1 Which of the following is a change of accounting policy under IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors?
A Classifying commission earned as revenue in the statement of profit or loss, having previously classified it as other
B Switching to purchasing plant using finance leases from a previous policy of purchasing plant for cash
C Changing the value of a subsidiary’s inventory in line with the group policy for inventory valuation when preparing
the consolidated financial statements
D Revising the remaining useful life of a depreciable asset
2 Aqua has correctly calculated its basic earnings per share (EPS) for the current year.
Which of the following items need to be additionally considered when calculating Aqua’s diluted EPS for the year?
(i) A 1 for 5 rights issue of equity shares during the year at $1·20 when the market price of the equity shares was
(ii) The issue during the year of a convertible (to equity shares) loan note
(iii) The granting during the year of directors’ share options exercisable in three years’ time
(iv) Equity shares issued during the year as the purchase consideration for the acquisition of a new subsidiary
A All four
B (i) and (ii) only
C (ii) and (iii) only
D (iii) and (iv) only
3 Although most items in financial statements are shown at their historical cost, increasingly the IASB is requiring or
allowing current cost to be used in many areas of financial reporting.
Drexler acquired an item of plant on 1 October 2012 at a cost of $500,000. It has an expected life of five years
(straight-line depreciation) and an estimated residual value of 10% of its historical cost or current cost as appropriate.
As at 30 September 2014, the manufacturer of the plant still makes the same item of plant and its current price is
What is the correct carrying amount to be shown in the statement of financial position of Drexler as at
30 September 2014 under historical cost and current cost?
historical cost current cost
A 320,000 600,000
B 320,000 384,000
C 300,000 600,000
D 300,000 384,000
4 Repro, a company which sells photocopying equipment, has prepared its draft financial statements for the year ended
30 September 2014. It has included the following transactions in revenue at the stated amounts below.
Which of these has been correctly included in revenue according to IAS 18 Revenue?
A Agency sales of $250,000 on which Repro is entitled to a commission
B Sale proceeds of $20,000 for motor vehicles which were no longer required by Repro
C Sales of $150,000 on 30 September 2014. The amount invoiced to and received from the customer was
$180,000, which includes $30,000 for ongoing servicing work to be done by Repro over the next two years
D Sales of $200,000 on 1 October 2013 to an established customer which (with the agreement of Repro) will be
paid in full on 30 September 2015. Repro has a cost of capital of 10%
5 Tynan’s year end is 30 September 2014 and the following potential liabilities have been identified:
(i) The signing of a non-cancellable contract in September 2014 to supply goods in the following year on which,
due to a pricing error, a loss will be made
(ii) The cost of a reorganisation which was approved by the board in August 2014 but has not yet been
implemented, communicated to interested parties or announced publicly
(iii) An amount of deferred tax relating to the gain on the revaluation of a property during the current year. Tynan has
no intention of selling the property in the foreseeable future
(iv) The balance on the warranty provision which relates to products for which there are no outstanding claims and
whose warranties had expired by 30 September 2014
Which of the above should Tynan recognise as liabilities as at 30 September 2014?
A All four
B (i) and (ii) only
C (i) and (iii) only
D (iii) and (iv) only
7 Recognition is the process of including within the financial statements items which meet the definition of an element
according to the IASB’s Conceptual Framework for Financial Reporting.
Which of the following items should be recognised as an asset in the statement of financial position of a company?
A A skilled and efficient workforce which has been very expensive to train. Some of these staff are still in the
employment of the company
B A highly lucrative contract signed during the year which is due to commence shortly after the year end
C A government grant relating to the purchase of an item of plant several years ago which has a remaining life of
D A receivable from a customer which has been sold (factored) to a finance company. The finance company has
full recourse to the company for any losses
8 On 30 September 2014, Razor’s closing inventory was counted and valued at its cost of $1 million. Some items of
inventory which had cost $210,000 had been damaged in a flood (on 15 September 2014) and are not expected to
achieve their normal selling price which is calculated to achieve a gross profit margin of 30%. The sale of these goods
will be handled by an agent who sells them at 80% of the normal selling price and charges Razor a commission of
At what value will the closing inventory of Razor be reported in its statement of financial position as at
30 September 2014?
A $1 million
9 The following information is available for the property, plant and equipment of Fry as at 30 September:
Carrying amounts 23,400 14,400
The following items were recorded during the year ended 30 September 2014:
(i) Depreciation charge of $2·5 million
(ii) An item of plant, with a carrying amount of $3 million, was sold for $1·8 million
(iii) A property was revalued upwards by $2 million
(iv) Environmental provisions of $4 million relating to property, plant and equipment were capitalised during the year
What amount would be shown in Fry’s statement of cash flows for purchase of property, plant and equipment for
the year ended 30 September 2014?
A $8·5 million
B $12·5 million
C $7·3 million
D $10·5 million
10 Petre owns 100% of the share capital of the following companies. The directors are unsure of whether the investments
should be consolidated.
In which of the following circumstances would the investment NOT be consolidated?
A Petre has decided to sell its investment in Alpha as it is loss-making; the directors believe its exclusion from
consolidation would assist users in predicting the group’s future profits
B Beta is a bank and its activity is so different from the engineering activities of the rest of the group that it would
be meaningless to consolidate it
C Delta is located in a country where local accounting standards are compulsory and these are not compatible with
IFRS used by the rest of the group
D Gamma is located in a country where a military coup has taken place and Petre has lost control of the investment
for the foreseeable future
11 On 1 October 2013, Bertrand issued $10 million convertible loan notes which carry a nominal interest (coupon) rate
of 5% per annum. The loan notes are redeemable on 30 September 2016 at par for cash or can be exchanged for
equity shares. A similar loan note, without the conversion option, would have required Bertrand to pay an interest rate
The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8%, can be taken as:
End of year 1 0·95 0·93
2 0·91 0·86
3 0·86 0·79
How would the convertible loan appear in Bertrand’s statement of financial position on initial recognition
(1 October 2013)?
Equity Non-current liability
A 810 9,190
B nil 10,000
C 10,000 nil
D 40 9,960
12 The net assets of Fyngle, a cash generating unit (CGU), 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.
What would be the value of Fyngle’s property, plant and equipment after the allocation of the impairment loss?
13 Many commentators believe that the trend of earnings per share (EPS) is a more reliable indicator of underlying
performance than the trend of the net profit for the year.
Which of the following statements supports this view?
A Net profit can be manipulated by the choice of accounting policies but EPS cannot be manipulated in this way
B EPS takes into account the additional resources made available to earn profit when new shares are issued for
cash, whereas net profit does not
C The disclosure of a diluted EPS figure is a forecast of the future trend of profit
D The comparative EPS is restated where a change in accounting policy affects the previous year’s profits
14 As at 30 September 2013 Dune’s property in its statement of financial position was:
Property at cost (useful life 15 years) $45 million
Accumulated depreciation $6 million
On 1 April 2014, Dune decided to sell the property. The property is being marketed by a property agent at a price of
$42 million, which was considered a reasonably achievable price at that date. The expected costs to sell have been
agreed at $1 million. Recent market transactions suggest that actual selling prices achieved for this type of property
in the current market conditions are 10% less than the price at which they are marketed.
At 30 September 2014 the property has not been sold.
At what amount should the property be reported in Dune’s statement of financial position as at 30 September
A $36 million
B $37·5 million
C $36·8 million
D $42 million
15 Which of the following statements about a not-for-profit entity is valid?
A There is no requirement to calculate an earnings per share figure as it is not likely to have shareholders who need
to assess its earnings performance
B The current value of its property, plant and equipment is not relevant as it is not a commercial entity
C Interpretation of its financial performance using ratio analysis is meaningless
D Its financial statements will not be closely scrutinised as it does not have any investors
16 Tazer, a parent company, acquired Lowdown, an unincorporated entity, for $2·8 million. A fair value exercise
performed on Lowdown’s net assets at the date of purchase showed:
Property, plant and equipment 3,000
Identifiable intangible asset 500
Trade receivables less payables 200
How should the purchase of Lowdown be reflected in Tazer’s consolidated statement of financial position?
A Record the net assets at their values shown above and credit profit or loss with $1·2 million
B Record the net assets at their values shown above and credit Tazer’s consolidated goodwill with $1·2 million
C Write off the intangible asset ($500,000), record the remaining net assets at their values shown above and credit
profit or loss with $700,000
D Record the purchase as a financial asset investment at $2·8 million
17 On 1 October 2013, Xplorer commenced drilling for oil from an undersea oilfield. The extraction of oil causes damage
to the seabed which has a restorative cost (ignore discounting) of $10,000 per million barrels of oil extracted. Xplorer
extracted 250 million barrels of oil in the year ended 30 September 2014.
Xplorer is also required to dismantle the drilling equipment at the end of its five-year licence. This has an estimated
cost of $30 million on 30 September 2018. Xplorer’s cost of capital is 8% per annum and $1 has a present value
of 68 cents in five years’ time.
What is the total provision (extraction plus dismantling) which Xplorer would report in its statement of financial
position as at 30 September 2014 in respect of its oil operations?
18 Which of the following is NOT an indicator of impairment?
A Advances in the technological environment in which an asset is employed have an adverse impact on its future
B An increase in interest rates which increases the discount rate an entity uses
C The carrying amount of an entity’s net assets is higher than the entity’s number of shares in issue multiplied by
its share price
D The estimated net realisable value of inventory has been reduced due to fire damage although this value is greater
than its carrying amount
19 During the year ended 30 September 2014 Hyper entered into two lease transactions:
On 1 October 2013, a payment $90,000 being the first of five equal annual payments of a finance lease for an item
of plant. The lease has an implicit interest rate of 10% and the fair value (cost to purchase) of the leased equipment
on 1 October 2013 was $340,000.
On 1 January 2014, a payment of $18,000 for a one-year lease of an item of excavation equipment.
What amount in total would be charged to Hyper’s statement of profit or loss for the year ended 30 September
2014 in respect of the above transactions?
20 Comparability is identified as an enhancing qualitative characteristic in the IASB’s Conceptual framework for financial
Which of the following does NOT improve comparability?
A Restating the financial statements of previous years when there has been a change of accounting policy
B Prohibiting changes of accounting policy unless required by an IFRS or to give more relevant and reliable
C Disclosing discontinued operations in financial statements
D Applying an entity’s current accounting policy to a transaction which an entity has not engaged in before