F2 F2 Advanced Financial Reporting Questions and Answers

PQ entered into a $300,000 contract on 1 January 20X9 to provide computer hardware to WX with support services for the 3 years from the date of installation.

The contract is made up as follows: 

The hardware was delivered to WX on 1 January 20X9 and installed immediately. WX paid the full value of the contract on 30 June 20X9.

What journal entry records PQ's revenue from this contract for the year ended 31 December 20X9?

W and Y are very similar entities with the same level of profit before interest and tax.  However, W has gearing of 95% and Y has gearing of 30%.

Which of the following statements is true?

If you were asked to express the overall performance of an entity as a percentage of its total investment in net assets which of the following ratios would you calculate?

LM acquired 15% of the equity share capital of ST on 1 January 20X6 for $18 million.  LM acquired a further 50% of the equity share capital of ST for $50 million on 1 January 20X7 when the fair value of ST's net assets was $82 million.  The original 15% investment in ST had a fair value of $20 million at 1 January 20X7.  The non controlling interest in ST was measured at its fair value of $30 million at the date control in ST was acquired.  

Calculate the goodwill arising on the acquisition of ST that LM included in its consolidated financial statements at 31 December 20X7.

Give your answer to the nearest $ million.

$ ?  million

On 1 September 20X3, GH purchased 200,000 $1 equity shares in QR for $1.20 each and classified this investment as held for trading.

GH paid a 1% transaction fee to its broker on this transaction. QR's equity shares had a fair value of $1.35 each on 31 December 20X3.

Which of the following journals records the subsequent measurement of this financial instrument at 31 December 20X3?

Which of the following best describes the goal of WACC as a measure?

ST has in issue unquoted 7% debentures which were issued at par and are redeemable in 1 year's time. These debentures cannot be traded. The yield to maturity on these debentures has been calculated at 5%.

Which of the following would explain why the yield to maturity is lower than the coupon?

The following information has been extracted from the financial records of DEF for the year ended 31 December 20X2.

What is the operating cycle of DEF at 31 December 20X1?

Assume there are 365 days in the year.

All workings should be rounded to whole days.

Give your answer in whole days.

 ?  days.

GG's gearing is currently 50% compared to the industry average of 40% (both measured as debt/equity). GG's debt is all in the form of a single bank loan that is repayable in five years' time. The directors of GG are seeking to raise finance for a new project and they are considering an additional bank loan from the same bank.

Which of the following would prevent the bank from lending the finance for the project in the form of a new bank loan?

The IAS definitions of financial instruments dictate their classification between debt and equity. Which of of the following factors might this classification impact?

Select ALL that apply.

LM is preparing its consolidated financial statements for the year ended 30 April 20X5. During the year LM acquired 30% of the equity shares of AB giving it significant influence over AB.

LM conducted ratio analysis comparing the financial performance of the group for 30 April 20X4 and 20X5.

Which of the following ratios would not be comparable as a result of the acquisition of AB? 

Which THREE of the following actions should improve the cash position of an entity?

GH is seeking to finance a substantial new project that is guaranteed to enhance the profitability of the entity. Its key determinants in deciding upon the best source of finance are to balance the following requirements:

1) to minimise the costs of issue of the finance;

2) to avoid the need to find cash to repay the source of finance; and

3) to ensure that the long-term gearing level does not increase.

Which of the following financing options best meets these requirements?

Ratios have been produced below for EF for the year to 31 March:

Which TWO of the following could explain the movement in both gearing and ROCE?

Which of the following is the correct calculation for basic earnings per share in accordance with IAS 33 Earnings Per Share?

The following information has been extracted from the financial statements of two single entities, TUV and XYZ, for the year ended 30 September 20X3.  

Which of the following options shows the gearing ratios (Debt/Equity) for TUV and XYZ at 30 September 20X3?

What is the total comprehensive income attributable to the shareholders of GHI that will be presented in GHI's consolidated statement of changes in equity for the year ended 31 December 20X4?

An accountant acting under their Code of Ethics would do which THREE of the following?

UV has raised $100,000 through the issue of two irredeemable financial instruments:

•  6% debentures with a current market value of $101.50 per $100 nominal value; and

•  8% preference shares with a current share price of $2.20 each.

The corporate income tax rate is 20% 

What is the post tax cost of debt for each of these instruments?

A group presents its financial statements in A$.

The goodwill of its only foreign subsidiary was measured at B$100,000 at acquisition. There have been no impairments to this goodwill.

Exchange rates (where A$/B$ is the number of B$'s to each A$) are as follows:

The value of goodwill to be included in the group's statement of financial position in respect of its foreign subsidiary for the year ended 31 December 20X4 is:

An entity undertakes an issue of new debt which has the effect of reducing the entity's weighted average cost of capital (WACC).

Which of the following would best explain why the WACC will have fallen?

EF has redeemable 10% bonds which are currently trading at $94.00 for each $100 of nominal value. The bonds can be redeemed at par in five years' time. The corporate income tax rate is 22%.

The present value of the cash flows associated with $100 nominal value of these bonds at a discount rate of 7% is $9.28.

Calculate the post tax cost of debt.

Give your answer as a percentage to one decimal place.

   %

LM and JK operate in the same country and prepare their financial statements to 30 June 20X6 in accordance with International Accounting Standards. On 27 June 20X6 both entities raised $1 million cash by issuing debt instruments with identical terms and conditions. Prior to this issue both entities were financed entirely by equity.

At 30 June 20X6 the gearing ratios, calculated as Debt/Equity x 100%, were as follows:

LM: 30%

JK: 65%

Which of the following independent options would explain the difference between LM and JK's year-end gearing?

ST acquired 75% of the 2 million $1 equity shares of CD on 1 January 20X3, when the retained earnings of CD were S3,550,000. CD has no other reserves.

ST paid $5,600,000 for the shares in CD and the non controlling interest was measured at its fair value of S1,400,000 at acquisition.

At 1 January 20X3, the fair value of CD's net assets were equal to their carrying amount, with the exception of a building. This building had a fair value of $1,000,000 in excess of its carrying amount and a remaining useful life of 25 years on 1 January 20X3.

At 31 December 20X5, the retained earnings of ST and CD were $8,500,000 and $5,250,000 respectively.

What is the value of goodwill to be included in the consolidated statement of financial position of ST as at 31 December 20X5?

Which of the following should be eliminated when using the equity method to account for associates in a parent's financial statements?

Select ALL that apply.

On 1 January 20X7 GH purchased plant and equipment at a cost of $400,000.  The temporary differences in respect of this plant and equipment at 31 December 20X7 and 20X8 have been calculated as follows:  

Assume that there are no other temporary differences in the periods and that the corporate income tax rate is 25%. GH is expected to have significant taxable profits in the future.

Which of the following is the correct impact in GH's statement of financial position at 31 December 20X8 in respect of deferred tax?

RS is a listed entity that has no subsidiaries although its Finance Director is also a director of TU, an unconnected entity.

It is preparing its financial statements to 30 September 20X6. 

Which of the following substantial transactions must be disclosed in these financial statements in accordance with IAS 24 Related Party Disclosures?

GH's financial statements show the following:

What is the value of the dividend received from the associate to be included in GH's consolidated statement of cash flows for the year?

Give your answer to the nearest $000.

 $ ? 000

On 1 January 20X4 EF grants each of its 125 employees 500 share options on the condition that they remain in employment for 3 years. During the year to 31 December 20X4 10 employees left and It is expected that a further 25 will leave before the end of the vesting period.

The fair value of each share option is $30 on 1 January 20X4 and $45 on 31 December 20X4.

What is the journal entry in respect of these share options in EF's financial statements for the year ended 31 December 20X4?

When producing the consolidated statement of profit or loss and other comprehensive income, which TWO of the following will be disclosed as attributable to the equity holders of the parent company and the non-controlling interests?

Company A are approached by a wealthy and internationally famous investor shortly before the launch date of their IPO. He tells them that the company do not need to incur all of the cost and risk of an IPO, as he will

give them S55 million for 65% equity in the company.

Which of the following statements are also true of the offer? Select ALL that apply.

The dividend yield of ST has fallen in the year to 31 May 20X5, compared to the previous year.

The share price on 31 May 20X4 was $4.50 and on 31 May 20X5 was $4.00.  There were no issues of share capital during the year.

Which of the following should explain the reduction in the dividend yield for the year to 31 May 20X5 compared to the previous year?

When accounting for a finance lease under IAS 17 Leases, which TWO of the following are recognised in the statement of profit or loss?

XY's investments enable it to exercise control over AB and have significant influence over FG and JK.

The Managing Director of XY is a non-executive director of LM.  XY does not hold any investment in LM.

XY is preparing its consolidated financial statements for the year ended 30 September 20X9.

Which of the following transactions during the year will be disclosed in these financial statements in accordance with IAS 24 Related Party Disclosures?

Operating segments are separately reportable where they exceed 15% of revenue / profits / assets. These must in total cover 80% of total revenue. Is this statement true or false?

GH acquired 3,000,000 of the 12,000,000 equity shares of JK. All shares carried equal voting rights and no other single shareholder of JK held more than 10% of the equity shares. GH has the power to participate in the financial and operating policy decisions but not control them.

Based on the information provided above, how would GH's investment in JK be accounted for in its consolidated financial statements?

FG has a weighted average cost of capital of 12% based on its existing:

• level of gearing of 30% (measured as debt/(debt + equity)); and

• business operations.

This would be used as an appropriate discount factor to assess which of the following significant projects?