[Free] 2017(June) Ensurepass Pass4sure CPA FR Actual Tests 21-30

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Financial Reporting

QUESTION 21

Ant plc purchased 80% of Pillar Ltd’s ordinary shares on 1 July 2010 for $2,360,000 when the fair value of Corfu Ltd’s net assets was $2,240,000. As at 30 June 2012 Ant plc hadrecognizedimpairments in respect of goodwill arising on the acquisition of Pillar Ltd amounting to $100,000. On 30 June 2013, Ant plc sold all its shares in Pillar Ltd for $3,600,000. The net assets of Pillar Ltd were $3,310,000 at the date of disposal. What is the profit on disposal of the shares in Pillar Ltd which should be included in the consolidated income statement of Ant plc for the year ended 30 June 2013?

 

A.

$384,000

B.

$484,000

C.

$952,000

D.

$270,000

 

Correct Answer: B

 

 

QUESTION 22

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 financialstatements. 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 expenserecognizedduring the period in respect of bad or doubtful debts due from related parties.

 

Correct Answer: B

 

 

QUESTION 23

Jamal Co buys some goods from SA of France on 30 September (year end is 31 December). The invoice value is 40,000 and is due for settlement in equalinstallmentson 30 November and 31 January. The exchange rate moved as follows:

 

= $1

 

30-Sep1.60

 

30-Nov1.80

 

31-Dec1.90

 

31-Jan1.85

 

What are the total exchange gains / (losses) that will be included in the operating profit of Jamal Co for the year ended 31 December 2012?

 

A.

A gain of $1,389

B.

A loss of $1,689

C.

A gain of $3,078

D.

A gain of $3,363

 

Correct Answer: D

 

 

QUESTION 24

The management of Sage Ltd is considering in liquidating the company. The following assets and liabilities as at 31 March 2013 is in company’s books:

 

(i) Plant and machinery: It represents carrying amount of $30,000 and can berealizedfor $15,000. The Plant and machinery had an estimated useful life of 10 years and have been used in business for 4 years.

 

(ii) Goodwill: A professional accountant has estimated the goodwill as $12,000.

 

(iii) Receivables: Receivables are all trade related which amounted to $15,000. It is estimated that an allowance against receivable of $1,000 would need to be made.

 

(iv) Cash at bank: The bank account shows a positive balance of $5,000.

 

(v) Payables: Trade accounts payable amounted to $6,000.

 

Which ONE of the following options, under breakup basis, is the correct amount that should be stated as net assets in the statement of financial position of Sage Ltd at 31 March 2013?

 

A.

$42,000

B.

$40,000

C.

$28,000

D.

$46,000

 

Correct Answer: B

 

 

QUESTION 25

Waterloo plc acquired a freehold building for cash, financed in full by issuing 166,000 $1 ordinary shares at a premium of $2 per share. In its statement of cash flows prepared in accordance with IAS 7 Statement of Cash Flows this transaction should be stated as:

 

A.

Inflow $498,000, outflow nil

B.

Inflow nil, outflow nil

C.

Inflow $498,000, outflow $498,000

D.

Inflow nil, outflow $498,000

 

Correct Answer: C

QUESTION 26

Wayne plc acquired 75% of Bruce Ltd during the year to 30.6.13 by issuing 200,000 of its own shares and paying the balance in cash. Wayne plc shares were trading at $1.25 at the date of the acquisition. At acquisition Bruce Ltd had net assets of $360,000 including cash and cash equivalents of $24,000. All of Bruce Ltd’s assets and liabilities were recorded at fair value except for a property which had a fair value $100,000 in excess of its carrying amount. Goodwill arising on the acquisition was $50,000. You are preparing the note to the consolidated statement of cash flows of Wayne plc for the year ended 30.6.13 showing the effects of the acquisition of Bruce Ltd. What will be the net cash outflow shown by the note?

 

A.

$94,000

B.

$145,000

C.

$121,000

D.

$119,000

 

Correct Answer: C

 

 

QUESTION 27

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

 

Correct Answer: B

 

 

QUESTION 28

According to the IASB’s Conceptual Framework for Financial Reporting, which of the following characteristics of financial information contribute to faithful representation?

 

(i) Neutrality

 

(ii) Freedom from error

 

(iii) Completeness

 

(iv) Consistency

 

A.

(i), (ii), (iii) and (iv)

B.

(i), (ii) and (iii) only

C.

(i), (ii) and (iv) only

D.

(iii) and (iv) only

 

Correct Answer: B

QUESTION 29

Propane pIc is undertaking an impairment review of assets following IAS 36 Impairment of Assets. Investigations have discovered the following:

 

Asset R has a carrying amount of $60,000, a value in use of $65,000 and a fair value less costs to sell of $30,000.

 

Asset Q has a carrying amount of $100,000, a value in use of $92,000 and a fair value less costs to sell of $95,000.

 

In accordance with IAS 36 Impairment of Assets, what amount should berecognizedas an impairment loss in relation to these assets?

 

RQ

 

$$

 

A.

30,0003,000

B.

25,0008,000

C.

5,000-

D.

-5,000

 

Correct Answer: D

 

 

QUESTION 30

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.

 

Correct Answer: A

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