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FR Practice Exam 1
Question 1
At 1 July 20X3, XYZ Ltd purchased specialised tooling at a
cost of $120,000. It is being depreciated over 10 years. Due to
technological advancements, the asset was deemed to be
impaired by $14,000 on 30 June 20X6.
At 30 June 20X8, a formal estimate of the asset’s recoverable
value was made and the asset was revalued to $45,000.
What is the adjustment to the carrying amount of the asset at
30 June 20X8?
A. Revaluation gain of $1,000
B. Impairment loss of $5,000
C. Revaluation gain of $9,000
D. Impairment loss of $11,000
Answer:
B. Impairment loss of $5,000
B is correct because there is an impairment loss of $5,000, which
is calculated as follows:
Step 1: Calculate original Depreciation for 3 years (1 July 20X3 to
30 June 20X6)
$120, years = $12,000 per year x 3 years = $36,000.
Step 2: Calculate Carrying Amount (CA) at 30 June 20X6:
$120,000 cost
- $36,000 accumulated depreciation
= $84,000 CA before impairment
- $14,000 Impairment
= $70,000 CA after impairment
Step 3: Calculate new depreciation for 2 years from 1 July 20X6 to
30 June 20X8:
$70,000 CA / 7 years remaining = $10,000 per year x 2 years
Step 4: Calculate CA for 30 June 20X8 before revaluation
$70,000 from 30 June 20X6
- $20,000 accumulated depreciation
= $50,000 CA before revaluation.
Step 5: Compare Revaluation to Carrying Amount
The Carrying Amount of $50,000 is $5,000 higher than the
revalued amount of $45,000.
Therefore the impairment is $50,000 - $45,000 = $5,000.
Module: 7 > Part: B > 7.6 Recognising and measuring an
impairment loss > Page: 395
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Question 2
At 1 July 20X3, XYZ Ltd purchased specialised tooling at a Therefore the impairment is $50,000 - $45,000 = $5,000.
cost $120,000. It is being depreciated over 10 years. Due to
technological advancements, the asset was deemed to be Step 6: Compare 20Y0 Carrying Amount to Revalued amount of
impaired by $14,000 on 30 June 20X6. $40,000
A formal estimate of the asset’s recoverable value was made $45,000 Recoverable value 30 June 20X8
at 30 June 20X8 and the asset was revalued to $45,000. Two
years later a formal estimate of the asset’s recoverable value - $18,000 Depreciation for 1 July 20X8 - 30 June 20Y0 ($45,000
was made at 30 June 20Y0 and the asset was revalued to recoverable value / 5 years remaining life ) x 2 years
$40,000.
= $27,000 Carrying Amount
The useful life of the tooling remained unchanged during this
period. This is $13,000 lower than the revalued amount of $40,000 so it
looks like there needs to be a reversal of impairment.
What is the amount of the impairment reversal adjustment at
30 June 20Y0? Step 7: Determine the reversal of impairment
A. $4,000 We cannot just reverse the $13,000. IAS 36 states that the
B. $9,000 reversal of impairment can only be written up to the LOWER of:
C. $10,000
D. $13,000 • its recoverable amount, as estimated at the time the reversal
indicators were identified; and
Answer:
B. $9,000 • the carrying amount that the asset would be if the original
B is correct as the reversal of impairment is $9,000 ($36,000 - impairment loss were not recognised.
$27,000) since the reversal can only be written up to the lower
amount of $36,000. So, we need to calculate the carrying amount as if there were
never any impairments.
This is calculated as follows:
Unadjusted notional CA = $120,000 original cost – $84,000 of
Step 1: Calculate original Depreciation for 3 years (1 July 20X3 to depreciation (7 years of $12,000 per year) = $36,000
30 June 20X6)
So reversal of impairment is limited to the $36,000 carrying
$120, years = $12,000 per year x 3 years = $36,000. amount. This means the reversal is $9,000 ($36,000 – $27,000).
Step 2: Calculate Carrying Amount (CA) at 30 June 20X6: Module: 7 > Part: B > 7.7 Reversals of impairment losses > Page:
395-398
$120,000 cost
- $36,000 accumulated depreciation
= $84,000 CA before impairment
- $14,000 Impairment
= $70,000 CA after impairment
Step 3: Calculate new depreciation for 2 years from 1 July 20X6 to
30 June 20X8:
$70,000 CA / 7 years remaining = $10,000 per year x 2 years
Step 4: Calculate CA for 30 June 20X8 before revaluation
$70,000 from 30 June 20X6
- $20,000 accumulated depreciation
= $50,000 CA before revaluation.
Step 5: Compare Revaluation to Carrying Amount
The Carrying Amount of $50,000 is $5,000 higher than the
revalued amount of $45,000.
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Question 3 Question 4
Entity X sells robotic vacuum cleaners for $500 each. The Entity X sells robotic vacuum cleaners for $500 each. The
company has a policy which allows customers to get a full company has a policy which allows customers to get a full
refund within 20 days if they are not completely satisfied with refund within 20 days if they are not completely satisfied with
the product. For the month of January, Entity X sold 200 the product. For the month of January, Entity X sold 200
vacuum cleaners. vacuum cleaners.
Past experience indicates the following: Past experience indicates the following:
– 30% chance that there will be no returns; – 30% chance that there will be no returns;
– 45% chance that there would be 50 returns; – 45% chance that there would be 50 returns;
– 15% chance that there would be 60 returns; and – 15% chance that there would be 60 returns; and
– 10% chance that there would be 65 returns. – 10% chance that there would be 65 returns.
What is the revenue that should be recognised if Entity X What is the revenue that should be recognised if Entity X
uses the expected value method allowed by IFRS 15? uses the most likely amount method allowed by IFRS 15?
A. $19,000
B. $75,000 A. $19,000
C. $81,000 B. $75,000
D. $100,000 C. $81,000
D. $100,000
Answer:
Expected value method Most likely method (45%)
Revenue when there will be no returns = 50 returns
= 30% x 200 x $500 = 150 vacuum cleaners x $500
= $30,000 = $75,000
Revenue when there would be 50 returns
= 45% x 150 x $500
= $33,750
Revenue when there would be 60 returns
= 15% x 140 x $500
= $10,500
Revenue when there would be 65 returns
= 10% x 135 x $500
= $6,750
Total revenue
= $30,000 + $33,750 + $10,500 + $6,750
= $81,000
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Question 5
The calculation of taxable profit and current tax for Sunshine
Ltd was as follows:
Sunshine Ltd operates in a country that has very lenient tax
laws. The tax rate is 25% and tax losses can be carried
forward indefinitely. However, carry-back of tax losses is not
permitted.
On 1 January 20X1, Sunshine purchased an asset for $10,000.
Management estimated that the asset has a useful life of 5
years. The asset is depreciated at 25% for tax purposes.
At the end of each year, management was unable to establish
the probability of the company making future taxable profits,
except for the reversal of taxable temporary differences.
Which of the following tax-effect journals for 20X1 is correct?
A. DR Deferred tax asset $125 | CR Current tax income
$125
B. DR Deferred tax expense $150 | CR Deferred tax liability
$150
C. DR Deferred tax expense $1,250 | CR Current tax
income $1,250
D. DR Deferred tax asset $1,375 | CR Deferred tax income
$1,375
Answer:
A. DR Deferred tax asset $125 | CR Current tax income $125
A is correct because the probability criterion requires the
recognition of DTA only to the extent that it is probable that there
would be future taxable profits against which the DTA can be
utilised.
At the end of 20X1, the only taxable profits that could be proved
related to the future reversal of taxable temporary difference of
$500 for the extra depreciation.
BE CAREFUL HERE: The tax rate in this question is only 25%.
$500 taxable temporary difference x 25% = $125 DTL.
Hence the DTA that is recognised is limited to the amount of $125.
The correct journal is:
Dr DTA 125
Cr Current tax income 125
Module: 4 > Part: B > 4.6 Recovery of tax losses > Table 4.9 >
Page: 188-189
FR Practice Exam 1
Question 1
At 1 July 20X3, XYZ Ltd purchased specialised tooling at a
cost of $120,000. It is being depreciated over 10 years. Due to
technological advancements, the asset was deemed to be
impaired by $14,000 on 30 June 20X6.
At 30 June 20X8, a formal estimate of the asset’s recoverable
value was made and the asset was revalued to $45,000.
What is the adjustment to the carrying amount of the asset at
30 June 20X8?
A. Revaluation gain of $1,000
B. Impairment loss of $5,000
C. Revaluation gain of $9,000
D. Impairment loss of $11,000
Answer:
B. Impairment loss of $5,000
B is correct because there is an impairment loss of $5,000, which
is calculated as follows:
Step 1: Calculate original Depreciation for 3 years (1 July 20X3 to
30 June 20X6)
$120, years = $12,000 per year x 3 years = $36,000.
Step 2: Calculate Carrying Amount (CA) at 30 June 20X6:
$120,000 cost
- $36,000 accumulated depreciation
= $84,000 CA before impairment
- $14,000 Impairment
= $70,000 CA after impairment
Step 3: Calculate new depreciation for 2 years from 1 July 20X6 to
30 June 20X8:
$70,000 CA / 7 years remaining = $10,000 per year x 2 years
Step 4: Calculate CA for 30 June 20X8 before revaluation
$70,000 from 30 June 20X6
- $20,000 accumulated depreciation
= $50,000 CA before revaluation.
Step 5: Compare Revaluation to Carrying Amount
The Carrying Amount of $50,000 is $5,000 higher than the
revalued amount of $45,000.
Therefore the impairment is $50,000 - $45,000 = $5,000.
Module: 7 > Part: B > 7.6 Recognising and measuring an
impairment loss > Page: 395
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Question 2
At 1 July 20X3, XYZ Ltd purchased specialised tooling at a Therefore the impairment is $50,000 - $45,000 = $5,000.
cost $120,000. It is being depreciated over 10 years. Due to
technological advancements, the asset was deemed to be Step 6: Compare 20Y0 Carrying Amount to Revalued amount of
impaired by $14,000 on 30 June 20X6. $40,000
A formal estimate of the asset’s recoverable value was made $45,000 Recoverable value 30 June 20X8
at 30 June 20X8 and the asset was revalued to $45,000. Two
years later a formal estimate of the asset’s recoverable value - $18,000 Depreciation for 1 July 20X8 - 30 June 20Y0 ($45,000
was made at 30 June 20Y0 and the asset was revalued to recoverable value / 5 years remaining life ) x 2 years
$40,000.
= $27,000 Carrying Amount
The useful life of the tooling remained unchanged during this
period. This is $13,000 lower than the revalued amount of $40,000 so it
looks like there needs to be a reversal of impairment.
What is the amount of the impairment reversal adjustment at
30 June 20Y0? Step 7: Determine the reversal of impairment
A. $4,000 We cannot just reverse the $13,000. IAS 36 states that the
B. $9,000 reversal of impairment can only be written up to the LOWER of:
C. $10,000
D. $13,000 • its recoverable amount, as estimated at the time the reversal
indicators were identified; and
Answer:
B. $9,000 • the carrying amount that the asset would be if the original
B is correct as the reversal of impairment is $9,000 ($36,000 - impairment loss were not recognised.
$27,000) since the reversal can only be written up to the lower
amount of $36,000. So, we need to calculate the carrying amount as if there were
never any impairments.
This is calculated as follows:
Unadjusted notional CA = $120,000 original cost – $84,000 of
Step 1: Calculate original Depreciation for 3 years (1 July 20X3 to depreciation (7 years of $12,000 per year) = $36,000
30 June 20X6)
So reversal of impairment is limited to the $36,000 carrying
$120, years = $12,000 per year x 3 years = $36,000. amount. This means the reversal is $9,000 ($36,000 – $27,000).
Step 2: Calculate Carrying Amount (CA) at 30 June 20X6: Module: 7 > Part: B > 7.7 Reversals of impairment losses > Page:
395-398
$120,000 cost
- $36,000 accumulated depreciation
= $84,000 CA before impairment
- $14,000 Impairment
= $70,000 CA after impairment
Step 3: Calculate new depreciation for 2 years from 1 July 20X6 to
30 June 20X8:
$70,000 CA / 7 years remaining = $10,000 per year x 2 years
Step 4: Calculate CA for 30 June 20X8 before revaluation
$70,000 from 30 June 20X6
- $20,000 accumulated depreciation
= $50,000 CA before revaluation.
Step 5: Compare Revaluation to Carrying Amount
The Carrying Amount of $50,000 is $5,000 higher than the
revalued amount of $45,000.
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Question 3 Question 4
Entity X sells robotic vacuum cleaners for $500 each. The Entity X sells robotic vacuum cleaners for $500 each. The
company has a policy which allows customers to get a full company has a policy which allows customers to get a full
refund within 20 days if they are not completely satisfied with refund within 20 days if they are not completely satisfied with
the product. For the month of January, Entity X sold 200 the product. For the month of January, Entity X sold 200
vacuum cleaners. vacuum cleaners.
Past experience indicates the following: Past experience indicates the following:
– 30% chance that there will be no returns; – 30% chance that there will be no returns;
– 45% chance that there would be 50 returns; – 45% chance that there would be 50 returns;
– 15% chance that there would be 60 returns; and – 15% chance that there would be 60 returns; and
– 10% chance that there would be 65 returns. – 10% chance that there would be 65 returns.
What is the revenue that should be recognised if Entity X What is the revenue that should be recognised if Entity X
uses the expected value method allowed by IFRS 15? uses the most likely amount method allowed by IFRS 15?
A. $19,000
B. $75,000 A. $19,000
C. $81,000 B. $75,000
D. $100,000 C. $81,000
D. $100,000
Answer:
Expected value method Most likely method (45%)
Revenue when there will be no returns = 50 returns
= 30% x 200 x $500 = 150 vacuum cleaners x $500
= $30,000 = $75,000
Revenue when there would be 50 returns
= 45% x 150 x $500
= $33,750
Revenue when there would be 60 returns
= 15% x 140 x $500
= $10,500
Revenue when there would be 65 returns
= 10% x 135 x $500
= $6,750
Total revenue
= $30,000 + $33,750 + $10,500 + $6,750
= $81,000
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Question 5
The calculation of taxable profit and current tax for Sunshine
Ltd was as follows:
Sunshine Ltd operates in a country that has very lenient tax
laws. The tax rate is 25% and tax losses can be carried
forward indefinitely. However, carry-back of tax losses is not
permitted.
On 1 January 20X1, Sunshine purchased an asset for $10,000.
Management estimated that the asset has a useful life of 5
years. The asset is depreciated at 25% for tax purposes.
At the end of each year, management was unable to establish
the probability of the company making future taxable profits,
except for the reversal of taxable temporary differences.
Which of the following tax-effect journals for 20X1 is correct?
A. DR Deferred tax asset $125 | CR Current tax income
$125
B. DR Deferred tax expense $150 | CR Deferred tax liability
$150
C. DR Deferred tax expense $1,250 | CR Current tax
income $1,250
D. DR Deferred tax asset $1,375 | CR Deferred tax income
$1,375
Answer:
A. DR Deferred tax asset $125 | CR Current tax income $125
A is correct because the probability criterion requires the
recognition of DTA only to the extent that it is probable that there
would be future taxable profits against which the DTA can be
utilised.
At the end of 20X1, the only taxable profits that could be proved
related to the future reversal of taxable temporary difference of
$500 for the extra depreciation.
BE CAREFUL HERE: The tax rate in this question is only 25%.
$500 taxable temporary difference x 25% = $125 DTL.
Hence the DTA that is recognised is limited to the amount of $125.
The correct journal is:
Dr DTA 125
Cr Current tax income 125
Module: 4 > Part: B > 4.6 Recovery of tax losses > Table 4.9 >
Page: 188-189
