CAF-7: FINANCIAL ACCOUNTING AND REPORTING II

WEEKLY QUIZ # 1
ARTT BUSINESS SCHOOL (SEC A+B)

INSTRUCTIONS:
1. There is a total of hour to solve this paper. 5. Start every new answer on a fresh page.
2. Calculators are allowed in this paper. 6. Use blue or black ink to write your answers.
3. Write your answers in a separate booklet provided 7. The total number of pages is 3.
along with this question paper. 8. Marks are allocated for proper workings.
4. Write your name, CRN # and ARTT ID # on the booklet 9. Cheating is strictly prohibited.
in BLOCK LETTERS as on your ARTT ID Card. 10. Total Marks =

Question # 1:
(CPA Ireland)
Exchangeit Limited imports goods from various countries abroad and has asked you, a trainee financial accountant, for
advice on how to account for the effects of changes in foreign exchange rates. Exchangeit Limited’s year-end is 31
December and its reporting or functional currency is the euro (€).
Exchangeit Limited made a credit sale to a US customer on 1 October 2017 for US$100,000. This transaction was
incorrectly recorded by Exchangeit Limited as a sale of €100,000. Exchangeit Limited received part payment on 30
November 2017 of US$50,000 and this again was incorrectly recorded as €50,000 in its records.
The following exchange rates applied during the financial year:
1 October 2017 € 1 = US $ 1.25
30 November 2017 € 1 = US $ 1.20
31 December 2017 € 1 = US $ 1.10
Required:
(a) In accordance with IAS 21, describe what is meant by the following:
(i) A monetary item. (ii) An exchange difference. ( Marks)
(b) Prepare adjusting journal entries to show how the above transactions should be corrected in the books of
Exchangeit Limited for the year ended 31 December 2017. ( Marks)
(c) Calculate the exchange gain or loss for the year ended 31 December 2017 for Exchangeit Limited. ( Marks)

Question # 2:
(ACCA BPP)
White Cliffs Co, whose year end is 31 December and function currency is $, buys some goods from Rinka SA of France on
30 September 2018. The invoice value is €40,000 and is due for settlement in equal instalments on 30 November 2018
and 31 January 2019. The exchange rate moved as follows:
€= $1
30 September 2018 1.60
30 November 2018 1.80
31 December 2018 1.90
31 January 2018 1.85
Required:
Journalise the accounting entries in the books of White Cliffs Co. ( Marks)
1
ARTT Examining Team
Question # 3:
(IFRS Foundation: Training Material for the IFRS for SMEs)
On 1 March 2018 an entity that has a functional currency of € bought a retail outlet in another country for $500,000 to
sell products to customers in the other country. The settlement was made on 31 May 2018. The outlet is depreciated
using the straight-line method over its remaining 20-year useful life to its zero residual value. The entity uses
proportionate policy to depreciate its assets. The entity’s year end is 31 December.
On 31 December 2018 the entity performed an impairment test. It determined the recoverable amount of the outlet to
be $550,000.
On 31 December 2019 the entity performed an impairment test. It determined the recoverable amount of the outlet to
be $300,000.
Spot currency exchange rates are given below:
1 March 2018 € 1 = $2
31 May 2018 €1 = $2.2
31 December 2018 €1 = $2.4
28 February 2019 €1 = $2.1
31 December 2019 €1 = $2.5.
Required:
Prepare the journal entries to account for the retail outlet in the entity’s financial statements for the years ended 31
December 2018 and 2019. ( Marks)

Question # 4:
(Gripping IFRS)
Ghost Limited is an American company that sells sheets. Ghost Limited sold a batch of sheets to a British company for
GBP 50,000. The order from the British company was received on 25 March 2015, the sheets were loaded on 15 July
2015 and arrived in Great Britain on 25 July 2015.
The sheets were loaded free on board. The sheets (which Ghost Limited had in stock at the time of the order) cost the
American company USD 20,000.
The British company paid Ghost Limited as follows:
 GBP 25,000 on 31 October 2015
 GBP 25,000 on 31 January 2016
Related exchange rates are as follows:
Date Spot Rate
US Dollars: GB Pounds
25 March 2015 2.00:1
15 July 2015 2.20:1
25 July 2015 2.50:1
31 October 2015 2.65:1
31 December 2015 2.40:1
31 January 2016 2.90:1
Ghost has a 31 December year end.
Required:
Show all related journal entries in the books of Ghost Limited for its years ended 31 December 2015 and 2016. ( Marks)
2
ARTT Examining Team
Question # 5:
(Gripping IFRS)
Musketeers Limited, a South African tourist company, bought 16 cartwheels to use in the construction of a replica of a
seventeenth century ox-wagon. The cartwheels were imported from a specialist in Great Britain for a total of GBP
20,000. The cartwheels were ordered from the British specialist on 25 March 2015, were shipped on 15 July 2015 and
arrived in South Africa on 25 July 2015. The Cartwheels were shipped free on hoard.
The ox-wagons are to be used to transport tourists on a local South African game reserve. The ox-wagons were
completed on 31 July 2015 (at a further cost of R55000), were available for use on 1 September 20X5 and were first
brought into use on 1 October 2015. The ox-wagons have a residual value of R30000 and a useful Iife of 10 years.
Musketeers Limited paid the British specialist on 31 August 2015.
The relevant exchange rates between SA Rand and GBP were as follows:
Date Spot Rate
SA Rand: GB Pound
25 March 20X5 9.00:1
15 July 20X5 9.25:1
25 July 20X5 9.60:1
31 August 20X5 9.90:1

Required:
Show all related journal entries in the books of Musketeers Limited for the year ended 31 December 2015. ( Marks)

Question # 6:
(Gripping IFRS)
Deadline Limited, a South African company (whose currency is Rands) placed an order to import an item of plant from
America. The details of the acquisition are as follows:
Date of order: 30 June 2013
Cost of plant: $200 000
Date of shipment: 30 September 2013 (the shipping terms are FOB)
Payment: 29 February 2014
The date on which the plant became available for use was 1 December 2013. It has a useful life of 10 years and a nil
residual value.
Related exchange rates are as follows:
Date Spot Rate
R:$
30 June 2013 8.00:1
30 September 2013 8.05:1
1 December 2013 8.10:1
31 December 2013 8.15:1
29 February 2014 8.20:1

Required:
Prepare the journal entries to cover all aspects of Deadline's importation of plant in both its years ended 31 December
2013 and 2014. ( Marks)

3
ARTT Examining Team
Question # 6:
Select the most appropriate answer from the options available for each of the following Multiple Choice Questions
(MCQs).

(a) XYZ Limited is a subsidiary of ABC Limited. ABC sold stocks worth Rs. 150 million at a mark-up of 25% to XYZ. XYZ
processed it further at a cost of Rs. 50 million and sold all of them back to ABC at a margin of 20%. 40% of the stock
is still unsold. What is the total amount of unrealised profit that needs to be adjusted in consolidated financial
statements?
(b)

Question # 7:
(CPA Ireland)
Adams plc is a public limited company based in Ireland. It has shareholdings in two other companies, Truman plc and
Carter plc. Statements of Financial Position are shown below for all three companies as at 31 July 2015:
Adams plc Truman plc Carter plc
Non-current assets:  € million € million € million
Property, plant & equipment 500 145 100
Investments 300 48 5
800 193 105
Current assets:
Inventories 180 51 23
Trade receivables 64 24 13
Cash & bank 24 13 8
268 88 44

Total assets 1,068 281 149

Equity:
Equity share capital of €0.25 each 250 100 40
Share premium 200 80 20
Retained earnings 358 65 61
808 245 121
Non-current liabilities:
6% loan notes 100

Current liabilities:
Trade payables 143 36 18
Dividends proposed 17 10
Total liabilities 260 36 28

Total equity & liabilities 1,068 281 149

The following information is provided:

4
ARTT Examining Team
(i) Adams bought 300 million ordinary shares in Truman on 1 August 2013, when the retained earnings of Truman
were €44 million. The consideration was agreed at €220 million for these shares. €120 million of this was settled in
cash on the date of purchase, the balance being paid by means of a 6% loan note. This investment has been
correctly recorded at cost in the books of Adams, included under the heading “Investments”. The loan note interest
was paid during the year ended 31 July 2014, but no entry has been made to reflect the interest payable in the
current accounting period.
(ii) Adams bought a 40% holding in the ordinary shares of Carter on 1 August 2014, when the retained earnings
balance in Carter’s books stood at €52 million. The consideration consisted of an immediate cash payment of €50
million. The directors of Adams negotiated the right to appoint 4 directors to Carter’s 12-person board as a result of
its investment.
(iii) The group accounting policy is to value any Non-Controlling Interests (NCI) at their proportionate share of
identifiable net assets at the acquisition date.
(iv) On 1 August 2013, certain property held by Truman had a fair value €20 million in excess of its carrying value. The
buildings component of this property, comprising 75% of the total value, had a useful economic life remaining of 10
years at the date of acquisition.
(v) During the financial year ended 31 July 2015, Truman had sold goods to Adams amounting to €60 million. The
purchase price included a mark-up of 20% on cost. Truman’s normal mark-up on goods sold is 60%. Of these goods,
one-quarter remained in the closing inventory of Adams at the reporting date.
(vi) Recorded in the books of Adams was an intra-group trade payable of €20 million owed to Truman at year-end.
However, the books of Truman showed a balance of €22 million owed by Adams. It transpired that Truman’s
computer system had automatically charged to Adams’ account interest of €2 million due to late payments. It was
subsequently agreed that Truman would waive this interest.
(vii) Adams has not accounted for any dividend receivable from its group companies. Both Adams and Carter have
proposed dividends as shown in current liabilities. Carter’s proposed dividend relates entirely to the post-
acquisition period. No other dividends were paid or proposed in the year.
(viii) Goodwill was reviewed for impairment at the reporting date, and a €3 million impairment loss was considered
necessary to the goodwill of Truman. A €1 million impairment loss should be provided for on the investment in
Carter.
(ix) All workings may be rounded to the nearest €0.1m.

Required:
(a) Prepare the Consolidated Statement of Financial Position for the Adams group as at 31 July 2015 in accordance with
International Financial Reporting Standards. (24 Marks)
(b) If you were a non-controlling shareholder in Truman, you might be concerned regarding certain implications of the
transactions described in information (v) and (vi) above. Outline clearly the concerns a prudent shareholder might
have. (6 Marks)
(c) Explain the conditions when a parent does not need to prepare consolidated financial statements in accordance
with IFRS 10. (4 Marks)

5
ARTT Examining Team