FR Financial Statements Quiz

Welcome to your FR Financial Statements Quiz

Name

PQ has ceased operations overseas in the current accounting period. This resulted in the closure of a number of small retail outlets.

Which one of the following costs would be excluded from the loss on discontinued operations?

Loss on the disposal of the retail outlets

Redundancy costs for overseas staff

Cost of restructuring head office as a result of closing the overseas operations

Trading losses of the overseas retail outlets up to the date of closure

HB sold goods to S2, its 100% owned subsidiary, on 1 November 2010. The goods were sold to S2 for $33,000. HB made a profit of 25% on the original cost of the goods.
At the year end, 31 March 2011, 50% of the goods had been sold by S2. The remaining goods were included in inventory.

Calculate the amount of the adjustment required to inventory in the consolidated statement of financial position at 31 March 2011.

OC signed a contract to provide office cleaning services for an entity for a period of one year from 1 October 2009 for a fee of $500 per month.
The contract required the entity to make one payment to OC covering all twelve months’ service in advance. The contract cost to OC was estimated at $300 per month for wages, materials and administration costs.
OC received $6,000 on 1 October 2009.

How much profit/loss should OC recognise in its statement of comprehensive income for the year ended 31 March 2010?

$600 loss

$1,200 profit

$2,400 profit

$4,200 profit

Which one of the following could be classified as deferred development expenditure in M’s statement of financial position as at 31 March 2010 according to IAS 38 Intangible assets?

$120,000 spent on developing a prototype and testing a new type of propulsion system for trains. The project needs further work on it as the propulsion system is currently not viable.

A payment of $50,000 to a local university’s engineering faculty to research new environmentally friendly building techniques

$35,000 spent on consumer testing a new type of electric bicycle. The project is near completion and the product will probably be launched in the next twelve months. As this project is the first of its kind for M it is expected to make a loss.

$65,000 spent on developing a special type of new packaging for a new energy efficient light bulb. The packaging is expected to be used by M for many years and is expected to reduce M’s distribution costs by $35,000 a year.

Explain the criteria to be met in order to classify a non current asset as "held for sale" in accordance with IFRS 5 Non current assets held for sale and discontinued operations".

IAS 10 Events after the reporting period distinguishes between adjusting and non-adjusting events.

Which ONE of the following is an adjusting event in XS’s financial statements?

A dispute with workers caused all production to cease six weeks after the year end.

A month after the year end XS’s directors decided to cease production of one of its three product lines and to close the production facility

One month after the year end a court determined a case against XS and awarded damages of $50,000 to one of XS’s customers. XS had expected to lose the case and had set up a provision of $30,000 at the year end

Three weeks after the year end a fire destroyed XS’s main warehouse facility and most of its inventory

Using the requirements set out in IAS 10 Events after the Reporting Period, which of the following would be classified as an adjusting event after the reporting period in financial statements ended 31 March 20X4 that were approved by the directors on 31 August 20X4?

A reorganisation of the enterprise, proposed by a director on 31 January 20X4 and agreed by the Board on 10 July 20X4.

A strike by the workforce which started on 1 May 20X4 and stopped all production for 10 weeks before being settled.

A claim on an insurance policy for damage caused by a fire in a warehouse on 1 January 20X4. No provision had been made for the receipt of insurance money at 31 March 20X4 as it was uncertain that any money would be paid. The insurance claim was settled with a payment of $1.5 million on 1 June 20X4.

The enterprise had made large export sales to France during the year. The year end receivables included $2 million for amounts outstanding that were due to be paid in Euros between 1 April 20X4 and 1 July 20X4. By the time these amounts were received, the exchange rate had moved in favour of the enterprise and the equivalent of $2.5 million was actually received.

On 1 January 20X5 Ness revalued its head office to $21m, creating a revaluation surplus of $7m. At this date, the head office had a 35‐year remaining life.
On 1 January 20X9 property prices crashed and the head office was revalued to $11m.
Ness makes an annual reserves transfer for excess depreciation.

What loss on revaluation will be taken to the statement of profit or loss at the date of the revaluation on 1 January 20X9?

Nil

$1,400,000

$600,000

$7,600,000

Toad plc enters into a 5 year lease agreement to lease a motor vehicle on 1 July 20X2. The present value of the total lease payments is $166,800. The motor vehicle has a useful life of 6 years. The lease payments are $40,000 per annum to be made in advance. The interest rate implicit in the lease is 10%.

What will be the expense in the statement of profit or loss in respect of the lease for the year ended 31 December 20X2?

10.

Malik Co has an item in inventory which cost $15,000.
The usual selling price of this item is $20,500. However, this item has been found to be damaged, and needs to be repaired at a price of $3,750.

At what value should the item of inventory be shown in Malik’s financial statements?

11.

The carrying amount of Roger’s property, plant and equipment at 31 December 20X5 was $2,890,000. At 31 December 20X6, this had risen to $3,070,000.
During the year ended 31 December 20X6, Roger revalued one property upwards by $500,000, and sold another property for $948,000, recognising a profit on disposal of $200,000. Depreciation charged during the year amounted to $380,000.

What amount did Roger spend on the purchase of property, plant and equipment in the year ended 31 December 20X6?

$1,008,000

$808,000

$1,308,000

$1,208,000

12.

Happy Co have decided to sell their head office, which meets the held‐for‐sale criteria per IFRS 5 Non‐current Assets Held for Sale and Discontinued Operations.
The head office was purchased 15 years ago, at a cost of $400,000 and was estimated to have a useful life of 25 years.
Happy Co believe that they can sell their head office for $300,000, but costs to sell will total $80,000.

At what value should the asset be valued when classified as held for sale?

$160,000

$220,000

$300,000

$400,000

13.

Events after the reporting date (IAS 10): A fire broke out at a company's Westown factory on 4 April 20X3. This has destroyed the factory's administration block. Many of the costs incurred as a result of this fire are uninsured.
A major customer went into liquidation on 27 April 20X3. The customer's balance at 31 March 20X3 remains unpaid. The receiver has intimated that unsecured payables will receive very little compensation, if any.

Explain how each of these matters should be dealt with in the published accounts for the year ended 31 March 20X3 in the light of the accounting standards referred to above.

14.

INFORMED
You are the management accountant of Informed, a private company. one of your directors has recently attended a seminar which discussed the drawbacks in an environment of rising prices of financial statements prepared under the historical cost convention. Your company normally depreciates its plant and machinery on a straight-line basis over a period of eight years, with no expectation of significant residual value. Your director is considering recommending to the board that the company adopts a policy of revaluing non-current assets every five years.
Assume that today's date is 1 May 20X8 and that the company prepares financial statements to 30 April each year.

Required:
(a)       Write a report to your director which summarises the arguments for and against a policy of carrying non-current assets at revalued amounts. Your director has a solid general knowledge of business but she is not a qualified accountant, so any technical terms you use in the report will need to be clearly explained.
(b)       In respect of an item of plant purchased for $40,000 on 1 May 20X8 and under the new accounting policy revalued to $18,000 on 30 April 20Y3:
(i)        set out the charges in the statement of profit or loss for each of the years ending 30 April 20X9 to 30 April 20Y5.
(ii)       explain how the revaluation will be treated in the financial statements for the year ending 30 April 20Y3.
(iii)     calculate the gain or loss on sale that will be taken to the statement of profit or loss for the year ending 30 April 20Y6 assuming the plant is sold for $7,500 on 1 May 20Y5.

15.

Needs of users of accounts:
Several different categories of users are traditionally considered as having an interest in the financial statements of a company. The importance of the financial statements to each category will vary with the nature and size of the company and with the type of use made of the company's accounts by that category.

Required:
Describe the ways in which the needs of users of the financial statements vary with the size of the company, for each of the following categories of user:
(a)       Investors and their advisers
(b)       Loan creditors
(c)       Employees
(d)       Customers, suppliers and other business contacts
(e)       The Government
(f)        The public.

16.

Which of the following is NOT an adjusting event per IAS 10 Events after the Reporting Period in the financial statements for the year ended 31 March 20X7 which were approved on 11 June 20X7?

The discovery of a material error in the financial statements on 24 May 20X7

An abnormally large movement in foreign exchange rates during May 20X7

The insolvency of a major customer on 17 April 20X7

An amount received on 3 June 20X7 in relation to an insurance claim that was being negotiated at the reporting date

17.

Complete the sentence:
An asset is impaired if its carrying amount is greater than its _________________.

18.

Which of the following is not a criterion for classification of an asset as held for sale under IFRS 5 Assets Held for Sale and Discontinued Operations?

Asset is available for immediate sale

Asset is no longer in use by the entity

Asset is expected to be sold within 12 months

Management have a committed plan to sell the asset

19.

Frog Co purchased an asset on 1 January 20X7 at a cost of $90,000. Frog received a grant in relation to the cost of this asset of $15,000. It has decided to write off the grant income against the cost of the non‐current asset. The asset has a useful economic life of nine years.
What is the carrying amount of the asset as at 31 December 20X7?

$90,000

$80,000

$67,500

$66,667

20.

The plant and machinery of Crawley Co was shown at a carrying amount of $425,000 at 31 March 20X5. The comparative figure at 31 March 20X4 was $350,000.
During the year to 31 March 20X5, the depreciation charge for plant and machinery was $52,000, and machinery with a carrying amount of $45,000 was sold at a profit of $4,000.
At 31 March 20X5 a $20,000 payable existed in relation to the purchase of plant and machinery during the year.

What figure should be shown for the purchase of plant and machinery in Crawley Co’s statement of cash flows for the year ended 31 March 20X5?

$172,000

$152,000

$192,000

$176,000