15. Diamond Limited uses retail method to valued its closing inventory.

The opening
inventory was valued at Rs.280,000 and sold at Rs.560,000. Purchases for the
period amounted to Rs. 780,000 and were priced to sell at twice that amount.
Actual sales for the period were Rs.12,00,000 and were all the normal retail price.
What would the closing inventory be valued using the retail method of inventory
valuation?

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IFRS: Multiple choice questions

1. The conceptual framework for Financial Reporting prescribes that the purpose of

financial reporting is to provide information:

A) To existing and future employees for security of the entity as an employer

B) To management accountants for decision making

C) To investors, lenders and other creditors for decision making

D) To tax authorities for tax assessment

Answer: (C)

2. The two main requirements of financial information are that it should:

A) Be complete and reflect economic substance over legal form

B) Be prudent and free from bias

C) Be relevant and offer a faithful representation

D) Adhere to the principle of going concern and consistency

Answer (C)

3. Prudence represents:

A. Overstating the reserve for doubtful advances

B. Understating the reserve for doubtful advances

C. Fairly estimating the reserve for doubtful advances

D. Ignoring the doubtful advances

Answer (C)

4. Consistency represents:
A. Not changing the method of preparation of financial statements even when a new

accounting standard prescribes so

B. Changing the method of preparation of financial statements when it is more appropriate

C. Not changing the method of preparation of financial statements when the entity changes

its operations

D. None of the above

Answer (B)

5. In times of inflationary conditions, what effect does the use of the historical cost concept have on a
company’s assets and profit?

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A. Assets values and profit both are overstated

B. Assets values and profit both are understated

C. Assets values are overstated and profit understated

D. Assets values are understated and profit overstated

Answer (D)

6. Which of the following statements is correct according to IAS 1, “ Presentation of Financial

Statements”

A) Accounting Standards can be deviated from if agreed by all shareholders

B) Accounting Standards can be deviated from in order to achieve fair presentation

C) Accounting Standards must always be adhered to

D) Accounting Standards can be deviated from in order to achieve prudence

Answer (C)

7. Which of the following correctly describes the order of items reported in a Balance Sheet in
accordance with IAS 1:

A) Non-current assets, current assets, non-current liabilities, current liabilities, capital

and reserves

B) Non-current assets, non-current liabilities, current assets, current liabilities, capital

and reserves

C) Non-current assets, current assets, current liabilities, non-current liabilities, capital

and reserves

D) Non-current assets, current assets, capital and reserves, non-current liabilities and

current liabilities

Answer (D)

8. Which of the following statements are correct?

The going concern concept assumes that a business entity will continue its operational
existence for at least one yearThe accrual concept means that transactions and events
(i)
are recognised only when cash is received or paid for themAn item is material if it is
omission of misstatement could influence the

(ii)

(iii)

economic decisions of users considered on the basis of the financial statements.

A. (i) and (ii)

B. (i) and (iii)

C. (ii) and (iii)

D. (i), (ii) and (iii)

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Answer (B)

9. Which of the following statements is correct?

A. A dividend equalization reserve is a reserve to maintain the rate of dividend even in a lean

period

B. A general reserve is a voluntary reserve and cannot be used for dividend distribution

C. Share premium is available for distribution of dividends, as it is collected only from the

shareholders

D. Asset replacement reserves are the reserves created when, as a result of revaluation, the value

of assets increases.

Answer (A)

10. Which of the following will appear on the face of a company’s statement of changes in

equity?
(i) Share premium (ii) Profit for the year

(iii)Surplus on revaluation of non-current assets

A. (i) and (ii)

B. (ii) and (iii)

C. (i) and (iii)

D. All of the above

Answer 10. (D)

11. Clockwork Limited carried out the following transactions related to non-current assets during the
year ended March 31, 2022.

a) A write down in the value of certain plant held at historic costs of Rs. 90 million.

b) Upward revaluation of land Rs. 108 million.

How much would be reported under revaluation surplus in Clockwork’s Statement of changes in
Equity?

A. Rs.90 million

B. Rs. 108 million

C. Rs. 198 million

D. None of the above

Answer (B)

12. Which of the statements shown below are incorrect? (i) An entity can raise bonus issue to raise
funds for expansion,

(ii)Both realised and unrealised gains and losses may be included in the statement of changes in
equity, prescribed under IAS 1,

(iii)The profit or loss on the disposal of a part of an entity’s operations must be disclosed in the
statement of profit or loss or other comprehensive income as an extraordinary item if material

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A. All of the above

B. (i) and (iii)

C. (i) and (ii)

D. (ii) and (iii)

Answer (B)

13. Seabed Ltd purchased a quantity of inventory, incurring the following costs:

Rs.

Base cost 230,000

Irrecoverable sales tax 46,000

Shipping 22,000 Storage 15,000

Handling fee 9,000

Total 322,000

How this batch of inventory be valued and reflected in Balance Sheet?

A) Rs.307,000

B) Rs. 322,000

C) Rs. 230,000

D) Rs. 276,000

Answer (A)

14. Rex Limited holds three batches of inventories. The following details are relevant:

Inventory Type Cost Selling price Selling cost

Rs Rs Rs.

X 250 275 40

Y 125 145 15

Z 320 290 30

What would be the aggregate value of all the batches to be shown in the Balance Sheet in accordance
with IAS 2 Inventories?

Rs.

A) 695

B) 620

C) 625

D) 700

Answer (B)
15. Diamond Limited uses retail method to valued its closing inventory. The opening inventory was
valued at Rs.280,000 and sold at Rs.560,000. Purchases for the period amounted to Rs. 780,000 and
were priced to sell at twice that amount. Actual sales for the period were Rs.12,00,000 and were all
the normal retail price. What would the closing inventory be valued using the retail method of
inventory valuation?

bdchatterjee.com

A. Rs.230,000

B. Rs.300,000

C. Rs.460,000

D. Rs.600,000

Answer (C)

16. An item of inventory which was originally valued at Rs.1500 can be sold at Rs.1680, after incurring
further costs of Rs. 110 and marketing cost of Rs.140. Calculate the value of the inventory to be
included in the financial statements.

A. Rs. 1500 B. Rs. 1680 C. Rs. 1430 D. Rs. 1490.

Answer (C)

17. Alpha Limited manufactures unique equipment according to customer needs.

Method of valuation of inventory Alpha Limited follows:

A. Weighted Average

B. FIFO

C. Specific Identification method

D. None of the above

Answer (C)

18. Changing the method of inventory valuation should be reported in the financial

statements under what qualitative characteristic of accounting information?

A. Verifiability

B. Understandability

C. Comparability

D. Timeliness

Answer (C)
19. According to IAS 2, Inventories, which of the following statements about valuation

of inventories are incorrect?

(i) The inventories items are normally valued at higher of cost of net realisable value

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The cost of goods manufactured by an enterprise will include only material and labour.
Overhead costs cannot be includedThe selling price less the estimated profit margin
(ii)
may be used to arrive at cost of inventory, if this approximates actual cost.The first in
first out or weighted average method may be used to determine the cost of inventory.

(iii)

(iv)

A. (i), (iii) and (iv)

B. Only (i)

C. (i) and (ii)

D. All of the above

Answer (C)

20. Financial statements of Bolton Ltd included an investment in associate at Rs.6,600,000 in its
consolidated statement of financial position at 30th September 2021. At 30th September 2022, the
investment in associate had increased to Rs.6,750,000. Bolton Ltd’s pre-tax share of profit in the
associate was Rs.420,000, with a related tax charge of Rs.180,000. The net amount of Rs.240,000 was
included in the consolidated income statement for the year ended 30th September 2022.

There were no impairments to the investment in associate, or acquisitions or disposals of shares

during the financial year.

What is the amount of the cash flow related to this investment for inclusion in the consolidated cash
flow statement for the year ended 30th September 2022 ?

A) Rs.90,000

B) Rs.240,000

C) Rs.390,000

D) Rs.420,000

Answer (A)

Workings

Statement of reconciliation of investment in associates

 Particulars AmountRs

Opening balance of
investment in Associate Add:
Share of profit in
6,600,000 240,000 (90,000)
AssociateLess: Cash flow
(dividend paid) balancing
figure

Closing balance of investment

6,750,000
in Associate

Hence correct answer is A.

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21. The following details of Monaco Ltd pertain to the year ended 31st December 2022:

Paid financial lease liabilities (principal portion) Rs.300,000

The information on share capital and share premium account is as

under:

01/01/2022 31/12/2022

Ordinary share capital (par

250,00050,000 500,00050,000
value Re.1) Share premium

On 10 July 2022 a bonus issue of 1 share for every 5 ordinary shares was made utilizing the share
premium account. The remainder of the increase in ordinary shares was due to an issue of shares for
cash on 21st August 2022.

From the above information, calculate the cash flows from financing activities for the year ended 31st
December 2022.

a) (Rs.100,000)

b) Rs.685,000

c) (Rs.50,000)

d) Rs.385,000

Answer (C)

Working Notes:

WN1

Dr Ordinary share capital account Cr

 Rs. Rs.

Balance b/dBonus issue (1/5 x

250,000) Issue of shares for
Balance c/d 500,000 250,00050,000200,
cash on 21st August (balancing
figure)

Total 500,000 Total 500,000

WN2

Dr Share Premium account Cr

Rs. Rs.

Balance b/dCash (premium

Bonus issue (1/5 x 250000) received on issue of shares for
50,00050,000 50,00050,000
Balance c/d cash on 21st August (balancing
figure)

Total 100,000 Total 100,000

Reconciliation of net cash flow from financing activities

Rs

Proceeds from issue of share

capital (W1 and W2) (200,000
250,000(300,000)
+ 50,000) Payment of finance
lease liabilities

Net cash flow from financing

(50,000)
activities

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22. Using the following information, what is Alcorn Ltd’s cash flow from operations?

Particulars Amount Rs.

Net Income 120

Decrease in accounts
20
receivables

Depreciation 25

Increase in inventory 10

Increase in accounts payable 7

Decrease in wages payable 5

 Increase in deferred tax
15
liabilities

Profit from sale of land 2

a) Rs. 158

b) Rs. 170

c) Rs. 174

d) None of the above

Answer (B)

Workings

Cash flow from operating activities – Indirect method

Particulars Amount Rs.

Net Income 120

Depreciation 25

Profit from sale of land (2)

Cash generation 143

Decrease in accounts
20
receivables

Increase in inventory (10)

Increase in deferred tax

15
liabilities

Increase in accounts payable 7

Decrease in wages payable (5)

Cash flow from operations 170

Hence correct answer is B

23. Gamma Ltd reported net income of Rs.25 million, which equals the company’s comprehensive
income. The company has no outstanding debt. Using the following information from the
comprehensive statement of financial position (Rs.in millions).

What should the company report in the financing section of the statement of cash flows?
 Extract of Statement of
31.12.2021 Rs. 31.12.2023 Rs.
Financial Position

Equity share capital 100 102

Further issue of equity shares 100 140

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Retained earnings 100 115

Total shareholders’ equity 300 357

A. Issuance of equity shares Rs.42 million; dividends paid Rs.10 million

B. Issuance of equity shares Rs.38 million; dividends paid Rs.10 million

C. Issuance of equity shares Rs.42 million; dividends paid Rs.40 million

D. None of the above

Answer (A)

Workings

Issuance of equity shares including further issue of equity shares (242 – 200) = Rs.42 million Dividends
paid worked out as under:

Particulars Rs. million

Opening retained earnings

Add: Net incomeLess: Cash 100 25 (10)
dividend paid

Closing retained earnings 115

Hence cash dividend paid Rs.10 million.

24. On 1st of March 2022, Alpha Ltd acquired 30% of the shares of Beta Ltd. The investment was
accounted for as an associate in Alpha’s consolidated financial statements. Both Alpha and Beta have
an accounting year end of 31st October 2022. Alpha Ltd has no other investments in associates.

Net profit for the year in Beta’s income statement for the year ended 31st October 2022 was
Rs.230,000. It declared and paid dividend of Rs.100,000 on 1st July 2022. No other dividends were
paid in the year.

What amount will be shown as an inflow in respect of earnings from the associate in the consolidated
cash flow statement of Alpha for the year ended 31st October 2022?

A. Rs. 20,000

B. Rs. 26,000
C. Rs. 30,000

D. Rs. 46,000

Answer (C)

Dividend paid by Associate Tintin Ltd Alpha’s share of dividend 30% x = Rs.100,000= Rs. 30,
Rs.1, 00,000 000

This is the amount that should appear in the cash flow statement of Quixote as this is the share of
Alpha’s dividend from the Associate.

Hence correct answer is C

25. Which of the following is not a cash inflow?

A Decrease in debtors

B Issue of shares

C Decrease in creditors

D Sale of fixed assets

Answer: (C)

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26. Which of the following describes the ordering and inclusion of items in a cash flow statement in
accordance with IAS 7 “Statement of cash flows”?

A. Operating activities, investing activities (including dividends received), financing activities

B. Operating activities (including income tax paid), financing activities, investing activities

C. Operating activities, investing activities (including proceeds from long term borrowings),

financing activities

D. Financing activities, investing activities, operating activities (including interest paid)

Answer (A)

27. Gabba Ltd acquired a business from Delta Ltd on 1st December 2014. Gabba Ltd amortized the
goodwill over 20 years. On 1 November 2022 Delta Ltd ceased amortization of goodwill as required by
IFRS 3 Business Combinations. Pursuant to IAS 8, this transaction will be treated as:

A) Change in accounting policy,

B) Change in accounting estimates,

C) Errors,
D) Prior period adjustment.

Answer (A)

28. An equipment has been purchased at a cost of Rs. 200,000 and an estimated useful life of ten
years with nil residual value. It is depreciated on a straight-line method and the annual depreciation
works out to Rs.20,000 p.a. The carrying amount of the equipment after four years works out to
Rs.120,000. It was decided in the fifth year that the remaining useful life of the equipment is only
three years and not six years. In accordance with IAS 8, the Company should:

A) Change the depreciation charged per annum to Rs. 28,571 in retrospective effect as change in
accounting estimate.

B) Change the subsequent depreciation per annum to Rs 30,000 per annum.

C) Change the subsequent depreciation per annum to Rs.40,000 per annum.

D) Continue charging depreciation per annum for Rs.20, 000 per annum.

Answer (C)

29. Dexter Ltd acquired a business from Cluster Ltd on 1st December 2012. Dexter Ltd amortized the
goodwill over 20 years. On 1 October 2019 Cluster Ltd ceased amortization of goodwill as required by
IFRS 3 Business Combinations. Pursuant to IAS 8, this transaction will be treated as:

A) Errors,

B) Change in accounting policy,

C) Change in accounting estimates,

D) Prior period adjustment.

Answer (A)

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30. Jeremy Ltd created a provision for claims under its warranty of products sold during the year. 4.5%
of sales revenue had previously been set as the required provision amount as a matter of policy.
However, after an analysis of five years sales and warranty claims the calculation of the provision
amount has been changed to 6.5% of sales which is more realistic. Pursuant to IAS 8, this transaction
will be treated as:

A) Change in accounting policy,

B) Change in accounting estimates,

C) Errors,

D) Prior period adjustment.

Answer (B)
31. Pursuant to IAS 8, which of the following will be treated as change in accounting policy?

(i) Changes in the fair values and financial assets and liabilities (ii) Changes in the provision for
warranty obligation (iii)Reduced the rate of bad debt provision

(iv)Changes in the treatment of borrowing costs under IAS 23 from expensing it off to capitalizing
interest related to construction of non-current assets

A. (i) and (ii)

B. (i), (ii) and (iii)

C. Only (iv)

D. None of the above

Answer (C)

32. An entity has included in its consolidated financial statements this year a subsidiary acquired
several years ago that was appropriately excluded from consolidation last year.

This needs to be reported as:

A. An accounting change that should be reported prospectively

B. An accounting change that should be reported retrospectively

C. Neither an accounting change nor a correction of an error

D. A correction of an error

Answer (C)

33. The following dates are relevant to the financial statements of Conway Ltd for the year ended 31st
March 2022.

Management completes draft financial statements 5th July 2022

The Board of directors reviews them and approves them 20th July 2022

Shareholders approve the financial statements 10th August 2022

Which is the date that will be construed as date of authorisation of the financial statements under IAS
10?

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12

A) 5th July 2022 B) 20th July 2022 C) 10th August 2022 D) None of the above.

Answer (B)

34. A case for damages against Baxter Ltd was pending in court on 31st March 2022, the end of
reporting period. Baxter Ltd had estimated the probable liability at Rs. 600,000 and made a provision
in the Accounts. The Company’s lawyers studied the claim and advised that the provision should be
considered at Rs.635, 000 on 30th April 2022. The Company’s auditors reviewed the legal opinion but
failed that the provision should be made to the tune of Rs.675,000. The Court gave a verdict on 31
May 2022 fixing the liability to Rs. 650,000. Baxter Ltd accepted the verdict. The financial statements
were approved on 30th June 2022. The Company in accordance with IAS 10:

A) Retain probable liability at Rs.600, 000.

B) Increase provision to Rs. 635, 000 treating it as adjusting event.

C) Increase provision to Rs.650, 000 treating it as adjusting event.

D) Increase provision to 675,000 treating it as adjusting event.

Answer (C)

35. Which of the following is an adjusting event under IAS 10, Events after the reporting date? i) There
was a dispute with the workers and all production ceased one week after the year-end ii) A fire
destroyed all of the entity’s finished goods inventory two weeks after the year-end iii) Inventory
valued at the year-end at Rs. 20,00,000 was sold one month later for Rs. 16,00,000.

A. (i) and (ii)

B. (ii) and (iii)

C. Only (iii)

D. (i) and (ii)

Answer (C)

The sale depicted in (iii) above, gives evidence of the recovery value of the inventory at the reporting
date and so it is an adjusting event.

Events under (i) and (ii) are non-adjusting events, which needs to be disclosed in Notes to Accounts of
the Financial statements.

36. The cost of an asset is Rs. 500,000. For the first year, the accounting depreciation is Rs. 80,000,
whereas the depreciation according to tax laws is Rs.125, 000. Tax rate is 20%. The deferred tax
treatment under IAS 12: Taxes would be:

A) Deferred tax assets of Rs.9, 000.

B) Deferred tax liabilities of Rs.9, 000.

C) Deferred tax asset of Rs.45, 000.

D) Deferred tax liability of Rs. 45, 000.

Answer (B)

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13
37. The tangible non-current asset balances and their equivalent tax base are:

Item Carrying valueRs Tax baseRs.

As at January 20X0 2,000 1,600

Depreciation (200) (400)

31st December 20X0 1,800 1,200

The rate of tax is 30%

What is the deferred tax charge or credit included in Statement of Profit & Loss for the year ended
December 20X0?

A. Charge of Rs. 60

B. Credit of Rs.60

C. Charge of Rs. 630

D. Credit of Rs. 630

Answer: (A)

38. According to IAS 12, Income Taxes, when should deferred tax assets be recognized?

A. Only if there will probably be sufficient taxable profit

B. Only if tax rates are expected to fall

C. Only if they do not surpass deferred tax liabilities

D. Only if they are recoverable beyond reasonable doubt

Answer: (A)

39. The accountant of Travancore Limited wants to calculate the net deferred tax expense for the year
ended December 31, 2022. The following information is available:

Deferred tax liability Deferred tax asset

December 31, 2021 Rs. 380,000 Rs. 90,000

December 31, 2022 Rs. 500,000 Rs. 98,000

The net deferred tax expense for the year ended December 31, 2022 is worked out at:

A. Rs.120,000

B. Rs.98,000

C. Rs.112,000

D. Rs. 8,000
Answer (C)

40. Pursuant to IAS 16, an asset is classified as non-current if

A) It is expected to be realized in, or is intended for sale or consumption in, the entity’s

normal operating cycle and is held primarily for the purpose of being traded,

B) It is expected to be realized within 12 months after the statement of financial position

date, or

C) It is cash or a cash equivalent (as defined in IAS 7 Statement of Cash Flows, unless it is

restricted from being exchanged or used to settle a liability for at least twelve months

after the statement of financial position date.

D) None of the above.

Answer (D)

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14

41. According to IAS 16, the following items need to be included while capitalizing, Property, Plant and
Equipment:

A) Cost of launching a new product or service

B) Expenses on opening a new business facility or expenses related to an inaugural

function

C) Initial losses when the asset operates at lower capacity

D) Initial estimate of the costs of dismantling and removing the item and restoration

of site

Answer (D)

42. Little Ltd needs to revalue a factory building that it has. The property was purchased for
Rs.600,000 in 2013 and has been depreciated for the last 10 years on a straight-line basis of 5%. The
revaluation report states that the building is worth Rs. 650,000 on 31st December 2022.

The revaluation surplus would be:

A) Rs.300,000

B) Rs.350,000

C) Rs.320,000

D) Rs.400,000
Answer (C)

43. An asset had a carrying value of Rs.10,00,000 as on 1st April 2021. It was revalued at Rs.1,100,000
as on 31st March 2022 by crediting the increase of Rs.100,000 to revaluation surplus. Later it was sold
for Rs. 1,250,000 on 30 June 2022. The amount to be taken to retained earnings would be:

A) Rs.250,000

B) Rs.100,000

C) Rs.150,000

D) Rs.125,000

Answer (B)

44. Pursuant to IAS 16, which of the following is correct:

A) Accumulated depreciation and impairment losses from the date of initial recognition are deducted
from the revalued amount.

B) In the revaluation model, each year the starting point is the historical cost less accumulated
depreciation

C) Revaluation should be made with sufficient regularity to ensure that the carrying amount does not
differ materially from fair value.

D) Gain on revaluation surplus is recognized in the statement of profit or loss.

Answer (C)

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15

45. An entity has purchased equipment worth Rs.125,000. It had to incur following costs for
purchasing the machine:

Item Amount

Freight Installation charges

Incidental expenses General
OverheadRent of the
premises where the machine 500100015003000250010002
has to be kept Initial losses 000
due to low capacity of the
machine Costs incurred for
testing equipment

What is the cost of the equipment as per IAS 16?

A. Rs. 128,560
B. Rs. 126,560

C. Rs. 132,060

D. Rs. 135,060

Answer (B)

46. In accordance with IAS 16, which of the following is correct about depreciation of complex assets?

A. Each part of an item of property, plant and equipment whose value is not less than 10% of the total
cost of equipment should be depreciated separately.

B. If two or more significant parts of an item have the same useful life and depreciation method, these
parts may be grouped together to determine the depreciation charge

C. An entity will have to depreciate the parts of an item separately even if they do not have a cost that is
significant in relation to the total cost of the item

D. None of the above.

Answer (B)

47. Hybrid Limited provides following information as below. Please calculate the net interest on the
pension plan for the year ended 2022.

Rs’000

Defined benefit liability as at

31.12.2021 Defined benefit
liability as at 31.12.2022 Fair
24,600 32,800 28.800 41,000
value of plan assets as at
31.12.2021 Fair value of plan
assets as at 31.12.2022

Discount rate used to compute net interest is 10%

A. Rs. 420 (income)

B. Rs. 420 (expenses)

C. Rs. 820 (income)

D. Rs.820 (expenses)

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16

Answer (A)

Workings

Item Rs’000
 Defined benefit liability as at
31/12/2021 Less: Fair value of
Plan assets as at 31/12/2021 24,600 (28,800) (4,200)
Net defined benefit liability
(asset)

Net interest income (as it is an asset) is 10% of Rs.4,200 = Rs.420

48. A defined benefit plan of Croner Limited has provided the following information:

Rs’000

Present value of the

obligation – 31 December
2022Fair value of plan assets
– 31 December 2022Present 2,8002,0002,1001,600
value of the obligation – 1
January 2022Fair value of plan
assets – 1 January 2022

Ascertain the amount to be disclosed in the financial statements with respect to net Defined Benefit
Obligation as at 31st December 2022

A. Rs. 800,000

B. Rs. 2,800,000

C. Rs. 2,000,000

D. Rs. 500,000

Answer (A)

49. Alpha Limited contributes 5% of an employee’s salary to the plan. The employee is guaranteed a
return of the contributions plus a terminal bonus of 20% by Alpha Limited. The plan would be
accounted as:

A. Defined contribution plan

B. Defined benefit plan

C. Multi-employer plan

D. None of the above

Answer (C)

50. In accordance with IAS 19, past service cost

A. Is the increase in the present value of the obligation for employee service in prior periods

B. Is the employment cost for previous years

C. Can only be negative

D. Can only be positive

Answer (A).

51. What is the event that will cause a change in a defined benefit obligation and will require re-
measurement per IAS 19 Employee Benefits:

A. Changes in the benefits which will occur in the future

B. Changes in the proportion of employees taking early retirement

C. Changes in the discount rate used to calculate defined benefit liabilities

D. All of the above

Answer (D)

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52. In accordance with IAS 20, the treatment of grants related to assets is:

A. In the Statement of Profit & Loss for the period they are due to be received

B. In the Balance Sheet as deferred income

C. In the Balance Sheet as a deduction from carrying amount of the relevant asset

D. In the Balance Sheet as deferred income OR as a deduction from the carrying amount of the relevant
asset

Answer (D)

53. On January 1, 2021, Carefree Limited purchased a machine costing Rs.135,000. Carefree Limited
received a grant of Rs.13,500 towards the capital cost. The company policy is to treat the grant as a
reduction in the cost of the asset.

Under IAS 20, what should be the depreciation expense in respect of the machine for the year ended
December 31, 2022, assuming that depreciation is calculated on a 20% reducing balance basis?

A. Rs. 27,000

B. Rs. 24,300

C. Rs. 19,440

D. Rs. 22,140

Answer (C)

54. According to IAS 20, which of the following is government assistance?

A. Provision of infrastructure facilities in designated areas

B. Imposing trading constraints on competitors

C. Reduce unemployment by subsidizing jobs and training

D. Imposing import tariffs

Answer (C)

55. An entity has received free technical assistance from Government. According to IAS 20, how
should this be treated in the financial statements?

A. Financial statements must ignore all assistance as no monetary consideration is involved

B. Financial statements must disclose the nature, extent and duration of the assistance provided

C. Financial statements must show only 25% of total assistance provided

D. None of the above.

Answer (B)

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56. IAS 21, defines the treatment of the financial statements of foreign subsidiaries in consolidated
financial statements of the parent. On the disposal of a foreign operation, the cumulative amount of
exchange differences held with respect to the operation should be:

A. Left in equity

B. Shown in the Statement of Profit & Loss when the gain or loss is recognized

C. Transferred to Other Comprehensive Income

D. Shown as an extra-ordinary item in the Statement of Profit & Loss

Answer (B)

57 Pursuant to IAS 21, any one of the following factors will not be used in determining the entity’s
functional currency:

A) The currency that primarily influences the prices at which goods and services are sold

B) The currency in which the costs of the entity are mainly denominated

C) The currency which is used mostly for international trading in that industry

D) The currency in which funds from financing are generated.

Answer (C)

58. In accordance with IAS 21, non-monetary items should be reported at:
A. The spot exchange rate of the transaction

B. The average rate for the year

C. The closing rate

D. None of the above.

Answer (A)

59. Delta Limited is a manufacturing entity which purchases a machine on credit from a foreign
supplier for € 12 million on January 31, 2022. On this date the exchange rate was € 1 = USD 1.1.

Delta Limited did not settle the dues until March 31, 2022. On this date the closing exchange rate was
€ 1.0 = USD 1.2.

The functional currency of Delta Limited is USD.

Which one of the following statements is / are correct in accordance with IAS 21?

A. Cost of Plant USD 8 million, exchange gain USD 2 million, trade payable USD 6 million

B. Cost of Plant USD 6 million, exchange loss USD 2.4 million, trade payable USD 8 million

C. Cost of Plant USD 10.909 million, exchange loss USD 909,091, trade payable USD 10 million

D. None of the above.

Answer (C)

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60. Treetone Limited has a policy of capitalizing interest costs on self-constructed property in
accordance with IAS 23: Borrowing costs

During the year it has the following sources of borrowings:

Average outstanding liability

Item Interest cost Rs’000
Rs’000

Medium term bank debt 10,000 900

50-year term debt 25,000 2,000

Bank overdraft 5,000 600

All the borrowings have been used to finance the production of qualifying assets but none relate to a
specific qualifying asset. What is the appropriate capitalization rate to apply to the qualifying assets?

A. Nil %

B. 8.29%
C. 8.75%

D. 10.0%

Answer (C)

61. On April 1, 2021, Cosby Limited took out a loan to finance the construction of a building. Work on
the building commenced on July 1, 2021 and was completed on March 31, 2022. The building was
brought to use on July 1, 2022.

In accordance with IAS 23, what is the period over which borrowing costs related to the project be
capitalized?

A. April 1, 2021 to June 30, 2022

B. April 1, 2021 to March 31, 2022

C. July 1, 2021 to June 30, 2022

D. July 1, 2021 to March 31, 2022

Answer (D)

62. Which of the following statements is correct?

A. IAS 23 permits an entity to either capitalize the borrowing costs or expense the borrowing

cost in the period in which they are incurred,

B. IAS 23 permits and entity to capitalize the borrowing costs that are directly attributable

to the acquisition, construction or production of all assets,

C. IAS 23 requires an entity to capitalize borrowing costs attributable to qualifying assets,

D. None of the above

Answer (C)

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63. During 2021-22 Zoro Limited was engaged in the following transactions:

a) Salary expenses to key employees who are also principal owners Rs. 250,000

b) Sales to associate enterprises Rs.450,000.

Which of the above transactions would be disclosed as related party transaction in Zoro Limited
financial statements for the year ended 2021-22.

A. Neither transaction

B. Rs. 450,000
C. Both transactions

D. Rs. 200,000

Answer (C)

64. Which one of the following is not considered as a related party in accordance with IAS 24?

A. Its subsidiaries

B. Its associates

C. Directors of the Board

D. Best Bank which provides cash credit facility.

Answer (D)

65. Bailey Limited had 100,000 shares in issue on 1 January 20X0. On March 31, 20X0 it issued
Rs.200,000 of 5% convertible debt. The terms of conversion allow the debt holders to convert each
Rs.100 of debt into 10 shares on September 30, 20X2 or to convert each Rs.100 of debt into 12 shares
on September 30, 20X4.

The profit after tax for the year ended December 31, 20X0 is Rs.300,000. The rate of tax is 30%.

What is the diluted earnings per share for the year ended December 31, 20X0 in accordance with Ind
AS 33, Earnings per share?

A. Rs. 2.59

B. Rs. 2.48

C. Rs. 2.65

D. Rs. 3.00

Answer (B)

Workings

Profit after tax Add:

Rs.3,00,000 = 10000
Interest 200,000x 5%

Rs. 7,000Rs.307,000
10000 x 70/100 Total = 7000
(A)

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Number of shares 100,000

Conversion of convertible

Debentures into shares(200000/100 x 12) 24,000

124,000 (B)

Diluted EPS (A/B) = (C) Rs.2.48

66. During 2021 and 2022 Greenpeas Limited had the following shares outstanding:

4% cumulative irredeemable preference shares of Rs.10 25,000 shares

Equity shares of Rs.10 200,000 shares

The net profit after tax for the year ended December 31, 2022 was Rs.500,000.

Greenpeas Limited paid no preferred dividends in 2021 and only paid Rs.16,000 of preference
dividends in 2022.

What is the Greenpeas Limited basic EPS for 2022?

A. Rs. 2.50

B. Rs. 2.42

C. Rs. 2.45

D. Rs. 2.15

Answer (C)

Basic EPS = (Rs.500,000 – (25,000 shares x Rs.10 x 4%))/200,000 shares = Rs.2.45

67. The following information relates to Bolster Limited:

Item Amount / numbers

Profit attributable to equity

shareholders of the parent
entity during 2022Weighted
average number of shares
outstanding during
Rs.60,00,00016,00,000
2022Average market price of
Rs.604,00,000 Rs.48
one equity shares during
2022Weighted average
number of share options
during 2022Exercise price of
share options during 2022

Calculate the diluted earnings per share due to the issue of share option.

A. Rs.3.00

B. Rs.3.13

C. Rs.3.57
D. Rs.3.75

Answer (C)

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68. Alpha Limited listed on a recognized stock exchange has prepared its financial statements for the
year ended March 31, 2021. It shows earnings per share of Rs.1.70. On October 2022 Alpha Limited
made a bonus issue of 3: 1.

In accordance with IAS 33, what would be the comparative EPS for the year ended March 31, 2022?

A. Rs.0.34

B. Rs.1.70

C. Rs.0.43

D. Rs.0.56

Answer (C)

69. Beta Limited has a capital structure as on December 31, 2022 as follows:

110,000 equity shares of Rs. 1.50/- each = Rs. 16,500

100,000 5% debenture each of Rs.3.00 = Rs.300,000

5% debenture are convertible into 20,000 equity shares after a period of two years. Profit after tax for
the year ended December 31, 2022 was Rs.850,000. Tax rate is 30%. Calculate Beta Limited’s diluted
earnings per share for the year ended December 31, 2022.

A. Rs.7.82

B. Rs.6.55

C. Rs.6.62

D. Rs.6.46

Answer (C)

Diluted EPS = (Rs.850,000 + (Rs.15,000x0.70))/(110,000 + 20,000) = Rs.6.62

70. A Ltd has a machine whose original cost was Rs. 250,000. The accumulated depreciation on the
machine is Rs. 85000. A Ltd recently sold another similar machine at Rs. 340,000 and the selling
expenses were Rs. 23,000. Management has determined the value in use of the machine as Rs.
330,000. The recoverable value would be:

A) Rs.165,000

B) Rs.317,000
C) Rs.330,000

D) None of the above

Answer (C)

71. A mining company owns a private railway to support its mining activities. The private railway
connects its number of quarries. The private railway could be sold only for scrap value and the private
railway does not generate cash inflows from continuing use that are largely independent of the cash
inflows from the other assets of the mine. The cash generating unit will be:

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A) Mining company

B) Quarries

C) Private railway

D) None of the above

Answer (A)

72. A cash generating unit has the following net assets:

Rs. million Goodwill 80.0 Property 120.0

180.038
Plant & Equipment Total
0.0

The recoverable amount has been ascertained and it works out to Rs. 290 million Carrying amount of
goodwill after allocating impairment loss will be:

A) Rs. 90 million

B) Rs. NIL

C) Rs. 60 million

D) Rs. 30 million

Answer (B)

73. During the year 20X2, expenditure incurred is Rs. 20 lakhs. At the end of 20X2, the recoverable
amount of the know-how embodied in the process (including future cash outflows to complete the
process before it is available for use) is estimated to be Rs. 19 lakhs. Hence the impairment loss would
be:

(A) Rs.20 lakhs (B) Rs.19 lakhs (C) Rs.1 lakh

Answer (C)
At the end of the year 20X2, the cost of the production process is Rs. 20 lakhs (i.e. Rs. 20 lakhs
expenditure recognised in 20X2). The enterprise recognises an impairment loss of Rs. 1 lakh to adjust
the carrying amount of the process before impairment loss (Rs. 20 lakhs) to its recoverable amount
(Rs. 19 lakhs).

74 Robson Ltd closes its accounts on 30th September 2022. Administrative expenses booked in the
financial records include a provision of Rs. 4 million for the costs of a legal claim lodged against
Robson Ltd by one of the customers before 30.9.2022. The customer is claiming Rs.10 million and the
lawyers of Robson Ltd have opined that there is 40% chance the claim will be successful. Under IAS 37,
the action to be taken by the Company would be:

A) Treat the potential claim as contingent liability.

B) Provide for 40% of the claim.

C) Provide for the entire claim.

D) Do nothing.

Answer (B)

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75. Tech Ltd manufactures plastic products and the effluent generated out of its production process
causes contamination. The organization has not been doing any clean up exercise because there is no
legislation requiring cleaning up and the enterprise has been contaminating land and adjacent water
bodies for several years.

At 31 March 2022 it was virtually certain that a law requiring a clean-up of land and water bodies
already contaminated will be enacted shortly after the year end. The total clean-up cost estimated
would be Rs.20 million. The organization should:

A) Treat the entire amount as a provision its books of account.

B) Treat the entire amount as contingent liability.

C) Since the implementation of the legislation is uncertain, include a provision of 50% of the estimated
amount as abundant precaution.

D) Do nothing.

Answer (B)

76. Greenwood Ltd is an organization which supplies organic fruits and vegetables to customers
through its multiple retail stores in the Amsterdam. Greenwood Ltd has a published policy of
refunding purchases by dissatisfied customers, even though it is under no legal obligation to do so. Its
policy of making refunds is generally known and declared in its website. During the year ended the
total amount of such refund worked out to Rs. 2.5 million. The organization should:

A) Treat this as a contingent liability.

B) Book 50% of the amount as provision.

C) Book 100% of the amount as provision under constructive obligation.

D) Do nothing.

Answer (B)

77. Cloak Ltd is an enterprise which operates profitably from a factory that it has leased under an
operating lease. During December 2022 the enterprise relocates its operations to a new factory site.
The lease on the old factory is non-cancellable and continues for the next four year and the factory
cannot be re-let to another user. The organization needs to:

A) Ignore the lease amount related to the old factory.

B) Treat the lease amount as contingent liability.

C) Provide for the entire lease amount related to the old factory undiscounted for the next four years.

D) Provide for the present value of the lease amount related to the old factory for the next four years.

Answer (B)

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78. To ensure a provision is made under IAS 37, the following conditions must be fulfilled:

i) The entity must have a present obligation based on some past event

ii) It is probable that there would be an outflow of economic resources, being the

embodiment of economic benefits, will be required to settle the obligations iii) A reliable estimate can
be made of the amount to be settled.

iv) Any one of the above.

Which of the above is correct?

(a) (i) (b) (ii) & (iii) (c) (iv)

(d) (i),(ii) and (iii)

Answer (D)

79. In accordance with IAS 37: Contingent liabilities are:

(A) always disclosed in the notes to the financial statements, (B) always recognized in the statement of
financial position,

(C) disclosed in the notes unless the possibility of an outflow of economic benefits is remote,

(D) recognized in the statement of financial position unless the possibility of an outflow of economic
benefits is remote.
Answer (C)

80. Cukoo Ltd is in the business of chemicals. Under a recent legislation related to pollution the
company needs to install equipments related to purification of air in the premises by 31st December
2022. As at 31st March 2023 Cukoo Ltd failed to install the equipments. The cost of the equipment
was Rs.250, 000 and the penalty for non-compliance was Rs.25,000. What amount should be provided
under IAS 37?

(A) Rs.250,000 (B) Rs.25,000 (C) Nil

(D) Rs. 275,000

Answer (B)

81. Pursuant to IAS 37 a contingent asset is:

A) not recognized but is disclosed when an inflow of economic benefits is probable.

B) always recognized in financial statements.

C) always disclosed in the notes to the financial statements,

D) disclosed in the notes when the possibility of an inflow of economic benefits is remote.

Answer (A)

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82. Cookware Ltd has received a claim of Rs.1,000,000 from a customer for supplying poor quality
products. The lawyers of Cookware Ltd have opined that there is a 25% chance that Cookware Ltd will
successfully avert the claim. Whether Cookware Ltd should,

A) provide for the claim,

B) disclose the amount as contingent liability in notes to accounts,

C) do nothing.

D) provide for the claim when there is a court order substantiating the same.

Answer (A)

83. Cutglass Ltd owns a patent for a established successful drug that has a remaining life of 8 years. A
firm of specialized advisors has estimated current value of patent at Rs 20 m. However, the firm is
awaiting clinical trials, which if successful would push the value upwards to Rs. 35 m. Value of patent
to be considered under IAS 38: Intangible Assets would be:

A) Rs.35 million B) Rs.20 million C) Rs.10 million D) None of the above.

Answer (B)