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F7 FR Mock D - Questions J21

Administratie (Associate Degrees Academie)

Studocu is not sponsored or endorsed by any college or university

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ACCA MOCK D

Financial Reporting

June 2021

FR
Question paper
Please note that the real exam is a computer based exam.
Therefore, the questions in this paper reflect the question formats
of a computer based exam.

Time allowed

3 hours and 15 minutes

Section A: All FIFTEEN questions are compulsory and MUST be

attempted.

Section B: All FIFTEEN questions are compulsory and MUST be

attempted.

Section C: BOTH questions are compulsory and MUST be attempted.

Do NOT open this paper until instructed by the supervisor.

This question paper must not be removed from the examination

hall.

Kaplan Publishing/Kaplan Financial

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British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library.
Published by:
Kaplan Publishing UK
Unit 2 The Business Centre
Molly Millar’s Lane
Wokingham
Berkshire
RG41 2QZ
© Kaplan Financial Limited, 2021
The text in this material and any others made available by any Kaplan Group company does not amount to
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Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited, all other Kaplan
group companies, the International Accounting Standards Board, and the IFRS Foundation expressly disclaim
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consequential or otherwise arising in relation to the use of such materials.
Acknowledgements
These materials are reviewed by the ACCA examining team. The objective of the review is to ensure that the
material properly covers the syllabus and study guide outcomes, used by the examining team in setting the
exams, in the appropriate breadth and depth. The review does not ensure that every eventuality,
combination or application of examinable topics is addressed by the ACCA Approved Content. Nor does the
review comprise a detailed technical check of the content as the Approved Content Provider has its own
quality assurance processes in place in this respect.
This Product includes propriety content of the International Accounting Standards Board which is overseen
by the IFRS Foundation, and is used with the express permission of the IFRS Foundation under licence. All
rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in
any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior
written permission of Kaplan Publishing and the IFRS Foundation.

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“eIFRS”, “IAS”, “IASB”, “IFRS for SMEs”, “IFRS”, “IASs”, “IFRSs”, “International Accounting Standards” and
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SECTION A
All FIFTEEN questions are compulsory and MUST be attempted

1 The carrying amount of Roger’s property, plant and equipment at 31 December 20X5 was
$2,890,000. At 31 December 20X6, this had risen to $3,070,000.

During the year ended 31 December 20X6, Roger revalued one property upwards by
$500,000, and sold another property for $948,000, recognising a profit on disposal of
$200,000. Depreciation charged during the year amounted to $380,000.
What amount did Roger spend on the purchase of property, plant and equipment in the
year ended 31 December 20X6?
A $1,008,000
B $808,000
C $1,308,000
D $1,208,000

2 Extracts from Yoyo’s financial statements for the years ended 31 December 20X3 and 20X2
show the following:

20X3 20X2
$000 $000
Statement of financial position
Non-current liabilities: Deferred tax 1,900 1,750
Current liabilities: Taxation 2,800 2,900

Statement of profit or loss

Taxation 2,500 3,000

What amount of tax was paid by Yoyo in the year ended 31 December 20X3?

$ _____________,000

3 Which of the following foreign currency items should be retranslated at the year-end
according to IAS 21 The Effects of Changes in Foreign Exchange Rates?

Item Retranslated Not retranslated

Inventory
Cash
Loan
Plant and machinery, measured under the
cost model

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4 When determining the transaction price under IFRS 15 Revenue from Contracts with
Customers which of the following should NOT be considered?

A The existence of a significant financing component within the contract

B Non-cash consideration
C Consideration payable to a customer for a distinct good or service from that customer
D Variable consideration

5 Which of the following transactions has been correctly treated in the financial statements
of Groan for the year ended 30 June 20X6?

A $6 million was received in respect of the sale of Groan’s head office to a bank on 1 July
20X5. The sale agreement states that Groan will continue to occupy the building, and
can buy it back for $7.146 million on 1 July 20X9, equivalent to an annual 6% finance
charge. Groan has derecognised the head office, and included the profit on disposal
in its statement of profit or loss.
B Groan has included within revenue $3 million in respect of the sale of computers. This
amount comprises $1.8 million for the computers, and $1.2 million for an associated
three-year service package.
C Groan has included within revenue $750,000 of agency sales made through an online
platform, on which Groan will earn 10% sales commission.
D Groan factored receivable balances totalling $600,000 to a debt factor on 1 January
20X6 in a ‘without recourse’ agreement. Groan has derecognised the full amount of
the $600,000 receivables balance.

6 Amit reported a basic earnings per share figure for the year ended 31 December 20X5 of
45 cents. During the year ended 31 December 20X6, Amit made a 1 for 4 rights issue at a
price of $1.80, when the market price of the shares was $2.00.

What is the restated comparative basic earnings per share figure for Amit as reported
within the financial statements for the year ended 31 December 20X6? (to one decimal
place)
________________ cents

7 Which of the following is NOT an adjusting event per IAS 10 Events after the Reporting
Period in the financial statements for the year ended 31 March 20X7 which were approved
on 11 June 20X7?

A The discovery of a material error in the financial statements on 24 May 20X7

B An abnormally large movement in foreign exchange rates during May 20X7
C The insolvency of a major customer on 17 April 20X7
D An amount received on 3 June 20X7 in relation to an insurance claim that was being
negotiated at the reporting date

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8 Walsh has prepared the following information from its financial statements at 31 May 20X8.

Revenue $438,000
Working capital cycle 57 days
Inventory holding days 62 days
Payables payment days 53 days

What was the value of Walsh’s receivables balance at 31 May 20X8?

A $63,600
B $79,200
C $69,600
D $57,600

9 Complete the sentence:

An asset is impaired if its carrying amount is greater than its _________________.

Choose from: Fair value less cost to sell, Replacement cost, Recoverable amount, Value in
use

10 Which of the following is not a criterion for classification of an asset as held for sale under
IFRS 5 Assets Held for Sale and Discontinued Operations?

A Asset is available for immediate sale

B Asset is no longer in use by the entity
C Asset is expected to be sold within 12 months
D Management have a committed plan to sell the asset

11 According to the IASB Conceptual Framework which concept ensures that excessive
dividends are not paid in times of rising prices?

A Going concern
B Financial capital maintenance
C Physical capital maintenance
D Reserves retention

12 At 1 April 20X6 Palmer owned a herd of cattle with a carrying amount of $48,000. At
31 March 20X7 the fair value of the herd had risen to $54,000. Palmer pays commission of
3% on any cattle sales.

What gain will be taken to Palmer’s statement of profit or loss for the year ended 31 March
20X7?
$______________

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13 On 31 July 20X3 Pride sold its entire 80% shareholding in Stride for $260,000, at which date
the net assets of Stride were $200,000. Pride had acquired the shares some years previously
when Stride’s net assets were $140,000, recognising goodwill of $20,000 at acquisition. Pride
measures the non-controlling interest using the fair value method, and at acquisition the
non-controlling interest in Stride was $24,000. Goodwill had not been impaired by the date
of disposal.

What gain will be recognised in Pride’s consolidated statement of profit or loss in respect
of the disposal of its shareholding in Stride?
A $76,000
B $4,000
C $64,000
D $40,000

14 Which of the following would be treated as a change in accounting policy under IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors?

A A change in the residual value of a two-year old machine

B A change from the straight-line to reducing balance method of depreciation
C A change in the presentation of plant depreciation from operating expenses to cost of
sales
D A change in the total useful life of a two-year old machine from four years to six years

15 Which of the following statements about intangible assets is true according to IAS 38
Intangible Assets?

A All intangible assets are subject to annual impairment review

B Intangible assets can never be measured using the revaluation model
C Internally generated brands can only be recognised as assets if intended to be used for
the foreseeable future
D Research costs should always be written off as an expense to profit or loss

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SECTION B
All FIFTEEN questions are compulsory and MUST be attempted

The following scenario relates to questions 16–20

On 1 January 20X4 Bee purchased 75% of Wasp’s 1 million $1 shares for $3.2 million cash, plus
$1 million payable in three years’ time. The share price of Wasp as at 1 January 20X4 was $1.75,
and Wasp had retained earnings at this date of $2.9 million, and no other components of equity.
All of Wasp’s net assets at this date were equal to their carrying amounts, with the exception of a
property with a carrying amount of $1.1 million, and a fair value of $1.6 million.
Bee measures the non-controlling interest at acquisition at fair value, and for this purpose the share
price of Wasp at acquisition represents fair value.
During the year ended 31 December 20X4, Wasp sold goods to Bee totalling $750,000, all at a
margin of 20%. Half of these goods remain in the year-end inventories of Bee.
Bee has a cost of capital of 9%, giving the following discount factors:

Year 1 0.92
Year 2 0.84
Year 3 0.77

16 What is the fair value of the non-controlling interest as at 1 January 20X4?

$________________

17 What is the fair value of consideration payable by Bee?

A $4,200,000
B $3,970,000
C $4,040,000
D $3,200,000

18 What is the impact of the adjustment for unrealised profit on the consolidated statement
of financial position balances at 31 December 20X4? Choose THREE from the options
below.

A Debit Inventory $75,000

B Debit Group retained earnings $75,000
C Debit Group retained earnings $56,250
D Debit Non-controlling interest $18,750
E Credit Inventory $75,000
F Credit Group retained earnings $75,000
G Credit Group retained earnings $56,250
H Credit Non-controlling interest $18,750

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19 What is the fair value of Wasp’s net assets at 1 January 20X4?

$_____________,000

20 According to IFRS 10 Consolidated Financial Statements which of the following is not

necessary in order to conclude that an investee is controlled by an investor?

A Power over the investee

B Ownership of the majority of voting rights in the investee
C Exposure, or rights, to variable returns from its involvement with the investee
D The ability to use its power over the investee to affect the amount of the investor’s
returns

The following scenario relates to questions 21–25

Bob Ltd has entered into the following transactions during the year ended 31 December 20X6:
On 1 January 20X6 Bob Ltd issued a $4 million 3% convertible loan at par, with interest payable
annually in arrears. The rate for a similar loan with no conversion option is 6%. The loan is repayable
in full after four years on 31 December 20X9, or may be converted to equity on the basis of 70
shares per $100 of loan.
On 15 December 20X6 Bob Ltd purchased 100,000 shares in Cob Ltd (representing a 2%
shareholding), for $4.50 per share, incurring transaction fees of $15,000. These shares are held for
trading purposes. As at 31 December 20X6, the shares are trading at $5 each.
On 1 October 20X6 Bob Ltd purchased 90,000 shares in Fred Ltd (representing a 6% shareholding),
for $7 per share, incurring transaction costs of $20,000.
The present value of $1 payable at the end of the year, based on rates of 3% and 6% is as follows:
End of year 3% 6%
1 0.97 0.94
2 0.94 0.89
3 0.92 0.84
4 0.89 0.79

21 Which of the following is NOT a financial asset?

A Cash
B Trade receivable
C Equity investment
D Prepayment for insurance

22 What is the equity element of the convertible loan at the date of issue?

$___________________

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23 How should the liability element of the convertible loan be measured?

A Fair value through other comprehensive income

B Amortised cost
C Fair value plus costs to transfer
D Fair value through profit or loss

24 What is the gain/(loss) to be recognised in relation to the shares in Cob Ltd as at

31 December 20X6, and where would this be presented in the financial statements?

A $50,000 gain in the statement of profit or loss

B $50,000 gain in other comprehensive income
C $35,000 gain in the statement of profit or loss
D $35,000 gain in other comprehensive income

25 Assuming that Bob Ltd made an irrevocable election on acquisition with regard to the
measurement of the investment in Fred Ltd, what is the initial measurement of this
investment as at 1 October 20X6?

$___________________

The following scenario relates to questions 26–30

Tree has entered into the following lease agreements during the year ended 31 December 20X1.
On 1 January 20X1 Tree acquired plant under a four-year lease agreement. The present value of the
future lease payments as at 1 January 20X1 was $2,300,000. Rentals of $725,000 are payable
annually in arrears. The interest rate implicit in the lease is 10%.
On 1 July 20X1 Tree entered into a lease for a set of thirty tablet computers. The lease agreement
specifies that $7,500 is payable annually in arrears for the next two years, commencing 30 June
20X2. Tree has elected to apply the recognition exemption permitted under IFRS16 Leases.
On 1 September 20X1 Tree sold its head office to Oak for $5 million. At this date, the head office
had a carrying amount of $3.5 million. The sale represents the satisfaction of a performance
obligation in accordance with IFRS 15 Revenue from Contracts with Customers. Tree enters into a
contract with Oak for the right to use the office for the next three years. The present value of the
future lease payments under this agreement as at 1 September 20X1 is $4.5 million.

26 According to IFRS 16 Leases which of the following would NOT be included in the initial cost
of a right-to-use asset?

A Lease payments made at or before the lease commencement date

B Any initial direct costs incurred by the lessee
C The purchase price of the asset
D Initial measurement of the lease liability

27 What would be the non-current lease liability as at 31 December 20X1 in respect of the
leased plant?

$_________________

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28 Assuming that Tree applied the exemption available in IFRS 16 Leases, what expense would
be recognised in the statement of profit or loss of Tree in respect of the tablet computers
for the year ended 31 December 20X1?

A $3,750
B $7,500
C $11,250
D $15,000

29 At what value is the right-of-use asset in respect of the head office recognised as at
1 September 20X1?

$_____________

30 If the sale of the head office did not represent the satisfaction of a performance obligation
in accordance with IFRS 15 Revenue from Contracts with Customers which TWO of the
following statements would be true at 1 September 20X1?

A The head office should be derecognised

B Tree should recognise a right-of-use asset equivalent to the present value of the lease
payments
C The sale proceeds should be treated as a financial liability
D Tree should continue to recognise the head office at its existing carrying amount
E Tree should increase the value of the head office to reflect the sales price of $5 million

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SECTION C
BOTH questions are compulsory and MUST be attempted

31 The following trial balance relates to Cavern as at 30 September 20X7:

$000 $000
Equity shares of $1 each 45,000
Other components of equity (share premium) 6,000
8% loan note (note (i)) 30,600
Retained earnings – 30 September 20X6 6,600
Revaluation surplus 7,000
Land and buildings at valuation – 30 September 20X6:
Land ($7 million) and building ($36 million) (note (ii)) 43,000
Plant and equipment at cost (note (ii)) 67,400
Accumulated depreciation plant and equipment – 30 September 20X6 13,400
Equity investments (note (iii)) 15,800
Current assets 48,800
Bank 4,600
Deferred tax (note (iv)) 4,000
Current tax (note (iv)) 900
Trade payables 21,700
Draft profit for the year 37,000
––––––– –––––––
175,900 175,900
––––––– –––––––
The following notes are relevant:
(i) The 8% loan note was issued on 1 October 20X5 at its nominal value of $30 million.
The loan note will be redeemed on 30 September 20X9 at a premium which gives the
loan note an effective finance cost of 10% per annum.
(ii) Cavern revalues its land and building at the end of each accounting year. At
30 September 20X7 the relevant value to be incorporated into the financial statements
is $41.8 million. The building’s remaining life at the beginning of the current year
(1 October 20X6) was 18 years. Cavern does not make an annual transfer from the
revaluation surplus to retained earnings in respect of the realisation of the revaluation
surplus. Ignore deferred tax on the revaluation surplus.
Plant and equipment includes an item of plant bought for $10 million on 1 October
20X6 that will have a 10-year life (using straight-line depreciation with no residual
value). Production using this plant involves toxic chemicals which will cause
decontamination costs to be incurred at the end of its life. The present value of these
costs using a discount rate of 10% at 1 October 20X6 was $4 million. Cavern has not
provided any amount for this future decontamination cost. All other plant and
equipment is depreciated at 12.5% per annum using the reducing balance method.
No depreciation has yet been charged on any non-current asset for the year ended
30 September 20X7. All depreciation is charged to cost of sales.

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(iii) The equity investments had a fair value of $13.5 million on 30 September 20X7. There
were no acquisitions or disposals of these investments during the year ended
30 September 20X7. The equity investments are measured at fair value through profit
or loss in accordance with IFRS 9 Financial Instruments.
(iv) A provision for income tax for the year ended 30 September 20X7 of $5.6 million is
required. The balance on current tax represents the under/over provision for the year
ended 30 September 20X6. At 30 September 20X7 the tax base of Cavern’s net assets
was $15 million less than their carrying amounts. Changes in deferred tax should be
taken to the statement of profit or loss. Cavern’s tax rate is 25%.

Required:
(a) Prepare a statement of adjusted profit for Cavern for the year ended 30 September
20X7. (6 marks)
(b) Prepare the statement of financial position of Cavern as at 30 September 20X7.
(11 marks)
(c) Calculate the basic earnings per share for Cavern for the year ended 30 September
20X7. (3 marks)
(Total: 20 marks)

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32 Greenwood is a publicly listed entity. During the year ended 31 March 20X7 the directors
decided to cease operations of one of its activities and put the assets of the operation up for
sale (the discontinued activity has no associated liabilities). The cessation qualifies as a
discontinued operation and has been accounted for accordingly.
Note: The statement of profit or loss figures down to the profit for the period from
continuing operations are those of the continuing operations only.
Statement of profit or loss for the years ended 31 March
20X7 20X6
Continuing operations: $000 $000
Revenue 27,500 21,200
Cost of sales (19,500) (15,000)
––––––– –––––––
Gross profit 8,000 6,200
Operating expenses (2,900) (2,450)
––––––– –––––––
Profit from operations 5,100 3,750
Finance costs (600) (250)
––––––– –––––––
Profit before taxation 4,500 3,500
Income tax expense (1,000) (800)
––––––– –––––––
Profit for the period from continuing operations 3,500 2,700
Profit/(loss) from discontinued operations (1,500) 320
––––––– –––––––
Profit for the period 2,000 3,020
––––––– –––––––
Analysis of discontinued operations
Revenue 7,500 9,000
Cost of sales (8,500) (8,000)
––––––– –––––––
Gross profit/(loss) (1,000) 1,000
Operating expenses (400) (550)
––––––– –––––––
Profit/(loss) before tax (1,400) 450
Tax (expense)/relief 300 (130)
––––––– –––––––
(1,100) 320

Loss on measurement to fair value less costs to (500) –

sell of disposal group
Tax relief on disposal group 100 –
––––––– –––––––
Profit/(loss) from discontinued operations (1,500) 320
––––––– –––––––

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Statement of financial position as at 31 March

20X7 20X6
$000 $000 $000 $000
Non-current assets 17,500 17,600
Current assets
Inventory 1,500 1,350
Trade receivables 2,000 2,300
Bank Nil 50
Assets held for sale (at fair value) 6,000 Nil
––––––– 9,500 ––––––– 3,700
––––––– –––––––
Total assets 27,000 21,300
––––––– –––––––
Equity and liabilities
Equity shares of $1 each 10,000 10,000
Retained earnings 4,500 2,500
––––––– –––––––
14,500 12,500
Non-current liabilities
5% loan notes 8,000 5,000
Current liabilities
Bank overdraft 1,150 Nil
Trade payables 2,400 2,800
Current tax payable 950 1,000
––––––– 4,500 ––––––– 3,800
––––––– –––––––
Total equity and liabilities 27,000 21,300
––––––– –––––––
Note: The carrying amount of the assets of the discontinued operation at 31 March 20X6
was $6.3 million.

Required:
(a) Calculate the following ratios for the continuing operations of Greenwood for the
two years ended 31 March 20X7.
Return on capital employed
Gross profit
Operating profit
Asset turnover
Current ratio
Inventory days
Gearing (7 marks)
(b) Using these ratios and the information above, analyse the financial performance and
position of Greenwood. (13 marks)
Note: Your analysis should refer to the effects of the discontinued operation.
(Total: 20 marks)

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