SECTION A – COMPULSORY

Answer all questions in this section. Select the answer (A, B, C or D) which best responds to the question. Record your answers in SECTION A of the Yellow Answer Booklet provided.

QUESTION 1: MULTIPLE CHOICE - All Topics

1.      How does the conceptual framework differ from an accounting standard?

a.    The  principles  in  the  conceptual  framework  are  specific  in  nature  while  accounting standards provide more general requirements for financial reporting.

b.    The principles in the conceptual framework are general concepts while accounting standards provide specific requirements for a particular area of financial reporting.

c.    The principles in the conceptual framework are designed to provide guidance and apply to  a  limited  range  of decisions  relating  to the  preparation  of financial  reports while accounting standards apply to a wider range of decisions relating to the preparation of financial reports.

d.    None of the above.

2.      Which of the following statements is INCORRECT?

a.    Each share in a company carries a right to share in the assets on the liquidation of the company.

b.    Each share in a company carries a right to share proportionately in all new share issues of a company.

c.    A share represents an ownership right in a company.

d.    Each share in a company carries a right to vote for directors of the company.

3.      Which of the following are key parts of the definition of an asset?

I.     Probability

II.    Control

III.   Ownership

IV.  Past Transaction or Event

V.   Reliable Measurement

VI.  Future Economic Benefits

a.    I., III. & VI.

b.    II., IV. & V.

c.    III., V. & VI.

d.    II., IV. & VI.

4.      Banks Ltd has 42 000 ordinary shares on issue at 1 January 2015 which is the beginning of its reporting period. On 30 June 2015, it issued a further 4000 ordinary shares for cash. On 1 November 2015, Banks Ltd repurchased 1200 shares at fair value in a market transaction. The weighted average number of shares for use in the earnings per share calculation is:

a.    42 000 shares.

b.    43 400 shares.

c.    43 800 shares.

d.    44 800 shares.

5.      The purpose of the notes to the financial statements is to:

a.    Explain  any  resources and obligations  not  recognised  in  the Statement  of  Financial Position.

b.    Provide  information  meeting  the  disclosure  requirements  under  national  laws  or regulations.

c.    Disclose risks and uncertainties affecting the entity.

d.   All of the above.

6.      An event that gives rise to a present obligation, but which cannot be measured with sufficient reliability is an example of a:

a.    liability.

b.    accrual.

c.    provision.

d.    contingent liability.

7.      When multiple performance obligations exists in a contract, they should be accounted for as a single performance obligation when

a.    each service is interdependent and interrelated.

b.    Determination cannot be made.

c.    the performance obligations are distinct but interdependent.

d.    the product is distinct within the contract.

8.      Which of the following is NOT a feature of intangibles that differentiates them from other assets?

a.    They are largely knowledge based assets.

b.    Many are not separable items.

c.    They often do not have well-defined property rights.

d.    None of the above, i.e. they are all features of intangible assets.

9.      On 15 January 2017, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery date of 1 March. The equipment was not delivered until 31 March. The contract required full payment of $75,000 30 days after delivery. This contract should be

a.    recorded on 15 January 2017.

b.    recorded on 31 March 2017.

c.    recorded on 1 March 2017.

d.    recorded on 30 April 2017.

10.    The bonus issue of shares has the following impact on the equity of a company:

a.    total equity increases.

b.    total equity decreases.

c.    one equity account increases and another equity account decreases by an equal amount.

d.    only the amount of issued share capital changes.

[TOTAL MARKS: 10]

SECTION B – COMPULSORY

Record your answers in the Yellow Answer Booklet provided.

QUESTION 2: COMPANY EQUITY, SPECIAL REPORTING ISSUES AND EPS

Question 2 consists of three separate parts, Part 1, Part 2 and Part 3.  All parts are compulsory.

Part 1

Kelly Ltd undertook an issue of ordinary and preference shares in April 2018 as stated by the following transactions:

Required:

Prepare journal entries to record the above transactions for Kelly Ltd. (10 marks)

Part 2

Required:

(a)     Briefly discuss the distinctive features of an intangible asset and a heritage asset in reference

to definition and recognition issues in the Conceptual Framework. (9 marks)

(b)    Why is the element of ‘control’ problematic for the recognition of heritage assets? (3 marks)

Part 3

On 1 January 2016, Rose Ltd has 200 000 ordinary shares outstanding. On 1 March 2016, the company announces a bonus issue of two shares for every share held on that date. By the end of the year Rose Ltd's profit attributable to ordinary shareholders amounts to $900 000 (2015: $600 000).

Required:

Calculate the 2016 and 2015 basic earnings per share amounts that Rose Ltd must disclose in its

financial statements for the year ended 31 December 2016. (5 marks)

[TOTAL MARKS: 27]

QUESTION 3: LIABILITIES, PROVISIONS AND CONTINGENT LIABILITIES

(a)     Briefly explain the differences between provisions, contingent liabilities and other types of

liabilities (e.g. accounts payable). (6 marks)

(b)    What are the recognition criteria for provisions? (4 marks)

(c)     Identify whether each of the following would be a liability, a provision or a contingent liability, or none of the above, in the financial statements of Company A as at the end of its reporting period of 30 June 2016. Assume that Company A's financial statements are authorised for issue on 24 August 2016.

i.     An amount of $35 000 owing to Company Z for services rendered during May 2016.

ii.    Long service leave, estimated to be $500 000, owing to employees in respect of past services.

iii.   Costs of $26 000 estimated to be incurred for relocating employee D from Company A's head office location to another city. The staff member will physically relocate during July 2016.

iv.   Provision of $50 000 for the overhaul of a machine. The overhaul is needed every 5 years and the machine was 5 years old as at 30 June 2016.

v.    Damages awarded against Company A resulting from a court case decided on 26 June 2016. The judge has announced that the amount of damages will be set at a future date, expected to be in September 2016. Company A has received advice from its lawyers that the amount of the damages could be anything between $20 000 and $7 million.

(10 marks)

[TOTAL MARKS: 20]

QUESTION 4: TAX EFFECT ACCOUNTING

Question 4 consists of two separate parts, Part 1 and Part 2.  Both parts are compulsory.

Part 1

Panenka Ltd commenced operations on 1 April 2015. One year later (31 March 2016), the entity prepares the following information, showing both the carrying amounts for accounting purposes, and the tax bases of the respective assets and liabilities.

Assets

Cash

Accounts receivable (net)

Prepaid insurance

Inventory

Plant (net)

Land

Total Assets

Liabilities

Accounts payable

Provision for warranty

Loan payable

Total Liabilities

Net Assets

Carrying values

$

60,000

50,000

20,000

80,000

450,000

600,000

1,260,000

60,000

70,000

400,000

530,000

730,000

Tax bases

$

60,000

60,000

-

80,000

450,000

600,000

1,250,000

60,000

-

400,000

460,000

790,000

Other information:

After adjusting for differences between tax rules and accounting rules, it is determined that

the taxable profit of Panenka Ltd is $700,000.

There is an allowance for doubtful debts of $10,000.

None of the amounts accrued in respect of warranty expenses has actually been paid.

The tax rate is 30 percent.

Required:

Prepare the year-end journal entries to account for tax using the balance sheet method. Show all workings, including the completion of the tables provided in the Yellow Answer Booklet. (17 marks)

Part 2

As at 30 June 2015, the balances of deferred tax accounts for Didak Ltd were:

Deferred tax asset	$8,880
Deferred tax liability	$21,840

In October 2014, the government announced a change in the tax rate from 40 cents to 30 cents in the dollar, effective from 1 July 2015.

Required:

Calculate the effects of the tax rate change and provide the necessary journal entries (narrations are

not required). (5 marks)

[Total Marks: 22]

QUESTION 5: LEASE ACCOUNTING

Forklift Ltd enters into a non-cancellable lease agreement with Taco Ltd on 1 July 2015 to lease restaurant kitchen equipment. Forklift Ltd uses straight-line depreciation for this type of asset and a 30 June balance date. The lease has the following terms:

Date of entering the lease Duration of the lease        Economic life

Guaranteed residual value         Lease payments are made on year.

Fair value of the leased assets Implicit interest rate

1 July 2015

8 years

10 years $5,000

June 30 each   $4,000 at the inception of the lease, 7

annual payments of $3,500

$21,993

12% p.a.

Required:

(a) Calculate the Present Value of Minimum Lease Payments for this lease. (3 marks)

(b) Complete the repayment schedule provided in your answer book. (5 marks)

(c) Provide the journal entries associated with the leased equipment for Forklift Ltd at the 1 July 2015; the 30 June 2016 (at the end of the first year) and 30 June 2018 (at the end of year 3). Narrations are required. (8 marks)

(d) Briefly explain two possible adverse effects on a lessee entity’s financial statements arising from the classification of a lease arrangement as a finance lease. (5 marks)

[TOTAL MARKS: 21]

Present Value of $1 in n Periods