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advanced financial accounting

Questions and Answers of Advanced Financial Accounting

Assuming the other conditions are met, the following acquisition would qualify for business combination under common control. Contractual agreement Individ X 40% Individ Y 50% Company A Individ Z 10%
In analyzing whether a restructuring transaction qualifies as a business combination under common control, the intention to spin-off or dispose the restructured group post-combination in itself will
The extent of non-controlling interests in each of the combining entities before and after the business combination is not relevant to determining whether the combination involves entities under
In applying the predecessor method of accounting, the carrying values of the assets and liabilities of the acquiree reported in the consolidated financial statements of the ultimate parent company
To the extent that there is no change in control arising from the corporate restructuring process, the corporate restructuring within the group should have an impact on the consolidated financial
In the case of group organization when a new company is inserted within an existing group, in accounting for the transaction as a continuation of the existing group, the full year results of the new
Company X owns 100% of Company Y and 80% of Company Z. The remaining 20% are held by a third party, Company A. On 1 August 20x5, Company Y obtains 100% control of Company Z by issuing its shares to
For the following scenarios below, discuss the appropriate accounting treatment. All companies are wholly owned by its immediate holding company.Discuss the appropriate accounting treatment from the
Explore the reasons as to why a parent may choose not to acquire 100% of the shares in an acquiree at the date of acquisition and how it can safeguard the remaining interests by entering in
Discuss how a put option, call option or a combination of call and put option may be utilized by a parent to safeguard the shareholdings held by non-controlling interests.
Explain the rationale as to why the combination of a symmetrical call and put option will effectively result in a forward contract being entered into when such transactions are entered as part of a
Discuss the accounting treatment of put option entered into as part of a business combination transaction in both the separate and consolidated financial statements
Discuss the factors to consider in the assessment of whether the derivatives contracts entered into by the parent accord itself with ownership interests over the underlying shares.
On 30 June 20x8, Company P acquires 90% of Company S for cash consideration amounting to $3 million. The fair value of the identifiable net assets of Company S as at the date of acquisition is $2.8
On 1 January 20x4, Company P acquires 70% of Company S for cash consideration amounting to $35 million. The fair value of the identifiable net assets of Company S as at the date of acquisition is $28
Eastern Company had inventory of 5,000,000 one-ounce silver coins, which were carried at a cost of $15 million(current market value is $16.5 million). The selling price of the silver coins was
Cambell Corporation had the following transactions in derivatives in 20x5:Transaction 1 Cambell Corporation bought 100,000 shares of Hindz Company on 31 July 20x5 at $2.50 per share. The long term
Explain the concept of a deductible temporary difference.
Details of assets and liabilities of Company XYZ are as follows:(a) Fixed assets Depreciation is on a straight line basis. Capital allowances of $1,000,000 are recognized in full in 20x1. Recovery
Refer to Problem 11.2. If instead of a profit, Company A recorded a loss of $1,000,000 for 20x3, what would be the tax expense or credit for 20x3 assuming that future profitability is not assured? In
Discuss the limitations of earnings per share as an indicator of an entity’s performance.
Do the follow contractual cash flows meet the SPPI (solely payments of principal and interest) test?(a) A bond with stated maturity date, and principal and interest linked to an inflation index of
Each of the following bond has contractual cash flows that meet the SPPI (solely payments of principal and interest) test. Determine the business model.(a) The entity invests surplus cash in short
It was the scene of yet another lengthy board meeting. The directors had just been informed that IAS 32 required the separate presentation on an issuer’s statement of financial position of
Explain the differences in classifications between IAS 39 and IFRS 9.
What is the rationale for the move from incurred loan provisioning method to the expected loan provisioning method? What are the pros and cons of each method?
What are the three categories/buckets of financial instruments and the key factors in determining expected credit losses?
Does the following financial instrument qualify as a contractually linked financial instrument under IFRS 9? Senior tranche of mortgage-backed security with the tranche’s cash flows based on the
Company B holds the following financial instruments. State and explain the IFRS 13 Levels 1 to 3 classification of each financial instrument.(a) Convertible bond issued by a private company.(b) A
On 2 January 20x0, SummerBee Corporation Ltd issued at par value a five-year convertible bond with a face value of $10,000,000. The bond carried a coupon rate of 2%. Interest on the bond was payable
On 1 January 20x1, Delphi Company issued 4% convertible bonds with a face value of $10,000,000 at par. The bond matured on 31 December 20x5. The bond was convertible into ordinary shares of Delphi
Wello Contractors purchased construction equipment with an invoiced price of $800,000 from Capital Manufacturers on 1 January 20x1, and issued a two-year note to Capital Manufacturers. The interest
Bank X gives 20 loans of $100,000 each, a total of $2,000,000 to company A. At initial recognition, the expected loss rate based on historical trend for company A is one default in the first year,
Company K purchased $1 million face value of bonds issued by company J on 1 July 2015 at purchase cost of $1.05 million. The bond had coupon of 6% payable semi-annually and matures on 30 June 2017.
Company X purchased $2 million face value of bonds issued by company Y on 2 January 2013 at purchase cost of $1.94 million. The bond had coupon of 5% payable annually, and matures on 31 December
From a risk perspective, how is a forward contract different from a futures contract?
How does the position of an option holder differ from that of an option writer?
A firm that intends to hedge against commodity price risk has to decide whether to use a forward contract or an options contract to hedge the risk. What factors should the firm consider before
In what situations can a hedged item be either a fair value hedge or a cash flow hedge? Explain why each type of hedge is applicable to the situation.
How is a swap similar to a forward contract?
Both a firm commitment and a forecasted transaction result in a future transaction. Why is a hedge of a firm commitment a fair value hedge and a hedge of a forecasted transaction a cash flow hedge?
How is a hedge of a net investment in a foreign entity accounted for?
The put option premium per share on 30 September 20x1 was:(a) $0(b) $0.05(c) $0.20(d) $0.15 On 31 July 20x1, Atlas Company wrote (sold) a put option on 10,000 Listco shares. The option premium
Assume that Atlas Company did not make any journal entries relating to the put option. Atlas Company would have to report the following gain/(loss) on the put option on 30 September
The amount of gain (loss) taken to equity in respect of the put option for the year ended 31 December 20x5 was:(a) $0 (b) Gain of $38,000 (c) Gain of $12,000 (d) Gain of $50,000 (e) None of the above
The amount of fair value changes taken to equity as at 31 December 20x5 was:(a) $10,000 (b) $20,000 (c) $60,000 (d) $70,000 (e) None of the above Alpha Corporation had the following transactions in
If Gemini has a floating rate loan and enters into a pay-fixed-and-receive-floating interest swap transaction with the same principal amount, which of the following statements is the most appropriate
On 1 April 20x6, ABC Company entered into a contract to sell 10,000 shares in XYZ Company for delivery on 30 June 20x6 at a price that is not below $3.00 per share and not higher than $4.00 per
What is the gain/(loss) to be recognized in the income statement for 20x4 under IFRS 9?(a) $800,000(b) 0(c) $(100,000)(d) $(200,000)(e) $100,000 On 1 October 20x4, SingCo committed to purchase
What should be the total cost of the equipment as at 1 February 20x5 under IFRS 9?(a) $12,800,000(b) $12,500,000(c) $11,500,000(d) $12,300,000 On 1 October 20x4, SingCo committed to purchase
What is the overall net cash inflow/(outflow) arising from the forward contract?(a) $300,000(b) ($300,000)(c) ($12,800,000)(d) ($12,500,000 On 1 October 20x4, SingCo committed to purchase machinery
If XYZ Company purchased the call option primarily to benefit from an expected rising market value of the call option, which of the following statements best describes the appropriate accounting
Ignore the previous question. On 1 April 20x4, XYZ Company entered into a commitment to sell 10,000 units of securities in S Company at a fixed price for delivery on 30 June 20x4. If the call option
On 1 November 20x5 Company X, a manufacturer of gold jewelry and ornaments, had an inventory of 10,000 ounces of gold ingots that cost $780 an ounce. The price of gold was $950 an ounce. Company X
On 1 March 20x3, East-West Airlines Inc purchased an at-the-money call option on 100,000 barrels of jet-fuel oil with an exercise price of $40 per barrel for delivery on 31 May 20x3. East-West paid a
On 30 November 20x1, Systech Ltd entered into a non-cancellable contract to buy 1,000 shares of Fastrack Ltd for $5,000 on 31 July 20x2. On the same date, Systech Ltd purchased a put option on 1,000
On 1 March 20x3, ABC Corporation, whose functional currency is the dollar, was informed that it had been successful in its tender for a contract to supply plant and equipment to an overseas customer.
Atticus Ltd, whose functional currency is the dollar, purchased 100,000 shares of Scotts Corporation (a foreign company listed in country X whose currency is the LC) at a price of LC 2.80 per share
The following information pertains to Alpha Corporation whose functional currency is the dollar.RequiredAssume that Alpha Corporation designates the forward contract as a fair value hedge of the
Refer to P10.6. Assume that Alpha Corporation designates the forward contract as a cash flow hedge of the foreign exchange risk related to the transaction. Prepare journal entries for the period 1
On 30 September 20x5, Singco entered into a non-cancellable contract to purchase inventory for 100,000 euros to be delivered on 31 January 20x6 with payment due on 31 March 20x6. Singco was concerned
Lexco Company’s functional currency is the dollar. On 1 December 20x1, Lexco entered into a four-month forward contract to sell FC (foreign currency) units. Terms of the contract are as
Alfalfa Company’s functional currency is the dollar. On 30 June 20x1, it entered into a forward exchange contract to purchase FC 100,000 at the forward rate of $1.077 for delivery on 30 June 20x2.
Cusso Corporation had a bank loan of $50,000,000, which was to be repaid at the end of 20x5. The loan carried an interest rate based on the three-month London Interbank Offer Rate (LIBOR) plus 150
The information is the same as in P10.13 except that on 1 October 20x1, the management of Eastern Company acquired 50 options contracts that gave the holder the right but not the obligation to sell
The functional currency of K Co is the US dollar. On 1 January 2010, the management of K Co approved a decision to buy equipment for S$1,400,000. The equipment does not meet the conditions of a
A Co has as its functional currency the Singapore dollar (S$) and enters into the following transaction. The business model of A Co is to hold investments to collect contractual cash flows and for
In your view, is tax expense an “expense” or a “distribution of income”? Explain.
Describe, in your own words, the methodology of deferred tax accounting.
Company A recorded a profit before tax of $2,500,000 for the year ended 31 December 20x3. The tax rate for 20x3 was 24% while that of 20x2 was 22%. Deferred tax liability as at 31 December 20x2 was
Co X was incorporated on 1 January 20x0. Details of assets and liabilities of Co X as at 31 December 20x1 were as follows:(a) Fixed assets Depreciation is on a straight line basis. The capital
Refer to P11.5. If the financial statements for 20x2 showed a pre-tax loss of $600,000 instead of a profit of $750,000, what would be the journal entry for tax expense for 20x2? Assume that there is
Co Q requires your assistance to complete its deferred tax and tax expense calculation for the year ended 31 December 20x2. The following schedules are provided to you below:(a) Tax computation for
Prism Co, a magazine publisher, reported net profit before tax of $1,300,000 for the year ended 31 December 20x1.The only disallowed expenses were the depreciation on private motor vehicles of $7,000
Co XYZ recognized issued compound financial instruments in accordance with IAS 32 Financial Instruments:Presentation, and purchased investment property in accordance with IAS 40 Investment Property
Explain the rationale for reporting diluted earnings per share.
The capital structure of ASIA Corporation as at 31 December 20x5 is as follows:Additional information(a) ASIA Corporation reported net profit after tax of $2,800,000 for the year ended 31 December
The following information pertains to Causeway Company for the year ended 31 December 20x1:(a) Causeway Company’s net profit attributable to ordinary shareholders for the year 20x1 was
The capital structure of Model Company on 31 December 20x2 is as follows:The preference shares were convertible into ordinary shares in the ratio of 1,000 preference shares for 500 ordinary shares.
Explain the following terms:(a) Grant date(b) Measurement date(c) Vesting date(d) Vesting conditions(e) Forfeiture rate
On 1 July 20x3, Alpha Company introduced a share option plan. Under the plan, one million share options with an estimated fair value of $4.3 million was granted to selected employees. The options
On 1 January 20x1, ACO Corporation awarded fixed options to 100 employees to acquire 10,000 shares of the company under the following terms:(a) The exercise price was $5 per share (same as the market
In the first year of incorporation (2013), Co A’s functional currency was the US dollars. Co A’s economic environment changed in 2014 and its new functional currency from 15 September 2014 is the
Co Y is an associate of Investor Co. Co Y’s functional currency is the USD. Translate the USD financial statements into Investor Co’s presentation currency, the SGD.Co Y revalued its fixed assets
Explain how the fair values of the debt and equity components in a compound financial instrument should be derived under IAS 32.
What are the pros and cons of fair value accounting for all financial instruments?
Can each of the following items be designated as amortized cost investments?(a) AA Company acquires a bond issued by BB Corporation. The terms of the bond provide the holder with an option to require
The following events pertained to First Capital Company.Required1. Calculate the fair value of the bond at the following dates:(a) 31 December 20x0(b) 31 December 20x1(c) 31 December 20x2 2. Prepare
Using the information in P8.8 , assume that Evergreen’s functional currency is the dollar. Prepare the financial statements of Evergreen for the year ended 31 October 20x3 in dollars. Show the
Using the same fact pattern as in P8.18 . Instead of disposing 70% of the Singapore subsidiary, the US parent company sells 10% of its shareholding interests to a third party for US$4,500,000. The US
An US parent company with functional and presentation currency of US$ acquired 35% of a Singapore joint venture on 31 December 20x2 at cash consideration of S$800,000. The fair value of the net
Co Z’s functional currency is the Singapore dollars. It entered into the following transactions in United States dollars during the financial year ended 31 December 20x5.Required(a) Show journal
Explain the rationale for the accounting treatment of compound financial instruments under IAS 32. Do you agree with IAS 32’s stance?
Superior Corporation’s summary statement of financial position as at 31 December 20x2 is as follows.Additional information(a) Non-current liability was made up solely of a $10,000,000 convertible
On 1 July 20x1, Carmen Corporation purchased two bonds, Bond A and Bond B, whose issuers had different credit ratings. At the date of purchase, the effective interest rate for Bond A was 6% and the
A Co has as its functional currency the Singapore dollar (S$) and enters into the following transaction. The business model of A Co is to hold investments to collect contractual cash flows that are
Repeat part 1 in P9.10 if the investment is also held for sale, in addition to collecting contractual cash flows. Ignore expected credit loss estimation in this question.Data from P9.10A Co has as
Refer to the information in P8.3 . In 20x2, Minor Company decided that its functional currency was the local currency, the FC. In 20x3, due to changes in the economic environment, which resulted in a
Blue Sky Corporation incorporated a wholly owned subsidiary, Evergreen Enterprise, in country X with an initial paid-up capital of FC 1,500,000 on 1 November 20x1. This was subsequently increased by
One of Company Y’s business units transacts in the FC. However, the functional currency of Company Y is the dollar. The following transactions are denominated in the FC and should be translated to

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