FR — Financial Reporting

Section A

BioGenix Ltd, a pharmaceutical startup, has spent $2 million on researching a new synthetic protein. The directors want to capitalize this cost as an intangible asset to improve the appearance of the statement of financial position, even though the project has not yet demonstrated technical feasibility.

Which fundamental qualitative characteristic of financial information would be breached if BioGenix capitalizes these research costs?

Section A

Which of the following bodies is primarily responsible for issuing International Financial Reporting Standards (IFRS)?

Section A

A fire destroyed the warehouse of Phoenix Traders. The following information is available:
Opening inventory: $20,000
Purchases up to the date of the fire: $80,000
Sales up to the date of the fire: $120,000
Phoenix Traders operates with a standard gross profit margin of 25%.

What is the estimated cost of the inventory destroyed in the fire?

Section A

A sole trader suspects an employee has been stealing cash from the till.
Opening cash balance: $500
Cash sales for the period: $15,000
Cash banked: $12,000
Cash paid for expenses: $1,800
Closing cash balance in the till: $400

How much cash is missing? (Enter numbers only)

Section A

Jupiter PLC issues 100,000 ordinary shares of $0.50 nominal value at a price of $1.20 per share.

What is the correct double entry to record this issue?

Section A

A company makes a 1 for 4 bonus issue of shares. Prior to the issue, the company had 200,000 $1 ordinary shares and a share premium account balance of $60,000. The company wishes to utilize the share premium account as much as possible.

What is the impact of this bonus issue on the total equity of the company?

Section A

Saturn PLC has 500,000 ordinary shares of $0.25 in issue. It makes a rights issue of 1 new share for every 5 existing shares at a price of $1.50 per share. All rights are taken up.

What is the increase in the share premium account as a result of this rights issue? (Enter numbers only)

Section A

When preparing a Statement of Cash Flows using the indirect method, how should an increase in trade receivables and a profit on disposal of a non-current asset be treated in the 'Cash flows from operating activities' section?

Section A

During the year, a company sold a machine for cash. The machine originally cost $80,000 and had accumulated depreciation of $55,000. The company recorded a loss on disposal of $5,000 in the statement of profit or loss.

What is the cash inflow from investing activities regarding this disposal? (Enter numbers only)

Section A

Which TWO of the following are classified as adjusting events after the reporting period under IAS 10?

Section A

A sole trader takes goods from inventory for personal use. The goods originally cost $400 and had a selling price of $600.

What is the correct double entry to record this transaction?

Section A

According to IFRS 10 Consolidated Financial Statements, which of the following is NOT a required element to establish 'control' over an investee?

Section A

Alpha Co owns 30% of the ordinary shares of Beta Co and has representation on Beta Co's board of directors. Alpha Co does not have control over Beta Co.

How should Alpha Co account for its investment in Beta Co in its consolidated financial statements?

Section A

When preparing a consolidated statement of financial position, how are the pre-acquisition retained earnings of a subsidiary treated?

Section A

Extracts from a company's statement of financial position show:
Ordinary share capital: $200,000
Retained earnings: $350,000
10% Bank loan (repayable in 5 years): $150,000
Trade payables: $80,000

What is the company's gearing ratio? (Calculate as Debt / (Debt + Equity) and enter as a percentage to one decimal place, e.g., 25.5)

Section A

A company has an operating profit (Profit Before Interest and Tax) of $120,000. Its finance costs for the year are $30,000, and its tax expense is $20,000.

What is the company's interest cover ratio?

Section A

Which of the following actions would directly improve a company's working capital cycle (i.e., shorten the cash conversion cycle)?

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

Calculate the Goodwill arising on the acquisition of Apex Robotics. (Enter numbers only)

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

What is the value of the Non-Controlling Interest at the date of acquisition?

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

Calculate the value of the Non-Controlling Interest at the year-end (31 December 20X5). (Enter numbers only)

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

What adjustment is required to Consolidated Revenue in respect of the intra-group trading?

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

What is the total amount of unrealized profit (Provision for Unrealized Profit - PUP) in inventory at the year-end? (Enter numbers only)

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

How is the Provision for Unrealized Profit (PUP) accounted for in the consolidated statement of financial position?

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

Calculate the Consolidated Retained Earnings at 31 December 20X5. (Enter numbers only)

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

If Apex Robotics had sold the goods to Zenith Heavy Industries (an upstream sale) instead of Zenith selling to Apex, how would the NCI calculation at year-end be affected?

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

At the year-end, Zenith's receivables include $50,000 owed by Apex. Apex's payables include $50,000 owed to Zenith.

What is the correct consolidation adjustment for these balances?

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

Suppose Apex had sent a cheque for $10,000 to Zenith on 30 December 20X5 to clear part of its debt, but Zenith did not receive it until 3 January 20X6.

How should this 'cash in transit' be treated in the consolidated financial statements at 31 December 20X5?

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

The fair value of Apex's net assets at acquisition ($2,000,000) included a property with a fair value $200,000 higher than its carrying amount in Apex's own books.

How does this $200,000 fair value adjustment affect the consolidated financial statements at the date of acquisition?

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

Following on from the previous question, the property with the $200,000 fair value uplift had a remaining useful life of 20 years at the acquisition date.

What is the additional depreciation charge required in the consolidated statement of profit or loss for the year ended 31 December 20X5? (Enter numbers only)

Section B - Case 1: Group Consolidations

Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.

At the year-end, an impairment review was conducted, and it was determined that Goodwill had been impaired by $50,000. Because NCI is measured at fair value, how is this impairment allocated?