Financial Reporting

Mock 2024
Please note that Section A and B questions in the real CBE will
contain question types other than Multiple Choice Questions.

FR
Time allowed: 3 hours 15 minutes

This question 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

Do NOT record any of your answers on the question paper.

Please note that the real exam is a computer based exam. Therefore,
the questions in this paper version reflect the question formats of a
computer based exam.
 SECTION A
ALL 15 QUESTIONS ARE COMPULSORY AND MUST BE ATTEMPTED

1 Maud’s net profit for the year ended 31 December 20X2 is $565,000.

At the start of the year Maud had 6,000,000 shares in issue. On 1 September 20X2, Maud
made a bonus issue of 1 share for every 8 held. There were no other share issues during the
period. Maud reported a basic earnings per share figure for the year ended 31 December
20X1 of 11.0 cents.
What is Maud’s basic earnings per share for the year ended 31 December 20X2, and the
restated comparative for 31 December 20X1?
20X2 figure 20X1 Comparative
A 8.4 c 9.8 c
B 8.4 c 12.4 c
C 9.0 c 9.8 c
D 9.0 c 12.4 c

2 On 1 October 20X8 Paula acquired 80% of the one million equity shares in Stella, by way of a
share exchange of 2 new shares in Paula for every 5 acquired in Stella. On this date the fair
value of Stella's net assets was $2,000,000, Paula’s share price was $5.40, and the fair value
of the non‐controlling interest in Stella was $850,000. In the year ended 31 March 20X9
goodwill had been impaired by $200,000. Paula measures goodwill using the fair value
method.

What is the value of goodwill arising on the acquisition of Stella at 1 October 20X8?
A $128,000
B $578,000
C $272,000
D $378,000

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3 On 1 April 20X7 Priya acquired 100% of Skyla for $6 million cash.
At the date of acquisition a fair value exercise was performed and the fair values of Skyla's
net assets at that date were:
$000
Property 3,500
Plant 2,200
Intangible: brand 700
Other net assets 900
––––––
7,300
––––––
How should the purchase of Skyla be reflected in the consolidated statement of financial
position?
A Record the net assets at their values shown above and credit consolidated goodwill
with $1.3 million.
B Record the net assets at their values shown above and credit profit or loss with
$1.3 million.
C Ignoring the brand ($700,000), record the remaining assets at their values shown
above and credit profit or loss with $600,000.
D Ignoring the brand ($700,000), record the remaining assets at their values shown
above and credit consolidated goodwill with $600,000.

4 Which of the following should be accounted for using equity accounting in the consolidated
financial statements of Prima plc?
A An investment of 40% of the ordinary shares in Artim. The remaining 60% of Artim’s
shares are owned by Rhoswen plc, who treats Artim as a subsidiary.
B An investment of 30% of the ordinary shares in Akasma. Prima has one representative
on Akasma's board of directors.
C An investment of 18% of the ordinary shares of Adora.
D An investment in 35% of the non‐voting irredeemable preference shares of Ajax.

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 5 On 1 July 20X8 Tamsin received a government grant of $500,000 towards the cost of an item
of plant that was purchased on that date. Extracts from the statement of financial position
at 31 March 20X9 are shown below:
20X9 20X8
$000 $000
Non‐current liabilities
Government grants 1,250 1,100
Current liabilities
Government grants 850 650
How would government grants be treated in the statement of cash flows for the year ended
31 March 20X9 in both the operating activities (to arrive at cash generated from
operations) and investing activities sections?
Operating activities Investing activities
A $500,000 added back $150,000 inflow
B $150,000 added back $500,000 inflow
C $500,000 deducted $150,000 inflow
D $150,000 deducted $500,000 inflow

6 In the year ended 31 March 20X6 Connect revalued its properties at the year‐end for the first
time.
Which of the following ratios would be distorted when comparing the year‐on‐year
performance and position of Connect?
(i) Current ratio
(ii) Asset turnover
(iii) Gearing
(iv) Return on capital employed

A All of the above

B (i), (ii) and (iii)
C (ii) and (iv)
D (ii), (iii) and (iv)

7 Comparability is identified in the IASB's Conceptual Framework as an enhancing qualitative

characteristic.
Which of the following WILL improve comparability?
A Recording a transaction according to its substance rather than its legal form
B Restating the prior year earnings per share figure following a rights issue of shares
during the current year
C Including assets held for sale within property, plant and equipment on the statement
of financial position until sold
D Recording a change in an accounting estimate in the current year’s financial
statements

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8 Which of the following accounting treatments provides an example of relevance in
accordance with the IASB's Conceptual Framework?
A Restating the financial statements of the previous year when a prior year error has
been discovered
B Treating redeemable preference shares as a liability within the financial statements
C Valuing inventory within the financial statements using FIFO rather than average cost
D Separately disclosing discontinued operations within the financial statements

9 On 31 March 20X8 Jing's closing inventory was valued at its cost of $5 million, including some
damaged goods. The damaged items cost $390,000 and are no longer expected to achieve
their normal selling price, which is calculated to achieve a mark‐up of 20%. These goods will
have to be sold at a discount of 30% on normal selling price.
What value should be included for total inventory in Jing's statement of financial position
as at 31 March 20X8?
A $4,937,600
B $4,883,000
C $4,610,000
D $4,951,250

10 On 1 April 20X8 Danielle acquired a machine via a lease agreement, and paid $45,000
immediately, being the first of five equal annual rentals in advance. The present value of the
remaining lease payments at 1 April 20X8 was $155,000. The lease has an implicit interest
rate of 10%, and the machine has a useful life of five years.
What amount in total is charged to Danielle's statement of profit or loss for the year ended
31 March 20X9 in respect of the above lease?
A $40,000
B $46,500
C $55,500
D $60,000

11 At 1 April 20X8 Swizzle had a property in its financial statements that had originally cost $27.5
million (land $2.5 million, buildings $25 million), and now had accumulated buildings
depreciation of $10 million. On 1 April 20X8, the directors decided to revalue the land and
buildings for the first time, and accepted the report of an independent surveyor who valued
the land at $4 million and the buildings at $19.5 million on that date. The remaining life of
the buildings at 1 April 20X8 was 15 years.

What will be the amount of depreciation charged to profit or loss for the year ended
31 March 20X9?
A $1,300,000
B $1,666,667
C $1,833,333
D $1,566,667

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 12 IAS 36 Impairment outlines indicators of when an entity's assets may have become impaired.
Which of the following are NOT internal indicators of impairment?
(i) The asset’s market value has declined more than would be expected from the passage
of time.
(ii) Damage to, or obsolescence of, the asset.
(iii) Changes in the economic environment of the business in which the asset is employed.
(iv) Changes in the way the asset is used by the entity.

A (iii) and (iv) only

B (i) and (ii) only C
(i) and (iii) only D
(ii) and (iv) only

13 Which of the following is NOT true concerning the treatment of borrowing costs under IAS
23 Borrowing costs?

A Only borrowing costs on a qualifying asset can be capitalised

B Capitalisation of borrowing costs should be suspended if construction is suspended for
an extended period
C Borrowing costs can continue to be capitalised once activities to prepare the asset for
use are complete, if the asset is not yet in use
D Borrowing costs capitalised are net of any temporary investment income from the
funds borrowed

14 The balance on Olaf’s development expenditure as at 31 March 20X8 was $16 million (original
cost $20 million, accumulated amortisation $4 million).

The development costs relate to a product called the Stone, which was being amortised over
five years.
A review of the sales of the Stone in late March 20X9 showed them to be below forecast. An
impairment test concluded that the fair value of the development expenditure at 31 March
20X9 was only $9 million, and the Stone was only expected to sell for a further two years.
What amount will be charged to profit or loss in respect of the impairment of the
development expenditure for the year ended 31 March 20X9?
A $4 million
B $3 million
C $7 million
D $1 million

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15 Jim is an entity that is preparing its financial statements for the year ended 31 March 20X9.
On 24 April 20X9, prior to the authorisation of the financial statements, the internal audit
department discovered a fraud by an employee, who had been making payments to a
fictitious supplier during the year to 31 March 20X9. Investigation showed that the total
amount of the fraud amounted to $790,000, which is considered to be material.
How should the fraud be treated in the financial statements for the year ended 31 March
20X9 in accordance with IAS 10 Events After the Reporting Date?
A Disclosed as a non‐adjusting event
B Identified as a non‐adjusting event, but resulting in adjustment because the going
concern status of Jim is affected
C Ignored as the discovery was after the reporting date
D Treated as an adjusting event in the financial statements
(Total: 30 marks)

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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 questions 16 – 20.

On 1 April 20X6 Payne acquired 75% of Scannell’s equity shares, when Scannell’s retained earnings
were $48 million.
Payne paid $70 million cash, with a further $8.47 million payable on 31 March 20X8. Payne has a
cost of capital of 10%.
Payne measures the non‐controlling interest at fair value, and at the date of acquisition the non‐
controlling interest in Scannell had a fair value of $24 million.
The fair values of the net assets of Scannell were equal to their carrying amounts, with the
exception of a building, which had a carrying amount of $8 million but a fair value of $12 million. At
the date of acquisition, the building was deemed to have a remaining useful life of 20 years.
On 1 January 20X7, Payne also acquired 30% of the 50 million equity shares of Aaron paying $3 in
cash per acquired share. Aaron made a profit of $24 million for the year ended 31 March 20X7, and
had retained earnings of $40 million as at 31 March 20X7.
Extracts from the statements of financial position for Payne and Scannell at 31 March 20X7 are
shown below:
Payne Scannell
Non‐current assets $000 $000
Property, plant and equipment 180,000 60,000
––––––– –––––––
Equity
Equity shares of $1 each 150,000 20,000
Retained earnings 243,500 84,000
––––––– –––––––

16 What is the value of goodwill on the acquisition of Scannell?

A $29 million
B $33 million
C $30.47 million
D $49 million

17 When a gain on bargain purchase (negative goodwill) arises, IFRS 3 Business Combinations
requires an entity to review the measurement of all elements of the goodwill calculation.

Once confirmed, what is the correct accounting treatment of the negative goodwill?
A It is credited to profit or loss
B It is credited to other comprehensive income
C It is deducted from positive goodwill
D It is credited directly to retained earnings

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18 What is the carrying amount of the investment in Aaron on Payne’s consolidated statement
of financial position at 31 March 20X7?
A $45m
B $46.8m
C $51m
D $52.2m

19 What is the carrying amount of Payne’s consolidated property, plant and equipment at
31 March 20X7?

A $225m
B $240m
C $243.8m
D $247.6m

20 What is the correct treatment of any professional fees incurred on the acquisition of a
subsidiary?
A Capitalise as an intangible asset
B Write off as an expense in the statement of profit or loss
C Deduct from the cost of investment in the calculation of goodwill
D Add to the cost of investment in the calculation of goodwill

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 The following scenario relates to questions 21 – 25.
Tariq has a year end of 30 November and owns an item of plant which it uses to manufacture steel
girders. The plant cost $150,000 on 1 December 20X5 and at that date had an estimated useful life
of five years.
A review of the plant on 1 June 20X8 concluded that its fair value was $105,000 and that it would
last for a further three and a half years.
Tariq uses the revaluation model for its plant, but does not make an annual transfer from the
revaluation surplus to retained earnings in respect of the additional depreciation charged.
On 30 November 20X8, Tariq was informed by a major customer that it would no longer be placing
orders with Tariq. As a result Tariq reviewed its forecasts and estimated that net cash inflows
earned from the plant for the next three years would be:
$
Year ended 30 November 20X9 44,000
20Y0 36,000
20Y1 40,000
Tariq’s cost of capital is 8% which results in the following discount factors:
Value of $1 at 30 November
20X9 0.93
20Y0 0.86
20Y1 0.79
Tariq also owns Rasa, a 100% subsidiary, which is treated as a cash generating unit. On
30 November 20X8, an impairment review of Rasa revealed impairment to Rasa’s assets of
$350,000. The carrying amounts of the assets of Rasa immediately before the impairment were:
$
Goodwill 200,000
Factory building 400,000
Plant 350,000
Receivables and cash 250,000
––––––––
1,200,000
––––––––
Note: receivables and cash are stated at their recoverable amounts.

21 Prior to considering any impairment, what is the carrying amount of Tariq’s plant and the
balance on the revaluation surplus at 30 November 20X8?
Plant carrying Revaluation
amount surplus
$000 $000
A 90 Nil
B 60 30
C 90 30
D 60 Nil

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22 What is the value in use of Tariq’s plant as at 30 November 20X8?

A $103,480
B $90,000
C $111,880
D $120,000

23 What is the carrying amount of Rasa’s plant at 30 November 20X8 after the impairment
loss has been correctly apportioned between its assets?

A $247,917
B $280,000
C $221,053
D $350,000

24 Which of the following are TRUE in accordance with IAS 36 Impairment of Assets?

(1) A cash generating unit is the smallest identifiable group of assets for which individual
cash flows can be identified and measured.
(2) When considering the impairment of a cash generating unit, the calculation of the
carrying amount and the recoverable amount does not need to be based on exactly
the same group of assets.
(3) When it is not possible to calculate the recoverable amount of a single asset, then that
of its cash generating unit should be measured instead.
A (1) and (2) B
(2) and (3) C
All of them D
(1) and (3)

25 In accordance with IAS 36 Impairment of Assets, which of the following explains the
impairment of an asset and how to calculate its recoverable amount?
An asset is impaired when
A its recoverable amount exceeds its carrying amount and the recoverable amount is the
higher of its fair value less costs of disposal and its value in use
B its carrying amount exceeds its recoverable amount and the recoverable amount is the
higher of its fair value less costs of disposal and its value in use
C its carrying amount exceeds its recoverable amount and the recoverable amount is the
lower of its fair value less costs of disposal and its value in use
D its recoverable amount exceeds its carrying amount and the recoverable amount is the
lower of its fair value less costs of disposal and its value in use

11
 The following scenario relates to questions 26 – 30.
Stankovic is preparing its financial statements for the year ended 31 December 20X5. The following
issues are relevant:
1 Financial asset
Stankovic acquired a short‐term speculative investment in 10,000 of the equity shares of
another entity on 1 January 20X5 at a cost of $3.50 each. Transaction costs of 1% of the
purchase price were incurred.
On 31 December 20X5 the fair value of these shares was $4.50 each.
Where possible, Stankovic makes an irrevocable election for the fair value movements on
financial assets to be reported in other comprehensive income.
2 Financial liability
Stankovic issued a $40 million 5% loan note on 1 July 20X5. Interest is payable annually on
30 June. The loan note is redeemable on 30 June 20X9 at a substantial premium, the impact
of which is to increase the effective rate of interest on the loan note to 7%.
3 Revenue
On 1 January 20X5, Stankovic sold a machine for $20 million. The sales price included
maintenance of the machine until 31 December 20X7 (i.e. three years after the sale date).
The list price of the machine (without maintenance) is $20.5 million, and Stankovic normally
charges $1.5 million per annum for maintenance.

26 Which of the following meet the definition of a financial asset in accordance with IFRS 9
Financial Instruments?
(1) An equity instrument of another entity.
(2) A contract to exchange financial instruments with another entity under conditions
which are potentially favourable.
(3) A contract to exchange financial instruments with another entity under conditions
which are potentially unfavourable.
(4) Cash.
A (1) and (2) only
B (1), (2) and (4)
C (1), (3) and (4)
D (4) only

27 In respect of the financial asset of Stankovic, what is the net impact in the statement of
profit or loss for the year ended 31 December 20X5?
A $9,650 gain
B $10,350 gain
C $10,000 gain
D $nil gain

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28 In respect of the financial liability of Stankovic, what is the finance cost to be recognised in
the statement of profit or loss for the year ended 31 December 20X5?
A $2.8 million
B $2 million
C $1.4 million
D $1 million

29 What is the amount of revenue which Stankovic should recognise in its statement of profit
or loss for the year ended 31 December 20X5 relating to the contract for the supply and
maintenance of its product?
A $20 million
B $17.6 million
C $16.4 million
D $3.6 million

30 Which of the following is not one of the five steps for revenue recognition within IFRS 15
Revenue From Contracts With Customers?
A Identify the performance obligations
B Identify the contract
C Allocate the performance obligations
D Determine the transaction price
(Total: 30 marks)

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 SECTION C

BOTH QUESTIONS ARE COMPULSORY AND MUST BE ATTEMPTED

31 LINGU CO
At 1 May 20X5, the Lingu group consisted of the parent, Lingu Co, and two wholly‐owned
subsidiaries. There were no intra‐group transactions during the year.
The sale of one of the subsidiaries, Ravi Co, was completed on 30 April 20X6 when Lingu Co
sold its entire holding for $50m cash. Ravi Co had net assets of $75m at the date of disposal.
The sale does not meet the definition of a discontinued operation and has been correctly
accounted for in the consolidated financial statements. The gain/loss on disposal of Ravi Co
is included in administrative expenses.
Lingu Co had originally purchased Ravi Co on 1 May 20X0 for $87m. The fair value and
carrying amount of net assets of Ravi Co at the date of acquisition were $70m. Goodwill had
been impaired by 60% as at 30 April 20X6.
Extracts from the consolidated financial statements for the years ended 30 April 20X5 and
20X6 are shown below:
Extracts from the statements of profit or loss for the year ended 30 April:
Consolidated Consolidated
20X6 20X5
$m $m
Revenue 730 680
Cost of sales (410) (350)
––––– –––––
Gross profit 320 330
Administrative expenses (115) (58)
Distribution costs (38) (33)
––––– –––––
Operating profit / (loss) 167 239
––––– –––––
Extracts from the statements of financial position as at 30 April:
Consolidated Consolidated
20X6 20X5
$m $m
Current assets 280 312
Equity 1,552 1,445
Non‐current liabilities 250 375
Current liabilities 90 400
The following information is also relevant:
(1) The non‐current liabilities mostly comprise bank loans.
(2) Ravi Co’s sales represented 17% of the total group sales for 20X5, however, in July
20X5, Ravi Co lost a major customer to a competitor, resulting in a large number of
redundancies. These redundancy costs amounted to $38m and are included in
administrative expenses. Overall, Ravi Co made an operating loss of $43m.

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 (3) The Lingu group manufactures commercial cookware. The inventory included in the
above consolidated statements of financial position is:
Inventory
Group inventory at: $m
30 April 20X6 162
30 April 20X5 195
(4) At 30 April 20X6, Ravi Co had inventory of $105m.

Required:
(a) Calculate the gain/loss arising on the disposal of Ravi Co in the consolidated financial
statements of the Lingu group. (4 marks)
(b) Based on the financial statements provided, calculate the following ratios and
comment on the financial performance and position of the Lingu group for the years
ended 30 April 20X6 and 20X5:
(i) Gross profit margin
(ii) Operating profit margin
(iii) Return on capital employed
(iv) Current ratio
(v) Gearing ratio (debt/(debt plus equity))
Note: a maximum of 5 marks is available for the calculation of ratios (13 marks)
(c) Comment on how the sale of Ravi Co will affect the comparability of the consolidated
financial statements for the years ended 30 April 20X6 and 20X5. (3 marks)
(Total: 20 marks)

15
 32 CHESTNUT
The trial balance below has been prepared for Chestnut, following preparation of the draft
statement of profit or loss for the year ended 31 March 20X5.
$000 $000
Share capital of $1 shares 42,000
Share premium 8,000
Property – at valuation 1 April 20X4 60,000
Plant and equipment – cost 60,000
Plant and equipment – accumulated depreciation 1 April 20X4 22,000
Equity dividend paid 12,500
6% preference shares of $1 each (note (ii)) 52,000
Convertible loan note (note (iii)) 10,000
Convertible loan note interest paid (note (iii)) 400
Inventory at 31 March 20X5 35,250
Trade receivables 41,375
Bank 34,350
Trade payables 42,000
Draft profit for the year ended 31 March 20X5 40,125
Preference dividend paid (note (ii)) 3,000
Retained earnings – 1 April 20X4 12,125
Revaluation surplus – 1 April 20X4 9,000
Income tax (note (iv)) 875
Deferred tax (note (iv)) 10,500
––––––– –––––––
247,750 247,750
––––––– –––––––
The following notes are relevant:
(i) Non‐current assets
The property had a remaining life of 20 years as at 1 April 20X4. The company’s policy
is to revalue its property at each year‐end, and at 31 March 20X5 it was professionally
valued at $62 million. Ignore deferred tax on the revaluation.
All plant is to be depreciated at 25% per annum using the reducing balance method. At
31 March 20X5, Chestnut decided to replace all its plant and equipment and put all
of it up for sale. Due to the market for such machinery at this date, the sale was
considered highly probable. In May 20X5 the plant was sold for $32 million.
All depreciation is to be charged to cost of sales.
(ii) The 6% preference shares were issued at par on 1 April 20X3 for $50 million. They are
redeemable at a large premium which gives them an effective finance cost of 10% per
annum.

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 (iii) On 1 April 20X4 Chestnut issued a $10 million 4% convertible loan note, repayable or
convertible to ordinary shares on 31 March 20X8. Interest is payable annually in
arrears. Chestnut chose to issue the convertible loan note as it meant that there would
be a lower interest payment than the 8% interest rate charged on similar loan notes
with no conversion option. The present value of $1 payable at the end of each year,
based on discount rates of 4% and 8% are:
4% 8%
Year 1 0.96 0.93
2 0.92 0.86
3 0.89 0.79
4 0.85 0.74
(iv) The directors have estimated the provision for income tax for the year to 31 March
20X5 at $5.7 million. The required deferred tax provision at 31 March 20X5 is
$7 million, and all adjustments to deferred tax should be taken to the statement of
profit or loss. The balance of current tax in the trial balance represents the under/over
provision of the income tax liability for the year ended 31 March 20X4.
(v) On 1 August 20X4 Chestnut issued 8 million shares at their full market price of $2.

Required:
(a) Calculate the adjusted profit (to the nearest $000) for Chestnut for the year ended
31 March 20X5. (5 marks)
(b) Prepare the statement of financial position for Chestnut as at 31 March 20X5.
(Notes to the financial statements are not required. Please work to the nearest
$000.) (12 marks)
(c) Calculate the basic earnings per share for Chestnut for the year ended 31 March
20X5. State your answer in cents to 1 decimal place. (3 marks)
(Total: 20 marks)

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