Which of the following statements about provisions, contingencies and events after the reporting period is correct?
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1 .Lydd purchased production machinery costing USD 100,000, having an estimated useful life of twenty years and a residual value of USD 2,000. After being in use for six years the remaining useful life of the machinery is revised and estimated to be twenty-five years, with an unchanged residual value.What is the annual depreciation charge on the machinery in year 7?
A USD 3,226 B USD 3,161 C USD 2,824 D USD 2,744
2 .Upton makes up its financial statements to 31 December each year. On 1 January 20X0 it bought a machine with a useful life of 10 years for USD 200,000 and started to depreciate it at 15% per annum on the reducing balance basis. On 31 December 20X3 the accumulated depreciation was USD 95,600 and the carrying amount USD 104,400. During 20X4 the company changed the basis of depreciation to straight line.What is the correct accounting treatment to be adopted in the financial statements of Upton for the year ended 31 December 20X4?
A Depreciation charge (USD 10,440)；Prior period adjustment；Nil B Depreciation charge (USD 17,400)；Prior period adjustment；Nil C Depreciation charge (USD 17,400)；Prior period adjustment；USD 15,600 D Depreciation charge (USD 20,000)；Extraordinary item；USD 15,600
3 .Which ONE of the following items would CM recognise as subsequent expenditure on a non-current asset and capitalise it as required by IAS 16 Property, Plant and Equipment?
A When CM purchased a furnace five years ago, the furnace lining was separately identified in the accounting records. The furnace now requires relining at a cost of USD 200,000. Once relined the furnace will be usable for a further five years B CM’s office building has been badly damaged by a fire...
4 .TY is the main contractor employing sub-contractors to assist it when required.TY has recently completed a contract replacing a roof on the local school. Despite this, the roof has been leaking and some sections are now unsafe. The school is suing TY for USD20,000 to repair the roof.TY used a sub-contractor to install the roof and regards the sub-contractor’s work as faulty.TY has raised a court action against the sub-contractor claiming the cost of the school’s action plus legal fees, a total of USD22,000.TY has been informed by legal advisers that it will probably lose the case brought against it by the school and will probably win the case against the sub-contractor.How should these items be treated in TY’s financial statements?
A A provision should be made for the USD20,000 liability and the case against the subcontractor ignored B A provision should be made for the USD20,000 liability and the probable receipt of cash from the case against the sub-contractor disclosed as a note C No provisions should be made but the USD20,...
5 .MN obtained a government licence to operate a mine from 1 April 20X1. The licence requires that at the end of the mine’s useful life, all buildings must be removed from the site and the site landscaped. MN estimates that the cost of this decommissioning work will be USD1,000,000 in 10 years’ time using a discount factor of 8%, a 10 year discount factor at 8% is 0.463.According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets how much should MN include in provisions in its statement of financial position as at 31 March 20X2?
A USD100,000 B USD463,000 C USD500,000 D USD1,000,000
7 .Which of the following statements about contingent assets and contingent liabilities is true?(1) A contingent asset should be disclosed by note if an inflow of economic benefits is probable.(2) A contingent liability should be disclosed by note if it is probable that a transfer of economic benefits to settle it will be required, with no provision being made.(3) No disclosure is required for a contingent liability if it is less than probable that a transfer of economic benefits to settle it will be required.
A 1 only B 2 only C 3 only D None of these statements
8 .IAS 37 Provisions, Contingent Liabilities and Contingent Assets deals with accounting for contingencies. An entity has a present obligation that probably requires the outflow of economic resources and a contingent asset where the inflow of economic benefits is probable.How should the entity treat the present obligation and contingent asset?
A Present obligation：Provided for ；Contingent asset：Disclosed B Present obligation：Provided for ；Contingent asset：Not disclosed C Present obligation：Disclosed, but not provided for ；Contingent asset：Disclosed D Present obligation：Disclosed, but not provided for ；Contingent asse...
9 .The following describe potential provisions.(1) A provision to cover refunds. The company is in the retail sector and has a reputation for a “no questions asked” policy on refunds.(2) A provision to cover an onerous contract on an operating lease. The lease was on a building which the company has subsequently vacated. The lease cannot be terminated and cannot be re-let.In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets in which of the above situations would a company be allowed to recognise a provision in its financial statements?
A Neither situation B Both situations C Situation 1 only D Situation 2 only
10 .Porter is finalising its financial statements for the year ended 30 September 20X3.A former employee of Porter has initiated legal action for damages against the company after being summarily dismissed in October 20X3. Porter ’s legal advisors feel that the employee will probably win the case and have given the company a reasonably accurate estimate of the damages which would be awarded. Porter has not decided whether to contest the case.How should this item be classified in the financial statements of Porter for the year ended 30 September 20X3?
A A non-adjusting event B An adjusting event C A contingent liability disclosed by way of note D A provision
