Questions and Answers of International Financial Reporting 7th

The Euro has become a reserve currency held by foreign central banks. Suppose that some of these banks held Euro reserves in the form of Euro notes kept in their vaults rather than in the form of
Suppose that some central banks sell large amounts of their reserves in U.S. dollars on the foreign exchange market to buy an equivalent amount of Euro. Is this action equivalent to a sterilized sale
Take the example of two countries that produce random amounts of rice and can trade claims on that product. Suppose the two countries also develop fisheries but cannot export the fishes because of
The ECB report stated on 2006: “Despite the overall increase in euro area long term bond yields, the euro area yield curve flattened in 2006. This is reflected in a corresponding decline of the
The following trial balance has been extracted from the accounting records of Walrus plc as at 31 March 2023:The following information is also available:1. Non-depreciable land was valued at
H Ltd began trading on 1 January 2019, preparing financial statements to 31 December each year. During 2022, the company decided to change its accounting policy with regard to one of its operating
Overtan plc has four operating segments. The following figures relate to the year to 30 April 2023. Similar information is provided to the chief operating decision maker on a monthly basis.General
McTavich plc has four operating segments. The following information relates to the year ending 31 March 2024:In addition to the external revenue shown above, Segment P also earned revenue of £4.6m
The profits after tax of D plc are as follows: On 1 October 2021, the company's issued share capital consisted of 150,000 ordinary shares. On 1 July 2023, the company made a 1 for 5 rights issue at
(a) In relation to property, plant and equipment, define the terms "depreciation", "depreciable amount", "useful life" and "residual value".(b) On 1 July 2022, a company which prepares its financial
(a) Distinguish between the cost model and the revaluation model for the measurement of property, plant and equipment subsequent to its initial recognition.(b) If the revaluation model is used,
The profit after tax of B plc for the year to 30 June 2023 is £217,500. The comparative figure for the year to 30 June 2022 was £188,000. On 1 July 2021, the company's issued share capital
The trial balance of Tanhosier Ltd as at 31 March 2023 is as follows:The following further information is available:(i) The share capital of the company consists of ordinary shares with a nominal
Floothair plc is a large international airline company with three operating segments:– International airline business– Domestic airline business– Non-airline business.The company reports
The statement of financial position of Urbax plc at 31 July 2024 (with comparatives for the previous year) is shown below:Statement of financial position at 31 July 2024(i) Equipment which had cost
Whilst preparing financial statements for the year to 30 June 2023, a company discovers that (owing to an accounting error) the sales figure for the year to 30 June 2022 had been understated by
(a) Define the term "borrowing costs" and explain the accounting treatment of such costs which is required by international standard IAS23.(b) During the year to 31 December 2022, a company started
On 1 January 2023, A Ltd bought all of the assets and liabilities of B Ltd for a price of £500,000. B Ltd then went into liquidation. The statements of financial position of these two companies just
An extract from a company's draft statement of comprehensive income for the year to 30 April 2024 is as follows:In January 2024, the company sold one of its business operations, incurring a loss of
Wilbern Ltd prepares financial statements to 30 June each year. On 1 March 2023, the company classifies a non-current asset as held for sale. The asset is eventually sold in July 2023. Calculate:(i)
(a) Identify the circumstances in which a cost formula may be used to establish the cost of inventories.(b) A company's inventories at 30 April 2024 include 11,000kg of a chemical which is utilised
On 1 January 2023, Glassmere Ltd (which prepares accounts to 31 December) enters into a lease for the use of an asset. Details of the lease agreement are as follows:Glassmere Ltd will obtain legal
Yeng and Sons Ltd prepares financial statements to 31 May each year. On 25 January 2023, the company classifies a disposal group as held for sale. This disposal group is eventually sold in August
(a) Distinguish between research expenditure and development expenditure.(b) Explain the accounting treatment required by IAS38 in relation to each of these two classes of expenditure.(c) During the
During the year to 31 July 2023, Bishop plc incurred research and development costs of £213,000. These costs comprise the following amounts:(a) Research costs of £29,200.(b) Costs of £67,900
IAS36 Impairment of Assets was issued in June 1998 and subsequently revised in March 2004 and in January 2008. Its main objective is to prescribe the procedures that should ensure that an entity's
On 1 July 2022, Helvelyn Ltd enters into a lease to acquire use of a machine. The lease agreement specifies that the company will make four lease payments, each of £45,303, on 30 June 2023, 2024,
Varnay Ltd is a manufacturing company that prepares annual financial statements to 31 December. In November 2022, the company announced a plan to close down one of its manufacturing operations and to
On 1 January 2023, Crimmock Ltd (which prepares accounts to 31 December) enters into a four-year lease of office machinery. The company is required to make four lease payments of £30,000 and these
On 1 April 2023, Endale Ltd (which prepares accounts to 31 March each year) enters into a lease of computer equipment. The company is required to make six half-yearly lease payments of £7,674 each
On 1 January 2023, Lessor plc leases a machine to a client. The lease term is three years and lease payments of £1,000 per month are required. The machine has a useful life of eight years and its
(a) International standard IFRS9 classifies financial assets into three main categories. Identify and explain each of these categories. Also explain the way in which each category of financial asset
A company which makes only one type of product incurs fixed production overheads of £240,000 during the year to 31 March 2024. Normal production capacity is 80,000 units per annum. Calculate the
(a) Explain what is meant by a "compound" financial instrument. Also explain the required accounting treatment of such an instrument.(b) On 1 April 2022, a company issues a £500,000 4% convertible
On 1 May 2023, a company which prepares financial statements to 30 April each year issues £750,000 of 3% loan stock at a discount of 5%. Issue costs are £13,175. Interest is payable on 30 April
Hullman Ltd prepares financial statements to 31 March each year. Consider each of the following situations and determine in each case whether or not a provision should be recognised in the company's
Kenistone Ltd prepares financial statements to 30 April each year. At 30 April 2023, the company is being sued by a customer who claims to have been harmed by one of the company's products. The case
The annual accounting date of Lawston plc is 31 May. The following matters need to be dealt with before the financial statements for the year to 31 May 2023 can be finalised:(a) The company is
A company prepares financial statements to 31 December each year. The following events occurred after 31 December 2022 but before the financial statements for the year to 31 December 2022 were
Triangle, a public listed company, is in the process of preparing its draft financial statements for the year to 31 March 2023. The following matters have been brought to your attention:(i) On 1
A company is contracted to construct an asset for a customer. The contract price is £5m but the contract stipulates that the company will receive an incentive payment of a further £1m if the asset
A company has 10,000 employees. Each employee is entitled to twenty days of paid holiday per calendar year. Up to five days of this entitlement may be carried forward and taken in the following year
(a) Distinguish between defined contribution pension plans and defined benefit pension plans.(b) A company's agreed contributions to a defined contribution plan for 2023 are £350,000. Of this sum,
Northerley plc prepares accounts to 31 December each year and has operated a defined benefit pension scheme for many years. At 31 December 2022, the present value of the defined benefit obligation
A summarised statement of comprehensive income of Scharp Ltd for the year to 30 June 2024 is shown below, together with the company's statement of financial position at that date (with comparatives
Otlay Ltd prepares accounts to 31 July each year. The company's financial statements for the year to 31 July 2022 showed a liability for current tax of £120,000. This was an estimate of the current
The statements of financial position of TT Ltd and UU Ltd as at 31 May 2023 are as follows:The following information is available:(i) TT Ltd acquired 70% of the share capital of UU Ltd on 31 May
On 1 January 2023, a company which prepares accounts to 31 December grants "share appreciation rights" to thirty of its employees. By virtue of these rights, the employees concerned will become
Klarke plc acquired a subsidiary company, Cameroon Ltd, on 1 October 2022. The statements of financial position of Klarke plc and Cameroon Ltd as at 30 September 2023 are as follows:Additional
At the start of business on 1 January 2024, the statements of financial position of A1 Ltd and A2 Ltd were as follows:On 1 January 2024, A1 Ltd acquired 100% of the share capital of A2 Ltd for
The statements of financial position of AA Ltd and of BB Ltd as at 30 April 2024 are as follows:The following information is relevant:(i) AA Ltd acquired the entire share capital of BB Ltd on 30
Consider each of the following assets and liabilities which appear in a company's statement of financial position at 30 April 2024:(a) A motor lorry which originally cost £100,000 is shown at its
On 31 December 2023, A3 Ltd paid £550,000 so as to acquire 80% of the ordinary share acapital of A4 Ltd. The statements of financial position of the two companies just after this transaction were as
The draft statement of comprehensive income of Harrington, a public company, for the year to 31 March 2024 shows an income tax expense of £55,000. The draft statement of financial position shows a
FF Ltd acquired 80% of the ordinary share capital of GG Ltd on 1 April 2020. On that date, the retained earnings of GG Ltd were £18,260. There are no preference shares. The statements of
PP Ltd acquired 65% of the ordinary share capital of QQ Ltd on 1 January 2023. There are no preference shares. The statements of comprehensive income of the two companies for the year to 31 December
On 1 January 2022, C Ltd lent £200,000 to D Ltd at an annual interest rate of 8%. No interest was paid until 31 December 2023, when the loan was repaid in full together with two years' interest
On 1 March 2023, YY Ltd acquired 85% of the ordinary share capital of ZZ Ltd. There are no preference shares. Both companies prepare financial statements to 31 October each year. Transactions between
The Managing Director of Wraymand plc has asked you to prepare the statement of comprehensive income for the group. The company has one subsidiary, Blonk Ltd. The statements of comprehensive income
The statements of financial position of M Ltd, P Ltd and Q Ltd as at 31 July 2023 are as follows:The following information is available:(a) On 31 July 2020, M Ltd paid £410,000 to acquire 90% of the
On 30 September 2019, K Ltd paid £140,000 to acquire 40% of the ordinary share capital of L Ltd (which became its associate). Draft financial statements for these two companies for the year to 30
The statements of financial position of M Ltd, P Ltd and Q Ltd as at 31 July 2023 are as follows:The following information is available:(a) On 31 July 2020, M Ltd paid £410,000 to acquire 90% of the
The financial statements of R Ltd for the year to 30 April 2024 are as follows:Dividends of £1,000 (preference) and £20,000 (ordinary) were paid in the year.Required:Insofar as the information
During the year to 31 December 2023, Tinderlake Ltd attempted to stimulate sales and increase its profits by reducing selling prices, holding larger inventories and giving customers longer credit.
Company X is an old-established clothing retailer. The company operates from expensive city centre premises and offers a high standard of customer service. The company's customers are willing to pay
A company's issued share capital is £2 million, comprising four million ordinary shares of 25p each and one million 8% preference shares of £1. An extract from the company's statement of
The issued share capital of Soresson plc consists of 1,000,000 ordinary shares of 50p each and 250,000 6% preference shares of £1 each. The preference shares are correctly classified as equity in
E plc has an issued share capital consisting of 800,000 ordinary shares. There are no preference shares. Some years ago, the company issued £1 million of 10% convertible loan stock, convertible in
An asset which cost £200,000 on 1 January 2021 is being depreciated on the straight line basis over a five year period with an estimated residual value of £40,000. The company which owns the asset
The following information relates to three companies that use the revaluation model in relation to intangible assets and prepare annual financial statements to 31 December:(a) Company W acquired an
Stenberg plc is preparing its financial statements for the year ended 30 November 2023. On 1 May 2023, the company purchased a factory for the manufacture of optical disks, paying £24,000,000. The
Bakewall Ltd prepares financial statements to 31 December each year. On 1 August 2022 the company closed down one of its operations and classified the corresponding cashgenerating unit (CGU) as held
On 1 October 2022, Conston Ltd (which prepares accounts to 30 September) leases an asset to a lessee. The lease term is five years and the lessee is required to make lease payments of £27,500 each
The main aim of standard IFRS16 Leases is to ensure that a lessee's financial statements provide a faithful representation of the lessee's financial position.(a) Outline the way in which IFRS16
The main activity of J&T Ltd is to buy old vehicles which are sold after converting them into a saleable condition. At 29 February 2024 (the end of the company’s financial year) J&T Ltd had
Parrison Ltd is a manufacturing company. The company's inventory at 30 June 2023 includes the following items of work in progress:The company complies with IAS2 Inventories.(a) Define the term
Laidlow plc is a construction contractor which prepares financial statements to 31 May each year. The following information relates to a contract with a customer which began during the year to 31 May
Petford plc prepares accounts to 31 December each year. On 1 January 2019, the company acquired a non-current asset at a cost of £256,000 and decided to depreciate this asset on the straight-line
The following trial balance extracts relate to Moston as at 30 June 2023:The following notes are relevant:1. Revenue includes a £3 million sale (which was made on 1 January 2023) of maturing goods.
Querk plc prepares its financial statements to 31 December each year. On 1 January 2023 the company bought £500,000 of 6% loan stock for £490,420. Interest is receivable on 31 December each year
The statement of financial position of Aadvaark Trading Ltd at 30 November 2023 (with comparatives for 2022) is as follows:Statement of financial position at 30 November 2023The following information
Stella plc is a fashion retailer with stores in large cities around the UK. The draft financial statements for the year to 30 April 2023 show a profit after tax of £698,500.The Finance Director of
The following trial balance relates to Quincy as at 30 September 2023:The following notes are relevant:1. On 1 October 2022, Quincy sold one of its products for £10 million (included in revenue in
Triangle, a public listed company, is in the process of preparing its draft financial statements for the year to 31 March 2023. On 1 April 2022, Triangle sold maturing inventory that had a carrying
The statements of financial position of CC Ltd and its two subsidiaries DD Ltd and HH Ltd as at 31 December 2022 are as follows:The following information is available:(a) CC Ltd acquired 60% of the
The following draft financial statements are available for Sipfalor plc for the year ended 31 May 2024:Statement of financial position at 31 May 2024Statement of profit or loss for the year to 31 May
The financial statements of JJ Ltd and KK Ltd for the year to 30 June 2023 are shown below: Statements of comprehensive income for the year to 30 June 2023Statements of changes in equity for the year
Prentiss plc operates a defined benefit pension plan and prepares financial statements to 31 March each year. The financial statements for the year to 31 March 2023 showed that the present value of
The following information relates to the draft financial statements of Mocha:Summarised statements of financial position as at 30 SeptemberThe numerals which are shown in bold type and in parentheses
On 1 April 2023, Pedantic acquired 60% of the equity share capital of Sophistic in a share exchange of two shares in Pedantic for three shares in Sophistic. The issue of shares has not yet been
On 1 October 2023 Pumice acquired the following non-current investments:(i) 80% of the equity share capital of Silverton at a cost of £13. 6 million(ii) 50% of Silverton's 10% loan notes at par(iii)
The following are the statements of financial position of two companies at 31 October 2023, the end of their most recent financial years:The following additional information is available:1) On 1
On 1 October 2023 Pumice acquired the following non-current investments:(i) 80% of the equity share capital of Silverton at a cost of £13. 6 million(ii) 50% of Silverton's 10% loan notes at par(iii)
On 30 September 2019, K Ltd paid £140,000 to acquire 40% of the ordinary share capital of L Ltd (which became its associate). Draft financial statements for these two companies for the year to 30
Quartile sells jewellery through stores in retail shopping centres throughout the country. Over the last two years it has experienced declining profitability and is wondering if this is related to
Western Trading plc is a limited company which uses a variety of component parts in its manufacturing operations. One of the company's main suppliers has recently gone out of business and therefore
In July 2024, Brenda is considering an investment in the ordinary shares of either Baker plc or Grant plc. Both companies operate in the same sector of industry and both prepare accounts to 30
A company's statement of financial position as at 31 December 2022 shows the following components of equity:The information given below is for the year to 31 December 2023. Assume that all items
You are provided with the following information relating to Brown plc:On 1 July 2023, Brown made a rights issue of one ordinary share for every five ordinary shares in issue at a price of £3.50 per
J Ltd has been trading for many years, preparing financial statements to 31 March each year. As from 1 April 2022, the company decided to adopt a new accounting policy in relation to revenue

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