Professional Documents
Culture Documents
MOCK TEST F7_Answers
MOCK TEST F7_Answers
MOCK TEST F7_Answers
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
1. An extract from a statement of cash flows prepared by a trainee accountant is shown below.
$m
Profit before taxation 28
Adjustment for: Depreciation (9)
-
Operating profit before working capital changes 19
Decrease in inventories 3
Increase in receivables (4)
Increase in payables (8)
-
Cash generated from operations 10
-
Indicate whether each of the following criticisms of this extract is correct or incorrect
1
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
2. On 31 March, DT received an order from a new customer, XX, for products with a sales value of
$900,000. XX enclosed a deposit with the order of $90,000.
On 31 March, DT had not obtained credit references of XX and has not determined if it will meet this
order.
According to IFRS 15 Revenue from Contracts with Customers, which TWO of the following indicate
how DT should record this transaction in its financial statements for the year ended 31 March?
A. Include $900,000 as revenue for the year
B. Include $900,000 as revenue for the year
C. Do not include any amount as revenue for the year
D. Recognise a trade receivable for $810,000
E. Recognise a contract liability for $90,000
Tutorial note: The criteria for revenue recognition have not yet been met; the advanced payment
should be presented in current liabilities.
3. Acor leases a new machine. The interest rate implicit in the lease is 13% per annum. The initial
amount recognised for the right-of-use asset and lease liability is $1,750,000. The lease is for four
years and Acor is required to make four annual payments of $520,000, with the first payment due
on commencement of the lease agreement.
Acor’s policy is to depreciate similar machinery over five years on the straight line basis.
What is the total expense to profit or loss for the first year of the lease?
A. $509,000
B. $577,500
C. $597,400
D. $665,000
WORKING:
Initial amount recognised for the liability $1,750,000 less initial payment ($520,000) = $1,230,000 to
be financed.
2
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
4. Belltop’s functional currency is the dollar. It bought goods for Krown 2,300,000 on 1 December
20X1 and intends to take the full 60 days credit provided by the supplier. It still holds the acquired
goods at the year-end of 31 December 20X1. The exchange rate on 1 December was $1 = Krown 4.8
and at 31 December was $1 = Krown 5.1.
Please select the exchange gain or loss to be included in Belltop’s profit or loss for the current
year?
A. $28,187 gain
B. $28,187 loss
C. No gain or loss
D. $690,000 gain
The inventory is non-monetary and so is not retranslated; the payable amount is monetary and so is
retranslated:
At initial recognition (2,300,000/4.8) = $479,167
At year end (2,300,000/5.1) = $450,980
Exchange gain 28,187
6. XYZ Farm purchased 100 turkeys for $10,000 on 17 November 20X1. At the year-end, 31
December 20X1, the estimated sales price of the 100 turkeys was measured at $10,500. The
following costs are expected to be incurred in respect to the sale of the turkeys:
$m
Transportation 700
Finance cost 300
Income taxes related to this sale 1,000
What amount should be recognised for the biological assets in XYZ’s statement of financial
position as at 31 December 20X1?
A. $8,500
B. $9,800
C. $10,000
D. $10,500
$10,500 (Estimated sale price of the biological assets) – $700 (Transportation cost)
Tutorial note: A biological asset shall be measured at the end of each reporting period at its fair
value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of
an asset, excluding finance costs and income taxes.
4
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
7. Indicate which of the following statements regarding the Conceptual Framework is correct or
incorrect.
5
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
C. $38.5 million
D. $37 million
WORKING
At 30 September 20X4:
Carrying amount = $38.5 million (45,000 – 5,000 b/f – 1,500 depreciation for 6 months; no further
depreciation when classified as held for sale).
Recoverable amount = $39.5 million ((45,000 × 90%) – 1,000).
Therefore measured at $38.5 million (lower of carrying amount and fair value less cost to sell).
9. Recognition is the process of capturing for inclusion in the financial statements items which meet
the definition of an element in the IFRS 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 four years
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
Tutorial note: As the receivable is “sold” with recourse it must remain as an asset in the statement
of financial position; it is not derecognised. A contract does not create a ‘right’ until such time as it
is fulfilled.
6
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
10. The following information is available for the property, plant and equipment of Fry as at 30
September:
20X4 20X3
$000 $000
Carrying amounts 23,400 14,400
The following items were recorded during the year ended 30 September 20X4:
(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 20X4?
A. $8.5 million
B. $12.5 million
C. $7.3 million
D. $10.5 million
WORKING
Cash flow is (in $ million):
23.4 – 14.4 b/f + 2.5 depreciation + 3 disposal – 2 revaluation – 4 non-cash acquisition = 8.5
7
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
11. At 1 October 20X1 DX had the following balances in respect of property, plant and equipment:
Cost 220,000
DX depreciates all property, plant and equipment over five years using the straight line method and
no residual value. All assets were less than five years old at 1 October 20X1. No assets were
purchased or sold during the year ended 30 September 20X2.
The local tax regime allows tax depreciation of 50% on additions to property, plant and equipment
in the accounting period in which they are purchased. In subsequent accounting periods, tax
depreciation of 25% per year of the tax written down value is allowed. Income tax on profits is at a
rate of 25%.
What is the amount for deferred tax in DX’s statement of financial position as at 30 September
20X2 in accordance with IAS 12 Income Taxes?
A. $5,843
B. $6,531
C. $12,375
D. $23,375
WORKING
Carrying amount in accounting records (132,000 – 44,000) = 88,000
Tax base (82,500 – 20,625) = 61,875
Difference 26,125
Deferred tax (26,125 x 25%) = 6,531
8
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
12. DT’s final dividend for the year ended 31 October 20X5 of $150,000 was declared on 1 February
20X6 and paid in cash on 1 April 20X6. The financial statements were approved on 31 March 20X6.
Which TWO of the following statements reflect the correct treatment of the dividend in the
financial statements of DT?
A. The payment settles an accrued liability in the statement of financial position as at 31 October
20X5
B. The dividend is shown as a deduction in the statement of profit or loss for the year ended 31
October 20X6
C. The dividend is shown as an accrued liability in the statement of financial position as at 31 October
20X6
D. The $150,000 dividend was shown in the notes to the financial statements at 31 October 20X5
E. The dividend is shown as a deduction in the statement of changes in equity for the year ended
31 October 20X6
Tutorial note: Dividends are generally accounted for when paid; a disclosure note could be made in
the 20X5 financial statements.
13. IAS 32 Financial Instruments: Presentation classifies issued shares as either equity instruments
or financial liabilities.
Select the correct classification in the statement of financial position for the following
instruments.
An equity share which is not redeemable and has no dividend EQUITY/NON-CURRENT LIABILITY
restriction
A loan note that is redeemable at par in seven years’ time EQUITY/NON-CURRENT LIABILITY
9
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
14. The financial statements of Boo Co for the year ended 31 March 20X4 were approved by the
directors on 31 August 20X4.
Which of the following would be classified as an adjusting event in accordance with IAS 10 Events
after the Reporting Period?
A. A reorganisation of Boo Co proposed by a director on 31 January 20X4 was agreed by the Board
on 10 July 20X4
B. A strike by the workforce which started on 1 May 20X4 stopped all production for 10 weeks before
working terms and conditions were settled
C. An insurance claim for damage caused by a fire in a warehouse on 1 January 20X4 for $2.5
million was settled with a receipt of $1.5 million on 1 June 20X4
D. On 3 September 20X4, Boo Co sold some inventory for $100,000 which had a carrying amount at
31 March 20X4 of $122,000
Tutorial note: If Boo Co had not recognised a receivable (because a successful claim was only
probable rather than “virtually certain”) the adjustment will be an increase in receivables (and profit)
of $1.5 million. If the proceeds were recognised as an asset (because a successful claim was “virtually
certain”) the adjustment will be $1 million decrease in receivables (and profit) of $1 million ($2.5 –
$1.5).
The sale of inventory was after the financial statements were approved, so the transaction was too
late to be an event after the reporting period as defined by IAS 10.
15. Jubilee reported profit after tax for the period of $1,600,000 and it had 1,000,000 ordinary shares
in issue for the whole year.
Jubilee had a number of exercisable share options outstanding at the year end. Holders of the
options were entitled to buy 50,000 new shares for $1.60. The average market price of Jubilee’s
shares for the previous 12 months was $2.
In accordance with IAS 33 Earnings per Share, what is Jubilee’s diluted earnings per share?
A. $1.52
B. $1.54
10
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
C. $1.58
D. $1.60
WORKING
Proceeds on issue of shares (50,000 × $1.60) = $80,000
Divide by average market price $2
Assumed shares issued at average market price 40,000
Bonus element (50,000 – 40,000) = 10,000
Earnings $1,600,000
Number of shares (1,000,000 + 10,000) = 1,010,000
Diluted EPS $1.58
11
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
SECTION B
This section of the exam contains three OT cases.
Each OT case contains a scenario which relates to five OT questions.
Each question is worth 2 marks.
(Total = 30 marks)
65% chance of damages of $4 million 20% of sales will require a $25 repair
25% chance of damages of $6 million 10% of sales will require a $120 repair
12
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
16. How is the change in accounting for research and development costs to be accounted for in
the financial statements for the year ended 31 March 20X6?
A. As a change in accounting policy requiring retrospective application
B. As a change in estimate requiring prospective application
C. As a prior period error requiring retrospective application
D. As the adoption of a new accounting policy requiring prospective application
Tutorial note: A change of classification in presentation is a change in accounting policy under IAS 8
and must be applied retrospectively.
17. What is the liability to be recognised, in respect of the court case, as at 31 March 20X6?
A. $4 million
B. $0
C. $6 million
D. $4.1 million
Tutorial note: For a single possible outcome the best estimate is the most likely outcome. In this
case the most likely outcome (with a 65% probability) is damages of $4 million.
13
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
18. What is the provision which Skeptic would report in its statement of financial position as at 31
March 20X6 in respect of the product warranty claims?
$3.4 million (to one decimal place)
WORKING
Where measurement of a provision involves a large population of items, an “expected value” model
should be used. The expected value of repair costs on the sale of a unit is $17 (($0 × 70%) + ($25 ×
20%) + ($120 × 10%))
The provision required for the sale of 200,000 units is therefore $3.4 million ($17 × 200,000).
19. What amount of government grant should be credited to profit or loss for the year ended 31
March 20X6?
A. $8 million B. $800,000
C. $2 million D. $0
Tutorial note: The government grant is credited to profit and loss in the same manner as the
depreciation of the related asset. In this case the asset is being depreciated on a straight line basis
over 10 years. Therefore the grant is credited to profit or loss at $800,000 each year ($8 million/10).
20. Skeptic is about to dispose of an equity investment in another entity which is measured at fair
value through other comprehensive income. Skeptic expects to make a gain on disposal; a
cumulative fair value gain has already been recognised over the period of holding this asset.
Select the correct accounting treatment of the gains in the year of disposal in accordance with IFRS
9 Financial Instruments.
14
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
Tutorial note: As the asset is classified at fair value through other comprehensive income the gain
on disposal is recognised in other comprehensive income. IFRS 9 does not allow the reclassification
of the cumulative gain to profit or loss but a reserve transfer to retained earnings can be made.
21. What adjustments are required to account for the sale of maturing goods in the financial
statements for the year ended 30 June 20X6?
A. Credit: Revenue $3,000,000
B. Credit: Liability $3,000,000
C. Credit: Liability $3,300,000 and Debit: Interest expense $300,000
D. Credit: Liability $3,150,000 and Debit: Interest expense $150,000
Tutorial note: Revenue is not recognised as, in substance, this is a financing transaction. Interest for
six months should be expensed and added to the carrying amount of loan liability.
22. What is the carrying amount of research and development expenditure in the statement of
financial position as at 30 June 20X6?
A. $7,800,000
B. $4,800,000
C. $1,800,000
D. $3,200,000
15
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
Tutorial note: Capitalisation of development expenditure cannot take place until the criteria of IAS
38 have been met, one of those criteria is the commercial success of the project; this does not
happen until 1 May and therefore only 2 months of expenditure can be capitalised ($1.6m × 2
months = $3.2 million).
23. What is the total depreciation expense in the statement of profit or loss for the year ended 30
June 20X6?
A. $2.550,000
B. $4,450,000
C. $3,915
D. $5,815,000
WORKING
Property (28,500/15 years) = 1,900
Plant and equipment ((26,100 – 9,100) × 15%) = 2,550
Total depreciation expense for period 4,450
24. Which TWO of the following would be included in the amount initially recognised for an item
of equipment?
A. Dismantling costs at the end of the equipment’s useful life
B. Costs of training staff to use the new equipment
C. Legal fees incurred in the purhcase of the equipment
D. Cost of re-painting the equipment in the branded colours of the company
Tutorial note: Only costs incurred in bringing an asset to its place and condition of use can be
capitalised in the cost of the asset. Staff training costs and painting the asset cannot therefore be
included in the initial cost and must be expensed.
16
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
25. IFRS 15 Revenue from Contracts with Customers states that the transaction price of contracts
with multiple elements must be determined at the inception of the contract and based on the
standalone selling prices.
What is the best evidence of standalone selling prices?
A. Unadjusted market price for similar goods
B. Observable price of goods when they are sold separately
C. Expected costs
D. Estimate that maximises the use of observable inputs
Tutorial note: IFRS 15 states that the best evidence of stand-alone selling prices is to take the
observable price of goods when they are sold separately.
26. What is the value in use of the item of equipment as at 31 March 20X7?
A. $620,000
B. $ 570,000
C. $514,600
D. $477,100
WORKING $000
Year 1 (220 × 0.91) 200.2
Year 2 (180 × 0.83) 149.4
Year 3 ((170 + 50) × 0.75) 165
Value in use 514.6
Tutorial note: Do not forget to include sale proceeds of $50,000 in year 3.
27. What is the carrying amount of the equipment immediately prior to the impairment test as at
31 March 20X7?
A. $480,000
B. $500,000
17
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
C. $450,000
D. 650,000
WORKING
Annual depreciation ($800,000 -$50,000) / 5years = $150,000
Carrying amount at end of year 2 [$800,000 – ($150,000 x 2)] = 500,000
28. ESP has a wholly owned subsidiary, Tilda, which is a cash generating unit. On 31 March 20X7, an
explosion damaged some of Tilda’s plant. Tilda’s assets immediately before the explosion were:
$000
Goodwill 1,800
Plant 3,500
10,800
18
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
Tutorial note: The plant with a carrying amount of $500,000 that has been damaged to the point of
no further use should be written off (it no longer meets the definition of an asset). After this:
(1) goodwill is written off in full;
(2) any remaining impairment loss is written off the remaining assets pro rata to their carrying
amounts, except that no asset should be written down to less than its fair value less costs to sell (net
realisable value).
That is, after writing off the damaged plant the remaining impairment loss is $4.8m (10.3 – 5.5) of
which $1.8m is applied to the goodwill and the remaining $3.0m is apportioned pro rata (3/(4 + 3))
to the factory and the remaining plant.
29. Which TWO of the following assets must be tested annually for impairment in accordance with
IAS 36 Impairment of Assets?
A. A footballer acquired by a football club on an initial contract of four years
B. Software development that has met the asset recognition criteria but has yet to be fully
completed
C. An operating license for an international air route granted by government which is stated to
have an indefinite life while the current government is in power
D. A patent registered in a jurisdiction under which all patents are granted for five years
19
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
Tutorial note: IAS 38 requires intangible assets not yet ready for use and intangible assets with an
indefinite life to be tested annually for impairment, they are not amortised.
30. Which of the following cash flows will not be included in the calculation of an asset’s value in
use in accordance with IAS 36 Impairment of Assets?
(1) The cost of adding solar panels to the factory roof to reduce heating and power costs
(2) The annual maintenance costs relating to the machinery located in the factory.
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 or 2
Tutorial note: The addition of the solar panels is an enhancing cost and would not be included in
cash flows for the calculation of value in use in accordance with IAS 38.
20
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
SECTION C
Question 1: RUNNER CO
On 1 April 20X4, Runner Co acquired 80% of Jogger Co's equity shares when the retained earnings
of Jogger Co were $19.5m. The consideration consisted of cash of $42.5m paid on 1 April 20X4 and
a further cash payment of $21m, deferred until 1 April 20X5. No accounting entries have been made
with respect of the deferred cash payment. Runner Co has a cost of capital of 8%. The appropriate
discount rate is 0.926.
The draft, summarised statements of financial position of the two companies at 31 March 20X5 are
shown below:
Runner Co Jogger Co
$000 $000
ASSETS
Non-current assets
Property plant and equipment 455,800 44,700
Investments 55,000 -
510,800 44,700
Current assets
Inventory 22,000 16,000
Trade receivables 35,300 9,000
Bank 2,800 1,500
60,100 26,500
Total assets 570,900 71,200
(i) Runner Co’s policy is to value the non‐controlling interest at fair value at the date of acquisition.
The fair value of the non‐controlling interest in Jogger Co on 1 April 20X4 was estimated at $13m.
(ii) The fair values of Jogger Co's other assets, liabilities and contingent liabilities at 1 April 20X4
were equal to their carrying amounts with the exception of a specialised piece of plant which had
a fair value of $10m in excess of its carrying amount. This plant had a ten-year remaining useful life
on 1 April 20X4.
(iii) In December 20X4 Jogger Co sold goods to Runner Co for $6.4m, earning a gross margin of 15%
on the sale. Runner Co still held $4.8m of these goods in its inventories at 31 March 20X5.
(iv) Jogger Co still had the full invoice value of $6.4m in its trade receivables at 31 March 20X5
Runner Co’s payables only showed $3.4m as it made a payment of $3m on 31 March 20X5 which
was not recorded by Jogger Co until 3 April 20X5
Required:
(a) Prepare the consolidated statement of financial position for Runner Co as at 31 March 20X5.
(16 marks)
(b) Runner Co acquired 30% of Walker Co's equity shares on 1 April 20X5 for $13m, Walker Co had
been performing poorly over the last few years and Runner Co hoped its influence over Walker Co
would help to turn the company around. In the year ended 31 March 20X6 Walker Co made a loss
of $30m. Runner Co has no contractual obligation to make good the losses relating to Walker Co.
Explain how Walker Co should be accounted for in the consolidated statement of financial
position of Runner Co for the year ended 31 March 20X6. Your answer should also include a
calculation of the carrying amount of the investment in the associate at that date.
(4 marks)
(Total: 20 marks)
22
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
Answer
23
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
24
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
25
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
Question 2: BUN CO
Bun Co is a bakery which also owns two shops/cafés. Over the last two years, the company has
experienced declining profitability due to increased competition and so the directors wish to
investigate if this is a sector‐wide problem. Consequently, they have acquired equivalent ratios for
the sector, some of which have been reproduced below.
Sector averages for the year ended 30 June 20X7:
Return on capital employed 18.6%
Operating profit margin 8.6%
Net asset turnover 2.01
Inventory holding period 4 days
Debt to equity 80%
The following information has been extracted from the draft financial statements of Bun Co for the
year ended 31 December 20X7.
Statement of profit or loss for the year ended 31 December 20X7:
$000
Revenue 100,800
Cost of sales (70,000)
Gross profit 30,800
Operating expenses (17,640)
Profit from operations 13,160
26
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
(ii) In the year ended 31 December 20X7, Bun Co began offering discounted meal deals to
customers. Bun Co hoped this strategy would help to reduce perishable inventory and reduce
inventory holding periods.
(iii) In January 20X8, it was decided to discount some slow‐moving seasonal inventory which had a
selling price of $1.5m. Under normal circumstances, these products have a gross profit margin of
20%. The inventory was sold in February 20X8 for 50% of what it had cost Bun Co to produce. The
financial statements for the year ended 31 December 20X7 were authorised for issue on 15 March
20X8.
Required:
(a) Adjust for the information in note (iii) and calculate the 20X7 sector average equivalent
ratios for Bun Co.
(7 marks)
(b) Assess the financial performance and position of Bun Co for the year ended 31 December
20X7 in comparison with the sector average ratios.
(10 marks)
(c) Explain three possible limitations of the comparison between Bun Co and the sector average
ratios provided.
(3 marks)
(Total: 20 marks)
27
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
Answer:
28
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
29
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
30
SAPP Academy Tel 0466 709 888
8th Floor, Nam A Bank building, 54 Le Thanh Nghi, Hai Ba Trung district, Ha Noi Sapp.edu.vn
2Ard Floor, Green Star Tower, No. 261 Pham Van Dong, Bac Tu Liem district, Hanoi Hotline: 0889 66 22 76 (HN)
1st Floor, No. 2A Luong Huu Khanh, District 1, Ho Chi Minh City 0889 66 22 67 (HCM)
31