Here’s a complete solution guide for Mocks 2–4, organized by exam and section. I’ve shown the correct answers, step‑by‑step workings, detailed explanations, and all key assumptions noted—plus, where IFRS allows, I’ve indicated two possible treatments.
Mock Examination 2
Section A (20 Marks)
Answer all questions. Choose the best answer and write the letter only.
| Q# | Answer | Explanation | Assumptions |
|---|---|---|---|
| 1 | a | Under IFRS 15 revenue is recognised when control transfers, not when cash is received. (IFRS 15.31) | IFRS 15 applies to all customer contracts. |
| 2 | b | IFRS 16 initial measurement: both RoU asset and lease liability are measured at the PV of lease payments ($120 000). | No initial direct costs or lease incentives were given. |
| 3 | c | Trade receivables use the simplified approach (lifetime ECL) per IFRS 9.B5.5.17. | Entity elects simplified approach for all trade receivables. |
| 4 | c | A vesting period set by date is a time condition, not a performance condition under IFRS 2. | Performance condition = market or non‑market targets. |
| 5 | b | “Held for sale” if its carrying amount will be recovered principally via sale (IFRS 5.7). | Sale expected within one year and asset is available for immediate sale. |
| 6 | a | Quoted equity instruments use Level 1 inputs (observable quoted prices). (IFRS 13.B72) | Active market exists. |
| 7 | d | In a sale-and-leaseback, the sale component is accounted for under IFRS 15, not IFRS 16. (IFRS 16.B96) | Control transfers by sale. |
| 8 | c | DTLs for taxable temp. diffs except those from initial recognition of an asset in a non‑BCP transaction (IAS 12.15). | Not a business combination & no effect on profit. |
| 9 | c | Write down to NRV when cost > NRV (IAS 2.9). | NRV < cost due to obsolescence. |
| 10 | b | Control = power + variable returns + ability to affect returns (IFRS 10.7). | Meets IFRS 10’s three‑part definition of control. |
| 11 | a | Equity method applies to associates (20–50% shareholding) per IAS 28. | 30% voting shares → associate. |
| 12 | c | The Contractual Service Margin is unearned profit recognized over the coverage period (IFRS 17.35D). | No other CSM components. |
| 13 | c | Equity‑accounted associates appear in the notes, not on the face of consolidated SOFP (IFRS 12). | IFRS 10 does not require them on face. |
Section B (25 Marks)
Global Holdings Ltd acquires 80% of Beta Co on 1 Jan 20X1 for $1,200,000 in cash.
- Beta’s equity at acquisition: $1,000,000
- FV adjustments:
- Inventory +100,000
- PPE –200,000
- Post‑acq to 31 Dec 20X1:
- Profit before FV depreciation: 300,000
- Depreciation on PPE (book basis): 80,000
- Dividends paid: 100,000
- Closing inventory unrealised profit = 20%×100,000 = 20,000
1. Goodwill at Acquisition
| Item | $ |
|---|---|
| Beta’s identifiable net assets @ FV | 1,000,000 +100,000 –200,000 = 900,000 |
| Consideration transferred | 1,200,000 |
| NCI (20%) • Option A (prop’n share) | 0.20×900,000 = 180,000 |
| Goodwill = Consideration + NCI – Net assets | 1,200,000 + 180,000 – 900,000 = 480,000 |
Assumption A: NCI measured at proportionate share of net assets.
Assumption B: If NCI measured at fair value (e.g. share‑price basis), plug in actual FV.
2. Consolidated Retained Earnings (Change)
- Adjust Beta’s profit
- Profit before FV depr: 300,000
- Less depreciation on PPE FV adjustment (200,000 over 10 years) = 20,000
- Less unrealised inventory profit = 20,000
- Adjusted Beta profit = 300,000 – 20,000 – 20,000 = 260,000
- Parent’s share (80%) = 0.80×260,000 = 208,000
- Less parent’s share of dividends = 0.80×100,000 = 80,000
- Net addition to Consolidated RE = 208,000 – 80,000 = 128,000
Consolidated RE at 31 Dec 20X1 = Parent’s RE at acquisition + 128,000
(Parent RE at acquisition taken from its own SOFP.)
3. Non‑Controlling Interest at 31 Dec 20X1
| Item | $ |
|---|---|
| NCI at acquisition | 180,000 |
| + NCI share of adjusted profit (20%) | 0.20×260,000 = 52,000 |
| – NCI share of dividends (20%) | 0.20×100,000 = 20,000 |
| NCI at year-end | 212,000 |
4. SFP Extract (@31 Dec 20X1)
Non-current assets
PPE (net) XXX¹
Goodwill 480,000
Current assets
Inventory XXX²
Equity
Attributable to owners of GH Ltd Parent share of equity at acquisition + 128,000
Non‑controlling interest 212,000
¹ PPE (net) = Beta’s closing PPE book value + (–200,000 FV) – accumulated depr on that FV
² Inventory = Beta’s closing inventory book value – 20,000 unrealised profit
Assumption: You would pull the actual PPE and inventory balances from Beta’s trial balance.
Section C (15 Marks)
Question 15 – Revenue Recognition & Disclosure
a. Five‑Step Model (6 marks)
- Identify the contract with the customer.
- Identify separate performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to each performance obligation based on standalone selling prices.
- Recognise revenue when (or as) each performance obligation is satisfied (i.e. control transfers).
b. Software Licence + Installation/Support (9 marks)
- Identify performance obligations
- Software licence (distinct if usable separately)
- Installation (distinct if customer can benefit separately)
- Ongoing support (distinct over 5 years)
- Estimate standalone selling prices (e.g. licence $350k, install $50k, support $100k = total $500k)
- Allocate the $500k on that ratio:
- Licence = 350/500×500k = 350k
- Installation = 50/500×500k = 50k
- Support = 100/500×500k = 100k
- Revenue recognition
- Licence: at delivery (control transfer)
- Installation: on completion of service
- Support: on a straight‑line basis over 5 years
Assumes no significant financing component and performance obligations are distinct.
Mock Examination 3
Section A (20 Marks)
| Q# | Ans | Explanation |
|---|---|---|
| 1 | b | IFRS 3 requires recognition of all identifiable assets, liabilities and NCI at FV. |
| 2 | d | Right‑of‑use assets tested under IAS 36 at least annually (per IFRS 16.33). |
| 3 | b | Debt instruments with SPPI and held to collect are amortised cost. (IFRS 9.4.1.2) |
| 4 | d | Variable lease payments are not a criterion for finance lease (IFRS 16.B14). |
| 5 | c | Impairment test uses the higher of fair value less costs and value in use (IAS 36.5). |
| 6 | b | Equity‑settled share option cost = 10,000 over vesting (4 years) = 2,500 p.a. |
| 7 | a | DTA recognised only if probable future taxable profits will allow utilisation (IAS 12.24). |
| 8 | b | Assurance-type warranties are not separate performance obligations (IFRS 15.35). |
| 9 | b | Fulfilment cash flows include all policyholder flows + acquisition flows (IFRS 17.32). |
| 10 | a | 60% → subsidiary. The extra 20% is irrelevant once control is achieved. |
| 11 | c | Specific ID not used for homogeneous inventory—FIFO, weighted‑average or retail-method approximation only (IAS 2). |
| 12 | a | Remeasurement of lease liability adjusts the RoU asset one‑for‑one (IFRS 16.36). |
| 13 | b | Change in policy = retrospective unless impracticable (IAS 8.19). |
Section B (25 Marks)
Veritas Plc acquires 75% of Delta Ltd on 1 Apr 20X3 for shares worth $2,500,000.
- Delta equity at acq: $2,000,000
- FV adjustments: Land +500,000 (indefinite), Customer list +300,000 (5‑yr life)
- Post‑acq results to 31 Mar 20X4:
- Profit before amortisation = $600,000
- Amortisation = $60,000
- Dividends paid = $150,000
1. Goodwill
| Item | $ |
|---|---|
| Net assets at FV | 2,000,000 + 500,000 + 300,000 = 2,800,000 |
| Consideration transferred | 2,500,000 |
| NCI (25%) | 0.25×2,800,000 = 700,000 |
| Goodwill | 2,500,000 + 700,000 – 2,800,000 = 400,000 |
Assumption: NCI measured at proportionate share of FV net assets.
2. Consolidated Retained Earnings
- Delta’s net profit = 600,000 – 60,000 = 540,000
- Less dividends = 150,000 → retained profit = 390,000
- Parent’s share (75%) = 0.75×390,000 = 292,500
Consolidated RE at 31 Mar 20X4 = Parent RE at acq + 292,500
3. Non‑Controlling Interest
| Item | $ |
|---|---|
| NCI at acquisition | 700,000 |
| + NCI share of net profit (25%×540k) | 135,000 |
| – NCI share of dividends (25%×150k) | 37,500 |
| NCI at year‑end | 797,500 |
4. SFP Extract (@31 Mar 20X4)
Non-current assets
Land (book + FV) XXX¹
Customer list (net of amort) 300,000 – 60,000 = 240,000
Goodwill 400,000
Equity
Equity attributable to owners Parent equity @acq + 292,500
Non‑controlling interest 797,500
¹ Delta’s closing land per balance + 500k FV uplift (no amort since indefinite life).
Section C (15 Marks)
Question 15 – Impairment & Reversals (IAS 36)
a. Indicators & Steps
- Indicators: market value declines, obsolescence, legal/tech changes, underperformance, internal damage.
- Test steps:
- Identify CGU
- Determine carrying amount
- Calculate recoverable amount = max(FV less costs, VIU)
- Compare and recognise impairment loss in P/L if carrying > recoverable
- Allocate loss first to goodwill, then pro-rata to assets
- Disclose impairment details
b. Recognition
- PPE: Impairment loss → P/L; reversal allowed if recoverable amount rises (up to original carrying amount).
- Goodwill: Impairment only; no reversals permitted (IAS 36.124).
Question 16 – Share‑based Payments (IFRS 2)
a. Cash‑settled vs Equity‑settled
- Equity‑settled: Expense = grant-date fair value; credit equity; no remeasurement.
- Cash‑settled: Liability measured at FV each reporting date; remeasure through P/L.
b. Market‑Conditioned Options
- Grant‑date fair value via a Monte Carlo model that embeds market vesting conditions (e.g. relative TSR hurdles).
- Expense recognition: allocate fair value over vesting period; if condition not met, reverse or adjust expense.
Mock Examination 4
Section A (20 Marks)
| Q# | Ans | Explanation |
|---|---|---|
| 1 | c | Risk adjustment is part of fulfilment cash flows (IFRS 17.32). |
| 2 | d | Future operating losses are not a present obligation (IAS 37.10). |
| 3 | c | Past-service cost for DB plans recognised immediately in P/L (IAS 19.120). |
| 4 | c | Fair‑value model → changes in P/L (IAS 40.35). |
| 5 | b | Eliminate only the unrealised profit on the portion of inventory still held (IFRS 10.22). |
| 6 | c | FVOCI debt: changes in FV to OCI, but impairment and FX in P/L (IFRS 9.5.7.1). |
| 7 | b | DTA only if probable future taxable profits exist (IAS 12.24). |
| 8 | b | Control requires power and returns – even <50% share can be controlling (IFRS 10.7). |
| 9 | a | Depreciation method change = estimate change (prospective) (IAS 8.34). |
| 10 | a | Variable consideration included if probable no significant reversal (IFRS 15.56). |
| 11 | d | Auditor name is not an IFRS 12 required disclosure. |
| 12 | b | Joint ventures are net‑asset arrangements (IFRS 11.6). |
| 13 | b | OCI is outside profit or loss (IAS 1.82). |
Section B (25 Marks)
Orion Ltd 10‑year lease from 1 Jul 20X5, annual payment 100,000 in advance, IBR 6%.
1. Initial Recognition
- Lease liability = PV of an annuity due of 10 payments of 100,000 at 6%
= 100,000 + 100,000×PVIFA(6%,9)
PVIFA(6%,9)≈7.3601 → liability ≈ 100,000 + 736,010 = 836,010 - RoU asset = Lease liability + payment at inception – lease incentives
= 836,010 + 100,000 = 936,010
Assumes no initial direct costs or incentives.
2. First Two Years’ Entries
| Date | Item | Dr ($) | Cr ($) |
|---|---|---|---|
| 1 Jul 20X5 | RoU asset | 936,010 | |
| Lease liability | 836,010 | ||
| Cash (advance payment) | 100,000 | ||
| 30 Jun 20X6 | Depreciation (936,010/10) | 93,601 | |
| Accumulated depreciation – RoU asset | 93,601 | ||
| Interest expense (836,010×6%) | 50,161 | ||
| Lease liability | 50,161 | ||
| Lease liability (payment reversal) | 100,000 | ||
| Cash | 100,000 | ||
| 30 Jun 20X7 | Depreciation | 93,601 | |
| Accumulated depreciation – RoU asset | 93,601 | ||
| Interest expense | 50,161* | ||
| Lease liability | 50,161 | ||
| Lease liability (payment reversal) | 100,000 | ||
| Cash | 100,000 |
* Recalculated on carrying liability after Year 1.
Section C (15 Marks)
Question 15 – Deferred Tax (IAS 12)
a. Recognition & Exceptions (7 marks)
- Recognise DTL on all taxable temp diffs except initial recognition of non‑BCP assets/liabilities and goodwill.
- Recognise DTA on deductible diffs only if probable future taxable profit.
- Exceptions: initial recognition exemption, investment in subsidiary exception.
b. Journal Entries (8 marks)
| Temp. diff | Amount | DTL/DTA @25% |
|---|---|---|
| PPE (taxable) | 200,000 | DTL 50,000 |
| Provisions | (80,000) | DTA 20,000 |
| Tax losses | (50,000) | DTA 12,500 |
Dr Deferred tax expense 17,500
Cr Deferred tax liability 50,000
Dr Deferred tax asset 32,500
Question 16 – Provisions & Contingencies (IAS 37)
a. Criteria (6 marks)
- Provision: present legal/constructive obligation, probable outflow, reliable estimate.
- Contingent liability: possible obligation or no reliable estimate – disclose only.
b. Restructuring Provision (9 marks)
- Recognition: once a detailed formal plan approved and communicated (IAS 37.72).
- Measurement: best estimate of outflows (e.g. employee compensation, site closure).
- Journal:
Dr Restructuring expense X Cr Provision for restructuring X - No future operating losses included. Reassess and adjust if plan changes.
This completes the detailed guidance—answers, workings, IFRS citations, and all key assumptions.