1.

Increasingly the International Accounting Standards Board is requiring or allowing current cost
to be used in many areas of financial reporting.

Drexler acquired an item of plant on 1 October 20X2 at a cost of $500,000. It has an expected
life of five years (straight-line depreciation) and an estimated residual value of 10% of its
historical cost or current cost as appropriate. As at 30 September 20X4, the manufacturer of the
plant still makes the same item of plant and its current price is $600,000.

What is the correct carrying amount to be shown in the statement of financial position of
Drexler as at 30 September 20X4 under historical cost and current cost?

Historical cost Current cost

$ $

A 320,000 600,000

B 320,000 384,000

C 300,000 600,000

D 300,000 384,000

2. Which of the following criticisms does NOT apply to historical cost accounts during a period of
rising prices?

A They contain mixed values, some items are at current values, some at out-of-date values

B They are difficult to verify as transactions could have happened many years ago

C They understate assets and overstate profit

D They overstate gearing in the statement of financial position

3. Which of the following statements regarding IFRS 13 Fair Value Measurement is not true?

A Level 1 inputs are likely to be used without adjustment.

B Level 3 inputs are based on the best information available to market participants and are
therefore regarded as providing the most reliable evidence of fair value.

C Level 2 inputs may include quoted prices for similar (but not identical) assets and liabilities in
active markets.

D Level 1 inputs comprise quoted prices in active markets for identical assets and liabilities at
the reporting date.
4. Which of the following statements about a not-for-profit entity is valid?

A There is no requirement to calculate an earnings per share figure as it is not likely to have
shareholders who need to assess its earnings performance.

B The current value of its property is not relevant as it is not a commercial entity.

C Interpretation of its financial performance using ratio analysis is meaningless.

D Its financial statements will not be closely scrutinised as it does not have investors.

5. Which of the following ratios is likely to be most relevant for a local charity?

A Operating profit margin

B Current ratio

C Earnings per share

D Return on capital employed

6. The following information has been taken from Preston’s financial statements:

Preston has inventory turnover of six times.

The year-end receivables collection period is 42 days.

Cost of sales for the year was $1,690,000. Credit purchases for the year were $2,150,000.

Preston’s cash cycle at 31 December 20X7 was 68 days

All calculations should be made to the nearest full day, and the trading year has 365 days.

What is Preston’s trade payables collection period as at 31 December 20X7? ___________ days

7. Which TWO of the following explanations are unlikely to lead to an increase in receivables
collection period?

A A new contract with a large customer has been won following a competitive tender

B A large one-off credit sale has been completed just before the year end

C The company has recently expanded into a number of high street retail units

D Difficult economic conditions have led to some customers struggling to pay on time

E A website has been opened in the year for trade direct to the public

8. Which of the following items is unlikely to be considered a ‘one-off’ item which would impact
the comparability of ratios?
 A A new website selling direct to the public has meant that deliveries are now made to more
diverse geographical areas, increasing delivery costs

B A closure of a department has led to redundancies

C Sale of surplus property leading to a profit on disposal

D A storm in the year led to significant damage to the warehouse

9. Which ONE of the following is not a valid reason for a decrease in gross profit margin?

A A major customer renewed their contract during the year following a competitive tender
process

B New plant and equipment used in the manufacturing process has been purchased in the year,
which has increased the depreciation expense

C Delivery costs to customers have risen following an increase in the rates charged by couriers

D A national recession has led to sales prices being cut in response

10. The following information is available for the property, plant and equipment of Fry as at 30
September:

20X4 20X3

$000 $000

Carrying amounts 23,400 14,400

The following items were recorded during the year ended 30 September 20X4:

(i) Depreciation charge of $2.5 million

(ii) An item of plant, with a carrying amount of $3 million, was sold for $1.8 million

(iii) A property was revalued upwards by $2 million

(iv) Environmental provisions of $4 million relating to property, plant and equipment were
capitalised during the year

What amount would be shown in Fry’s statement of cash flows for purchase of property, plant
and equipment for the year ended 30 September 20X4?

$_____________'000

11. At 1 October 20X4, BK had accrued interest payable of $12,000.

 During the year ended 30 September 20X5, BK charged finance costs of $41,000 to its statement
of profit or loss, including unwinding a discount relating to a provision stated at its present value
of $150,000 at 1 October 20X4. The closing balance on accrued interest payable account at 30
September 20X5 was $15,000, and BK has a discount rate of 6%. How much interest paid should
BK show on its statement of cash flows for the year ended 30 September 20X5?

A $38,000

B $29,000

C $35,000

D $41,000

12. The following balances were extracted from N’s statement of financial position as at 31
December.

20X9 20X8

$000 $000

Deferred taxation 38 27

Current tax payable 119 106

Extract from statement of profit or loss for the year ended 31 December 20X9.

$000

Income tax expense 122

The amount of tax paid that should be included in N’s statement of cash flows for the
year ended 31 December 20X9 is:

$_____________ ,000

13. Which item would be NOT be shown in a statement of cash flow using the direct method?

A Cash payments to employees

B Cash paid to suppliers

C Cash sales

D Finance costs

14. IAS 7 Statement of Cash Flows sets out the three main headings to be used in a statement of
cash flows.
 Which TWO of the items below would be included under the heading 'Cash flows from
operating activities' according to IAS 7?

A Tax paid

B Purchase of investments

C Loss on disposal of machinery

D Purchase of equipment

15. At 1 January 20X0 Casey had government grants held in deferred income of $900,000. During
the year, Casey released $100,000 to the statement of profit or loss. At 31 December 20X0, the
remaining deferred income balance was $1,100,000.

Select the TWO amounts to be included in the statement of cash flows for Casey.

Amortisation of government grant Receipt of grant

Increase of 100,000 to cash generated from Cash received from grant $300,000 in investing
operations activities
Decrease of 100,000 to cash generated from Cash received from grant $100,000 in investing
operations activities

SECTION B:

The following scenario relates to questions 16–20

This objective test case question contains question types which will only appear in a
computerbased exam, but this question provides valuable practice for all students whichever
version of the exam they are taking.

Key figures from Franck’s financial statements for the year ended 30 September 20X2 are shown
below.

$000

Revenue 9,400

Profit from operations 1,500

Share capital 15,000

Retained earnings 3,000

Loans 2,000
 Franck has operated in the computer software industry for many years, gaining a reputation for
steady growth. It is interested in acquiring a company, Duik, which has recently been put up for
sale. Duik’s results can be seen below.

$000

Revenue 1,200

Loss from operations (600)

Share capital 24,000

Retained losses (1,200)

Loans 4,000

16. Calculate Franck’s return on capital employed (based on profit from operations) without the
acquisition of Duik to one decimal place.

__________%

17. What is the combined operating margin if Franck and Duik are combined?

A 9.6%

B 19.8%

C 14.2%

D 8.5%

18. Which, if any, of the following statements is/are correct?

Statement 1: If Duik is acquired, gearing will increase.

Statement 2: If Duik is acquired, return on capital employed will decrease.

A Statement 1 is correct

B Statement 2 is correct

C Both statements are correct

D Neither statement is correct

19. Which of the following is NOT a factor to consider in respect of Duik being a subsidiary of
another company?

A Sales or purchases between the parent and Duik may not be at market rates
 B Duik may get the benefit of shared assets with the parent company

C Duik’s individual company financial statements may contain errors

D Loans made from Duik’s parent may carry lower interest than market rates

20. What other information is Franck NOT likely to be able to look before entering into negotiations
for the acquisition of Duik?

A A breakdown of dividends paid by Duik historically

B Duik’s statement of cash flows

C A breakdown of Duik’s upcoming projects which are in progress

D The directors’ report outlining the performance for the year

Extracts from Depay’s financial statements for the year ended 30 September 20X2 are shown below.

Statement of profit or loss extract:

$000

Finance costs (60)

–––––

Profit before tax 142

Income tax expense (57)

–––––

Profit for the year 85

–––––

Statement of financial position extract:

20X2 20X1

$000 $000

Retained earnings 900 940

5% loan notes 515 500

Deferred tax liability 150 125

 Tax payable 30 40

Lease liabilities 300 310

The following information is relevant:

(i) Depay disposed of some land during the year, which had a remaining revaluation surplus at
disposal of $20,000.

(ii) $40,000 of the finance costs relate to the loan notes which are repayable at a premium,
making the effective rate of interest 8%. The remaining interest relates to the lease liabilities.

(iii) During the year, Depay received a dividend from a subsidiary company.

(iv) Depay acquired $70,000 of new assets under lease agreements during the year. Depay
makes annual payments under leases on 30 September each year.

21. What will be recorded in Depay’s statement of cash flows under dividends paid?

A $145,000

B $105,000

C $40,000

D $125,000

22. What will be recorded in Depay’s statement of cash flows under interest paid?

A $20,000

B $25,000

C $45,000

D $60,000

23. What will be recorded in Depay’s statement of cash flows under tax paid?

A $32,000

B $42,000

C $57,000

D $67,000

24. Where should the dividend received be shown in Depay’s statement of cash flows?

A Operating activities
 B Investing activities

C Financing activities

D It should not be recorded

25. How much should be shown within financing activities in respect of lease liabilities repaid?

A $10,000

B $30,000

C $100,000

D $80,000