Course Code: ACCT6102
Course Title: Advanced Financial Accounting
Date: August 15, 2025
Duration: 2 Hours

Section A
(20 Marks)
Answer all the questions in this section.
(in the answer booklet)

1. Which of the following would not be classified as a financial instrument?

a) Trade receivables
b) Preference shares
c) Trade payables
d) Inventory

2. Zara owns two financial asset investments in shares in listed companies. Details of which are as follows:
   Investment 1 Acquired May 15, 2024, at a cost of $50,000 for the purpose of trading. Its fair value at year end is $65,000.
   Investment 2 Acquired August 2024, at a cost of $40,000 to be held indefinitely. Its fair value at year end is $30,000.
   What are the amounts to appear in the financial statements for the year ended September 30, 2024?

a) SOFP $95,000
b) SOFP $10,000 loss
c) SOFP $95,000 SOPL $15,000 Gain SOCI $10,000 loss
d) SOFP $95,000 SOPL $0 SOCI $5,000 Gain

3. TechCorp bought 80,000 shares in a listed entity on April 10, 2024 for $350,000, incurring transaction costs of $8,000. The shares were not acquired for trading but to realise gains in the future. On July 31, 2024 the reporting date of the entity, the fair value of a share was $4.80.
   What are the amounts to appear in the financial statements for the year ended July 31, 2024?

a) SOFP $384,000 SOPL $26,000 Gain SOCI $0
b) SOFP $358,000 SOPL $26,000 Gain SOCI $0
c) SOFP $384,000 SOPL $26,000 Gain SOCI $26,000 loss
d) SOFP $358,000 SOPL $0 SOCI $26,000 Gain

4. Vega Ltd. issues a 6% $7-million convertible bond at January 1, 2024, at par value. The bond is redeemable at par on December 31, 2026, or can be converted at that date to one ordinary share for every $100 of bonds held. The market rate of interest on similar debt without the conversion option is 8%. The present value factors are: PV of $1 at 8% for 3 years = 0.794; annuity factor for 3 years at 8% = 2.577.
   What is the equity component of the convertible bond?

a) $1,200,000
b) $1,050,000
c) $950,000
d) $800,000

5. In which of the following is the net realizable value of a line of inventory likely to be less than cost?

a) The design of the gadgets in inventory is outdated from the previous season.
b) The products in storage have been unused and gathering dust for over 8 months.
c) The company has decided to discontinue production of this item.
d) A lawsuit has been filed by a client claiming damages from using the product.

6. Which of the following statements about inventory valuation for Statement of Financial Position purposes are correct?

1. According to IAS 2 Inventories, average cost and FIFO are both acceptable methods of arriving at cost of inventories.
2. Inventories of finished goods may be valued at labour and materials costs only, without including overheads.
3. Inventories should be valued at the lowest of cost, net realizable value, and replacement cost.
4. It may be acceptable for inventories to be valued at a selling price less estimated profit margin.

a) Statements 1 and 3
b) Statements 2 and 4
c) Statements 3 and 4
d) Statements 1 and 4

7. Which of the following is a change of accounting policy?

a) Adjusting the financial statements of a subsidiary prior to consolidation where the subsidiary year end is not the same as the parent’s.
b) Switching the valuation of year-end inventory from variable costing to full costing.
c) Lowering the value of trade receivables after learning in the new period that a major customer has gone insolvent.
d) Using perpetual inventory records to value stock instead of annual physical counts as in previous years.

8. How is a gain or loss arising on biological assets recognized in accordance with IAS 41?

a) Included in profit and loss for the year.
b) Shown under other comprehensive income.
c) Adjusted in retained earnings.
d) Deferred and recognised over the life of the biological asset.

9. A $5.2 million loan at 7% interest was drawn on February 1, 2024, to build a facility. Work started on June 1, 2024 and will last 18 months. $1.2 million of the loan was idle until November 1, 2024, invested at 5% per annum. At December 31, 2024, the borrowing cost to be capitalised is.

a) $145,000
b) $210,000
c) $195,000
d) $280,000

10. Spark & Co has a current ratio of 1.1:1, below industry norms. Which action can improve the ratio?

a) Return cash-bought stock for a full refund at cost.
b) Buy more inventory in bulk with cash for discounts.
c) Pay a supplier early before due date.
d) Provide discounts for faster receivable collection.

11. A business merger differs from a business consolidation because

a) a merger dissolves all but one prior entity, while a consolidation dissolves all and creates a new one.
b) a consolidation keeps one entity, but a merger dissolves all.
c) a merger involves two entities, consolidation more than two.
d) a consolidation involves two entities, merger more than two.

12. Per the business combination concept, a combination occurs when a company gains equity in another and has

a) at least 20% ownership.
b) more than 50% ownership.
c) 100% ownership.
d) control, regardless of percentage.

13. The following details for a vehicle at Nova Ltd year end April 2025: Carrying amount $120,000; market value $90,000; disposal costs $6,000. New vehicle cost $170,000. Net cash flows expected over 4 years $35,000 per year. Cost of capital 9%. Impairment loss is:

a) $32,150
b) $24,000
c) $36,000
d) $30,000

Section B
Question 14 Compulsory Question
On March 15, 2024, Apex acquired 75% of North’s equity shares via a share exchange of four shares in Apex for every five North shares acquired. Additional consideration: $150 5% loan note per 400 North shares. Neither consideration nor interest to September 30, 2024 recorded by Apex. Acquisition share prices: Apex $5, North $3. The summarised statements of financial position of the two companies as at September 30, 2024 are:

Relevant information:
i. At acquisition, North’s assets fair value equal carrying except plant $4,000,000 above book, expected life 4 years, straight-line depreciation.
ii. Apex values NCI at fair value using North’s share price.
iii. Trading partners; North inventory includes $2,500,000 from Apex (30% markup on cost). Apex inventory $1,500,000 from North (30% markup).
iv. Receivable from North $3,000,000 in Apex books matches North’s payable.
v. Investment in Bex: 25% voting, equity accounted. Bex profit $5,000,000, dividends $1,500,000; share of dividend in investment income.
vi. Profits/losses accrued evenly.
vii. Group impairment $1,500,000 from market issues. Required:
i) Compute the Goodwill amount. (8 marks)
ii) Compute the Consolidated Retained Earnings (5 marks)
iii) Compute the non-controlling interest. (2 marks)
iv) Prepare the consolidated statement of financial position for Apex Co as at September 30, 2024. (10 marks)
(25 MARKS)

Section C
Answer only one question from this section.

Question 15
Dynamic Traders Ltd operates retail outlets for various goods in urban and rural areas. Competitive market, uses bank overdraft, good creditor relations. Three-year financial statements below. Income Statement ($’000)

Statement of Financial Position ($’000)

Other information:
i) Other interest-bearing borrowings are secured by floating charge, repayment due 2026.
ii) Dividend of $25 million proposed.
iii) Credit sales increased approximately 70% over three years. Required:
The bank requests a report on the company’s financial performance over the past three years. Prepare the report, including applicable ratios in your analysis. (15 marks)

Question 16
This question has two parts: Part A and Part B.

Part A
A statement showing the retained profit of Storm Co Limited for the year ended November 30, 2024, is set out below.

Required: Analyze the retained profit statement, explaining any potential adjustments or implications under IAS 8 or other standards. (10 marks)

Part B
Serene Ltd is a Not-for-Profit Entity which received contributions after a natural disaster through donor transfers of cash, long-lived assets, gifts in kind, securities, use of facilities, promises, and contributions. Required:
i) Distinguish between Conditional Promises to Give and Unconditional Promises to Give. How should they be accounted for and recognized? (5 marks)
ii) How should gifts of long-lived assets be recognized and accounted for where there are restrictions versus no restrictions placed by the donor. (5 marks)
(15 marks) END OF QUESTION PAPER