MOCK EXAM – FINANCIAL REPORTING

MOCK EXAM FINANCIAL REPORTING
Time: 3 Hours
Reading Time: 15 Minutes
Part A(Total for 45 marks)

1) Marcus Ltd enters into a lease with Lee of an aircraft which had a fair value of
$300,000 at the inception of the lease. The terms of the lease require Marcus to pay
5 annual rentals of $50,000 in arrears. Residual Value at the end of the contract is
$20,000. The interest rate implicit in the lease is 10%. The terms of the lease indicate
that Marcus has substantially all of the risks and rewards of ownership.
In accordance with IAS 17 Leases, what amount would be added to Marcuss non-
current assets in respect of the leased aircraft?
The cumulative annuity factor for 5 years at 10% - 3.7908
The discount factor of the 5th year at 10% - 0.6209
A) $nil
B) $300,000
C) $189,540
D) $201,958
2) Alco Ltd enters into a finance lease with a term of ten years. The details are as
follows:
- 10 annual payments of $130,000
- Residual value of $250,000 guaranteed by the lessee
- Maintenance costs to be paid by the lessee as they are incurred (estimated to be
$5,000 per annum)
The asset has a fair value of $1,850,000 at the inception of the lease.
What are the minimum payments as defined by IAS 17 Leases?
A) $ 1,300,000
B) $ 1,600,000
C) $1,350,000
D) $1,850,000
3) Alex Ltd entered into a $20 million fixed price contract on 3 February 20X7. The
relevant cost information is displayed in the table below.
The company uses the percentage of completion method and attributes profit on the
basis of cost. It believes that the contract will be completed according to plan.
Year ending 31.12X7 31.12X8 31.12X9
$ million $ million $ million
Total contract costs in year 3 2 1.5
Estimated costs to completion 3 3 2.5
What figure for attributable profit should be recognised in the financial statements
for the year ended 31 December 20X9? (Round all calculations to the nearest $0.1
million).
A) ($0.2 million)
B) 0.42 million
C) $0.6 million
D) $2 million
4) On 1 January 20X2 an entity grants share options to each of its employees. The only
condition attached to the grant is that the employees should continue to work for the entity
until 31 December 20X6.The entity estimates that not all the employees will actually
complete the required period of service and that therefore only 54,000 options will vest.
The market price of each option was $10 at 1 January 20X2 and $15 at 31 December 20X2.
Which one of the following journal entries is required to account for the grant of the share
options for the year ended 31 December 20X2 in accordance with the requirements of IFRS
2 Share-based Payment?
Debit Credit
$ $
A Profit or loss 108,000
Equity 108,000
B Profit or loss 162,000
Liability 162,000
C Profit or loss 54,000
Equity 54,000
D Other comprehensive income 135,000
Equity 135,000
5) An airline grants air miles to its customers, based upon the amount that the customer
spends on flights. Customers can collect and redeem air miles in exchange for free travel.
The fair value of each air mile is estimated at $10.
During the year ended 31 December 20X3, the airline made sales of$4,500,000 and granted
10,000 air miles. Based on past experience, it expected 8,000 air miles to be redeemed.
During the year ended 31 December 20X4, 2,000 air miles were redeemed. In accordance
with IFRIC 13 Customer Loyalty Programmes, which of the following statement is correct?
A) At 31 December 20X4 the deferred revenue liability is $45,000.

B) At 31 December 20X4 the deferred revenue liability is $75,000.
C) The airline recognises revenue of $4,43,000 for the year ended 31 December 20X4.
D) The airline recognises revenue of $4,500,000 for the year ended 31 December 20X4.
6) Apex Ltd had a balance of $4,000,000 as its total equity at 1 January 20X3. During the
year ended 31 December 20X3 the company:
- Revalued property with a carrying amount of $750,000 to $1,750,000
- Issued shares with a nominal value of $450,000
- Made a profit of $2,000,000
- Declared and paid an interim dividend of 250,000
On 1 March 20X4 the directors declared final ordinary dividend of $200,000 for the year
ended 31 December 20X3.
What is closing balance on total equity in the statement of changes in equity for the year
ended 31 December 20X3?
A $6,000,000
B $7,000,000
C $7,200,000
D $6,250,000
7) An entity has nuclear power plant and a related decommissioning liability. The plant is
recognised under the cost model. At the end of the reporting period the entity estimates
that the net present value of the decommissioning liability has increased by $15,000. There
is no indication that the asset has suffered an impairment. In accordance with IFRIC 1
Changes in Existing Decommissioning, Restoration and Similar Liabilities which of the
following journal entries would be required to account for the change in the
decommissioning liability?
A Dr Revaluation surplus $15,000
Cr Decommissioning liability $15,000

B Dr Decommissioning liability $15,000
Cr Cost of asset $15,000
C Dr Profit or loss $15,000
D Dr Cost of asset $15,000
8) An entity has a nuclear power plant and a related decommissioning liability. The plant is
recognised under the revaluation model. At the end of the reporting period the entity
estimates that the net present value of the decommissioning liability has increased by
$20,000 due to technological changes. The financial statements include a revaluation
surplus of $60,000 resulting from the revaluation of the plant in previous accounting
periods. In accordance with IFRIC 1 Changes in Existing Decommissioning, Restoration and
Similar Liabilities which of the following journal entries would be required to account for the
change in the decommissioning liability?
A Dr Profit or loss $60,000
B Dr Decommissioning liability $20,000
Cr Revaluation surplus $20,000
C Dr Revaluation surplus $20,000
D Dr Cost of plant $12,000
9) Velona has received claim of $120,000 from one of its customers for defective cotton,
which was sold in the year. The customers claim is valid and Velonas lawyers have advised
that it is probable that the claim will be successful.
Velona has insured itself against such risk and the insurance company has agreed to
reimburse Velona $90,000 of the cost. How should these transactions be represented in the
statement of financial position and profit and loss?
Statement of financial position Profit or loss
A Net provision of $90,000 Net expense of $30,000

B Net provision of $120,000 Income of $90,000 expense of $120,000
C Asset of $90,000 provision of $120,000 Net expense of $30,000
D Asset of $80,000 provision of $100,000 Income of $80,000 expense of $100,000
10) XYZ ltd, a publishing company, is being sued for $2,000,000 in a libel action in respect of
a book published in January 20X1. On 31 October 20X1, at the end of the reporting period,
the directors believed that the claim had a ten per cent chance of success. On 30 November
20X1, the date the accounts were approved, the directors believed that the claim had a
twenty per cent chance of success.
In the financial statements at 31 October 20X1 what amount should be recognised in

respect of this claim?
A nil.
B $400,000
C $200,000
D $2,000,000
11) The management of D Ltd has decided to shut down its plant in Western Australia and
to transfer some of its operations to its plant in Queensland. There is a detailed formal plan
for the restructuring and this has been explained to the staff who are affected. The planned
restructuring has also been communicated to the local media. At the end of the reporting
period, no costs had yet been incurred as a result of the restructuring, but these are
expected to be as follows:
Redundancy costs of $600,000

Relocation costs of $250,000 (for those staff who will be relocating to Queensland)
The cost of terminating the leases on plant and machinery used in Western Australia
$550,000
In accordance with the requirements of IAS 37 Provisions, Contingent Liabilities and

Contingent Assets, what is the total value of the restructuring provision required to be
recognised by D Ltd at the end of the current reporting period?
A $500,000
B $850,000
C $1,400,000
D $1,150,000
12) ABC Ltd has recognised a provision for the estimated cost of decommissioning a nuclear
power station. The power station has a total estimated useful life of 20 years and started
operating fifteen years ago. The original cost of the power station was $2.0 million which
included decommissioning costs of $750,000. The power station is measured at cost.
At the end of the current reporting period, management estimates that the net present
value of the decommissioning liability has decreased by $550,000 due to improvements in
the relevant technology.
Which one of the following journal entries is required to account for the change in
decommissioning liability for this financial year in accordance with the requirements of IFRIC
1 Changes in Existing Decommissioning, Restoration and Similar Liabilities?
Debit Credit
$ $
A Decommissioning liability 550,000
Cost of asset 550,000
B Decommissioning liability 750,000
C Decommissioning liability 1,000,000
Release of decommissioning provision 1,000,000
D Decommissioning liability 550,000
Profit and Loss 50,000
13) LMN Ltd began operating on 1 January 20X3.The company incurred a tax loss for the
year ending 31 December 20X3 of $220,000. There were deductible temporary differences
of $70,000 nut no taxable temporary differences. The directors have assessed that it is
probable that future taxable profits will be available against which any unused tax losses can
be set. The tax rate is 30%.
Assuming that LMN Ltd uses the balance sheet liability method of tax effect accounting
which of the following statements is correct on 31 December 20X3?
A LMN Ltd should not recognise a deferred tax asset or liability

B LMN Ltd should recognise a deferred tax asset of $21,000 only
C LMN Ltd should recognise a deferred tax asset of $66,000 in respect of the tax loss
and a deferred tax asset of $21,000 in respect of the deductible temporary differences
D LMN Ltd should recognise a deferred tax asset of $66,000 in respect of the tax loss
and a deferred tax liability of $21,000 in respect of the deductible temporary differences
14) David Ltd acquired a derivative on 1 January 20X3 for $2,000 cash. Transaction costs
were $200. At 31 December 20X3 the fair value of the derivative was $2,500.Which of the
following is the correct journal entry to record these transactions?
$ $
A DR Derivative financial asset 2,100
CR Cash 2,100
B DR Derivative financial asset 2,500
CR Cash 2,200
CR Profit or loss 300
C DR Derivative financial asset 2,500
DR Profit or loss 200
CR Other comprehensive income 500
CR Cash 2,200
D DR Derivative financial asset 2,500
CR Cash 2,100
CR Other comprehensive income 200
15) At 1 October 20X4 Donald Ltd held inventory with a cost of$900,000 and a fair value of
$1,100,000. In order to hedge against a fall in the fair value of its inventory below
$1,100,000 Donald acquired a derivative. At 31 December 20X4 the fair value of the entitys
inventory had fallen by $40,000 and the derivative had a value of $40,000.
At 31 December 20X4 at what value should the inventory be recognised in the financial
statements?
A $1,060,000
B $860,000
C $960,000
D $1,000,000
16) A company owns inventories of 20,000 gallons of oil which cost $400,000 on 1
December 20X3. In order to hedge the fluctuation in the market value of the oil the
company signs a futures contract to deliver 20,000 gallons of oil on 31 March 20X4 at the
futures price of $22 per gallon.
The market price of oil on 3rd December 20X3 is $23 per gallon and the futures price for
delivery on 31 March 20X4 is $24 per gallon.
What are the correct journal entries at 31 December 20X3 assuming that hedge accounting
is adopted?
$ $
A DR Profit or loss 40,000
CR Financial liability 40,000
B DR Inventory 40,000
C DR Inventory 60,000
CR Profit or loss 20,000
D DR Financial liability 40,000
DR Profit or loss 20,000

CR Inventory 60,000
17) On 1 January 20X3 Diana Ltd purchased 100%of the equity shares in Stuart Ltd. At that
date it was considered that plant owned by Stuart with a net carrying amount (book value)
of $132,000 had a fair value of $180,000. Stuart Ltd and Diana Ltd both estimate the
remaining useful life of the plant to be 6 years (residual value $0) and use the straight line
method of depreciation. The tax rate is 30%.
Which of the following is the correct journal for the consolidation adjustment in respect of
depreciation at 31 December 20X3?
$ $
A DR Depreciation expense 8,000
CR Accumulated depreciation 8,000
DR Deferred tax liability 2,400
CR Business combination reserve 2,400
B DR Depreciation expense 8,000
CR Income tax expense 2,400
C DR Depreciation expense 25,000
CR Business combination reserve 7,500
D DR Depreciation expense 25,000
18) On 1 September 20X2 a parent sold inventory with a cost of $60,000to a subsidiary for
$80,000. At the period end of 31 December 20X2 30% inventory transferred was held by the
subsidiary. The tax rate is 30%.
Which of the following journals represent the correct entries which would be required in the
consolidated worksheet?
$ $
A DR Sales 80,000
DR Income tax expense 6,000
CR Cost of sales 60,000
CR Deferred tax liability 6,000
CR Inventory 20,000
B DR Cost of sales 80,000
DR Deferred tax asset 6,000
CR Sales 60,000
CR Inventory 20,000
C DR Sales 80,000
DR Deferred tax asset 1,800
CR Cost of sales 74,000
CR Inventory 6,000
D DR Cost of sales 80,000
DR Income tax expense 1,800
CR Sales 74,000
CR Deferred tax liability 1,800
CR Inventory 6,000
19) Justin Ltd holds a 40% investment in an associate, Mark Ltd. At 1 April 20X2 the
consolidated statement of financial position shows an investment in associate balance of
$70,000. For the year ended 31 March 20X3 the associate incurred a loss of $250,000. For
the year ended 31 March 20X4 the associate made a profit of $100,000.
What amount will be recognised as investment in associate in the consolidated statement of

financial position?
31 March 20X3 31 March 20X4
A $(30,000) $40,000
B $NIL $20,000
C $NIL $10,000
D $70,000 $10,000
20) Julie Ltd has a 40% investment in an associate, ABC Ltd. During the period ended 30 June
20X2 ABC Ltd sold goods costing $150,000 to Julie Ltd for $190,000. 80% inventory
transferred is held by Julie Ltd at 30 June 20X2. The profit for the period in the financial
statements of ABC Ltd is $300,000.The tax rate is 30%.
In accordance with IAS 28 Investments in Associates and Joint Ventures what amount would
appear in the consolidated statement of profit or loss as share of profit or loss of
associate?
A $111,040
B $120,000
C $128,960
D $75,000
21) Brad Ltd has a subsidiary and also owns 40% of the equity shares in Wendy Ltd. During
the year ended 31 December 20X2 Brad Ltd sold inventory costing $25,000 to Wendy Ltd for
$40,000. At 31 December 20X2 all this inventory was still held by Wendy Ltd. The tax rate is
30%.
Which of the following represents the adjustment that is made in the consolidated
worksheet?
$ $
A DR Share of profit or loss of associate 4,200
CR Investment in associate 4,200
B DR Share of profit or loss of associate 6,000
C DR Share of profit or loss of associate 2,000
DR Deferred tax 600
CR Income tax expense 600
DR Deferred tax 600
CR Inventory 2,000

22) A building owned by Anna Ltd has been reviewed for impairment. The following
information is relevant:
The carrying amount of the building is $900,000;

The estimated fair value less disposal costs is $750,000;
The value in use is $800,000;
The building has previously been revalued upwards and the related revaluation
surplus is $75,000.
In accordance with IAS 16 Property, Plant and Equipment and IAS 36 Impairment of Assets,
which one of the following journal entries would be appropriate to recognise the
impairment loss?
Debit Credit
$ $
A Impairment loss 150,000
Accumulated depreciation and
Accumulated impairment losses 150,000
B Impairment loss 200,000
C Impairment loss 25,000
Revaluation surplus 75,000
D Impairment loss 100,000
Revaluation surplus 100,000

23) Shireen Ltd has a 20% investment in an associate, Malini Ltd. During the period ended
30 June 20X2 Malini Ltd sold goods costing $150,000 to Shireen Ltd for $110,000. 30%
inventory transferred is held by Shireen Ltd at 30 June 20X2. The profit for the period in the
financial statements of Malini Ltd is $300,000.The tax rate is 30%.
In accordance with IAS 28 Investments in Associates and Joint Ventures what amount would
appear in the consolidated statement of profit or loss as share of profit or loss of
associate?
A $111,040
B $61,680
C $128,960
D $75,000
24) Kanchana Ltd has a subsidiary and also owns 40% of the equity shares in Amila Ltd.
During the year ended 31 December 20X2 Kanchana Ltd sold inventory costing $45,000 to
Amila Ltd for $25,000. At 31 December 20X2 90% of the inventory was still held by Amila
Ltd. The tax rate is 30%.
Which of the following represents the adjustment that is made in the consolidated
worksheet?
$ $
A DR Investment in associate 5,040
CR Share of profit or loss of associate 5,040
B DR Share of profit or loss of associate 6,000
C DR Share of profit or loss of associate 2,000
DR Deferred tax 600

DR Deferred tax 600
CR Inventory 2,000
Q25
Donna Ltd prepares consolidated financial statements. During the financial year ended 30 June 20X6,
Donna Ltd disposed of an investment in a foreign operation. Up to the date of disposal, Donna Ltd
had to translate the financial statement of the foreign operation from another currency for inclusion
in its consolidated financial statements. During prior reporting periods, $21 000 of exchange
difference gains net of tax (pre-tax exchange difference gains $30 000) had been recognised in other
comprehensive income in the consolidated financial statements of Donna Ltd. During the 20X6
reporting period, a $4200 exchange difference loss net of tax up to the date of disposal of the
foreign operation had been recognised in other comprehensive income.
In accordance with IAS 1 Presentation of Financial Statements, which of the following

statements is correct in relation to the treatment of the disposal of the foreign operation in the
consolidated statement of profit or loss and other comprehensive income of Donna Ltd for the year
ended 30 June 20X6?
a. The profit or loss would include an exchange difference gain after tax of $4200.
b. Other comprehensive income would include a reclassification adjustment net of tax of

$21 000.
c. The profit or loss would include a gain after tax of $16800.
d. Other comprehensive income for the translation of the foreign operation would be an
exchange difference net of tax gain of $3500.
Q26)
Roberto Ltd has completed its 20X9 financial statements which reveal, in part, the following
information:
Profit for the year$130 000;

Total comprehensive income$160 000;
other comprehensive income relates to the revaluation of Non-Current Assets to fair value;
Dividends paid$55 000;
Opening equity balancesshare capital $400 000, retained earnings $420 000, asset
revaluation surplus $60 000; and 100,000 $1 shares were issued during the reporting period. In
accordance with IAS 1 Presentation of Financial Statements, which of the items would correctly be
included in the statement of changes in equity for the year ended 30 June 20X9?
a. Closing retained earnings$550 000.
b. Total closing equity$1085 000.
C. Closing S/C 425000
d.Closing Surplus 30000
Q27)
The following information relates to Diane Ltd for the year ended 30 June 20X7: $
Sales revenue 475 000
Opening balance of trade receivables 120 000 (Net of allowance)
Closing balance of trade receivables 142 000 (net of allowance)
Doubtful debts expense $7 000
Increase in allowance for doubtful debts $3 000
Bad debts are written off against the allowance for doubtful debts What is the amount of
cash collected from customers during the year ended 30 June 20X7?
a. $446 000.
b. $450 000.
c. $447 000.
d. $453 000.
Q28)
The following information relates to the activities of Naseem Ltd. Income tax may be ignored.
Cash flows from operating activities $520 000

Increase in trade payables $33 000
Decrease in inventory $12 500
Decrease in trade receivables $25 600
Cash proceeds from sale of plant (book value of $12 000) $15 000
Increase in allowance for doubtful debts $2 000
What is the profit for the period?

a. $449900.
b. $448 100.
c. $515900.
d. $513900.
Q29)
Campion Mining Ltd has a mining site with a related decommissioning liability. The mining site
started its operations ten years ago. The mining site has a useful life of 20 years. The mining site was
established at a cost of $30 million which included decommissioning costs of $1000 000.
As at the end of this financial year, Campion Mining Ltd estimates that the net present value of the
decommissioning liability relating to establishing the mine has increased to $1.2million due to
additional technological and legal requirements. This amount is in addition to the depreciation
charges incurred for the mining site.
Assuming that Campion Ltd values the cost of establishing the mine using the cost model,
which one of the following journal entries is required to account for the additional decommissioning
liability for this financial year?
a. Dr Cost of asset $200,000
Cr decommissioning liability $200,000
b. Dr Impairment expense $200 000
Cr Decommissioning liability $200 000
c. Dr Decommissioning liability $200 000
Cr Cost of assets $200 000
D Dr Revaluation surplus $100 000
Cr Decommissioning liability $100 000

Q30)
Mustafa Mining Ltd has a mining site with a related decommissioning liability. The mining site
started its operations fifteen years ago. The mining site has a useful life of 20 years. The mining site
was established at a cost of $20 million which included decommissioning costs of $2 000 000.
As at the end of this financial year, Mustafa Mining Ltd estimates that the net present value of the
decommissioning liability relating to establishing the mine has decreased to $1.2million due to
additional technological and legal requirements. This amount is in addition to the depreciation
charges incurred for the mining site.
Assuming that Mustafa Ltd values the cost of establishing the mine using the cost model,
which one of the following journal entries is required to account for the additional decommissioning
liability for this financial year?
a. Dr Decommissioning liability $800,000

Cr Cost of assets $500,000
Cr Profit and loss $300,000
b. Dr Cost of Assets $500,000

c. Dr Impairment loss $800,000

Cr Cost of assets $500,000
d. Dr Provision for decom liability $500,000

Q31. For the year ended 31 December 20Y0, Sylvia Ltd reported rent income of $250 000 in its
statement of profit or loss and other comprehensive income. Rentals are taxable on a cash basis.
Rents received, reported as taxable profit in the year received, amounted to $400 000 for 20Y0. Also
in 20Y0, Sylvia Ltd incurred an unrealised gain of $50 000 from a foreign currency transaction. The
gain was not taxable for tax purposes in 20Y0, but will be taxable when realised in the future. Sylvia
Ltds effective income tax rate was 30 per cent. Assuming that the recognition criteria are satisfied,
by what amount would the balance of the deferred tax asset increase for 20Y0?
a. $45,000
b. $15,000
c. $30,000
d. $67 500
Q32. For the year ended 30 June 20X2, Naveen Ltd had a taxable profit of $230 000. The following
comparative information was ascertained from the tax calculations of Naveen Ltd:
20X1 Deferred tax asset $100 000
20X2 Deferred tax assets $ 90 000
20X1 Deferred tax liability $40 000
20X2 Deferred tax liability $35 000
The tax rate is 30 per cent.
What is the amount of tax expense of Naveen Ltd for the year ended 30 June 20X2?
a. 84000
b. 69000
c. 64000
d. 74000
Q33.
Bhupraj Ltd sold a fixed asset for $150 000. The following data are relevant.
o Cost of asset sold $90 000

o Capital gains tax cost base of asset $120 000
o Statement of financial position carrying amount $70 000
o Tax written-down amount of asset (tax cost less tax depreciation) 75 000
o The tax rate, including tax on taxable capital gains, is 30 per cent
o Capital gains are calculated by deducting the capital gains tax cost base from the
sale proceeds
Which of the following journal entries should be processed to record this transaction?
a. Dr Tax expense $13500

Dr DTA $1500
Cr Tax payable $13500
b. Dr Current tax expense $13500

c. Dr Tax Expense $15000

Cr DTL $1500
d. Dr DTA $1500
Dr DTI $13500
Q34. On 31 December 20X9, SK Ltd revalue a depreciable asset to $180 000. The asset had not
previously been revalued and the revaluation was recorded in accordance with the requirements of
IAS 16 Property, Plant and Equipment. The following data are relevant:
o Cost of asset $100 000

o Statement of financial position carrying amount $80 000
o Tax written-down value (tax cost less tax depreciation) $75 000
o Capital gains tax is not taxable
o Effective life of asset at 1 January 20Y0 10 years
o The tax rate is 30 per cent
SK Ltd expects to recover the carrying amount of the asset by using it until the end of its
useful life.
a. Dr Other comprehensive income (Revaluation surplus) $3 1500

Cr DTL $31 500
b. Dr Other comprehensive income (Revaluation surplus) $24000
Cr DTL $24000
c. Dr DTL $30000
Cr Other comprehensive income (Revaluation surplus) $30 000
d. Dr Other comprehensive income (Revaluation surplus) $30 000

Cr DTL $30 000
The following case note relates to the next two questions (questions 35 to 36) Bindhu Ltd acquired
70 per cent interest in Arunee Ltd on 1 July 20X0. During the year ended 30 June 20X1, Bindhu Ltd
sold inventory to Arunee Ltd for $9000. The original cost to Bindhu Ltd was $5000. 60% of the
inventory was still on hand as at 30 June 20X1. During the year ended 30 June 20X2, 80% of the
inventory was sold to parties external to the group.
Assume a tax rate of 30 per cent. Which of the following pro-forma journal entries would be
processed in the consolidation worksheet for the year ended 30 June 20X1
a. Dr Sale $9000
Dr DTA $720
Cr Inventory $2400
Cr COGS $6600
Cr Income tax expense $720
b. Dr Sale $9000
Dr DTA $720
Cr Inventory $2400
Cr COGS $6600
Cr DTI $720
c. Dr Sale $9000
Dr DTL $720
Cr Inventory $2400
Cr COGS $6600
d. Dr COGS $9000
Dr DTA $720
Cr Inventory $2400
Cr Sales $6600
a.)
Dr Retained Earnings (O/B) 1400
Dr DTA 210
Dr ITE 210
Cr Inv 700
Cr. COGS 700
b.)
Dr DTA 240
Dr ITE 240
Cr Inv 800
Cr. COGS 800

c.)
Dr DTA 720
Dr ITE 720
Cr Inv 2400
Cr. COGS 2400
d.)
Dr DTA 195
Dr ITE 195
Cr Inv 650
Cr. COGS 650
The following case note relates to the next two questions (questions 37 to 38) Kamal Ltd acquired
100 per cent interest in Manuel Ltd on 1 July 20X0.On 30 June 20X1, Kamal Ltd sold plant to Manuel
Ltd for $190,000. The net carrying amount of the plant to Kamal Ltd was $130,000. Both companies
depreciate the plant on a straight line basis over a period of 10 years.
A Dr Other Income $60,000
Dr DTA $18,000
Cr Plant $60,000
Cr ITE $18,000
B Dr Other Income $60,000
Dr Depreciation $6,000
Dr DTA $18,000
Cr Plant $60,000
Cr Acc.Depreciation $6,000
Cr ITE $18,000
C Dr Other Income $60,000
Dr Acc.Depreciation $6,000
Dr DTA $18,000
Cr Plant $60,000
Cr Depreciation $6,000
Cr ITE $18,000
D Dr Other Income $60,000
Dr ITE $18,000
Cr Plant $60,000
Cr DTA $18,000
A Dr Retained Earnings(Opening Balance) $37,800
Dr DTA $14,400
Dr ITE $1,800
Cr Plant $60,000
Dr DTA $14,400
Dr ITE $1,800
Cr Plant $60,000
C Dr Plant $37,800
Dr DTA $14,400
Dr ITE $1,800
Cr Retained Earnings(Opening Balance) $60,000
D Dr Plant $37,800
Dr ITE $14,400
Dr DTA $1,800
Cr Retained Earnings(Opening Balance) $60,000
The following case note relates to the next two questions (questions 39 to 40) Lily Ltd acquired
100 per cent interest in Emine Ltd on 1 July 20X1. One 1Jan20X2 , Emine Ltd sold plant to Lily Ltd for
$120,000. The net carrying amount of the plant to Emine Ltd was $160,000. Both companies
depreciate the plant on a straight line basis over a period of 4 years.
processed in the consolidation worksheet for the year ended 30 June 20X2.
A Dr Plant $40,000
Dr Income Tax Expense $10,500
Cr Other Income $40,000
Cr DTL $10,500
Cr Plant $40,000
Cr DTL $10,500
C Dr Plant $40,000
Cr DTL $10,500
D Dr Plant $40,000
Dr DTL $10,500
Cr Income Tax expense $10,500
processed in the consolidation worksheet for the year ended 30 June 20X3.
A Dr Retained Earnings (Opening Balance) $40,000
Cr Plant $24,500
Cr DTL $7,500
` Cr Income Tax Expense $3,000
B Dr Plant $40,000
Cr Retained Earnings (Opening Balance) $24,500
Cr DTL $7,500
C Dr Plant $40,000
Cr Income Tax expense $7,500
` Cr DTL $3,000
D Dr Plant $40,000
Cr DTL $7,500
Q 41
Which of the following is true in relation to the balance sheet liability method of accounting for
Income Taxes:
a) The focus of attention is on the tax consequences of temporary differences;

b) The principle issue is how to account for the current and future tax consequences of the future
recovery or settlement of the carrying amount of assets or liabilities;
c) The tax consequences of transactions of the current period recognised in profit and loss is also
an important issue;
d) All of the above.
Q 42
Which of the following is not true:
a) Where the carrying amount of an asset exceeds the tax base of an asset, a DTL is disclosed in the
Statement of Financial Position;
b) Where the carrying amount of a liability is less than the tax base for a liability a DTA is disclosed
in the Statement of Financial Position;
c) Where the carrying amount of an asset is less than the tax base of an asset a DTA is disclosed in
the Statement of Financial Position;
d) Where the carrying amount is the same amount as the tax base for an asset or liability, no DTA
or DTL is disclosed in the Statement of Financial Position.
Q 43
The tax base of a depreciable asset is the amount that will be deductible for tax purposes against any
taxable benefits received when the entity recovers the carrying amount of an asset. Which of the
following statements is false:
a) Recovery of the carrying amount can be via use or sale which may have different recoverable
amounts;
b) The tax base for an asset may differ where the recovery methods deployed have different tax
treatments;
c) Any tax depreciation recouped on sale of the asset is not taxable;
d) If the asset is recovered in use, there is no question of a capital gain arising.
Q 44
When reversing impairment loss, which of the following is false:
a) With the exception of impairment of goodwill, IAS36 does not regard impairment losses as
permanent write-downs;
b) An indication of an impairment loss has reversed is occurs when the market value for the
assets has increased significantly during the period;
c) Any asset can only be written up to the lower of its recoverable amount as estimated now and
the carrying amount if the original impairment was not recognised;
d) The revaluation journal will be to profit and loss if the impairment was to profit and loss and as
a revaluation amount for an asset previously valued at a revalued amount like fair value.
Q 45
Value in use is defined at the present value of future cash flows expected to be derived from an
asset or CGU. Which of the following is incorrect:
a) In calculating value in use, you need to estimate the cash inflows and outflows from the asset
or CGUs use, including its ultimate disposal;
b) Future cash flows are discounted to present value by using an appropriate discount rate that
reflects the riskiness of the cash flows;
c) Each parameter and factor utilised in calculating value in use may change over time and be
influenced by the economic environment;
d) When the risks and uncertainties associated with cash flows is factored into the cash flows and
not the discount rate, this is known as the traditional approach in IAS36 Appendix A
Part B (Total of 20 marks)
Q1 (10 Marks)
Part A - 2 Marks
Diane Ltd purchased an asset on 1/1/20X3 for $110 000. The following data are relevant for the
financial year ending 31 December 20X4:
the asset was being depreciated over 10 years for tax purposes and 5 years for
accounting purposes
the asset was revalued on 31/12/X4 to $120 000
capital gains tax cost base of asset is $125 000
capital gains are calculated by deducting the capital gains tax cost base from the sale
proceeds
the asset is expected to be recovered through use until the asset was revalued
the tax rate, including tax on taxable capital gains, is 30%.
a )Prepare the journal entry(ies) to recognise the deferred tax effects immediately prior to
the revaluation.
b) Prepare the journal entries to record the revaluation.
Part B (3 Marks)
Additional facts
On 5 April 20X4, management of Diane received an offer from another entity to sell the
asset for $180 000. Management agreed to accept the offer and sold the asset. Diane has an
accounting policy of not transferring amounts out of the revaluation surplus to retained earnings on
the disposal of property, plant and equipment.
c )Prepare the tax journal entry to account for the sale of the asset. Ignore the effect of
depreciation for the period.
Part C ( 5Marks)
Kathleen Ltd has the following accounting profit (loss) before tax:
31 December 20X0 $60 000
31 December 20X1 ($100 000)
31 December 20X2 $150 000
At the end of 31 December 20X0, the entity had a deferred tax liability with a
credit balance of $18 000, reflecting a taxable temporary difference of $60 000 for
interest receivable, which reverses in 20X1.
The tax rate is 30%. The entity expects to be able to recoup the tax loss.
Complete the following table, and prepare the journal entries for the Kathleen
Ltd for the year ending 31 December 20X0, 31 December 20X1, 31 December
20X2 .
20X0 20X1 20X2
$ $ $
Accounting profit (loss) before tax
Taxable temporary difference
Interest Receivable
Taxable profit (loss) before deduction
of carried forward tax loss
Less: Credit for tax loss carried forward
Taxable profit (tax loss)
Q2 (Part A) 2 Marks
Mugu Ltd Owns 80% Ted Ltd.On 1 July 20X8, Mugu Ltd sold inventory to Ted Ltd for $100 000. The
cost of the inventory to Mugu Ltd was $70 000. The Ted Ltd will use the inventory as items of plant.
It was estimated that the useful life of the plant was five years with a scrap value of $2000 at the end
of that period. Assume a straight-line depreciation basis and a tax rate of 30 per cent.
Required
Prepare consolidation worksheet entries (including tax effect entries) for the financial
years ending 30 June 20X9 and 30 June 20Y0 to account for this transaction from the groups point
of view.
Q2(Part B) 2 Marks
Christina Ltd issues 1000 convertible notes on 1 Jan 20X8. The notes have a three-year term and are
issued at par with a face value of $1,000 per note, yielding proceeds of $1,000,000. Interest is
payable in ADVANCE at a coupon rate of 5%. Each note is convertible into 100 ordinary shares at any
time up to maturity. At that date the notes are issued, the prevailing market rate of interest for debt
with a similar risk but without conversion options is 10% .The holder of the convertible notes has
notified Christina Ltd, that he is not interested in converting the notes into equity.
Provide all relevant journal entries.

Q3 - 6 Marks
Mugu Limited purchased an asset with a related decommissioning liability on 1 January 20X5.
The asset has a useful life of 20 years. The initial cost was $120 000. This included an amount for
decommissioning costs of $12 000, which represented $37 115 in estimated cash flows payable in 20
years discounted at a risk-adjusted rate of 5 per cent. Mugus financial year ends on 31 December.
On 31 December 20Y0 (6 years after the purchase of the asset) the discount rate has not changed.
However, the entity estimates that, as a result of changes in technological requirements, the NPV of
the decommissioning liability has increased to $30 000.
The recoverable amount of the asset is $120 000.
a) Prepare the journal entry(ies) to account for the change in the liability.
Q3 b)
Using the same facts as for Q3.
Assume now that the decommissioning liability decreased to $10 000, rather than increased to
$30 000.
Provide the journal entry(ies) to comply with the requirements of IFRIC 1.
Q3 c)
Using the same facts as for Q3, except now assume that on 31 December 20Y0, Mugu Limited
revalues the asset to $125 000.
Provide the journal entry(ies) to comply with the requirements of IFRIC 1.

MOCK EXAM – FINANCIAL REPORTING

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MOCK EXAM FINANCIAL REPORTING

Reading Time: 15 Minutes

Part A(Total for 45 marks)

What are the minimum payments as defined by IAS 17 Leases?

A Profit or loss 108,000

B Profit or loss 162,000

C Profit or loss 54,000

D Other comprehensive income 135,000

A) At 31 December 20X4 the deferred revenue liability is $45,000.

- Revalued property with a carrying amount of $750,000 to $1,750,000

- Issued shares with a nominal value of $450,000

- Made a profit of $2,000,000

- Declared and paid an interim dividend of 250,000

A Dr Revaluation surplus $15,000

Cr Decommissioning liability $15,000

Cr Cost of asset $15,000

C Dr Profit or loss $15,000

Cr Decommissioning liability $15,000

D Dr Cost of asset $15,000

Cr Decommissioning liability $15,000

A Dr Profit or loss $60,000

Cr Decommissioning liability $60,000

B Dr Decommissioning liability $20,000

Cr Revaluation surplus $20,000

C Dr Revaluation surplus $20,000

Cr Decommissioning liability $20,000

D Dr Cost of plant $12,000

Cr Decommissioning liability $12,000

Statement of financial position Profit or loss

A Net provision of $90,000 Net expense of $30,000

C Asset of $90,000 provision of $120,000 Net expense of $30,000

D Asset of $80,000 provision of $100,000 Income of $80,000 expense of $100,000

In the financial statements at 31 October 20X1 what amount should be recognised in

Redundancy costs of $600,000

In accordance with the requirements of IAS 37 Provisions, Contingent Liabilities and

A Decommissioning liability 550,000

Cost of asset 550,000

B Decommissioning liability 750,000

Cost of asset 750,000

C Decommissioning liability 1,000,000

Release of decommissioning provision 1,000,000

D Decommissioning liability 550,000

Cost of asset 500,000

Profit and Loss 50,000

A LMN Ltd should not recognise a deferred tax asset or liability

A DR Derivative financial asset 2,100

B DR Derivative financial asset 2,500

CR Profit or loss 300

C DR Derivative financial asset 2,500

DR Profit or loss 200

CR Other comprehensive income 500

D DR Derivative financial asset 2,500

CR Other comprehensive income 200

A DR Profit or loss 40,000

CR Financial liability 40,000

CR Financial liability 40,000

CR Financial liability 40,000

CR Profit or loss 20,000

D DR Financial liability 40,000

DR Profit or loss 20,000

CR Accumulated depreciation 8,000

DR Deferred tax liability 2,400