Advanced Financial Accounting (M) PRACTICE QUESTIONS
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Advanced Financial Accounting (M)
PRACTICE QUESTIONS
Question 1 (Multiple Choice)
Dave holds an investment in Jones Limited that gives him a significant influence over the company. Dave’s daughter, Sophie, also has a significant influence over another entity, Campbell Limited. What is the relationship between Jones Limited and Campbell Limited?
A. Jones Limited has a significant influence over Campbell Limited.
B. Jones Limited and Campbell Limited are not related parties.
C. Jones Limited is a related party of Campbell Limited.
D. Jones Limited has control over Campbell Limited.
Question 2 (Multiple Choice)
Which of the following transactions are not related party transactions for an entity?
I. An employee purchased the entity’s products on normal trading terms. II. A subsidiary of the entity supplied raw materials to the entity.
III. The entity lent money to one of its directors.
IV. The entity made an agreement with a trade union about increase in employee’s wages.
A. I and II only.
B. II and III only.
C. III and IV only.
D. I and IV only.
Question 3 (Fill in multiple blanks)
On 1 July 2016, Budget Ltd acquired all the issued shares of Cabot Ltd for $200,000. At this date, the equity of Cabot Ltd consisted of share capital of $150,000 and retained earnings of $60,000. All the identifiable assets and liabilities of Cabot Ltd were recorded at amounts equal to fair value except for the land whose fair value was $30,000 less than the carrying amount. The land was still on hand at 30 June 2017. The company tax rate
is 30%. The financial statements of Cabot Ltd at 30 June 2017 contained the following information:
|
Budget Ltd |
Cabot Ltd |
Adjustments |
Group |
|
Dr |
Cr |
||||
Cash |
70 000 |
30 600 |
|
|
|
Land |
130 000 |
87 400 |
|
|
|
Inventory |
43 500 |
32 000 |
|
|
|
Shares in Cabot Ltd |
200 000 |
0 |
|
|
|
Plant |
210 000 |
127 000 |
|
|
|
Accum depreciation |
(130 000) |
(22 000) |
|
|
|
Other assets |
10 000 |
- |
|
|
|
|
|
|
|
|
|
|
533 500 |
255 000 |
|
|
|
|
|
|
|
|
|
Profit before tax |
100 000 |
55 000 |
|
|
|
Income tax expense |
(25 000) |
(15 000) |
|
|
|
Net Profit |
75 000 |
40 000 |
|
|
|
Retained earnings 1/7/2016 |
193 500 |
60 000 |
|
|
|
Dividend paid |
(60 000) |
(10 000) |
|
|
|
Retained earnings 30/06/2017 |
208 500 |
90 000 |
|
|
|
Share capital |
250 000 |
150 000 |
|
|
|
Business combination valuation reserve |
- |
- |
|
|
|
Accounts payable |
25 000 |
5 000 |
|
|
|
Other liabilities |
50 000 |
10 000 |
|
|
|
|
533 500 |
255 000 |
|
|
|
|
|
|
|
|
|
Required:
a) What is the amount of goodwill or gain on bargain purchase arising from the acquisition? 11000
200000-(150000+60000-21000)= 11000
b) What is the amount of consolidated total assets for the year ended 30 June 2017? 578500 533500+255000 -200000 -21000 + 11000=578500
c) What is the amount of consolidated retained earnings for the year ended 30 June 2017? 238500
208500+90000- 10000+10000 -60000=238500
Question 4 (Numerical Answer)
On 1 March 2017, Brook Ltd acquired all the assets and liabilities of Moriarty Ltd for $230,000 cash.
The cost of undertaking a due diligence was $3,000, paid on 1 April 2017. The due diligence process revealed that Moriaty Ltd was being sued by a former client seeking compensation of $21,000. The lawyers estimated that Moriaty Ltd faced a 25% chance of losing the lawsuit.
At that date, Moriarty Ltd’s recorded assets and liabilities were as follows:
Assets & Liabilities of Moriarty Ltd |
Book Value |
Fair Value |
Accounts Receivable |
20,000 |
18,000 |
Inventory |
42,000 |
40,000 |
Plant and Equipment (net of depreciation) |
106,000 |
110,000 |
Land |
100,000 |
133,500 |
Accounts Payable |
(6,000) |
(6,000) |
Short-Term Borrowings |
(12,000) |
(12,000) |
Bank Loan |
(50,000) |
(50,000) |
The company tax rate is 30%.
What is the amount of goodwill or gain on bargain purchase arising from the business combination? 1750 230000 –(18000+40000+110000+133500-6000- 12000-50000-21000x25%)
Question 5 (Numerical Answer)
The constitution of Big Ltd states that in the event of liquidation, all shares are to rank equally, based on the number of shares held, in distributing any surplus or deficiency.
Big Ltd went into liquidation on 20 June 2018. At this date, the equity of Big Ltd consisted of :
400 000 preference shares issued for $1 paid to 50c $200 000
1 000 000 ordinary shares issued for $1 paid to 80c $800 000
After realising the assets and paying all creditors, the liquidator had $300 000 cash available to distribute to the shareholders. What is the amount of actual refund to be made by the preference shareholders? 0
2022-06-10