Question

QUESTION 1

Answer the following multiple-choice questions. Indicate your choice by selecting only one option from the four options given for each question answered.

(a) Which one of the following is not considered to be an enhancing qualitative characteristic to ensure the usefulness of information that is already relevant and faithfully represented in terms of The Conceptual Framework for Financial Reporting 2018?

1) Completeness;

2) Comparability;

3) Timeliness;

4) Understandability.

(b) Which one of the following is not an objective of financial statements to provide information of an entity that is useful to a wide range of users when making economic decisions as set out by IAS 1?

1) Statement of financial position;

2) Statement of financial performance;

3) Statement of cash flows;

4) Statement of budget forecasts.

(c) In accordance to IAS 2 the historical cost of inventories does not include:

1) Purchasing costs;

2) Selling expenses;

3) Conversion costs;

4) Other costs incurred in bringing inventories to their present location and condition.

(d) On 1 January 2020, Duma Ltd issued a bond with a nominal value of R500 000 and a coupon rate of 8% (annually in arrears) when the market rate was also 8%. The bond will be redeemed at a 10% premium above nominal value on 31 December 2022. Transaction costs paid by Duma Ltd amounted to R30 000. The effective interest rate is:

1) 8,00%;

2) 10,99%;

3) 13,48%;

4) 10,43%.

(e) Moola Ltd sold goods to a customer for a total consideration of R181 500, payable 24 months after delivery. The customer obtained control of the products on delivery. The cash selling price of the goods amounted to R150 000 and represents the amount that the customer would pay upon delivery instead of over 24 months. Moola Ltd will recognize:

1) Revenue of R181 500 on delivery;

2) Revenue of R181 500 after 24 months;

3) Revenue of R150 000 on delivery and interest income of R31 500 over 24 months;

4) Revenue of R150 000 on delivery and interest income of R31 500 after 24 months.

Answer 1

1. Completeness

Comparability, verifiability, timeliness and understandability are qualitative characteristics that enhance the usefulness of information that is relevant and faithfully represented.

2. Statement of budget forecast

The standard requires a complete set of financial statements to comprise a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows.

3. Selling Expenses

Cost should include all:

costs of purchase (including taxes, transport, and handling) net of trade discounts received

costs of conversion (including fixed and variable manufacturing overheads) and

other costs incurred in bringing the inventories to their present location and condition

4. 8.00%

since the cupon rate is 8% so amount paid annually is 500,000*8/100 = 40,000

while current market price is 500,000. so effective intrest rate is 40000/500000 = 8.00%

5. revenue of 181500 on delivery

Revenue from a transaction involving sale of goods is recognized when the seller has transferred the property in the goods to the buyer for a consideration which mostly coincides with the transfer of significant risk and rewards of ownership.