Recording transactions and events

**Section A** SolarTech Manufacturing recently upgraded its primary assembly line. Which TWO of the following expenditures should be classified as capital expenditure?

**Section A** Oceanic Logistics provides shipping services. They issue an invoice for $10,000 to a client. Oceanic offers a 5% trade discount to this client, and an additional 2% early settlement discount if payment is made within 10 days. Oceanic expects the client to take the early settlement discount. At what amount should Oceanic Logistics initially record the revenue?

**Section A** Quantum Computing Ltd has 500 units of a specific microchip in inventory. The original cost was $120 per unit. Due to a recent technological advancement, these chips can now only be sold for $105 per unit. To sell them, Quantum must spend $10 per unit on repackaging and $5 per unit on delivery. What is the total value of this inventory to be included in the financial statements? (Enter numbers only)

**Section A** During a period of consistently rising purchase prices (inflation), a company switches its inventory valuation method from First-In, First-Out (FIFO) to Continuous Average Cost (AVCO). What will be the effect of this change on the company's reported Gross Profit and Closing Inventory values?

**Section A** Metro Builders Ltd purchased a piece of heavy machinery on 1 January 20X1 for $100,000. It had an estimated useful life of 10 years and no residual value. The company uses straight-line depreciation. On 31 December 20X3, the machinery was revalued to $85,000. What is the balance on the revaluation surplus account immediately after this revaluation?

**Section A** On 1 January 20X4, Crimson Textiles bought a weaving machine for $60,000. It was being depreciated over 5 years on a straight-line basis with a $5,000 residual value. On 1 January 20X6, management revised the remaining useful life to 4 years (from that date) and revised the residual value to $2,000. What is the depreciation charge for the year ended 31 December 20X6? (Enter numbers only)

**Section A** Under IAS 38 Intangible Assets, which TWO of the following criteria must be met before development costs can be capitalized?

**Section A** Titan Electronics sells appliances with a one-year warranty. Based on past experience, 5% of appliances will have major defects costing $100 to repair, 15% will have minor defects costing $30 to repair, and 80% will have no defects. During the year, Titan sold 10,000 appliances. What is the expected value of the warranty provision required at the year-end? (Enter numbers only)

**Section A** Silverstone Mining is currently facing a lawsuit from environmental regulators. The company's legal team advises that it is 'possible' but not 'probable' that the company will lose the case and have to pay a fine of $500,000. How should this be treated in the financial statements according to IAS 37?

**Section A** At 1 January 20X8, Delta Merchants had an allowance for receivables of $4,500. During the year, a debt of $1,200 was written off as irrecoverable. At 31 December 20X8, total trade receivables were $85,000. Delta wishes to maintain an allowance for receivables of 5% of the year-end balance. What is the charge to the statement of profit or loss for receivables expense for the year ended 31 December 20X8?

**Section A** Under IFRS 15 Revenue from Contracts with Customers, what is the core principle for recognizing revenue?

Titanium Forge Co, a heavy manufacturing firm, recently incurred the following costs: 1. $50,000 for a major overhaul of a blast furnace that extends its useful life by 5 years. 2. $5,000 for routine monthly maintenance of the furnace. 3. $12,000 to repaint the factory exterior. What is the total amount of capital expenditure?

A business sells goods for $1,740, which is inclusive of sales tax at 20%. What is the net sales revenue amount that should be credited to the sales account? (Enter numbers only, no currency symbols)

Global Wholesale Distributors offers a 10% trade discount for bulk orders and a 5% settlement discount if payment is made within 14 days. A customer places a bulk order with a list price of $10,000. It is highly probable the customer will take the settlement discount. At what amount should the initial revenue be recorded?

According to IAS 2 Inventories, how should inventory be valued?

During a period of consistently rising prices (inflation), which inventory valuation method will result in the highest reported gross profit?

A company purchases a machine on 1 April 20X1 for $60,000. It has an estimated useful life of 5 years and a residual value of $5,000. The company uses the straight-line method of depreciation and charges depreciation on a pro-rata basis (monthly). What is the depreciation expense for the year ended 31 December 20X1? (Enter numbers only)

A property was purchased for $200,000 and has accumulated depreciation of $40,000. The company decides to revalue the property to its current market value of $250,000. What is the correct double entry to record the revaluation?

Under IAS 38 Intangible Assets, which of the following criteria MUST be met for development costs to be capitalized? (Select all that apply)

A company pays its annual rent of $24,000 in arrears on 31 March each year. The company's financial year end is 31 December. What is the accrual for rent at 31 December 20X5?

A company pays an annual insurance premium of $12,000 on 1 September 20X2 for the year ending 31 August 20X3. The company's financial year end is 31 December 20X2. What is the prepayment amount to be recorded in the statement of financial position at 31 December 20X2? (Enter numbers only)

At the start of the year, the allowance for receivables was $5,000. During the year, an irrecoverable debt of $2,000 was written off. At the year-end, trade receivables are $100,000, and management decides a 4% allowance is required. What is the total charge to the statement of profit or loss for receivables expense?

Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which of the following conditions is NOT required to recognize a provision?

A company is being sued for $500,000. The company's lawyers advise that it is possible (a 30% chance) that the company will lose the case. How should this be treated in the financial statements?

Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000. What is the correct valuation for Closing Inventory to be included in the financial statements? (Enter numbers only)

Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000. Calculate the depreciation expense for Plant & Machinery for the year. (Enter numbers only)

Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000. What is the Accumulated Depreciation balance at 30 Sept 20X6? (Enter numbers only)

Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000. What is the Carrying Amount of Plant & Machinery to be shown in the Statement of Financial Position? (Enter numbers only)

Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000. What is the required closing balance for the Allowance for Receivables? (Enter numbers only)

Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000. What is the charge to the Statement of Profit or Loss for the movement in the allowance for receivables? (Enter numbers only)

Titan Steelworks is valuing its year-end inventory of steel beams. According to IAS 2 Inventories, which TWO of the following costs should be INCLUDED in the cost of inventory?

A fashion retail company has 1,000 winter coats in inventory at year-end. The coats cost $50 each to manufacture. Due to an unseasonably warm winter, the expected selling price has dropped to $45 each. The company pays a 10% sales commission on all sales. What is the total value of this inventory in the Statement of Financial Position?

A transport company purchases a delivery truck on 1 April 20X1 for $80,000. It has an estimated useful life of 5 years and a residual value of $10,000. The company uses the straight-line method of depreciation and charges depreciation on a pro-rata basis. The financial year ends on 31 December. What is the depreciation charge for the year ended 31 December 20X1? (Enter numbers only)

A real estate company owns a building that originally cost $500,000 and has accumulated depreciation of $100,000. The company decides to revalue the building to its current market value of $650,000. What is the correct double-entry to record this revaluation?

Pharma R&D Co is working on a new drug. During the year, it spent $300,000 on initial research and $500,000 on development. The development phase meets all the criteria for capitalization under IAS 38 Intangible Assets. Which TWO of the following statements are correct regarding the accounting treatment?

A telecom company pays its annual rent of $120,000 in arrears on 31 March each year. The company's financial year end is 31 December. What is the correct accrual or prepayment entry required at 31 December 20X5?

A software company pays an annual server hosting subscription of $36,000 in advance on 1 September each year. The company's financial year end is 31 December. What is the value of the prepayment to be recognized in the Statement of Financial Position at 31 December? (Enter numbers only)

A mining company operates a quarry. Under local legislation, it is legally required to restore the landscape once mining operations cease in 10 years. The estimated cost of restoration is $5 million. How should this be accounted for in the current year's financial statements?

Section A SolarTech PLC manufactures solar panels. During the year, they introduced a 2% early settlement discount for customers who pay within 10 days. A customer purchases panels with a list price of $50,000. SolarTech expects the customer to take the discount. Under IFRS 15, how much revenue should SolarTech recognize at the point of sale?

Section A Which TWO of the following statements regarding the capitalization of borrowing costs under IAS 23 are correct?