BANKING ACADEMY FINAL EXAM

FACULTY OF ACCOUNTING AND AUDITING Financial Accounting 3 – ACT20H

Applicable for: Advanced Program – CFAB class Test No: 04
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Please insert your answers directly on the exam papers
Part 1. (1.5 points):
Arnold Ltd bought an asset on 1 October 20X1 for £300,000. It was being depreciated over 20 years on
the straight-line basis. On 1 October 20X3, the asset was revalued to £280,000. The company transfer the
excess depreciation to retained earnings annually. Subsequently, on 1 October 20X5 the asset was
revalued. Its fair value was estimated at £180,000 with costs of disposal of £9,000. Requirement:
1. Caculate revaluation gain recognized on 1 October 20X3

2. Preparing journal entries to recognize the revaluation on 1 October 20X3

3. Determine balance on the revaluation surplus be at the year end of 30 September 20X5?

4. On 1 October 20X5, in revaluating the asset, will Arnold debit or credit to Revaluation Surplus?

5. If on 1 October 20X5, the assets is classified as assets held for sales, it should be recognized in the
SOFP by how much?

Part 2: (2 points)
On 1 January 20X7 Fellini hired a machine under a lease for 3 years. Instalments of CU 100,000 are
payable annually in advance with the first payment made on 1 January 20X7. The interest rate implicit in
the lease is 8%. The contract met the definition of a lease under IFRS 16. Apply IFRS 16 to discuss the
following questions
1. Lease liability as at 1/1/20X7

2. ROU as at 1/1/20X7
3. Interest expense for the year ended 31 December 20X7

4. Journal entries to record the fisrt payment on 1 January 20X7

5. Journal entries to record the second payment on 1 January 20X8

6. Lease liability presented in CURRENT liability as at 31 December 20X7

Part 3: (2 points)
An 7% $30 million convertible loan note was issued on 1 April 20X5 at par. Interest is payable in arrears
on 31 March each year. The loan note is redeemable at par on 31 March 20X8 or convertible into equity
shares at the option of the loan note holders on the basis of 30 shares for each $100 of loan. A similar
instrument without the conversion option would have an interest rate of 10% per annum. Based on
requirements of IFRS32, please answer the following questions:
1. Financial liabilities recognized in the SOFP as at 1 April 20X5 ($000)

2. Equity recognized in the SOFP as at 1 April 20X5 ($000)

3. Interest expense should be recognized for the year ended at 31 March 20X6 ($000)

4. Amount to be credited to liabilities on 31 March 200X6 ($000)?

5. If the bonds are not converted at the maturity, equity component should be recognized as a gain in P/L.
True OR False?

6. Assume that the above convertible bonds was incorrectly recognized as a normal bond (without
conversion option). How does this errors effect to the finacial statements of the company?