June 2015 section A answers

Thank you open tuition for the answers. I also had a quick question. For question 10, why is logs classified as biological assets under ias41as they are no more ‘alive’?

Ooi, question 2, I selected D because it seemed “the least wrong”! The only possible answer would be C on the basis that the prototype has been assembled and therefore development is complete. But I don’t like that. The “expenditure” in the question presumably means “future expenditure” and I have interpreted it as meaning the continuation of development having got the prototype that now will likely need further modifications / improvements

Question 5, agreed – careless reading of the question where I took it to mean “as at acquisition” rather than as at year end (thank you)

Question 6, agreed, again my mistake. I tend to rely on the definition of “Equity according to the Framework “Equity is the residual interest in the assets of the entity after deducting all its liabilities” On a liquidation, a company will pay out its assets in strict sequence finishing off with share capital. First will come the preference shares, redeemable and irredeemable. When they have been paid in full, any residual assets are available for the equity shareholders

If I take that Framework definition literally, then equity is the residual interest after deducting “all liabilities” and preference shares, whether they be redeemable or irredeemable are fixed rate-of-dividend liabilities.

However, I have to bow down to the IASB and accept their contention that irredeemable preference shares should be shown in equity.

I still cannot accept that in my head!

That left me with the only viable answer of the provision for possible hurricane damage. Although the chances were described as “possible” and therefore not normally providable, the question then went on to explain that “the company was located in an area which experiences a high incidence of hurricanes”

If there were, for example, a store that experiences a 1% return each year of its goods sold under guarantee, would that be a situation appropriate to make a provision? What are the chances that you out of 100 people would return those goods? Remote! But the chances of returns is virtually certain, so even though your chances are only 1%, the chances of returns is virtually 100%

And that’s why I chose A

Question 13 agreed again! Careless interpretation of the question – I didn’t read “20 year ORIGINAL life” and took it that it had a 20 year remaining life. Mea culpa

Question 15 I stick with my answer B. It does not have to be deducted from the carrying value. It may instead be shown as a deferred income “A grant related to assets is presented in the statement of financial position either as deferred income or as a deduction from the carrying value of the related asset” according to the Institute of Chartered Accountants in England and Wales

Safiyah question 10 I’ve taken this as agricultural produce. The fleeces of sheep are no longer alive so your contention falls down

The only question I had in my mind was “held in a wood yard” Whose wood yard? If I had a timber business and cut down trees and held them until they had dried and were ready for marketing, that would be my agricultural produce. The definition of “agricultural produce” is “The harvested product from biological assets” and seemed to fit with logs of wood. The IAS goes on and says “Agricultural produce is measured at fair value less costs to sell at harvest, and this measurement is considered the cost of the produce at that time (for the purposes of IAS 2 Inventories or any other applicable standard)”

However, going back to the question of whose wood yard is it, if the wood yard is that of a retailer or a furniture manufacturer, then the logs will surely be carried in their inventory as a purchaser and they would no longer be covered by IAS 41

I still believe that this is agricultural produce and therefore falls within IAS 41

Thank you for the reply

Olanrewaju, I’m not sure that that was the intention of the question writer. I do see your point and when I worked the question for myself, the comparison as at 31 March 2015 would be carrying value of $217,000, value in use $115,700 and nsp is $200,000

There is such a large difference between viu and nsp that it makes the question look silly

If I’m wrong, then the answer should be D (carrying value $217,000, viu $115,700 and nsp $200,000)

That’s already in hand 🙂

🙂

Got it. Sorry for bothering and thank you for your replies. I am just too stressed 🙂
These corrections would increase my chances to pass from 0% to 1%, this is why i wanted to make sure they are “for real”.

@mikelittle said:
Ooi, question 2, I selected D because it seemed “the least wrong”! The only possible answer would be C on the basis that the prototype has been assembled and therefore development is complete. But I don’t like that. The “expenditure” in the question presumably means “future expenditure” and I have interpreted it as meaning the continuation of development having got the prototype that now will likely need further modifications / improvements

I went with B – as it’s not a requirement to “increase sales revenue” to recognise but only that there be future economic benefit. This can be internal use that reduces costs, or so was my reading of the IAS. But these are really as you say the least bad answers. I would be near certain that you apply impairment losses to “all other assets” in the CGU with the limit on recoverable amount. Which I would say could equally could be applied to intangible or tangible asset if the MV was easily reached.

I’m left wondering on this and question 10 on the IAS 41. I can argue both sides of this and on a MCQ they’ve been sloppy not to make the answers tighter. They won’t but should accept both answers cause they never said which is more right. Thanks for your reply