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F1 Financial Reporting Question and Answers

Question # 4

The following data has been extracted from GH's accounting records:

What is GH's average inventory days for the year ended 31 March 20X3?

A.

39 days

B.

43 days

C.

25 days

D.

28 days

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Question # 5

Statements of financial position for FG, IJ and KL at 31 December 20X5 include the following balances:

FG acquired 90% of IJ's equity shares for $358,000 on 1 July 20X5 when IJ's retained earnings were $98,000.

FG acquired 100% of KL's equity shares for $360,000 on 1 January 20X5 when KL's retained earnings were $155,000.

FG used the proportion of net assets method to value non-controlling interests at acquisition.

KL sold a piece of land to FG for $130,000 on 1 September 20X5. At the date of transfer the land had a carrying value of $50,000.

The management of FG expect KL to make profits in the future and no impairment ot its goodwill was proposed at 31 December 20X5.

Calculate the non-controlling interest balance in FG's consolidated statement of financial position at 31 December 20X5.

Give your answer to nearest whole $.

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Question # 6

Which of the following is a feature of a direct tax?

A.

The formal incidence and effective incidence are usually the same.

B.

It is levied on one part of the economy with the intention that it will be passed on to another.

C.

It is not levied on the eventual payer of the tax.

D.

It cannot be related to the individual circumstances of the tax payer.

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Question # 7

In 20X4, DEF closed its business having made a trading loss of $160,000. In DEF's country of residence, trading losses may be carried back three years on a LIFO basis.

The profits for the last four years of trading were:

What are the taxable profits or losses for years 20X1 and 20X2?

A.

20X1 $10,000, 20X2 $113,000

B.

20X1 $143,000, 20X2 $ nil

C.

20X1 $150,000, 20X2 $133,000

D.

20X1 $150,000, 20X2 $nil

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Question # 8

Mr K is being pressured by his manager to change figures in his report so that it will improve his manager's bonus.

His manager has promised Mr K a promotion if he agrees to do this.

What threats is Mr K facing?

A.

Intimidation and familiarity

B.

Familiarity and self-interest

C.

Self-review and advocacy

D.

Intimidation and self-interest

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Question # 9

Which of the following are techniques that can be used by a company to ensure they receive timely payment of receivables? Select ALL that apply:

A.

Offering cash or early payment discount

B.

Charging interest on late payments

C.

Assessing credit risk of customers before they are given credit

D.

Offering extended credit to return customers

E.

Offering free items

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Question # 10

The following information relates to AA.

Extract of Trial Balance at 31 December 20X4;

Notes

(i) Inventory at 31 December 20X4 was valued at cost at $30.

(ii) The loan which was received on 1 July 20X4 is repayable in 20X9.

(iii) Corporate income tax represents an over-provision of tax for the year ended 31 December 20X3. AA reported a loss for tax purposes for the year ended 31 December 20X4 and a tax refund is expected amounting to $20.

(iv) Cost of sales, administration and distribution costs need to be adjusted for the following:

What figures should be entered in the Statement of Profit or Loss for the year ended 31 December 20X4 in relation to Administration and Distribution costs?

A.

Adminsitration $136 Distribution $120

B.

Administration $120 Distribution $87

C.

Administration $141 Distribution $117

D.

Administration $146 Distribution $114

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Question # 11

EF purchased an asset on 1 September 20X4 for $800,000, exclusive of import duties of $30,000. EF is resident in country Y where indexation is allowed on purchase costs when the asset is disposed of.

EF sold the asset on 31 August 20X9 for $1,500,000 incurring transaction charges of $20,000. The indexation factor increased by 40% in the period from 1 September 20X4 to 31 August 20X9.

Capital gains are taxed at 30%.

What is the tax due on disposal of the asset?

A.

$108,000

B.

$101,400

C.

$102,600

D.

$95,400

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Question # 12

Which TWO of the following would improve a company's short term cash flow position?

A.

Postponing non essential capital expenditure

B.

Increasing the working capital cycle by making payments to suppliers early

C.

Taking advantage of bulk discounts offered on inventory purchases

D.

Reducing levels of inventory by implementing a just in time system for purchasing

E.

Paying a bonus to staff for exceptional performance

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Question # 13

What does the tax credit method of giving double taxation relief mean?

A.

Tax paid in one country may be allowed as a tax credit in another country. Relief is normally restricted to the lower of the foreign or country of residency tax.

B.

Tax paid in one country may be allowed as a tax credit in another country. Relief is normally restricted to the higher of the foreign or country of residency tax.

C.

Tax relief is gained by deducting the foreign tax from the foreign income so that only the "net" amount will be subject to tax in the country of residency.

D.

The countries agree on certain types of income which will be exempt or partially exempt in one country or the other.

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Question # 14

PZ has the following working capital ratios:

Which of the following could be the reason for the movements?

A.

PZ has introduced a new policy to take discounts from suppliers during 20X1.

B.

The workforce of PZ have been on strike for a month during 20X1 but deliveries of inventory have still been received by the entity.

C.

A new credit controller has been employed who has been more rigorous with their collection procedure of receivables.

D.

PZ has implemented a just-in-time system of ordering inventory during 20X1.

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Question # 15

Country X levies a duty on alcoholic drinks. Where the alcohol content is above 40% by volume the duty levied is $5 per 1 litre bottle.

What type of tax is this duty?

A.

Specific unit tax

B.

Ad valorem tax

C.

Direct tax

D.

Single-stage sales tax

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Question # 16

During the year a piece of equipment that originally cost $96,000, with accumulated depreciation of $39,000, met the criteria of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations to be classified as held for sale.

The equipment is being advertised for sale at $46,000 and costs of $1,000 will be incurred to enable the sale to be completed.

At what value should the equipment be included in the statement of financial position at the year end assuming that it remains unsold?

Give your answer to the nearest whole number.

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Question # 17

Identify whether the scenarios below are examples of tax evasion or tax avoidance, by placing either tax evasion of tax avoidance against each one.

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Question # 18

Which of the following is NOT a source of short-term finance?

A.

Increase in trade receivables

B.

Increase in trade payables

C.

Debt factoring

D.

Increase in a bank overdraft

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Question # 19

Which of the following would NOT be assessed for tax under a Pay-As-You-Earn system?

A.

Profit-sharing payments received by an employee.

B.

Benefits in kind received by an employee.

C.

Commissions received by an employee.

D.

The wealth of an employee.

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Question # 20

YZ has $40,000 of plant and machinery which was acquired on 1 June 20X1.Tax depreciation rates on plant and machinery are 25% reducing balance. All plant and machinery was sold for $24,000 on 1 June 20X3.

Calculate the tax balancing allowance or charge on disposal for the year ended 31 May 20X3 and state the effect on the taxable profit.

A.

A balancing allowance of $1,500 increases taxable profit.

B.

A balancing allowance of $1,500 reduces taxable profit.

C.

A balancing charge of $1,500 reduces taxable profit.

D.

A balancing charge of $1,500 increases taxable profit.

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Question # 21

Corporate governance is the means by which an entity is operated and

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Question # 22

Indicate the possible reasons for the changes identified below to working capital ratios by placing the appropriate reason against each change.

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Question # 23

The following information relates to a single asset:

*Original cost of $186,000

*Estimated residual value of $6,000

*Expected useful life of 10 years

*Accumulated depreciation at 31 December 20X5 of $66,960

*Annual depreciation rate of 20% on a reducing balance basis

Calculate the amount of depreciation that should be charged to profit or loss for the year ended 31 December 20X6.

Give your answer to the nearest whole number.

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Question # 24

Statements of financial position for YZ, BC and DE at 31 March 20X2 include the following balances:

YZ purchased 90% of BC's equity shares for $508,000 on 1 January 20X2. On 1 January 20X2 BC's retained earnings were $183,000. YZ uses the proportion of net assets method to value non-controlling interest at acquisition.

YZ purchased 30% of DE's equity shares on 1 April 20X1 for $112,000. DE's retained earnings at 1 April 20X1 were $88,000.

On 1 February 20X2 YZ sold goods to BC for $28,000 at a mark up of 25% on cost. All the goods were still in BC's inventory at 31 March 20X2.

Calculate the amount of the non-controlling interest to be included in YZ's consolidated statement of financial position at 31 March 20X2.

Give your answer to the nearest whole $.

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Question # 25

An asset has the following values:

If the asset was sold for its fair value, selling costs of $1,500 would be incurred.

Which of the following is the value of the impairment loss to be recognised for this asset in accordance with IAS 36 Impairment of Assets?

A.

$0

B.

$300

C.

$1,200

D.

$2,000

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Question # 26

An entity opens a new factory and receives a government grant of $25,000 towards the cost of new plant and equipment. This new plant and equipment originally costs $100,000.

The entity uses the net cost method allowed by IAS 20 Accounting for Government Grants and Disclosure of Government Assistance to record government grants of this nature. All plant and equipment is depreciated at 20% a year on a straight line basis.

Calculate the amount of depreciation to be included for this plant and equipment in the statement of profit of loss for the factory's first year of operation.

Give your answer to the nearest whole $.

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Question # 27

If a parent entity is to be exempt from preparing consolidated financial statements it needs to satisfy certain conditions according to IFRS 10 Consolidated Financial Statements.

Which TWO of the following are conditions that need to be satisfied to be exempt?

A.

The parent entity is itself a wholly owned subsidiary of another entity.

B.

The ultimate parent of the parent entity publishes consolidated financial statements which are publicly available.

C.

The parent 's investment in its subsidiaries are all below 100%.

D.

The parent entity has no more than 10 subsidiaries or associated entities.

E.

The parent entity has subsidiaries, one or more of which publishes consolidated financial statements.

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Question # 28

DEF is considering introducing a Pay-As-You-Earn (PAYE) system but unsure of the advantages of using it.

Which of the following statements are advantages from the employees perspective of an entity using a PAYE system for collecting taxes from employees.

Select ALL that apply.

A.

The employee will be able to deal with tax authority directly to make payments.

B.

The employee will avoid being charged penalties for paying late.

C.

The employee will calculate their own tax payment.

D.

The employee does not have to complete a self assessment tax return.

E.

The employee does not have to budget for their tax payments because the tax is deducted at source.

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Question # 29

The statement of profit or loss for PQ, ST and AB for the year ended 31 December 20X0 are shown below:

1. PQ acquired 80% of its subsidiary, ST, on 1 January 20X0 and 40% of its associate, AB, on 1 September 20X0.

2. Since acquistion PQ has sold goods to ST and AB for $20,000 and $30,000 respectively. At the year end both ST and AB have 50% of these goods remaining in inventory. PQ uses a mark-up of 20% on all of its sales.

3. Since acquisition the goodwill in respect of ST has been impaired by $8,000 and the investment in AB has been impaired by $2,000.

4. PQ uses the fair value method for non-controlling interest at acquisition.

What is the value of the unrealized profit in inventory adjustment required to inventory in PQ's consolidated statement of financial position at 31 December 20X0?

A.

$3,333

B.

$2,000

C.

$4,000

D.

$1,667

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