A
A customer issues legal proceedings against Super Limited shortly after the end of its financial reporting period. Is this an adjusting event?
No
Mercury Limited is preparing the financial statements for the period to 31 December 2013. On 7 January 2014, its sales rep crashed his company car, writing it off. Unfortunately the vehicle was uninsured at the time of the crash.
Mercury’s CFO would like to write off the value of the vehicle in the financial statements to 31 December 2013. Is the accounting treatment appropriate?
No
Destruction of an asset after the period end is a non-adjusting event. If the asset is material to the financial statements, a disclosure should be made regarding its destruction in January 2014.
Events which do not affect the situation at the reporting date should not be ...(A)... for but should be ..(B).. in the financial statements.
(A) adjusted
(B) disclosed
Which of the following is not a “qualifying asset” under IAS 23 – Borrowing Costs?
A. Manufacturing plants
B. Made to order inventory
C. Investment property
D. Mass produced inventory
D
Mass produced inventory does not take a substantial amount of time to get ready for its intended use or sale.
Which of the following is a change in accounting estimate?
A. Change in inventory valuation method from weighted average to FIFO
B. Misinterpretation of facts
C. Provision for obsolescence
D. Oversight
Answer: C
The company has guaranteed the overdraft of another company. The likelihood of a liability arising under the guarantee is assessed as possible. According to MFRS 137 Provisions, contingent liabilities and continent assets, what is the correct action to be taken in the financial statements?
A. Create provision
B. Disclose by note only
C. Do nothing
MFRS 110 Events after the reporting period requires all non-adjusting events to be disclosed in the notes to the financial statements. True or false?
False
What are the two methods to measure performance completed to date if performance obligation is satisfied over a period of time?
Answers:
A company should disclose details of the change in carrying amount of a provision from the beginning to the end of the year. True or false?
True
The company gives warranties on its products. The company’s statistics show that about 5% of sales give rise to a warranty claim. According to MFRS 137 Provisions, contingent liabilities and continent assets, what is the correct action to be taken in the financial statements?
A. Create provision
B. Disclose by note only
C. Do nothing
Answer : A
Borrowing cost include repayment on a loan for property, plant and equipment. True or false
False
MFRS 15 sets out five steps for revenue recognition. State the five steps model in recognising revenue.
1. Identify the contract with customer
2. Identify the separate performance obligation within a contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
5. Recognise revenue when (or as) a performance obligation is satisfied
A company provides for bad debts at the rate of 2% of the sales. With effect from 2013, it has decided to change it to 3% of sales. The sales for 2012 are $100,000 and for 2013, $200,000. In the financial statements of the year 2013, which of the following treatment is appropriate?
A. Calculate the retrospective effect of the change and charge it to income statement of 201
B. Calculate the retrospective effect of the change and charge it to the equity
C. Calculate the prospective effect of the change and charge it to equity
D. Apply the change prospectively from 2013
Answer: D
Capitalisation of borrowing costs is suspended if entity encounter cash flow difficulties, substanstial technical work taking place and under unfavourable market conditions. True or false?
Answer: False
When a contract has multiple performance obligations, transaction price is allocated to all separate performance obligations in proportion to the ……………………………………………….
Answer: stand-alone selling price
Big Group is constructing an office building and is capitalising borrowing costs in accordance with MFRS123 Borrowing Costs. The office is almost complete; the only remaining work is to install furniture. Is Big Group allowed to continue capitalising the borrowing costs?
Answer:
No. Substantially all the activities necessary to prepare the asset for its intended use or sale are complete. If only minor modifications are outstanding, this indicates that substantially all of the activities are complete. Therefore, the borrowing costs should no longer be capitalized.
The financial statements of Overexposure Co for the year ended 31 December 20X1 are to be approved on 31 March 20X2. On 15 March 20X2, a fire occurred in the eastern branch factory which destroyed a material amount of inventory. It is estimated that it will cost $505,000 to repair the significant damage done to the factory.
How should these events reflected in the financial statements at 31 December 20X1?
Answer: Disclose
Which of the following is not an example of an accounting estimate?
A. Bad debts
B. Inventory obsolescence
C. Warranty obligations
D. Purchase price of a non-current asset
Answer: D
The purchase price of a fixed asset should be known at the time of purchase. The other options are estimates as there is uncertainty as to what their actual value will be.
MFRS 15 sets out rules for the recognition of revenue based on transfer of ................................to the customer from the entity supplying supplying goods or services.
control
MFRS108 deals with :
................................,
...............................and .....................................
changes in accounting estimates,
changes in accounting policies and
error
Entity need RM100,000 to build a warehouse, which will take 8 months. Entity will use funding from general current borrowings instead of getting a specific loan. Current borrowings are as follows:
RM1 million of 10% loan finance
RM2 million of 6% loan finance
What borrowing costs should be capitalised?
[(1/3 x 10%) + (2/3 x 6%)] x RM100,000 x 8/12 = RM4,888
In previous financial statements Mega Supermarkets Ltd valued its inventory on a weighted average basis. This year it has decided to account for it on a first-in, first-out (FIFO) basis. How should Mega Supermarkets account for this change?
A. Prospectively as it is a change in estimate
B. Retrospectively as it is a correction of an error
C. Prospectively as it is a change in accounting policy
D. Retrospectively as it is a change in accounting policy
Answer: D
Montague’s paint shop has suffered some bad publicity as a result of a customer claiming to be suffering from skin rashes as a result of using a new brand of paint sold by Montague’s shop. The customer launched a court action against Montague in November 20X3, claiming damages of $5,000. Montague’s lawyer has advised him that the most probable outcome is that he will have to pay the customer $3,000.
What amount should Montague include as a provision in his financial statements for the year ended 31 December 20X3?
Answer : $3,000
Wanda Co allows customers to return faulty goods within 14 days of purchase. At 30 November 20X5 a provision of $6,548 was made for sales returns. At 30 November 20X6, the provision was re-calculated and should now be $7,634.
What should be reported in Wanda Co's statement of profit or loss for the year to 31 October 20X6 in respect of the provision?
A. A charge of $7,634
B. A credit of $7,634
C. A charge of $1,086
D. A credit of $1,086
Answer : C
Jam Bhd entered into a contract on 15 April 20X1 to build a bridge. The contract was for RM4,200,000. On 31 December 20X1, the contract was independently certified as being 40% complete. Costs incurred to date were RM1,600,000 and costs to complete were estimated to be $2,000,000.
How much profit to recognise in statement of profit or loss for the year ended 31 December 20X1?