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advanced financial accounting

Questions and Answers of Advanced Financial Accounting

Company B holds the following financial instruments. State and explain the IFRS 13 Levels 1 to 3 classification of each financial instrument.(a) Convertible bond issued by a private company.(b) A
On 2 January 20x0, SummerBee Corporation Ltd issued at par value a five-year convertible bond with a face value of $10,000,000. The bond carried a coupon rate of 2%. Interest on the bond was payable
On 1 January 20x1, Delphi Company issued 4% convertible bonds with a face value of $10,000,000 at par. The bond matured on 31 December 20x5. The bond was convertible into ordinary shares of Delphi
Wello Contractors purchased construction equipment with an invoiced price of $800,000 from Capital Manufacturers on 1 January 20x1, and issued a two-year note to Capital Manufacturers. The interest
Bank X gives 20 loans of $100,000 each, a total of $2,000,000 to company A. At initial recognition, the expected loss rate based on historical trend for company A is one default in the first year,
Company K purchased $1 million face value of bonds issued by company J on 1 July 2015 at purchase cost of $1.05 million. The bond had coupon of 6% payable semi-annually and matures on 30 June 2017.
Company X purchased $2 million face value of bonds issued by company Y on 2 January 2013 at purchase cost of $1.94 million. The bond had coupon of 5% payable annually, and matures on 31 December
From a risk perspective, how is a forward contract different from a futures contract?
How does the position of an option holder differ from that of an option writer?
A firm that intends to hedge against commodity price risk has to decide whether to use a forward contract or an options contract to hedge the risk. What factors should the firm consider before
In what situations can a hedged item be either a fair value hedge or a cash flow hedge? Explain why each type of hedge is applicable to the situation.
How is a swap similar to a forward contract?
Both a firm commitment and a forecasted transaction result in a future transaction. Why is a hedge of a firm commitment a fair value hedge and a hedge of a forecasted transaction a cash flow hedge?
How is a hedge of a net investment in a foreign entity accounted for?
The put option premium per share on 30 September 20x1 was:(a) $0(b) $0.05(c) $0.20(d) $0.15 On 31 July 20x1, Atlas Company wrote (sold) a put option on 10,000 Listco shares. The option premium
Assume that Atlas Company did not make any journal entries relating to the put option. Atlas Company would have to report the following gain/(loss) on the put option on 30 September
The amount of gain (loss) taken to equity in respect of the put option for the year ended 31 December 20x5 was:(a) $0 (b) Gain of $38,000 (c) Gain of $12,000 (d) Gain of $50,000 (e) None of the above
The amount of fair value changes taken to equity as at 31 December 20x5 was:(a) $10,000 (b) $20,000 (c) $60,000 (d) $70,000 (e) None of the above Alpha Corporation had the following transactions in
If Gemini has a floating rate loan and enters into a pay-fixed-and-receive-floating interest swap transaction with the same principal amount, which of the following statements is the most appropriate
On 1 April 20x6, ABC Company entered into a contract to sell 10,000 shares in XYZ Company for delivery on 30 June 20x6 at a price that is not below $3.00 per share and not higher than $4.00 per
What is the gain/(loss) to be recognized in the income statement for 20x4 under IFRS 9?(a) $800,000(b) 0(c) $(100,000)(d) $(200,000)(e) $100,000 On 1 October 20x4, SingCo committed to purchase
What should be the total cost of the equipment as at 1 February 20x5 under IFRS 9?(a) $12,800,000(b) $12,500,000(c) $11,500,000(d) $12,300,000 On 1 October 20x4, SingCo committed to purchase
What is the overall net cash inflow/(outflow) arising from the forward contract?(a) $300,000(b) ($300,000)(c) ($12,800,000)(d) ($12,500,000 On 1 October 20x4, SingCo committed to purchase machinery
If XYZ Company purchased the call option primarily to benefit from an expected rising market value of the call option, which of the following statements best describes the appropriate accounting
Ignore the previous question. On 1 April 20x4, XYZ Company entered into a commitment to sell 10,000 units of securities in S Company at a fixed price for delivery on 30 June 20x4. If the call option
On 1 November 20x5 Company X, a manufacturer of gold jewelry and ornaments, had an inventory of 10,000 ounces of gold ingots that cost $780 an ounce. The price of gold was $950 an ounce. Company X
On 1 March 20x3, East-West Airlines Inc purchased an at-the-money call option on 100,000 barrels of jet-fuel oil with an exercise price of $40 per barrel for delivery on 31 May 20x3. East-West paid a
On 30 November 20x1, Systech Ltd entered into a non-cancellable contract to buy 1,000 shares of Fastrack Ltd for $5,000 on 31 July 20x2. On the same date, Systech Ltd purchased a put option on 1,000
On 1 March 20x3, ABC Corporation, whose functional currency is the dollar, was informed that it had been successful in its tender for a contract to supply plant and equipment to an overseas customer.
Atticus Ltd, whose functional currency is the dollar, purchased 100,000 shares of Scotts Corporation (a foreign company listed in country X whose currency is the LC) at a price of LC 2.80 per share
The following information pertains to Alpha Corporation whose functional currency is the dollar.RequiredAssume that Alpha Corporation designates the forward contract as a fair value hedge of the
Refer to P10.6. Assume that Alpha Corporation designates the forward contract as a cash flow hedge of the foreign exchange risk related to the transaction. Prepare journal entries for the period 1
On 30 September 20x5, Singco entered into a non-cancellable contract to purchase inventory for 100,000 euros to be delivered on 31 January 20x6 with payment due on 31 March 20x6. Singco was concerned
Lexco Company’s functional currency is the dollar. On 1 December 20x1, Lexco entered into a four-month forward contract to sell FC (foreign currency) units. Terms of the contract are as
Alfalfa Company’s functional currency is the dollar. On 30 June 20x1, it entered into a forward exchange contract to purchase FC 100,000 at the forward rate of $1.077 for delivery on 30 June 20x2.
Cusso Corporation had a bank loan of $50,000,000, which was to be repaid at the end of 20x5. The loan carried an interest rate based on the three-month London Interbank Offer Rate (LIBOR) plus 150
The information is the same as in P10.13 except that on 1 October 20x1, the management of Eastern Company acquired 50 options contracts that gave the holder the right but not the obligation to sell
The functional currency of K Co is the US dollar. On 1 January 2010, the management of K Co approved a decision to buy equipment for S$1,400,000. The equipment does not meet the conditions of a
A Co has as its functional currency the Singapore dollar (S$) and enters into the following transaction. The business model of A Co is to hold investments to collect contractual cash flows and for
In your view, is tax expense an “expense” or a “distribution of income”? Explain.
Describe, in your own words, the methodology of deferred tax accounting.
Company A recorded a profit before tax of $2,500,000 for the year ended 31 December 20x3. The tax rate for 20x3 was 24% while that of 20x2 was 22%. Deferred tax liability as at 31 December 20x2 was
Co X was incorporated on 1 January 20x0. Details of assets and liabilities of Co X as at 31 December 20x1 were as follows:(a) Fixed assets Depreciation is on a straight line basis. The capital
Refer to P11.5. If the financial statements for 20x2 showed a pre-tax loss of $600,000 instead of a profit of $750,000, what would be the journal entry for tax expense for 20x2? Assume that there is
Co Q requires your assistance to complete its deferred tax and tax expense calculation for the year ended 31 December 20x2. The following schedules are provided to you below:(a) Tax computation for
Prism Co, a magazine publisher, reported net profit before tax of $1,300,000 for the year ended 31 December 20x1.The only disallowed expenses were the depreciation on private motor vehicles of $7,000
Co XYZ recognized issued compound financial instruments in accordance with IAS 32 Financial Instruments:Presentation, and purchased investment property in accordance with IAS 40 Investment Property
Explain the rationale for reporting diluted earnings per share.
The capital structure of ASIA Corporation as at 31 December 20x5 is as follows:Additional information(a) ASIA Corporation reported net profit after tax of $2,800,000 for the year ended 31 December
The following information pertains to Causeway Company for the year ended 31 December 20x1:(a) Causeway Company’s net profit attributable to ordinary shareholders for the year 20x1 was
The capital structure of Model Company on 31 December 20x2 is as follows:The preference shares were convertible into ordinary shares in the ratio of 1,000 preference shares for 500 ordinary shares.
Explain the following terms:(a) Grant date(b) Measurement date(c) Vesting date(d) Vesting conditions(e) Forfeiture rate
On 1 July 20x3, Alpha Company introduced a share option plan. Under the plan, one million share options with an estimated fair value of $4.3 million was granted to selected employees. The options
On 1 January 20x1, ACO Corporation awarded fixed options to 100 employees to acquire 10,000 shares of the company under the following terms:(a) The exercise price was $5 per share (same as the market
In the first year of incorporation (2013), Co A’s functional currency was the US dollars. Co A’s economic environment changed in 2014 and its new functional currency from 15 September 2014 is the
Co Y is an associate of Investor Co. Co Y’s functional currency is the USD. Translate the USD financial statements into Investor Co’s presentation currency, the SGD.Co Y revalued its fixed assets
Explain how the fair values of the debt and equity components in a compound financial instrument should be derived under IAS 32.
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

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