ACCA Financial Reporting ACTUAL Questions and CORRECT Answers
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Module
ACCA Financial Reporting
Institution
ACCA Financial Reporting
ACCA Financial Reporting ACTUAL
Questions and CORRECT Answers
IAS 1 Presentation of Financial Statements - CORRECT ANSWER- States that a
complete set of financial statements comprises:
- A statement of financial position
- A statement of profit or loss
and other comprehensive income
- A st...
ACCA Financial Reporting ACTUAL
Questions and CORRECT Answers
IAS 1 Presentation of Financial Statements - CORRECT ANSWER- ✔✔States that a
complete set of financial statements comprises:
- A statement of financial position
- A statement of profit or loss
and other comprehensive income
- A statement of changes in equity
- A statement of cash flows
- Accounting policies and explanatory notes
Property, plant, and equipment (IAS 16) - CORRECT ANSWER- ✔✔Tangible assets held by
an entity for more than one accounting period for use in the production or supply of goods or
services, for rental to others, or for administrative purposes
Property, plant and equipment: Recognition - CORRECT ANSWER- ✔✔Recognised as an
asset when:
- it is probable that future economic benefits associated with the asset will flow to the entity;
and
- the cost of the asset can be measured reliably (IAS 16, para 7).
Property, plant and equipment: Initial measurement - CORRECT ANSWER- ✔✔- All costs
involved in bringing the asset into working condition
- Initial cost capital costs such as the cost of site preparation, delivery costs, installation costs,
borrowing costs
- Dismantling costs - the present
value of these costs should be
capitalised
- Expense items, such as fuel,
,training and warranty costs, should be written off as incurred
Present Value: Discounting fraction - CORRECT ANSWER- ✔✔1/(1 + r)^n
i.e. Present value = Cost x 1/(1+r)^n
r = Rate or Interest rate
n = Number of years
Depreciation - CORRECT ANSWER- ✔✔Depreciation is the systematic allocation of the
depreciable amount of an asset over its useful life (IAS 16, para 6).
Depreciable amount is the cost of
an asset, or other amount substituted for cost, less its residual value (IAS 16, para 6)
Methods:
- Straight line
- Reducing balance
- Machine hours
Revaluation of non-current assets - CORRECT ANSWER- ✔✔IAS 16 treatments:
- The cost model: valued at cost less accumulated depreciation
- The revaluation model: carried at a revalued amount less any
subsequent accumulated depreciation
Journal (assuming revalued amount is greater than original cost):
Dr Non-current assets cost/valuation (revalued amount - cost)
Dr Accumulated depreciation
(eliminate accumulated balance)
Cr Other Comprehensive Income (revaluation surplus)
,Depreciation of revalued assets - CORRECT ANSWER- ✔✔- Depreciation must be charged,
based on valuation less residual value, over the remaining useful life of the asset
- The whole charge must go to the statement of profit or
loss for the year
- An annual reserves transfer
may be made, from revaluation surplus to retained earnings, for the additional depreciation
charged on the revalued
amount compared to cost. This transfer would be shown on the SOCIE
Journals:
Dr Statement of profit or loss - depreciation charge
Cr Accumulated depreciation
And:
Dr Revaluation surplus
(depreciation on valuation - depreciation on original cost)
Cr Retained earnings
Disposal of revalued assets - CORRECT ANSWER- ✔✔Account for disposal as normal
Transfer the balance on revaluation surplus to retained earnings
Government grants (IAS 20) - CORRECT ANSWER- ✔✔Governments often provide money
or incentives to companies to export their
goods or to promote local employment
Government grants could be:
- Revenue grants, e.g. contribution towards payroll costs
- Capital grants, e.g. contribution towards purchase of non-current assets
Government grants: Revenue grants - CORRECT ANSWER- ✔✔- Presented as a credit in
the statement of profit or loss, or
, - Deducted from the related expense
Government grants: Capital grants - CORRECT ANSWER- ✔✔Either:
- Net off the cost of the asset, or
- Defer the grant and release over the asset's life
Borrowing costs (IAS 23) - CORRECT ANSWER- ✔✔Borrowing costs must be capitalised
as part of the cost of an asset if that asset is a qualifying asset (one which 'necessarily takes a
substantial period of time to get ready for its intended use or sale')
Capitalisation of borrowing costs should commence when all of the following conditions are
met:
- expenditure for the asset is being incurred
- borrowing costs are being incurred
- activities that are necessary to
prepare the asset for its intended use or sale are in progress
Borrowing costs: Interest rates - CORRECT ANSWER- ✔✔Borrowing costs which may be
capitalised are those actually incurred, less any investment
income on the temporary investment of the borrowings during the capitalisation period
Where funds for the project are taken from general borrowings the weighted average cost of
general borrowings is taken
Investment Property (IAS 40) - CORRECT ANSWER- ✔✔Investment property is land or a
building 'held to earn rentals or for capital appreciation or both', rather than for use by the
entity or for sale in the ordinary course of business
Investment properties should initially be measured at cost.
IAS 40 then gives a choice for subsequent measurement between the following:
- Cost model
- Fair value model
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