Modelling Agency

Submitted by: Michael Pappas

Question: 1

On 1 April 2012, Hunting plc acquired 70% of the ordinary shares of ICM Ltd. The following figures relate to the year ended 31 December 2012. Hunting plcICM Ltd

$$ Revenue769,000600,000

Cost of sales 568,500420,000

Gross profit200,500180,000

On 15 November 2012 ICM Ltd sold goods which cost it $5,000 to Hunting plc for $7,000. These goods were still held by Hunting plc at 31 December 2012.

What is the amount for gross profit in the consolidated income statement of Hunting plc for the year ended 31 December 2012?

A. $335,500

B. $333,500

C. $983,500

D. $985,500

Answer: B

Question: 2

A conceptual framework is a statement of generally accepted theoretical principles which form the frame of reference for financial reporting.

Which of the following is NOT a disadvantage of conceptual framework?

A. Standards are developed on patchwork basis.

B. Conceptual frameworks are developed for preparing financial statements that is intended for wide range of users.

C. Financial statements are used for variety of purposes.

D. The task of preparation and implementation of standards.

Answer: A

Question: 3

Where transactions have taken place between related parties, the entity should disclose the nature of the related party relationships, as well as information about the transactions and outstanding balances necessary for an understanding of the potential effect of the relationship on the financial statements. The disclosures must include the following, except

A. The amount of the transactions.

B. The amount of retained earnings.

C. Provisions for doubtful debts related to the amount of outstanding balances.

D. The expense recognized during the period in respect of bad or doubtful debts due from related parties.

Answer: B

Question: 4

Jerry Co has a defined benefit plan. At the financial year end, the plan has the following values:

$m Fair value of plan assets65 Present value of pension obligation52.5 Cumulative unrecognized actuarial losses2 Present value of refunds from the plan and reductions in future contributions11.5

What is the value of the pension in the statement of financial position?

A. $(12.5)m

B. $(14.5)m

C. $(10.5)m

D. $10.5m

Answer: B

Question: 5

Sarah plc has owned 100% of the ordinary share capital of Ulysses Ltd and Wally Ltd for many years. Ulysses Ltd operates in a country in Central Africa. In June 2013, civil war broke out in this country. Essential services have been severely disrupted and it has been impossible to communicate with local personnel for several months. This situation is unlikely to be resolved inthe near future. Wally Ltd is an insurance company. The rest of the group extracts and processes mineral ores.

In accordance with IAS 27 Consolidated and Separate Financial Statements and IFRS 3 Business Combinations which of these companies must be consolidated by Sarah plc at 31 December 2013?

A. Ulysses Ltd only

B. Wally Ltd only

C. Both Ulysses Ltd and Wally Ltd

D. Neither Ulysses Ltd nor Wally Ltd

Answer: B

Question: 6

Which of the following are roles of the IFRS Foundation?

(1)To issue IFRS

(2)To examine any identified or alleged departures from IFRS

(3)To guide the International Accounting Standards Board (IASB)

(4)To secure finance

A. (1) and (2)

B. (1) and (3)

C. (2) and (4)

D. (3) and (4)

Answer: D

Question: 7

Gene Ltd has the following assets and liabilities at 31 December 2005. Note$ Fixtures and fittings at carrying amount(1)10,000

Receivables(2)8,000

Cash and cash equivalents1,000

Payable(5,000) 14,000

Notes

(1) The fixtures and fittings have been held for three years and had an estimated useful life of six years. If the fixtures and fittings were to be sold on 31 December 2005 they would realise $14,000

(2) If Gene Ltd was to cease trading it is estimated that an allowance against receivables of $500 would need to be made

At what amount would the net assets be stated in the statement of financial position of Gene Ltd at 31 December 2005 under the breakup basis?

A. $17,500

B. $13,500

C. $14,000

D. $15,000

Answer: A

Question: 8

The requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations result in the separation of the financial position and financial performance of those activities which will continue into the future from those which will not. This provides a clearer base for projections into the future than if the position and performance of both types of activity were merely amalgamated. Which of the following qualitative characteristics has been reflected in the formulation of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations?

A. Understandability

B. Relevance

C. Reliability

D. Comparability

Answer: B

Question: 9

Taylor buys a machine on three months credit from France for 50,000 on 15 December 2012. The machine has not been paid for by Taylors year end of 31 December 2012. The exchange rates are as follows:

DateRate

15 December 2012$1: 1.25

31 December 2012$1: 1.30

What is the journal to initially recognise the transaction?

A. DrNon-current assets$40,000 CrPayables$40,000

B. DrPayables$40,000 CrNon-current assets$40,000

C. DrNon-current assets$38,462 CrPayables$38,462

D. DrPayables$38,462 CrNon-current assets$38,462

Answer: A

Question: 10

According to IAS 1 Presentation of Financial Statements, which of the following statements is / are correct?

(i)The accounting policies adopted by a company must be disclosed in the notes to the financial statements

(ii)Inappropriate accounting policies can be rectified by disclosure of the policies used or by the inclusion of explanatory material

(iii) Companies may choose to prepare their financial statements (except for the statement of cash flows) on either the accrual basis or the cash basis

A. (i), (ii) and (iii)

B. (i) and (ii) only

C. (ii) and (iii) only

D. (i) only

Answer: D

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