Revision Financial Reporting – Sep 2023
Question 1 (IAS 8 - Accounting Policies, Changes in Accounting
Estimates and Errors Answer
Which of the following would be a change in accounting policy in accordance
with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors?
A. Adjusting the financial statements of a subsidiary prior to consolidation as its
accounting policies differ from those of its parent.
B. A change to reporting depreciation charges as cost of sales rather than as
administrative expenses.
C. Depreciation method changed to reducing balance method rather than straight
line.
D. Reducing the value of inventory from cost to net realisable value due to a valid
adjusting event after the reporting period.
Revision Financial Reporting – Sep 2023
The following scenario relates to Q2 – Q6 (IFRS 37 + IAS 10)
Question 2
Promoil’s financial statements for the year ended 30 September 20X8 were
authorised for issue by its directors on 6 November 20X8 and the Annual General
There is no legal obligation for Promoil to remove the oil platform, but Promoil has a published environmental
policy which it has a history of honouring.
Meeting will be held on 6 December 20X8.
On 1 October 20X7, Promoil acquired an oil platform at a cost of $30 million. The Which of the following is correct regarding Promoil’s proposed accounting treatment?
estimated cost of removing the platform at the end of the asset’s life on 30
A. No provision should be recorded as there is no legal obligation
September 20Y7 will be $15 million. The present value of $1 in 10 years using
Promoil’s cost of capital of 8% is $0.46. B. Promoil should recognise a provision as there is a constructive obligation
On 12 October 20X8 a fire destroyed Promoil’s largest warehouse. The carrying C. No provision should be made but a contingent liability should be recorded
amount of the warehouse was $10 million. Promoil expects to be able to recover
D. If Promoil make a provision, the present value of the costs will be expensed in the statement of profit or loss for
$9 million from its insurers and its going concern is not in doubt.
the year to 30 September 20X8
A single class of inventory held at another warehouse was valued at its cost of
$460,000 and sold for $280,000 on 10 October 20X8.
Answer
Revision Financial Reporting – Sep 2023
The following scenario relates to Q2 – Q6 (IFRS 37 + IAS 10)
Question 3
Promoil’s financial statements for the year ended 30 September 20X8 were
authorised for issue by its directors on 6 November 20X8 and the Annual General
If Promoil makes the provision, what liability (to the nearest thousand) will be shown in its statement of financial
position as at 30 September 20X8?
Meeting will be held on 6 December 20X8.
On 1 October 20X7, Promoil acquired an oil platform at a cost of $30 million. The $__________ ,000
estimated cost of removing the platform at the end of the asset’s life on 30
September 20Y7 will be $15 million. The present value of $1 in 10 years using
Promoil’s cost of capital of 8% is $0.46.
On 12 October 20X8 a fire destroyed Promoil’s largest warehouse. The carrying
amount of the warehouse was $10 million. Promoil expects to be able to recover
$9 million from its insurers and its going concern is not in doubt.
A single class of inventory held at another warehouse was valued at its cost of
$460,000 and sold for $280,000 on 10 October 20X8.
Answer
Revision Financial Reporting – Sep 2023
The following scenario relates to Q2 – Q6 (IFRS 37 + IAS 10)
Question 4
Promoil’s financial statements for the year ended 30 September 20X8 were
authorised for issue by its directors on 6 November 20X8 and the Annual General
Select the correct category for the events listed below in relation to IAS 10 Events After the Reporting Period.
Meeting will be held on 6 December 20X8.
On 1 October 20X7, Promoil acquired an oil platform at a cost of $30 million. The Adjusting Non-adjusting
estimated cost of removing the platform at the end of the asset’s life on 30 Fire in the warehouse
September 20Y7 will be $15 million. The present value of $1 in 10 years using
Sale of inventory
Promoil’s cost of capital of 8% is $0.46.
On 12 October 20X8 a fire destroyed Promoil’s largest warehouse. The carrying
amount of the warehouse was $10 million. Promoil expects to be able to recover
$9 million from its insurers and its going concern is not in doubt.
A single class of inventory held at another warehouse was valued at its cost of
Answer
$460,000 and sold for $280,000 on 10 October 20X8.
Revision Financial Reporting – Sep 2023
The following scenario relates to Q2 – Q6 (IFRS 37 + IAS 10)
Question 5
Promoil’s financial statements for the year ended 30 September 20X8 were
authorised for issue by its directors on 6 November 20X8 and the Annual General
On 18 November 20X8 the government announced tax changes which have the effect of increasing Promoil’s
deferred tax liability by $650,000 as at 30 September 20X8.
Meeting will be held on 6 December 20X8.
On 1 October 20X7, Promoil acquired an oil platform at a cost of $30 million. The Which of the following is correct in respect of IAS 10 Events After the Reporting Period regarding the tax
estimated cost of removing the platform at the end of the asset’s life on 30 changes?
September 20Y7 will be $15 million. The present value of $1 in 10 years using A. This is a non‐adjusting event and no disclosure is required
Promoil’s cost of capital of 8% is $0.46.
On 12 October 20X8 a fire destroyed Promoil’s largest warehouse. The carrying B. This is an adjusting event
amount of the warehouse was $10 million. Promoil expects to be able to recover C. This is neither an adjusting or non‐adjusting event
$9 million from its insurers and its going concern is not in doubt.
D. This is an adjusting event and the financial statements should be reissued
A single class of inventory held at another warehouse was valued at its cost of
$460,000 and sold for $280,000 on 10 October 20X8.
Answer
Revision Financial Reporting – Sep 2023
The following scenario relates to Q2 – Q6 (IFRS 37 + IAS 10)
Question 6
Promoil’s financial statements for the year ended 30 September 20X8 were
authorised for issue by its directors on 6 November 20X8 and the Annual General
Promoil owns the whole of the equity share capital of its subsidiary Hamlet. Hamlet’s statement of financial
position includes a loan of $25 million that is repayable in five years’ time. $15 million of this loan is secured on
Meeting will be held on 6 December 20X8.
Hamlet’s property and the remaining $10 million is guaranteed by Promoil in the event of a default by Hamlet. It is
On 1 October 20X7, Promoil acquired an oil platform at a cost of $30 million. The
possible that Hamlet will be unable to repay the loan, but not likely.
estimated cost of removing the platform at the end of the asset’s life on 30
September 20Y7 will be $15 million. The present value of $1 in 10 years using How should this be treated in the financial statements of Promoil?
Promoil’s cost of capital of 8% is $0.46. A. A contingent liability
On 12 October 20X8 a fire destroyed Promoil’s largest warehouse. The carrying
B. A provision
amount of the warehouse was $10 million. Promoil expects to be able to recover
$9 million from its insurers and its going concern is not in doubt. C. Not included in Promoil’s financial statements
A single class of inventory held at another warehouse was valued at its cost of
D. A reduction to property, plant and equipment
$460,000 and sold for $280,000 on 10 October 20X8.
Answer
Revision Financial Reporting – Sep 2023
Question 7 (Consolidated Financial Statement) – Sep/Dec 2022 Answer
Saguaro Co acquired 25% of the equity shares in Cactus Co for $400,000 on 1
March 20X1. In July 20X1, Cactus Co paid a dividend of $36,000. Cactus Co's profit
for the year ended 31 December 20X1 was $115,200. All profits accrued evenly
over the year.
What is the carrying amount of the investment in the associate in Saguaro Co’s
consolidated statement of financial position as at 31 December 20X1?
$ ____________
Revision Financial Reporting – Sep 2023
Question 8 (Consolidated Financial Statement) - Sep/Dec 2022 Answer
Pearl Co has controlled an 80% owned subsidiary, Silver Co, for many years. Silver
Co sold goods to Pearl Co for $120,000 at a mark-up of 20% during the year.
Pearl Co had sold half of these goods by the year end.
Which of the following statements regarding intra-group transactions in the
consolidated financial statements are true or false?
Revenue must be reduced by a total of $120,000 TRUE FALSE
Cost of sales must be reduced by a total of $110,000 TRUE FALSE
Non-controlling interest must be reduced by $2,000 TRUE FALSE
Revision Financial Reporting – Sep 2023
Question 9 (Consolidated Financial Statement) – Sep/Dec 2021 Answer
Alpha Co acquired 80% of the ordinary share capital of Bravo Co on 1 September
20X4 and 40% of the ordinary share capital of Charlie Co a number of years ago.
On 30 November 20X4, Alpha Co sold goods to Bravo Co making a profit of
$2,000. Half of these items remained in inventory at the year end.
The profit for the year ended 31 December 20X4 for each company is:
Alpha Co ($) Bravo Co ($) Charlie Co ($)
Profit for the year 80,200 51,900 86,800
What is the amount of profit attributable to the equity shareholders of Alpha Co
in the consolidated statement of profit or loss for the year ended 31 December
20X4?
$ ____________
Revision Financial Reporting – Sep 2023
Question 10 (Consolidated Financial Statement) – Mar/Jun 2021 Answer
Platinum Co acquired 80% of the ordinary share capital of Palladium Co on 1 April
20X0 by means of cash and contingent consideration. At this date, Platinum Co
assessed the fair value of contingent consideration at $250,000.
Platinum Co calculates non-controlling interest, using the fair value at the date of
acquisition, which was estimated to be $100,000 and the goodwill arising on
acquisition was $300,000.
The following figures for Palladium Co are relevant:
$’000
Ordinary shares of $1 each at acquisition 500
Retained earnings at 1 January 20X0 (300)
Profit for the year ended 31 December 20X0 120
The profits for Palladium Co have accrued evenly throughout the year.
What was the cash consideration paid by Platinum Co for the investment in
Palladium Co?
$ ____________
Revision Financial Reporting – Sep 2023
Question 11 (Consolidated Financial Statement) – Mar/Jun 2021 Answer
Indicate, by clicking on the relevant boxes in the table, whether the following
statements are true or false in relation to accounting for the acquisition of a
subsidiary.
Where a parent company is satisfied that there has
been a gain on a bargain purchase (negative
TRUE FALSE
goodwill), it should be recognized in the consolidated
statement of profit or loss immediately
If the liabilities of the acquired entity are overstated,
TRUE FALSE
then goodwill will also be overstated
Revision Financial Reporting – Sep 2023
Question 12 (IAS 12 – Income tax) – Sep/Dec 2021 Answer
The information below relates to the financial statements of a company as at 30
September 20X7:
W1 – Retained earnings at acquisition $
Plant (cost less depreciation) 110,000
Land (original cost $200,000) 280,000
Tax base
Plant 90,000
Land 200,000
Tax rate 20%
Deferred tax liability 20,000
Revaluation surplus 64,000
The amount of the deferred tax liability is: CORRECT INCORRECT
The amount of the revaluation surplus is: CORRECT INCORRECT
Revision Financial Reporting – Sep 2023
Question 13 (IAS 12 – Income tax) Answer
Tamsin Co’s accounting records shown the following:
$
Income tax payable for the year 60,000
Over provision in relation to the previous year 4,500
Opening provision for deferred tax 2,600
Closing provision for deferred tax 3,200
What is the income tax expense that will be shown in the statement of profit or
loss for the year?
A. $54,900
B. $67,700
C. $65,100
D. $56,100
Revision Financial Reporting – Sep 2023
Question 14 (Interpretation) – Sep/Dec 2020 Answer
Which of the following ratios are likely to DECREASE due to a significant
revaluation gain on a depreciating asset at the start of the year?
(1) Return on capital employed (ROCE)
(2) Gearing (debt/equity)
(3) Operating profit margin
(4) Net asset turnover
Options:
A. 1, 2, 3 and 4
B. 1, 2 and 3 only
C. 2, 3 and 4 only
D. 1 and 4 only
Revision Financial Reporting – Sep 2023
Question 15 (Interpretation) Answer
Which TWO of the following explanations are unlikely to lead to an increase in
receivables collection period?
A. A new contract with a large customer has been won following a competitive
tender
B. A large one‐off credit sale has been completed just before the year end
C. The entity has recently expanded into a number of high street retail units
D. Difficult economic conditions have led to some customers struggling to pay on
time
E. A website has been opened in the year for trade direct to the public
Revision Financial Reporting – Sep 2023
Question 16 (Interpretation) Answer
The following extracts of the financial statements of Wiggo have been obtained:
20X5
Inventories $130,000
Receivables $80,000
Cash $10,000
Loan repayable 20X8 $90,000
Deferred tax $14,000
Payables $70,000
Overdraft $34,000
What is the quick ratio of Wiggo?
_____________:1
Revision Financial Reporting – Sep 2023
Question 17 (Interpretation) Answer
Marcel has calculated that its current year Price Earnings (P/E) ratio is 12.6.
The sector average P/E ratio is 10.5
Which of the following would be an explanation of the difference between
Marcel’s P/E ratio and the sector average?
A. Marcel is seen as a less risky investment than the sector average, and there is
higher confidence about the future prospects of Marcel.
B. Marcel is seen as a more risky investment than the sector average, however
there is higher confidence about the future prospects of Marcel.
C. Marcel is seen as a less risky investment than the sector average, however
there is low confidence about the future prospects of Marcel.
D. Marcel is seen as a more risky investment than the sector average, and there is
low confidence about the future prospects of Marcel.
Revision Financial Reporting – Sep 2023
Question 18 (IAS 07 – Statement of Cash flow) Answer
Identify the correct treatment in the calculation of net cash from operating
activities under the indirect method.
Add to profit Deduct from profit
before tax before tax
Decrease in trade receivables
Increase in inventories
Profit on sale of non‐current assets
Depreciation
Revision Financial Reporting – Sep 2023
Question 19 (IAS 07 – Statement of Cash flow) Answer
The following balances were extracted from N’s statement of financial position as
at 31 December.
20X9 20X8
$’000 $’000
Deferred taxation 38 27
Current tax payable 119 106
Extract from statement of profit or loss for the year ended 31 December 20X9.
$’000
Income tax expense 122
The amount of tax paid that should be included in N’s statement of cash flows
for the year ended 31 December 20X9 is:
$_____________ ,000
Revision Financial Reporting – Sep 2023
Question 20 (IAS 07 – Statement of Cash flow) Answer
During the year to 31 July 20X7 Smartypants made a profit of $37,500 after
accounting for depreciation of $2,500.
During the year non‐current assets were purchased for $16,000, receivables
increased by $2,000, inventories decreased by $3,600 and trade payables
increased by $700.
What was the increase in cash and bank balances during the year?
A. $21,300
B. $30,300
C. $24,900
D. $26,300
