1) AAA Limited is a finance company. It purchased a specialist machine for $70,000 and incurred additional costs of $2,119 for installation on 1 January 20X1. The machine was leased to BBB Limited under a three year lease with three annual fixed lease payments of $26,364 payable annually at the start of each financial year beginning on 1 January 20X1. What is the interest rate implicit in the lease (rounded to the nearest number)?
11%
9%
10%
12%
2) Under FRS 116 Leases, which of the following conditions would generally lead to a lease being classified as a finance lease by a lessor? Condition (i) is where ownership is transferred by the end of the lease term. Condition (ii) is where the lease contains a bargain purchase option. Condition (iii) is where the lease term is for the major part of the economic life of the asset. Condition (iv) is where the present value of the lease payments are substantially equal to the asset's fair value.
All four conditions must exist.
Conditions (i), (ii) and (iii) only.
Any of the four conditions.
Conditions (i) and (ii) only.
3) Which of the following statements with respect to FRS 116 Leases is FALSE?
None of the listed options.
A lessor shall disclose the nature of its leasing activities.
A lessor shall disclose why there is any significant changes in the carrying amount of the net investment in the lease.
A lessor shall disclose how it manages its risk associated with any rights it retains in the underlying asset..
4) Contract A does not contain a bargain purchase option but the lease term is for the major part of the economic life of the leased asset. Contract B does not transfer title to the lessee at the end of the lease term but the present value of the lease payments is equal to the fair value of the leased asset. Which of the following statements is FALSE under FRS 116 Leases?
Lessee determines whether a lease arrangement or a service arrangement exists in the contract.
Lessor in contract A classifies it as a finance lease while lessor in contract B classifies it as a finance lease.
Lessee in contract A classifies it as a finance lease while lessee in contract B classifies it as a finance lease.
Lessor determines whether a lease arrangement or a service arrangement exists in the contract.
5) AAA Limited, with 31 December financial year-ends, leases out a machine on 1 January 20X1 on a finance lease. The machine has a fair value of $50,000. The annual fixed lease payments of $19,753 will be receivable on 31 December 20X1, 31 December 20X2, and 31 December 20X3. The implicit rate of interest is 9%. Using the effective interest method, what is the amount of interest income (rounded to the nearest dollar) earned by AAA Limited in the year ending 31 December 20X2?
$4,500
$1,777
$3,127
None of the listed options
6) AAA Limited is in the business of manufacturing and selling computer systems. It leased computers to BBB Limited on 1 January 20X1. The manufacturing cost of the computers was $12 million. This non-cancellable lease had the following terms: (i) Lease payments: $2,466,754 semi-annually; first payment at 1 January 20X1; remaining payments at July 1 and Jan 1 each year through 1 July 20X5; (ii) Lease term: 5 years (10 semi-annual payments); (iii) No residual value; (iv) no bargain purchase option; (v) Economic life of equipment: 5 years; (vi) Implicit interest rate of 5% semi-annually; (vii) Fair value of the computers at 1 January 20X1: $20 million. Which of the following statements is FALSE, assuming AAA Limited adopts FRS 116 Leases?
None of the listed options.
AAA Limited records sales revenue of $20 million in year ending 31 December 20X1.
AAA Limited records cost of goods sold of $12 million in year ending 31 December 20X1.
AAA Limited records interest expense in the year ending 31 December 20X1.
7) Contract A does not contain a bargain purchase option but the lease term is for the major part of the economic life of the leased asset. Contract B does not transfer title to the lessee at the end of the lease term but the present value of the lease payments is equal to the fair value of the leased asset. How should these leases be classified by the lessor under FRS 116?
Lessor in contract A classifies it as an operating lease while lessor in contract B classifies it as a finance lease.
Lessor in contract A classifies it as a finance lease while lessor in contract B classifies it as a finance lease.
Lessor in contract A classifies it as a finance lease while lessor in contract B classifies it as an operating lease.
Lessor in contract A classifies it as an operating lease while lessor in contract B classifies it as an operating lease.
8) Which of the following is not part of the lease payments taken into account by the lessor under FRS 116 Leases?
any amounts guaranteed by the lessee or by a party related to the lessee or by an unrelated third party.
the payments over the lease term that the lessee is required to make.
Any payment the lessee must make at the end of the lease term to exercise the bargain purchase option to purchase the leased asset.
None of the listed options.
9) AAA Limited is in the business of manufacturing and selling computer systems. It leased computers to BBB Limited on 1 January 20X1. The manufacturing cost of the computers was $12 million. This non-cancellable lease had the following terms: (i) Lease payments: $2,466,754 semi-annually; first payment at 1 January 20X1; remaining payments at July 1 and Jan 1 each year through 1 July 20X5; (ii) Lease term: 5 years (10 semi-annual payments); (iii) No residual value; (iv) no bargain purchase option; (v) Economic life of equipment: 5 years; (vi) Implicit interest rate of 5% semi-annually; (vii) Fair value of the computers at 1 January 20X1: $20 million. Which of the following statements is FALSE, assuming AAA Limited adopts FRS 116 Leases?
AAA Limited records interest income in the year ending 31 December 20X1.
AAA Limited records sales revenue of $20 million in year ending 31 December 20X1.
AAA Limited records cost of goods sold of $12 million in year ending 31 December 20X1.
None of the listed options.
10) Under FRS 116 Leases, which of the following characteristics would not apply to a finance lease?
The lease term is for the major part of the economic life of the asset.
The leased assets are specialised in nature such that only the lessee can use them without major modification.
Ownership of the asset is transferred to the lessee at the end of the lease term.
At the inception of the lease, the present value of the lease payments amounts to 10% of the fair value of the leased asset.
11) How does FRS 109 Financial Instruments determine the measurement method to be used for a particular financial asset?
By reviewing the business model of each entity and the risks and rewards of ownership of the instrument.
By reviewing the realisability and the contractual cash flow characteristics of the instrument.
By reviewing the business model of each entity and the risks and rewards of ownership of the instrument.
By reviewing the business model of each entity and the contractual cash flow characteristics of the instrument.
12) Which of the following statements is FALSE under FRS 109 Financial Instruments?
Investments measured at fair value through other comprehensive income is measured at its fair value plus transaction costs directly attributable to its acquisition at initial recognition.
Investments measured at fair value through profit or loss is measured at its fair value at initial recognition.
Investments measured at fair value through profit or loss is measured at its fair value plus transaction costs directly attributable to its acquisition at initial recognition.
Investments measured at amortised cost is measured at its fair value plus transaction costs directly attributable to its acquisition at initial recognition.
13) AAA Ltd purchased several investments during 20X1, its first year of operations. The following information are provided. Note that the fluctuations in the fair values are transitory. It purchased BBB Ltd bonds at $380,000 on 1 January 20X1. These bonds are 4-year bond with a coupon rate of 10% and par value of $400,000. BBB Ltd will make coupon payments annually on 31 December with the first coupon payment made on 31 December 20X1. As at the end of 20X1 and 20X2, its amortised cost is $384,194 and $388,875 and its fair value is $385,000 and $400,000 respectively. AAA Ltd also purchased CCC Ltd shares. The cost of these shares was at $137,900. The fair values as at the end of 20X1 and 20X2 are $139,000 and $175,000. AAA Ltd also purchased DDD Ltd shares. The cost of these shares was at $125,000. The fair values as at the end of 20X1 and 20X2 are $130,500 and $150,400. AAA Ltd classifies its investments in BBB Ltd as measured at amortised cost, those in CCC Ltd as measured at fair value through profit or loss and those in DDD Ltd as measured at fair value through other comprehensive income. What is the amount of total investment reflected on AAA Ltd's statement of financial position as at the end of 20X1?
$654,500.
$653,694.
$714,275.
725,400
14) The scope of FRS 109 Financial Instruments includes all of the following items except:
financial instruments that meet the definition of a financial asset.
none of the listed options.
financial instruments that meet the definition of a financial liability.
contracts to buy or sell non-financial items that can be settled net.
15) Under which of the following circumstances is derecognition of a financial asset generally not appropriate under FRS 109 Financial Instruments?
The financial asset has been transferred by the entity and the entity has retained substantially all the risks and rewards of the transferred assets.
None of the listed options.
The financial asset has been transferred by the entity and the entity has neither retained nor transferred substantially all the risks and rewards of ownership of the transferred asset. Further, the entity has lost control of the asset.
The contractual rights to the cash flows of the financial assets have expired.
16) Which of the following categories generally exclude equity investments?
Investments classified as subsequently measured at fair value through profit or loss.
Investments classified as subsequently measured at fair value through other comprehensive income.
Investments classified as subsequently measured at amortised cost.
None of the listed options.
17) Which of the following best describes the effective interest rate of a bond investment measured at amortised cost?
The interest rate that exactly discounts estimated future cash payments or receipts through the expected life of the bond.
The basic risk-free interest rate that is derived from government bonds.
The stated coupon rate of the bond.
The interest rate currently charged by the entity on similar bond instruments.
18) AAA Ltd purchased several investments during 20X1, its first year of operations. The following information are provided. Note that the fluctuations in the fair values are transitory. It purchased BBB Ltd bonds at $380,000 on 1 January 20X1. These bonds are 4-year bond with a coupon rate of 10% and par value of $400,000. BBB Ltd will make coupon payments annually on 31 December with the first coupon payment made on 31 December 20X1. As at the end of 20X1 and 20X2, its amortised cost is $384,194 and $388,875 and its fair value is $385,000 and $400,000 respectively. AAA Ltd also purchased CCC Ltd shares. The cost of these shares was at $137,900. The fair values as at the end of 20X1 and 20X2 are $139,000 and $175,000. AAA Ltd also purchased DDD Ltd shares. The cost of these shares was at $125,000. The fair values as at the end of 20X1 and 20X2 are $130,500 and $150,400. AAA Ltd classifies its investments in BBB Ltd as measured at amortised cost, those in CCC Ltd as measured at fair value through profit or loss and those in DDD Ltd as measured at fair value through other comprehensive income. Which of the following statements relating to AAA Ltd's financial year ending 31 December 20X1 is FALSE?
AAA Ltd recognises an unrealised marked to market gain of $5,500 in the income statement on DDD Ltd shares.
AAA Ltd recognises an unrealised marked to market gain of $5,000 in the income statement on BBB Ltd bonds.
All of the listed options.
AAA Ltd recognises an unrealised marked to market loss of $1,100 in the income statement on CCC Ltd shares.
19) When is a financial asset initiallyrecognised under FRS 109 Financial Instruments?
A financial asset is recognised when, and only when, the entity becomes a party to the contractual provisions of the instrument.
A financial asset is recognised when, and only when, the entity obtains control of the instrument and has the ability to dispose of the financial asset independently of others.
A financial asset is recognised when, and only when, it is probable that future economic benefits will flow to the entity and the cost or value of the financial asset can be measured reliably.
A financial asset is recognised when, and only when, the entity obtains the risks and rewards of ownership of the financial asset and has the ability to dispose of the financial asset.
20) AAA Ltd purchased several investments during 20X1, its first year of operations. The following information are provided. Note that the fluctuations in the fair values are transitory. It purchased BBB Ltd bonds at $380,000 on 1 January 20X1. These bonds are 4-year bond with a coupon rate of 10% and par value of $400,000. BBB Ltd will make coupon payments annually on 31 December with the first coupon payment made on 31 December 20X1. As at the end of 20X1 and 20X2, its amortised cost is $384,194 and $388,875 and its fair value is $385,000 and $400,000 respectively. AAA Ltd also purchased CCC Ltd shares. The cost of these shares was at $137,900. The fair values as at the end of 20X1 and 20X2 are $139,000 and $175,000. AAA Ltd also purchased DDD Ltd shares. The cost of these shares was at $125,000. The fair values as at the end of 20X1 and 20X2 are $130,500 and $150,400. AAA Ltd classifies its investments in BBB Ltd as measured at amortised cost, those in CCC Ltd as measured at fair value through profit or loss and those in DDD Ltd as measured at fair value through other comprehensive income. Which of the following statements is TRUE?
On 31 December 20X2, AAA Ltd has accumulated other comprehensive income of $20,000 on BBB Ltd bonds.
All of the listed options.
On 31 December 20X2, AAA Ltd has accumulated other comprehensive income of $25,400 on DDD Ltd shares.
On 31 December 20X2, AAA Ltd has accumulated other comprehensive income of $37,100 on CCC Ltd shares.
21) Which of the following statements relating to FRS 109 Financial Instruments is FALSE?
An entity shall present the amount of change in the fair value of the financial liability that is designated as fair value through profit or loss that is attributable to changes in the credit risk of that liability in Other Comprehensive Income.
At initial recognition, an entity shall measure a financial liability classified as measured at fair value through profit or loss at its fair value.
At initial recognition, an entity shall measure a financial liability not classified as measured at fair value through profit or loss at its fair value minus transaction costs that are directly attributable to the issue of the financial liability.
None of the listed options.
22) Which of the following is generally NOT a consideration when evaluating whether to derecognise a financial liability?
None of the listed options.
Whether the obligation has been cancelled?
Whether the obligation has expired?
Whether the obligation has been discharged?
23) On 1 January 20X3, AAA Ltd issued a bond with a principal amount of $500,000 and bears interest at the coupon rate of 10%. The current market rate of interest is 11%. These bonds will sell at a price that is:
less than $500,000.
equal to $500,000.
undeterminable.
more than $500,000.
24) Which of the following statements is most likely TRUE with respect to accounting for a compound financial instrument?
The issuer shall classify a compound financial instrument as either a financial liability or equity based on an evaluation of the predominant characteristics of the contractual arrangement.
The issuer shall classify the compound financial instrument entirely as liability until it gets converted into equity.
None of the listed options.
The issuer shall classify the liability and equity components of a compound financial instrument separately as financial liability and equity respectively.
25) On 1 January 20X0, AAA Ltd sold 10% ten-year $200,000 par value bonds. Interest is payable semiannually on June 30 and December 31. The bonds were sold for $177,000. The annual effective interest rate is 12%. AAA Ltd records interest using the effective rate method. Assume that AAA Ltd rounds computations to the nearest dollar. Which of the following statements is TRUE?
On December 31, 20X0, AAA debits the interest expense from 1 July 20X0 to 31 December 20X0 of $10,657.
On 1 January 20X0, AAA Ltd credits bond payable of $177,000.
On 1 January 20X0, AAA Ltd debits cash of $177,000.
All of the listed options.
26) On 30 June 20X3, AAA Ltd had outstanding $80 million of 8% convertible bonds that mature on June 30, 20X4. Interest is payable each year on June 30 and December 31. The bonds are convertible into 6 million ordinary shares. The equity portion of the convertible bond is valued at $6 million at issuance. At 30 June 20X3, the unamortised balance in the discount on bonds payable account was $4 million. On 30 June 20X3, 50% of the bonds were converted when AAA Ltd's ordinary shares has a market price of $3 per share. Which of the following statements is most likely TRUE on conversion?
Credit share capital $41 million.
Debit bond payable $40 million.
All of the listed options.
Credit bond discount $2 million.
27) Which of the following statements is most likely TRUE with respect to accounting for a compound financial instrument?
The fair values of the liability and equity components are estimated and the proceeds are allocated to the respective components using the relative fair value method.
None of the listed options.
The equity component is measured at fair value, and the residual amount of the proceeds is allocated to the liability component.
The liability component is measured at fair value, and the residual amount of the proceeds is allocated to the equity component.
28) On 1 January 20X1, AAA Ltd issued a six-year $10 million 4% convertible debenture for $11 million. The effective interest rate is 6% per annum. Which of the following statements (figures are rounded to the nearest million) is most likely FALSE on recognition?
Credit bond payable $9 million.
Debit cash $11 million.
All of the listed options.
Debit capital reserve $2 million.
29)Which of the following statements relating to FRS 32 Financial Instruments - Presentation is TRUE?
There must be an existence of a clearing market mechanisim for net settlement and an expectation of net settlement before one can offset financial assets and financial liabilities for presentation purpose.
There must be a legal right of set-off before one can offset financial assets and financial liabilities for presentation purpose.
All of the listed options.
There must be a legal right of set-off and an intention to settle net or simultaneously before one can offset financial assets and financial liabilities for presentation purpose.
30) On 30 June 20X3, AAA Ltd had outstanding $80 million of 8% convertible bonds that mature on June 30, 20X4. Interest is payable each year on June 30 and December 31. The bonds are convertible into 6 million ordinary shares. The equity portion of the convertible bond is valued at $6 million at issuance. At 30 June 20X3, the unamortised balance in the discount on bonds payable account was $4 million. On 30 June 20X3, 50% of the bonds were converted when AAA Ltd's ordinary shares has a market price of $3 per share. Which of the following statements is most likely FALSE on conversion?
All of the listed options
Debit capital reserve $3 million.
Debit bond payable $40 million.
Credit share capital $9 million.
31) A depreciable asset, at the point of purchase, cost $80,000. For accounting purpose, it is to be depreciated on a straight-line basis over five years with zero residual value. For tax purpose, it is to be depreciated on a straight-line basis over four years with zero residual value. The tax rate is 20%. What are the carrying amount, tax base and deferred tax liability/asset balance at the end of the fourth year?
$48,000; $40,000; Deferred Tax Liability Balance of $1,600.
$32,000; $20,000; Deferred Tax Liability Balance of $2,400.
$64,000; $60,000; Deferred Tax Liability Balance of $800.
$16,000; $0; Deferred Tax Liability Balance of $3,200
32) A depreciable asset, at the point of purchase, cost $80,000. For accounting purpose, it is to be depreciated on a straight-line basis over five years with zero residual value. For tax purpose, it is to be depreciated on a straight-line basis over four years with zero residual value. The tax rate is 20%. What are the carrying amount, tax base and deferred tax liability/asset balance at the end of the first year?
$64,000; $60,000; Deferred Tax Liability Balance of $800.
$48,000; $40,000; Deferred Tax Liability Balance of $1,600.
$16,000; $0; Deferred Tax Liability Balance of $3,200.
$32,000; $20,000; Deferred Tax Liability Balance of $2,400.
33) The interest receivable account has a beginning balance of $120,000 and an ending balance of $70,000. Interest income is taxed when received. The prevailing tax rate is 20%. Assume that taxable profit will be available against which the deductible temporary differences can be utilised. Use the balance sheet approach to determine the adjustment to the deferred tax liability/asset balance arising from interest receivable as at 31 December 20x1.
No adjustment required
Credit deferred tax liability of $24,000
Debit deferred tax liability of $10,000
Credit deferred tax liability of 14,000
34) ABC Ltd has accounting profit before tax of $400,000 in year ending 31 December 20X1. The accounting depreciation for the year is $60,000. The capital allowance for taxation purpose is $100,000. Assume that ABC Ltd is in its first year of operation and that there is only one depreciable asset purchased at $300,000. Assume that the tax rate is 25%. What is the current tax expense recognised for the year ending 31 December 20X1?
$115,000
$100,000
$75,000
$90,000
35) Which of the following statements relating to FRS 12 Income Taxes is most likely TRUE?
Tax expense comprises of current tax expense and deferred tax expense.
Current tax is the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for a future period.
None of the listed options.
Deferred tax liabilities are the amounts of income taxes payable in the current period in respect of taxable temporary differences.
36) Which of the following statements relating to FRS 12 Income Taxes is most likely FALSE?
For transactions and other events recognised in other comprehensive income, any related tax effects need not be recognised.
None of the listed options.
For transactions and other events recognised in other comprehensive income, any related tax effects are recognised in other comprehensive income.
For transactions and other events recognised in profit or loss, any related tax effects are recognised in profit or loss.
37) Which formula below is most likely TRUE?
Tax expense = current tax rate x (accounting income + permanent disallowed items - permanent exempted income items)
Tax expense = current tax rate x (accounting income - permanent disallowed items + permanent exempted income items)
Tax expense = prior year tax rate x (accounting income + permanent disallowed items - permanent exempted income items)
Tax expense = prior year tax rate x (accounting income - permanent disallowed items + permanent exempted income items)
38) Which of the following statements relating to FRS 12 Income Taxes is most likely TRUE?
When the carrying amount of a liability is greater than its tax base, it gives rise to a deductible temporary difference.
When the carrying amount of an asset is greater than its tax base, it gives rise to a deductible temporary difference.
None of the listed options.
When the carrying amount of an asset is less than its tax base, it gives rise to a taxable temporary difference.
39) A depreciable asset, at the point of purchase, cost $80,000. For accounting purpose, it is to be depreciated on a straight-line basis over five years with zero residual value. For tax purpose, it is to be depreciated on a straight-line basis over four years with zero residual value. The tax rate is 20%. What are the carrying amount, tax base and deferred tax liability/asset balance at the end of the third year?
$32,000; $20,000; Deferred Tax Liability Balance of $2,400.
$16,000; $0; Deferred Tax Liability Balance of $3,200.
$64,000; $60,000; Deferred Tax Liability Balance of $800.
$48,000; $40,000; Deferred Tax Liability Balance of $1,600.
40) Which of the following items does not create a permanent difference?
None of the listed options.
Tax-exempt income.
Disallowed expense.
Unearned revenue, taxed at point of collection.
41) Based on FRS 102 Share-based payment, if the market prices of the equity instruments it issued to its employees are not available, then an entity should
estimate the fair value by reference to similar services received in the past.
revise the grant date fair value and reverse the payroll benefit expense already recognised.
estimate fair value using a valuation technique to estimate what the price of those equity instruments would have been on the measurement date.
use the par value of the shares given.
42) ABC Ltd issues shares in return for purchasing inventory on 1 January 20X1. The inventory is eventually sold on 31 December 20X2. The fair value of the inventory on 1 January 20X1 is $3 million. The shares issued have a market value of $3.1 million. The inventory was sold on 31 December 20X2 at $5 million. Which of the following statements correctly describes the accounting treatment of this share-based payment transaction under FRS 102 Share-based payment on 1 January 20X1?
Debit Inventory $3.1 million and Credit Share Capital $3.1 million.
Debit Inventory $3 million and Credit Share Capital $3 million.
None of the listed options.
Debit Inventory $3 million Debit Loss $0.1 million and Credit Share Capital $3.1 million.
43) For cash-settled share-based payment transactions, FRS 102 Share-based payment requires an entity to measure the goods or services acquired and:
establish a liability and, until the liability is settled, remeasure the fair value of the liability at each reporting date, and at the date of settlement, with any changes in value recognised in profit or loss for the period.
convert the award to an equity-settled share-based transaction.
establish a liability which remains unchanged.
hold the cost in equity.
44) ABC Ltd grants 1,000 share options to its president on 1 July 20X0. The options will vest on 30 June 20X4. The options will allow the president to purchase shares at $6.25 each after 30 June 20X4. $6.25 is also the current share price as at 1 July 20X0. The intrinsic value and the fair value of each option on 1 July 20X0 is $0 and $4 respectively, and it is anticipated that all of the share options will vest on 30 June 20X4. What is the accounting treatment for the financial year ending 30 June 20X1 under FRS 102 Share-based payment?
Debit Compensation expenses $0, Credit Share-based Payment Reserve $0
Debit Compensation expenses $1,000, Credit Share-based Payment Reserve $1,000
Debit Compensation expenses $1,562.50, Credit Share-based Payment Reserve $1,562.50
Debit Compensation expenses $6,250, Credit Share-based Payment Reserve $6,250
45) ABC Ltd grants 20 share appreciation rights to each of its 500 employees on 1 January 20X1. The rights are due to vest on 31 December 20X4. Assume that 80% vested on 31 December 20X4. The employees exercise their share appreciation rights on the 31 December 20X5. The fair value of the share appreciation right is $2, $3, $6, and $4 on 1 January 20X1, 31 December 20X1, 31 December 20X4 and 31 December 20X5 respectively. The market price of the share is $3.50, $6.50, $8.50, and $7.50 on 1 January 20X1, 31 December 20X1, 31 December 20X4 and 31 December 20X5 respectively. What is the liability recorded in the financial statements for the year ended 31 December 20X4?
$40,000
$6,000
$48,000
$24,000
46) Which of the following statements is TRUE under FRS 19 Employee Benefits?
An entity shall recognise a liability and expense for termination benefits at the earlier of either when the entity can no longer withdraw an offer of those benefits or when the entity recognises costs for a restructuring that is within the scope of FRS 37 and involves payment of termination benefits.
An entity shall recognise a liability and expense for termination benefits only when the entity can no longer withdraw an offer of those benefits.
An entity shall recognise a liability and expense for termination benefits only when the entity recognises costs for a restructuring that is within the scope of FRS 37 and involves payment of termination benefits.
None of the listed options.
47) ABC Ltd grants 100 share appreciation rights to each of its 1,000 employees on 1 January 20X1. The management feels that, as at 31 December 20X1, 90% will vest on 31 December 20X3. The fair value of the share appreciation right are $9.60 and $10 on 1 January 20X1 and 31 December 20X1 respectively. What is the liability recorded in the financial statements for the year ended 31 December 20X1?
$300,000
$333,333
$288,000
$320,000
48) The accounting for defined contribution pension plan is easier when compared to a defined benefit pension plan because:
for each year, the employer records staff expenses equal to the amount provided by the actuary.
for each year, the employer records staff expenses equal to the amount paid out to retirees.
for each year, the employer records staff expenses equal to the earnings of the plan assets.
for each year, the employer records staff expenses equal to the amount contributed annually.
49) ABC Ltd grants 1,000 share options to each of its five vice-presidents on 1 July 20X0. The options will vest on 30 June 20X4. The options will allow the vice-presidents to purchase shares at $4 each after 30 June 20X4. $4 is also the current share price as at 1 July 20X0. The intrinsic value and the fair value of each option on 1 July 20X0 is $0 and $5 respectively, and it is anticipated that 80% of the share options will vest on 30 June 20X4. What is the accounting treatment for the financial year ending 30 June 20X1 under FRS 102 Share-based payment?
Debit Compensation expenses $0, Credit Share-based Payment Reserve $0
Debit Compensation expenses $6,250, Credit Share-based Payment Reserve $6,250
Debit Compensation expenses $5,000, Credit Share-based Payment Reserve $5,000
Debit Compensation expenses $20,000, Credit Share-based Payment Reserve $20,000
50) ABC Ltd grants 50,000 share options to its employees on 31 December 20X1. Each option is an option to buy the shares at $35 per share on the condition that they remain employed until 31 December 20X3. The market prices of the shares were $46 on 31 December 20X2 and $51 on 31 December 20X3. The fair value of each option on 31 December 20X1 is $10. It is anticipated that all the options will vest on 31 December 20X3. How much should ABC Ltd recognise as compensation expenses for the year to 31 December 20X2.
$275,000
$550,000
$250,000
$1,150,000
51) AAA Café Ltd ("AAA") started operations on 2 January 20X1 and is in the business of providing organic bento lunch sets to its customers. To enhance customer loyalty, AAA launched a year-long promotion program in 20X1, which offered its customers one loyalty point for every $1 spent in the café. Every 100 loyalty points will entitle a customer to a free lunch worth $10. All accumulated loyalty points expire by the end of 20X2. In the first year of operations, AAA had sales revenue of $1 million. AAA estimated that 50% and 40% of the loyalty points issued in 20X1 were redeemed in 20X1 and 20X2 respectively. Assume that all estimates materialised. What is the journal entry to record the sales revenue and customer option to buy additional goods in the year ending 31 December 20X1 (round your figures to the nearest number) under FRS 115 Revenue from Contract with Customers?
Dr Cash $1,000,000 Cr Sales Revenue $1,000,000.
Dr Cash $1,000,000 Cr Sales Revenue $917,431 Credit Unearned Revenue $82,569.
Dr Cash $1,000,000 Cr Sales Revenue $900,000 Credit Unearned Revenue $100,000.
Dr Cash $1,000,000 Cr Sales Revenue $909,091 Credit Unearned Revenue $90,909.
52) Which of the following borrowing costs may not be capitalised under FRS 23 Borrowing Costs?
None of the listed options.
Amortisation of discounts or premiums relating to borrowings that qualify for capitalisation.
Interest on bonds issued to finance the construction of a qualifying asset.
Imputed cost of equity.
53) Which of the following statements is TRUE under FRS 115 Revenue from Contracts with Customers?
None of the listed options.
An entity shall recognise an asset from costs incurred to fulfil a contract only if the costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance obligations in the future.
An entity shall recognise an asset from costs incurred to fulfil a contract only if those costs relate directly to a contract or to an anticipated contract that the entity can specifically identify.
An entity shall recognise an asset from costs incurred to fulfil a contract only if the costs are expected to be recovered.
54) Which of the following statements is FALSE under FRS 115 Revenue from Contracts with Customers?
If, in a contract, an entity grants a customer the option to acquire additional goods or services, that option gives rise to a performance obligation in the contract only if the option provides a material right to the customer that it would not receive without entering into that contract.
If the entity grants a customer an option and the option provides a material right to the customer, the customer in effect pays the entity in advance for future goods or services and the entity recognises revenue when those future goods or services are transferred or when the option expires.
None of the listed options.
Customer options to acquire additional goods or services for free or at a discount come in many forms, including sales incentives, customer award credits (or points), contract renewal options or other discounts on future goods or services.