QUESTION: 141

GH acquired 3,000,000 of the 12,000,000 equity shares of JK. All shares carried equal voting rights and no other single shareholder of JK held more than 10% of the equity shares. GH has the power to participate in the financial and operating policy decisions but not control them. Based on the information provided above, how would GH's investment in JK be accounted for in its consolidated financial statements?

Associate
Joint venture
Joint arrangement
Financial asset

Answer(s): A

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QUESTION: 142

On 1 January 20X7 GH purchased plant and equipment at a cost of $400,000. The temporary differences in respect of this plant and equipment at 31 December 20X7 and 20X8 have been calculated as follows:

Assume that there are no other temporary differences in the periods and that the corporate income tax rate is 25%. GH is expected to have significant taxable profits in the future.
Which of the following is the correct impact in GH's statement of financial position at 31 December 20X8 in respect of deferred tax?

Increase in the deferred tax asset.
Increase in the deferred tax liability.
Decrease in the deferred tax asset.
Decrease in the deferred tax liability.

Answer(s): A

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QUESTION: 143

HJ is currently in dispute with an employee, who is claiming $400,000 in a legal case against them. HJ's legal advisors have stated that it is probable that they will lose the case and will have to pay the amount claimed.
Also, HJ are claiming $250,000 from a supplier of defective goods and the legal advisors have stated that it is probable that HJ will be successful in this claim.
What is the correct accounting treatment for these two items in HJ's financial statements?

Provide for the $400,000 potential outflow and disclose the $250,000 potential inflow.
Provide for the $400,000 potential outflow and recognise the $250,000 potential inflow.
Disclose the $400,000 potential outflow and disclose the $250,000 potential inflow.
Disclose the $400,000 potential outflow and recognise the $250,000 potential inflow.

Answer(s): A

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QUESTION: 144

RST sells computer equipment and prepares its financial statements to 31 December. On 30 September 20X5 RST sold computer software along with a two year maintenance package to a customer. The customer is given the right to return the goods within six months and claim a full refund if they are not satisfied with the computer software. The risk of return is considered to be insignificant for RST.
How should the revenue from this transaction and the right of return be recognised in the financial statements for the year ended 31 December 20X5?

Recognise 100% of the revenue from both the sale of goods and the maintenance contract and create a provision for the anticipated level of returns.
Do not recognise any revenue from the sale of goods or the maintenance contract and do not create a provision for the anticipated level of returns.
Recognise 12.5% of the revenue from both the sale of goods and the maintenance contract and do not create a provision for the anticipated level of returns.
Recognise 100% of the revenue from the sale of goods,12.5% of the revenue from the maintenance contract and create a provision for the anticipated level of returns.

Answer(s): D

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QUESTION: 141

QUESTION: 142

QUESTION: 143

QUESTION: 144