion is not satisfied, so neither a provision or liability can be recognised

Jack’s agent drew on past experience and indicated that there is a 55 per cent chance of a leg injury,

22 per cent chance of a hand injury and only a 0.5% chance of a face injury

Should Entity Z raise a provision for Jack Cruise’s policy?

A No, because there is no present obligation to make any payment

B No, because the chances of a hand and face injury are less than 50 per cent

C Yes, because the chances of a claim is probable and can be reliably estimated

D Yes, because there is a greater than 50 per cent chance that there will be a leg injury

C is correct because the provision needs to be satisfy the recognition criteria or probability and reliable measurement Past claims indicate probability and his agent's past experience provides grounds to for reliable measurement

A is incorrect because the signing of the insurance contract between Jack and Entity Z gives rise to a legal obligation which is the present obligation and past event

B is incorrect because the chances of these specific injuries relate to the measurement of the provision and not to the probability The fact that Jack made insurance claims on all of the previous Mission

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Granted movies indicates that it is highly probably that he will also make a claim for the production of Mission Granted 3

D is incorrect because this does not include the probability criteria nor does it take into account the recognition of the other injuries in the calculation of the provision

100 pairs of shoes free of charge

How should this modification to the contract with the customer be treated in terms of IFRS 15?

A It should be treated as a separate contract with zero revenue

B It should replace the existing contract and future revenue adjusted prospectively

C It should become part of the existing contract and revenue should be adjusted retrospectively

D It should be ignored for the purposes of revenue recognition but disclosure is required in the notes

B is correct because it should replace the existing contract and future revenue adjusted prospectively This is because the shoes are distinct goods and the modification is not to be treated as a separate contract This is required in terms of IFRS 15, para 21

In order for the modification to be treated as a separate contract, it needs to be distinct goods and the contract price needs to increase to reflect the stand alone selling prices after appropriate adjustments

A is incorrect because the modification of 100 additional pairs of shoes are distinct since each pair can be used and benefited from separately however, Entity A is providing this free of charge Therefore, it fails the second requirement and cannot be treated as a separate contract

C is incorrect because the contract should not become part of the existing contract because this treatment applies to modifications that are not treated as a separate contract, but for goods that are not distinct The additional pairs of shoes are distinct

D is incorrect because the contract should not be ignored because a transaction will take place (i.e the provision of additional shoes) and this must therefore be recorded in the accounting records

The following extract from Sunny Ltd’s financial statements are provided:

What is the cash received from debtors during the 20X1 financial year?

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A $478,000

B $600,000

C $678,000

D $681,000

D is correct as Cash Received from Customers is $681,000

The formula for this is:

Opening balance of receivables + Sales revenue - Bad debts written off - Closing balance of trade receivables

The formula for bad debts written off is:

$10,000 Opening balance of allowance for doubtful debts

+ $22,000 Doubtful debts expense

- ($13,000) Closing balance of allowance for doubtful debts

= $19,000 Bad debts written off

So the calculation for cash received from customers is:

$200,000 Opening Trade debtors

+ $650,000 Sales revenue

- ($19,000) Bad debts written off

- ($150,000) Closing Trade debtors

= $681,000 Cash Received from Customers

AB Ltd sells its debtors with a carrying amount of $80,000 to Zed Ltd for $70,000 AB Ltd agreed to reimburse Zed Ltd for unrecoverable debts up to a maximum of $500

What is the journal entry to record the above transaction in the records of AB Ltd?

A DR Bank $70,000 | DR Loss on sale $10,000 | CR Debtors $80,000

B DR Bank $80,000 | CR Gain on sale $10,000 | CR Debtors $70,000

C DR Bank $70,000 | DR Loss on sale $10,500 | CR Debtors $80,000 | CR Guarantee liability $500

D DR Bank $60,500 | DR Loss on sale $500 | DR Bargain purchase $19,000 | CR Debtors $80,000

C is correct based on the following components:

DR Bank $70,000 occurs because we receive cash of $70,000

CR Debtors $80,000 occurs because AB Ltd sells the debtors to Zed Ltd and does not have any managerial involvement and is not responsible for the risks and rewards relating to the debtors that are sold Hence, the debtors qualify for de-recognition

CR Guarantee liability $500 occurs because AB Ltd has a present obligation to reimburse bad debts

up to $500 and so this needs to be recognised as a liability

DR Loss on sale $10,500 occurs as this residual is a loss on sale of debtors

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Sunshine Ltd operates in a country that has very lenient tax laws The tax rate is 25% and tax losses can be carried forward indefinitely

However, carry-back of tax losses is not permitted On 1 January 20X1, Sunshine purchased an asset for $10,000 Management estimated that the asset has a useful life of 5 years The asset is depreciated

at 25% for tax purposes

Which of the following correctly represents the journal for the recovery (recoupment) of unrecognised tax losses in 20X3?

A DR Deferred tax expense $250 | CR Deferred tax asset $250

B DR Deferred tax expense $375 | CR Current tax income $375

C DR Deferred tax expense $1,500 | CR Current tax income $1,500

D DR Deferred tax expense $2,500 | CR Deferred tax asset $2,500

B is correct based on the following calculations:

Step 1: Calculate total DTA (be careful of the 25% tax rate)

The total DTA available for the tax loss is $1,375 (which is the tax loss x 25% tax rate)

Step 2: Recognise only the portion permitted (see Figure 4.8)

In 20X1 we were able to recognise $125 of this DTA because of the $500 additional tax depreciation

$500 taxable temporary difference x 25% = $125 DTL

Hence the DTA that is recognised is limited to the amount of $125

In 20X2 we did the same and again recognised $125 DTA

So, the total DTA we have recognised is $250 based on the $1,000 temporary difference ($500 x 2 years)

Then in 20X2 there is a $3,000 taxable profit, so we can recover or recoup $3,000 x 25% = $750 of DTA linked to losses

Step 3: Work out the unrecognised portion

This means that from the original DTA of $1,375 we have recognised (125 + 125 + 750) = $1,000 This means that there is ($1,375 - $1,000) = $375 unrecognised

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This is also shown on the follow table:

Details Amount DTA

Tax loss 5,500 1,375 DTA available

C is correct because debtors or accounts receivable satisfy the definition of financial assets per IAS

32, para 11 Debtors are classified as primary financial instruments

A, B and D are assets but do not meet the definition of financial assets

Which of the following is not a disclosure required to be made in the statement of changes in equity?

A Retrospective adjustments required by IAS 8

B Deferred tax arising from transactions with equity participants

C A reconciliation between opening and closing balances of each component of equity

D An allocation of comprehensive income between non-controlling interests and owners of the parent

B is the correct answer because it is not required

All other options are listed in terms of IAS 1, para 106

The annual tuition fees for Academy A is $6,000 Sandra is currently experiencing financial difficulties and so entered into an agreement with Academy A to give the academy a gold trophy which she inherited from her great grandfather

Academy A intend to use this as their new floating trophy for Dux students and, in exchange, Sandra would not have to pay the annual tuition fee Because of its history, the fair value of the gold trophy is

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$5,800, while the selling price for similar trophies is $5,500 Academy A estimates that the value of the trophy would increase to $6,500 when it is ingrained with its world-renowned logo

In terms of IFRS 15, what amount should Academy A recognise as revenue in relation to its contract with Sandra?

Which of the following relating to goodwill is correct?

A Generally, the values used in the calculation of goodwill will be the acquisition date fair values

B When calculating goodwill, non-controlling interests can be calculated using the fair value or cost model

C Goodwill is the total assets of the acquirer less assumed liabilities of the acquiree less controlling interests

non-D Goodwill is the sum of individually identifiable and separately recognisable assets that would give rise to future economic benefits

A is correct because IFRS 3, para 10 requires goodwill to be calculated using the at acquisition date fair values of the identifiable assets, assumed liabilities and non-controlling interest

Goodwill is measured at acquisition date as the fair value of the consideration transferred plus the amount of any non-controlling interest, plus the fair value of any previously held equity interest in the acquiree, less the fair value of the identifiable net assets acquired (IFRS 3, para 32)

B is incorrect because the choice permitted for the calculation of non-controlling interests include the fair value or the non-controlling interest's proportionate share of the acquiree's identifiable net assets (IFRS 3, para 19)

C is incorrect because the calculation of goodwill is based on the identifiable assets of the acquiree and not of the acquirer

D is incorrect because goodwill does not include individually identified and separately recognised assets This is covered in the definition of goodwill as stated in IFRS 3, Appendix A

For more guidance please watch the Module 5 Part A Webinar

Australia Bank Ltd provided a loan of $5,000,000 to Entity A The loan contract states that interest would be charged at a fixed rate of 9% annually

Which of the following would result in this loan being classified as fair value through profit or loss?

A The loan contract requires payment of 5% of profits that exceed $5,000,000

B The loan contract is valid for 30 years provided that Entity A's assets exceed its liabilities

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C The loan contract includes a penalty of 10% of the principal amount for early settlement of the loan

D The loan contract does not contain any provisions that are contingent on future uncertain events

A is correct because financial assets are classified as FV through profit and loss if they are not classified as amortised cost

This is the only option that includes amounts (i.e 5% of profits that exceed $5,000,000) which are not interest or principal payments Hence, this would result in the instrument been classified as FV through profit and loss

In order for it to be classified as amortised cost, the bank needs to hold that financial asset for collecting contractual cash flows that are solely from interest and principal re-payments

B, C and D satisfy the criteria to be considered 'solely payments of interest and principal' in terms of IFRS 9, para B4.1.10

A DR Financial asset $70,000 | CR Bank $70,000

B DR Bank $70,000 | CR Asset $50,000 | Cr Gain on transfer of asset $20,000

C DR Loan payable $65,000 | DR Interest $5,000 | CR Bank $70,000

D DR Loan payable $50,000 | DR Financial asset $20,000 | CR Bank $70,000

C is correct because the agreement required Entity A to buy back the financial asset and hence Entity

A did not relinquish control of the asset

That is, Entity A was still responsible for the risks and rewards relating to that financial asset

Hence the financial asset does not qualify for de-recognition and the transaction needs to be recorded

as a loan with the difference treated as interest

Due to cash flow issues, Entity A decided to sell a financial asset at its carrying amount of $100,000

to Entity B The sale agreement includes a market interest rate of 6% and stipulates that Entity A will purchase the financial asset back from Entity B after 2 years at a price of $200,000

Which of the following journals correctly accounts for the sale on the date that the initial transaction occurred?

A DR Bank $100,000 | CR Loan $100,000

B DR Bank $100,000 | CR Financial asset $100,000

C DR Bank $100,000 | CR Loan $178,000 | DR Loss on contract $78,000

D DR Bank $366,680 | CR Financial asset $100,000 | CR Loan $200,000 | CR Gain on contract

$66,680

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C is correct because the risks relating to the financial asset have not passed to Entity B because Entity

A is required to buy it back Hence, this financial asset does not qualify for de-recognition

The substance of this transaction is that of a loan agreement However, because it is payable in 2 years' time, the amount must be present valued

The market interest rate is 6% and the PV factor for a single cash flow over a 2 year period is (1 / (1.06)^2) = 0.8900

This means that the present value of the loan is $178,000 (i.e $200,000 x 0.8900)

- The bank would be debited with the cash inflow of $100,000

- The loan would need to be raised at the present value of $178,000

- The difference is a loss on this contract of $78,000

A is incorrect because it does not recognise the loan at the present value

B and D are incorrect because the financial asset does not qualify for derecognition

Recoverable amount is higher of (FV – Costs to sell) and value in use

FV less costs to sell = $349,500 [$352,000 - $2,500)]

Value in use = $348,000

Therefore Recoverable amount is $349,500 as this is the higher of the two amounts, so this is the closing balance

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Which of the following is not considered ‘offsetting’?

A Presenting only the net gain or loss on foreign currency transactions

B Presenting only the net gain or loss arising from financial instruments held for trading

C Presenting only the final balance of inventory after deducting obsolescence allowances

D Presenting the expenditure for a provision net of related reimbursements with a third party

C is correct because it is not considered to offsetting as it refers to 'measuring assets net of valuation allowances' IAS 1, para 33

In terms of this paragraph, this is not considered offsetting and is permitted

All other options relate to offsetting practices Refer to IAS 1, para 34 and 35

Which of the following relating to the treatment of a contingent liability that is a present obligation that can be measured reliably even if it is not probable during a business combination is correct?

A Contingent liabilities would not have an impact on the calculation of goodwill

B Contingent liabilities would fail the recognition criteria and so would be disclosed only in the consolidated entity

C Contingent liabilities would be recognised in a business combination and would cause the goodwill

to be larger

D Contingent liabilities would be recognised in a business combination and would make the net identifiable assets larger

C is correct because during a business combination, the exception to the requirements of IAS 37 apply

to contingent liabilities That is, during a business combination, contingent liabilities must be recognised and taken into account in the calculation of goodwill

Remember, goodwill = purchase consideration - net identifiable assets

Thus, the inclusion of contingent liabilities would cause the net identifiable assets to be lower and so, the amount attributable to goodwill would be larger

A and B are incorrect because contingent assets are recognised during a business combination

D is incorrect because recognising contingently liabilities would cause the net identifiable assets to decrease not get larger

Pepper Ltd acquired 80% of the shares in Salt Ltd on 1 January 20X1 This gave Pepper Ltd control over Salt Ltd In November 20X1, Salt Ltd sold inventory with a cost of $10,000 to Pepper Ltd for

$15,000 On 31 December 20X1, Pepper Ltd still had 45% of this inventory on hand

What is the consolidation elimination journal amount for Cost of Sales on 31 December 20X1?

A $5,500

B $8,250

C $10,000

D $12,750

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D is correct because the total journal adjustment to cost of sales is $12,750 ($10,000 + $2,750) Step 1:

Dr Sales $15,000 (for the sale to the parent)

Cr COGS $10,000 (for the cost to the subsidiary)

This gives us an unrealised profit of $5,000

Step 2:

45% was still on hand at the period end, so 55% was sold to parties external to the group Thus, we can realise 55% of the unrealised profit: $5,000 x 55% = $2,750

Cr COGS $2,750 (for the realisation of the profit)

So, the total journal adjustment to cost of sales is $12,750 (i.e $10,000 + $2,750)

Conglomerate Ltd purchased Small Ltd 3 years ago The business combination resulted in goodwill of

$100,000 Management believe that the goodwill should be amortised over a useful of 10 years Over the past 3 years, goodwill was impaired by a total of $5,000 In the fourth year since acquisition, goodwill will be impaired by $1,000

What is the correct carrying amount of goodwill at the end of the fourth year?

of $20 million

Assuming the competitor was the acquirer in the business combination, how should the competitor treat the YogiYippi brand?

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A The amount of $3 million should be immediately expensed

B The amount of $3 million should be recognised as an intangible asset

C An asset of $20 million and an expense of $3 million should be recognised

D The YogiYippi brand should not be recognised as it lacks physical substance and cannot be separately identified

B is correct because the brand can be rented, sold transferred licensed or exchanged as proved by the sale to the competitor Thus it can be separately identifiable and according to IAS 38, it should be recognised as an intangible asset at cost

The acquiree may have intangible assets that were generated internally — according to IAS 38 they should be recognised by the acquirer as part of the identifiable assets acquired as long as they satisfy either a:

• separability criterion, or

• contractual–legal criterion

The separability criterion is fulfilled if the intangible asset can be separated from the entity and sold, rented, transferred, licensed or exchanged The contractual–legal criterion relates to control over the asset via contractual or legal rights, regardless of whether or not the rights are transferable or separable from the entity or other rights (IAS 38, para 12; IFRS 3, para B32)

D A pattern of past practices

B is correct because a binding contract will give rise to a legal obligation

All other options form part of the definition of constructive obligation as stated in IAS 37, para 10

XYZ Ltd (XYZ) is reorganising its factory to implement process efficiencies

An asset has the following details:

– $4,000 legal transfer costs

– $5,000 redundancy payment to one employee who is no longer needed as a result of the reorganisation

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The value in use is unknown What is the value of impairment recognised by XYZ?

A $10,000

B $16,500

C $17,500

D $21,500

B is correct based on the following:

Impairment is required if recoverable amount is lower than the carrying amount (Figure 7.2)

The carrying amount is $220,000

The recoverable amount is the higher Fair value less costs of disposal and value in use We are not given the value in use, so we need to calculate the FV less costs of disposal

Impairment is required because this is lower than the carrying amount

The impairment = $220,000 (Carrying Amount) - $203,500 (Fair Value less costs to sell) = $16,500

ABC Ltd has its financial year end on 31 December The full-year financials were prepared on 20 January and submitted to the board of directors on 5 February The board met and approved the financials on 16 February

The financials were made available to shareholders on 3 March and approved by the shareholders on

20 March On 30 March, the financials were filed with the regulatory board

On which date are the financial statements of ABC Ltd authorised for issue?

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The customer signed this exclusion clause when the goods were purchased Entity A’s lawyers believe that there is a 99% chance that the case will not be successful due to the contracts that the customer signed as well as the standard practice for the sale of similar goods in the industry

Referring to the Conceptual framework and IAS 37, which of the following is most correct?

A The lawsuit should be recognised as a provision because it can be reliably measured

B The lawsuit should be disclosed as a contingent liability because it fails the probability criterion

C The lawsuit should not be disclosed as a contingent liability because the outflows of economic benefits are remote

D The lawsuit should not be recognised as a provision because a provision relates to uncertainty and the amount of $100,000 is determinable

C is correct as the lawsuit fails the definition of liability because there is no present obligation Accordingly, the lawsuit would be considered a contingent liability It also fails the recognition criteria because the outflow of benefits is not probable That is, there is only a one per cent chance that the lawsuit would be successful

IAS 37 states in para 28 'A contingent liability is disclosed, as required by paragraph 86, unless the possibility of an outflow of resources embodying economic benefits is remote.'

A is incorrect, because it is not a liability, hence, it is not a provision Reliable measurement is not relevant here, as this refers to recognition criteria after the definition of the liability is established

B is incorrect, because although the lawsuit is a contingent liability it should not be disclosed as it fails the probability criterion

D is incorrect, because although the lawsuit should not be recognised, the reason provided is not accurate

Section B: Multiple Choice Question – Multiple Options

This section has 1 question worth 1 mark (total of 1 mark)

Select all that apply

Arden Enterprises Ltd (Arden) recognised the following temporary differences in its financial statements for the period ended 31 December 20X3:

– Provision for warranty: $40,000 deductible temporary difference

– Receivables: $30,000 taxable temporary difference

Both temporary differences are expected to reverse in the following financial year

Taxable profit for the year ended 31 December 20X3 was zero Forecast profit for the following year, before recognition of reversal of temporary differences, is also expected to be zero

Additional information:

– Tax losses can only be carried forward for one year

– The carry back of losses is not permitted

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– The tax rate is 30 per cent

What amount should Arden recognise as a deferred tax asset and a deferred tax liability for the year ended 31 December 20X3? (Select all that apply)

B and D are correct based on the following:

The total of the deductible temporary difference ($40,000) gives rise to a DTA of $12,000 but only

$9,000 of this can be recognised, as this is the value of the DTL

Step 1: Work out the value of the DTA:

$40,000 deductible temporary difference of $40,000 x 30% = $12,000

Step 2: Refer to Figure 4.8

The DTA can only be recognised to the extent that it would be probable that there would be future taxable profits against which the DTA can be used

At the end of 20X3 taxable profits were zero The forecast for the following year is expected to result

in zero profits

However, the taxable temporary difference is expected to reverse in the following year the same year that the deductible temporary difference would reverse

Step 3: Work out the value of the DTL

$30,000 taxable temporary difference for receivables x 30% = $9,000

Step 4: The DTA can be recognised to the extent of the DTL

Therefore, DTA that can be recognised is only $9,000

• Question 43- awaiting marks

Section C: Extended Response Questions

This section has extended response questions worth a total of 18 marks

Case Scenario 1

The following information relating to Pretty Ltd for the year ended 30 June 20X8 is available:

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TOTAL MARKS : 4

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Note: The balance for doubtful debts shown in the balance sheet is shown as a 'negative' amount because it is a contra-asset that reduces the value of the gross receivables This is similar to accumulated depreciation which reduces the historical cost of an asset down to its 'written-down-value'

When entering this amount into the formula you do not put in a negative number You just put the balance (i.e $6,000 for opening balance)

Marks:

o Up to 2 marks for bad debts written off

o Up to 2 marks for cash received from customers

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> Consolidated financial statements

Calculate the following (show your workings):

i) The deferred tax movement

ii) Current tax expense

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iii) Tax paid

Marked Answer :

iii) Tax paid =

TOTAL MARKS : 3

i) Deferred tax movement: $2,400

Deferred tax expense = $2,100 ($5,500 – $3,400)

Deferred tax income = ($300) [$1,800 – $2,100]

This will increase the deferred tax movement from $2,100 to $2,400 (not down from $2,100 to $1800)

ii) Current tax expense: $67,600

The formula is in Figure 4.1 on page 265 Tax expense = current tax expense + deferred tax expense

- deferred tax income

Refer to Knowledge Check 4.6 for a similar type of situation

Income tax expense = $70,000 (given)

Income tax expense = current tax expense (CTE) + deferred tax expense – deferred tax income

$70,000 = CTE + $2,100 – ($300) (These two numbers were calculated in answer (i)

$70,000 = CTE + $2,400

So, CTE must be $67,600

Current tax expense: $67,600

Note: You cannot just multiply the revenue figure by 30% This is not correct for two reasons

Firstly - because we multiply the taxable income by 30% to get the Income Tax Expense

Secondly, because, Income Tax Expense is the total amount of the Tax Expense, and here we are asking for current tax expense

iii) Tax paid: $82,600

Tax expense is not the same as tax paid You need to look at the change in the current tax payable liability account

There is a focus on cash flows here, so you need to do a similar approach to your previous answer on cash received from customers We look at the balance sheet items (opening and closing balance of tax payable, and adjust this for current tax expense)

Tiêu đề	Financial reporting multiple choice questions
Chuyên ngành	Financial reporting
Thể loại	Bộ đề thi
Năm xuất bản	20Y0
Thành phố	Hà Nội

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