On 1 January 2019, Midas Ltd issued $10 million convertible loan notes which carry a nominal interest (coupon) rate of 5% per annum. The loan notes are redeemable on 31 December 2021 at par for cash or can be exchanged for equity shares. A similar loan note, without the conversion option, would have required Midas Ltd to pay an interest rate of 8%.

The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8%, can be taken as:

	5%	8%
End of year 1	0.95	0.93
2	0.91	0.86
3	0.86	0.79

How would the convertible loan appear in Midas Ltd's statement of financial position on initial recognition (1 January 2019)?

1. 1. $810,000 (Equity); $9,190,000 (non-current liability)

   2. Nil (Equity); $10,000,000 (non-current liability)

   3. $10,000,000 (Equity); Nil (non-current liability)

   4. $40,000 (Equity); $9,960,000 (non-current liability)

2. Question 9

   1 Point

   The net assets of Fragrance, a cash generating unit (CGU), are:

   	$
   Property, plant and equipment	200,000
   Allocated goodwill	50,000
   Product patent	20,000
   Net current assets (at net realisable value)	30,000
   Total	300,000

   As a result of adverse publicity, Fragrance has a recoverable amount of only $200,000.

   What would be the value of Fragrance 's property, plant and equipment after the allocation of the impairment loss?

   1. $154,545

   2. $170,000

   3. $160,000

   4. $133,333

• Question 10

  1 Point

  Many commentators believe that the trend of earnings per share (EPS) is a more reliable indicator of underlying performance than the trend of the net profit for the year.

  Which of the following statements supports this view?

  1. Net profit can be manipulated by the choice of accounting policies, but EPS cannot be manipulated in this way

  2. EPS takes into account the additional resources made available to earn profit when new shares are issued for cash, whereas net profit does not

  3. The disclosure of a diluted EPS figure is a forecast of the future trend of profit

  4. The comparative EPS is restated where a change in accounting policy affects the previous years profits

Question 11

1 Point

As at 31 December 2020, Lambda Ltds property in its statement of financial position was:

Property at cost (useful life 15 years)	$4,500,000
Accumulated depreciation	$600,000

On 1 July 2021, Lambda Ltd decided to sell the property. The property is being marketed by a property agent at a price of $4,200,000, which was considered a reasonably achievable price at that date. The expected costs to sell have been agreed at $100,000. Recent market transactions suggest that actual selling prices achieved for this type of property in the current market conditions are 10% less than the price at which they are marketed. At 31 December 2021 the property has not been sold.

At what amount should the property be reported in Lambda Ltds statement of financial position as at 31 December 2021?

1. $3,600,000

2. $3,750,000

3. $3,680,000

4. $4,200,000

• Question 12

  1 Point

  Which of the following statements about a not-for-profit entity is valid?

  1. There is no requirement to calculate an earnings per share figure as it is not likely to have shareholders who need to assess its earnings performance

  2. The current value of its property, plant and equipment is not relevant as it is not a commercial entity

  3. Interpretation of its financial performance using ratio analysis is meaningless

  4. Its financial statements will not be closely scrutinised as it does not have any investors

• Question 13

  1 Point

  High, a parent company, acquired Low, an unincorporated entity, for $2,800,000. A fair value exercise performed on Low's net assets at the date of purchase showed:

  	$'000
  Property, plant and equipment	3,000
  Identifiable intangible asset	500
  Inventory	300
  Trade receivables less payables	200
  	4,000

  How should the purchase of Low be reflected in High's consolidated statement of financial position?

  1. Record the net assets at their values shown above and credit profit or loss with $1,200,000

  2. Record the net assets at their values shown above and credit High's consolidated goodwill with $1,200,000

  3. Write off the intangible asset ($500,000), record the remaining net assets at their values shown above and credit profit or loss with $700,000,000

  4. Record the purchase as a financial asset investment at $2,800,000

• Question 14

  1 Point

  Which of the following is NOT an indicator of impairment?

  1. Advances in the technological environment in which an asset is employed have an adverse impact on its future use

  2. An increase in interest rates which increases the discount rate an entity uses

  3. The carrying amount of an entity's net assets is higher than the entity's number of shares in issue multiplied by its share price

  4. The estimated net realisable value of inventory has been reduced due to fire damage although this value is greater than its carrying amount

• Question 15

  1 Point

  Comparability is identified as an enhancing qualitative characteristic in the IASB's Conceptual framework for financial reporting.

  Which of the following does NOT improve comparability?

  1. Restating the financial statements of previous years when there has been a change of accounting policy

  2. Prohibiting changes of accounting policy unless required by an IFRS or to give more relevant and reliable information

  3. Disclosing discontinued operations in financial statements

  4. Applying an entity's current accounting policy to a transaction which an entity has not engaged in before

• Question 16

  1 Point

  A company has decided to change its depreciation method to better reflect the pattern of use of its equipment.

  Which of the following correctly reflects what this change represents and how it should be applied?

  1. It is a change of accounting policy and must be applied prospectively

  2. It is a change of accounting policy and must be applied retrospectively

  3. It is a change of accounting estimate and must be applied retrospectively

  4. It is a change of accounting estimate and must be applied prospectively

• Question 17

  1 Point

  Included within the financial assets of Jupiter plc at 31 December 2021 are the following two recently purchased investments in publicly-traded equity shares:

  • Investment 1 - 15% of the issued share capital of Venus Ltd. This shareholding was acquired as a long-term investment as Jupiter plc wishes to participate as an active shareholder of Venus Ltd.
  • Investment 2 - 15% of the issued share capital of Mars Co. This shareholding was acquired for speculative purposes and Jupiter plc expects to sell these shares in the near future.

  Neither of these shareholdings gives Jupiter plc significant influence over the investee companies.

  Wherever possible, the directors of Jupiter plc wish to avoid taking any fair value movements to profit or loss, so as to minimise volatility in reported earnings.

  How should the fair value movements in these investments be reported in Jupiter plc's financial statements for the year ended 31 December 2021?

  1. In profit or loss for both investments

  2. In other comprehensive income for both investments

  3. In profit or loss for investment 1 and in other comprehensive income for investment 2

  4. In other comprehensive income for investment 1 and in profit or loss for investment 2

• Question 18

  1 Point

  A company enters into a contract to supply three distinct products to a customer. The promise to supply each of these products is regarded as a separate performance obligation. The stand-alone prices of the three products (if sold singly) are:

  • Product X, $12,500;
  • Product Y, $24,000,
  • Product Z, $27,500

  The agreed contract price is $57,600. How should this price be allocated to performance obligations?

  1. Product X- $19,200; Product Y- $19,200; Product Z- $19,200

  2. Product X- $11,250; Product Y- $21,600; Product Z- $24,750

  3. Product X- $10,367; Product Y- $21,867; Product Z- $25,366

  4. Product X- $12,500; Product Y- $24,000; Product Z- $27,500

• Question 19

  1 Point

  The carrying amount of contract costs relating to a performance obligation and recognised as an asset is $144,000. Further costs required in order to satisfy the obligation are estimated to be $36,000. The consideration receivable by the company when the obligation is satisfied is $158,400.

  Calculate the amount of the impairment loss (if any) which should be deducted from the contract asset and recognised as an expense.

  1. $36,000

  2. $21,600

  3. $50,400

  4. $0

• Question 20

  1 Point

  A company enters into a contract to build a factory for a customer. The agreed price is $3,000,000 and the specified completion date is 31 December 2021. However, the contract provides that the company should receive an incentive payment of a further $300,000 if the factory is completed by 30 November 2021. Similarly, the price will be reduced by $300,000 if the factory is not completed until after 31 January 2022.

  The company estimates that there is a 15% probability that the factory will be completed by 30 November 2021, an 80% probability that it will be completed in December 2021 or January 2022 and a 5% probability that it will not be completed until after 31 January 2022.

  What is the expected value of the transaction price for this contract?

  1. $3,030,000

  2. $3,000,000

  3. $2,985,000

  4. $3,045,000