Salale University

College of Business and Economics

Department of Accounting and Finance
Mid exam for the course Advanced Financial Accounting I

Time allowed: 1: 45 hrs.

Mark allotted: 20%
Exam date: 18/12/2023
Name _________________ ID no ___________

General Instruction

 Don’t open the cover page until you are entitled to do so

 Don’t detach the answer sheet from the question sheet

 Any kind of misconduct and cheating will nullify your result

 Neatness has its own reward

 Show the necessary steps precisely

Good luck!

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 Part I: Multiple choices (one point each)
1. An entity issued 100 shares each to its 1,000 employees subject to service condition of
next 2 years. Grant date fair value of the share is Birr 195 each. There is an expectation of
97% the employees will remain in service at the end of 1st year. However, at the end of
2nd year the expected employees to remain in service would be 91% of the total
employees. Calculate expense for year one
A. Br 9,447,500.00
B. Br 9,447.300.00
C. Br 9,457,500.00
D. Br 9,475,500.00
2. When deferred tax liability are occurs;
A. Book profit equal to tax profit
B. book profit greater than tax profit
C. Accounting profit less than tax profit
D. Accounting profit equal to tax profit
3. Which of the following is not within the scope of IFRS 2 Share-based Payment?
A. Equity instruments granted to employees of the acquiree in a business combination
in their capacity as an employee
B. Cancellation, replacement or other modification of share-based payment
arrangements because of a business combination
C. Cancellation, replacement or other modification of share-based payment
arrangements because of other equity restructuring
D. Transactions in which entity receives or acquires goods or services as part of the net
assets acquired in a business combination to which IFRS 3 (business combination
applies).
4. An entity recognizes the goods or services received or acquired in a share-based payment
transaction:
A. Only when the share-based payment is cash-settled.
B. When it receives the goods or services.
C. Only when the vesting period ends.
D. Only on the date that the equity instruments are granted

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5. Which of the following is out of the scope of IAS 12?
A. Accounting for temporary differences that may arise from government grants
B. Accounting for temporary differences that may arise from investment tax credits
C. Methods of accounting for investment tax credits
D. Accounting for withholding taxes payable on distributions to the reporting entity
6. Current income tax shall be recognized
A. In profit or loss and sometimes to other comprehensive income when a tax results
from a business combination
B. In profit or loss, except for a situation when a relevant tax authority provided a tax
relief.
C. In profit or loss
D. In profit or loss, except for some situations when it shall be recognized directly to
equity or other comprehensive income.
7. Assume Double ‘S’ Company uses different depreciation methods to determine
depreciation for general purpose financial statement and special purpose financial
statement. As a result the company has a temporary difference that can be reversed in
subsequent period and added to taxable income. The deferred income tax arise as a result
of temporary difference should be presented in the statement of financial position as
A. Non-Current liability C. Current asset
B. Current liability D. Non-current asset
8. Identify the correct statement related to equity settled share based payment
A. The fair value of services received from non-employees in an equity-settled SBP is
recognized at the grant date.
B. Goods or services acquired and the corresponding increase in equity measured at
fair value of the equity even if the fair values of Goods or services are known.
C. The fair value of the equity instruments granted for services received from
employees in an equity-settled SBP is measured at grant date
D. The fair value of the equity instruments granted for services received from non-
employees in an equity-settled SBP is measured at grant date

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 9. When does deferred tax liability and deferred tax asset offset?
A. When the entity has a legally enforceable right to offset deferred tax liability
B. When the entity has a legally enforceable right to offset current income tax liability
against asset
C. When the entity has a legally enforceable right to offset deferred tax assets against
current liabilities
D. When the entity has a legally enforceable right to offset current income tax assets
against liabilities
10. Identify the incorrect statement related to the situation where cash– settled share based
payment changes to an equity settled share based payment because of modification of
terms and condition
A. Change of cash settled share based payment in to equity settled share based payment
results de-recognition of the liability recognized originally
B. Change of cash settled share based payment in to equity settled results recognition
of equity settled share based payment at the modification date fair value
C. IFRS 2 specifically address the situation that cash settle share based payment
changed in to equity settled.
D. Change of cash settled share based payment in to equity settled results recognition of
equity settled share based payment

Part II: Workout

1. Suppose on January1, 2021 Tana Printing Press purchased a duplicating machine costing
br. 500, 000 and estimated economic life of 5years. The company applies a straight line
depreciation method for general purpose financial statements and reported tax depreciation
of br. 200,000 on December 31, 2021 in a special purpose financial statement. And also
the company reported before tax accounting profit of br.1000, 000 on December 31, 2021.
The effective tax rate of Tana Company is 30 %.
Required: determine (0.5 point each)
A. Carrying amount of the machine on December 31, 2021
B. Tax base of the machine for the year 2021?
C. Temporary difference

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 D. Taxable income for the year 2021
E. Deferred tax of the year 2021
F. Taxable income of the year 2021
G. Current tax of the year 2021
H. Record the necessary journal entry on December 31, 2021
2. Assume Sodere Corporation grants 10 share options to each of its 100 employees. Each
grant is conditional upon the employee working for the entity over the next four years. The
entity estimates that, on the date of grant, the fair value of each share option is Br.100; the
fair value of Br.100 is measured as though there is service condition. On the basis of a
weighted-average probability, the entity estimates that 10%, 15%, 20% and 20% of
employees will leave during the four-year period and therefore forfeit their rights to the
share options.
Required:
A. Record the necessary journal entries during the vesting period as consideration for
share option (4 point)

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