[hayor]

The questions states under what circumstances can WACC b used for project appraisals. In others words, it’s asking about the assumptions of WACC which are project is small in size relative to the company, same capital structure and same business risk!

[hayor]

The question about either conservative or aggressie I chose aggressive because the question states 3M for flunctuating current asset, 4M for permanent current asset and 8M for permanent non-current asset and the company is financed by 5M short term funds and 10M long term funds….

A conservative person would finance flunctuating current asset, permanent current asset and permanent non current asset with long term funds while a moderate investor would finance all permanent asset both current and non current with long term funds while flunctuating asset with short term funds. An aggressive person on the other hand not only finance all flunctuating assets with short term funds but so also are part of permanent current asset financed by short term funds and the remainder are financed by long term fund while all permanent non current asset are financed by long term funds.

So in the question we have 10M longterm fund out of which 8M will finance non current asset, 2M will finance part of permanent current asset. 5M short term fund will finance all 3M flunctuating asset while 2M will finance the rest of permanent current asset.

So it’s definitely an aggressive approach!

For the cost of bank loan we use cost of other similar loans if we r to look for a cost of debt with floating or variable rate!

so 5.6%

[hayor]

64% pass…..7 papers down and all in one attempt with one award

[hayor]

Oh maybe now I get it…..according to the standard “research cost other than on capital asset should be expensed” meaning an asset acquired for for research purpose should not be expensed but instead capitalized as PPE of an entity and depreciated in accordance with the provison of the standard…….No where did the standard supported the capitalization of depreciation of asset in relation to research…..

[hayor]

@denny1 said:
Related to Depreciation of plant used for development project, somewhere I read that Depreciation should be charged to profit or loss, unless it is included in the carrying amount of another asset. Since we are capitalizing development cost as an asset, we can capitalize those depreciation expense rather than charging to P&L

So technically by adding depreciation to development cost the implication is that we are adding part of cost of an asset if not all to development cost????

please did any IAS or IFRS support that…..in my opinion not making it general….depreciation on capital asset should be expensed regardless of what purpose it serves as we do not recapitalize depreciation.

Any opinion to the contrary will be welcomed….pls lets b clear…..i need to learn more

[hayor]

@chally said:
True research is expensed when incurred. however the plant depreciation used on development is capitalised

Ideally Development cost is capitalised when some conditions are met and which I believe we all know and remember we don’t depreciate Development cost og not completed yet??? as depreciation starts from the date it is substantially completed so are you saying depreciation of plant should be added and re-depreciated? pls come clear

[hayor]

@chally said:
True research is expensed when incurred. however the plant depreciation used on development is capitalised

Really capitalizing depreciation? How can that be? Common man PPE are assets and depreciation on them are expensed as incurred no IAS or IFRS supported the capitalization of depreciation…maybe you should come clear on this!

[hayor]

@23123fd said:
I don’t think so , as all the practice sums I have done we have never done that , but I could be wrong

Exactly i was going to say thesame….never came across a Q like dat b4 but anyways let’s just hope for the best….Goodluck to us all!

[hayor]

@23123fd said:
I took last year’s liability and added it to the deferred tax charge for the year which was 1.5 mill ×26%

i did thesame but are we not suppose to consider PBT *26????

[hayor]

I think the only thing unclear to us all is the income tax expense for the year which I will suggest we ask the Tutor.

we were to work for December 20×8 but we were given income tax liability of December 20×7 to be $1.4m and additional taxable temporary difference of 1.5m I think….

anyone with idea should pls share

[hayor]

@aaradhya33 said:
excess depn would be the increase in value i.e. 3.5m divided by 20.
you do not require any extra info for that,because the depn has alreafy been charged on cost and so when the cost value increases,depn is only charged on that.

The question states that depreciation for the year was charged on the historical cost of the asset without considering the revaluation surplus so yes there will be be excess depreciation of 175$ against revaluation. The tricky part is people mistake the revaluation surplus which will be included under OCI to be net of depreciation which is not as revaluation to b shown under OCI is always gross unless if Deferred tax is applicable then it will be net of deferred tax.

Also the question requires annual transfer which will be applicable to SOCE so revaluation surplus will be 3500-175= 3125 and the 175 to be credited to Retained earnings.

[hayor]

@surajnair said:
Hayor, wish i could share the picture here. I just referred back to bpp text.page number 235(june2017 edition). It clearly says cost of inventories consists of all costs of:
Purchase
Cost of conversion
Other cost incurred in bringing the inventories to their present ‘location and condition’.

and where is the last part? “For intended use” i remember that definition even in my sleep…all these are carry forward knowledge from F3…..the definition in F7 are a bit fast forwarded cause they expect us to have known some prior to studying for F7…….that’s why i don’t advice people to take exemptions it’s better to start from the scratch…..anyways thanks man……success to us all….after all it changes nothing!

[hayor]

@aaradhya33 said:
no.selling costs means “costs to sell”
do we include it?No.

There is difference between saleable condition and selling cost or cost to sell……saleable is an example of intended purpose…….intended purpose could be to sell an item or to keep an asset for production or for hiring to others….all cost incurred in bringing the asset to such condition for their intended purpose will always form part of the cost……but it’s okay I agree with you…..it changes nothing…..let’s just hope for the best!

[hayor]

@laughingcoffin said:
Multiple choice

Ps questions not in order

1. FV of Investment $300,000
FV of NCI $80,000
Net Assets
Stated Capital $150,000
Retained Earning $150,000

Answer – Goodwill $80,000

2. What would be reviewed for impairment

Answer – Goodwill and Patent with indefinite life

3. Which qualitative characteristic is linked to IAS 8 changes in accounting policy, estimates and errors

Answer – Comparability

4. Which one of the following is correct according to IAS 8

Answer – Changes in depreciation and changes in inventory valuation (FIFO) would be treated prospectivly

5. What is the definition of Inventory according to IAS 2

Answer – purchase cost, conversion cost and costs incurred to bring the asset to its present condition and location

The other option is wrong i believe

purchase cost, conversion cost and costs incurred to bring the asset to a saleable condition

6. Which of the following would be treated as discountinued under IFRS 5

A. Plant which stops buying and selling car parts

B. They only have one plant the produces rims. They buy another plant to produce rims

Answer – A only

7. State the Enhancing Characteristics of Financial Information

A. Substance
B. Prudence
C. Materiality
D. Timely, verifiable, comparable & understandable

Answer – D

8. Basic eps 9mil ÷ 10 mil = .90

Diluted earnings
5mil × % × 70 %
If anyone knows this % pls tell me

Diluted Shares
5mil ÷ 500 × 250 shares = 2,500,000

Answer = .74

Thats all the MCQ i can remember sorry guys

Change in inventory valuation is a change in accounting policy and should be done retrospectively an example is Q32 (a) Cost of sale 19200 and changed from FIFO to AVCO and due to the change in policy opening inventory increased by 300 and closing increased by 450 which will make adjusted cost of sales to be 19050 (19200 + 300 – 450)…..others u totally concur….Goodluck to us all!

[hayor]

@23123fd said:
Inventory shouldn’t include selling costs so saleable condition means that it would be included

To saleable condition may include for example primary packiging of an item they are not saleable until they have been properly packaged….selling cost may include advertising cost, sales commission, etc

[hayor]

@surajnair said:
A. Bringing inventory to present location. Not saleable.

yes to present condition but doesn’t me the asset IS ready for intended use or sale…..According to the standard….purchase cost, duties and all other cost incurred in bringing the asset to “condition for intended use or intended sale” key word

present condition n location could be sea port and additional cost may still need to b incurred in transporting them to the warehouse….hope this helps

[hayor]

@feroz1234 said:
Which option did you guys pick for inventory valuation or something.

Was it A which ended along the lines of bringing it to its present location and condition.

or option C bring inventory to its saleable condition?

The question is very tricky but I was able to figure it out…..to present condition and location doesn’t mean the inventory is in working condition for intendended use……..Salelable condition is the correct answer as it indicates that the asset is ready for its intended purpose.

[hayor]

@surajnair said:
Mcqs as far as i can remember
1-A ratio not used by non profit entities -R0CE
2-goodwill in the consolidated statement: 80000(3.8-3)
3-unrealised profit to be adjusted – 6000 (150000/5 unsold inventory,25% mark up)
4- item not included in the definition of an asset -benefits measured reliably.
5-yearly impairment review- goodwill and patent.
6-which of the following are subsidiaries- i marked option B and C,i opted out option A as at the point of time the parent company held only 40% of the other company, i highly doubt if it’s right.
7-reason for increase in gp margin : option D (debtor going bankrupt)
Section B and C were really tricky for me. Only luck can get me through now.

I concur with all except for 2…i know this particular question…..subsidiary sold to parent and URP would have been deducted from subsidiary’s post acquisition RE or profit for the year….The effect and implication of this on group retained earnings would have been 60% × 6000 = 3600

[hayor]

@aaradhya33 said:
I found interpretation very difficult. Also I think there was an adjustment needed in Q32’s retained earnings in accordance with IAS 8 (valuation of inventory had changed and this requires a retrospective change)?
I think other questions were okay. Also I got PAT of 2915.

Same here bro….PAT 2915

[hayor]

@sayemahmed24 said:
I think it would be relevant not comparability

The fundamental are Relevance and Faithful representation….

Enhancing are comparability, verifiability, Timeliness and understandability

[hayor]

@aaradhya33 said:
yes denny me too;we had same question.I got net profit of 2915,so your and mine maybe same.

For the issue cost did you deduct 200 from proceeds of issue of loan and as well deducted it out of admin expenses?

Also for investment income how did you treat it…..since 300 is credited initially of which 200 is related to gain on equity investment I deduct 200 from and show it under OCI making investment income just 100

[hayor]

@aaradhya33 said:
yes denny me too;we had same question.I got net profit of 2915,so your and mine maybe same.

Does this mean I’m safe too cause I got bet profit of $2915 as well!

[hayor]

@phil1990 said:
What about increase or decrease in goodwill by 20.000? Does the question mention overstate or understate of liability? On section b were the two operations discontinued? Does anyone remember the question about capitalisation of borrowing costs? I think i found 10435000. The question about subsidiaries may all answers are right as the company has the right to exercise some options, maybe an indicator of control. Another two theoretical questions am not sure is the one with revenue recognition of combined goods in section b and another one about development costs – research expense over the life of project & capitilasatio of deprecation or neither of two??

it will be a decrease in goodwill as the liability is 20k below it’s carrying amount which indicates a reduction in liability therefore an income which will be included in net asset acquired to increase the FV thereby reducing Goodwill.

for the borrowing cost….i got thesame answer as you….let’s just hope we r right?

Research cost should be expensed as incurred not “over the life of the project” that’s the tricky part quoted..
…

Examiners can be so funny

[hayor]

@paulwilliams100 said:
I didn’t split out the results of the subsidiary because it didn’t say anything about the loss occurring evenly/not, nor when the goodwill was written down.

I did talk about it quite a lot though and how it may have effected things, also brought in how the gearing had been lowered.

For the profit/loss on disposal I worked out a profit of c800k (I think). I worked out the goodwill at acquisition, then did the value of the subsiduary at acquisition as what it cost, took off half the goodwill for the impairment, added the revaluation and took off the post acquisition loss. That came up with a figure about 800k below the £9m they got for it I think.

Not entirely confident that was right but we will see.

Got a profit on disposable of $850k

[hayor]

Got a profit of $850k on disposal……subsidiary is 100% owned

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