COPY OF CHAPTER 6-14

Lamas has the following products in inventory at the year-end: Product Selling Cost Quantity Cost Selling Price At what amount should total inventory be stated in the statement of financial position?

In which of the following situations is the net realizable value of an item of inventory likely to be lower than cost?

At what amount is a biological asset measured on initial recognition in accordance with IAS 41 Agriculture?

Which of the following is not the outcome of a biological transformation according IAS 41?

How is a gain or loss arising on a biological asset recognized in accordance with IAS 41?

Which of the following statements about IAS 2 Inventories are correct? 1. Production overheads should be included in the cost on the basis of a company's actual level of activity in the period. 2. In arriving at the net realizable value of inventories, settlement discounts must be deducted from the expected selling price. 3. In arriving at the cost of inventories, FIFO, LIFO, and weighted average cost formulas are acceptable. 4. It is permitted to value finished goods inventories at materials plus labor cost only, without adding production overheads.

Spartacus is a company which buys agricultural produce from wholesale suppliers for retail to the general public. It is preparing its financial statements for the year ending Sept. 30, 20X4 and is considering its closing inventory. In addition to IAS 2 Inventories, which of the following IFRSS may be relevant to determining the figure to be included in its financial statements for closing Inventories?

Charles has borrowed P2.4 million to finance the building of a factory. Construction is expected to take two years. The loan was drawn down and incurred on Jan. 1, 20x9 and work began on Mar. 1, 20x9, P1 million of the loan was not utilized until July 1, 20X9 so Charles was able to invest it until needed Charles is paying 8% on the loan and can invest surplus funds at 6% Calculate the borrowing costs to be capitalized for the year ended Dec. 31, 20x9 in respect of this project.

Which one of the following would be recognized as an investment property under IAS 40 in the consolidated financial statements of Gamal Corp.?

Which of the following is not true concerning the treatment of investment properties under IAS 40?

A company has the following loans in place throughout the year ended Dec. 31, 20x8 In Millions 10% bank loan P140 8% bank loan P200 On July 1, 20XR, P50 million was drawn down for construction of a qualifying asset which was completed during 20X9. What amount should be capitalized as borrowing costs at Dec. 31, 20x8 in respect of this asset?

An aircraft requires a planned overhaul each year at a cost of P5,000. This is a condition of being allowed to fly. How should the cost of the overhaul be treated in the financial statements?

Ronald is developing a new product and expects to be able to capitalize the costs. Which one of the following would preclude capitalization of the costs?

A company had P20 million of capitalized development expenditure at cost brought forward at Oct. 1, 20X7 in respect of products currently in production and a new project began on the same site The research stage of the new project lasted until Dec. 31, 20X7 and incurred P1 million of costs. From that date, the project incurred developed costs of P800,000 per month. On April 1, 20X8, the directors became confident that the project would be successful and yield a profit well in excess of costs. The project was still in development at Sept. 30, 20X8, Capitalized development expenditure is amortized at 20% per annum using the straight-line method. What amount will be charged to profit or loss for the year ended Sept. 30, 2009 in respect of research and development costs?

Which one of the following internally generated items may be eligible for capitalization as intangible assets in accordance with IAS 38 Intangible Assets? (Ignore business combinations.)

At Sept. 30, 20x9, Thatcher Inc's trial balance showed a brand at cost of P30 million, less accumulated amortization brought forward at Oct. 1, 20x8 of P9 million Amortization is based on a ten-year useful life. An impairment review an Apr. 1, 20X9 concluded that the brand had a value in use of P12 million and a remaining useful life of three years. However, on the same date Thatcher Inc. Received an offer to purchase the brand for P15 million. What should be the carrying amount of the brand in the statement of financial position of Thatcher Inc. As at Sept. 30, 20X9?

A cash-generating unit comprises the following assets: P'000 Building 700 Plant and equipment 200 Goodwill 90 Current assets 20 1,010 One of the machines, carried at P40,000, is damaged and will have to be scrapped. The recoverable amount of the cash-generating unit is estimated at P750,000. What will be the carrying amount of the building when the impairment loss has been recognized? (to the nearest P'000)

What is the recoverable amount of an asset?

IAS 36 Impairment of Assets suggests how indications of impairment might be recognized Which two of the following would be external indicators that one or more of an entity's assets may be impaired?

Which of the following is not an indicator of impairment under IAS 36 Impairment of Assets?

Which of the following statements regarding the scope of IAS 36 is correct?

Which of the following best describes the underlying principle of IAS 36?

A non-current asset has a carrying amount of P40,000. It could be sold for P37,000 with selling costs of P1,000. Its value in use is P44,000 and its replacement cost is P100,000. According to IAS 36 Impairment of Assets what is the recoverable amount of this asset?

In accordance with IAS 36 Impairment of Assets which of the following must be tested for impairment annually?

Which of the following statements regarding impairment testing is or are correct? I. An increase in interest rates is an indicator that an asset may be impaired. ii. The recoverable amount of a CGU to which goodwill has been allocated in the year must be tested for impairment for the first time 12 months after the business combination that gave rise to the goodwill.

To which of the following assets does IAS 36 apply?

A 5% loan note was issued on Apr. 1, 20X0 at its face value of P20 million. Direct costs of the issue were P500,000. The loan note will be redeemed on Mar. 31, 20X3 at a substantial premium. The effective interest rate applicable is 10% per annum. At what amount will the loan note appear in the statement of financial position as at Mar. 31, 20X2?

How does IFRS 9 Financial Instruments require investments in equity instruments to be measured and accounted for (in the absence of any election at initial recognition)?

On Jan. 1, 20X1, Roald purchased a debt instrument for its fair value of P500,000. It had a principal amount of P550,000 and was due to mature in five years. The debt instrument carries fixed interest of 6% paid annually in arrears and has an effective interest rate of 8%. It is held at amortized cost. At what amount will the debt instrument be shown in the statement of financial position of Roald as at Dec. 31, 20X2?

Which of the following are not classified as financial instruments under IAS 32 Financial instruments: Presentation?

Which of the following would not qualify as a financial instrument according to the definition in IAS 32 Financial Instruments: Presentation?

Which of the following are not financial liabilities in accordance with IAS 32 Financial Instruments: Presentation?

Which of the following preference shares are classified as equity in the issuer's financial statements in accordance with IAS 32 Financial instruments: Presentation?

Which of the following statements is correct regarding accounting for a financial liability measured at amortized cost, in accordance with IFRS 9 Financial Instruments?

Which of the following are the main components of market risk, in accordance with IFRS 7 Financial Instruments: Disclosures?

Which of the following amounts is recognized outside the statement of profit or loss in accordance with lAS 32 and IFRS 9?

Which one of the following factors would prevent the application of hedge accounting in accordance with IFRS 9 Financial Instruments?

Which of the following is a primary financial instrument?

Charlemagne Inc. Has in issue P500,000 6% preference shares, which are redeemable at the option of the holder. The preference shares have been in issue for over 10 years and none of them has ever been redeemed. The company has treated the P30,000 annual payment as a deduction from equity. Is this treatment correct, according to IAS 32 Financial Instruments: Presentation?

On Jan. 1, 20X6, Bolivar hired a machine under a lease. The present value of the lease payments was P3.3 million. Installments of P700,000 are payable annually in advance with the first payment made on Jan. 1, 20X6. The interest rate implicit in the lease is 6%. What amount will appear under non-current liabilities in respect of this lease in the statement of financial position of Bolivar at Dec. 31, 20X7? (Answers to nearest P'000)

Which of the following situations does not suggest that an arrangement constitutes a lease?

A company acquired an item of plant under a lease on Apr. 1, 20X7. The present value of the lease payments was P15.6 million and the rentals are P6 million per annum paid in arrears for three years on Mar. 31 each year. The interest rate implicit in the lease is 8% per annum. What amount will appear under current liabilities in respect of this lease in the statement of financial position at Mar. 31, 20X8? (Answers to nearest P'000)

At what amount does IFRS 16 Leases require a lessee to measure a right-of-use asset acquired under a lease?

On Oct. 1, 20X3, Hernan acquired an item of a plant under a five-year lease agreement. The initial measurement of the liability was P25 million. The agreement had an implicit finance cost of 10% per annum and required an immediate deposit of P2 million and annual rentals of P6 million paid on Sept. 30 each year for 5 years. What will be the interest in respect of this lease in Hernan's statement of profit or loss as at Sept. 30, 20X5?

The objective of IFRS 16 Leases is to prescribe appropriate accounting treatment and required disclosures in relating to leases. Which two of the following are among the criteria set out in IFRS 16 for an arrangement to be classified as a lease?

A sale and leaseback transaction involve the sale of an asset and the leasing back of the same asset. If the arrangement meets the IFRS 15 criteria to be recognized as a sale, how should any 'profit' on the sale be treated?

Which of the following does not suggest that an arrangement constitutes a lease?

At what amount should a lessee initially measure a right-of-use asset according to IFRS 16 Leases?

Cromwell Corp. Entered into a lease agreement for an item of plant. The lease liability was originally recorded at P700,000 and Cromwell Corp. Also incurred initial direct costs of P40,000 and received lease incentives from the lessor totaling P14,000. At the end of the lease, Cromwell Corp. Will have to dismantle the plant at an estimated (discounted) cost of P30,000. At what amount should the right-of-use asset be initially measured?

Which two of the following would indicate that lease payments may be charged to the statement of profit and loss as incurred? I. The asset has a low underlying value. ii. The lease is for less than 12 months. iii. Ownership is transferred at the end of the lease term. iv. The asset has been specially adapted for the use of the lessee.

Mandela is being sued by a customer for P2 million for breach of contract over a cancelled order. Mandela has obtained legal opinion that there is a 20% chance that Mandela will lose the case. Accordingly, Mandela has provided P400,000 (P2 million x 20%) in respect of the claim. The unrecoverable legal costs of defending the action are estimated at P100,000. These have not been provided for as the case will not go to court until next year. What is the amount of provision that should be made by Mandela in accordance with IAS 37 Provisions, Contingent Liabilities, and Contingent Assets?

During the year, Dwightlee acquired an iron ore mine at a cost of P6 million. In addition, when all the ore has been extracted (estimated ten years' time) the company will face estimated costs for landscaping the area affected by the mining that have a present value of P2 million. These costs would still have to be incurred even if no further ore was extracted. How should this P2 million future cost be recognized in the financial statements?

Which one of the following would not be valid grounds for a provision?

Which one of the following events taking place after the year end but before the financial statements were authorized for issue would require adjustment in accordance with IAS 10 Events After the Reporting Period?

Which of the following statements are correct in accordance with IAS 37 Provisions, Contingent Liabilities, and Contingent Assets? I. Provisions should be made for both constructive and legal obligations. ii. Discounting may be used when estimating the amount of a provision. iii. A restructuring provision must include the estimated costs of retraining or relocating continuing staff. iv. A restructuring provision may only be made when a company has a detailed plan for the restructuring and has communicated to interested parties a firm intention to carry it out.

Kemal's year end is Sept. 30, 20X4 and the following potential liabilities have been identified: Which two of the above should Kemal recognize as liabilities as at Sept. 30, 20X4?

Which two of the following events which occur after the reporting date of a company but before the financial statements are authorized for issue are classified as adjusting events in accordance with IAS 10 Events After the Reporting Period?

The IASB Conceptual Framework for Financial Reporting (Conceptual Framework) refers to 'faithful representation' as a fundamental qualitative characteristic. Which of the following is an example of faithful representation as defined in the Conceptual Framework?

The financial statements of Lincoln Corp. For the year ended Dec. 31, 20X2 were authorized for issue on Apr. 15, 20X3. According to IAS 10 Events After the Reporting Period, which of the following is treated as a non-adjusting event in the financial statements for the year ended Dec. 31, 20X2?

A company's reporting period ends on June 30, 20X2 and the financial statements are authorized for issue on Aug. 31, 20X2. On July 30, 20X2, a major drop in the price of shares means that the value of the company's investments has declined by P130,000 since the period end. The fall in value is material. How should this event be treated in the financial statements for the period ended June 30, 20X2?

I. An entity is planning to refurbish its head office in Feb. 20X3. It is anticipated that the refurbishment will cost P200,000, ii. On Dec. 15, the board of an entity decided to close down a division of its business On Dec. 18, the details were approved by the board and customers were notified. On Dec. 20, redundancy notices were sent to staff. iii. Under new legislation an entity is required to install improved sound proofing in all of its factories by Mar. 31, 20x3. The entity will be fined if it does not comply with the legislation by this date. At Dec. 31, 20X2, the entity has not made the required improvements.

In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets which of the following is recognized as a provision?

In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets which of the following is the correct treatment for a present obligation arising from past events, the amount of which cannot be reliably estimated?

In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, In a which of the following statements is correct?

A company's trial balance shows a debit balance of P2.1 million brought forward on current tax and a credit balance of P5.4 million on deferred tax. The tax charge for the current year is estimated at P16.2 million and the carrying amounts of net assets are P13 million in excess of their tax base. The income tax rate is 30% What amount will be shown as income tax in the statement of profit or loss for the year?

A company's trial balance at Dec. 31, 20X3 shows a debit balance of P700,000 on current tax and a credit balance of P8,400,000 on deferred tax. The directors have estimated the provision for income tax for the year at P4.5 million and the required deferred tax provision is P5.6 million, P1.2 million of which relates to a property revaluation. What is the profit or loss income tax charge for the year ended Dec. 31, 20X3?

The following information relates to an entity. I. At Jan. 1, 20X8, the carrying amount of non-current assets exceeded their tax written down value by P850,000. ii. For the year to Dec. 31, 20X8, the entity claimed depreciation for tax purposes of P500,000 and charged depreciation of P450,000 in the financial statements. iii. During the year ended Dec. 31, 20X8, the entity revalued a property. The revaluation surplus was P250,000. There are no current plans to sell the property. iv. The tax rate was 30% throughout the year. What is the provision for deferred tax required by IAS 12 Income Taxes at Dec. 31, 20X8?

Which of the following will not give rise to a taxable temporary difference?

Which of the following best describes a temporary difference when applying the balance sheet liability method of accounting for deferred tax?

Assets have a carrying amount of P450,000 and a tax base of P360,000. Which of the following best describes the resulting temporary difference of P90,000?

Which of the following provides an example of an outflow of economic benefits associated with the reversal of a taxable temporary difference?

Which of the following correctly describes deferred tax?

Which of the following statements regarding the disclosure of deferred tax is not correct?

The financial statements of Caesar Inc. Include an amount for interest receivable of P10,000. The related interest revenue will be taxed on a cash basis. What is the tax base of the interest receivable and what temporary difference arises?

A company's liabilities include sales revenue received in advance with a carrying amount of P600. The revenue was taxed when it was received. According to IAS 12 Income Taxes, which of the following statements is correct?

At the end of the reporting Bonaparte Inc. Had the following assets in its statement of financial position: • A machine that had originally cost P150,000 with related accumulated depreciation of P50,000. Accumulated tax depreciation was P100,000. • Trade receivables with a carrying amount of P60,000. This amount is net of an allowance for doubtful receivables of P40,000. The related sales revenue has already been included in taxable profit. Doubtful debts are not deductible for tax purposes until the debt is written off. - The tax rate is 30%. Applying the balance sheet liability method of tax effect accounting, these items will give rise to:

Pirandello had 10 million ordinary shares in issue throughout the year ended June 30 20x3. On July 1, 20X2, it had issued P2 million of 6% convertible loan stock, each PS of loan stock convertible into 4 ordinary shares on July 1, 20X6 at the option of the holder. Pirandello had profit after tax for the year ended June 30, 20X3 of P1,850,000. It pays tax on profits at 30%. What was diluted EPS for the year?

At Sept. 30, 20X2, the trial balance of Becquerel includes the following balances: P'000 Equity shares of 20c each 50,000 Share premium 15,000 Becquerel has accounted for a fully subscribed rights issue of equity shares made on Apr. 1, 20X2 of one new share for every four in issue at 42 cents each. This was the only share issue made during the year. What were the balances on the share capital and share premium accounts at Sept. 30, 20X1? Share capital Share premium P'000 P'000

Aqua has correctly calculated its basic earnings per share (EPS) for the current year. Which of the following items need to be additionally considered when calculating the diluted EPS of Aqua for this year? I. A 1 for 5 rights issue of equity shares during the year at P1.20 when the market price of the equity shares was P2.00. ii. The issue during the year of a convertible (to equity shares) loan note. iii. The granting during the year of directors' share options exercisable in three years' time. iv. Equity shares issued during the year as the purchase consideration for the acquisition of a new subsidiary company.

Many commentators believe that the trend of earnings per share (EPS) is a more reliable indicator of underlying performance than the trend of net profit for the year. Which of the following statements supports this view?

At Jan. 1, 20X8, Morgan had 5 million P1 equity shares in issue. On June 1, 20X8, it made a 1 for 5 rights issue at a price of P1.50. The market price of the shares on the last day of quotation with rights was P1.80. Total earnings for the year ended Dec. 31, 20X8 was P7.6 million. What was EPS for the year?