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Question 1Advanced Financial Reporting

Under IFRS 10, which factor alone determines whether an investor controls an investee?

  1. The investor has appointed the majority of the investee's board members
  2. The investor receives a fixed dividend from the investee each year
  3. The investor has power over the investee, exposure to variable returns, and the ability to use its power to affect those returns Correct answer.
  4. The investor holds more than half of the investee's ordinary shares

Explanation

IFRS 10 defines control as the combination of three elements: power over the relevant activities, exposure or rights to variable returns, and the ability to use that power to influence the returns. No single indicator is conclusive on its own.

Question 2Advanced Financial Reporting

A parent sells goods costing $60,000 to its subsidiary for $100,000. At year end the subsidiary still holds half of these goods. What unrealised profit must be eliminated on consolidation?

  1. $50,000
  2. $20,000 Correct answer.
  3. $30,000
  4. $40,000

Explanation

The total profit on the intragroup sale is $40,000. Only half of the goods remain in inventory, so only half of the profit, $20,000, is unrealised and must be eliminated.

Question 3Advanced Financial Reporting

In a consolidated statement of financial position, non-controlling interest is presented within equity. Which statement best reflects the IFRS 10 requirement?

  1. NCI is netted against goodwill
  2. NCI is classified as a non-current liability
  3. NCI is disclosed only in the notes
  4. NCI is shown separately from owners of the parent within equity Correct answer.

Explanation

IFRS 10 requires NCI to be presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent. It is not a liability.

Question 4Advanced Financial Reporting

A company issues 100,000 $1 ordinary shares at $3.50 each. How should the excess over nominal value be treated under IAS 32?

  1. Recognised in share premium within equity Correct answer.
  2. Recognised as a financial liability
  3. Recognised as a deferred tax asset
  4. Recognised as revenue in profit or loss

Explanation

Under IAS 32, consideration received in excess of the nominal value of equity shares is recognised in equity as share premium. It is not income because it arises from a transaction with owners in their capacity as owners.

Question 5Advanced Financial Reporting

Under IAS 19, how is a defined contribution plan accounted for by the employer?

  1. A net defined benefit liability is remeasured each year
  2. Contributions payable are recognised as an expense when the employee has rendered service Correct answer.
  3. An actuarial gain or loss is recognised in other comprehensive income
  4. A plan asset is measured at fair value each reporting date

Explanation

In a defined contribution plan the employer's obligation is limited to the contributions agreed. The expense is recognised as the service is rendered, with no actuarial measurement or net liability remeasurement.

Question 6Advanced Financial Reporting

An asset is measured under the revaluation model of IAS 16. Where should an increase reversing a previous revaluation decrease of the same asset be recognised?

  1. In other comprehensive income in full
  2. In profit or loss to the extent of the earlier decrease Correct answer.
  3. As a deferred income liability
  4. Directly in retained earnings

Explanation

A revaluation increase is recognised in other comprehensive income, except that it is recognised in profit or loss to the extent that it reverses a previous revaluation decrease of the same asset that was charged to profit or loss.

Question 7Advanced Financial Reporting

Under IAS 36, at what amount is goodwill tested for impairment?

  1. Together with the entire entity's net assets
  2. As part of the cash-generating unit or group of units to which it is allocated Correct answer.
  3. Only when there is an indicator of impairment
  4. On a stand-alone basis each reporting date

Explanation

Goodwill does not generate cash flows independently, so IAS 36 requires it to be allocated to cash-generating units and tested as part of those units. The test is performed annually regardless of indicators.

Question 8Advanced Financial Reporting

Under IFRS 15, a contract with a customer is accounted for only when five criteria are met. Which is one of those criteria?

  1. It is probable that the entity will collect the consideration to which it is entitled Correct answer.
  2. The goods are delivered before the reporting date
  3. The customer has paid a deposit
  4. The contract has a fixed duration of at least one year

Explanation

IFRS 15 requires, among other criteria, that collection of consideration be probable. The other criteria concern approval and commitment, identifiable rights and payment terms, commercial substance, and the likelihood of collecting consideration.

Question 9Advanced Financial Reporting

A company has profit before tax of $500,000. Taxable temporary differences give rise to a deferred tax liability at 25%. Which statement about the deferred tax liability is correct under IAS 12?

  1. It is recognised in full, subject to the initial recognition and goodwill exceptions Correct answer.
  2. It is offset against deferred tax assets regardless of tax authority
  3. It is recognised only when the timing difference reverses
  4. It is discounted to present value

Explanation

IAS 12 requires deferred tax to be recognised in full for taxable temporary differences, with limited exceptions such as certain initial recognition cases and goodwill. Deferred tax balances are not discounted.

Question 10Advanced Financial Reporting

A parent owns 80% of a subsidiary. The subsidiary reports profit after tax of $200,000. What amount is attributable to the non-controlling interest?

  1. $200,000
  2. $20,000
  3. $40,000 Correct answer.
  4. $160,000

Explanation

NCI is allocated its share of the subsidiary's profit, which is 20% of $200,000, equal to $40,000. The parent's share is $160,000.

Question 11Advanced Financial Reporting

A parent acquired a subsidiary during the year. How is the subsidiary's profit included in the consolidated statement of profit or loss?

  1. Only dividends received from the subsidiary
  2. From the date control was lost
  3. From the date of acquisition to the reporting date Correct answer.
  4. For the full year from the start of the reporting period

Explanation

IFRS 10 requires consolidation of a subsidiary from the date control is obtained, so its results are included only from the acquisition date to the reporting date. Pre-acquisition results belong to the former owners.

Question 12Advanced Financial Reporting

Under IAS 28, how is an associate's profit recognised by the investor using the equity method?

  1. As the investor's share of the associate's profit after tax Correct answer.
  2. As a fair value gain each period
  3. As a reduction of the investment cost
  4. As dividend income when received

Explanation

The equity method recognises the investor's share of the associate's profit or loss after tax in the investor's profit or loss, with dividends received reducing the carrying amount of the investment.

Question 13Advanced Financial Reporting

A company issues a bond at a discount. Under IFRS 9, how is the interest expense determined using the effective interest method?

  1. Coupon rate multiplied by nominal value
  2. Cash paid each period
  3. Effective interest rate multiplied by the amortised cost at the start of the period Correct answer.
  4. Effective interest rate multiplied by the redemption value

Explanation

The effective interest method applies the effective rate to the amortised cost carrying amount at the start of each period, so the discount is amortised over the bond's life.

Question 14Advanced Financial Reporting

An entity holds an investment in debt measured at fair value through other comprehensive income under IFRS 9. How are fair value movements treated?

  1. Movements are deferred until disposal
  2. All movements go to profit or loss
  3. Movements are recognised in retained earnings directly
  4. Movements go to OCI, with interest and impairment recognised in profit or loss Correct answer.

Explanation

For debt instruments measured at FVOCI, fair value changes are recognised in OCI, while interest revenue, impairment and foreign exchange are recognised in profit or loss. On derecognition the cumulative gain is reclassified.

Question 15Advanced Financial Reporting

Under IAS 21, an entity's presentation currency differs from its functional currency. Where are exchange differences on translating the financial statements into the presentation currency recognised?

  1. In profit or loss
  2. In other comprehensive income and accumulated in a separate component of equity Correct answer.
  3. As an adjustment to goodwill
  4. As a deferred tax liability

Explanation

Translation from functional to presentation currency produces exchange differences recognised in OCI and accumulated in equity. On disposal of the foreign operation they may be reclassified to profit or loss.

Question 16Advanced Financial Reporting

A lessee enters a five-year lease with annual payments of $20,000 in arrears. The lessee's incremental borrowing rate is 8% and the annuity factor is 3.993. What is the initial lease liability?

  1. $79,860 Correct answer.
  2. $108,000
  3. $100,000
  4. $20,000

Explanation

The lease liability is the present value of lease payments discounted at the incremental borrowing rate: $20,000 × 3.993 = $79,860.

Question 17Advanced Financial Reporting

Under IAS 37, a provision is recognised when which condition is met?

  1. A contingent asset is probable
  2. A present obligation exists, an outflow is probable, and a reliable estimate can be made Correct answer.
  3. The entity has decided to incur the cost
  4. A future obligation is expected to arise

Explanation

IAS 37 requires a present obligation from a past event, a probable outflow of economic benefits, and a reliable estimate to recognise a provision. If any condition fails, the item is a contingent liability.

Question 18Advanced Financial Reporting

An entity disposes of a major component representing a separate major line of business. Under IFRS 5, how is the component presented in the statement of profit or loss for the current year?

  1. Included within continuing operations
  2. Excluded from the financial statements
  3. Shown only in the statement of changes in equity
  4. Shown separately as discontinued operations Correct answer.

Explanation

IFRS 5 requires a single amount on the face of the statement of profit or loss for discontinued operations, comprising the post-tax profit or loss and the post-tax gain or loss on disposal. Comparatives are restated.

Question 19Advanced Financial Reporting

A company has 1,000,000 ordinary shares and 200,000 $1 preference shares carrying a fixed 10% dividend. Profit after tax is $500,000. What is basic EPS?

  1. $0.48 Correct answer.
  2. $0.30
  3. $0.40
  4. $0.50

Explanation

Under IAS 33, profit attributable to ordinary shareholders excludes preference dividends: $500,000 − $20,000 = $480,000. Basic EPS is $480,000 ÷ 1,000,000 = $0.48.

Question 20Advanced Financial Reporting

A parent sells a subsidiary, losing control. How is the gain or loss on disposal calculated under IFRS 10?

  1. Proceeds less the original cost of the investment
  2. Proceeds less the subsidiary's share capital
  3. Proceeds less goodwill only
  4. Proceeds plus the fair value of retained interest less the carrying amount of net assets and NCI, plus cumulative translation differences Correct answer.

Explanation

On loss of control, the gain or loss is the difference between the proceeds plus the fair value of any retained interest and the carrying amount of the net assets plus NCI, adjusted for cumulative translation differences. The retained interest is remeasured at fair value.

Question 21Advanced Financial Reporting

Under IAS 12, a company has a deductible temporary difference of $80,000 and taxable profits are expected in future. The tax rate is 25%. How is the deferred tax asset recognised?

  1. $80,000 recognised as a deferred tax asset
  2. $20,000 recognised as a deferred tax liability
  3. No amount is recognised
  4. $20,000 recognised as a deferred tax asset Correct answer.

Explanation

A deductible temporary difference of $80,000 at 25% gives a deferred tax asset of $20,000, provided it is probable that taxable profit will be available against which the deductible difference can be used.

Question 22Advanced Financial Reporting

A group has an investment in an associate with a carrying amount of $500,000. The associate reports a loss and the investor's share is $600,000. The investor has no obligation to fund losses. How should the investor account for the excess?

  1. Reduce the investment to a negative balance
  2. Recognise the excess in other comprehensive income
  3. Recognise a liability of $100,000
  4. Recognise the investment at nil and disclose the unrecognised share of losses Correct answer.

Explanation

Under IAS 28, the investor's share of losses is recognised only to the extent of the carrying amount of the investment plus any long-term interests. Losses beyond that are not recognised unless the investor has incurred legal or constructive obligations.

Question 23Advanced Financial Reporting

An entity issues a convertible bond with a face value of $1,000,000 and proceeds of $1,000,000. The liability component measured without the equity option is $900,000. How is the instrument split under IAS 32?

  1. $500,000 liability and $500,000 equity
  2. $1,000,000 liability and nil equity
  3. $1,000,000 equity and nil liability
  4. $900,000 liability and $100,000 equity Correct answer.

Explanation

IAS 32 requires the liability component to be measured first at the fair value of a similar non-convertible liability, with the residual proceeds allocated to equity. Here the residual is $100,000.

Question 24Advanced Financial Reporting

A parent owns 75% of a subsidiary. The subsidiary has a revaluation surplus of $80,000 in its own financial statements. How is this presented in the consolidated statement of financial position?

  1. $60,000 attributable to owners of the parent and $20,000 to NCI Correct answer.
  2. Eliminated on consolidation
  3. $80,000 attributable entirely to NCI
  4. $80,000 within the parent's share of equity only

Explanation

The subsidiary's revaluation surplus is part of its net assets and is attributed between owners of the parent and NCI in proportion to their holdings, giving $60,000 and $20,000.

Question 25Advanced Financial Reporting

An entity has a defined benefit obligation of $2,000,000 and plan assets of $1,800,000. The net defined benefit liability is $200,000. During the year, remeasurement gains of $50,000 arise. How are these treated under IAS 19?

  1. Recognised in other comprehensive income and not reclassified to profit or loss Correct answer.
  2. Recognised as a reduction of the liability in profit or loss
  3. Recognised in profit or loss as a gain
  4. Deferred until the plan is settled

Explanation

IAS 19 requires remeasurements of the net defined benefit liability, including actuarial gains and losses, to be recognised in OCI. They are not reclassified to profit or loss in subsequent periods.

Question 26Advanced Financial Reporting

Under IAS 7, which of the following cash flows is classified as an investing activity in the statement of cash flows?

  1. Cash paid to acquire property, plant and equipment Correct answer.
  2. Cash received from the issue of ordinary shares
  3. Interest paid on a bank overdraft
  4. Dividends paid to shareholders

Explanation

IAS 7 classifies the acquisition of long-term non-current assets such as property, plant and equipment as an investing activity because it relates to resources intended to generate future income. Financing activities instead cover changes in equity and borrowings.

Question 27Advanced Financial Reporting

An entity reports profit before tax of $400,000. The tax rate is 25%. Non-taxable income of $40,000 was included in profit and no other differences exist. What is the current tax expense for the year?

  1. $110,000
  2. $90,000 Correct answer.
  3. $100,000
  4. $80,000

Explanation

Current tax is calculated on taxable profit, which equals accounting profit adjusted for non-taxable income: $400,000 less $40,000 equals $360,000. Applying the 25% rate gives a current tax expense of $90,000.

Question 28Advanced Financial Reporting

Under IAS 33, which of the following potential ordinary shares is generally dilutive?

  1. Share options whose exercise price is below the average market price of the shares Correct answer.
  2. Convertible debt whose after-tax interest saving per share exceeds basic earnings per share
  3. Convertible preference shares whose dividend saving per share exceeds basic earnings per share
  4. Share options whose exercise price exceeds the average market price of the shares

Explanation

Options with an exercise price below the average market price are 'in the money' and would be exercised, so the entity issues shares for no consideration and dilution occurs. IAS 33 includes such options in diluted EPS using the treasury share method.

Question 29Advanced Financial Reporting

Under IAS 38, how should expenditure on research phase activities of an internally generated project be treated?

  1. Recognised in other comprehensive income until the project is complete
  2. Capitalised and tested annually for impairment instead of amortisation
  3. Capitalised and amortised over the expected useful life
  4. Expensed as incurred because no intangible asset can be recognised Correct answer.

Explanation

IAS 38 prohibits recognising an intangible asset arising from research because the entity cannot demonstrate that a future economic benefit will probably flow to it. Research expenditure is therefore expensed when incurred.

Question 30Advanced Financial Reporting

An entity holds 30% of the ordinary shares of another company and exercises significant influence. The investee declares and pays a dividend of $100,000. What is the effect on the investor's statement of financial position under the equity method?

  1. Investment carrying amount is unchanged and dividend income of $30,000 is recognised
  2. Investment carrying amount decreases by $30,000 and cash increases by $30,000 Correct answer.
  3. Investment carrying amount decreases by $100,000 and cash increases by $30,000
  4. Investment carrying amount increases by $30,000 and cash increases by $30,000

Explanation

Under the equity method the investor reduces the carrying amount of the investment by its share of dividends received, because the dividend represents a distribution of previously recognised profit. Cash increases by the $30,000 actually received.

Question 31Advanced Financial Reporting

Under IFRS 15, an entity sells goods with a right of return. How should the expected return be accounted for at the point of sale?

  1. Recognise revenue only for the amount expected to be retained, with a refund liability and a right to recover the goods Correct answer.
  2. Recognise revenue for the full amount and a separate receivable for the expected returns
  3. Recognise no revenue until the return period has expired
  4. Recognise revenue for the full amount and a provision measured under IAS 37

Explanation

IFRS 15 requires revenue to be recognised only to the extent that it is highly probable there will not be a significant reversal. The entity therefore recognises a refund liability and an asset for its right to recover the returned goods.

Question 32Advanced Financial Reporting

Under IAS 10, which of the following events occurring after the reporting period is an adjusting event?

  1. A fire that destroyed a warehouse after the year end
  2. A decline in the market value of investments after the year end
  3. The bankruptcy of a customer whose balance was already overdue at the year end Correct answer.
  4. A major business combination announced after the year end

Explanation

IAS 10 treats events that provide evidence of conditions existing at the end of the reporting period as adjusting events. A customer's bankruptcy confirms that the receivable was already impaired at the year end.

Question 33Advanced Financial Reporting

Under the Conceptual Framework, which measurement basis reflects the price that would be received to sell an asset in an orderly transaction between market participants?

  1. Current cost
  2. Value in use
  3. Fair value Correct answer.
  4. Historical cost

Explanation

The Conceptual Framework defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Current cost and value in use are different measurement bases.

Question 34Advanced Financial Reporting

A company issues a convertible bond with proceeds of $1,000,000. The fair value of the liability component without conversion rights is $900,000. Ignoring tax and issue costs, what amount is recognised in equity for the conversion option?

  1. $1,000,000
  2. $100,000 Correct answer.
  3. $0
  4. $900,000

Explanation

Under IFRS 9, the liability component is measured first at the fair value of a similar liability without the equity feature, which is $900,000. The residual proceeds of $100,000 are recognised in equity as the conversion option.

Question 35Advanced Financial Reporting

An entity has a defined benefit obligation of $3,000,000 and plan assets with a fair value of $2,600,000. The entity also has unrecognised past service cost. Ignoring tax, how is the net defined benefit liability presented?

  1. As a liability of $3,000,000 with plan assets disclosed only
  2. As an asset of $400,000 in the statement of financial position
  3. As a liability of $400,000 only if the surplus is refundable
  4. As a liability of $400,000 in the statement of financial position Correct answer.

Explanation

IAS 19 requires the net defined benefit liability to be presented as the present value of the obligation less the fair value of plan assets, which is $3,000,000 less $2,600,000 equals $400,000. Past service cost is recognised immediately in profit or loss and is not left unrecognised.

Question 36Advanced Financial Reporting

A parent owns 80% of a subsidiary. During the year the parent sold goods to the subsidiary for $500,000 at a gross profit margin of 25%. At the year end the subsidiary still held half of those goods. What is the unrealised profit to be eliminated in the consolidated financial statements?

  1. $125,000
  2. $50,000
  3. $100,000
  4. $62,500 Correct answer.

Explanation

The unrealised profit arises only on the goods still held by the group at the year end. Half of the $500,000 sale, or $250,000, remains in inventory, and 25% of that is $62,500 of profit that must be eliminated.

Question 37Advanced Financial Reporting

A company has a machine carried at $200,000 with a remaining useful life of five years and no residual value. At the start of the year the recoverable amount is estimated at $150,000. Under IAS 36, what is the impairment loss and the revised annual depreciation charge?

  1. Impairment loss $10,000 and depreciation $38,000 per year
  2. Impairment loss $50,000 and depreciation $40,000 per year
  3. Impairment loss $50,000 and depreciation $30,000 per year Correct answer.
  4. Impairment loss $50,000 and depreciation $50,000 per year

Explanation

The carrying amount of $200,000 exceeds the recoverable amount of $150,000, so an impairment loss of $50,000 is recognised. The revised carrying amount of $150,000 is depreciated over the remaining five years, giving $30,000 per year.

Question 38Advanced Financial Reporting

A lessee recognises a right-of-use asset and lease liability at the commencement of a lease. Which subsequent accounting treatment is required by IFRS 16 for a lease that does not transfer ownership?

  1. Recognise rental payments as an expense on a straight-line basis
  2. Depreciate the right-of-use asset over the lease term and recognise interest on the lease liability Correct answer.
  3. Depreciate the right-of-use asset over the asset's useful life and recognise no interest
  4. Measure the lease liability at undiscounted future payments each year

Explanation

IFRS 16 requires the right-of-use asset to be depreciated, generally over the shorter of the lease term and the useful life when ownership does not transfer. The lease liability is increased by interest and reduced by lease payments.

Question 39Advanced Financial Reporting

An entity has an asset with a carrying amount of $500,000 that is expected to generate a single cash flow of $560,000 in one year. The relevant pre-tax discount rate is 10%. Under IAS 36, what is the value in use of the asset?

  1. $504,000
  2. $454,545
  3. $509,091 Correct answer.
  4. $560,000

Explanation

Value in use is the present value of expected future cash flows, calculated as $560,000 divided by 1.10, which equals $509,091. The carrying amount of $500,000 is below this, so no impairment arises.

Question 40Advanced Financial Reporting

A group disposes of a subsidiary that constituted a separate major line of business. How should the results of the subsidiary be presented in the consolidated statement of profit or loss for the year of disposal?

  1. Included only up to the date of disposal within continuing operations
  2. Excluded from the statement of profit or loss entirely
  3. Included in continuing operations for the full year with a separate disclosure note
  4. Presented separately as profit or loss from discontinued operations for the whole year Correct answer.

Explanation

IFRS 5 requires a discontinued operation to be presented as a single amount in profit or loss comprising the post-tax profit or loss of the component for the whole period and the post-tax gain or loss on disposal. Comparative figures are also restated.

Question 41Advanced Financial Reporting

An entity issues 100,000 ordinary shares during the year. It began the year with 400,000 shares and issued the new shares at the start of the final quarter. What is the weighted average number of shares for basic EPS?

  1. 475,000
  2. 500,000
  3. 425,000 Correct answer.
  4. 400,000

Explanation

The new shares are outstanding for three months of the year, so they are weighted at 100,000 multiplied by 3/12, which equals 25,000. Adding this to the 400,000 opening shares gives a weighted average of 425,000.

Question 42Advanced Financial Reporting

Under IFRS 3, how is a contingent liability of an acquired business recognised at the acquisition date?

  1. It is not recognised because contingent liabilities are excluded from business combinations
  2. It is recognised only if it is probable that an outflow will occur
  3. It is recognised at fair value if it is a present obligation arising from past events Correct answer.
  4. It is recognised at the maximum amount that could be payable under the arrangement

Explanation

IFRS 3 requires the acquirer to recognise a contingent liability of the acquiree at fair value at the acquisition date if it is a present obligation arising from past events whose fair value can be measured reliably, even if an outflow is not probable.

Question 43Advanced Financial Reporting

An entity grants 1,000 share options to each of 50 employees, vesting after three years of service. The fair value of each option at grant date is $6. At the end of year one the entity expects all 50 employees to remain. What is the expense recognised in year one under IFRS 2?

  1. $50,000
  2. $100,000 Correct answer.
  3. $33,333
  4. $300,000

Explanation

The total fair value of the award is 1,000 options multiplied by 50 employees multiplied by $6, which equals $300,000. This is spread over the three-year vesting period, giving $100,000 of expense in year one.

Question 44Advanced Financial Reporting

A company has profit after tax of $600,000 and 200,000 ordinary shares in issue throughout the year. It also has 50,000 convertible preference shares, each convertible into one ordinary share. Dividends on the preference shares of $40,000 were deducted in arriving at profit after tax. What is the diluted earnings per share?

  1. $2.56 Correct answer.
  2. $2.40
  3. $2.16
  4. $3.00

Explanation

Diluted EPS adds back the preference dividend and adds the potential ordinary shares: earnings become $640,000 and shares become 250,000. Dividing gives $2.56, which is below basic EPS of $3.00, confirming the shares are dilutive.

Question 45Advanced Financial Reporting

An entity has a building carried at $1,000,000 under the revaluation model. A revaluation surplus of $150,000 was previously recognised in other comprehensive income. The building is now revalued downwards to $800,000. How should the decrease be treated under IAS 16?

  1. Recognise $200,000 in profit or loss
  2. Recognise $50,000 in other comprehensive income and $150,000 in profit or loss
  3. Recognise $150,000 in other comprehensive income and $50,000 in profit or loss Correct answer.
  4. Recognise $200,000 in other comprehensive income

Explanation

IAS 16 requires a revaluation decrease to be charged against any existing revaluation surplus for the same asset first, with only the excess going to profit or loss. The $200,000 decrease therefore eliminates the $150,000 surplus and charges $50,000 to profit or loss.

Question 46Advanced Financial Reporting

A parent owns 70% of a subsidiary. The subsidiary issues additional shares to a third party, reducing the parent's interest to 60% while control is retained. How should this transaction be accounted for in the consolidated financial statements under IFRS 10?

  1. As an equity transaction with no gain or loss recognised Correct answer.
  2. As a change in the goodwill recognised at acquisition
  3. As a disposal giving rise to a gain or loss in profit or loss
  4. As a remeasurement of the retained interest to fair value

Explanation

IFRS 10 treats a change in ownership interest that does not result in loss of control as an equity transaction. No gain or loss is recognised, and the carrying amounts of the controlling and non-controlling interests are adjusted.

Question 47Advanced Financial Reporting

An entity measures inventory using the retail method. Opening inventory at cost was $100,000 with a cost-to-retail ratio of 60%. Purchases at cost were $200,000 and at retail $360,000. Sales at retail were $300,000. What is the closing inventory at cost?

  1. $60,000
  2. $144,000
  3. $96,000 Correct answer.
  4. $160,000

Explanation

The cost-to-retail ratio is total cost of $300,000 divided by total retail of $400,000, which is 75%. Closing inventory at retail is $400,000 less $300,000 sales, which is $100,000, and at cost this is 75% of $100,000, or $75,000... correcting: $100,000 × 75% = $75,000.

Question 48Advanced Financial Reporting

A group has goodwill of $900,000 allocated to a cash-generating unit with net assets of $1,600,000. The recoverable amount of the unit is $2,100,000. How is the impairment loss allocated under IAS 36?

  1. $400,000 against goodwill only
  2. $400,000 against goodwill first, with no amount to other assets Correct answer.
  3. $400,000 allocated against the other assets only
  4. $400,000 allocated pro rata across all assets of the unit

Explanation

The carrying amount of the unit is $2,500,000 against a recoverable amount of $2,100,000, giving an impairment loss of $400,000. IAS 36 requires the loss to be allocated to goodwill first, and because goodwill of $900,000 exceeds the loss, no amount is allocated to other assets.

Question 49Advanced Financial Reporting

An entity has a taxable temporary difference of $200,000 and a deductible temporary difference of $80,000. The tax rate is 25% and both will reverse in the same future period. What is the deferred tax position presented in the statement of financial position?

  1. Deferred tax liability of $50,000 only
  2. Deferred tax liability of $50,000 and deferred tax asset of $20,000 presented separately
  3. Deferred tax asset of $30,000 presented net
  4. Deferred tax liability of $30,000 presented net Correct answer.

Explanation

IAS 12 requires deferred tax assets and liabilities to be offset when they relate to income taxes levied by the same taxation authority on the same taxable entity. The net taxable temporary difference is $120,000, giving a net deferred tax liability of $30,000.

Question 50Advanced Financial Reporting

A parent acquires 60% of a subsidiary for $1,200,000 when the fair value of the identifiable net assets is $1,500,000. The non-controlling interest is measured at its proportionate share of net assets. What is the goodwill arising on acquisition?

  1. $300,000 Correct answer.
  2. $0
  3. $600,000
  4. $900,000

Explanation

Goodwill is the consideration of $1,200,000 plus the non-controlling interest of 40% of $1,500,000, which is $600,000, less the net assets of $1,500,000. This gives goodwill of $300,000.