F1 - Financial Reporting

BC manufactures product X and on 1 February 20X4 started a project to develop a new material for use in its production. The development project is due to be completed by 31 December 20X4 with the new material being used in production from 1 January 20X5. The development project costs have been reliably estimated at $200,000 and it is anticipated that the new material will increase the margin achieved on product X by 20%.

You are a CIMA accountant within BC and are considering how to treat the development costs of $200,000 in the financial statements for the year ended 31 December 20X4.

In accordance with the ethical principle of professional competence and due care, which of the following statements correctly explains how these costs should be accounted for?

In accordance with the Conceptual Framework for Financial Reporting, which TWO of the following qualitative characteristics of useful financial information should be considered when selecting a measurement basis?

Which TWO of the following are implications of employee income tax being paid to the tax authority through a Pay-As-You-Earn scheme?

FILL IN THE BLANK

A specialized product was commissioned by a customer and the agreed price was $38,000. The product was completed at a cost of $34,000.

It was then discovered that new regulations meant that the specialized product now failed health and safety requirements. The specialized product had to be modified to meet the new regulations at a cost of $9,000. The customer agreed to pay an extra $3,000 towards the modifications.

At 31 December 20X5 the specialized product was still in inventory and had not been modified.

Calculate the value of the specialized product that should be included in inventory as at 31 December
20X5.

Give your answer to the nearest whole $000.

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HI commenced business on 1 April 20X3. Sales in April 20X3 were $30,000. This is forecast to increase by
2% per month.

Credit sales accounted for 50% of sales. Credit sales customers are allowed one month to pay; 75% of
April credit customers paid on time. A further 20% are expected to pay after more than one month, but before two months. The remaining 5% are not expected to pay. All these percentages are expected to continue in the near future.

Calculate the total amount of cash HI should forecast to be received in June 20X3.

Give your answer to the nearest whole $.

On 31 March 20X1 OP decided to sell a property. On that date this property was correctly classified as held for sale in accordance with IFRS 5 Non-Current Assets Held For Sale And Discontinued Operations.

In the draft financial statements of OP for the year ended 31 October 20X1 this property has been included at its fair value, which was $520,000 lower than its carrying value. This has resulted in a charge to profit or loss, the result of which is that the draft financial statements show a loss of $450,000 for the year to 31
October 20X1. When the management board of OP reviewed the draft financial statements it was unhappy about the loss and decided that the property should be reclassified as a non-current asset and reinstated to its original value, despite the fact that its plans for the property had not changed.

In accordance with the ethical principle of professional competence and due care, which THREE of the following statements explain how this property should be accounted for in the financial statements of OP for the year ended 31 October 20X1?

Which THREE of the following are principles identified by the Code of Ethics?

HOTSPOT

Whilst undertaking an external audit, the auditor has identified that there is insufficient evidence to support the financial statements.

As a result the auditors consider these financial statements to be wholly unreliable for decision making purposes.

This will result in a modified audit report with the opinion being .

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The following data relates to Company AB.

Statement of Profit or Loss for the year ended 30 June 20X4:

During the year ending 30 June 20X4, which was not a leap year, the average stock holding period was
102 days.

Calculate the working capital cycle in days.

Give your answer to the nearest full day.

An entity acquires 100% of the equity shares in another entity.

The consideration paid for the shares is less than the fair value of the net assets acquired.

Which of the following is the correct accounting treatment for the difference between the consideration paid and the fair value of the net assets acquired, in accordance with IFRS 3 Business Combinations?