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  • Exam Name: Financial Reporting
  • Last Update: Mar 28, 2024
  • Questions and Answers: 248
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F1 Financial Reporting Questions and Answers

Question # 6

Country X levies corporate income tax at a rate of 25% and charges income tax on all profits irrespective of whether they are distributed by way of dividend. Country Y levies corporate income tax at a rate of 20%.

A, who is resident in Country X, pays a divided to B, who is resident in Country Y. B is required to pay corporate income tax on the dividend received from A, but a deduction can be made for the tax suffered on this dividend restricted to a rate of 20%.

Which method of relief for foreign tax does this describe?

A.

Exemption

B.

Deduction

C.

Tax credit

D.

Restricted

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Question # 7

For an incorporated business, the taxation of trading income is a form of direct taxation which is based on:

A.

business profits where the tax is paid by the shareholders to the tax authorities.

B.

dividends paid to shareholders where the tax is paid by the business to the tax authorities.

C.

dividends paid to shareholders where the tax is paid by the shareholders to the tax authorities.

D.

business profits where the tax is paid by the business to the tax authorities.

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Question # 8

Which THREE of the following are costs that a business might incur as a result of holding insufficient inventory of raw materials?

A.

Lost production

B.

Purchasing inventory at a higher price

C.

Additional storage costs

D.

Increased risk of obsolescence

E.

Loss of sales

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Question # 9

KL has S90.000 of plant and machinery which was acquired on 1 June 20X4. Tax depreciation rates on plant and machinery are 20% reducing balance. All plant and machinery was sold for 560,000 on 1 June 20X6

Calculate the tax balancing allowance or charge on disposal tor the year ended 31 May 20X7 and state the effect on the taxable profit.

A.

A balancing allowance of $2,400 reduces taxable profit.

B.

A balancing charge of $2,400 reduces taxable profit.

C.

A balancing charge of $2,400 increases taxable profit.

D.

A balancing allowance of $2,400 increases taxable profit.

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Question # 10

What does the tax credit method of giving double taxation relief mean?

A.

Tax paid in one country may be allowed as a tax credit in another country. Relief is normally restricted to the lower of the foreign or country of residency tax.

B.

Tax paid in one country may be allowed as a tax credit in another country. Relief is normally restricted to the higher of the foreign or country of residency tax.

C.

Tax relief is gained by deducting the foreign tax from the foreign income so that only the "net" amount will be subject to tax in the country of residency.

D.

The countries agree on certain types of income which will be exempt or partially exempt in one country or the other.

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Question # 11

Which THREE of the following actions, considered in isolation, would increase the working capital cycle of an entity?

A.

Remove a prompt payment discount available to customers.

B.

Reduce the selling prices charged to customers.

C.

Change to a Just-in-Time approach to manage inventory.

D.

Take advantage of new bulk purchase discounts available.

E.

Take longer to pay suppliers for purchases.

F.

Increase the credit period available to customers.

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Question # 12

An asset cost $250,000 on 1 January 20X1 and on that date was assessed to have a residual value of $40,000 and a useful economic life of six years. On 1 January 20X4 management assessed that the remaining useful economic life of the asset was five years and that the asset had a residual value of nil.

What is the depreciation charge for this asset in the year ended 31 December 20X4?

Give your answer to the nearest whole number.

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Question # 13

It costs PWR £7.50 to produce product H, per product. Product H is typically sold for £89.99. It costs £5.00 to package product H and £15 to deliver product H to customers.

PWR is currently selling faulty versions of product H from a defunct batch, (let's call this version product I), for 25% of the original price.

Which of the below options represent the correct inventory price for product I?

A.

£2.50

B.

£7.50

C.

£20.00

D.

£3.50

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Question # 14

Why are excise duties an attractive method of raising tax for governments?

Select TWO that apply.

A.

Low cost of collection compared to other forms of taxation.

B.

High yields from the tax.

C.

Encourages consumption of products such as alcohol.

D.

Popular form of tax for the tax payer as it can be reclaimed.

E.

Ensures that the tax levied on all taxpayers is the same irrespective of their spending habits.

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Question # 15

JKL prepares its financial statements to 31 December each year. For the year ended 31 December 20X5 inventory was held for 76 days on average.

The directors of JKL decide to reduce the average inventory level to $6.5 million from 1 January 20X6 JKL's revenue for 20X6 is $54 million on which a gross profit margin of 20% is earned.

Assuming that the average receivables and payables days remain constant what will be the effect of the expected reduction in inventory on JKL's working capital cycle for the year ended 31 December 20X6?

A.

An increase of 32 days

B.

An increase of 21 days

C.

A reduction of 32 days

D.

A reduction of 21 days

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Question # 16

Which THREE of the following would be included in a cash budget?

A.

Interest payments

B.

Depreciation on machinery

C.

Salaries paid to staff

D.

Impairment of goodwill

E.

Profit on disposal of motor vehicle

F.

Dividends received from associate

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Question # 17

Which of the following is NOT a feature of a multi-stage sales tax?

A.

The entire tax burden is usually passed to the final consumer.

B.

Tax is charged each time a product is sold in the chain from manufacturer through to retailer.

C.

Tax is applied at the retail level only and not at production level.

D.

Credit may not be allowed for taxes paid on sales within the chain from manufacturer through to retailer.

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Question # 18

What is the correct classification of a 90-day government bond?

F1 question answer

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Question # 19

Which of the following is the most appropriate definition of the term 'factoring'?

A.

Where a business sells its accounts receivable to a third party at a discount

B.

Where a business borrows a loan with short-term conditions from a third party

C.

Where a business sells equity to third parties to gain short-term finance

D.

Where a business is provided with a highly flexible regular source of short-term finance by a bank

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Question # 20

In accordance with IAS 16 Property, Plant and Equipment, in which of the following situations would subsequent expenditure on a non-current asset be capitalised?

A.

An entity purchased an aircraft five years ago, when its engines were separately identified in the accounting records. The engines now need to be replaced at a cost of $2 million each. When the engines are replaced the aircraft is expected to be airworthy for a further 5 years.

B.

An entity's head office building suffered a major fire, the upper floors and roof were completely destroyed. The entity proposes to restore the building at a cost of $1 million and move back in to the building to use it as a head office again.

C.

An entity's delivery vehicle was in a car park when the car park was flooded. The engine and interior of the vehicle needed extensive repair and renovation costing $25,000.

D.

A manufacturing entity closes its factory for two weeks each summer for routine maintenance and repairs. The current year's cost of maintenance and repairs was $62,000.

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Question # 21

Which THREE of the following must an auditor consider in order to form an opinion on the truth and fairness of an entity's financial statements?

A.

Whether the entity has kept proper accounting records.

B.

Whether the entity has complied with the relevant legislator requirements in respect of the necessary disclosures.

C.

Whether all the information and explanations necessary for the purposes of the audit have been received.

D.

Whether every transaction that underpins the financial statements has been correctly recorded.

E.

Whether the entity has been exposed to any fraud.

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Question # 22

The following information is extracted from the trial balance of YY at 30 September 20X3.

F1 question answer

i. Included in revenue is a refundable deposit of $20 million for a sales transaction that is due to take place on 14 October 20X3.

ii. The cost of closing inventory is $28 million, however, the net realisable value is estimated at $25 million.

iii. The interest free loan was obtained on 1 January 20X3. The loan is repayable in 12 quarterly installments starting on 31 March 20X3. All installments to date have been paid on time.

Calculate the figure that should be included within non-current liabilities in YY's statement of financial position at 30 September 20X3 in respect of both of the loans outstanding at the year end?

Give your answer to the nearest $ million.

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Question # 23

Country X levies a duty on alcoholic drinks. Where the alcohol content is above 40% by volume the duty levied is $5 per 1 litre bottle.

What type of tax is this duty?

A.

Specific unit tax

B.

Ad valorem tax

C.

Direct tax

D.

Single-stage sales tax

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Question # 24

Below are extracts from LLL's financial statements for the year ended 31 December 20X2.

F1 question answer

F1 question answer

Depreciation of $25,000 was charged on properly, plant and equipment in the year and there were no disposals

What is the cash generated from operations for inclusion in LLL's statement of cash flows for the year ended 31 December 20X2?

A.

$355 000

B.

$390,000

C.

$415,000

D.

$435,000

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Question # 25

F1 question answer

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Question # 26

EFG prepares financial statements to 31 December each year. EFG has the following receivable days based on the year end receivable balances:

F1 question answer

Which of the following would be a reason for this decrease in receivable days?

A.

EFG employed an inexperienced credit controller in November 20X2.

B.

EFG's largest customer negotiated an increase in credit terms during 20X2.

C.

EFG's revenue for 20X2 increased as a result of competitive pricing.

D.

EFG transferred collection of all receivables to a factoring agency during 20X2.

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Question # 27

Which of the following methods could be used by a tax authority to reduce tax evasion and avoidance?

A.

Increase tax rates to compensate for losses due to evasion.

B.

Reduce penalties for avoidance.

C.

Reduce requirements to have tax returns audited.

D.

Simplify the tax structure, minimizing allowances and exemptions.

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Question # 28

BCD owns an item of plant which cost $20,000 and at the time of purchase was assessed to have a useful economic life of 8 years and a residual value of $2,000

The carrying amount of the plant at 1 January 20X8 is $11,000. On that date BCD's directors estimate that the plant's remaining useful life is now 6 years The residual value remains unchanged at $2,000

What is the depreciation charge for this plant for the year ended 31 December 20X8?

Give your answer to the nearest $.

F1 question answer

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Question # 29

Corporate governance is the means by which an entity is operated and

F1 question answer

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Question # 30

FG purchased 40% of the equity shares of QR and exerted significant influence over the board of the directors.

QR will be classified as____of FG.

F1 question answer

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Question # 31

The following information relates to ABC.

F1 question answer

Which of the following would be a reason for the movement in the trade receivable days?

A.

A new credit controller was appointed during the year ended 30 June 20X3 who has been chasing customers for payment.

B.

A system of early settlement discount was introduced during the year ended 30 June 20X3 which was taken up by quite a few customers.

C.

One customer who regularly took 120 days to pay their invoices stopped buying goods from ABC during the year ended 30 June 20X3.

D.

It was decided during the year ended 30 June 20X3 to stop undertaking credit checks on new customers.

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Question # 32

The financial statements of JK for the year ended 31 August 20X4 were approved on 10 November 20X4.

Within these financial statements which of the following would have been treated as a non-adjusting event in accordance with IAS 10 Events After the Reporting Period?

A.

Inventory which was originally valued at its cost of $45,000 being sold for $37,000 in September 20X4.

B.

A fire in JK's main warehouse on 3 September 20X4 destroying 60% of the inventory that had been held at the year end.

C.

Notification received on 31 August that one of JK's major customers had gone into liquidation and was unlikely to pay any outstanding invoices.

D.

The completion of a court case on 5 November 20X4 in which JK was ordered to pay damages of $150,000.

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Question # 33

Which of the following would be classified as a parent and subsidiary relationship in accordance with IFRS 10 Consolidated Financial Statements?

A.

Entity A owns 30% of another entity's equity shares and has the power to appoint or remove the majority of the members of the board of directors and control of the entity is through that board.

B.

Entity B owns 20% of another entity's equity shares and has an agreement with other equity shareholders of that entity that gives it power over a further 20% of the equity voting rights.

C.

Entity C owns 45% of another entity's equity shares and can exercise significant influence over that entity's financial and operating policy decisions.

D.

Entity D owns 25% of another entity's equity shares and associated voting rights and 100% of its preference shares.

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Question # 34

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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Question # 35

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.

Calculate the amount that will be shown as the share of profit of associate in PQ's consolidated statement of profit or loss for the year ended 31 December 20X0.

A.

$10,000

B.

$2,000

C.

$4,000

D.

$3,200

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Question # 36

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 figure should be included for corporate income tax paid in order to arrive at the net cash flow from operating activities?

Give your answer to the nearest $ million.

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Question # 37

The development of an international financial reporting standard generally goes through a number of stages.

Which of the following is NOT a stage of development?

A.

Producing an exposure draft for public comment

B.

Establishing an advisory committee

C.

Developing and publishing a discussion paper

D.

Establishing an interpretations committee

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Question # 38

Which of the following is a condition that has to be met for an entity to be exempt the requirement to prepare consolidated financial statements?

A.

The parent entity's debt or equity instruments are not traded in a public market.

B.

The parent entity's equity instruments are only traded in one country.

C.

The parent's equity has a nominal value of less than $1 million.

D.

The parent's net asset value is less than $1 million.

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Question # 39

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 value of the unrealized profit in inventory adjustment required to inventory in PQ's consolidated statement of financial position at 31 December 20X0?

A.

$3,333

B.

$2,000

C.

$4,000

D.

$1,667

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Question # 40

F1 question answer

F1 question answer

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Question # 41

AA manufactures computers. These are sold to BB at $100 a computer plus a 5% sales tax. BB subsequently sells the computers to CC for $200 a computer plus a 5% sales tax. C sells the computers to customers at $300 a computer plus a 5% sales tax.

The total tax received by the tax authority is $30.

Which type of tax is described above?

A.

Single-stage sales tax

B.

Value added tax

C.

Retail tax

D.

Multi-stage cumulative sales tax

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Question # 42

BCD's financial statements for the year ending 30 November 20X3 include the following:

F1 question answer

Inventory at 30 November 20X2 was $220,000.

What is BCD's average inventory holding period for the year ended 30 November 20X3?

A.

37 days

B.

35 days

C.

45 days

D.

42 days

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Question # 43

An entity bought a capital item for $110,000 on 1 March 20X4 incurring legal fees at the date of purchase of $2,500.

On 1 May 20X4 additional costs classified as capital expenditure by the tax rules of the country of $25,000 were incurred in respect of the asset. On 1 June 20X4 repairs not classified as capital expenditure were incurred at a cost of $15,000.

The asset was sold for $250,000 on 30 November 20X8 and costs to sell were incurred of $4,300.

Calculate the chargeable gain on the disposal.

Give your answer to the nearest $.

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Question # 44

Which THREE of the following statements about government grants are INCORRECT?

A.

A grant is recognised as revenue

B.

Grants must not be deducted from the related expenses in financial statements

C.

Capital grants relate to cash inflow and outflow

D.

A compensatory grant should be recognised in statements when it is received, not when the expenses it applies to occurred

E.

A grant is recognised only when there is reasonable assurance that the entity will comply with any conditions attached to the grant

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Question # 45

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 # 46

OP is considering investing in government bonds. The current price of a $100 bond with 8 years to maturity is $88.

The bonds have a coupon rate of 6% and repay face value of $100 at the end of the 8 years.

Calculate the yield to maturity.

Give your answer to one decimal place.

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Question # 47

Which THREE of the following statements are NOT true of the IFRS Foundation trustees?

A.

Are involved in the technical matters relating to accounting standards

B.

Are mainly from Europe and the USA

C.

Receive funding by donations from the general public

D.

Responsible for appointing members of the IA5B

E.

Responsible of appointing members of the IFRS interpretations committee

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Question # 48

Company RET's financing activities are exactly 35% of their operating activities expenses each month. Below is a list of Company RET's total expenses for this month:

Inventory supplies purchased: £145,000

Employee wages: £65,000

Purchase of a shop: £105,000

Dividend payments: ??

Cash repayments on loan: £61,000

What is company RET's total dividends payment for this month?

A.

£12,500

B.

£49,250

C.

£131,600

D.

£26,500

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Question # 49

When a trading loss is incurred by an entity, the entity may be able to claim loss relief. The way in which loss relief is claimed vanes from country to country.

Which of the following is NOT normally a way of claiming loss relief for a trading loss?

A.

Offset The trading loss against its trading profits in future periods

B.

Offset the trading loss against capital gams in previous periods

C.

Offset the trading loss against group entity profits.

D.

Carry the trading loss backwards against trading profits in previous periods.

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Question # 50

Which of the following is a type of short-term finance?

A.

Trade payables

B.

Trade receivables

C.

Interest bearing bank deposit

D.

Loan repayable in five years

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Question # 51

Which of the following is a characteristic of a defined contribution post-employment benefit scheme?

A.

The amount of the post-employment benefits paid to former employees depends on how well the scheme's investments have performed.

B.

The employer would make additional contributions into the scheme if the actuary predicted a shortfall in the funds available to pay post-employment benefits.

C.

The amount of the post-employment benefits paid to former employees is determined at the date of their retirement using a predefined formula.

D.

The employer may take a contributions holiday and stop paying contributions for a period, if the scheme's assets appear to be more than are required to meet the scheme's obligations.

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Question # 52

PZ has the following working capital ratios:

F1 question answer

Which of the following could be the reason for the movements?

A.

PZ has introduced a new policy to take discounts from suppliers during 20X1.

B.

The workforce of PZ have been on strike for a month during 20X1 but deliveries of inventory have still been received by the entity.

C.

A new credit controller has been employed who has been more rigorous with their collection procedure of receivables.

D.

PZ has implemented a just-in-time system of ordering inventory during 20X1.

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Question # 53

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 # 54

Which one of the following is NOT a step in the development of an International Financial Reporting Standard (IFRS)?

A.

Publication of discussion documents.

B.

Publication of exposure drafts.

C.

Establishment of an advisory committee to advise on issues arising in the development of the IFRS.

D.

Production of draft interpretations of the IFRS which are open to public comment.

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Question # 55

Which of the following is NOT a type of supply for value added tax (VAT)?

A.

Fixed

B.

Standard-rated

C.

Exempt

D.

Zero-rated

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Question # 56

MN recently took out a 5 year term loan to buy raw materials to take advantage of a supplier's bulk discount that had been offered to them.

What approach to financing working capital has MN undertaken?

A.

Aggressive

B.

Moderate

C.

Conservative

D.

Permanent

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Question # 57

TUV owns property that has a carrying amount greater than its original cost due to a revaluation 2 years ago. The property continues to be used by TUV up lo the date of its disposal and is sold for more than its carrying amount.

Which THREE of the following correctly describe the accounting treatment for the disposal of the property?

A.

The gam on disposal is recognised in the statement ot profit or loss

B.

The gain on disposal is recognised in other comprehensive income

C.

The property is depreciated based on its original cost up to the date ot disposal

D.

The remaining balance on the revaluation surplus is transferred to the statement of profit or loss

E.

The property is depreciated based on its revalued amount up to the date of disposal

F.

The remaining balance on the revaluation surplus is transferred to retained earnings

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Question # 58

An entity's policy is to finance the investment in working capital using short-term financing to fund all of its investment in fluctuating net current assets as well as some of its investment in permanent net current assets.

What is this working capital financing policy known as?

A.

Conservative

B.

Moderate

C.

Aggressive

D.

Short term

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Question # 59

From the list below identify the item that appears in the statement of financial position.

A.

The amount of interest charged on loans during the year.

B.

The amount of loans outstanding at the year end.

C.

The amount of loans repaid during the year.

D.

The amount of interest actually paid during the year.

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Question # 60

The following data has been extracted from GH's accounting records:

F1 question answer

What is GH's average inventory days for the year ended 31 March 20X3?

A.

39 days

B.

43 days

C.

25 days

D.

28 days

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Question # 61

AB has prepared its financial statements for the year ended 31 July 20X5. On 15 September 20X5 a major fraud was uncovered by the external auditors which had taken place during the year to 31 July 20X5 The financial statements have not yet been authorised

In accordance with IAS 10 Events After the Reporting Period, AB should treat the fraud as:

F1 question answer

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Question # 62

Which of the following would NOT be a source of taxation rules for a country?

A.

Double tax treaties

B.

Directives from international bodies

C.

International accounting standards

D.

Precedents based on previous legislation

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Question # 63

Which of the following would NOT be assessed for tax under a Pay-As-You-Earn system?

A.

Profit-sharing payments received by an employee.

B.

Benefits in kind received by an employee.

C.

Commissions received by an employee.

D.

The wealth of an employee.

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Question # 64

Which THREE of the following are part of the International Accounting Standards Committee (IASC) Foundation structure?

A.

International Accounting Standards Board

B.

Standards Advisory Council

C.

International Financial Reporting Interpretations Committee

D.

International Organisation of Securities Commission

E.

Standards Application Council

F.

International Financial Reporting Evaluations Committee

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Question # 65

WX is considering an investment in ST.

At 31 December 20X2 ST had the following balances in its statement of financial position:

F1 question answer

Which of the following would cause ST to become an associate investment of WX?

A.

WX purchases 15,000 of ST's $1 equity shares and 20,000 of ST's $1 preference shares.

B.

WX purchases 25,000 of ST's $1 equity shares.

C.

WX purchases 75,000 of ST's $1 equity shares.

D.

WX purchases 50,000 of ST's $1 preference shares.

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Question # 66

STU has a non-current asset which originally cost $250,000, has an expected life of 8 years and an estimated residual value of $25,000. The asset is depreciated at 25% a year on a reducing balance basis On 1 July 20X5 the accumulated depreciation for this asset is $109,375

What is the depreciation charge for the year ending 30 June 20X6?

Give your answer to the nearest whole number.

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Question # 67

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 # 68

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 # 69

On 1 May 20X8 DEF enters into a contract to lease plant with a fair value of $200,000. Annual lease payments of $50,000 are to be paid in advance and DEF incurred direct costs to arrange the lease of S2.000 The present value of future lease payments at 1 May 20X8 is $190,000.

What is the amount to be recognised as a right-of-use asset on 1 May 20X8?

A.

$192 000

B.

$200,000

C.

$240,000

D.

$242000

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Question # 70

The Conceptual Framework for Financial Reporting issued by the International Accounting Standards Board (known as the IASB's conceptual framework) includes one underlying assumption about the preparation of financial statements and two fundamental qualitative characteristics for financial information.

Identify the underlying assumption and one of the fundamental characteristics by placing one of the options in each of the boxes below.

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Question # 71

Which of the following is NOT a primary need for regulating financial reporting information of incorporated entities?

A.

To improve the reliability of information for users.

B.

To make information more consistent.

C.

To make information more comparable.

D.

To ensure that information is consistent with its legal form.

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Question # 72

An entity purchased an asset for $375,000 on 1 November 20X0 incurring legal fees of $33,000. Improvements were made to the asset for $65,000 on 1 December 20X2 which qualified as capital expenditure under the local tax rules. The entity also incurred repair costs on the asset on 1 February 20X3 amounting to $10,000.

The asset was sold for $680,000 on 1 December 20X5 incurring allowable costs on disposal of $15,000.

Indexation on the purchase cost and the improvement are allowable.

The index increased by 20% between November 20X0 and December 20X5,15% between December 20X2 and December 20X5 and 10% between February 20X3 and December 20X5

Calculate the chargeable gain on the disposal of the asset on 1 December 20X5.

A.

$90,650

B.

$100,650

C.

$89,650

D.

$107,250

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Question # 73

Extreme nepotism within Company E shows a failure to correctly observe which of the following principles of corporate governance?

A.

Role and responsibilities of the board

B.

Rights and equitable treatment of shareholders

C.

Interests of other stakeholders

D.

Integrity and ethical behaviour

E.

Disclosure and transparency

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Question # 74

Which of the following is a feature of value added tax (VAT)?

A.

Only registered entities can charge VAT on sales or recover VAT paid on purchases.

B.

The value of all supplies must be taken into account when determining whether the registration threshold has been exceeded.

C.

Entities cannot register for VAT if the value of their taxable supplies is below the registration threshold.

D.

Entities that make only standard-rated or zero-rated supplies have their right to recover input tax restricted.

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