Dip IFRS free essay test

Parent's draft statement of financial position at 31 December 20X5 includes property, plant and equipment of $800m, investment in Sub of $240m, current assets of $310m, share capital of $500m, retained earnings of $400m and liabilities of $450m. Sub's draft statement shows property, plant and equipment of $220m, current assets of $100m, share capital of $100m, retained earnings of $120m and liabilities of $100m. The statements each balance. Parent acquired 80% of Sub on 1 January 20X5. At that date Sub's retained earnings were $70m. The fair value of Sub's identifiable net assets equalled carrying amount except for plant with a fair value uplift of $20m and a remaining useful life of four years. Goodwill is measured using the proportionate share of identifiable net assets and is impaired by 10% at the reporting date. During the year Parent sold goods to Sub for $30m; Parent's cost was $20m and 40% of the goods remained in Sub's inventory at year-end. Ignore tax. **Required:** (a) Calculate goodwill at acquisition and its carrying amount at year-end (5 marks). (b) Calculate the unrealised profit adjustment and fair-value depreciation adjustment (5 marks). (c) Calculate consolidated retained earnings and non-controlling interest (6 marks). (d) Prepare the consolidated statement of financial position at 31 December 20X5 (9 marks).

The financial statements of Delta Co are being finalised for the year ended 31 December 20X5. On 20 January 20X6, the board approved a detailed restructuring plan involving closure of a division and redundancies. Employees were informed on 5 February 20X6. No detailed plan had been communicated and no valid expectation had been created at 31 December 20X5. Management included a $3m restructuring provision at year-end. Delta Co is also owed $1.2m by a major customer. At 31 December 20X5 the customer had repeatedly missed payments and was negotiating with its lenders. The customer entered insolvency on 15 January 20X6. The directors believe no recovery will be made. The finance director refuses to adjust either item because doing so would cause Delta Co to breach a bonus target. **Required:** (a) Discuss the restructuring provision and any required subsequent-event disclosure (8 marks). (b) Explain the accounting for the customer balance and the effect of the January insolvency (8 marks). (c) State the adjustments to profit and the relevant disclosure consequences, using the information given (4 marks). (d) Explain the professional actions expected of the finance team (5 marks).

On 1 October 20X5, Equip Co delivered a machine and began a 24-month maintenance service for a customer. The customer paid a single non-refundable amount of $1.2m on that date. The machine can be used without the maintenance service, and Equip Co regularly sells the machine and maintenance separately. Their stand-alone selling prices are $1.0m and $0.5m respectively. The maintenance is provided evenly over the contract term. Equip Co recognised the full $1.2m as revenue on 1 October. **Required:** (a) Identify the performance obligations and explain the IFRS 15 principle relevant to each (6 marks). (b) Allocate the transaction price to the obligations (6 marks). (c) Calculate revenue and the contract liability at 31 December 20X5 (7 marks). (d) Explain the journal entries and key disclosures (6 marks).

You are a reporting accountant. A colleague asks for brief advice on three unrelated matters in the draft financial statements. **Query 1:** The company has a five-year property lease. It wants to exclude the lease from the statement of financial position because annual payments are below $100,000. (8 marks) **Query 2:** A building is held solely to earn rentals from third parties. Management has classified it as owner-occupied property and depreciated it using the cost model. (8 marks) **Query 3:** The company received a government grant to construct a factory. It has recognised the entire grant as income when cash was received. The factory will be used for 20 years. (9 marks)