1. An associate is an entity over which the investor has:

Your Answer: Control

Correct Answer: Significant influence

2. Significant influence is normally presumed to exist if the investor owns at

least a certain percentage of the investee company's ordinary shares.

This percentage is:

Your Answer: 10%

Correct Answer: 20%

3. An investment in an associate is normally accounted for using the equity

method. This method requires that the investment in the associate is:

Your Answer: Initially recognised at cost and not adjusted thereafter

Correct Answer: Initially recognised at cost and then adjusted in each

subsequent accounting period to reflect the investor's

share of the associate's profit or loss for the period

4. On 1 May 2011, Sycamore Ltd acquired 35% of the ordinary share capital

of Walnut Ltd at a cost of £472,500. It was agreed that this amount was

equal to 35% of the fair value of the net assets of Walnut Ltd on that

date.

In the year to 30 April 2012, Walnut Ltd made a profit after tax of

£80,000 and paid an ordinary dividend of £32,000. In the financial

statements of Sycamore Ltd, the carrying amount of the investment in

Walnut Ltd as at 30 April 2012 should be:

Your Answer: £500,500

Correct Answer: £489,300

Sycamore Ltd's share of the profit of Walnut Ltd for the year is £28,000

(35% of £80,000). Similarly, Sycamore Ltd's share of the dividend is

£11,200 (35% of £32,000). The carrying amount of the investment

becomes £489,300 (£472,500 + £28,000 – £11,200).

5. An investor company has a 22% interest in an associate. During an

accounting period, the investor bought goods from the associate for

£70,000. These goods had cost the associate £50,000. One-quarter of the

goods remained in the investor's inventories at the end of the period.

The unrealised profit is:

Your Answer: £20,000

Correct Answer: £1,100

The unrealised profit is £1,100 (22% of one-quarter of £20,000).

6. Any goodwill which is included in the carrying amount of an investment

in an associate is not separately recognised and is not separately tested

for impairment. True or False?

Your Answer: False

Correct Answer: True

7. If an investor company owns less than 20% of an investee's voting

power, the investor cannot have significant influence over the investee

and therefore the investee cannot be the investor's associate. True or

False?

Your Answer: False

8. The categories of joint venture recognised by international standard

IAS31 do not include:

Your Answer: Jointly controlled operations

Correct Answer: Jointly controlled contracts

9. At present, IAS31 allows venturers to choose between two ways of

accounting for interests in jointly controlled entities. These are the

equity method and proportionate consolidation. True or False?

Your Answer: True

10. When a venturer sells assets to a jointly controlled entity, any unrealised

profit on the sale should be recognised only to the extent that it is

attributable to that venturer. True or False?

Your Answer: True

Correct Answer: False

Unrealised profit on the sale should be recognised only to the extent

that it is attributable to the other venturers.

1. According to IAS 18 - 'Revenue', which three of the following criteria

must be satisfied before revenue from the sale of goods should be

recognised in the income statement?

(a) Cost can be reliably measured

(b) Revenue can be reliably measured

(c) Managerial control over the goods sold has been relinquished

(d) The outcome of the transaction is certain

(e) There is no risk of ownership remaining

Your Answer: (b), (d) and (e)

Correct Answer: (a), (b) and (c)

2. On 31 December 2005 Auto & More Co. sold a car to a customer for €

30,000 cash. The invoice price includes after sale servicing for 12

months which is estimated to cost Auto & More Co. € 1,800 to provide.

Auto & More Co. generates a gross profit margin of 25% on after sales

servicing.

According to IAS 18 - 'Revenue', what items should be included in the

income statement for 2005 and in the balance sheet at 31 December

2005?

Your Answer: Income statement: Revenue € 30,000 Balance sheet:

Deferred Revenue € 2,250

Correct Answer: Income Statement: Revenue € 27,600 Balance sheet:

Deferred Revenue € 2,400

3. The recording of expenses in the same financial year as the related

revenues is known as:

Your Answer: Matching convention

4. Reduction of invoice prices awarded for prompt payment are:

Your Answer: Cash discounts

5. 'Net sales' is computed by:

Your Answer: Subtracting from gross sales, sales returns and

allowances

Correct Answer: Subtracting from gross sales, sales returns and

allowances, and trade discounts

6. The Up To Heaven Co. provides service contracts to customers for

maintenance of their elevator systems. On 1 October 2005 it agrees a

four year contract with a major customer for € 169,000. Costs over the

period of the contract are reliably estimated at € 56,333.

Under IAS 18 - 'Revenue', how much revenue should the company

recognise in the income statement in the year ended 31 December

2005?

Your Answer: € 42,250

Correct Answer: € 10,563

7. Jonathan and Shabila Trevelyan run a bus company with a 30 June

accounting year end. On 1 March 2006 they signed a one year contract

worth € 72,000 to promote a local football team by repainting its buses

each quarter to advertise different aspects of the team's activities. The

buses were first painted on 1 May 2006 and the second repainting was

made on 1 August 2006.

What revenue in relation to this contract should be recognised by

Jonathan and Shabila for the year ended 30 June 2006?

Your Answer: € 24,000

Correct Answer: € 18,000

8. The following information is relevant to the subscription income of

Worsley Golf Club:

In arrears In advance

Subscriptions 1 April

2005 € 90 € 54

Subscriptions 31 March

2006 € 104 € 49

Subscriptions received in the year ended 31 March 2006 were € 644.

What amount of subscription income would appear in the income

statement for the year ended 31 March 2006?

Your Answer: € 663

9. The Model Railway Society in Leamington Spa has 100 members and

the subscription is £ 5 per year. During this financial year, all have paid

the correct amount except four members who have paid £ 10 each

because they owed subscriptions for the previous year and two

members who have paid additionally for next year.

The subscription revenue for this year is:

Your Answer: £ 470

Correct Answer: £ 500

10. The Model Railway Society in Leamington Spa has 100 members and

the subscription is £ 5 per year. During this financial year, all have paid

the correct amount except four members who have paid £ 10 each

because they owed subscriptions for the previous year and two

members who have paid additionally for next year.

The subscription fees received by Model Railway Society during this

year is:

Your Answer: £ 550

Correct Answer: £ 530

11. The cost of granting credit to customers that are then either unable or

unwilling to pay is known as:

Your Answer: Bad debt expenses

12. Qalam Ltd has entered into a four year fixed price construction contract

to build a factory. The total contract value is € 60m and the estimated

costs are € 48m.

At the end of the first year, Qalam Ltd can estimate the outcome of the

contract reliably. It has received cash payments for € 26.7m and

incurred costs for € 18m.

The revenues related to this contract recognised in the first year are:

Your Answer: € 18m

Correct Answer: € 22.5m

13. According to IAS 11 - 'Construction contracts', which of the following

projects undertaken by an enterprise should be accounted for as a

construction contract?

Your Answer: A warehouse being constructed for the enterprise's

own use

Correct Answer: A bridge constructed for a third party (e.g. Società

Autostrade Italia) under a specifically negotiated

contract

14. Trade and other receivables can be assessed in terms of how long it

takes to collect them.

This is known as:

Your Answer: DPO

Correct Answer: DSO

15. Which of the following cannot be used to assess the firm's ability to

control trade receivables?

Your Answer: Trade receivables turnover

Correct Answer: DPO