IPRO EDUCATION

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ACCA MOCK
FINANCIAL REPORTING

Jun 21

Time allowed
3 hours and 15 minutes
This paper is divided into three sections:
Section A ‐ All 15 questions are compulsory and MUST be attempted
Section B ‐ All 15 questions are compulsory and MUST be attempted
Section C ‐ BOTH questions are compulsory and MUST be attempted
Formulae sheet, present value and annuity tables are on pages 3, 4
and 5

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Section A – All 15 questions are compulsory and must be attempted.

Each question is worth 2 marks.
1. Strength Co produces and sells cement. The following issues have been
highlighted during the finalisation phase of financial statements:
Issue 1: A former employee of the company has started litigation for unfair
dismissal. Strength Co has consulted a professional law firm in this regard. The firm
has suggested the likelihood of plaintiff’s victory to be less than probable.
Issue 2: The mining of limestone, used in the manufacturing of cement, has caused
environmental pollution to the surrounding villages. Strength Co has a valid license
to manufacture cement in the designation location and no anti-pollution legislation
exists in the regime. However, given the environment-friendly slogan of Strength
Co, it has contributed almost $200,000 every year to rectify such damage.
In accordance with IAS 37 - Provisions, Contingent Liabilities and Contingent
Assets, which of these issues should be recorded by creating a provision in the
financial statements?
A) 1 Only
B) 2 Only
C) Both 1 and 2
D) Neither 1 nor 2
2. Technology Co has undertaken the following two research and development
projects:
Project 1: After incurring $50 million, the business has been able to develop
solarpowered smartphone. However, the cost of material to be used in each
smartphone has turned out to be far higher than planned. Consequently, there are
doubts over commercial viability of the project. Nevertheless, Technology Co can
utilise these findings to make other commercially viable solar-powered electronic
products.
Project 2: This project was started to develop specialised bio-medical equipment,
having ability to detect all types of cancers in a single scan. A sum of $75 million
has so far been incurred on the project. The management of Technology Co
considers this project to be commercially viable and, given the preliminary results,
there is a high chance of successful development. However, to be completed, the
project requires another $125 million. Technology Co has planned an IPO next year
which, management believes, can generate the funds to complete this project.

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In accordance with IAS 38 - Intangible Assets, which of these projects can be

capitalised?
A) 1 Only
B) 2 Only
C) Both 1 and 2
D) Neither 1 nor 2
3. Roy Co has imported a paper shredder machine. The details of different costs
associated with this purchase are as follows:
$
Purchase price $60,000
Inbound freight costs $4,000
Import duties $2,000
Employee training to operate machine $1,000
Two-year maintenance contract $3,000
Calculate the amount to be capitalized in the initial carrying value of the machine.
A) $64,000
B) $68,000
C) $66,000
D) $69,000
4. Which of the following statements about IAS 41 - Agriculture is correct?
A) Bearer plants are included in the scope of IAS 41.
B) Land related to agricultural activity is included in the scope of IAS 41.
C) If the fair value cannot be measured reliability, biological assets can be measured
at cost less accumulated depreciation and impairment losses.
D) If the fair value cannot be measured reliability, agricultural produce can be
measured at cost less accumulated depreciation and impairment losses.

5. IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, requires

certain disclosures in respect of provisions. Which of the following disclosures is
not required by IAS 37?
A) Reconciliation for each class of provision.
B) Prior year reconciliation.
C) Description of the nature and timing for each class of provision.
D) Description of uncertainties and assumptions for each class of provision.

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6. Alpha Co acquired 20% of Beta Co’s 500,000 ordinary shares for $4 per share
on 1 July 20X6.
Beta Co’s profit after tax for the year ended 31 December 20X6 and 31 December
20X7 was $100,000 and $250,000 respectively. Beta Co also declared a dividend of
$20,000 for ordinary shareholders on 15 December 20X7. The cheque for dividend
was actually received and deposited by Alpha Co on 15 January 20X8.
Assuming that Beta Co is an associate of Alpha Co, calculate the amount to be
included in the consolidated financial statements as at 31 December 20X7.
A) $456,000
B) $466,000
C) $460,000
D) $464,000
7. Huge Co acquired 60% of the equity shares of Tiny Co for $500,000 on 1 July
2016. The information about retained earnings of both companies are as follows:
30 June 2016 30 June 2017
Huge Co $300,000 $400,000
Tiny Co $150,000 $200,000
During the year, Huge Co sold goods to Tiny Co for $10,000. The goods were
originally purchased for $8,000. On 30 June 2017, half of these goods were still in
the inventory of Tiny Co.
Calculate the amount of retained earnings to be included in the consolidated
financial statements as at 30 June 2017.
A) $429,000
B) $430,000
C) $428,000
D) $929,000
8. Spicy Co operates a chain of restaurants. One of its franchises, an independent
cash generating unit (CGU), had an unpleasant incident resulting in adverse
publicity for the particular franchise.
The details of net assets before the incident are:
Goodwill $100,000
Equipment $400,000
Furniture $200,000
Inventory (at net realisable value) $50,000
Total $750,000
After the incident, Spicy Co estimated the recoverable amount of this CGU to be
$500,000.
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What would be the combined value of equipment and furniture after the
impairment?
A) $400,000
B) $415,000
C) $425,000
D) $450,000

9. Which of the following is an acceptable reason to exclude a subsidiary from

consolidation?
A) The activities of the subsidiary are substantially different from the activities of
rest of the group members.
B) The subsidiary has suffered considerable loss and the directors may declare it
bankrupt in the near future.
C) The parent, itself, meets the definition of an investment entity.
D) The policies and accounting year end of the subsidiary is different from that
of parent.

10. Diversity Co has invested in two different entities. The details of these
investments are as follows:
Investment 1: Diversity Co owns 60% of the equity shares in Data Co. It has 2 out of
12 directors on the board. Remaining 40% is owned by the founding family of the
business who continue to make all business decisions for the past 30 years.
Investment 2: Diversity Co owns 38% of the equity shares in Farm Co. Remaining
62% shares are owned by different farmers, none of whom owns more than 2% of
the equity shares.
Investment 3: Diversity Co owns 40% of the equity shares in Variety Co. Given the
expertise, all financial and operational decisions of Variety Co are made by Diversity
Co.
Investment 4: Diversity Co owns 42% of the voting and 100% of the non-voting
equity shares in Estimate Co. Each type of shareholders receives the same
percentage of dividend.
Which of these investments should be treated as subsidiaries of Diversity Co?
A) Investment 1 and 2
B) Investment 2 and 3
C) Investment 3 and 4
D) Investment 1 and 4

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11. Which of the following assets are excluded from the scope of
IAS 36 – Impairment of Assets?
(1) Inventories
(2) Deferred tax assets
(3) Land
(4) Non-current assets held for sale
(5) Financial assets
(6) Goodwill
A) (1), (2), (4) and (5)
B) (2), (5) and (6)
C) (2), (4), (5) and (6)
D) (3), (4) and (5)

12. Zeta Co is preparing its statement of cash flows under indirect method. The
following extracts have been taken from the statement of financial position as at
31 December 2016:
20X5 20X6
Account receivable $50,000 $55,000
Inventory $16,000 $12,000
Account payable $22,000 $25,000
In addition, the following information is relevant:
(1) The profit before interest and tax is $70,000
(2) The cost and net book value of the non-current assets are $100,000 and
$80,000 respectively. The business charges straight line depreciation at 20% per
annum.
(3) The business incurred loss on foreign operations of $5,000.
(4) The business paid interest of $4,000 on outstanding debt.
Calculate the amount of cash generated from operations.
A) $90,000
B) $92,000
C) $93,000
D) $97,000

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13. Continent Co acquired 80% of equity shares of Island Co on 1 April 2016. The
annual cost of sales of Continent Co and Island Co for the year ended 31
December 2016 is $90,000 and $60,000 respectively.
On 10 August 2016, S Co purchased goods from P Co amounting to $10,000. Half
of these goods remained unsold at the year end. P Co has a policy of keeping 20%
margin on all sales.
Calculate the amount of consolidates cost of sales for the year ended 31
December 2016.
A) $117,000
B) $127,000
C) $126,000
D) $125,000
14. As per IFRS 16; a lease is defined as: ‘A contract, or part of contract, that
conveys the ____________, referred to as the underlying asset, for period of time
in exchange for a consideration’.
Which of the following fills the blank properly?
A) Right to use an asset
B) Right to buy an asset
C) Right to an asset
D) Right to an asset or liability

15. Delivery Co, a logistics company, carries out the regular repair and
maintenance of its vehicles. Given the absence of a qualified accountant in the
previous month, all the repairs were capitalised.
What will be the impact of this error on earnings per share (EPS) and return on
capital employed (ROCE)?
EPS ROCE
A) Understated Overstated
B) Overstated Understated
C) Understated Understated
D) Overstated Overstated

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Section B – All 15 questions are compulsory and must be attempted.

Each question is worth 2 marks.
The following scenario relates to question 16 - 20

White Co is preparing its financial statements for the year ended 31 December
2017. The following issues are relevant:
Depreciation
One of the properties owned by White Co was revalued on 1 July 2017 to
$195,000. The property was originally purchased at a cost of $200,000 having a
useful life of 10 years. On 31 December 2016, the balance in accumulated
depreciation account was $40,000.
Government Grants
During the year, White Co has received the following three different grants from
the government:
Grant 1: On 10 July 2017, government announced a grant for all corporations
having a timely history of filing the taxation returns. The announcement allowed
all eligible corporations to pay tax at a reduced rate of 31% instead of the usual
rate of 33%. White Co estimates its taxation liability for the year to be $320,000.
Grant 2: On 31 March 2017, government announced a grant of $200,000 for any
corporation having its office in the village of Plunge. White Co had opened up its
office in Plunge during 2016. This grant was successfully granted to White Co on
15 January 2017.
Grant 3: During the year, government granted a loan of $100,000 to White Co.
The loan was granted at a below-market rate encouraging White Co to operate in
rural areas. The normal market interest rate is 7%, whereas White received this
loan at an interest rate of 3%.
Events after Reporting Date
The financial statements of White Co have not yet been authorised for issuance.
Meanwhile, the following two issues have been highlighted:
Issue 1: On 30 November 2017, an employee was terminated for a violation of
corporate code of ethics. The employee started litigation against White Co. on
15th December 2017 claiming $100,000 as damages on account of unfair
dismissal. The company sought legal advice and the law firm sent a courier to
White Co stating the chances of employee victory and damages to be virtually
certain. Due to poor weather, the courier was received on 10th January 2018
after an unusual delay.

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Issue 2: White Co initiated a subsidised mess facility for employees on 1 October

2017. On 5 January 2018, an employee suffered severe food poisoning due to
unhygienic food provided in the mess. She was awarded damages of $50,000 in
the court.
Cranes
White Co has three large cranes that it uses in the operations. Given the rapid
decline in the prices of cranes, company has decided to review the existing value
to assess impairment. The following information is relevant:
Cost $600,000 $750,000 $800,000
Accumulated depreciation on 31 Dec 2017 $120,000 $250,000 $160,000
Fair value $300,000 $500,000 $300,000
Selling cost $20,000 $10,000 $10,000
Value in use $500,000 $450,000 $300,000

8% Loan Notes
White Co raised finance by issuing $10,000 8% five-year loan notes on 1 January
2017.
The loan notes were issued at a discount of 10%. The costs incurred in the issue
were $500. The effective rate of interest is 12%.
16. What is the depreciation charge for the year ended 31 December 2017?
A) $20,000
B) $22,000
C) $23,000
D) $24,375
17. Calculate the amount of grant income that White Co can recognise under IAS
20 - Government Grants for the year ended 31 December 2017.
A) $200,000
B) $204,000
C) $206,400
D) $210,400

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18. Assuming that both events are material, which of these issues should be
adjusted in the financial statements for year ended 31 December 2017?
A) 1 Only
B) 2 Only
C) Both 1 and 2
D) Neither 1 nor 2

19. Calculate the amount of impairment loss that White Co should recognise in
respect of these cranes?
A) $350,000
B) $370,000
C) $380,000
D) $390,000

20. Calculate the amount at which loan-note should appear in the statement of
financial position as at 31 December 2017.
A) $12,920
B) $8,860
C) $9,100
D) $8,720

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The following scenario relates to question 21 - 25

Grace Co is in process of creating its statement of cash flows for the year ended 31
December 2017. The relevant income statement and statement of financial position
are as follows:
Income Statement for the Year Ended 31 December 2017
$’000
Sales 810
Cost of goods sold (140)
Gross profit 670
Depreciation (90)
Admin expenses (20)
Loss on disposal of non-current asset (20)
Operating profit 540
Interest paid (30)
Taxation (160)
Net profit 350
Statement of Financial Position as at 31 December
2017 2016
$’000 $’000
Non-current assets
Cost 1,460 1,400
Depreciation 250 200
1,210 1,200
Current assets
Inventory 45 35
Trade receivables 60 65
Cash and bank 25 20
130 120
Total assets 1,340 1,320
Equity and liabilities
Share capital 310 300
Share premium 125 120
Retained earnings 695 400
1,130 820
Loan 90 380
Trade payables 40 70
Taxation 80 50
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Additional Information:
Dividends of $55,000 were paid during the year. The company purchased a new
noncurrent asset of $100,000 in cash during the year.

21. What is the net cash generated from operations?

A) $615,000
B) $635,000
C) $655,000
D) $665,000
22. What is the net cash generated from (or used in) operating activities?
A) $400,000
B) $215,000
C) ($400,000)
D) ($215,000)
23. What is the net cash generated from (or used in) investing activities?
A) $120,000
B) $100,000
C) ($120,000)
D) ($100,000)

24. What is the net cash generated from (or used in) financing activities? 347
A) $275,000
B) $290,000
C) ($290,000)
D) ($275,000)
25. What is the net increase or decrease in cash and cash equivalents?
A) $5,000
B) $25,000
C) ($5,000)
D) ($25,000)

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The following scenario relates to question 26 - 30

Data Co has completed its IPO in the current year. The business is process of
preparing its consolidated financial statements for the year ended 31 December
2017. The following information is relevant for the purpose of calculating EPS:
Logs Co
Logs Co is a wholly owned subsidiary of Data Co. The business was acquired five
years ago. During the year ended 31 December 2017, Logs Co earned a net profit of
$200,000. It paid dividends of $8,000 on redeemable preference shares and
dividends of $10,000 on irredeemable preference shares. The business issued 5,000
ordinary shares five years ago and no shares have been issued since then.
Precise Co
Precise Co is another wholly owned subsidiary of Data Co. Precise Co has issued
share capital of 200,000 ordinary shares of $1 each and 100,000 20% redeemable
preference shares of $1 each. During the year ended 31 December 2017, Precise Co
earned a gross profit of $1 million. And the operating expenses were $200,000.
Precise Co declared the required dividend on preference shares and ordinary
dividends of 50c per share. The taxation rate is 30%.
Byron Co
Byron Co is an associate of Data Co. The net profit of Byron Co for the year ended 31
December
2016 and 31 December 2017 was $500,000 and $400,000 respectively. At the
beginning of 2016, Byron Co had 100,000 shares in issue. The business made a 1 for
5 rights issue on 1 April 2017 at a price of $2. The market value of each share before
issuance, with the knowledge of the rights, was $3.20.
26. Which of the following statements about earnings per share is / are correct?
(1) All private and public limited companies are required to present EPS.
(2) If consolidated statements are presented, EPS must be calculated separately for
each individual company.
A) 1 only
B) 2 only
C) Both 1 and 2
D) Neither 1 nor 2

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27. Calculate the earnings per share (EPS) of Logs Co for the year ended
31 December 2017.
A) $36.40
B) $38.00
C) $38.40
D) $40.00

28. Calculate the earnings per share (EPS) of Precise Co for the year ended 31
December 2017.
A) $2.73
B) $2.86
C) $2.92
D) $2.23
29. Calculate the earnings per share (EPS) of Byron Co for 2017 and a corresponding
figure of 2016.
2017 2016
A) $3.43 $5.33
B) $3.56 $5.33
C) $3.33 $5.00
D) $4.42 $5.00

30. Which of the following disclosures is not required as per IAS 33?
A) Reconciliation of numerators in EPS to profit or loss attributable to parent entity.
B) Weighted average number of ordinary shares used as denominator.
C) Theoretical ex-rights price at the time of issuance of shares.
D) Information about all instruments that could potentially dilute basic EPS.

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Section C – Both questions are compulsory and must be attempted.

Please write your answers on the lined pages within Answer Booklet.
31. On 1 January 2017, Hydrogen acquired 3 million equity shares in Sulphur. The
purchase consideration was made up of:
• $1.25 per acquired share in cash.
• One share in Hydrogen for every two shares in Sulphur.

The draft statements of financial position of the two companies as at 31 December

2017 are as follows:
Hydrogen ($’000 Sulphur($’000
Non-current assets
Property, plant and equipment 19,000 11,400
Investments in Sulphur and Argon 10,000 Nil
Fair value through profit or loss investments 5,000 Nil
34,00 11,400
Current assets
Inventory 8,500 5,500
Trade receivables 3,500 800
Cash and bank 1,000
500 Total assets 47,000 18,200
Equity and liabilities
Equity shares ($1 each) 10,000 4,000
Retained earnings (1 January 2017) 15,000 7,000

Retained earnings (For year ended 31 December 2017) 8,000 2,000

33,000 13,000
Loan notes (7%) 5,000 2,000
Trade payables 9,000 3,200

Total equity and liabilities 47,000 18,200

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The following additional information is relevant:

(i) The market price of each share of Hydrogen on 1 January 2017 was $6.50.
(ii) The share consideration has not yet been recorded by Hydrogen.
(iii) Professional costs of $500,000, relating to the acquisition of Sulphur, are also
included in the cost of investment.
(iv) Hydrogen has a policy of valuing non-controlling interests at fair value. On the
date of acquisition, the fair value of the shares not owned by Hydrogen was $3.5
million.
(v) With the exception of land, fair values of Sulphur’s assets were equal to their
carrying amounts at the date of acquisition. The fair value of the land was $400,000
below its carrying amount. The value was adjusted in the books immediately after
the acquisition.
(vi) On 1 March 2017, Sulphur sold goods on cash to Hydrogen for $3 million,
keeping a markup of 50%. Half of these goods remain unsold at the year end.
(vii) All depreciation has already been recorded by Hydrogen and Sulphur in their
respective accounts.
(viii) Hydrogen also acquired 25% of the 4 million shares of Argon on 1 January 2017
at $5.75 per share. Since acquisition, Argon had made a profit of $4 million.
(ix) The investments carried at fair value through profit and loss had a fair value of
$8 million on 31 December 2017.

Required
Prepare a consolidated statement of financial position as at 31 December 2017.
(20 marks)

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32. Delta is a public limited company. The financial statements of the business for
the latest year, along with the comparatives, are as follows:
Statement of profit or loss for the year ended 30 June
2017 ($’000) 2016 ($’000)
Revenue 28,500 24,2 00
Cost of sales 17,000 16,200
Gross profit 11,500 8,000
Administration expenses 4,550 1,250
Distribution expenses 1,450 1,350
Operating profit 5,500 5,400
Finance costs 4,000 1,500
Profit before taxation 1,500 3,900
Income tax expense (900) (1,300)
Profit for the period 600 2,600

Statement of financial positions as at 30 June

2017 ($’000) 2016 ($’000)
Non-current assets 26,000 26,000
Current assets
Inventory 14,500 6,200
Trade receivables 18,500 4,400
Cash and bank 500 3,500
33,000 14,100
Total assets 59,000 40,100
Equity and liabilities
Equity shares of $1 each 10,000 10,000
Retained earnings 25,600 23,000
35,600 33,000
Loan 18,000 5,500
Trade payables 5,400 1,600
Total equity and liabilities 59,000 40,100

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Required
(a) Calculate the following ratios for each of the two years:
(10 marks)
(i) Gross profit margin
(ii) Net profit margin
(iii) Return on capital employed (ROCE)
(iv) Gearing
(v) Interest cover
(vi) Current ratio
(vii) Quick ratio
(viii) Receivables days
(ix) Payables days
(x) Earnings per share (EPS)

(b) Interpret the performance of Delta in the light of each ratio.

(10 marks)

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