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ACCA, F7, JUNE 2015

Which of the following statements relating to intangible assets is true?


A All intangible assets must be carried at amortised cost or at an impaired amount; they cannot be revalued
upwards
B The development of a new process which is not expected to increase sales revenues may still be
recognised as an intangible asset
C Expenditure on the prototype of a new engine cannot be classified as an intangible asset because the
prototype has been assembled and has physical substance
D Impairment losses for a cash generating unit are first applied to goodwill and then to other intangible
assets before being applied to tangible assets

Metric owns an item of plant which has a carrying amount of $248,000 as at 1 April 2014. It is being
depreciated at 12% per annum on a reducing balance basis. The plant is used to manufacture a specific
product which has been suffering a slow decline in sales. Metric has estimated that the plant will be retired
from use on 31 March 2017. The estimated net cash flows from the use of the plant and their present values
are:
Net cash flows Present values
$ $
Year to 31 March 2015 120,000 109,200
Year to 31 March 2016 80,000 66,400
Year to 31 March 2017 52,000 39,000
252,000 214,600

On 1 April 2015, Metric had an alternative offer from a rival to purchase the plant for $200,000.
At what value should the plant appear in Metrics statement of financial position as at 31 March
2015?
A $248,000
B $217,000
C $214,600
D $200,000

The IASBs Conceptual framework for financial reporting defines recognition as the process of
incorporating in the financial statements an item which meets the definition of an element and satisfies
certain criteria.
Which of the following elements should be recognised in the financial statements of an entity in the
manner described?
A As a non-current liability: a provision for possible hurricane damage to property for a company located in
an area which experiences a high incidence of hurricanes
B In equity: irredeemable preference shares
C As a trade receivable: an amount of $10,000 due from a customer which has been sold (factored) to a
finance company with no recourse to the seller
D In revenue: the whole of the proceeds from the sale of an item of manufactured plant which has to be
maintained by the seller for three years as part of the sale agreement

Tibet acquired a new office building on 1 October 2014. Its initial carrying amount consisted of:
$000
Land 2,000
Building structure 10,000
Air conditioning system 4,000
16,000

The estimated lives of the building structure and air conditioning system are 25 years and 10 years
respectively. When the air conditioning system is due for replacement, it is estimated that the old system
will be dismantled and sold for $500,000. Depreciation is time apportioned where appropriate.
At what amount will the office building be shown in Tibets statement of financial position as at 31
March 2015?
A 15,625,000
B 15,250,000
C 15,585,000
D 15,600,000

The following trial balance extract relates to a property which is owned by Veeton as at 1 April 2014:
Dr Cr
$000 $000
Property at cost (20 year original life) 12,000
Accumulated depreciation as at 1 April 2014 3,600

On 1 October 2014, following a sustained increase in property prices, Veeton revalued its property to $108
million.
What will be the depreciation charge in Veetons statement of profit or loss for the year ended 31
March 2015?
A $540,000
B $570,000
C $700,000
D $800,000

Six months depreciation to the date of the revaluation will be $300,000 (12,000/20 years x 6/12); six
months depreciation from the date of revaluation to 31 March 2015 would be $400,000 (10,800/135 years
remaining life x 6/12). Total depreciation is $700,000.
Which of the following statements about IAS 20 Accounting for Government Grants and Disclosure of
Government Assistance are true?
(i) A government grant related to the purchase of an asset must be deducted from the carrying amount of the
asset in the statement of financial position
(ii) A government grant related to the purchase of an asset should be recognised in profit or loss over the life
of the asset
(iii) Free marketing advice provided by a government department is excluded from the definition of
government grants
(iv) Any required repayment of a government grant received in an earlier reporting period is treated as prior
period adjustment
A (i) and (ii)
B (ii) and (iii)
C (ii) and (iv)
D (iii) and (iv)

At 1 April 2014, Tilly owned a property with a carrying amount of $800,000 which had a remaining
estimated life of 16 years. The property had not been revalued. On 1 October 2014, Tilly decided to sell the
property and correctly classified it as being held-for-sale. A property agent reported that the propertys fair
value less costs to sell at 1 October 2014 was expected to be $790,500 which had not changed at 31 March
2015.
What should be the carrying amount of the property in Tillys statement of financial position as at 31
March 2015?
A $775,000
B $790,500
C $765,000
D $750,000

Hindberg is a car retailer. On 1 April 2014, Hindberg sold a car to Latterly on the following terms:
The selling price of the car was $25,300. Latterly paid $12,650 (half of the cost) on 1 April 2014 and would
pay the remaining $12,650 on 31 March 2016 (two years after the sale). Hindbergs cost of capital is 10%
per annum.
What is the total amount which Hindberg should credit to profit or loss in respect of this transaction
in the year ended 31 March 2015?
A $23,105
B $23,000
C $20,909
D $24,150

ACCA, F7, SEPTEMBER 2016

On 1 January 20X6, Gardenbugs Co received a $30,000 government grant relating to equipment which cost
$90,000 and had a useful life of six years. The grant was netted off against the cost of the equipment. On 1
January 20X7, when the equipment had a carrying amount of $50,000, its use was changed so that it was no
longer being used in accordance with the grant. This meant that the grant needed to be repaid in full but by
31 December 20X7, this had not yet been done.
Which journal entry is required to reflect the correct accounting treatment of the government grant
and the equipment in the financial statements of Gardenbugs Co for the year ended 31 December
20X7?
A Dr Property, plant and equipment $10,000
Dr Depreciation expense $20,000
Cr Liability $30,000
B Dr Property, plant and equipment $15,000
Dr Depreciation expense $15,000
Cr Liability $30,000
C Dr Property, plant and equipment $10,000
Dr Depreciation expense $15,000
Dr Retained earnings $5,000
Cr Liability $30,000
D Dr Property, plant and equipment $20,000
Dr Depreciation expense $10,000
Cr Liability $30,000

On 1 October 20X1, Bash Co borrowed $6m for a term of one year, exclusively to finance the construction
of a new piece of production equipment. The interest rate on the loan is 6% and is payable on maturity of the
loan. The construction commenced on 1 November 20X1 but no construction took place between 1
December 20X1 to 31 January 20X2 due to employees taking industrial action. The asset was available for
use on 30 September 20X2 having a construction cost of $6m.
What is the carrying amount of the production equipment in Bash Cos statement of financial position
as at 30 September 20X2?
A $5,016,000
B $6,270,000
C $6,330,000
D $6,360,000

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