IFRS Certificate Mock Exam 3

Enterprise Co is heavily involved in developing a new production process. In the year to 31 March 20X1 the amount of expenditure incurred on development costs could be analysed as follows:

Euro €

1 April 20X0 to 30 September 20X0       18,400

1 October 20X0 to 31 March 20X1         6,500

24,900

On 1 October 20X0 Enterprise Co demonstrated that the production process met the recognition criteria of IAS 38 Intangible Assets. The amount estimated to be recoverable from the process is €21,000.

At what amount should the production process be recognised as an intangible asset at 31 March 20X1 in accordance with IAS 38?

IFRS1, First time Adoption of International Financial Reporting Standards, allows certain optional and mandatory exceptions to the rule that all assets and liabilities under previous GAAP should comply with IFRS at the date of transition. Which of the following elements of the financial statements is a mandatory exception?

IFRS Standards require certain transactions to be recognised in other comprehensive income.

Which of the following transactions IS NOT recognised in other comprehensive income? Please select the right answer.

IAS 36 Impairment of Assets requires that an asset is not carried at more than its recoverable amount.

Which of the following best describes recoverable amount?

Please select the right answer.

Which of the following statements is correct?

Please select the right answer.

A farm acquires lumber trees for $250,000 on 1 March 20X7, which represents their fair value. The fair value of the trees at the reporting date 31 December 20X7 is $280,000. The trees will be grown for 5 years and then felled and sold. Costs to sell are 5% of fair value.

Which of the following statements is true?

Please select the right answer.

Which of the following statements is correct?

Please select the right answer.

In accordance with IAS 12 Income Taxes, which of the following statements is correct?

Please select the right answer.

Langer Co acquired the entire share capital of Gruber Co on 31 December 20X0 for 10,000. The fair value of the net assets acquired was 11,000.

In accordance with IFRS3 Business Combinations, what is the carrying amount of goodwill in the Statement of Financial Position at 31 December 20X0?

Please select the right answer.

Mine Co commissioned an opencast mine on 1 April 20X0. The mining operation is expected to be completed on 31 March 20X5. At 31 March 20X1 the following remedial work requirements were identified:

(i)Removal of plant and other site preparation work, which was installed at the time of commissioning. The cost is estimated at $10. million.

(ii) Restoration of site damage which is progressively created as material is extracted from the mine. An independent surveyor has estimated that the total cost for the restoration of the damage at 31 March 20X5 will be $20 million. The restoration cost for the extraction to date is estimated at $3 million.

What provision should Mine Co include in the 31 March 20X1 financial statements? Ignore discounting.

Please select the right answer.

Which of the qualitive characteristics of financial statements requires that the commercial substance of a transaction rather than its legal form should be reflected in the financial statements?

Please select the right answer.

If a previous impairment of goodwill is determined to have reversed, the investor should:

Please select the right answer.

The Conceptual Framework for Financial Reporting provides principles that underlie financial reporting.

Which of the following statements are true in accordance with the Conceptual Framework?

1. Relevance and faithful representation are fundamental qualifying characteristics

2. The underlying assumption is accrual accounting

3. A reporting entity must be a single entity

4. Equity is defined as a residual amount.

Please select the right answer.

Which of the following criteria does not have to be met in order for an operation to be classified as discontinued under IFRS 5?

According to the IASB’s Conceptual Framework for Financial Reporting and IFRS Standards, which of the following should be recognised as an asset?

Which of the following statements is correct?

IAS 27 Separate Financial Statements states that in the separate financial statements (i.e. not the consolidated financial statements) of an investor, an investment in an associate should be:

Enterprise Co is preparing its financial statements for the year ended 31 December 20X0 and has requested your opinion about the following events:

(i)   A flood on 9 January 20X1 caused uninsured damage to the company’s main manufacturing facility totalling $200,000.

(ii)  The Directors declare a dividend of $1 per ordinary share on 7 January 20X1. The number of ordinary shares in issue is 100,000.

The Directors plan to finalise the financial statements on 10 February 20X0.

What liabilities should be recognised in the 31 December 20X0 financial statements?

IAS 21 The Effects of Changes in Foreign Exchange Rates requires that any exchange differences on translation of a foreign operation’s financial statements should be accumulated in a separate component of equity. On disposal of such a foreign operation, the cumulative amount of exchange differences held in respect of that operation should be

Emily Co chooses to revalue property in accordance with IAS 16. On 31 December 20X1, its head office building had a fair value of $30m when it is measured in the financial statements at historical cost of $25m with $4.5m of accumulated depreciation charged against it. Which of the following statements is true?

thrRed Riding Hood Co acquired a 65% share of Wolf Co on 1 January 20X2 for $3,400k. The fair value of the net assets of Wolf Co on that date was $2,100. The non controlling interest was fair valued at $900k. Calculate goodwill based on the partial goodwill method under IFRS 3.

Molde Co acquired 95% of the issued share capital of Blacke Co on 30 June 20X1; both companies have a year end of 31 December .

The profits before tax of the two companies for the year ended 31 December 20X1 as reported in their individual statements of profit or loss are:

Molde Co             € 200,000

Blacke Co             €150,000

In the consolidated statement of profit or loss for the year ended 31 December 20X1, what is profit before tax?

Which of the following statements is/are true?

1. Where preference shares are classified as a liability, the associated dividends should be recognised directly in equity

2. Redeemable preference shares are usually classified as a liability.

3. If an entity issues convertible bonds, these should always be treated as a liability under IAS 32.

4. Under IAS 32 irredeemable preference shares are always classified in equity on the statement of financial position.

IAS 7 explains the movement of cash and cash equivalents from the start to the end of a period. How does IAS 7 define cash equivalents?

On 31 December 20X4, Merigo Co sold goods to a customer for $10 million, representing a mark-up on cost of 25%. In order to encourage sales, Merigo Co has given the customer interest free credit with the total amount becoming payable in three years time. Interest rates are currently 4% per annum, meaning that the present value of $10million is $8.9million and the present value of $8million is $7.1million.

What amount should Merigo Co record as revenue in the statement of profit or loss for the year ended 31 December 20X4?

Y Co has issued 100 shares to its directors for services rendered during the year ended 31 December 20X5. The value of the shares at the grant date (30 November 20X5) was $5 per share. At 31 December 20X5, the shares were valued at $6 per share. The accounting entry for the issue of the shares would be:

IAS 1 requires that an entity presents a statement of profit or loss and other comprehensive income. The other comprehensive income section may include

Bubble Co leased a machine from Balloon Co for 5 years commencing on 1 January 20X1. Bubble Co is required to make annual payments of $500, however as an incentive, Balloon Co has provided an initial six month rent free period. Balloon Co classifies the lease as an operating lease. What lease income should Balloon Co recognise in the year ended 31 December 20X1?

Dolphin Co acquired an 80% share of Whale Co on 1 April 20X1 for $5m. The fair value of the net assets of Whale Co on that date were $3m. The non controlling interest was valued at $0.8m, its fair value. Calculate goodwill based on the full goodwill method under IFRS 3.

IFRS 9 Financial Instruments allows the use of hedge accounting if certain criteria are met. Which of the following is NOT one of these criteria?

Which body of the IFRS Foundation provides a link between the Foundation and public authorities and also approves the appointment of IFRS Foundation Trustees?

In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, in which of the following circumstances should an expense for $450,000 be recognised?