FOREIGN TRADE UNIVERSITY FINAL EXAM PAPER

FACULTY OF ACCOUNTING-AUDITING KETF7.2

COURSE : FINANCIAL REPORTING F7.2 __________________________________

– MOCK TEST
_________________________ Phase : Semester : Academic year :
1
Full-time Class:
PAPER NO.: 2

Date:
Duration: 75 minutes
Part 1: Multiple choice questions (4 marks)
For each question, please select the best possible answer among the available choices.
Q1: A draft statement of cash flows contains the following calculation of net cash inflow from
operating activities:
$m
Operating profit 13
Depreciation 2
Decrease in inventories (3)
Decrease in trade and other receivables 5
Decrease in trade payables 4
Net cash inflow from operating activities 21

Which TWO of the following corrections need to be made to the calculation?

a. Depreciation should be deducted, not added
b. Decrease in inventories should be added, not deducted
c. Decrease in receivables should be deducted, not added
d. Decrease in payables should be deducted, not added
Q2: Austen Co has owned 80% of Kipling Co and 30% of Dickens Co for many years. At 31
December 20X6, the trade receivables and trade payables shown in the individual companies’
statements of financial position were as follows:
Austen Co Kipling Co Dickens Co
$000 $000 $000
Trade receivables 50 30 40
Trade payables 30 15 20
Trade payables comprised
Amounts owing to
Austen Co 0 0 0
Kipling Co 2 0 4
Dickens Co 3 0 0
Other suppliers 25 15 16
30 15 20
The intra-group accounts agreed after taking into account the following:
(1) An invoice for $3,000 posted by Kipling Co on 31 December 20X6 was not received by
Austen Co until 2 January 20X7
(2) A cheque for $2,000 posted by Austen Co on 30 December 20X6 was not received by
Dickens Co until 4 January 20X7
What amount should be shown as trade receivables in the consolidated statement of
financial position of the Austen group? ($’000)
…………………………….
Q3: The draft accounts of Swan Co for the year ended 31 December 20X6 include the
following:
Revenue $240m
Gross profit $60m
It was subsequently discovered that the revenue was overstated by $30m and the closing
inventory understated by $10m.
What will the gross profit percentage be after the correction of the above errors?
 9.5%
 14.3%
 19.0%
 29.2%
Q4: GY Co made a number of changes during the financial year to 30 September 20X6.
Classify each of the following in accordance with IAS® 8 Accounting Policies,
Changes in Accounting Estimates and Errors, by clicking on the relevant boxes.
Up to 30 September 20X5, GY Co measured CHANGE IN CHANGE IN
PRIOR
inventory on a FIFO basis. It now uses a ACCOUNTI ACCOUNTIN
PERIOD
weighted average basis as this is more NG G
ERROR
widely used in GY Co’s industry sector POLICY ESTIMATE
CHANGE IN CHANGE IN
Depreciation of vehicles was changed from PRIOR
ACCOUNTI ACCOUNTIN
straight line to reducing balance from 1 PERIOD
NG G
October 20X5 ERROR
POLICY ESTIMATE
On 1 March 20X6, GY Co changed an CHANGE IN CHANGE IN
PRIOR
output method for measuring the progress of ACCOUNTI ACCOUNTIN
PERIOD
the satisfaction of a performance obligation NG G
ERROR
to an input method POLICY ESTIMATE
Q5: At 30 November 20X6, the carrying amount of the non-current assets of Reynard Co was
$3,570,000 and the tax written down value was $2,450,000. The liability balance for
deferred tax at 1 December 20X5 was $250,000.
The tax rate is 22%.
For the year ended 30 November 20X6 what should be reported in the profit or
loss in respect of deferred tax?
Select… 
$3,600 credit
$3,600 debit
$246,400 credit
$246,400 debit
The following scenario relates to questions 16–20.
On 1 October 20X6, Pluto Co acquired 80% of Saturn Co’s equity shares by means of a share
exchange of three new shares in Pluto Co for every four acquired shares in Saturn Co. In
addition,
Pluto Co agreed to pay a further $8.8m in cash on 1 October 20X7. Pluto Co’s cost of capital
is
10%.
The market value of Pluto Co’s shares at 1 October 20X6 was $3 each share, and the market
value
of Saturn Co’s share on the same date was $1.60 per share.
The fair value of an item of Saturn Co’s machinery was $2m in excess of its carrying amount
on 1
October 20X6. On that date, the machine had a remaining useful life of four years.
On 1 January 20X7 Pluto Co paid $7.25m to acquire 30% of the share capital of Aries Co,
this
holding allowed Pluto Co to exert significant influence over Aries Co.
Extracts of the statements of financial position of the three companies as at 31 March 20X7
are:
Pluto Co Saturn Co Aries Co
$000 $000 $000
Non-current assets
59,300 27,100 30,600
Property, plant and equipment
Equity shares of $1 each 50,000 40,000 20,000
Retained earnings/(losses)
(1,000) 6,300
– at 1 April 20X6 22,200:
– for year ended 31 March 20X7 7,400 9,000 3,200

Earnings accrued evenly throughout the year ended 31 March 20X7

Q6 What is the cost of investment in Saturn Co to be included in Pluto Co’s statement
of financial position?
 $98m
 $80.8m
 $80m
 $46.4m
Q7 What is the value of investment in associate at 31 March 20X7?
$ ………….000
Q8 What is the carrying amount of property, plant and equipment in Pluto Co’s
consolidated statement of financial position as at 31 March 20X7?
 $87,900,000
 $88,150,000
 $97,330,000
 $118,750,000
Q9 In addition to the current 30% shareholding in Aries Co, Pluto Co has an option to
acquire a further 30% equity shareholding in Aries Co that will be exercisable in 20X8.
Which of the following statements regarding how the options will affect the
assessment of control is correct?
 The options are relevant to an assessment of control only when they are exercised
 Pluto Co will achieve control over Aries Co when the options become exercisable in 20X8
even if they are not exercised
 Share options are never taken into account when assessing control by a parent over a
subsidiary
 An investor cannot have power over an investee if it does not hold a majority of equity
shares
Q10: Pluto Co is considering acquiring other subsidiary and estimates that transaction costs
of $3m would be incurred in this acquisition. These costs consist of $1m share issue costs and
$2m relating to due diligence work.
Which of the following is the correct treatment of the transaction costs?
 Expense $3m to profit or loss
 Add $3m to the cost of investment
 Expense $2m to profit or loss and debit $1m direct to equity
 Debit $3m to share premium

Part2: Pascha Company (6 marks)

The following information relates to the draft financial statements of Pascha Company:
Required: Prepare the statement of cash flows for Pascha Company for the year ended 30
September 20X1