ACCA FR — Financial Reporting Practice Exam 5

Section A

ByteFlow, a rapidly growing tech startup, has recently developed a proprietary algorithm. The directors wish to capitalize the entire $500,000 spent on the project to boost the statement of financial position, arguing that this provides the most 'relevant' information to potential venture capitalists. However, $200,000 of this was spent on early-stage research before technical feasibility was established.

According to the IASB's Conceptual Framework, which fundamental qualitative characteristic is primarily compromised if ByteFlow capitalizes the entire $500,000?

Section A

GlobalCare, a cross-border NGO, is adopting IFRS for the first time to satisfy international donors. During the transition, the finance team encounters a unique transaction involving cross-border grant matching that is not specifically addressed by any current IFRS Standard.

According to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, what is the FIRST source the management of GlobalCare should refer to when developing an accounting policy for this transaction?

Section A

AgriYield operates a large-scale commercial farm. On 1 January 20X4, AgriYield purchased a specialized harvester for $120,000, with an estimated useful life of 10 years and nil residual value. The company uses the revaluation model for this class of asset. On 31 December 20X5, the harvester was revalued to $104,000.

What is the amount to be recognized in Other Comprehensive Income (OCI) as a revaluation surplus on 31 December 20X5?

Section A

BioGene is a biotechnology firm developing a new drought-resistant seed. During the year ended 31 December 20X6, BioGene incurred the following costs:

• $300,000 on initial laboratory research to identify potential genetic markers.
• $500,000 on testing the chosen seed prototype in controlled greenhouse environments (technical feasibility was established on the date this phase began, and BioGene has the resources and intent to complete and sell the seeds).
• $100,000 on training sales staff to market the new seed.

What total amount should BioGene capitalize as an intangible asset under IAS 38?

Section A

CityWater, a public utility company, operates a water treatment plant which is treated as a single Cash Generating Unit (CGU). Due to new environmental regulations, the plant's capacity has been restricted. The carrying amounts of the CGU's assets are: Goodwill $4m, Property $10m, Plant & Equipment $6m. The recoverable amount of the CGU is determined to be $15m.

What is the carrying amount of the Property after allocating the impairment loss?