Mock Exam - FR

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)
B)
C)
D)
$ 1,300,000
$ 1,600,000
$1,350,000
$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

1.5
Estimated costs to completion
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?
Profit or loss
Debit
Credit
$
108,000
Equity
B
Profit or loss
108,000
162,000
Liability
C
Profit or loss
162,000
54,000
Equity
D
Other comprehensive income

Equity
54,000
135,000
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
$7,000,000
$7,200,000
$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
Dr Decommissioning liability
$15,000
Cr Cost of asset
$15,000
Dr Profit or loss
$15,000
D
Dr Cost of asset
$15,000
$15,000
$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
Cr
Decommissioning liability
$60,000
Dr
$20,000
Cr
Revaluation surplus
$20,000
Dr
Revaluation surplus
$20,000
Cr
$20,000
Dr
Cost of plant
$12,000
Cr
$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
Net provision of $90,000
Net expense of $30,000
B
Net provision of $120,000
expense of $120,000
Income of $90,000
Net expense of $30,000
Asset of $90,000 provision of $120,000
D
Asset of $80,000 provision of $100,000
expense of $100,000
Income of $80,000
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.
$400,000
$200,000
$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
550,000
Cost of asset
550,000
B
750,000
Cost of asset
750,000
C
Release of decommissioning provision
1,000,000
1,000,000
550,000
Cost of asset
500,000
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
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
CR
2,100
DR
CR
2,200
Derivative financial asset
$
2,100
Cash
Cash
2,500
CR
300
Profit or loss
DR
2,500
DR
Profit or loss
200
CR
CR
2,200
D
DR
CR
2,100
CR
500
Cash
2,500
Cash
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
$860,000
$960,000
$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?
$
DR Profit or loss
40,000
CR Financial liability
40,000
B
DR Inventory
40,000
40,000
C
DR Inventory
60,000
40,000
CR Profit or loss
D
20,000
DR Financial liability
DR Profit or loss
CR Inventory
60,000
40,000
20,000
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
DR Deferred tax liability
8,000
2,400
CR Business combination reserve

2,400
B
8,000
8,000
2,400
CR Income tax expense

C
2,400
25,000
25,000
7,500
CR Business combination reserve

7,500
D
25,000
25,000
7,500
7,500
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
6,000
CR Inventory
20,000
DR Sales
80,000
DR Deferred tax asset
1,800
CR Cost of sales
74,000
1,800
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
$(30,000)
$40,000
$NIL
$NIL
$10,000
$70,000
$10,000
$20,000
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
$120,000
$128,960
$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
6,000
6,000
C

DR Deferred tax
2,000
600
2,000
D
600
DR Cost of sales
2,000
DR Deferred tax
600
CR Inventory
2,000
600
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?
Impairment loss
Debit
Credit
150,000
Accumulated depreciation and

Accumulated impairment losses
150,000
B
Impairment loss
200,000

200,000
C
Impairment loss
Revaluation surplus
25,000
75,000

100,000
D
Impairment loss
Revaluation surplus
100,000
100,000

200,000
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
$61,680
$128,960
$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
6,000
6,000
C

DR Deferred tax
2,000
600
2,000
D
600
DR Cost of sales
2,000
DR Deferred tax
600
CR Inventory
2,000
600
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
Cr Profit and loss
$300,000
$800,000
c. Dr Impairment loss
Cr Cost of assets
Cr Profit and loss
$800,000
$500,000
$300,000
d. Dr Provision for decom liability $500,000

Cr Profit and loss
$300,000
$800,000
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.
b.
c.
d.
84000
69000
64000
74000
Q33.
Bhupraj Ltd sold a fixed asset for $150 000. The following data are relevant.
o
o
o
o
o
o
Cost of asset sold $90 000

Capital gains tax cost base of asset $120 000
Statement of financial position carrying amount $70 000
Tax written-down amount of asset (tax cost less tax depreciation) 75
000
The tax rate, including tax on taxable capital gains, is 30 per cent
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
Cr Tax payable
$13500
c. Dr Tax Expense $15000
Cr DTL
Cr Tax payable
$1500
$13500
d. Dr DTA
$1500
Dr DTI
$13500
Cr Tax payable
$15000
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
o
o
o
o
o
Cost of asset $100 000

Statement of financial position carrying amount $80 000
Tax written-down value (tax cost less tax depreciation) $75 000
Capital gains tax is not taxable
Effective life of asset at 1 January 20Y0 10 years
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
Cr COGS
Cr Income tax expense
b. Dr Sale $9000
Dr DTA $720
Cr Inventory
Cr COGS
Cr DTI
$2400
$6600
$720
$2400
$6600
$720
c. Dr Sale $9000
Dr DTL $720
Cr Inventory
Cr COGS
$2400
$6600
$720
d. Dr COGS $9000
Dr DTA $720
Cr Inventory
Cr Sales
$2400
$6600
$720
June 20X2
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
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.
June 20X1
A
Dr Other Income
Dr DTA
$60,000
$18,000
Cr Plant
$60,000
Cr ITE
$18,000
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
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
Dr Other Income
$60,000
Dr Depreciation
Dr ITE
$6,000
$18,000
Cr Plant
$60,000
Cr Acc.Depreciation
$6,000
Cr DTA
$18,000
June 20X2
A
Dr
Retained Earnings(Opening Balance)
$37,800
Dr
DTA
$14,400
Dr
Acc.Depreciation
$12,000
Dr
ITE
$1,800
Cr
Plant
$60,000
Cr
Depreciation
$6,000
Dr
Other Income
$37,800
Dr
DTA
$14,400
Dr
Acc.Depreciation
$12,000
Dr
ITE
$1,800
Cr
Plant
$60,000
Cr
Depreciation
$6,000
Dr
Plant
Dr
DTA
$14,400
Dr
Acc.Depreciation
$12,000
Dr
ITE
$1,800
Cr
Cr
Depreciation
Dr
Plant
Dr
ITE
$14,400
Dr
Acc.Depreciation
$12,000
Dr
DTA
$1,800
Cr
Cr
Depreciation
$37,800
$60,000
$6,000
$37,800
$60,000
$6,000
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.
June 20X2.
A
Dr
Plant
$40,000
Dr
Income Tax Expense
Dr
Depreciation
Cr
Other Income
$10,500
$5,000
$40,000
Cr
DTL
$10,500
Cr
Acc.Depreciation
$5,000
Dr
Other Income
$40,000
Dr
Income Tax Expense
$10,500
Dr
Depreciation
$5,000
Cr
Plant
$40,000
Cr
DTL
$10,500
Cr
Acc.Depreciation
$5,000
Dr
Plant
$40,000
Dr
Income Tax Expense
Dr
Acc.Depreciation
Cr
Other Income
Cr
DTL
$10,500
Cr
Depreciation
$5,000
Dr
Plant
$40,000
Dr
DTL
$10,500
Dr
Depreciation
$5,000
Cr
Other Income
$40,000
Cr
Income Tax expense
$10,500
Cr
Acc.Depreciation
$10,500
$5,000
$40,000
$5,000
June 20X3.
A
Dr
Retained Earnings (Opening Balance) $40,000
Dr
Depreciation
$10,000
Cr
Plant
$24,500
Cr
DTL
$7,500
Cr
Income Tax Expense
$3,000
Cr
Acc.Depreciation
$15,000
Dr
Plant
$40,000
Dr
Depreciation
$10,000
Cr
Cr
DTL
Cr
Income Tax Expense
Cr
Acc.Depreciation
$15,000
Dr
Plant
$40,000
Dr
Depreciation
$10,000
Cr
Cr
Income Tax expense
Cr
DTL
$3,000
Cr
Acc.Depreciation
$15,000
Dr
Plant
$40,000
Dr
Acc.Depreciation
$10,000
Cr
Cr
DTL
Cr
Income Tax Expense
Cr
Depreciation
$7,500
$3,000
$7,500
$7,500
$3,000
$15,000
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 20X5, 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 riskadjusted 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.

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MOCK EXAM FINANCIAL REPORTING

(Total for 45 marks)

Total contract costs in year

What figure for attributable profit should be recognised in the

Other comprehensive income

7) An entity has nuclear power plant and a related decommissioning

8) An entity has a nuclear power plant and a related decommissioning

Statement of financial position

Net provision of $90,000

Net expense of $30,000

Net expense of $30,000

Asset of $90,000 provision of $120,000

Redundancy costs of $600,000

In accordance with the requirements of IAS 37 Provisions, Contingent

LMN Ltd should not recognise a deferred tax asset or liability

LMN Ltd should recognise a deferred tax asset of $21,000 only

Derivative financial asset

Derivative financial asset

Other comprehensive income

16) A company owns inventories of 20,000 gallons of oil which cost

CR Business combination reserve

DR Deferred tax liability

CR Income tax expense

DR Deferred tax liability

CR Business combination reserve

DR Deferred tax liability

CR Income tax expense

18) On 1 September 20X2 a parent sold inventory with a cost of $60,000to

DR Income tax expense

CR Deferred tax liability

DR Deferred tax asset

CR Income tax expense

DR Deferred tax asset

CR Income tax expense

DR Income tax expense

In accordance with IAS 28 Investments in Associates and Joint Ventures

DR Share of profit or loss of associate

DR Share of profit or loss of associate

DR Share of profit or loss of associate

The carrying amount of the building is $900,000;

In accordance with IAS 16 Property, Plant and Equipment and IAS 36

Accumulated depreciation and

Accumulated depreciation and

Accumulated depreciation and

Accumulated impairment losses

CR Share of profit or loss of associate

DR Share of profit or loss of associate

DR Share of profit or loss of associate

d. Other comprehensive income for the translation of the foreign operation

Dr Cost of asset $200,000

b. Dr Impairment expense $200 000

Dr Revaluation surplus $100 000

d. Dr Provision for decom liability $500,000

Cost of asset sold $90 000

Which of the following journal entries should be processed to record this

Cost of asset $100 000

a. Dr Other comprehensive income (Revaluation surplus) $3 1500

d. Dr Other comprehensive income (Revaluation surplus) $30 000

Retained Earnings(Opening Balance)

Retained Earnings(Opening Balance)

Retained Earnings(Opening Balance)

Income Tax Expense

Income Tax Expense