Bpp f7 revision kit 2011 download

C A resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity. D A resource to which an entity has a future commitment as a result of past events and from which future economic benefits are expected to flow from the entity. The process for developing an International Financial Reporting Standard involves a number of stages.

The F7 BPP kit has ALL type of questions and helps students with developing a technical approach which ultimately gives the student an edge in exam. Only and only by practicing questions, you do get a feel for what you will and need have to do in the exam. Moreover, those topics which you will find hard and difficult to understand in the Study Text may be much easier to grasp when you have encountered them in a few questions.

So, don't get bogged down and panic in any area of the Study Text. Just keep going, keep studying and keep trying and a lot of things you found difficult, will make more sense when you will see how they going to be appeared in an exam question. This gives the examination team greater and wider scope to examine and test the whole of the syllabus and bring in the topics that do not feature and tested in the longer questions.

Section C will have two mark questions. So, it is actually not possible to pass this paper only by revising some certain topics. A consolidation question could be tested in Section C and as well as be a statement of financial position or statement of profit or loss or both, and it may possibly include an associate as well, so be prepared well for all of this. Therefore, you must go through and revise all the consolidation workings, and you must be aware and know how to account for an associate.

Remember, all questions are compulsory. A single company accounts preparation question allows the examining team to test more complex issues that they cannot test in the consolidation question.

Make sure you are able to deal with the deferred tax, leases, calculating finance costs using the effective rate of interest, prior period adjustments and discontinued operations. Other possibilities for Section C are statements of cash flow or interpretation of accounts and ratio analysis. A question on interpretation of group financial statements possibility can be tested in Section C.

Issues that could be anywhere like, non-current assets and impairment, EPS, intangible assets, provisions and regulatory issues. This is the most important and vital thing to do if you really want to get through. Many of the most recent, up-to-date exam questions are present in this Kit, amended is to reflect the new exam format. Required a Prepare the statement of profit or loss and other comprehensive income for Keystone for the year ended 30 September 20X1.

The terms of the share issue were one new share for every five held at a price of 75 cents each. Fresco has not yet recorded the revaluation. The remaining life of the leased property is eight years at the date of the revaluation.

Fresco makes an annual transfer to retained profits to reflect the realisation of the revaluation surplus. In Fresco's tax jurisdiction the revaluation does not give rise to a deferred tax liability. Depreciation and amortisation are charged to cost of sales. Fresco is not insured against this fraud. Required: a i Prepare the statement of profit or loss and other comprehensive income for Fresco for the year ended 31 March 20X2.

What will be depreciation charge in relation to this machine in the financial statements of Kaplow for the year ending of 31 December 20X7? Calculate the borrowing costs which can be capitalised in respect of this project for the year ended 31 December 20X8. Carter uses the fair value model for investment property.

What amount will be shown in revaluation surplus at 31 December 20X8 in respect of this building? Construction is expected to take two years. The loan was drawn down and incurred on 1 January 20X9 and work began on 1 March 20X9. Calculate the borrowing costs to be capitalised for the year ended 31 December 20X9 in respect of this project.

A A property intended for sale in the ordinary course of business B A property being constructed for a customer C A property held by Buildco under a finance lease and leased out under an operating lease D A property owned by Buildco and leased out to a subsidiary 2 marks 7 Which one of the following is not true concerning the treatment of investment properties under IAS 40?

A Following initial recognition, investment property can be held at either cost or fair value. B If an investment property is held at fair value, this must be applied to all of the entity's investment property. C An investment property is initially measured at cost, including transaction costs. D A gain or loss arising from a change in the fair value of an investment property should be recognised in other comprehensive income. What amount should be capitalised as borrowing costs at 31 December 20X8 in respect of this asset?

It is being depreciated on a straight line basis over its expected life of ten years. On 1 January 20X8, following a change in legislation, Wetherby fitted a safety guard to the machine. What amount will be charged to profit or loss for the year ended 31 March 20X8 in respect of depreciation on this machine? This is a condition of being allowed to fly. How should the cost of the overhaul be treated in the financial statements?

A Accrued for over the year and charged to maintenance expenses B Provided for in advance and charged to maintenance expenses C Capitalised and depreciated over the period to the next overhaul D Charged to profit or loss when the expenditure takes place 2 marks 14 Preparation question: Plethora plc The draft financial statements of Plethora plc for the year to 31 December 20X9 are being prepared and the accountant has requested your advice on dealing with the following issues.

On 1 July 20X9 Plethora plc entered into an agreement to let the building out to another company. This valuation had not changed at 31 December 20X9. Another building has been let out for a number of years.

Required Explain how these two buildings should be accounted for in the financial statements of Plethora plc for the year to 31 December 20X9 and quantify the amounts involved.

Plethora plc treats this business as a separate cash generating unit. Required Restate the carrying amounts of the assets of the retail business after accounting for the result of the impairment review. This upgrade led to a reduction in the production time per unit of the goods being manufactured using the machine. Required Prepare extracts from the statement of profit or loss and statement of financial position for the above machine for each of the three years to 30 September 20X8.

The directors are aware that in accordance with IAS 23 Borrowing costs certain borrowing costs have to be capitalised. Required Explain the circumstances when, and the amount at which, borrowing costs should be capitalised in accordance with IAS At 1 April 20X8 the aircraft log showed it had flown 10, hours since 1 April 20X5.

In the year ended 31 March 20X9, the aircraft flew for 1, hours for the six months to 30 September 20X8 and a further 1, hours in the six months to 31 March 20X9. This did not increase the estimated remaining life of the cabin fittings, but the improved facilities enabled Flightline to substantially increase the air fares on this aircraft Required Calculate the charges to profit or loss in respect of the aircraft for the year ended 31 March 20X9 and its carrying amount in the statement of financial position as at that date.

The post accident changes are deemed effective from 1 October 20X8. Which one of the following would preclude capitalisation of the costs? A Development of the product is not yet complete. B No patent has yet been registered in respect of the product.

C No sales contracts have yet been signed in relation to the product. D It has not been possible to reliably allocate costs to development of the product. On 1 April 20X8 the directors became confident that the project would be successful and yield a profit well in excess of costs.

The project was still in development at 30 September 20X8. What amount will be charged to profit or loss for the year ended 30 September 20X8 in respect of research and development costs?

Ignore business combinations. Amortisation is based on a ten-year useful life. What should be the carrying amount of the brand in the statement of financial position of Sandown as at 30 September 20X9?

Your answer should consider goodwill separately from other intangibles. They are either written off as an expense or capitalised as an asset. Required Discuss the conceptual issues involved and the definition of an asset that may be applied in determining whether development expenditure should be treated as an expense or an asset. In preparing its financial statements for the year ended 30 September 20X7 it has become aware that, under IFRS rules, qualifying development expenditure should be treated as an intangible asset.

Assume amortisation commences at the beginning of the accounting period following capitalisation. Emerald had no development expenditure before that for the year ended 30 September 20X4.

Required Treating the above as the correction of an error in applying an accounting policy, calculate the amounts which should appear in the statement of profit or loss and statement of financial position including comparative figures , and statement of changes in equity of Emerald in respect of the development expenditure for the year ended 30 September 20X7.

Ignore taxation. It has been considering the accounting treatment of its intangible assets and has asked for your opinion on how the matters below should be treated in its financial statements for the year to 31 March 20X4. Temerity owns a patent for an established successful drug that has a remaining life of eight years. As a result of this the company has been granted an exclusive five-year licence to manufacture and distribute a new vaccine.

Although the licence had no direct cost to Dexterity, its directors feel its granting is a reflection of the company's standing and have asked Leadbrand to value the licence. This in turn has led to an increase in revenue and cost reductions. The directors of Dexterity believe these benefits will continue for at least three years and wish to treat the training costs as an asset.

The directors believe that increased sales as a result of the publicity will continue for two years from the start of the advertisements. Required Explain how the directors of Dexterity should treat the above items in the financial statements for the year to 31 March 20X4. The values given by Leadbrand can be taken as being reliable measurements. You are not required to consider depreciation aspects.

Required Provide an explanation to your assistant of the weaknesses in his definition of non-current assets when compared to the International Accounting Standards Board's IASB view of assets. This has already led to an improvement in the company's efficiency and resulted in cost savings. The organiser of the course has stated that the benefits from the training should last for a minimum of four years.

The assistant has therefore treated the cost of the training as an intangible asset and charged six months' amortisation based on the average date during the year on which the training courses were completed. Darby has a past history of being particularly successful in bringing similar projects to a profitable conclusion.

As a consequence the assistant has treated the expenditure to date on this project as an asset in the statement of financial position. Darby was also commissioned by a customer to research and, if feasible, produce a computer system to install in motor vehicles that can automatically stop the vehicle if it is about to be involved in a collision. The installation is expected to be completed by 31 October 20X9.

Ignore discounting. The mark allocation is shown against each of the three items above. What will be the carrying amount of the building when the impairment loss has been recognised? What is the impairment loss on the machine to be recognised in the financial statements at 31 March 20X9?

Which one of the following would not be an external indicator that one or more of an entity's assets may be impaired?

What is the amount of the impairment loss that should be recognised on the plant? At what amount should the property be measured following the impairment review? Required Explain what is meant by an impairment review. Your answer should include reference to assets that may form a cash generating unit. You are not required to describe the indicators of an impairment or how impairment losses are allocated against assets.

Telepath uses straight-line depreciation. On 31 March 20X2, Telepath was informed by a major customer who buys products produced by the plant that it would no longer be placing orders with Telepath. Even before this information was known, Telepath had been having difficulty finding work for this plant. Telepath has confirmed that there is no market in which to sell the plant at 31 March 20X2. On 31 March 20X2, there was an industrial accident a gas explosion that caused damage to some of Tilda's plant.

The receivables and cash are already stated at their fair values less costs to sell net realisable values. Required Calculate the carrying amounts of the assets in i and ii above at 31 March 20X2 after applying any impairment losses. The following mark allocation is provided as guidance for this requirement.

A A change in valuation of inventory from a weighted average to a FIFO basis B A change of depreciation method from straight line to reducing balance C Adoption of the revaluation model for non-current assets previously held at cost D Capitalisation of borrowing costs which have arisen for the first time 2 marks 2 For an asset to be classified as 'held for sale' under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations its sale must be 'highly probable'.

Which one of the following is not a requirement if the sale is to be regarded as highly probable? A Management must be committed to a plan to sell the asset. B A buyer must have been located for the asset. C The asset must be marketed at a reasonable price. D The sale should be expected to take place within one year from the date of classification. A Lower of carrying amount and fair value less costs of disposal B Lower of carrying amount and value in use C Higher of value in use and fair value less costs of disposal D Higher of carrying amount and recoverable amount 2 marks 4 Which one of the following events taking place after the year end but before the financial statements were authorised for issue would require adjustment in accordance with IAS 10 Events after the Reporting Period?

A Three lines of inventory held at the year end were destroyed by flooding in the warehouse. B The directors announced a major restructuring. C Two lines of inventory held at the year end were discovered to have faults rendering them unsaleable. D The value of the company's investments fell sharply. The company's main activity is in the travel industry mainly selling package holidays flights and accommodation to the general public through the Internet and retail travel agencies.

During the current year the number of holidays sold by travel agencies declined dramatically and the directors decided at a board meeting on 15 October 20X6 to cease marketing holidays through its chain of travel agents and sell off the related high-street premises. Immediately after the meeting the travel agencies' staff and suppliers were notified of the situation and an announcement was made in the press.

The directors wish to show the travel agencies' results as a discontinued operation in the financial statements to 31 October 20X6. Due to the declining business of the travel agents, on 1 August 20X6 three months before the year end Partway expanded its Internet operations to offer car hire facilities to purchasers of its Internet holidays.

Required i Discuss whether the directors' wish to show the travel agencies' results as a discontinued operation is justifiable. In previous years Partway has recognised revenue and profit from the sale of its holidays at the date the holiday is actually taken. From the beginning of November 20X5, Partway has made it a condition of booking that all customers must have holiday cancellation insurance and as a result it is unlikely that the outstanding balance of any holidays will be unpaid due to cancellation.

In preparing its financial statements to 31 October 20X6, the directors are proposing to change to recognising revenue and related estimated costs at the date when a booking is made.

The directors also feel that this change will help to negate the adverse effect of comparison with last year's results year ended 31 October 20X5 which were better than the current year's.

Required ii Comment on whether Partway's proposal to change the timing of its recognition of its revenue is acceptable and whether this would be a change of accounting policy. Required Explain the basis on which the management of an entity must select its accounting policies and distinguish, with an example, between changes in accounting policies and changes in accounting estimates. The plant is wearing well and at the beginning of the current year 1 October 20X2 the production manager believed that the plant was likely to last eight years in total ie from the date of its purchase.

The mark allocation is shown against each of the two items above. The company's year end is 30 September. At a meeting on 1 July 20X0 the directors decided to close down the furniture making operation on 31 January 20X1 and then dispose of its non-current assets on a piecemeal basis.

Affected employees and customers were informed of the decision and a press announcement was made immediately after the meeting. Required Explain how the decision to close the furniture making operation should be treated in Manco's financial statements for the years ending 30 September 20X0 and 20X1.

Your answer should quantify the amounts involved. A The activities of the subsidiary are dissimilar to the activities of the rest of the group. B The subsidiary was acquired with the intention of reselling it after a short period of time.

C The subsidiary is based in a country with strict exchange controls which make it difficult for it to transfer funds to the parent. D There is no basis on which a subsidiary may be excluded from consolidation. When the amount of the negative goodwill has been confirmed, how should it be accounted for? A Charged as an expense in profit or loss B Capitalised and presented under non-current assets C Credited to profit or loss D Shown as a deduction from non-current assets 2 marks 3 Which of the following is the criterion for treatment of an investment as an associate?

A Ownership of a majority of the equity shares B Ability to exercise control C Existence of significant influence D Exposure to variable returns from involvement with the investee 2 marks 4 Which of the following statements are correct when preparing consolidated financial statements?

A 1 only B 2 and 3 C 2 and 4 D 3 and 4 2 marks 5 IFRS 3 requires an acquirer to measure the assets and liabilities of the acquiree at the date of consolidation at fair value. Which of the following is not one of the issues to be considered according to IFRS 13 when arriving at the fair value of a non-financial asset? Goose received the goods on 2 January 20X9 and recorded the transaction then. The two companies' draft financial statements as at 31 December 20X8 are shown below.

It is the group policy to value the non-controlling interest at acquisition at fair value. Helping hands 1 This is a very easy example to ease you into the technique of preparing consolidated accounts. There are a number of points to note. The remaining useful life of the building at the acquisition date was 40 years.

Witch measures non-controlling interest at fair value, based on share price. At what amount should the non- controlling interest appear in the consolidated statement of financial position of Witch at 31 March 20X9? Cloud measures non-controlling interest at fair value.

What was the goodwill arising on acquisition? At the date of acquisition the fair values of Sandford's net assets were equal to their carrying amounts with the exception of its property. The property had a remaining useful life of eight years.

What effect will any adjustment required in respect of the property have on group retained earnings at 30 September 20X1? The acquisition was through a share exchange of two shares in Patronic for every three shares in Sardonic. What is the amount of the consideration attributable to Patronic for the acquisition of Sardonic? The issue of shares has not yet been recorded by Pedantic.

Below are the summarised draft financial statements of both companies. It had a remaining life of five years at that date straight-line depreciation is used. Sophistic has not adjusted the carrying amount of its plant as a result of the fair value exercise. Both companies have positive bank balances.

Consolidated goodwill was not impaired at 30 September 20X8. A statement of changes in equity is not required. Pedantic is concerned at the risk that such a large order represents in the current difficult economic climate, especially as Pedantic's normal credit terms are only one month's credit. To support its application for credit, Trilby has sent Pedantic a copy of Tradhat's most recent audited consolidated financial statements. Trilby is a wholly-owned subsidiary within the Tradhat group.

Tradhat's consolidated financial statements show a strong statement of financial position including healthy liquidity ratios.

Required Comment on the importance that Pedantic should attach to Tradhat's consolidated financial statements when deciding on whether to grant credit terms to Trilby. What will be shown as gross profit in the consolidated statement of profit or loss of Basil for the year ended 31 December 20X9?

By how much will the unrealised profit decrease the profit attributable to the non-controlling interest for the year ended 30 September 20X1?

How will this affect group cost of sales in the consolidated statement of profit or loss of Hillusion for the year ended 31 March 20X3? The impairment loss has not yet been recorded. What is the amount attributable to the non-controlling interests in the consolidated statement of profit or loss? Noted below are the draft statements of profit or loss and other comprehensive income for Port and its subsidiary Alfred for the year ending 31 December 20X4 along with the draft statements of financial position as at 31 December 20X4.

Required Prepare the consolidated statement of profit or loss and other comprehensive income for the Port Group for the year ending 31 December 20X4 and a consolidated statement of financial position as at that date. Approaching the question 1 Establish the group structure, noting for how long Alfred was a subsidiary. Sub-totals are not normally needed when you do this. The acquisition was through a share exchange of three shares in Pandar for every five shares in Salva.

This plant had a remaining life of five years straight-line depreciation at the date of acquisition of Salva. All depreciation is charged to cost of sales. In addition, Salva owns the registration of a popular internet domain name. The registration, which had a negligible cost, has a five year remaining life at the date of acquisition ; however, it is renewable indefinitely at a nominal cost. The fair values of the plant and the domain name have not been reflected in Salva's financial statements.

No fair value adjustments were required on the acquisition of the investment in Ambra. All interest accruing to 30 September 20X9 had been accounted for by both companies.

Salva also has other loans in issue at 30 September 20X9. Salva had one third of these goods still in its inventory at 30 September 20X9. There are no intra- group current account balances at 30 September 20X9. For this purpose Salva's share price at that date can be taken to be indicative of the fair value of the shareholding of the non-controlling interest.

Required a i Calculate the goodwill arising on the acquisition of Salva at 1 April 20X9. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to cost of sales. This has not changed as at 30 September Greca has not incorporated these fair value changes into its financial statements.

For this purpose, Greca's share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest. Required Prepare the consolidated statement of profit or loss for Viagem for the year ended 30 September The acquisition was through a share exchange of two shares in Prodigal for every three shares in Sentinel.

Prior to its acquisition Sentinel's land had been valued at historical cost. Sentinel has recognised the revaluation within its own financial statements. At this date the plant had a remaining life of two and half years. Prodigal had included the profit on this transfer as a reduction in its depreciation costs. Required a Calculate the goodwill on acquisition of Sentinel. Required Explain the difference that the accounting treatment of these alternative methods could have on the consolidated financial statements, including where consolidated goodwill may be impaired.

Vardine's profit is subject to seasonal variation. Pacemaker has one subsidiary and no other investments apart from Vardine. What amount will be shown as 'investment in associate' in the consolidated statement of financial position of Pacemaker as at 31 March 20X9?

A The associate's income and expenses are added to those of the group on a line-by-line basis. B The group share of the associate's income and expenses is added to the group figures on a line-by- line basis. C The group share of the associate's profit after tax is recorded as a one-line entry. D Only dividends received from the associate are recorded in the group statement of profit or loss.

Boot had resold none of these goods by 31 October. At what amount will Wellington record its investment in Boot in its consolidated statement of financial position at 31 October 20X7? Profits accrued evenly throughout the year. What amount will be shown as 'investment in associate' in the statement of financial position of Picardy as at 30 September 20X1?

What effect would the above transactions have on group inventory at 31 December 20X4? Laurel, Comic and Hardy are public limited companies. These assets were originally purchased by Hardy on 1 January 20X5 and are being depreciated over 6 years. No impairment losses have been necessary to date relating to the investment in the associate.

Use the following pro-forma. Tyson, Douglas and Frank are public limited companies. None of the goods had been sold by the year end. Required Prepare the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 20X8 for Tyson, incorporating its associate.

Only the cash consideration of the above investments has been recorded by Plateau. Savannah believes it is highly likely that the agreement will be renewed when it expires. The estimated remaining life of the plant at the date of sale was five years straight-line depreciation. Plateau had a third of the goods still in its inventory at 30 September 20X7. For this purpose the share price of Savannah at this date should be used. Required a Prepare the consolidated statement of financial position for Plateau as at 30 September 20X7.

The assistant believes that it is inconsistent to aggregate the subsidiary's net assets with those of the parent because most of the parent's assets are carried at historical cost.

Comment on the assistant's observation and explain why the net assets of acquired subsidiaries are consolidated at acquisition at their fair values. The immediate payment has been recorded in Paladin's financial statements, but the deferred payment has not been recorded. At that date the plant had a remaining life of four years. Saracen uses straight-line depreciation for plant assuming a nil residual value.

Saracen has not accounted for this asset. Trading relationships with Saracen's customers last on average for six years. Required a Prepare the consolidated statement of financial position for Paladin as at 30 September 20X1. In May 20X8 a meeting of the board of directors of Augusta was held at which Paladin lost its seat on Augusta's board. Required Explain, with reasons, the accounting treatment Paladin should adopt for its investment in Augusta when it prepares its financial statements for the year ending 30 September 20X2.

At what amount should inventory be stated in the statement of financial position as at 31 March 20X6? At what amount should inventory of product W32 be recognised in the financial statements of Tentacle as at 31 March 20X7? A The production cost of the item has been falling. B The selling price of the item has been rising. C The item is becoming obsolete. D Demand for the item is increasing.

A Fixed production overheads must be allocated to items of inventory on the basis of the normal level of production. B Plant lying idle will lead to a higher fixed overhead allocation to each unit C Variable production overheads are allocated to each unit on the basis of the actual usage of production facilities.

D Unallocated overheads must be recognised as an expense in the period in which they are incurred. A Production cost B Fair value C Cost less estimated point-of sale costs D Fair value less estimated point-of-sale costs 2 marks 7 Which of the following is not the outcome of a biological transformation according to IAS 41? A Included in profit or loss for the year B Adjusted in retained earnings C Shown under 'other comprehensive income' D Deferred and recognised over the life of the biological asset 2 marks 9 Which of the following statements about IAS 2 Inventories are correct?

These have not been provided for as the case will not go to court until next year. These costs would still have to be incurred even if no further ore was extracted. Any defect arising during that period is repaired free of charge. What is the amount of the provision required?

A A company has a policy has a policy of cleaning up any environmental contamination caused by its operations, but is not legally obliged to do so. B A company is leasing an office building for which it has no further use. However, it is tied into the lease for another year.

C A company is closing down a division. The Board has prepared detailed closure plans which have been communicated to customers and employees. D A company has acquired a machine which requires a major overhaul every three years. Required Define a liability and describe the circumstances under which provisions should be recognised. Give two examples of how the definition of liabilities enhances the reliability of financial statements. The terms of the licence are that Promoil will have to remove the platform which will then have no value and restore the sea bed to an environmentally satisfactory condition in ten years' time when the oil reserves have been exhausted.

Required i Explain and quantify how the oil platform should be treated in the financial statements of Promoil for the year ended 30 September 20X8. Required Define provisions and contingent liabilities and briefly explain how IAS 37 improves consistency in financial reporting.

At the end of the extraction, although not legally bound to do so, Borough intends to make good the damage the extraction has caused to the seabed environment. This intention has been communicated to parties external to Borough. In the year to 30 September 20X1 Borough extracted million barrels of oil. In the case of item ii only, distinguish between Borough's entity and consolidated financial statements and refer to any disclosure notes.

Your answer should only refer to the treatment of the loan and should not consider any impairment of Hamlet's property or Borough's investment in Hamlet. The treatment in the income statement is not required for any of the items. Its main item of plant is a furnace which was purchased on 1 October 20X1.

The manufacturing process produces toxic chemicals which pollute the nearby environment. Legislation requires that a clean-up operation must be undertaken by Shawler on 30 September 20Y1 ten years after 20X1 at the latest. The following are extracts from Shawler's statement of financial position as at 30 September 20X3 two years after the acquisition of the furnace. At 30 September 20X4 Shawler had not yet fitted the filters. Required Advise Shawler as to whether they need to provide for the cost of the filters as at 30 September 20X4 and whether they should reduce the environmental provision at this date.

Required Explain how the plant should be treated in accordance with International Financial Reporting Standards and comment on the directors' proposed treatment. Interest is payable in arrears on 31 March each year. These financial assets are held in a fund whose value changes directly in proportion to a specified market index. What amount of gain or loss should be recognised at 31 March 20X8 in respect of these assets?

The loan note will be redeemed on 31 March 20X3 at a substantial premium. At what amount will the loan note appear in the statement of financial position as at 31 March 20X2?

When preparing the draft financial statements for the year ended 30 September 20X1, the directors are proposing to show the loan note within equity in the statement of financial position, as they believe all the loan note holders will choose the equity option when the loan note is due for redemption.

Alternatively, the loan notes will be redeemed at par. Fab Factors also suggest that, as some of the loan note holders will choose to convert, the loan notes are, in substance, equity and should be treated as such on Jedders' statement of financial position. Thus, as well as a reduced finance cost being achieved to boost profitability, Jedders' gearing has been improved compared to a straight issue of debt.

The specialist plant will have no residual value at the end of the contract and should be depreciated on a monthly basis. Pricewell recognises profits on uncompleted contracts on the percentage of completion basis as determined by the agreed work to date compared to the total contract price.

What is the profit to date on the contract at 31 March 20X3? In this case the legal position is that the asset has been sold but the substance is that the seller still retains the benefits of ownership. Which one of the following is not a feature which suggests that the substance of a transaction differs from its legal form?

A The seller of an asset retains the ability to use the asset. B The seller has no further exposure to the risks of ownership C The asset has been transferred at a price substantially above or below its fair value. D The 'sold' asset remains on the sellers premises. What amount will be shown as income from this transaction in the statement of profit or loss for the year ended 30 September 20X4?

Dexon's customers have in the past returned goods under this type of agreement. By what amount should Dexon's profit for the year ended 31 March 20X8 be reduced in respect of this? It is common in the motor trade. Which of the following indicate that the inventory in question is consignment inventory? What amount of income will be recognised in respect of the grant in the year to 31 March 20X9?

At what amount should revenue be shown in the statement of profit or loss of Newmarket for the year ended 31 December 20X9? Ignore the time value of money. Derringdo uses straight-line depreciation on a time apportioned basis. The terms of the grant are that if the company retains the asset for four years or more, then no repayment liability will be incurred.

If the plant is sold within four years a repayment on a sliding scale would be applicable. Derringdo has no intention to sell the plant within the first four years. Derringdo's accounting policy for capital-based government grants is to treat them as deferred credits and release them to income over the life of the asset to which they relate. Required a Discuss whether the company's policy for the treatment of government grants meets the definition of a liability in the IASB's Conceptual Framework.

Your answer should consider whether the sliding scale repayment should be used in determining the deferred credit for the grant.

It is, however, probable that the customer will pay for costs incurred so far. Required Calculate the amounts to be included in the statement of profit or loss for the year ended 31 December 20X5 and the statement of financial position as at that date. During the year ended 31 March 20X6 the company commenced two construction contracts that are expected to take more than one year to complete. The percentage of completion is calculated as the agreed value of work completed to the agreed contract price.