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Section A – All 15 questions are compulsory and must be attempted.
Each question is worth 2 marks.
1. Strength Co produces and sells cement. The following issues have been
highlighted during the finalisation phase of financial statements:
Issue 1: A former employee of the company has started litigation for unfair
dismissal. Strength Co has consulted a professional law firm in this regard. The firm
has suggested the likelihood of plaintiff’s victory to be less than probable.
Issue 2: The mining of limestone, used in the manufacturing of cement, has caused
environmental pollution to the surrounding villages. Strength Co has a valid license
to manufacture cement in the designation location and no anti-pollution legislation
exists in the regime. However, given the environment-friendly slogan of Strength
Co, it has contributed almost $200,000 every year to rectify such damage.
In accordance with IAS 37 - Provisions, Contingent Liabilities and Contingent
Assets, which of these issues should be recorded by creating a provision in the
financial statements?
A) 1 Only
B) 2 Only
C) Both 1 and 2
D) Neither 1 nor 2
2. Technology Co has undertaken the following two research and development
projects:
Project 1: After incurring $50 million, the business has been able to develop
solarpowered smartphone. However, the cost of material to be used in each
smartphone has turned out to be far higher than planned. Consequently, there are
doubts over commercial viability of the project. Nevertheless, Technology Co can
utilise these findings to make other commercially viable solar-powered electronic
products.
Project 2: This project was started to develop specialised bio-medical equipment,
having ability to detect all types of cancers in a single scan. A sum of $75 million
has so far been incurred on the project. The management of Technology Co
considers this project to be commercially viable and, given the preliminary results,
there is a high chance of successful development. However, to be completed, the
project requires another $125 million. Technology Co has planned an IPO next year
which, management believes, can generate the funds to complete this project.
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In accordance with IAS 38 - Intangible Assets, which of these projects can be
capitalised?
A) 1 Only
B) 2 Only
C) Both 1 and 2
D) Neither 1 nor 2
3. Roy Co has imported a paper shredder machine. The details of different costs
associated with this purchase are as follows:
$
Purchase price $60,000
Inbound freight costs $4,000
Import duties $2,000
Employee training to operate machine $1,000
Two-year maintenance contract $3,000
Calculate the amount to be capitalized in the initial carrying value of the machine.
A) $64,000
B) $68,000
C) $66,000
D) $69,000
4. Which of the following statements about IAS 41 - Agriculture is correct?
A) Bearer plants are included in the scope of IAS 41.
B) Land related to agricultural activity is included in the scope of IAS 41.
C) If the fair value cannot be measured reliability, biological assets can be measured
at cost less accumulated depreciation and impairment losses.
D) If the fair value cannot be measured reliability, agricultural produce can be
measured at cost less accumulated depreciation and impairment losses.
5. IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, requires
certain disclosures in respect of provisions. Which of the following disclosures is
not required by IAS 37?
A) Reconciliation for each class of provision.
B) Prior year reconciliation.
C) Description of the nature and timing for each class of provision.
D) Description of uncertainties and assumptions for each class of provision.
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11. Which of the following assets are excluded from the scope of
IAS 36 – Impairment of Assets?
(1) Inventories
(2) Deferred tax assets
(3) Land
(4) Non-current assets held for sale
(5) Financial assets
(6) Goodwill
A) (1), (2), (4) and (5)
B) (2), (5) and (6)
C) (2), (4), (5) and (6)
D) (3), (4) and (5)
12. Zeta Co is preparing its statement of cash flows under indirect method. The
following extracts have been taken from the statement of financial position as at
31 December 2016:
20X5 20X6
Account receivable $50,000 $55,000
Inventory $16,000 $12,000
Account payable $22,000 $25,000
In addition, the following information is relevant:
(1) The profit before interest and tax is $70,000
(2) The cost and net book value of the non-current assets are $100,000 and
$80,000 respectively. The business charges straight line depreciation at 20% per
annum.
(3) The business incurred loss on foreign operations of $5,000.
(4) The business paid interest of $4,000 on outstanding debt.
Calculate the amount of cash generated from operations.
A) $90,000
B) $92,000
C) $93,000
D) $97,000
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The following scenario relates to question 21 - 25
Grace Co is in process of creating its statement of cash flows for the year ended 31
December 2017. The relevant income statement and statement of financial position
are as follows:
Income Statement for the Year Ended 31 December 2017
$’000
Sales 810
Cost of goods sold (140)
Gross profit 670
Depreciation (90)
Admin expenses (20)
Loss on disposal of non-current asset (20)
Operating profit 540
Interest paid (30)
Taxation (160)
Net profit 350
Statement of Financial Position as at 31 December
2017 2016
$’000 $’000
Non-current assets
Cost 1,460 1,400
Depreciation 250 200
1,210 1,200
Current assets
Inventory 45 35
Trade receivables 60 65
Cash and bank 25 20
130 120
Total assets 1,340 1,320
Equity and liabilities
Share capital 310 300
Share premium 125 120
Retained earnings 695 400
1,130 820
Loan 90 380
Trade payables 40 70
Taxation 80 50
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Additional Information:
Dividends of $55,000 were paid during the year. The company purchased a new
noncurrent asset of $100,000 in cash during the year.
21. What is the net cash generated from operations?
A) $615,000
B) $635,000
C) $655,000
D) $665,000
22. What is the net cash generated from (or used in) operating activities?
A) $400,000
B) $215,000
C) ($400,000)
D) ($215,000)
23. What is the net cash generated from (or used in) investing activities?
A) $120,000
B) $100,000
C) ($120,000)
D) ($100,000)
24. What is the net cash generated from (or used in) financing activities? 347
A) $275,000
B) $290,000
C) ($290,000)
D) ($275,000)
25. What is the net increase or decrease in cash and cash equivalents?
A) $5,000
B) $25,000
C) ($5,000)
D) ($25,000)
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32. Delta is a public limited company. The financial statements of the business for
the latest year, along with the comparatives, are as follows:
Statement of profit or loss for the year ended 30 June
2017 ($’000) 2016 ($’000)
Revenue 28,500 24,2 00
Cost of sales 17,000 16,200
Gross profit 11,500 8,000
Administration expenses 4,550 1,250
Distribution expenses 1,450 1,350
Operating profit 5,500 5,400
Finance costs 4,000 1,500
Profit before taxation 1,500 3,900
Income tax expense (900) (1,300)
Profit for the period 600 2,600
Statement of financial positions as at 30 June
2017 ($’000) 2016 ($’000)
Non-current assets 26,000 26,000
Current assets
Inventory 14,500 6,200
Trade receivables 18,500 4,400
Cash and bank 500 3,500
33,000 14,100
Total assets 59,000 40,100
Equity and liabilities
Equity shares of $1 each 10,000 10,000
Retained earnings 25,600 23,000
35,600 33,000
Loan 18,000 5,500
Trade payables 5,400 1,600
Total equity and liabilities 59,000 40,100
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Required
(a) Calculate the following ratios for each of the two years:
(10 marks)
(i) Gross profit margin
(ii) Net profit margin
(iii) Return on capital employed (ROCE)
(iv) Gearing
(v) Interest cover
(vi) Current ratio
(vii) Quick ratio
(viii) Receivables days
(ix) Payables days
(x) Earnings per share (EPS)
(b) Interpret the performance of Delta in the light of each ratio.
(10 marks)
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