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  • Exam Name: Financial Reporting
  • Last Update: Sep 29, 2023
  • Questions and Answers: 177
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F1 Financial Reporting Questions and Answers

Question # 6

Which of the following are techniques that can be used by a company to ensure they receive timely payment of receivables? Select ALL that apply:

A.

Offering cash or early payment discount

B.

Charging interest on late payments

C.

Assessing credit risk of customers before they are given credit

D.

Offering extended credit to return customers

E.

Offering free items

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Question # 7

Mr AM is the owner of Waxco Ltd. Mr AM was born in India, but currently resides in the USA. He has gained dual Indian and American citizenship.

Mr AM first registered Waxco Ltd in the USA when he started the company ten years ago. However, because of lower costs, the company moved its central management station to Germany two years ago. Waxco Ltd

has other smaller offices such as call centres across Asia, in locations such as Pakistan and Cambodia, however Waxco Ltd only currently sell goods in the USA.

Which of the countries mentioned are relevant for determining Waxco Ltd's competent jurisdiction?

A.

The USA

B.

Germany

C.

India

D.

Pakistan

E.

Cambodia

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Question # 8

The following information is extracted from OO's statement of financial position at 31 March:

F1 question answer

Included in other payables is interest payable of $80,000 at 31 March 20X2 and $73,000 at 31 March 20X1.

The following information if included within OO's statement of profit or loss for the year ended 31 March 20X2:

F1 question answer

Included within finance cost is $124,000 which relates to interest paid on a finance lease. 00 includes finance lease interest within financing activities on its statement of cash flows.________________

Within OO's statement of cash flow for the year ended 31 March 20X2 which figures should be included to reflect the changes in working capital within the net cash flow from operating activities?

F1 question answer

A.

Option A

B.

Option B

C.

Option C

D.

Option D

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Question # 9

Indicate the possible reasons for the changes identified below to working capital ratios by placing the appropriate reason against each change.

F1 question answer

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Question # 10

AAA has the following working capital ratios at 30 March 20X4:

F1 question answer

During the year ended 30 March 20X4 credit purchases were $3,600 and at 30 March 20X4 the outstanding trade payables amounted to $522.

The year ended 30 March 20X4 was not a leap year.

Calculate the working capital cycle for AAA.

Give your answer to one decimal place.

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Question # 11

The following information relates to a single asset:

*Original cost of $186,000

*Estimated residual value of $6,000

*Expected useful life of 10 years

*Accumulated depreciation at 31 December 20X5 of $66,960

*Annual depreciation rate of 20% on a reducing balance basis

Calculate the amount of depreciation that should be charged to profit or loss for the year ended 31 December 20X6.

Give your answer to the nearest whole number.

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Question # 12

Statements of financial position for FG, IJ and KL at 31 December 20X5 include the following balances:

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FG acquired 90% of IJ's equity shares for $358,000 on 1 July 20X5 when IJ's retained earnings were $98,000.

FG acquired 100% of KL's equity shares for $360,000 on 1 January 20X5 when KL's retained earnings were $155,000.

FG used the proportion of net assets method to value non-controlling interests at acquisition.

KL sold a piece of land to FG for $130,000 on 1 September 20X5. At the date of transfer the land had a carrying value of $50,000.

The management of FG expect KL to make profits in the future and no impairment ot its goodwill was proposed at 31 December 20X5.

Calculate the value of property, plant and equipment to be recognized in FG's consolidated statement of financial position at 31 December 20X5.

Give your answer to the nearest whole $.

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Question # 13

Statements of financial position for YZ, BC and DE at 31 March 20X2 include the following balances:

F1 question answer

YZ purchased 90% of BC's equity shares for $508,000 on 1 January 20X2. On 1 January 20X2 BC's retained earnings were $183,000. YZ uses the proportion of net assets method to value non-controlling interest at acquisition.

YZ purchased 30% of DE's equity shares on 1 April 20X1 for $112,000. DE's retained earnings at 1 April 20X1 were $88,000.

On 1 February 20X2 YZ sold goods to BC for $28,000 at a mark up of 25% on cost. All the goods were still in BC's inventory at 31 March 20X2.

Calculate the amount of the non-controlling interest to be included in YZ's consolidated statement of financial position at 31 March 20X2.

Give your answer to the nearest whole $.

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Question # 14

Which THREE of the following are conditions that must be met to allow an asset to be categorised as held for sale?

A.

Management is committed to a plan to sell

B.

The asset is being actively marketed at a reasonable price

C.

The asset is available for immediate sale

D.

A buyer has already expressed interest

E.

The sale of the asset is likely to generate a significant profit

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Question # 15

The statement of profit or loss for PQ, ST and AB for the year ended 31 December 20X0 are shown below:

F1 question answer

1. PQ acquired 80% of its subsidiary, ST, on 1 January 20X0 and 40% of its associate, AB, on 1 September 20X0.

2. Since acquistion PQ has sold goods to ST and AB for $20,000 and $30,000 respectively. At the year end both ST and AB have 50% of these goods remaining in inventory. PQ uses a mark-up of 20% on all of its sales.

3. Since acquisition the goodwill in respect of ST has been impaired by $8,000 and the investment in AB has been impaired by $2,000.

4. PQ uses the fair value method for non-controlling interest at acquisition.

What is the revenue figure to be included in PQ's consolidated statement of profit or loss for the year ended 31 December 20X0?

A.

$450,000

B.

$440,000

C.

$480,000

D.

$476,000

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Question # 16

A conservative policy for financing working capital is one where short-term finance is used to fund:

A.

All of the fluctuating current assets and part of the permanent current assets.

B.

Part of the fluctuating current assets, but no part of the permanent current assets.

C.

All of the fluctuating current assets, but no part of the permanent current assets.

D.

Part of the fluctuating current assets and part of the permanent current assets.

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Question # 17

AB has been asked to analyze the receivables days of an entity with a view to improving the working capital cycle.

The following results have been produced for receivable days:

F1 question answer

Which of the following is NOT an explanation of why the days have increased?

A.

The entity has increased turnover for year ended 31 December 20X2 by offering extended credit terms.

B.

The entity has made substantial sales to overseas entities in the last few months of the year ended 31 December 20X2.

C.

The entity has transferred all receivables collections to a factoring agency during 20X2.

D.

An inexperienced credit controller was employed in the last few months of year ended 31 December and requires substantial training.

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Question # 18

In most developed countries employers deduct the tax from employees' pay each month and then pay the tax to the tax authorities on behalf of the employee on a monthly basis.

Which THREE of the following are advantages of this system to the employee?

A.

The tax is collected earlier than systems that assess earnings at the end of the year.

B.

The payment of tax is easier as the tax is deducted before the net salary is paid to the employee.

C.

Most of the administration costs are borne by the employees.

D.

The responsibility for the tax calculations rests with the employer and therefore there is less chance of mistakes being made.

E.

There is less chance of interest and penalties being levied on the employee by the tax authorities.

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Question # 19

RST operates in Country X where the tax rules state entertaining costs and accounting depreciation are disallowable for tax purposes.

In year ending 31 May 20X4, XYZ made an accounting profit of $480,000.

Profit included $16,300 of entertaining costs and $15,150 of income exempt from taxation.

XYZ has plant and machinery with accounting depreciation amounting to $24,200 and tax depreciation amounting to $45,200.

Calculate the tax charge for the year ended 31 May 20X4 assuming all profits are taxed at 25%.

A.

$115,038

B.

$114,463

C.

$125,538

D.

$124,963

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Question # 20

The following information relates to AA.

Extract of Trial Balance at 31 December 20X4;

F1 question answer

Notes

(i) Inventory at 31 December 20X4 was valued at cost at $30.

(ii) The loan which was received on 1 July 20X4 is repayable in 20X9.

(iii) Corporate income tax represents an over-provision of tax for the year ended 31 December 20X3. AA reported a loss for tax purposes for the year ended 31 December 20X4 and a tax refund is expected amounting to $20.

(iv) Cost of sales, administration and distribution costs need to be adjusted for the following:

Calculate gross profit for the year ended 31 December 20X4.

Give your answer as a whole $.

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Question # 21

Which of the following is an example of a progressive tax?

A.

Personal income tax of 10% on earnings up to $10,000, then at 15% over $10,001

B.

Corporate income tax of 20% on earnings up to $100,000, then at 10% over $100,000

C.

Corporate income tax of 20% on all earnings

D.

Personal income tax of 10% and corporate income tax of 20%

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Question # 22

Which of the following statements about trade payables management is false?

A.

Trade payables are an important source of finance.

B.

When goods are in short supply customers who pay immediately are likely to be given priority over customers who take credit.

C.

Trade payables should be paid as quickly as possible.

D.

Goods or services may be more costly if extended credit is required.

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Question # 23

DE purchased an asset on 1 January 20X1 for $60,000 with a useful economic life of six years and a residual value of $3,000.

DE uses straight line depreciation for this asset.

On 31 December 20X3 the asset has a value in use of $ $28,000 and a fair value of $26,000.

Which of the following values should be used for the asset in DE's statement of financial position as at 31 December 20X3?

A.

$28,000

B.

$26,000

C.

$30,000

D.

$31,500

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Question # 24

The following information is extracted from the statement of financial position for ZZ at 31 March 20X3:

F1 question answer

Included within cost of sales in the statement of profit or loss for the year ended 31 March 20X3 is $20 million relating to the loss on the sale of plant and equipment which had cost $100 million in June 20X1.

Depreciation is charged on all plant and equipment at 25% on a straight line basis with a full year's depreciation charged in the year of acquisition and none in the year of sale.

The revaluation reserve relates to the revaluation of ZZ's property.

The total depreciation charge for property, plant and equipment in ZZ's statement of profit of loss for the year ended 31 March 20X3 is $80 million.

The corporate income tax expense in ZZ's statement of profit or loss for year ended 31 March 20X3 is $28 million.

ZZ is preparing its statement of cash flows for the year ended 31 March 20X3.

What cash outflow figure should be included within cash flows from investing activities for the purchase of property, plant and equipment?

A.

$85 million

B.

$110 million

C.

$185 million

D.

$210 million

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Question # 25

For the year ending 31 March 20X2, MN made an accounting profit of $120,000. Profit included $8,500 of political donations which are disallowable for tax purposes and $8,000 of income exempt from taxation.

MN has $15,000 of plant and machinery which was acquired on 1 April 20X0 and purchased a new machine costing $25,000 on 1 April 20X1. This new machine is entitled to first year allowances of 100% instead of the usual tax depreciation of 20% reducing balance. All plant and machinery is depreciated in the accounts at 10% on cost.

MN also has a building that cost $120,000 on 1 April 20X0 and is depreciated in the accounts at 4% on a straight line basis. Tax depreciation is calculated at 3% on a straight line basis.

Calculate the taxable profit.

Give your answer to the nearest $.

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Question # 26

In Country X corporate income tax is levied on profits as follows:

F1 question answer

Which of the following describes the tax rate structure in Country X?

A.

Proportional

B.

Regressive

C.

Progressive

D.

Competent

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Question # 27

Statements of financial position for YZ, BC and DE at 31 March 20X2 include the following balances:

F1 question answer

YZ purchased 90% of BC's equity shares for $508,000 on 1 January 20X2. On 1 January 20X2 BC's retained earnings were $183,000. YZ uses the proportion of net assets method to value non-controlling interest at acquisition.

YZ purchased 30% of DE's equity shares on 1 April 20X1 for $112,000. DE's retained earnings at 1 April 20X1 were $88,000.

On 1 February 20X2 YZ sold goods to BC for $28,000 at a mark up of 25% on cost. All the goods were still in BC's inventory at 31 March 20X2.

Calculate the goodwill arising on the acquisition of BC.

Give your answer to the nearest whole $.

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Question # 28

Which of the following does the phrase 'events after the reporting period' refer to?

A.

Material events which occur between the statement of financial position date and the date on which the financial statements are approved

B.

Material events which occur after the release of the statement of financial position

C.

Material events which occur before the statement of financial position date

D.

Material events which occur between the income statement date and the statement of financial position date

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Question # 29

XY is an entity incorporated in Country B but operates in several countries. Monthly management meetings to decide on strategic matters take place in Country A, where the majority of its production happens. XY sells most of its goods to Country C.

In accordance with the Organization for Economic Co-operation and Development (OECD) rules on corporate residence which of the following statements is true?

A.

XY is resident in Country B because this is the country of its incorporation.

B.

XY is resident in Country C because this is the country where XY generates most of its revenue.

C.

XY is resident in Country A because this is the country of its effective management.

D.

XY is resident in Country A because this is the country where XY undertakes most of its production.

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