F7 Revision Test

Introduction
This revision test is made up of two documents:
1. This interactive PDF, which will allow you to answer section A and B questions presented in a similar format to
the live exam
2. A
 separate spreadsheet and/or word processing file, which will allow you to answer section C questions
presented in a similar format to the live exam
3. These two documents can be saved and then submitted together for marking.

Some important points to note are as follows:

• These documents cannot replicate the exact functionality of the live exam environment but will provide a similar
exam experience
• The questions are presented in a way which closely mirrors, but is not the same as the live exam
• If you have not done so already, please refer to the full specimen exam and other resources available at
www.accaglobal.com/uk/en/student/exam-support-resources.html
• The full specimen exam has been prepared by ACCA’s examining team and reflects the live exam experience
in terms of its structure, range of questions and functionality, and these resources should be a key part of your
preparation for the exam.

The content for this F7 revision test has been provided by BPP Learning Media.
Instructions
Section A
This section of the exam contains 15 objective test (OT) questions.
Each question is worth 2 marks and is compulsory.
This exam section is worth 30 marks in total.
QUESTION 1
Identify, by clicking on the relevant boxes in the table below, the possible effect of rising prices on the
following items in the financial statements.

Capital employed UNDER STATED OVER STATED

Profits UNDER STATED OVER STATED

QUESTION 2
On 1 September 20X3 Laidlaw factored (sold) $2 million of trade receivables to Finease for an immediate payment
of $1.8 million and further amounts depending on how quickly Finease collects the receivables. Finease will charge
a monthly administration fee and interest on the outstanding balance and any receivables not collected after four
months would be sold back to Laidlaw.

How should Laidlaw account for this factoring arrangement in its financial statements for the year ended 30
September 20X3?

Derecognise the receivables and recognise a loss on disposal of $200,000

Continue to recognise the receivables and treat the $1.8 million received as a loan
Continue to recognise the receivables and treat the $1.8 million as deferred income
Derecognise the receivables and make a provision for the loss of $200,000

QUESTION 3
Which TWO of the following ratios are most likely to provide a bank with information about a potential
client’s ability to make repayments on a loan?

Asset turnover
Gearing
Interest cover
ROCE
Gross profit margin
EPS
QUESTION 4
Penfold uses several properties that are leased under operating leases.
Identify, by clicking on the relevant boxes in the table below, how the ratios would be affected if the
properties were instead treated as finance leases.

ROCE INCREASE DECREASE

Gearing INCREASE DECREASE

QUESTION 5
Raycroft operates a nuclear power station. The power station is due to be decommissioned on
31 December 20X8 but will be fully operational up to that date. It has been estimated that the cost of
decommissioning the power station and cleaning up any environmental damage, as required by legislation, will
be $60 million. Raycroft recognised a provision for the present value of this expenditure at 31 December 20X0. A
suitable discount rate for evaluating costs of this nature is 12%, equivalent to a present value factor after eight years
of 0.404. The decommissioning cost will be depreciated over eight years.

What is the total charge to profit or loss in respect of this provision for the year ended 31 December 20X1?

$2,880,800
$3,030,000
$5,938,800
$7,500,000

QUESTION 6
On 1 December 20X4 Scaffold acquired 80% of the 3,000,000 issued ordinary shares of Plank. The consideration
for each share acquired comprised a cash payment of $1.20 and two ordinary shares in Scaffold. The market value
of a $1 ordinary share in Scaffold on 1 December 20X4 was $1.50, rising to $1.60 by the entity’s year end on 31
December 20X4. Professional fees paid to Scaffold’s external accountants and legal advisors in respect of the
acquisition were $400,000.

At what amount would the investment in Plank be recorded in the entity financial statements of Scaffold for
the year ended 31 December 20X4?

$
QUESTION 7
Where the purchase price of an acquisition is less than the aggregate amount of the non-controlling interest plus
fair value of net assets acquired, IFRS 3 requires that the value of the assets acquired and liabilities assumed
be reassessed. If no change is made as a result of this reassessment, how should the difference be treated?

Deduct from goodwill in the consolidated statement of financial position

Recognise immediately as a gain in other comprehensive income
Recognise in profit or loss over its useful life
Recognise immediately as a gain in profit or loss

QUESTION 8
Ravenscroft is closing one of its production facilities and satisfies the requirements for a restructuring provision.
The facility has 250 employees. 50 will be retrained and deployed to other subsidiaries; the remainder will accept
redundancy and be paid an average of $5,000 each. Plant has a carrying amount of $2.2 million but is only
expected to sell for $500,000, incurring $50,000 of selling costs. The facility itself is expected to sell for a profit of
$1.2 million.

What amount should be provided for restructuring?

QUESTION 9
Which TWO of the following items would qualify for treatment as a change in accounting estimate according
to IAS 8 Accounting policies, changes in accounting estimates and errors?

Provision for obsolescence of inventory

Correction necessitated by a material error
A change of inventory valuation from FIFO to weighted average
A change in the useful life of a non-current asset

QUESTION 10
Pisces has an asset carried at $6.5 million in its statement of financial position at 31 December 20X2. The present
value of the cash flows which the asset will generate for the rest of its useful life is $5.8 million. The current cost of
an identical asset of the same age is $6.1 million. Pisces has received an offer of $6.2 million for the asset. The cost
of dismantling the asset and transporting it to the customer would be $200,000.

At what amount should the asset be recognised in the statement of financial position at 31 December 20X2?

$
QUESTION 11
The components of the cost of a major item of equipment are given below:
$
Purchase price 780,000
Import duties 117,000
VAT (refundable) 78,000
Site preparation 30,000
Installation 28,000
Testing 10,000
Initial losses before asset reaches planned performance 50,000
Discounted cost of dismantling and removal at end of useful life 40,000
1,133,000

What amount should be recognised as the cost of the asset in accordance with IAS 16 Property, plant
and equipment?

QUESTION 12
Which one of the following would be included in the cost of inventories of goods for resale in accordance
with IAS 2 Inventories?

Storage costs
Administrative overheads
Import duties
Selling costs

QUESTION 13
The following information relates to the position at 31 March 20X9 of a contract where performance obligations are
satisfied over time.
$
Contract price 900,000
At 31 March:
Costs to date 720,000
Estimated costs to complete 480,000
Progress payments invoiced 400,000
Percentage complete 60%

What amount should appear as ‘contract asset/liability’ in respect of this contract in the statement of
financial position as at 31 March 20X9?

Select: $220,000 contract liability

QUESTION 14
On 1 January 20X3 Wincarnis purchased 30,000 $1 shares in a listed entity for $5 per share. Transaction costs were
$2,000 and Wincarnis elected to recognise the shares at fair value through profit or loss. At the year end of 31
December 20X3 the shares were trading at $6.50.

At what amount will the shares be recognised in the statement of financial position of Wincarnis at 31
December 20X3?

QUESTION 15
A company’s statement of profit or loss showed a profit before tax of $1.8 million. After the end of the reporting
period and before the financial statements were authorised for issue, the following events took place.
(i) Six weeks after the year end, the value of an investment held at the year end fell by $85,000.
(ii) A customer who owed $116,000 at the year end went bankrupt owing a total of $138,000.
(iii) Inventory valued at $161,000 in the statement of financial position was sold in year-end condition for $141,000.
(iv) Assets with a carrying amount at the year end of $240,000 were unexpectedly expropriated by the government.

What is the company’s profit before tax after making the necessary adjustments for these events?

$
Section B
This section of the exam contains three OT cases.
Each OT case contains a scenario which relates to five OT questions.
Each question is worth 2 marks and is compulsory.
This exam section is worth 30 marks in total.
THE FOLLOWING SCENARIO RELATES TO QUESTIONS 16-20.
On 1 April 20X3, Polestar acquired 75% of the 12 million 50 cent equity shares of Southstar. Southstar had been
experiencing difficult trading conditions and making significant losses. Its retained earnings at the acquisition date
were $14.3 million. In allowing for Southstar’s difficulties, Polestar made an immediate cash payment of only £1.50
per share. In addition, Polestar will pay a further amount in cash on 30 September 20X4 if Southstar returns to
profitability by that date. The value of this contingent consideration at the date of acquisition was estimated to be
$1.8 million, but at 30 September 20X3 in the light of continuing losses, its value was estimated at only $1.5 million.
The contingent consideration has not been recorded by Polestar. Overall, the directors of Polestar expect the
acquisition to be a bargain purchase leading to negative goodwill.
At the date of acquisition shares in Southstar had a listed market price of $1.20 each.
The statements of profit or loss of both companies are as follows.

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 30 SEPTEMBER 20X3

Polestar Southstar
$’000 $’000
Revenue 110,000 66,000
Cost of sales (88,000) (67,200)
Gross profit (loss) 22,000 (1,200)
Distribution costs (3,000) (2,000)
Administrative expenses (5,250) (2,400)
Finance costs (250) –
Profit (loss) before tax 13,500 (5,600)
Income tax (expense)/relief (3,500) 1,000
Profit (loss) for the year 10,000 (4,600)

The following information is relevant:

(i) A
 t the date of acquisition, the fair values of Southstar’s assets were equal to their carrying amounts with the
exception of a leased property. This had a fair value of $2 million above its carrying amount and a remaining
lease term of ten years at that date. All depreciation is included in cost of sales.
(ii) Polestar transferred raw materials at their cost of $4 million to Southstar in June 20X3. Southstar processed all
of these materials incurring additional direct costs of $1.4 million and sold them back to Polestar in August 20X3
for $9 million. At 30 September 20X3 Polestar had $1.5 million of these goods still in inventory. There were no
other intragroup sales.
(iii) Polestar’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose,
Southstar’s share price at that date can be deemed to be representative of the fair value of the shares held by
the non-controlling interest.
(iv) All items in the above statements of profit or loss are deemed to accrue evenly over the year unless
otherwise indicated.

QUESTION 16
What was the fair value of Southstar’s net assets at the acquisition date?

$20 million
$17.7 million
$24.6 million
$22.3 million
QUESTION 17
Calculate the consolidated revenue for the year ended 30 September 20X3.

QUESTION 18
The estimated value of the contingent consideration has fallen from $1.8m to $1.5m.

How should this be accounted for?

liability
DR

CR liability

QUESTION 19
What is the amount of the adjustment to profit attributable to the non-controlling interest in respect of
unrealised profit?

QUESTION 20
Polestar measures the non-controlling interest in Southstar at fair value. Which one of the following applies
when non-controlling interest is measured at fair value?

The non-controlling interest will be allocated their share of any negative goodwill
The non-controlling interest will be allocated the whole of the pre-acquisition profits
The non-controlling interest will be allocated their share of any goodwill impairment
If the subsidiary’s share price falls, the non-controlling interest will be adjusted
THE FOLLOWING SCENARIO RELATES TO QUESTIONS 21-25.
Elite Leisure is a private limited liability company that operates a single cruise ship. The ship was acquired on
1 October 20W6 (ten years before 20X6). Details of the cost of the ship’s components and their estimated useful
lives are:
Component Original cost ($ million) Depreciation basis
Ship’s fabric (hull, decks etc) 300 25 years straight–line
Cabins and entertainment area fittings 150 12 years straight–line
Propulsion system 100 Useful life of 40,000 hours

At 30 September 20X4 no further capital expenditure had been incurred on the ship.
In the year ended 30 September 20X4 the ship had experienced a high level of engine trouble which had cost the
company considerable lost revenue and compensation costs. The measured expired life of the propulsion system at
30 September 20X4 was 30,000 hours. Due to the unreliability of the engines, a decision was taken in early October
20X4 to replace the whole of the propulsion system at a cost of $140 million. The expected life of the new propulsion
system was 50,000 hours and in the year ended 30 September 20X5 the ship had used its engines for 5,000 hours.
At the same time as the propulsion system replacement, the company took the opportunity to do a limited
upgrade to the cabin and entertainment facilities at a cost of $60 million and repaint the ship’s fabric at a cost of
$20 million. After the upgrade of the cabin and entertainment area fittings it was estimated that their remaining life
was five years (from the date of the upgrade). For the purpose of calculating depreciation, all the work on the ship
can be assumed to have been completed on 1 October 20X4. All residual values can be taken as nil.

QUESTION 21
At 30 September 20X4 the ship is 8 years old. What is the carrying amount of the ship at that date?

$279m
$275m
$229m
$254m

QUESTION 22
What is the amount of depreciation that should be charged in respect of the propulsion system for the year
ended 30 September 20X5?

$14m
$39m
$17.5m
$16.5m

QUESTION 23
Apart from depreciation, what is the total charge to profit or loss for the year ended 30 September 20X5?

$
QUESTION 24
Elite Leisure’s ship has to have a safety check carried out every five years at a cost of $50,000 in order to be
licensed to operate. How should this be accounted for?

Set up a provision for the discounted present value and unwind over five years
Accrue the cost of the check over five years until it takes place
Charge $50,000 to profit or loss when incurred
Capitalise the cost when incurred and amortise over five years

QUESTION 25
Elite Leisure is being sued for $250,000 by a passenger who slipped on one of the gangways and twisted an
ankle. The company’s lawyer estimates that there is a 55% chance that it will lose the case. Legal costs for
Elite Leisure will be $40,000. What amount should Elite Leisure provide in respect of this case?

$137,500
$290,000
$177,000
$159,500
THE FOLLOWING SCENARIO RELATES TO QUESTIONS 26-30.
Pinto is a publicly listed company. The following financial statements of Pinto are available:
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR YEAR ENDED 31 MARCH 20X8
(extract)
$’000
Profit before tax 440
Income tax expense (160)
Profit for the year 280
Other comprehensive income
Gains on property revaluation 100
Total comprehensive income 380

STATEMENTS OF FINANCIAL POSITION AS AT

31 March 20X8 31 March 20X7
$’000 $’000 $’000 $’000
Non-current assets (note (i))
Property, plant and equipment 2,880 1,860
Investment property 420 400
3,300 2,260
Current assets
Inventory 1,210 810
Trade receivables 480 540
Income tax asset nil 50
Bank 10 1,700 nil 1,400
Total assets 5,000 3,660

Equity and liabilities

Equity shares of 20 cents each (note (iii)) 1,000 600
Share premium 600 nil
Revaluation reserve 150 50
Retained earnings 1,440 2,190 1,310 1,360
3,190 1,960
Non-current liabilities
6% loan notes (note (ii)) nil 400
Deferred tax 50 50 30 430
Current liabilities
Trade payables 1,410 1,050
Bank overdraft nil 120
Warranty provision (note (iv)) 200 100
Current tax payable 150 1,760 nil 1,270
Total equity and liabilities 5,000 3,660

The following supporting information is available:

(i) An item of plant with a carrying amount of $240,000 was sold at a loss of $90,000 during the year. Depreciation
of $280,000 was charged (to cost of sales) for property, plant and equipment in the year ended 31 March 20X8.
Pinto uses the fair value model in IAS 40 Investment property. There were no purchases or sales of investment
property during the year.
(ii) A dividend of 3 cents per share was paid on 1 January 20X8.
(iii) $60,000 was included in Pinto’s profit before tax for the year ended 31 March 20X8 in respect of income and
gains on investment property.

You are preparing a statement of cash flows for Pinto for the year to 31 March 20X8.
QUESTION 26
What is the amount of tax that Pinto either received or paid during the year?

Select: $60,000 paid

QUESTION 27
Pinto has spent $1,440,000 on purchase of plant. What is the net cash used in investing activities?

QUESTION 28
What was the amount of the dividend paid on 1 January 20X8?

$150,000
$300,000
$240,000
$120,000

QUESTION 29
Indicate, by clicking on the relevant boxes, whether dividends paid can be shown under the following
classifications in the statement of cash flows.

Operating activities CAN BE SHOWN CANNOT BE SHOWN

Investing activities CAN BE SHOWN CANNOT BE SHOWN

Financing activities CAN BE SHOWN CANNOT BE SHOWN

QUESTION 30
Which one of the following items will not be adjusted against Pinto’s profit before tax in arriving at net cash
from operating activities?

The early redemption penalty

The proceeds from sale of plant
The increase in the warranty provision
The investment income
Section C
Please now refer to the separate spreadsheet and/or word processing file to complete Section C questions.