IKKA CLASSES

TEST 2

Q1

The conceptual framework states that qualitative characteristics are the attributes that make financial
information most useful to users. Explain in detail the qualitative characteristics.

Q2

Which of the following is NOT an example of development costs?

A. Design, construction and testing of pre- production or pre- use prototypes and
modules.
B. The design, construction and testing of a chosen alternative for new or improved
materials, devices, products, processes, systems or services.
C. The design of tools, jigs, moulds and dies involving new technology.
D. The search for, evaluation and final selection of, application of research findings or
other knowledge.

Q3

List the factors that would help determine the useful life of a purchased brand name.

Q4

Fill in the blanks:-

A company is acquired by another company for an amount that is less than it’s fair value is called
as………………………….. .

Q5

A buys B’s business for $30,000. The business assets are a bar valued at $20,000, inventories at $3,000
and receivables of $3,000. How much is the goodwill valued at?

Q6

How should a bargain on purchase be accounted for under IFRS3?

Q7

ABC Co. sells goods with a warranty under which customers are covered for the cost of repairs of any
manufacturing defect that becomes apparent within the first six months of purchase. The company’s
past experience and future experience indicate the following pattern of likely repairs.

% of goods sold Defects Cost of repairs if all

items suffered from
 these defects
70 Minor $2m
15 Major $4.5m
15 None 0

What is the provision required?

Q8

On 31st December 2010, Paul Co. intends to carry out future expenditure to operate in a particular way
in the future. What would be the accounting treatment for the same?

A. No provision would be created

B. Provision would be created
C. It would be disclosed as a contingent liability
D. It would be disclosed as a contingent asset

Q9

A cash generating unit comprises of the following:-

$(m)
Building 75
Equipment 15
Goodwill 10
Current assets 15
Total 115

The fair value of the CGU as on 31 st December 2011 is $100m and the value in the use is $85. Calculate
the impairment loss if any and assess the values of the assets as on 1 st January 2012.

Q10

IAS 36 Impairment of Assets contains a number of examples of internal and external events which may
indicate the impairment of an asset.

In accordance with IAS 36, which of the following would definitely NOT be an indicator of the potential
impairment of an asset (or group of assets)?

a. An unexpected fall in the market value of one or more assets

b. Adverse changes in the economic performance of one or more assets

 c. A significant change in the technological environment in which an asset is employed making
its software effectively obsolete

d. The carrying amount of an entity’s net assets being below the entity’s market capitalisation

Q11

Aphrodite Co has a year end of 31 December and operates a factory which makes computer chips for
mobile phones.
It purchased a machine on 1 July 20X3 for $80,000 which had a useful life of ten years and is depreciated
on the straight-line basis, time apportioned in the years of acquisition and disposal.
The machine was revalued to $81,000 on 1 July 20X4.
There was no change to its useful life at that date.
A fire at the factory on 1 October 20X6 damaged the machine leaving it with a lower operating capacity.
The accountant considers that Aphrodite Co will need to recognise an impairment loss in relation to this
damage.
The accountant has ascertained the following information at 1 October 20X6:

1. The carrying amount of the machine is $60,750.

2. An equivalent new machine would cost $90,000.

3. The machine could be sold in its current condition for a gross amount of $45,000. Dismantling
costs would amount to $2,000.

4. In its current condition, the machine could operate for three more years which gives it a value in
use figure of $38,685.

What is the total impairment loss associated with Aphrodite Co’s machine at 1 October 20X6?

A $nil
B $17,750
C $22,065
D $15,750

Q12
Each of the following events occurred after the reporting date of 31 March 2015, but before the
financial statements were authorised for issue.
Which would be treated as a NON-adjusting event under IAS 10 Events After the Reporting Period?

A. A public announcement in April 2015 of a formal plan to discontinue an operation which had
been approved by the board in February 2015

B. The settlement of an insurance claim for a loss sustained in December 2014

C. Evidence that $20,000 of goods which were listed as part of the inventory in the statement of
financial position as at 31 March 2015 had been stolen

D. A sale of goods in April 2015 which had been held in inventory at 31 March 2015. The sale was
made at a price below its carrying amount at 31 March 2015