Global Mock Examination 5-7 – Solution Guide

Section A (20 Marks)

Q#	Answer	Explanation & Assumptions
1	d	IAS 1 primary statements are: Statement of financial position, Statement of profit or loss, Statement of other comprehensive income, Statement of changes in equity, and Statement of cash flows. “Statement of capital contributions” is not one. Assumes full IFRS presentation.
2	b	IAS 2 permits FIFO, weighted‑average and specific identification. LIFO is prohibited. Assumes inventory is homogenous for weighted‑average; specific ID only where items are distinct.
3	b	IFRS 9 business‑model test distinguishes “hold to collect cash flows” vs “hold to collect & sell” vs “trading”. Assumes SPPI test is met.
4	a	IFRS 7 requires disclosure of the fair‑value hierarchy (Levels 1–3) for financial instruments. Assumes material financial instruments exist.
5	c	IAS 39 allowed designation at FVTPL on initial recognition or if embedded derivative. Assumes transitional provisions met.
6	d	IAS 16 revaluation: all items in a class must be revalued together, and fair value must be reliably measurable. Assumes active market exists for PPE.
7	c	IAS 36 impairment test triggered by external indicators (e.g. market value decline) and carried out when carrying > recoverable. Assumes indicators exist.
8	a	IAS 23 allows capitalisation of borrowing costs that directly relate to acquisition/construction of a qualifying asset. Assumes qualifying asset definition met.
9	c	IAS 38: internally generated goodwill and brand names are not recognized; purchased patents (separate transaction) are recognized as intangibles. Assumes patents were acquired separately.
10	c	IAS 40 permits either the cost model or the fair value model for investment property. Assumes entity’s policy election.
11	a	IAS 12: DTA on deductible temporary differences recognized only if probable future taxable profits will be available. Assumes no other tax planning opportunities.
12	d	IAS 17 finance lease criteria included any of the listed conditions (transfer of ownership, lease term covers major life, PV payments ≈ FV). Assumes lease meets any criterion.
13	a	IAS 37: a provision is recognized when a present obligation exists, outflow is probable, and amount can be reliably estimated. Assumes reliable estimate available.

Section B (25 Marks)

Inventory & Impairment Case – Moonlight Ltd @ 31 Mar 2024

• Raw materials: cost 300 000; NRV 280 000
• WIP: cost 450 000; NRV 470 000
• PPE carrying 2 000 000; recoverable amount 1 800 000

1. Inventory Valuation

• Raw materials at lower of cost/NRV = 280 000 (write-down 20 000)
• WIP at cost = 450 000 (NRV > cost)
• Total inventory = 280 000 + 450 000 = 730 000

2. PPE Impairment

• Carrying amount 2 000 000
• Recoverable amount 1 800 000
• Impairment loss = 200 000

3. Journal Entries

Dr Inventory write‑down expense      20 000  
  Cr Inventory                         20 000  

Dr Impairment loss on PPE           200 000  
  Cr Accumulated impairment – PPE     200 000  

Assumptions: write-down and impairment recognised in profit or loss; no deferred tax considered.

Section C (15 Marks)

Question 15 – Employee Benefits (IAS 19)

a. Short‑term vs Post‑employment benefits (6 marks)

• Short‑term: expected settlement within 12 months (wages, paid leave); recognized as expense when service rendered.
• Post‑employment: benefits payable after employment (pensions); defined contribution vs defined benefit.

b. Defined Benefit Plan Accounting (9 marks)

1. Measure present value of defined benefit obligation (discount rate, salary growth assumptions).
2. Measure fair value of plan assets.
3. Recognize net defined benefit liability (asset) on balance sheet.
4. Recognize service cost (current + past‑service) and net interest in P/L.
5. Recognize remeasurements (actuarial gains/losses, return on assets) in OCI (no recycling).
6. Disclose key assumptions, sensitivity, funding policy in notes.

Assumptions: IFRS Employee Benefits model; no multi‑employer plan.

---

Mock Examination 6 – Solution Guide

Section A (20 Marks)

Q#	Answer	Explanation & Assumptions
1	c	IAS 36 impairment test uses higher of fair value less costs and value in use. Assumes both measurable.
2	a	IAS 33 requires disclosure of both basic and diluted EPS. Assumes potential dilutive instruments exist.
3	b	IAS 11 (superseded) recognised contract revenue by percentage of completion. Assumes reliable progress measurement.
4	b	IFRS 3 acquisition method requires identifiable net assets at fair value. Assumes provisional values acceptable.
5	d	Changing from equity to FV for an associate requires reclassification adjustments through P/L. Rare election scenario.
6	c	IAS 28 equity method recognises investor’s share of profit/loss and OCI. Assumes significant influence.
7	d	Contingent consideration can be measured at acquisition FV or present value of expected payment. Assumes IFRS 3 fair‑value measurement.
8	d	On consolidation eliminate intercompany receivables/payables, unrealised profits, and parent’s investment vs subsidiary equity. Subsidiary’s PPE at book remains. Assumes no fair‑value uplift on PPE.
9	a	IAS 10 adjusting events provide evidence of conditions existing at year end. Assumes legal confirmation of conditions.
10	c	IAS 24 requires disclosure of KMP compensation and related‑party transactions. Assumes such relationships exist.
11	b	Pooling-of-interests under old IFRS (no longer permitted) eliminates goodwill against equity. Historical context.
12	c	IAS 12 DTL/ DTA on share‑based payments recognized in equity when related to equity‑settled transactions. Assumes equity‑settled scheme.
13	b	IFRS 3 requires acquisition costs to be expensed as incurred. Assumes post‑2010 IFRS.

Section B (25 Marks)

Consolidation Case – Alpha Plc & Beta Ltd @ 31 Dec 20X4

• Acquisition: 70% for \$5 000 000; Beta’s equity 6 000 000
• FV adj: Patents +1 000 000 (10‑yr), Land +500 000 (indefinite)
• Post‑acq: Profit 800 000; Dividends 200 000; Patent amort 100 000

1. Goodwill

Net assets @ FV	6 000 000 + 1 000 000 + 500 000 = 7 500 000
Consideration	5 000 000
NCI (30% × 7 500 000)	2 250 000
Goodwill	5 000 000 + 2 250 000 – 7 500 000 = (250 000)

Negative goodwill – immediate gain of 250,000 in P/L per IFRS 3.
Assumes NCI at proportionate FV.

2. Consolidated Retained Earnings

• Beta net profit = 800 000 – 100 000 = 700 000
• Less dividends = 200 000 → retained = 500 000
• Parent’s share (70%) = 350 000 → add to Parent RE

3. Non‑Controlling Interest

NCI @ acq	2 250 000
+ NCI share of profit (30% of 700 000)	210 000
– NCI share of dividends (30% of 200 000)	60 000
NCI @ year‑end	2 400 000

4. SFP Extract (@ 31 Dec 20X4)

• Patents (net) = 1 000 000 – 100 000 = 900 000
• Land = Book + 500 000 uplift
• Goodwill = negative (gain) recognized in P/L
• NCI = 2 400 000
• Equity attributable to owners = Parent’s opening equity + 350 000 – gain on bargain purchase

Section C (15 Marks)

Question 15 – Business Combinations (IFRS 3)

a. Acquisition Method Steps (6 marks)

1. Identify acquirer
2. Determine acquisition date
3. Recognize & measure identifiable net assets at FV
4. Measure consideration transferred at FV & recognize any NCI at FV or proportionate share
5. Measure contingent consideration at FV at acq date
6. Recognize goodwill or gain from bargain purchase

b. NCI & Contingent Consideration (9 marks)

• NCI: can be measured at FV (full goodwill) or proportionate share of net assets.
• Contingent consideration: measured at FV at acq date; subsequent changes recognized in P/L (unless asset or liability classification requires otherwise).
• Disclose significant judgements, measurement methods, and sensitivity to key assumptions.

---

Mock Examination 7 – Solution Guide

Section A (20 Marks)

Q#	Answer	Explanation & Assumptions
1	b	IAS 41 measures biological assets at fair value less costs to sell. Assumes active market.
2	d	IAS 20 allows presentation of grants related to assets as deferred income or deduction from asset’s carrying amount. Assumes consistent policy.
3	b	IFRS for SMEs applies to eligible NFPs; full IFRS reserved for public interest entities. Assumes SME criteria met.
4	a	DCF requires estimating future free cash flows and an appropriate discount rate. Assumes reliable forecasts.
5	b	Pooling-of-interests eliminates goodwill by offset to equity (historical IFRS). Now prohibited.
6	b	Software FS: import TB, map GL accounts, adjust entries, generate reports. Assumes capable ERP.
7	b	IAS 41 measure produce at NRV at point of harvest. Assumes harvest timing known.
8	a	IAS 36 allows reversal of impairment for assets other than goodwill when recoverable amount increases. Assumes prior impairment existed.
9	a	Environmental liabilities recognized when a present legal or constructive obligation exists and outflow is probable (IAS 37). Assumes obligation present.
10	a	Multiples method uses P/E, EV/EBITDA, etc. Assumes comparable companies available.
11	b	Control of SPE under IFRS 10 based on power and returns, not just voting rights. Assumes de facto control.
12	a	Audit trail functions record every change to records. Assumes system supports audit logging.
13	c	IFRS 7 liquidity risk disclosures include maturity analysis and concentration of funding. Assumes material funding risks.

Section B (25 Marks)

Agricultural & NFP Case – GreenFields Co‑op

• Biological assets FV 500 000; cost 300 000
• Produce at harvest NRV 150 000
• Gov’t grant 200 000 to purchase equipment

1. Biological Assets & Produce (IAS 41)

• Recognize biological assets at FV less costs to sell: 500 000
• Gain on growth = 500 000 – 300 000 = 200 000 (P/L)
• On harvest, derecognize biological asset and recognize inventory at NRV: 150 000

2. Government Grant (IAS 20)

• Grant related to asset: present as deduction from asset’s carrying amount
• Equipment cost XXX – 200 000; no income statement impact

3. Accounting Software Process

1. Enter FB closing trial balance into system.
2. Record FV revaluation entry for biological assets and grant deduction in fixed assets module.
3. Record harvest journal: Dr Inventory 150 000 / Cr Biological assets 150 000.
4. Run P/L and BS reports including revaluation adjustments and grant presentation.

Assumes software supports revaluation and grant modules.

Section C (15 Marks)

Question 15 – Business Valuation Methods

a. Compare DCF vs Multiples (8 marks)

• DCF: forecasts cash flows; discounts at WACC; sensitive to assumptions; reflects time value.
• Multiples: uses market comparables; quick; reflects current market sentiment; less detailed.

b. Advantages & Limitations (7 marks)

• DCF advantages: detailed, forward‑looking; limitations: assumption‑heavy, sensitive to inputs.
• Multiples advantages: market‑based, easy; limitations: comparability issues, cyclical biases.