AC2530 FINANCIAL ACCOUNTING 2

SECTION A (Compulsory question: Answer ALL parts)

1.1. List at least three characteristics of a Partnership? (3 Marks)

1.2. When should an item of Property, Plant, and Equipment be recognised in the financial statements? (5 Marks)

1.3. List four of the main principles of the UK corporate governance code? (4 Marks)

1.4. Explain the difference between a finance lease and operating lease? (2 Marks)

1.5. In relation to IAS 38 Intangible: Differentiate between research expenditure and development expenditure and explain the accounting treatment required by IAS 38 in relation to each of these types of expenditure. (4 Marks)

1.6. Explain each of the following terms, which are defined in IAS 7:

(a) investing activities,

(b) financing activities,

(c) operating activities. (3 Marks)

1.7. List the 5 steps that are mentioned in IFRS 15 for the measurement and recognition of revenue arising from contracts with customers. (5 Marks)

1.8. A Canadian company purchased a secondhand machine which had cost $ 25,000 when new from the US. The initial quoted price of the machine was $20,000 but a further 10% trade discount and $1,000 early settlement discount were offered. The transportation costs to Toronto were $250 and installation costs amounted to $750. Minor parts amounting to $1,000 were also purchased from the supplier. Once installed, it was found that it was not working properly and had to be repaired at a cost of a further $1,250. After 6 months, the machine broke down again, and was repaired at a cost of $1,500.

Required

Calculate the capitalized cost of the machine. (5 Marks)

1.9. A piece of equipment was purchased on 1/1/2017 for $50,000 and subsequently sold on 31/12/2020 for $20,000. Depreciation is calculated on straight line basis. At the time of acquisition, the expected useful life is 5 years, and the residual value is $6,000.

Required

Calculate the Gain/Loss on disposal and list the related journal entries. (7 Marks)

1.10. Briefly explain the “Agency Problem”? (2 Marks)

Section B

Answer Two Questions from Section B

Question 2

The International Accounting Standards Board (IASB) is controlled and funded by The International Financial Reporting Standards foundation. Discuss the following:

A. The principle objectives of the IFRS foundation (8 Marks)

B. The stages in the IASB standard setting process (16 Marks)

C. The structure of an IAS/IFRS (6 Marks) Total Marks (30 Marks)

Question 3

The following information is for Jasmine plc income statement for 2018 and statement of financial position 2018 and 2017

Included in Operating and Administrative Expenses are:

Depreciation £20,000

Loss on disposal £5,000

New Machinery Purchased during 2017 £50,000

Required

Prepare cash flow statement for the year ended 31 December 2018. Total Marks (30 Marks)

Question 4

Part A

Angela Hearing Ltd acquired a specialist audiometer on 1 April 2013 by means of a finance lease. The fair value of the asset on that date was £20,000 and the terms of the lease are that Capital Hearing Ltd is required to make six half-year payments in advance of £3,837. The rate of interest implicit in the lease is 6% per half-year.

Required

Assuming that the actuarial method is used to allocate charge over the lease term, show the effects of this lease on the statement of comprehensive income and statement of financial position of Angela Hearing Ltd. For each of the years to 31 March 2014, 2015 and 2016. Extract entries only are required. (12 Marks)

Part B

On 1 January 2013, Phillipe Ltd. took delivery of a new machine from Equipment solutions Ltd. On a finance lease. The terms of the lease are as follows:

The estimated useful life of the machine is five years, with nil residual value. At the end of the primary lease term the expected residual value is £2,500 and Steve Ltd can retain all of these proceeds. Steve Ltd provides for depreciation on a straight-line basis.

Required

Show the effect of this lease on the statements of comprehensive income and statements of financial position of Steve for the four years to 31 December 2016, under the following headings:

1) Lease Creditor

2) Finance Charge

3) Depreciation Charge (18 Marks)

Total Marks (30 Marks)

Question 5

Part A

A 12-month telephone plan with mobile operator XYZ has the following options and terms:

• Monthly fee of £200 (£2400 for contract) includes ‘free’ handset when contract is signed.

• ABC also sells the same handset for £600 (standalone price)

• A contract with no handset sold for £160 per month. Required

a) Calculate the amount of revenue to be recognised for each performance obligation.

i) The delivery of the phone itself

ii) The monthly change for the contract. (10 Marks)

b) List the journal entries associated with this contract. (10 Marks)

Part B

Fredrik and Jackline are partners in a retail business in which they share profits and losses equally. The balance on the partners’ capital and current accounts at the year-end 31 December 2016 were as follows

During 2017, Fredrik had drawings amounting to £ 7,250 and Jackline 11,750. Fredrik was to receive a partnership salary of £2,250 for extra duties undertaken. The net profit of the partnership, before taking any of the above into account was £33,000.

Required: Show the partners’ capital and current accounts for the year ended 31st December 2017. (10 Marks)

Total Marks (30 Marks)