Questions and Answers of International Financial Reporting 7th

On 1 January 2022, G plc issued £2 million of 7% convertible loan stock. The holders of this stock may choose to convert the stock to ordinary shares on 1 January 2026, 2027 or 2028. The number of
The following information relates to Raneb plc and Ahmose plc. The most recent financial year of each company ended on 31 October 2023.Raneb plcThe issued share capital of Raneb plc consists of
The following issue has arisen during the preparation of the draft financial statements of Skeptic plc for the year ended 31 March 2023: As from 1 April 2022, the directors of the company have
The IASB Conceptual Framework sets out the criteria for the recognition of assets and liabilities in financial statements. For each of the following scenarios explain with reasons whether an asset or
Assuming that today's date is 1 January 2023, calculate the present value of each of the following (using a discount rate of 7% in each case):(a) £50,000 to be received on 1 January 2026(b)
Baxen is a public limited company that currently uses local accounting standards for its financial reporting. However, the board of directors of Baxen is considering the adoption of IFRS in the near
On 1 January 2019, a company which prepares accounts to 31 December grants "share appreciation rights" to 30 of its employees. By virtue of these rights, the employees concerned will become entitled
The following are the statements of financial position of two companies at 31 October 2020, the end of their most recent financial years:The following additional information is available:1) On 1
The International Accounting Standards Board (IASB) develops international standards by means of a "due process". The main stages of this process are listed in the Preface to International Financial
International standard IAS1 lists various "general features" relating to the presentation of financial statements. These are:(a) Fair presentation and compliance with international standards(b) Going
(a) Define the term "property, plant and equipment".(b) When should an item of property, plant and equipment be recognised as an asset and when should it be derecognised?(c) Which of the following
(a) Distinguish between research and development within the context of IAS38 Intangible Assets.(b) State, with reasons, how the following expenditure would be dealt with in the financial statements
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
At the end of an accounting period, a company has each of the following:(a) A present obligation which will probably require an outflow of resources(b) A present obligation which will probably not
List the four main categories of employee benefits which are identified by international standard IAS19 and give examples of each category.
Petersford plc prepares accounts to 31 December each year. On 1 January 2015, the company acquired a non-current asset at a cost of £256,000 and decided to depreciate this asset on the straight-line
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 2019 are £350,000. Of this sum,
(a) With regard to defined benefit pension plans, explain each of the following terms:(i) Defined benefit obligation (ii) Current service cost(iii) Interest cost (iv) Actuarial gains and
Northerley plc prepares accounts to 31 December each year and has operated a defined benefit pension scheme for many years. At 31 December 2018, the present value of the defined benefit obligation
The following trial balance extracts relate to Moston as at 30 June 2020:The following notes are relevant:1. Revenue includes a £3 million sale (made on 1 January 2020) of maturing goods. The
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 2019 showed that the present value of
The following trial balance relates to Quincy as at 30 September 2019:The following notes are relevant:1. On 1 October 2018, Quincy sold one of its products for £10 million (included in revenue in
Otlay Ltd prepares accounts to 31 July each year. The company's financial statements for the year to 31 July 2018 showed a liability for current tax of £120,000. This was an estimate of the current
(a) Distinguish between current tax and deferred tax.(b) Distinguish between permanent differences and temporary differences.(c) Explain how temporary differences between accounting profits and
Consider each of the following assets and liabilities which appear in a company's statement of financial position at 30 April 2020:(a) A motor lorry which cost £100,000 is shown at its written down
The draft statement of comprehensive income of Harrington, a public company, for the year to 31 March 2020 shows an income tax expense of £55,000. The draft statement of financial position shows a
The summarised statement of comprehensive income of Scharp Ltd for the year to 30 June 2020 is shown below, together with the company's statement of financial position at that date (with comparatives
The following information has been taken from the financial records of Saptah plc for the financial year ended 31 October 2019:Required:Prepare a clear calculation of the net cash from operating
The statement of financial position of Urbax plc at 31 July 2020 (with comparatives for the previous year) is shown below:Notes:(i) Equipment which had cost £30,000 during the year to 31 July 2017
The statement of financial position of Aadvaark Trading Ltd at 30 November 2020 (with comparatives for 2019) is as follows:The following information is also available:(i) Freehold property which was
The following draft financial statements are available for Sipfalor plc for the year ended 31 May 2020:Note:Sipfalor plc presents a separate statement of profit or loss for the year (as above) and a
Explain each of the following terms which are defined in international standard IAS7:(a) Cash (b) Cash equivalents(c) Operating activities (d) Investing activities(e) Financing activities.
(a) Distinguish between the direct method and the indirect method of calculating the amount of cash generated from an entity's operations.(b) List the main steps in the accounting work required if
Explain the effect (if any) of each of the following transactions on an entity's profit or loss and on its cash flows:(a) The purchase of new equipment which is then depreciated over its useful
The statements of financial position of TT Ltd and UU Ltd as at 31 May 2020 are as follows:The following information is available:(i) TT Ltd acquired 70% of the share capital of UU Ltd on 31 May
Klarke plc acquired a subsidiary, Cameroon Ltd, on 1 October 2019. The statements of financial position of Klarke plc and Cameroon Ltd as at 30 September 2020 are as follows:Additional data:(i) The
At the start of business on 1 January 2020, the statements of financial position of A1 Ltd and A2 Ltd were as follows:On 1 January 2020, A1 Ltd acquired 100% of the share capital of A2 Ltd for
The statements of financial position of CC Ltd and its two subsidiaries DD Ltd and EE Ltd as at 31 December 2019 are as follows:The following information is available:(a) CC Ltd acquired 60% of the
On 31 December 2019, A3 Ltd paid £550,000 to acquire 80% of the ordinary share capital of A4 Ltd. The statements of financial position of the two companies just after this transaction were as
The statements of financial position of AA Ltd and BB Ltd as at 30 April 2020 are as follows:The following information is relevant:(i) AA Ltd acquired the entire share capital of BB Ltd on 30 April
(a) Distinguish between nominal financial capital maintenance, general purchasing power maintenance and physical capital maintenance.(b) A company began trading on 1 August with capital of £400,000,
On 1 January 2018, C Ltd lent £200,000 to D Ltd at an annual interest rate of 8%. No interest was paid until 31 December 2019, when the loan was repaid in full together with two years' interest
On 1 March 2020, 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
(a) Explain the term "holding gain" in relation to inventories.(b) On the first day of an accounting period, a company acquired inventories at a cost of £60,000. Two-thirds of these inventories were
(a) List the main indicators of a hyperinflationary economy, as specified by IAS29.(b) Explain why IAS29 takes the view that conventional financial statements are not useful in a hyperinflationary
PP Ltd acquired 65% of the ordinary share capital of QQ Ltd on 1 January 2019. There are no preference shares. The statements of comprehensive income of the two companies for the year to 31 December
FF Ltd acquired 80% of the ordinary share capital of GG Ltd on 1 April 2016. On that date, the retained earnings of GG Ltd were £18,260. There are no preference shares. The statements of
The Managing Director of Wraymand plc has asked you to prepare the statement of comprehensive income for the group. The company has one subsidiary undertaking, Blonk Ltd. The statements of
The financial statements of JJ Ltd and KK Ltd for the year to 30 June 2020 are shown below:The following information is also available:1. On 1 July 2016, JJ Ltd paid £3,153,000 to acquire 75% of the
The statements of financial position of M Ltd, P Ltd and Q Ltd as at 31 July 2020 are as follows:The following information is available:(a) On 31 July 2017, M Ltd paid £410,000 to acquire 90% of the
On 30 September 2016, K Ltd paid £140,000 to acquire 40% of the share capital of L Ltd (which became its associate). Draft financial statements for these two companies for the year to 30 September
On 1 October 2019 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)
(a) Explain what is meant by the terms "associate" and "significant influence".(b) Explain the equity method of accounting which is used to account for an investment in an associate. Also explain how
(a) Explain what is meant by the term "joint arrangement".(b) Distinguish between joint operations and joint ventures. Outline the accounting treatment prescribed for each of these by standard IFRS11.
On 1 July 2018, a UK company formed a foreign subsidiary in a country which has the Florin (Fn) as its currency. The summarised financial statements of this subsidiary for the years to 30 June 2019
Dalle Ltd is a UK company which has the pound sterling as its functional currency. The company has the following transactions in Euros (€) during the year to 31 March 2020:1 January 2020
During the year to 31 December 2019, Tinderlake Ltd attempted to stimulate sales and increase its profits by reducing selling prices, holding larger inventories and giving customers longer credit.
Western Trading plc is a company which uses a variety of component parts in its manufacturing operations. One of the company's suppliers has recently gone out of business and therefore Western is now
The financial statements of R Ltd for the year to 30 April 2020 are as follows: Note: Dividends of £1,000 (preference) and £20,000 (ordinary) were paid in the year.Required: Insofar as
The following information relates to Z plc:(a) Alan owns 27% of the ordinary shares of Z plc. Elaine is his wife.(b) Z plc owns 60% of the ordinary shares of Y plc.(c) Z plc owns 15% of the ordinary
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 September each year.
Related party relationships are a common feature of commercial life. The objective of IAS24 Related Party Disclosures is to ensure that financial statements contain the necessary disclosures to
On 1 January 2018, G plc issued £2 million of 7% convertible loan stock. The holders of this stock may choose to convert the stock to ordinary shares on 1 January 2022, 2023 or 2024. The number of
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
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.. In the year to 31 March 2020, the company's profit after tax
(a) Explain why the users of financial statements may find a segment report useful. (b) Identify the entities which lie within the scope of IFRS8 Operating Segments and which must therefore
(a) Explain the term "operating segment" as used in IFRS8. (b) List the main tests which determine whether or not a particular operating segment is reportable.
Overtan plc has four operating segments. The following figures relate to the year to 30 April 2020. Similar information is provided to the chief operating decision maker on a monthly
McTavich plc has four operating segments. The following information relates to the year ending 31 March 2020: In addition to the external revenue shown above, Segment P earned revenue of £4.6m
Floothair plc is a large international airline company with three operating segments: – International airline business – Domestic airline business – Non-airline
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
IFRS8 requires disclosure of four main classes of information. Identify these classes and list the main disclosures required for each class.
The profit after tax of B plc for the year to 30 June 2020 is £217,500. The comparative figure for the year to 30 June 2019 was £188,000. On 1 July 2018, the company's issued share capital
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
Querk plc prepares financial statements to 31 December each year. On 1 January 2019 the company bought £500,000 of 6% loan stock for £490,420. Interest is receivable on 31 December each year and
Outline the structure and functions of the following bodies:(a) The IFRS Foundation (b) The International Accounting Standards Board(c) The IFRS Advisory Council (d) The IFRS
Explain the term "generally accepted accounting practice" (GAAP). Is there just one GAAP which is accepted worldwide? If not, why not?
A company adopts international standards for the first time when preparing its financial statements for the year to 30 June 2020. These financial statements show comparative figures for the previous
The term "regulatory framework" refers to the body of rules and regulations which apply to the financial statements of limited companies. This framework includes company law, accounting standards and
IFRS1 First-time Adoption of International Financial Reporting Standards lays down the procedure which must be followed when an entity prepares its first financial statements that comply with IFRS
(a) State the objective of general purpose financial reporting.(b) Identify the main classes of information that should be presented in general purpose financial reports.(c) Identify the primary
Define each of the five elements of financial statements and state the circumstances in which an element should be recognised in the financial statements. Also explain why each of the following items
Identify and explain the qualitative characteristics of useful financial information, distinguishing between fundamental characteristics and enhancing characteristics.
The Conceptual Framework states that an entity's choices of measurement bases and capital maintenance concept determine the accounting model used in the preparation of the financial statements.
The qualitative characteristics of relevance, faithful representation and comparability which are identified in the IASB Conceptual Framework are some of the attributes that make financial
Assuming that today's date is 1 January 2020, calculate the present value of each of the following (using a discount rate of 7% in each case):(a) £50,000 to be received on 1 January 2023(b)
The main role of the International Accounting Standards Board (IASB) is to devise and publish International Financial Reporting Standards (IFRS Standards) and revised versions of International
The following trial balance has been extracted from the books of Walrus plc as at 31 March 2020:The following information is also available:1. Non-depreciable land was valued at £300,000 on 31 March
The trial balance of Tanhosier Ltd as at 31 March 2020 is as followsThe following further information is available:(i) The share capital of the company consists of ordinary shares with a nominal
(a) Distinguish between current assets and non-current assets.(b) Distinguish between current liabilities and non-current liabilities.(c) Explain why these distinctions are useful.
Explain the purpose and structure of a statement of changes in equity.
Whilst preparing its financial statements for the year to 30 June 2020, a company discovers that (owing to an accounting error) the sales figure for the year to 30 June 2019 had been understated by
Chilwell Ltd prepares financial statements to 31 October each year. The company's trial balance at 31 October 2019 is as follows:The following information is also available:1. Land is non-depreciable
H Ltd began trading on 1 January 2016, preparing financial statements to 31 December each year. During 2019, the company decided to change its accounting policy with regard to one of its operating
Elite Leisure is a private limited liability company that operates a single cruise ship. The ship was acquired on 1 October 2011. Details of the cost of the ship's components and their estimated
J Ltd has been trading for many years, preparing financial statements to 31 March each year. As from 1 April 2019, the company decided to adopt a new accounting policy in relation to revenue
(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 2019, a company started
Accounting standard IAS16 Property, Plant and Equipment makes a number of recognition, measurement and disclosure requirements with regard to tangible noncurrent assets. The term "non-current asset"
(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,

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