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Good day sir
Sat my FFA exam yesterday and passed with flying colors. Exam was balanced, with MTQs being easy. Following MCQs were the ones that got me completely confused and i am quite sure i have done them wrong. Kindly help me with the answers.Q: Which of the following will be included when valuing Work in Progress according to IAS 2?
1. Carriage Inwards
2. Settlement Discounts
3. Production Labour
4. Cost to completeI selected ‘1 and 3’, as i thought these should definitely be included in inventory valuation. I had no idea about the remaining 2.
Q: Raj is a sole trader who sells goods with terms as payment on delivery. For customers with large orders, 14 days credit terms are given.
Which of the following should be recognised as Revenue in Financial Statements under IAS 18?A. A competitor has run out of an item and asked Raj to fulfill the order. Raj has delivered the goods to the customer.
B. A payment is received for goods which were sold 14 days before.
C. Raj has sold his delivery van to his brother. Payment is received.
D. A customer has promised to place an order for goods next week. A refundable deposit of $2,000 is provided by him.I selected A. I thought C and D were no where near the answer while for option B i thought revenue would already be recorded when goods were delivered.
Q: Company ABC is sued by a customer. Lawyers have advised that there is a possibility that the claim will be successful and company will have to pay $50,000 for compensation. They have also advised that Legal Costs of $10,000 have to be paid regardless of the case being successful or not.
How should company treat this in its Financial Statements?A. No disclosure is required.
B. Legal Cost should be provided for. Contingent Liability of $50,000 should be disclosed by a note.
C. $10,000 should be disclosed in notes. $50,000 should be provided for.
D. Provision should be made for the whole amount of $60,000.I selected B. I was confused about the word “possibility”. Is it the same as that mentioned as possible (5-50%)?
1. 1 and 3 is the correct answer. Settlement discounts do not reduce the cost of materials (they are treated as separate income). Cost to complete are the extra costs that will be paid later to finish the work in progress.
2. A is correct for the reasons you state.
3. B is correct (and yes – it means it is ‘possible’)
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