MOCK-EXAM 2023/24

1. Please identify the components of a complete set of financial statements and

explain the general features of them (Please short explanations!) (5 p.)

2. 1. On 31 July 2017, a company which prepares financial statements to 31 March

each year bought a machine for 621.000 €. This amount was made up as follows:

€
Manufacturer’s list price 500.000
Less: trade discount 30.000
Delivery charge 4.300
Installation and testing charges 24.500
Minor spare parts 5.200
Servicing contract for the year 31 July 2017 36.000
VAT 15% 81.000
Total 621.000

The company is VAT-registered and reclaims VAT charged to it by its suppliers.

Calculate the cost of the machine in accordance to IAS16. (3 p.)

2.2. (a) Company X prepares financial statements to 31 May each year. On May
2017, the company acquired land for 400.000 €. This land was revalued at
450.000 € on 31 May 2018 and at 375.000 € on 31 May 2019.

(b) Company Y prepares financial statements to 30 June each year. On 30

June 2017, the company acquired land for 600.000 €. This land was
revalued at 540.000 € on 30 June 2018 and at 620.000 € on 30 June 2019.

Assuming that both companies use the “revaluation model”, explain (by
applying journal entries!) how each revaluation should be dealt with if the asset
is (8 p.)

PPE:

Non-current asset held for sale: not objective of exam WS2023/24

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3. Whilst preparing its financial statements for the year to 30 June 17, Arabia felix
plc discovers that (owing to a mathematical mistake) the inventory figure for the
year to 30 June 16 had been overstated by € 200,000. Accounts receivables at 30
June 16 had been understated by the same amount. This error is regarded as
material.
An extract from the company’s draft statement of comprehensive income for the
year to 30 June 17, before correcting this error, is as follows:
2017 2016
€ 000 € 000
Sales 1,660 1,740

Cost of goods sold 670 730

Gross profit 990 1,010

Expenses 590 560
Profit before taxation 400 450
Taxation 80 90
Profit after taxation 320 360

Retained earnings at 30 June 2015 were € 920,000. It may be assumed that the
company’s tax expense is always equal to 20% of the profit before taxation.
(a) Revise the extract from the statement of comprehensive income for the year
to 30 June 2017, showing restated comparative figures for the year to 30 June
2016. Give short explanation for adjustments.
(b) Compute the company’s retained earnings at 30 June 2017 and the restated
retained earnings at 30 June 2016. (8 p.)
= not objective of the exam 2023/24

4. The carrying amounts of the assets of a cash-generating unit are as follows:

€m
Goodwill 100
Development costs 50
Copyrights 60
Property, plant and equipment 140
Land 600

There are indications that this CGU is impaired and therefore its recoverable
amount has been determined. The CGU’s recoverable amount is € 720 million.
Value in use cannot be ascertained for any of the assets, but fair value less costs
to sell is € 580 million for the land.
Calculate the amount of the impairment loss and show how this should be
allocated between the assets of the CGU. (7 p.)

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5. A company is commissioned to build an airport, starting at January, 1 year 01.
The building is finished three years later (December, 31 year 03). The contract
price was originally agreed to be € 200 million but for some extra work the final
sales price increases in 03 to € 250 million.

The company calculated the costs in million in each year as follows:

Year 01: € 50 m., year 02: € 60 m., year 03: € 60 m.
The costs incurred to date at 31 Dec. 02 included € 10 m. spent on materials for
use during work in period 01.
Calculate the revenue and expenses arising from the contract that should be
recognized in the FS in the years 01-03.

Which profits are reported in the Statement of Profit or Loss in every period, if
the Percentage-of-completion method is used? (10 p.)

6. The X-AG acquires on 1 July 01 shares of the category „OCI securities“. The
acquisition price is € 40.000. The bank charges 1% fee of the acquisition price.

The stock price of the shares shows the following development over the years:
31 December 01: € 45.000, 31 December 02: € 42.000, 31 December 03:
€ 38.000.

The accounting period of the X-AG is the calendar year. At which amount has
the company to present the shares in the years? Which accounts are
concerned? Prepare the journal entry for each year. (5 p.)

7. On 1 July 2013, Grant & Co. Ltd entered into a finance lease to acquire a
machine. The cash price of the machine would have been € 132.000. The
lease agreement specified that the company would make four lease
payments, each of € 45.303 on 30 June 2014, 2015, 2016 and 2017. The
interest rate implicit in the lease was 14% per annum. Grant & Co Ltd
prepares account to 30 June each year.

Using (a) the actuarial method and (b) the straight-line method to allocate finance
charges over the lease period, calculate the finance charge which should be shown
as an expense in the company’s financial statements for each of the years to 30
June 2014, 2015, 2016 and 2017 and show how this liability should be spilt
between current and non-current liabilities. (8 p.)

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 8. The annual accounting date of Lawson plc is 31 May. The following matters
need to be dealt with before the financial statements for the year to 31 May 2017
can be finalised:

(a) The company wants to make a provision for the cost of repairing a faulty
product supplied to a customer some weeks previously. The company
estimates that there is a 60% chance that this repair will cost € 100.000.
However, there is a 30% chance that the cost will be € 150.000 and a 10%
chance that the cost will be € 200.000.

(b) The company operates an open-cast mine and is legally obliged to restore
the environment when mine workings are complete. This is expected to
occur in the year 2022. The estimated cost of rectifying the environmental
damage caused so far is € 3 million. The estimated total cost of rectifying
the damage caused until mine working are complete is € 25 million.

Explain how these two matters should be dealt with in the financial statements
for the year to 31 May 2017. (8 p.)

9. (a) IAS 19 Employee Benefits differentiates between “accumulated” and “non-

accumulated” compensated absences. Explain the terms by using an appropriate
example.

(b) Please discuss the pros and cons of the “defined benefit plan”. (8 p.)
= is not objective for the exam WS2023/24

10. The Hoofy Ltd. has a preliminary profit (before the premium payment) of
600.000 € (for all periods). At the beginning of the first year the company took a
20-year bank loan of 4 m. € and therefore it had to pay a premium fee of 40.000 €.
The management decides for accounting policy reason to allocate the amount of the
premium fee to allocate to first five years. For tax reasons the premium fee will be
allocated evenly over the periods in the IFRS financial statements. The tax rate is
30% on the taxable profit for computing the income taxes.

Which kind of taxes is to report in the financial statements over the period of 20
years? Describe the situation by using headwords and recording the journal entries
in the years. (10 p.)