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advanced financial accounting
Questions and Answers of
Advanced Financial Accounting
What are the pros and cons of fair value accounting for all financial instruments?
Can each of the following items be designated as amortized cost investments?(a) AA Company acquires a bond issued by BB Corporation. The terms of the bond provide the holder with an option to require
The following events pertained to First Capital Company.Required1. Calculate the fair value of the bond at the following dates:(a) 31 December 20x0(b) 31 December 20x1(c) 31 December 20x2 2. Prepare
Using the information in P8.8 , assume that Evergreen’s functional currency is the dollar. Prepare the financial statements of Evergreen for the year ended 31 October 20x3 in dollars. Show the
Using the same fact pattern as in P8.18 . Instead of disposing 70% of the Singapore subsidiary, the US parent company sells 10% of its shareholding interests to a third party for US$4,500,000. The US
An US parent company with functional and presentation currency of US$ acquired 35% of a Singapore joint venture on 31 December 20x2 at cash consideration of S$800,000. The fair value of the net
Co Z’s functional currency is the Singapore dollars. It entered into the following transactions in United States dollars during the financial year ended 31 December 20x5.Required(a) Show journal
Explain the rationale for the accounting treatment of compound financial instruments under IAS 32. Do you agree with IAS 32’s stance?
Superior Corporation’s summary statement of financial position as at 31 December 20x2 is as follows.Additional information(a) Non-current liability was made up solely of a $10,000,000 convertible
On 1 July 20x1, Carmen Corporation purchased two bonds, Bond A and Bond B, whose issuers had different credit ratings. At the date of purchase, the effective interest rate for Bond A was 6% and the
A Co has as its functional currency the Singapore dollar (S$) and enters into the following transaction. The business model of A Co is to hold investments to collect contractual cash flows that are
Repeat part 1 in P9.10 if the investment is also held for sale, in addition to collecting contractual cash flows. Ignore expected credit loss estimation in this question.Data from P9.10A Co has as
Refer to the information in P8.3 . In 20x2, Minor Company decided that its functional currency was the local currency, the FC. In 20x3, due to changes in the economic environment, which resulted in a
Blue Sky Corporation incorporated a wholly owned subsidiary, Evergreen Enterprise, in country X with an initial paid-up capital of FC 1,500,000 on 1 November 20x1. This was subsequently increased by
One of Company Y’s business units transacts in the FC. However, the functional currency of Company Y is the dollar. The following transactions are denominated in the FC and should be translated to
Refer to P6.7 . Assume that the presentation currency of Y Co is the FC while the functional currency is the dollar ($). P Co’s investment in Y Co is FC 1,980,000. The exchange rates are as
StarTech Ltd, whose functional currency is the Singapore dollar, has two subsidiaries: Maysub, which is located in Malaysia, and Ozsub, which is located in Australia. The financial statements of the
Refer to the information provided in P8.12 . Assume that the functional currency of the Malaysian subsidiary is the Malaysian ringgit and the functional currency of the Australian subsidiary is the
Co Y is an 80%-owned subsidiary of USCo. The functional currency of Co Y is the Singapore dollar. The functional currency of USCo is the US dollar. The financial statements kept in Singapore dollars
An US parent company with functional and presentation currency of US$ has a wholly owned Singapore subsidiary, which it incorporated in 20x2. The share capital of the Singapore subsidiary at the
Co A is a foreign subsidiary of Parent Co. For purposes of consolidation, the foreign currency financial statements of Company A have to be translated from its functional currency (the USD) to the
Explain what a mandatorily redeemable preference share (MRPS) is. What is the accounting principle underlying the treatment of mandatorily redeemable preference shares?
Explain how financial assets and financial liabilities are classified under IFRS 9.
Explain why changes in the fair value of financial assets classified as carried at fair value through profit or loss differ from those classified as FVOCI.
Atticus Ltd, a Singapore company, whose functional currency is the Singapore dollar, purchased 100,000 shares of Scotts Corporation (a foreign company listed in country X whose currency is the LC) at
Co B is the issuer of a tranche of mandatorily redeemable convertible preference shares (MRCPS) that was issued on the following terms:Required1. Identify the elements included in the MRCPS.2.
The financial statements of P Co and its subsidiaries and associate show below:Additional information1. During 20x2, X Co recognized a litigation settlement of $200,000 in respect of the provision
The financial statements of P Co and its subsidiaries and associate are as follows:Additional information1. D Co was originally a subsidiary of P Co when P Co purchased an initial investment of 60%
The financial statements of P Co and its subsidiaries and associate are as follows:Additional information1. D Co was originally a subsidiary of P Co when P Co purchased an initial investment of 60%
The financial statements of P Co and its subsidiaries and associate are as follows:Additional information1. The fair values of identifiable net assets of Y Co were close to their book values on 1
The financial statements of P Co and its subsidiaries and associate are as follows:Additional information1. The fair values of identifiable net assets of Y Co were close to their book values on 1
Explain what a “functional” currency is and discuss its significance.
Explain the conceptual basis for the closing rate method and the remeasurement method.
How is a change in the functional currency of a foreign operation accounted for?
A Singapore company has a subsidiary in England and another subsidiary in the United States. Both subsidiaries maintain their books and accounting records in their respective currencies. The
If Apollo’s functional currency is the dollar, Apollo’s translated net profit is:(a) $700,000 (b) $600,000 (c) $500,000 (d) $480,000 On 31 December 20x3, Zeus Ltd, whose functional currency is
If Company Y’s functional currency is the dollar, and Company Y’s financial statements are to be consolidated into Solitaire’s group financial statements, what is the net exposed amount in FC
PT Corporation, a Singapore Company, has subsidiaries in China and Australia. Both subsidiaries have intercompany transactions with other group members and with other companies. The functional
On 31 December 20x4, Continental Ltd, whose functional currency is the dollar ($), incorporated a wholly owned foreign subsidiary, Four Seas Corporation, which purchased the assets of another company
On 31 December 20x1, Major Corporation, whose functional and presentation currency is the dollar, acquired Minor Company, which operated in country X whose currency is the FC, by purchasing the
Refer to the information provided in P8.3 . Assume that the functional currency of Minor Company is the dollar. Translate the financial statements of Minor Company for the purpose of consolidation
Asian Macro Ltd, a Singapore company, has an 80% interest in AMCO Inc in the United States, and a 40% interest in OZCO Corporation in Australia. The financial statements of AMCO and OZCO for the
On 31 December 20x4, Magnum Corporation, whose functional and presentation currency is the dollar ($), acquired 75% of the ordinary share capital of Rockford Company, which was situated in a foreign
Alpar Corporation formed a wholly owned subsidiary, Besub Enterprise, in country X (whose currency is the FC) on 31 December 20x0 with an initial paid-up capital of FC 10,000,000. Besub reported
If a subsidiary sells equipment to its parent and recognizes a loss on sale in the previous year and the loss is not indicative of an impairment loss, which of the following is true? True/False(a) A
On 1 January 20x3, P Co acquired 90% of the ownership interest of Y Co for $2,000,000. At that date, the following relate to Y Co:It was estimated that the intellectual property had a remaining
P Co acquired a controlling interest in 90% of X Co. The financial statements of P Co and X Co and other relevant details are shown below. All figures are in dollars, unless as otherwise
Refer to the information in P5.2.Required1. If Jewel could legitimately structure the relationship with Opal such that it could equity account rather than consolidate Opal’s financial statements,
On 1 January 20x1, P Co acquired 70% of S Co by issuing 1,000,000 new shares to the owners of S Co. The fair value of consideration paid by P Co to acquire S Co was $2,100,000. The fair value of
On 1 January 20x3, P Co acquired a 90% interest in Y Co. On that date, the fair value of non-controlling interests in Y Co was $180,000. A year later, on 1 January 20x4, P Co acquired a 30% interest
P Co acquired a 90% ownership interest in Y Co on 1 January 20x3. At the date of acquisition, the share capital of Y Co was $1,000,000, and the retained earnings balance was $500,000. The book values
P Co acquired an interest in Y Co and Z Co. Details of the acquisitions are as follows:Inventory of Y Co at acquisition date was sold to third parties within six months of acquisition. Intangible
The financial statements of P Co, Y Co, and Z Co are shown below.P acquired an interest in Y Co and Z Co as follows:Additional information:(a) On 1 January 20x5, Y Co transferred machinery to P Co at
P Co acquired Y Co and Z Co as follows:Additional information:(a) P Co transferred excess inventory to Y Co as follows:(b) On 1 January 20x6, Y Co transferred its fixed asset to P Co at a transfer
Prism Co has “control” over Silver Co and “significant influence” over Amber Co. The financial statements for 20x6 are shown below. All figures are in dollars, except otherwise
Prism Co has “control” over Silver Co and “significant influence” over Amber Co. The financial statements for 20x6 are shown below. All figures are in dollars, except otherwise indicated.Fair
P Co acquired interests in X Co and Z Co. Their current financial statements are shown below. All figures are in dollars, unless otherwise indicated.Fair and book values of identifiable net assets of
The financial statements of P Co, its subsidiary Silver Co, and its associate Ruby Co for the current year ended 31 December 20x6 are shown below.Fair and book values of identifiable net assets of
P Co acquired an interest in Sapphire Co and Amber Co. The financial statements for the current year ended 31 December 20x6 and other relevant details are shown below:Fair and book values of
P Co acquired interests in Z Co. The current financial statements are shown below. All figures are in $ unless as otherwise indicated.Fair and book values of identifiable net assets of Z Co as at
P Co acquired interests in Amber Co. The current financial statements are shown below. All figures are in dollars, unless as otherwise indicated.Fair and book values of identifiable net assets of
P Co and T Co formed a special purpose entity Z with the sole purpose of acquiring its output of extracted minerals. P Co and T Co agreed on the contractual sharing of power that required unanimous
Refer to P6.19 . If the joint arrangement is a joint venture with ownership interests of 50% each in Z, show the equity accounting entries and the final balance in the Investment in Z for the year
P Co acquired interests in Silver Co and Amber Co. Their current financial statements are shown below. All figures are in $ unless as otherwise indicated.Fair and book values of identifiable net
P Co acquired interests in Silver Co and Amber Co. Their current financial statements are shown below. All figures are in $ unless as otherwise indicated.Fair and book values of identifiable net
P Co acquired interests in Silver Co and Amber Co. Their current financial statements are shown below. All figures are in $ unless as otherwise indicated.Fair and book values of identifiable net
P Co acquired interests in X Co and Z Co. Their current financial statements are shown below. All figures are in $unless as otherwise indicated.Fair and book values of identifiable net assets of each
Information pertaining to the group structure of A Ltd is as follows:Extracts of the 20x4 financial statements of the companies are shown below:Required1. Prepare the necessary elimination and
Extracts of financial statements of P, X, Y and Z for the year ended 31 December 20x5 are as follows:Additional information:(a) All intercorporate investments were acquired prior to 1 January 20x5. Y
On 2 January 20x1, P Ltd paid $316,000 to acquire 160,000 ordinary shares (issued at $1 per share) in SA Ltd. At that point, SA Ltd’s retained earnings were $100,000. SA Ltd had an issued share
Refer to P7.3 . If SA had only “significant influence” over SB, show how the journal entries will differ from P7.3 above.Data from P7.3On 2 January 20x1, P Ltd paid $316,000 to acquire 160,000
Refer to P7.3 . If SA and SB are only associate companies in the hierarchical structure, show the necessary journal entries that need to be passed by P in its financial statements using the equity
The following information relates to the acquisition of S Co, A Co, and B Co.Additional information(a) Intangible assets of S Co had an estimated useful life of five years from the date of
The details of acquisition of Y Co, Z Co, and W Co are shown below.Additional information(a) Inventory of Y Co at the date of acquisition was disposed of in 20x4 while that of W Co was disposed of in
The financial statements of P Co, Y Co, Z Co, and W Co for the year ended 31 December 20x5 are shown below:Additional information(a) Amortization of fair value adjustments:(i) Undervalued inventory
P Co had direct and indirect interests in the following companies as at 1 January 20x0:On 1 January 20x0, a transfer of fixed assets was made as follows:RequiredShow the equity accounting and
P acquired S in two successive purchases resulting in control on 31 December 20x0. Details of the purchases and other information relating to S are shown below:Book value of net identifiable assets
Consider the following alternative scenarios relating to an investor company P Co’s investment in another company, known as X Co.Scenario: P Co increases ownership interest in X Co from 60% to
Scenario: P Co decreases ownership interest in X Co from 95% to 70%RequiredDetermine the amounts of the following items (if any) arising at the date of the most recent transaction in each scenario:1.
Scenario: P Co increases ownership interest in X Co from 40% to 60%RequiredDetermine the amounts of the following items (if any) arising at the date of the most recent transaction in each scenario:1.
Scenario: P Co decreases ownership interest in X Co from 80% to 50%RequiredDetermine the amounts of the following items (if any) arising at the date of the most recent transaction in each scenario:1.
The financial statements of P Co and its subsidiaries and associate show below:Additional information1. During 20x2, X Co recognized a litigation settlement of $200,000 in respect of the provision
The financial statements of P Co and its subsidiaries and associate are shown below:Additional information1. Intangible assets of B Co had an indefinite useful life. On 31 December 20x6, the annual
The financial statements of P Co and its subsidiaries and associate are shown below:Additional information1. Intangible assets of B Co had an indefinite useful life. On 31 December 20x6, the annual
Distinguish between operating exposure and accounting exposure.
What are the two types of accounting exposure and how do they arise?
Explain the treatment of translation differences under the translation process (closing rate method) and the remeasurement method.
If the functional currency of a foreign subsidiary is the local currency, is there any translation adjustment arising from goodwill on acquisition of a foreign subsidiary?Explain.
If Apollo’s functional currency is the FC, which of the following statements holds?(a) A translation gain of $480,000 is recorded in income.(b) A translation loss of $480,000 is taken to Foreign
What is the gain or loss in dollars that arose in 20x1 arising from the movement in net exposed items?(a) Remeasurement loss of $3,700(b) Remeasurement gain of $3,700(c) Translation loss taken to
On 31 December 20x1, Quixote Company, whose functional and presentation currency is the dollar, acquired 30% of the share capital of Sanchoz Company, whose functional currency is the FC, for
On 2 January 20x4, P Co acquired controlling interest in 90% of Topaz Co through the following transfers to Y Co, the former owners of Topaz. P Co expects significant synergies from Topaz Co’s
P Co obtained control of S Co on 1 July 20x6, which has two divisions: Trading and Manufacturing. Each is a “cash-generating unit” as defined by IAS 36 Impairment of Assets. P Co chose to measure
On 1 January 20x5, Company A acquired all the 800,000 ordinary shares in Company B for $900,000 in cash. The carrying amount or book value of net assets of Company B as at the date of acquisition
An adjustment needs to be made to the unrealized profit included in the inventory balance to avoid the understatement of group profits and the overstatement of group assets. True/False
Revenue is recognized in group accounts only when the control of inventory are transferred to a third party. True/False
In a downstream sale, when a parent sells to its subsidiary, non-controlling interests’ share of current profit is reduced by the latter’s share of the unrealized profit. True/False
If an item purchased at a marked-up price from a group company in the previous year remains unsold at the end of the current year, group inventory and gross profit will have to be reduced. True/False
Assuming the situation in CQ5.10 , group depreciation expense in each subsequent year of sale will(a) Not be subject to any adjustment. True/False(b) Be the sum of the parent’s and subsidiary’s
If a subsidiary sells equipment to its parent in the current year at a loss because the value of the equipment is impaired, which of the following is true?(a) A consolidation adjustment to reverse
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