Question 1

Which THREE of the following statements are true in relation to financial assets designated as fair value through profit or loss under IAS 39 Financial Instruments: Recognition andMeasurement?

Options :

A : Sharesin another entity held for short term trading purposes fall within this category.

B : Transaction costs in relation to these assets are expensed to profit or loss on acquisition.

C : Transaction costs in relation to these assets areadded to theinitial cost of the asset on acquisition.

D : The gainor loss on thesubsequent measurement of these assetsisrecordedwithin other comprehensive income.

E : The gain or loss on the subsequent measurement of these assets is recorded within profit for the year.

F : Oncethe asset has beensubsequentlymeasured to fair value an impairment review is undertaken.

Answer: A,B

Question 2

The tax benefit on a company's asset is 180,000 and the useful life on that asset is five years. The company creates a deferred tax provision to spread this benefit over the asset's useful life.

What entry is needed to reduce this deferred tax provision in the company's year two accounts?

Options :

A : DR Deferred tax liability (SOFP) 36,000

B : CR Deferred tax liability (SOFP) 36,000

C : DR Corporation tax (income statement) 36,000

D : CR Corporation tax (income statement) 36,000

E : DR Deferred tax liability (SOFP) 144,000

F : CR Deferred tax liability (SOFP) 144,000

G : DR Corporation tax (income statement) 144,000

H : CR Corporation tax (income statement) 144,000

Answer: A

Question 3

A group presents its financial statements in A$.

The goodwill of its only foreign subsidiary was measured at B$100,000 at acquisition. There have been no impairments to this goodwill.

Exchange rates (where A$/B$ is the number of B$'s to each A$) are as follows:

The value of goodwill to be included in the group's statement of financial position in respect of its foreign subsidiary for the year ended 31 December 20X4 is:

Options :

A : A$75,758.

B : A$66,667.

C : A$150,000.

D : A$132,000.

Answer: A

Question 4

JKL measure gearingas debt:equity, based on book values.At 31 December 20X5the ratio is 2:3 and JKL would like this to be 2:5.

Which of the following transactions individually would achieve this?

Options :

A : Bonus issue from the share premium account.

B : Revaluationof investment propertyto an increased fair value.

C : Repayment of a6 year termloan with the issue of 5 year redeemable debentures.

D : Issue of redeemable preference shares at par.

Answer: B

Question 5

AB and FGincorporated on 1 January 20X1 in the same country and had similar investment in net assets. Both entities are financed entirely by equity. In the year to31 December 20X1 both entitiesgenerated the same volume of sales.

Which of the following, takenindividually, would explainwhy AB's return on capital employed ratio was lower than that of FG?

Options :

A : AB revalued its non current assets upwards on 31 December 20X1; FG-s non current assets were stated at historic cost.

B : FG issuedbonds on 31 December 20X1; AB remains ungeared.

C : AB paid a lower dividend to its shareholders than FG in the year.

D : AB-s deferred tax provision at the year end ishigher than that of FG.

Answer: A

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