Chapter 1: The Conceptual Framework

Activity 1: Which of the following statements describes comparability?

A. The non-cash effects of transactions should be reflected in the financial statements for the
accounting period in which they occur and not in the period where any cash involved is received
or paid.
B. Information should be provided to a decision maker in time to be capable of influencing
decisions.
C. Information must have a predictive and/or confirmatory value.
D. Similar items within a single set of financial statements should be given similar accounting
treatment
Activity 2: Consider the following situations and in each case determine whether an asset, liability or
neither exists as defined by the Conceptual Framework.
a) PAT Co purchased a licence for $20,000. The licence gives PAT Co sole use of a particular
manufacturing process which, in turn, will save them $3,000 a year for the next five years.
b) BAW Co gifted an individual, Don Brennan, $10,000 to set up a car repair shop and have
requested that priority treatment is given to the fleet of cars used by BAW Co's salesmen.
c) DOW Co operates a car dealership and provides a warranty with every car it sells.
Activity 3: Consider the following situations:
(a) Company A reports under IFRS Standards and provides a scheme of training for all of its staff.
(b) The directors of Company B, a publicly listed company reporting under IFRS Standards,
propose a dividend at the board meeting on 28 December. The dividend is communicated to the markets
on 10 January once the financial statements for the year ended 31 December have been prepared.
Discuss what, if anything, should be recognised in the financial statements of Company A and Company
B relating to these situations.
Activity 4: Ergo Co acquired an item of plant on 1 July 20X5 at a cost of $250,000. Ergo Co depreciates
its plant at a rate of 20% on a reducing balance basis. As at 30 June 20X6, the manufacturer of the plant
still makes the same item of plant and its current price is $300,000.
What is the correct carrying amount to be shown in the statement of financial position of Drexler as at
30 June 20X6 under historical cost and current cost?
A. Historical cost: $200,000; Current cost: $300,000
B. Historical cost: $200,000; Current cost: $240,000
C. Historical cost: $250,000; Current cost: $300,000
D. Historical cost: $250,000; Current cost $240,000
Activity 5: You have been asked to show the effect of various asset measurement methods for the
following asset:

• An item of equipment that was purchased on 1 January 20X3 for $140,000. The equipment is
depreciated as 25% per annum using the reducing balance method.
• The equipment is still available and its list price at 31 December 20X4 is $180,000, although
the current model is 20% more efficient than the model the entity purchased in 20X3.
• It is estimated that the equipment could be sold secondhand for $44,000, although the company
would have to spend about $500 in advertising costs to do so.

1
 • The asset is expected to generate net cash inflows of $20,000 for the next five years after which
time it will be scrapped. The company's cost of borrowing is 6%.
• The cumulative present value of $1 in five years' time is $4.212.
5.1 What is carrying amount of the equipment in the statement of financial position as at 31 December
20X4 using historical cost?
A. $70,000
B. $78,750
C. $105,000
D. $140,000
5.2 What is the carrying amount of the equipment in the statement of financial position as at 31
December 20X4 using fair value?
A. $32,868
B. $43,500
C. $44,000
D. $44,500
5.3 What is the carrying amount of the equipment in the statement of financial position as at 31
December 20X4 using current cost?
A. $70,313
B. $75,000
C. $84,375
D. $101,250
5.4 What is the carrying amount of the equipment in the statement of financial position as at 31
December 20X4 using the value in use method?
A. $32,868
B. $43,500
C. $83,740
D. $84,240
5.5 What is the definition of the financial concept of capital?
A. When profits increase the opening net assets of a company, allowing the company additional
purchasing ability.
B. When company profits and additional injections of capital increase the opening net assets of a
company allowing the company additional purchasing ability.
C. The increase in the physical ability of a company from one year to the next.
D. The increase in the physical ability of a company from one year to the next, after deducting any
contributions from the owners.

2
 Chapter 2: The Regulatory Framework
Activity 1: Provide reasons why there may be barriers to increasing international harmonisation of
accounting standards.
Activity 2: Which of the following bodies is responsible for reviewing new financial reporting issues
and issuing guidance on the application of IFRS?
A. The International Accounting Standards Board
B. The IFRS Foundation
C. The IFRS Interpretations Committee
D. The IFRS Advisory Council
Activity 3: What development at the IASB aided users' interpretation of IFRS Standards?
A. IFRS Advisory Council
B. IFRS Interpretations Committee
C. Global Preparers Forum
D. Accounting Standards Advisory Forum
Activity 4: Which TWO of the following are objectives of the IASB?
A. To ensure the convergence of IFRS Standards within local national territories
B. To develop a set of understandable global accounting standards
C. To develop financial reporting standards which aim to provide comparable information in the
financial statements
D. To provide a set of rules in the form of accounting standards which will be used by worldwide
preparers of financial statements

3
 Chapter 3: Tangible Non-current Assets
Illustration 1: Binkie has a year end of 30 June 20X6. At 1 July 20X5, Binkie had land with a carrying
amount of $130,000 in its financial statements. On 1 July 20X3, a decline in land values led the company
to reduce the carrying amount of the land from $150,000. The decline was recorded as an expense in
profit or loss. There has been a surge in land prices in the current year and the land is worth $200,000
at 30 June 20X6.
Required: Account for the revaluation in the current year.
Illustration 2: Using the information in Illustration 1, but swapping round the figures. Let's assume
that the land original cost was $150,000, it was revalued upwards to $200,000 on 1 July 20X5 and the
valuation at 30 June 20X6 has fallen to $130,000.
Required: Account for the decrease in value.
Activity 1: Crinkle prepares its financial statements to 31 December each year. It bought an asset that
had a useful life of five years for $10,000 in January 20X6. On 1 January 20X8, the asset was revalued
to $12,000. The expected useful life has remained unchanged (ie three years remain). It is the policy of
Crinkle to make a reserve transfer for excess depreciation.
Required: Account for the revaluation and state the treatment for depreciation from 20X8 onwards.
Activity 2:
List price of machine $8,550
Less: Trade discount $855
Delivery costs $105
Set-up costs incurred internally $356
$8,156
a) The machine was expected to have a useful life of 12 years and a residual value of $2,000.
b) Xavier's accounting policy is to charge a full year's depreciation in the year of purchase and no
depreciation is the year of retirement or sale.
c) Xavier has a policy of keeping all equipment at revalued amounts. No revaluations had been
necessary until 30 September 20X8 when one of the major suppliers of such machines went
bankrupt, causing a rise in prices. A specific market value for Xavier's machine was not
available, but an equivalent brand-new machine would now cost $15,200 (including relevant
disbursements). Xavier treats revaluation surpluses as being realised through use of the asset
and transfers them to retained earnings over the life of the asset. The remaining useful life and
residual value of the machine remained the same.
d) Xavier's year end is 30 September.
2.1 What is the carrying amount of plant and equipment at 30 September 20X5?
A. $7,200
B. $7,317
C. $7,643
D. $8,427
2.2 What is the carrying amount of the plant and equipment at 30 September 20X8?
A. $10,800

4
 B. $11,900
C. $13,200
D. $15,200
2.3 Which TWO of the following statements are correct when revaluing property, plant and equipment?
A. All property, plant and equipment should be revalued
B. The revaluation should take place every three to five years
C. The revalued asset continues to be depreciated
D. The asset should be revalued to fair value if available
2.4 What is the balance on the revaluation surplus at 30 September 20X8?
A. $2,052
B. $4,696
C. $5,439
D. $6,104
2.5 How much of the revaluation surplus is transferred to retained earnings in the year to 30 September
20X9?
Illustration 3: An aircraft could be considered as having the following components.
Cost ($’000) Useful life
Fuselage 20,000 20 years
Undercarriage 5,000 500 landings
Engines 8,000 1,600 flying hours

Required: Calculate the depreciation for the year.

Illustration 4: Following Illustration 3 above, an overhaul of the aircraft was required at the end of year
3 and every third year thereafter at a cost of $1.2 million.
Required: Explain how the overhaul would be accounted for.
Activity 3: On 1 October 20X9 Propex has the following properties. It uses the fair value model to
measure investment property:
a) Tennant House which cost $150,000 on 1 October 20X4. The property is freehold and is let out
to private individuals for six-monthly periods. The current market value of the property is
$175,000.
b) Stowe Place which cost $75,000. This is used by Propex as its headquarters. The building was
acquired on 1 October 20W9. The current market value is $120,000.
Propex depreciates its buildings at 2% per annum on cost.
How should the property be shown in the statement of financial position at 1 October 20X9?
Activity 4: Kapital owns a building which it has been using as a head office. In order to reduce costs,
on 30 June 20X9 it moved its head office functions to one of its production centres and is now letting
out its head office. Company policy is to use the fair value model for investment property.
The building had an original cost on 1 January 20X0 of $250,000 and was being depreciated over 50
years. At 31 December 20X9, its fair value was judged to be $350,000.
Required: Explain how the building will be accounted for in the financial statements of Kapital Co at
31 December 20X9

5
Illustration 5: On 1 January 20X6, Stremans Co borrowed $1.5 million to finance the production of
two assets, both of which were expected to take a !dear to build. Work started during 20X6. The loan
facility was drawn down and incurred on 1 January 20X6, and was utilised as follows, with the
remaining funds invested temporarily.
Asset Alpha Asset Bravo
($’000) ($’000)
1 January 20X6 250 500
1 July 20X6 250 500

The loan rate was 9% and Stremans Co can invest surplus funds at 7%.
Required: Ignoring compound interest, calculate the borrowing costs that may be capitalised for each
of the assets and consequently, the cost of each asset as at 31 December 20X6.
Activity 5: Acruni Co had the following loans in place at the beginning and end of 20X6.
01/01/20X6 31/12/20X6
($m) ($m)
10% Bank loan repayable 20X8 120 120
9.5% Bank loan repayable 80 80

On 1 January 20X6, Acruni Co began construction of a qualifying asset, a piece of machinery for a
hydro-electric plant, using existing borrowings. Expenditure drawn down for the construction was: $30
million on 1 January 20X6, $20 million on 1 October 20X6.
Required: Calculate the borrowing costs that can be capitalised for the hydro-electric plant machinery.

6
 Chapter 4: Intangible Assets
Activity 1: Which THREE of the following are likely to meet the recognition criteria of IAS 38
Intangible Assets? (Tick the correct answers.)
o Expenditure of $300,000 on increasing the skills of staff
o $250,000 acquiring a licence to operate in a new geographical location
o $28,000 spend on advertising a new product which is expected to generate economic benefits
for the entity
o $100,000 on computer software acquired from a supplier
o A brand, valued at $500,000 acquired as part of the purchase of a new subsidiary
o An internally developed brand name, estimated to be worth $100,000
Activity 2: Apricot Co purchases an operating licence from an overseas supplier for $180,000 plus
non-refundable purchase taxes of $18,000. The supplier's normal list price is $200,000 but it has
awarded Apricot Co a 10% trade discount. Apricot Co has to pay import duties on the purchase of this
licence of $20,000. As part of the purchase process, Apricot Co seeks advice from a lawyer and incurs
legal fees of $15,000.
Required: Calculate the initial cost of the intangible asset that Apricot Co should recognise in relation
to this licence.
Activity 3: Dopper Co is developing a new production process. During 20X3, expenditure incurred was
$100,000, of which $90,000 was incurred before 1 December 20X3 and $10,000 between 1 December
20X3 and 31 December 20X3. Dopper Co can demonstrate that, at 1 December 20X3, the production
process met the criteria for recognition as an intangible asset. The recoverable amount of the know-how
embodied in the process is estimated to be $50,000.
Required: Explain how the expenditure should be treated in Dopper Co's financial statements for the
year ended 31 December 20X3.
Activity 4: Stauffer pie has a year end of 30 September 20X6. The following transactions occurred
during the year:
a) The Stauffer brand has become well known and has developed a lot of customer loyalty since
the company was set up eight years ago. Recently, valuation consultants valued the brand for
sale purposes at $14.6 million. Stauffer's directors are delighted and plan to recognise the brand
as an intangible asset in the financial statements. They plan to report the gain in the revaluation
surplus as they feel that crediting it to profit or loss would be imprudent.
b) The company undertook an expensive, but successful, advertising campaign during the year to
promote a new product. The campaign cost $1 million, but the directors believe that the extra
sales generated by the campaign will be $3.6 million over its four-year expected useful life.
c) Stauffer owns a 30-year patent that it acquired on 1 April 20X4 for $8 million, which is being
amortised over its remaining useful life of 16 years from acquisition. The product sold is
performing much better than expected. Stauffer's valuation consultants have valued its current
market price at $14 million.
d) Stauffer has been developing a new piece of technology over the past 18 months. Costs incurred
and expensed in the year ended 30 September 20X5 were $1.6 million; further costs of $0.4
million were incurred up to 31 December 20X5 when the project met the criteria for
capitalisation. Costs incurred after 1 January 20X6 were $0.9 million.
4.1 In accordance with IAS 38, which of the following is the correct treatment of the brand?
A. Recognise an intangible asset of $14.6m with the gain to the profit or loss

7
 B. Recognise an intangible asset of $14.6m with the gain to other comprehensive income
C. Recognise an intangible asset of $14.6m with the gain direct to the revaluation surplus
D. Do not recognise the brand
4.2 What is the carrying amount of the advertising campaign in the statement of financial position at
30 September 20X9?
A. Nil
B. $750,000
C. $1,000,000
D. $3,600,000
4.3 Which TWO of the following are TRUE regarding revaluing intangibles?
A. Revaluations should be carried out with reference to an active market
B. Revaluations should take place every three to five years
C. All assets in the same class should be revalued
D. Active markets are very common for intangible assets
4.4 What is the carrying amount of the patent in the statement of financial position at 30 September
20X6?
A. $6.5m
B. $6.75m
C. $8m
D. $14m
4.5 What amount should be capitalised as an intangible asset for the development project?

8
 Chapter 5: Impairment of Assets
Illustration 1: Henry Co holds an item of machinery which it believes is impaired. The following
information is relevant:

• The fair value of the machinery is $10,000, the cost of selling is $500.
• The value in use of the machinery is estimated to be $9,000.
• It is the company's intention to continue to use the asset for the remainder of its useful life.
Required: Determine the recoverable amount of the machinery.
Illustration 2: Following on from Illustration 1, further information has been provided about the
carrying amount of the asset:
• The machinery is held at historical cost
• The carrying amount of the machinery is $10,500
Required: Using the recoverable amount determined in Illustration 1, calculate the impairment loss.
Activity 1: Minimart Co belongs to a retail store chain, Magnus Co. Minimart Co makes all its retail
purchases through Magnus Co's purchasing centre. Pricing, marketing, advertising and human resources
policies (except for hiring Minimart Co's cashiers and salesmen) are decided by Magnus Co. Magnus
Co also owns five other stores in the same city as Minima rt Co (although in different neighbourhoods)
and 20 other stores in other cities. All stores are managed in the same way as Minimart Co. Minimart
Co and four other stores were purchased five years ago and goodwill was recognised.
Required: What is the cash-generating unit for Minimart Co?
Activity 2: Brix Co owns a building which it uses as its offices, warehouse and garage. The land is
carried as a separate non-current tangible asset in the statement of financial position.
Brix Co has a policy of regularly revaluing its non-current tangible assets. The original cost of the
building in October 20X2 was $1,000,000; it was assumed to have a remaining useful life of 20 years
at that date, with no residual value. The building was revalued on 30 September 20X4 by a professional
valuer at $1,800,000. The economic climate had deteriorated during 20X5, causing Brix Co to carry out
an impairment review of its assets at 30 September 20X5. Brix Co's building was valued at a market
value of $1,500,000 on 30 September 20X5 by an independent valuer.
Required: At 30 September 20X5, what is the impairment loss AND where should it be recognised?
Illustration 3: A cash-generating unit comprises the following:
$m
Building 30
Plant and Equipment 6
Goodwill 10
Current Assets 20

Following a recession, an impairment review has estimated the recoverable amount of the
cash-generating unit to be $50 million.
Required: Allocate the impairment loss to the assets in the CGU.
Activity 3: On 31 December 20X1, Invest Co purchased all the shares of Mash Co for $2 million. The
net fair value of the identifiable assets acquired and liabilities assumed of Mash Co at that date was $1.8

9
million. Mash Co made a loss in the year ended 31 December 20X2 and at 31 December 20X2, the net
assets of Mash Co - based on fair values at 1 January 20X2 - were as follows:
$’000
Property, plant and equipment 1,300
Development expenditure 200
Net current assets 250

An impairment review on 31 December 20X2 indicated that the recoverable amount of Mash Co at that
date was $1.5 million. The capitalised development expenditure has no ascertainable external market
value and the current fair value less costs of disposal of the property, plant and equipment is $1,120,000.
Value in use could not be determined separately for these two items.
Required: Calculate the impairment loss that would arise in the consolidated financial statements of
Invest as a result of the impairment review of Mash Co at 31 December 20X2 and show how the
impairment loss would be allocated.
Activity 4: A head office building with a carrying amount of $140 million is estimated to have a
recoverable amount of $90 million due to falling property values in the area. An impairment loss of $50
million is recognised.
After three years, property prices in the area have risen, and the recoverable amount of the building
increases to $120 million. The carrying amount of the building, had the impairment not occurred, would
have been $110 million.
Required: Calculate the reversal of the impairment loss.

10
 Chapter 6: Revenue and Government Grants
Activity 1: Office Solutions Co, a limited company, has developed a communications software package
called CommSoft. Office Solutions Co has entered into a contract with Logisticity Co to supply the
following:
a) Licence to use Commsoft
b) Installation service; this may require an upgrade to the computer operating system, but the
software package does not need to be customised
c) Technical support for three years
d) Three years of updates for Commsoft
Office Solutions Co is not the only company able to install CommSoft, and the technical support can
also be provided by other companies. The software can function without the updates and technical
support.
Required: Explain whether the goods or services provided to Logisticity Co are distinct in accordance
with IFRS 15 Revenue from Contracts with Customers.
Activity 2: Taplop Co supplies laptop computers to large businesses. On 1 July 20X5, Taplop Co
entered into a contract with TrillCo, under which TrillCo was to purchase laptops at $500 per unit. The
contract states that if TrillCo purchases more than 500 laptops in a year, the price per unit is reduced
retrospectively to $450 per unit. Taplop's year end is 30 June.
a) As at 30 September 20X5, TrillCo had bought 70 laptops from Taplop. Taplop Co therefore
estimated that TrillCo's purchases would not exceed 500 in the year to 30 June 20X6, and
TrillCo would therefore not be entitled to the volume discount.
b) During the quarter ended 31 December 20X5, TrillCo expanded rapidly as a result of a
substantial acquisition, and purchased an additional 250 laptops from Taplop Co. Taplop Co
then estimated that TrillCo's purchases would exceed the threshold for the volume discount in
the year to 30 June 20X6.
Calculate the revenue Taplop Co would recognise in:
a) Quarter ended 30 September 20X5
b) Quarter ended 31 December 20X5
Activity 3: A mobile phone company, Deltawave Co, gives customers a free handset when they sign a
two-year contract for the provision of network services. The handset has a stand-alone price of $100
and the contract is $20 per month.
Required: Allocate the transaction price between the handset and the network services contract.
Activity 4: A contract to build on office building is started on 1 January 20X5, with on estimated
completion date of 31 December 20X6. Control of the asset is passed to the customer as construction
tokes place. In the first year, to 31 December 20X5:
a) Certificates of work completed hove been issued, to the value of S750,000.
b) The final contract price is S1,500,000.
c) Amounts invoiced to the customer as at 31 December 20X5 is S625,000.
d) No payments hod been received in respect of the receivable at year end.
Required: What is the revenue recognised in the financial statements at 31 December 20X5, and what
entries would be mode for the contract on the statement of financial position at 31 December 20X5?

11
Activity 5: A company entered into a four-year contract to build a sports stadium, the customer takes
control of the stadium as construction tokes place. Details of the contract activity at 31 December 20X1,
20X2 and 20X3 are as follows:
20X1 20X2 20X3
$m $m $m
Total fixed contract price 380 380 380
Percentage of the contract completion as 20% 65% 100%
certified at year end
Invoices issued to the customer 70 160 200
(cumulative)
Cash received from the customer to date 62 124 170
(cumulative)
It is company policy to calculate satisfaction of performance obligations based on the work certified.
5.1 What should be the revenue recognised in the statement of profit or loss for the years ended 31
December 20X1, 20X2 and 20X3?
A. 20X1: $62m, 20X2: $62m, 20X3: $46m
B. 20X1: $70m, 20X2: $90m, 20X3: $110m
C. 20X1: $76m, 20X2: $171m, 20X3: $133m
D. 20X1: $62m, 20X2: $247m, 20X3: $380m
5.2 What are the accounting entries to be recorded in the statement of financial position for the year
ended 31 December 20X3?
A. Trade receivable $30m; Contract asset $93m
B. Trade receivable $10m; Contract asset $93m
C. Trade receivable $30m; Contract asset $180m
D. Trade receivable $10m; Contract asset $180m
Activity 6: TicketsRUS Co, a ticket agency, sells tickets to a theatre show for $100. TicketsRUS Co is
entitled to a commission of 5% of the ticket price and passes the remainder to the theatre. The tickets
are non-refundable and there is no sales tax.
Required: Calculate the revenue to be recognised for the current financial period.
Activity 7: A wholesaler sells goods to a retailer for $42,000 on credit on 31 December 20X1 and
accounts for them as a sale recognising the revenue immediately. The wholesaler sells at a mark-up of
20% on cost. The retailer will sell the goods to the final customer, but can return any unsold goods for
a refund. No goods were sold to the final customer on 31 December 20X1.
Required: What are the adjustments needed to correct the wholesaler's financial statements for the year
ended 31 December 20X1?
Activity 8: Maddoc purchased a new item of plant for $800,000 on 1 January 20X2, and expected to
use it for five years with a zero residual value. The Government awarded Maddoc a grant of $300,000
towards the cost of the plant on the same date. Maddoc treated the grant as deferred income and has a
30 June year end.
Required: How much is recognised in non-current liabilities in respect of the grant as at 30 June 20X2?
A. $60,000
B. $30,000
C. $210,000
D. $270,000

12
 Chapter 7: Introduction to Groups
Activity 1: Alpha acquired 4,000 of the 10,000 equity voting shares and 8,000 of the 10,000 non-voting
preference shares in Crofton. Alpha acquired 4,000 of the 10,000 equity voting shares in Element and
had a signed agreement giving it the power to appoint or remove all of the directors of Element.
Which investment would be classified as a subsidiary of Alpha?
A. Both Crofton and Element
B. Crofton only
C. Element only
D. Neither Crofton nor Element
Activity 2: Goodwill
At 31 December 20X4, the statements of financial position of Portus Co and Sa nus Co were as follows:

On 31 December 20X4, Portus Co purchased a 100% holding in Sanus Co for $13.8 million in cash.
Prepare the consolidated statement of financial position of the Portus Group as at 31 December 20X4.
Activity 3: At 31 December 20X4, the statements of financial position of Portus Co and Sanus Co were
as given in Activity 2.
1. On 1 April 20X4, Portus Co purchased an 80% holding in Sanus Co for $13.8 million in cash.
Sanus Co's total comprehensive income for the year ended 31 December 20X4 was $2.0
million, accruing evenly over the year. Sanus Co did not pay any dividends in the year.
2. The non-controlling interest in Sa nus Co is to be valued at its fair value of $3.2 million at the
date of acquisition.
Prepare the consolidated statement of financial position of the Portus Group as at 31 December 20X4.

13
 Chapter 8: The Consolidated Statement of Financial Position
Activity 1: Sing Co gained control of Wing Co on 31 March 20X5 when it acquired 80% of its ordinary
shares. The draft statements of financial position of each company were as follows:

The fair value of the non-controlling interest in Wing Co as at 31 March 20X5 has been determined as
$12,500.
Required: Prepare the consolidated statement of financial position as at 31 March 20X5.
Illustration 1: A liability of $100,000 is to be paid in two years' time. The discount rate of 6%. At what
amount should the liability be recorded?
Activity 2: ABC acquired 300,000 of DEF's 400,000 ordinary shares during the year ending 28
February 20X5. DEF was purchased from its directors who will remain in their current roles in the
business. The purchase consideration comprised:

• $250,000 in cash payable at acquisition

• $88,200 payable two years after acquisition
• $100,000 payable in two years' time if profits exceed $2 million
• New shares issued in ABC at acquisition on a 1 for 3 basis
The consideration payable in two years after acquisition is a tough target for the directors of DEF, which
means its fair value (taking into account the time value of money) has been measured at only $30,750.
The market value of ABC's shares on the acquisition date was $7.35. An appropriate discount rate for
use where relevant is 5%.

14
Required
2.1 How much is the consideration that has been/will be paid in cash to include in the calculation of
goodwill on acquisition?
2.2 How much is the consideration payable in shares that will be included in the calculation of goodwill
on acquisition?
Illustration 2: Using the information in Activity 1 above, assume that in the year ending 31 March
20X6, the goodwill of Wing is impaired by 20%.
Required: Prepare the journal entry to record goodwill impairment in the year ended 31 March 20X6.
Illustration 3: On 31 December 20X8, Penn acquired four million of the five million $1 ordinary shares
of Sylvania, paying $10 million in cash. On that date, the fair value of Sylvania's net assets was $7.5
million.
Required: Calculate the goodwill arising on acquisition assuming:
a) Penn has elected to value the non-controlling interest at acquisition at fair value. The market
price of the shares held by the non-controlling shareholders immediately before the acquisition
was $2.00.
b) Penn has elected to value the non-controlling interest at acquisition at its proportionate share of
the fair value of the subsidiary's identifiable net assets.
Activity 3: At 31 December 20X4, the statements of financial position of Portus Co and Sanus Co were
as follows:

15
Notes:
a) On 1 April 20X4, Portus Co purchased an 80% holding in Sanus Co for $13.8 million in cash.
Sanus Co's total comprehensive income for the year ending 31 December 20X4 was $2.0
million, accruing evenly over the year. Sanus Co did not pay any dividends in the year.
b) At the date of acquisition, the fair value of Sanus Co's assets was equal to their carrying amounts
with the exception of the items listed below which exceeded their carrying amounts as follows:
• Inventories $300,000
• Plant and equipment (10 year remaining useful life) $1,200,000
Sanus Co has not adjusted the carrying amounts as a result of the fair value exercise. The
inventories were sold by Sanus Co before the year end.
c) The non-controlling interest in Sanus Co is to be valued at its fair value of $3.2 million at the
date of acquisition. An impairment test conducted at the year-end revealed that the consolidated
goodwill of Sanus Co was impaired by $150,000.
Required:
1. Prepare the consolidated statement of financial position of the Portus Group as at 31 December
20X4.
2. Show how the goodwill and non-controlling interests would change if the non-controlling
interests were measured at acquisition at the proportionate share of the fair value of the
acquiree's identifiable net assets.
3. Explain how the goodwill would have been treated if the calculation had resulted in a negative
figure, and how such a negative figure may arise.
Activity 4: Other reserves
The total reserves of Portus Co and Sanus Co in Activity 3 can be broken down as follows:
Portus Co Sanus Co
$ ‘000 $ ‘000
Equity
Share Capital ($1 shares) 8,000 2,400
Retained Earnings 42,700 9,000
Revaluation Surplus 11,400 1,600
62,100 13,000
At acquisition, the retained earnings of Sanus Co were $7.8 million and its revaluation surplus stood at
$1.3 million (coming to a total of $9.1 million as before).
Required: Calculate the consolidated retained earnings, consolidated revaluation surplus and
non-controlling interests for the Portus Group as at 31 December 20X4.
Activity 5: At 31 December 20X4, the statements of financial position of Portus Co and Sanus Co were
the same as in Activity 3.
Additional notes:
a) On 1 April 20X4, Portus Co purchased an 80% holding in San us Co for $13.8 million in cash.
Sanus's total comprehensive income for the year ending 31 December 20X4 was $2 million,
accruing evenly over the year. Sa nus Co did not pay any dividends in the year.
b) At the date of acquisition, the fair value of Sa nus Co's assets was equal to their carrying
amounts with the exception of the items listed below which exceeded their carrying amounts
as follows:
• Inventories $300,000
• Plant and equipment (10 year remaining useful life) $1,200,000

16
 Sanus Co has not adjusted the carrying amounts as a result of the fair value exercise. The
inventories were sold by San us Co before the year end.
c) The non-controlling interest in Sanus Co is to be valued at its fair value of $3.2 million at the
date of acquisition. An impairment test conducted at the year end revealed that the consolidated
goodwill of Sanus Co was impaired by $150,000.
d) On 1 October 20X4, Sanus Co sold goods to Portus Co for $200,000 at a gross profit margin of
40%. The goods were still in Portus Co's inventories at the year end. No other sales were made
between Portus Co and Sa nus Co in the year.
At 31 December 20X4, Portus Co's current account with Sanus Co was $130,000 (credit). This
did not agree with the equivalent balance in Sanus's books due to cash in transit of $70,000
which was not received by Sanus Co until after the year end.
Required: Prepare the consolidated statement of financial position of the Portus Group as at 31
December 20X4.
Illustration 4: Percy Co owns 60% of the equity shares of Edmund Co, giving Percy Co control over
Edmund Co. On 1 January 20X1, Edmund Co sold a machine with a carrying amount of $10,000 to
Percy Co for $12,500.
The reporting date of the group is 31 December 20X1 and the balances on the retained earnings of Percy
Co and Edmund Co at that date are:

• Percy Co, after charging depreciation of 10% on the machine $27,000

• Edmund Co, including profit on the sale of the machine to Percy Co $18,000
Required: Show the working for consolidated retained earnings.
Activity 6: Sanus Co sells plant with a remaining useful life of four years and a carrying amount of
$120,000 to Portus Co for $200,000 on 1 October 20X4.
Required: Using the options below, select the correct entries for the journals to remove the unrealised
profit in the consolidated statement of financial position as at 31 December 20X4.
Debit Credit
Retained Earnings
Property, plant and equipment
With the unrealized profit on disposal
Retained Earnings
Property, plant and equipment
With the excess depreciation

17
 Chapter 9: The Consolidated Statement of Profit or Loss and
Other Comprehensive Income
Activity 1: The statements of profit or loss and other comprehensive income of Portus Co and its
subsidiary Sanus Co for the year ended 31 December 20X4 are as follows:

Note: On 1 April 20X4, Portus Co purchased an 80% holding in Sanus Co for $13.8 million in cash.
Sanus's total comprehensive income for the year ended 31 December 20X4 was $2.0 million, accruing
evenly over the year. Sanus Co did not pay any dividends in the year. Portus Co paid dividends of $3
million in the year.
Required: Using the proformas provided, prepare the consolidated statement of profit or loss and other
comprehensive income for the Portus Group for the year ended 31 December 20X4 (excluding
consolidation adjustments).
Activity 2: Continuing from the previous example, the statements of profit or loss and other
comprehensive income of Portus Co and its subsidiary, Sanus Co, for the year ended 31 December
20X4 are given in Activity 1.
Notes:
a) On 1 April 20X4 Portus Co purchased an 80% holding in Sanus Co for $13.8 million in cash.
Sanus's total comprehensive income for the year ended 31 December 20X4 was $2.0 million,
accruing evenly over the year. Sanus Co did not pay any dividends in the year. Portus Co paid
dividends of $3 million in the year.
b) At the date of acquisition, the fair value of Sanus's assets were equal to their carrying amounts
with the exception of the items listed below which exceeded their carrying amounts as follows:
• Inventories $300,000
• Plant and equipment (10-year remaining useful life) $1,200,000
Sanus Co has not adjusted the carrying amounts as a result of the fair value exercise. The inventories
were sold by Sanus Co before the year end.
c) The NCI in San us Co is to be valued at its fair value of $3.2 million at the date of acquisition.
An impairment test conducted at the year-end revealed that the consolidated goodwill of Sanus
Co was impaired by $150,000.

18
 d) On 1 October 20X4, Sanus Co sold goods to Portus Co for $200,000 at a gross profit margin of
40%. The goods were still in Portus Co's inventories at the year end. No other sales were made
between Portus Co and Sanus Co in the year.
At 31 December 20X4, Portus Co's current account with Sanus Co was $130,000 (credit). This
did not agree with the equivalent balance in Sanus's books due to cash in transit of $70,000
which was not received by Sanus Co until after the year end.
Required: Prepare the consolidated statement of profit or loss and other comprehensive income for the
Portus Group for the year ended 31 December 20X4.
Example: P acquired 100% of S on its incorporation. On the same date, P made a fixed rate 4% loan to
S. The loan has not been repaid at the year end:

Activity 3: Pelmer Co acquired 80% of Symta Co's 100,000 $1 shares on 1 January 20X2 for $600,000
when the reserves of Symta Co were $410,000. Symta Co had a brand name valued at $50,000 which
was recognised on acquisition. It is group policy to measure non-controlling interests at fair value at

19
acquisition. The fair value of the non-controlling interests in Symta Co at acquisition was $150,000. No
impairment has been necessary.
On 1 June 20X6, Pelmer Co disposed of its shareholding for $1,500,000. At that date, Symta Co's
reserves were $710,000 and it had net assets with a carrying amount of $650,000. The value of the
brand name has not changed since acquisition.
Required: What is the group profit or loss on disposal of Symta Co to be shown in the consolidated
accounts for the year ended 31 December 20X6?
A. $500,000
B. $550,000
C. $700,000
D. $800,000

20
 Chapter 10: Accounting for Associates
Activity 1: Identifying an associate
Athens has a number of investments.
Required: Which TWO of the following are associates of Athens? Tick the correct answers.
A. Crete: Athens owns 30% of the ordinary shares of Crete and appoints 8 out of 10 directors to
Crete's board.
B. Rhodes: Athens owns 25% of the ordinary shares of Rhodes but does not have the power to
participate in policy-making processes.
C. Lesbos: Athens owns 50% of the ordinary shares of Lesbos and provides essential technical
information to Lesbos
D. Samos: Athens owns 40% of the preference shares of Sa mos.
E. Thassos: Athens owns 45% of the ordinary shares of Thassos and regularly sends its directors
to Thassos to assist senior management with strategic decisions
Activity 2: Share of profit of associate
Holly Co owns 35% of Hock Co, its only associate. During the year to 31 December 20X4, Hock Co
made a profit for the year of $721,000. Holly Co considers its investment in Hock to have suffered a
$20,000 impairment during the year.
Required: At what amount should 'share of profit of associate' be stated in the consolidated statement
of profit or loss of Holly Co for the year ended 31 December 20X4?
Activity 3: Equity method
Beta purchased a 60% holding in Delta's ordinary shares on 1 January 20X0 for $6.1 million when the
retained earnings of Delta were $3.6 million. The retained earnings of Delta at 31 December 20X4 were
$10.6 million. Since acquisition, there has been no impairment of the goodwill in Delta.
Beta also has a 30% holding in Kappa's ordinary shares, which it acquired on 1 July 20X1 for $4.1
million when the retained earnings of Kappa were $6.2 million. The retained earnings of Kappa at 31
December 20X4 were $9.2 million.
An impairment test conducted at the year end revealed that the investment in the associate (Kappa) was
impaired by $500,000.
During the year, Kappa sold goods to Beta for $3 million at a profit margin of 20%. One-third of these
goods remained in Beta's inventories at the year end. The retained earnings of Beta at 31 December
20X4 were $41.6 million.
Required:
State the accounting adjustment required in respect of the unrealised profit on the sale of goods from
Kappa to Beta.
Calculate the following amounts for inclusion in the consolidated statement of financial position of the
Beta group as at 31 December 20X4:
(a) Investment in associate
(b) Consolidated retained earnings

21
Activity 4: Consolidated statement of financial position
At 31 December 20X4, the statements of financial position of Portus Co, Sa nus Co and Allus Co were
as follows:

(a) On 1 April 20X4, Portus Co purchased an 80% holding in San us Co for $13.8 million in
cash. Sanus Co's total comprehensive income for the year ended 31 December 20X4 was
$2.0 million, accruing evenly over the year. Sa nus Co did not pay any dividends in the
year.
Portus Co also acquired a 30% holding in Allus Co on 1 July 20X4 for 500,000 of its own
shares. The stock market value of Portus Co's shares at the date of this share exchange
was$9.40 each. Portus Co has not yet recorded the investment in Allus Co. Allus Co 's
reserves were $8.6 million on 1 July 20X4.
(b) At the date of acquisition, the fair value of Sa nus Co's assets were equal to their carrying
amounts, with the exception of the items listed below which exceeded their carrying
amounts as follows:
Inventories $300,000
Plant & Equipment (10 years remaining useful life) $1,200,000
Sanus Co has not adjusted the carrying amounts as a result of the fair value exercise. The
inventories were sold by San us Co before the year end.
(c) The non-controlling interest in Sanus Co is to be valued at its fair value of $3.2 million at
the date of acquisition.
An impairment test conducted at the year end revealed that the consolidated goodwill of
Sanus Co was impaired by $150,000.
Additionally, an impairment loss of $40,000 is to be recognised in respect of Portus Co's
investment in Allus Co in the group financial statements.

22
 (d) On 1 October 20X4, Sanus Co sold goods to Portus Co for $200,000 at a gross profit margin
of 40%. The goods were still in Portus Co's inventories at the year end. No other sales were
made between Portus Co and Sa nus Co in the year.
At 31 December 20X4, Portus Co's current account with Sanus Co was $130,000 (credit).
This did not agree with the equivalent balance in Sanus Co's books due to cash in transit of
$70,000 which was not received by Sanus Co until after the year end.
After the acquisition, Allus Co sold goods to Portus Co for $400,000 at a mark-up on cost
of 25%. A quarter of these goods remained in Portus Co's inventories at the year end.
Required: Prepare the consolidated statement of financial position of the Portus Group as at 31
December 20X4.
Activity 5: Consolidated statement of profit or loss
The statements of profit or loss and other comprehensive income of Portus Co, its subsidiary Sanus Co
and its associate Allus Co for the year ended 31 December 20X4 are as follows:

a) On 1 April 20X4, Portus Co purchased an 80% holding in Sanus Co for $13.8 million in cash.
Sanus Co's total comprehensive income for the year ended 31 December 20X4 was $2.0
million, accruing evenly over the year. Sanus Co did not pay any dividends in the year. Portus
Co also acquired a 30% holding in Allus Co on 1 July 20X4 for 500,000 of its own shares. The
stock market value of Portus Co's shares at the date of this share exchange was $9.40 each.
Portus Co has not yet recorded the investment in Allus Co. Allus Co 's reserves were $8.6
million on 1 July 20X4.
b) At the date of acquisition, the fair value of Sanus Co's assets were equal to their carrying
amounts, with the exception of the items listed below which exceeded their carrying amounts
as follows:
i. Inventories $300,000
ii. Plant & Equipment (10 years remaining useful life) $1,200,000
Sanus Co has not adjusted the carrying amounts as a result of the fair value exercise. The
inventories were sold by Sanus Co before the year end.
c) The non-controlling interest in Sanus Co is to be valued at its fair value of $3.2m at the date of
acquisition
An impairment test conducted at the year end revealed that the consolidated goodwill of Sanus
Co was impaired by $150,000.
Additionally, an impairment loss of $40,000 is to be recognised in respect of Portus Co's
investment in Allus Co in the group financial statements.

23
 d) On 1 October 20X4, Sanus Co sold goods to Portus Co for $200,000 at a gross profit margin of
40%. The goods were still in Portus Co's inventories at the year end. No other sales were made
between Portus Co and Sanus Co in the year.
At 31 December 20X4, Portus Co's current account with Sanus Co was $130,000 (credit). This
did not agree with the equivalent balance in Sanus Co's books due to cash in transit of $70,000
which was not received by Sanus Co until after the year end.
After the acquisition, Allus Co sold goods to Portus Co for $400,000 at a mark-up on cost of
25%. A quarter of these goods remained in Portus Co's inventories at the year end. After the
acquisition, Allus Co sold goods to Portus Co for $400,000 at a mark-up on cost of 25%. A
quarter of these goods remained in Portus Co's inventories at the year end.
Required: Prepare the consolidated statement of profit or loss and other comprehensive income for the
Portus Group for the year ended 31 December 20X4.

24
 Chapter 11: Financial Instruments.
Illustration 1: Jess Co issues $100,000 6% preference shares, redeemable on 1 January 20X6.
Required: Explain whether the preference shares are debt or equity.
Activity 1: Compound instruments
Rathbone Co issues 2,000 convertible bonds at the start of 20X2. The bonds have a three-year term, and
are issued at par with a face value of $1,000 per bond, giving total proceeds of $2,000,000. Interest is
payable annually in arrears at a nominal annual interest rate of 6%. Each bond is convertible into 250
ordinary shares.
The carrying amount of the liability element of the compound instrument can be measured based on an
interest rate of 9%, which is the prevailing market interest rate for similar debt without conversion
options.
Relevant discount rates:

• Present value of 9% interest rate after 3 years is 0.772

• Cumulative present value of 9% interest rate after 3 years is 2.531
Required: Calculate the value of the liability and equity components of the bond
Activity 2: Debt factoring
Freddo Co sold $300,000 of receivables to a debt factor for $270,000 on 1 July 20X1. The factor charges
interest of 5% per annum on amounts advanced. The factor collected $150,000 of the amounts due on
31 December 20X1. No other amounts were collected in 20X1, but the amounts due are still considered
recoverable. Under the terms of the agreement, any unpaid debts will be returned to Freddo Co for a
cash repayment on 1 July 20X2.
Required: Explain how Freddo should account for the debt factoring arrangement as at 31 Dec 20X2
Illustration 2: Financial assets at fair value
An entity holds an investment in shares in another company, which cost $45,000. At the date of purchase
the election was made to record changes in value in other comprehensive income for this asset. At the
year end, their value has risen to $49,000.
Required: How should the increase in value be accounted for?
Activity 3: Financial assets at fair value
Grafton Co's draft statement of financial position as at 31 March 20X8 shows financial assets at fair
value through profit or loss with a carrying amount of $9.5 million as at 1 April 20X7. These financial
assets are held in a fund whose value changes directly in proportion to a specified market index. At 1
April 20X7, the relevant index was 1,100 and at 31 March 20X8, it was 1,187.
Required: What amount of gain/loss should be recognised at 31 March 20X8 in respect of these assets?
Activity 4: Financial asset held at amortized cost
Zebidee Co purchases a deep discount bond with a par value of $500,000 on 1 January 20X1 for
proceeds of $440,000 with the intention of holding it until the redemption value is received. Annual
coupon payments of 5% are payable on 31 December. Zebidee Co incurred transaction costs of $5,867.
The bond will be redeemed on 31 December 20X3 at par. The effective interest rate on the bond has
been calculated at 9.3%.

25
Required: What is the interest income in the profit or loss for the year ended 31 December 20X2?
Activity 5: Financial liability at amortised cost
Dire Co issued 3,000 convertible bonds at par on 1 January 20X1. The bonds are redeemable on 31
December 20X4 at their par value of $100 per bond. The bonds pay interest annually in arrears at an
interest rate (based on nominal value) of 5%. Each bond can be converted at the maturity date into five
$1 shares. The prevailing market interest rate for four-year bonds that have no right of conversion is
8%. The present value at 8% of $1 receivable at end of
o Year 1: 0.926
o Year 2: 0.857
o Year 3: 0.794
o Year 4: 0.735
Required: Show the accounting treatment of the:
a) Bond at inception
b) Financial liability component at 31 December 20X1 using amortised cost

26
 Chapter 12: Leases
Illustration 1: Identifiable asset
Coketown Council has entered into a five-year contract with Carefleet Co, under which Carefleet Co
supplies the council with ten vehicles for the purposes of community transport. Carefleet Co owns the
relevant vehicle, all ten of which are specified in the contract. Coketown Council determines the routes
taken for community transport and the charges and eligibility for discounts.
The council can choose to use the vehicles for purposes other than community transport. When the
vehicles are not being used, they are kept at the council's offices and cannot be retrieved by Carefleet
Co, unless Coketown Council defaults on payment. If a vehicle needs to be serviced or repaired,
Carefleet Co is obliged to provide a temporary replacement vehicle of the same type.
Required: Does this contract contain a lease under the definition of IFRS 16?
Activity 1: Identifying a lease
Outandabout Co provides tours around places of interest in the tourist city of Sightsee. While these
tours are mainly within the city, it does the occasional day trip to visit tourist sites further away.
Outandabout Co has entered into a three-year contract with Fastcoach Co for the use of one of its
coaches for this purpose. The coach must seat 50 people, but Fastcoach Co can use any of its 50-seater
coaches when required.
Required: Is this a lease?
Activity 2: Leasing Case QTD
Bento Co leases an asset on 1 January 20X1. The terms of the lease are to pay a non-refundable deposit
of $575 followed by seven annual instalments of $2,000 payable in arrears. The present value of the
future lease payments, excluding the deposit, on 1 January 20X1 is $10,000.
The interest rate implicit in the lease is 9.2%.
Required:
a. What is the interest charge in the SOPL for the year ended 31 December 20X1?
b. What is the current and non-current liability balances included in the statement of financial
position as at 31 December 20X1?
Activity 3: Alpha Co makes up its accounts to 31 December each year. It enters into a lease (as lessee)
to lease an item of equipment with the following terms:

Inception of lease: 1 January 20X1

Term: Five years: $2,000 paid at commencement of lease,
followed by 4 payments of $2,000 payable in advance
Fair value: $8,000
Present value of future lease payments: $6,075
Useful life: 8 years
Interest implicit in the lease: 12%
Required:
a. What is the value of the right-of-use asset in the SOFP as at 31 December 20X1?
b. What is the non-current liability balance in the SOFP as at 31 December 20X1?

27
Activity 4: Oscar Co is preparing its financial statements for the year ended 30 June 20X6. On 1 May
20X6, Oscar made a payment of $32,000 for an eight-month lease of a milling machine. Oscar has
elected to utilise any lease exemptions available.
Required: What amount would be charged to Oscar Co's statement of profit or loss for the year ended
30 June 20X6 in respect of this transaction?
Activity 5: On 1 April 20X2, Wigton Co bought an injection moulding machine for $600,000. The
carrying amount of the machine as at 31 March 20X3 was $500,000. On 1 April 20X3, Wigton Co sold
it to Whitehaven Co for $740,000, its fair value. Wigton Co immediately leased the machine back for
five years, the remainder of its useful life, at $160,000 per annum payable in arrears. The present value
of the future lease payments is $700,000 and the transaction satisfies the IFRS 15 criteria to be
recognised as a sale.
Required: What gain should Wigton Co recognise for the year ended 31 March 20X4 as a result of the
sale and leaseback?
Activity 6: Capital Co entered into a sale and leaseback on 1 April 20X7. It sold a lathe with a carrying
amount of $300,000 for $400,000 (equivalent to fair value) and leased it back over a five-year period,
equivalent to its remaining useful life. The transaction constitutes a sale in accordance with IFRS 15.
The lease provided for five annual payments in arrears of $90,000. The rate of interest implicit in the
lease is 5%. The cumulative value of $1 in five years' time is $4.329.
Required: What are the amounts to be recognised in the financial statements at 31 March 20X8 in
respect of this transaction?

28
 Chapter 13: Provisions and Events after reporting date
Activity 1: Discounting the provision
Cambridge Co is preparing the financial statements for the year ended 31 December 20X5. Cambridge
Co knows that when it ceases a certain operation in five years' time it will have to pay environmental
clean-up costs of $5 million. The relevant discount rate in this case is 10%.
The discounted values of $1 are as follows:

• $1 in five years= $0.621; $1 in four years = $0.683

Required:
a) Calculate the provision required for the year end 31 December 20X5.
b) Calculate the provision required for the year end 31 December 20X6.
Activity 2: Warranties
Warren Co gives warranties, at no additional cost, to its customers. There is no legal requirement to
repair or replace these items after 28 days, but Warren Co promises, on its website, to make good, by
repair or replacement, manufacturing defects that become apparent within a period of one year from the
date of the sale. Warren Co has replaced between 4% and 6% of total sales of the product in the past
five years.
Required: Which of the following statements about the above scenario is correct?
o Warren Co is not required to make a provision because there is no legal obligation to undertake
the repair work.
o Warren Co has an obligation to repair or replace all items of product that show manufacturing
defects, therefore a provision for the cost of this should be made.
o Warren Co has an obligation to repair or replace all items that show manufacturing defects,
however, as the amount cannot be reliably estimated, no provision is required.
o Warren Co must make a provision under IAS 37 because this is a potential future operating loss
Activity 3: Decommissioning costs
Petrolleo Co built an oil rig at a cost of $80 million. The oil rig came into operation on 1 January 20X2.
The operating licence is for 20 years from 1 January 20X2, after which time Petrolleo Co is obliged to
dismantle the oil rig and dispose of the parts in an environmentally friendly way. At 1 January 20X2,
the cost of dismantling was estimated at $10 million. An appropriate discount rate is 6%, when the
present value of $1 is $0.312 in 20 years' time.
Which of the following statements are TRUE?
o A legal obligation to dismantle the rig exists from 1 January 20X2, therefore a provision should
be recognised at that date and expensed through the profit or loss immediately.
o A legal obligation to dismantle the rig exists from 1 January 20X2, therefore a provision should
be recognised at that date and added to the cost of the asset.
o A legal obligation accrues over the 20-year operating life of the asset, therefore the provision
should be accrued over the period.
o No obligation exists until the rig is dismantled and thus no provision is required.
What is the value of the provision in the statement of financial position at 31 December 20X2?
o Nil
o $500,000

29
 o $3,118,000
o $3,307,000
What is the carrying amount of the oil rig asset at 31 December 20X2?
o $76 million
o $78.964 million
o $83.118 million
o $85.5 million
Activity 4: Onerous contract
You have a contract to buy 300 metres of silk from China Co each month for $9 per metre. From each
metre of silk, you make one silk shirt. You also incur labour and other direct variable costs of $8 per
shirt. Usually you can sell each shirt for $22 but in late July 20X8 the market price falls to $14. You are
considering ceasing production since you think that the market may not improve.
If you decide to cancel the silk purchase contract without two months' notice you must pay a cancellation
penalty of $1,200 for each of the next two months.
Required: What will appear in respect of the contract in your financial statements for the period ending
31 July 20X8?
o $1,800
o $2,400
o $8,400
o $10,200
Activity 5: Constructive obligation for business closure
On 12 December 20X1, the board of Shutdown Co decided to close down a division. The detailed plan
was agreed by the board on 20 December 20X1, and letters sent to notify customers. By the year end
of 31 December 20X1, the staff had received redundancy notices.
Explain the appropriate accounting treatment for the closure for the year ended 31 December 20X1.
Activity 6: Provision or not?
In which of the following circumstances might a provision be recognised?
a. On 13 December 20X9, the board of an entity decided to close down a division. The accounting
date of the company is 31 December. Before 31 December 20X9 the decision was not
communicated to any of those affected and no other steps were taken to implement the decision.
b. The board agreed a detailed closure plan on 20 December 20X9 and details were given to
customers and employees.
c. A company is obliged to incur clean-up costs for environmental damage (that has already been
caused).
d. A company intends to carry out future expenditure to operate in a particular way in the future.
Illustration 1: Product recall
Jackaboo Co has an accounting year-end of 31 December 20X5. On 14 February 20X6, Jackaboo Co
released a product recall for its Bimblebat. It was discovered in February, that a batch of the resin used
to manufacture the Bimblebat was faulty, with the effect of all products manufactured between 10
November 20X5 and 2 December 20X5 were fundamentally flawed.

30
The supplier of the resin has taken full responsibility and will reimburse Jackaboo Co for any costs
relating to the recall.
Required: Advise whether a provision is required in respect of this transaction at the 31 December 20X5
year end.
Activity 7: Provision or contingency?
During 20X0 Smack Co gives a guarantee of certain borrowings of Pony Co, whose financial condition
at that time is sound. During 20X1, the financial condition of Pony Co deteriorates and at 30 June 20X1
Pony Co files for protection from its creditors.
Required: What accounting treatment is required? At 31 December 20X0 and at 31 December 20X1
Activity 8: IAS 10
Which ONE of the following events taking place after the year-end but before the financial statements
were authorised for issue would require adjustment in accordance with IAS 10 Events After the
Reporting Period?
o Three lines of inventory held at the year-end were destroyed by flooding in the warehouse.
o The directors announced a major restructuring.
o Two lines of inventory held at the year-end were discovered to have faults rendering them
unsaleable.
o The value of the company's investments fell sharply.
Activity 9: Provisions
Extraction Co prepares its financial statements to 31 December each year. During the years ended 31
December 20X0 and 31 December 20X1, the following event occurred:
Extraction Co is involved in extracting minerals in a number of different countries. The process
typically involves some contamination of the site from which the minerals are extracted. Extraction Co
makes good this contamination only where legally required to do so by legislation passed in the relevant
country.
The company has been extracting minerals in Copperland since January 20W8 and expects its site to
produce output until 31 December 20X5. On 23 December 20X0, it came to the attention of the directors
of Extraction Co that the government of Copperland was virtually certain to pass legislation requiring
the making good of mineral extraction sites. The legislation was duly passed on 15 March 20X1. The
directors of Extraction Co estimate that the cost of making good the site in Copperland will be $2
million. This estimate is of the actual cash expenditure that will be incurred on 31 December 20X5.
Required: Compute the effect of the estimated cost of making good the site on the financial statements
of Extraction Co for BOTH of the years ended 31 December 20X0 and 20X1. Give full explanations of
the figures you compute.

31
 Chapter 14: Inventories and biological assets
Illustration 1: Value of inventory
The following figures relate to inventory held at the year-end:
A B C
Cost ($) 20 9 12
Selling price ($) 30 12 22
Modification cost to enable sale ($) - 2 8
Marketing costs ($) 7 2 2
Units held 200 150 300

Required: Calculate the value of inventoru held at the year-end in accordance with IAS2 Inventories
Activity 1: Write down of inventory
Teddy Co has 500 items of product HGJ in inventory at 31 October 20X8. These items are no longer
saleable in their current condition. However, they can be adjusted for a cost of $2.50 per item. Once
adjusted, the items can be sold at their normal price of $5.30 each.
The original cost of the items was $2.25 each. The replacement cost of item HGJ at 31 October 20X8
is $2.45 each.
Required: What should Teddy Co recognise in relation to its inventory at 31 October 20X8?
Activity 2: Biological assets
Which of the following are examples of biological assets?
(i) Sheep
(ii) Fruit trees
(iii) Wool
(iv) Fruit juice

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 Chapter 15: Taxation
Illustration 1: Darton Co
In 20X8, Darton Co had taxable profits of $120,000. In the previous year, (20X7) income tax on profits
had been estimated as $30,000. The income tax rate is 30%.
Required: Calculate tax payable and the charge for 20X8 if the tax due on 20X7 profits was
subsequently agreed with the tax authorities as:
a) $35,000; or
b) $25,000
Any under- or over-payments are not settled until the following year's tax payment is due.
Activity 1: Current Tax
A provision of $60,000 is required for income tax on the profits for the year ended 31 December 20X8.
The balance on current tax in the trial balance is an under/over provision for tax in the previous year
and is shown below.
Current Tax $850 Cr
Required: What is the tax expense to be shown in the statement of profit or loss and the tax liability to
be included in the statement of financial position for the year ended 31 December 20X8?
Activity 2: Tax base
State the tax base of each of the following assets and any temporary difference arising.
a) A machine costs $10,000 and has a carrying amount of $8,000. For tax purposes, depreciation of
$3,000 has already been deducted in the current and prior periods and the remaining cost will be
deductible in future periods, either as depreciation or through a deduction on disposal. Revenue
generated by using the machine is taxable, any gain on disposal of the machine will be taxable
and any loss on disposal will be deductible for tax purposes.
b) Interest receivable has a carrying amount of $1,000. The related interest revenue will be taxed on
a cash basis.
c) Trade receivables have a carrying amount of $10,000. The related revenue has already been
included in taxable profit (tax loss).
d) A loan receivable has a carrying amount of $1 million. The repayment of the loan will have no
tax consequences.
Activity 3: Deorf Co
Deorf Co incurs $80,000 of tax losses in the year ended 31 December 20X1 which it can carry forward
for two accounting periods before they expire. Deorf Co expects to make a loss in 20X2 and to return
to profitability in 20X3, expecting to make a profit of $50,000 in that year. The company pays tax at
20%. What is the deferred tax balance in the statement of financial position at 31 December 20X1?
Required: What is the deferred tax balance in the statement of financial position at 31 December 20X1?
Activity 4: Awkward Co
Awkward Co buys an item of equipment on 1 January 20X1 for $1,000,000. It has a useful life of 10
years and an estimated residual value of $100,000. The equipment is depreciated on a straight-line basis.
For tax purposes, a tax expense can be claimed on a 20% reducing balance basis. The rate of income
tax can be taken as 30%.

33
Required: In respect of the above item of equipment, calculate the deferred tax charge/credit in the
profit or loss of Awkward Co for the year to 31 December 20X2 and the deferred tax balance in the
statement of financial position at that date.

Activity 5: Neil Down Co

In the accounting year to 31 December 20X3, Neil Down Co generated a profit before tax of $110,000.
Income tax on the profit before tax has been estimated as $45,000. In the previous year (20X2), income
tax on profits had been estimated as $38,000 but it was subsequently agreed at $40,500. A transfer to
the credit of the deferred taxation account of $16,000 will be made in 20X3.
Required:
a) Calculate the tax on profits for 20X3 for disclosure in the accounts.
b) Calculate the amount of tax payable

34
 Chapter 16: Preparation of Published Financial Statements
Activity 1: Mandolin Co
Mandolin Co is a quoted manufacturing company. Its finished products are stored in a nearby warehouse
until ordered by customers. Mandolin Co has performed very well in the past, but has been in financial
difficulties in recent months and has been organising the business to improve performance.
The trial balance for Mandolin Co at 31 March 20X3 was as follows:

Additional information provided:

(a) The property, plant and equipment are being depreciated as follows:

• Buildings 5% per annum straight-line

• Plant and equipment 25% per annum reducing balance
• Depreciation of buildings is considered an administrative cost while depreciation of plant
and equipment should be treated as a cost of sale.
(b) On 31 March 20X3, the land was revalued to $24,000,000.
(c) Income tax for the year to 31 March 20X3 is estimated at $976,000. Ignore deferred tax.

35
(d) The closing inventories at 31 March 20X3 were $5,180,000. An inspection of finished goods
found that a production machine had been set up incorrectly and that several production batches, which
had cost $50,000 to manufacture, had the wrong packaging. The goods cannot be sold in this condition
but could be repacked at an additional cost of $20,000. They could then be sold for $55,000. The
wrongly packaged goods were included in closing inventories at their cost of $50,000.
(e) The 7% loan notes are ten-year loans due for repayment by 31 March 20X7. Interest on these
loan notes needs to be accrued for the six months to 31 March 20X3.
(f) The restructuring costs in the trial balance represent the cost of a major restructuring of the
company to improve competitiveness and future profitability.
(g) No fair value adjustments were necessary to the investment properties during the period.
(h) During the year, the company issued 2 million new ordinary shares for cash at $1.20 per share.
The proceeds have been recorded as 'Proceeds of share issue'.
Required: Prepare the statement of profit or loss and other comprehensive income and statement of
changes in equity for Mandolin Co for the year to 31 March 20X3 and a statement of financial position
at that date.

36
 Chapter 17: Reporting financial performance
Activity 1: IAS 8
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides guidance as to how
to account for prior period errors.
Required: Which of the following options describe a prior period error?
o A material decrease in the valuation of the closing inventory resulting from a change in
legislation affecting the saleability of the company's products.
o The discovery of a significant fraud in a foreign subsidiary resulting in a write-down in the
valuation of its assets. The perpetrators have confessed to the fraud which goes back at least
five years.
o The company has a material under provision for income tax arising from the use of incorrect
data by the tax advisers acting for the company.
o A deterioration in sales performance has led to the directors restating their methods for the
calculation of the general irrecoverable debt provision
Activity 2: Starlight Co
Starlight Co has an asset with a carrying amount of $150,000 at 1 January 20X3 held under the cost
model (cost $200,000) and being depreciated straight line over an eight-year life to a nil residual value.
At 1 July 20X3, Starlight Co classifies the asset as held for sale (and all necessary criteria is met). At
that date, it is estimated that the asset could be sold for $135,000 and that it would cost $1,000 to secure
the sale. What is the impairment loss to be charged to the profit or loss on 1 July 20X3?
o $2,500
o $3,500
o $7,000
o $9,000
Activity 3: Milligan Co

During the year, Milligan Co ran down a material business operation with all activities ceasing on 26
December 20X1. The results of the operation for 20X1 were as follows:

37
Milligan Co recognised a loss of $30,000 on initial classification of the assets of the discontinued
operation as held for sale, followed by a subsequent gain of $120,000 on their disposal in 20X1. These
have been netted against administrative expenses. The income tax rate applicable to profits on
continuing operations and tax savings on the discontinued operation's losses is 30%.
Required: Prepare the statement of profit or loss and other comprehensive income for the year ended
31 December 20X1 for Milligan Co complying with the provisions of IFRS 5.
Activity 4: Foreign Exchange
San Francisco Co, a company whose functional currency is the dollar, entered into the following foreign
currency transaction:
31.10.X8 Purchased goods from Mexico SA for 129,000 Mexican pesos
31.12.X8 Payables have not yet been paid
31.1.X9 San Francisco Co paid its payables
The exchange rate are as follows:
Pesos to $1
31.10.X8 9.5
31.12.X8 10.0
31.1.X9 9.7
How would this transaction be recorded in the books of San Francisco Co as at 31 December 20X8?

38
 Chapter 18: Earnings per share
Activity 1: Calculation of earnings
An extract from Apricot's consolidated statement of profit or loss for the year ended 31 December 20X9
is as follows:
Profit for the year attributable to:
o Owners of the parent $7,000,000
o Non-controlling interests $1,000,000
On 1 January 20X9, Apricot issued 500,000 $1 6% irredeemable preference shares. Apricot also had in
issue for the full year 900,000 $1 5% redeemable preference shares. All preference dividends were paid
in full on 31 December 20X9.
Required: Calculate the earnings figure that should be used in the basic EPS calculation for the year
ended 31 December 20X9.
Activity 2: Bonus issue
Grey matter Co has a year end of 31 December 20X2. It had 400,000 shares in issue until 30 September
20X2 when it made a bonus issue of 100,000 shares. Its earnings for 20X2 were $80,000 and its EPS
20X1 was $0.1875. Calculate the EPS for 20X2 and the restated figure for 20X1.
Activity 3: Basic EPS

• On 1 January 20X1, Saunders Co had 2,000,000 ordinary shares in issue.

• On 30 April 20X1, Saunders Co issued, at full market price, 270,000 ordinary shares.
• On 31 July 20X1, a rights issue of 1 for 10@ $2.00 was made. The fair value of the shares on
the last day before the issue of shares from the rights issue was $3.10.
• Finally, on 30 September 20X1, Saunders Co made a 1 for 20 bonus issue.
• Profit for the year was $400,000.
• The reported EPS for the year ended 31 December 20X0 was 18.6c.
Required:
a) What is the weighted average number of shares for 31 December 20X1?
b) What is the earnings per share for the year ended 31 December 20X1?
c) What is the restated earnings per share for the year ended 31 December 20X0?
Activity 4: Diluted EPS – Convertible debt
Acorn Co had the same 10 million ordinary shares in issue on both 1 April 20X1 and 31 March 20X2.
On 1 April 20X1, the company issued 1.2 million $1 units of 5% convertible loan stock. Each unit of
loan stock is convertible into four ordinary shares on 1 April 20X9 at the option of the holder.
The following is an extract from Acorn Co's SPLOCI for the year ended 31 March 20X2:
$’000
Profit before interest and tax 980
Finance cost on 5% convertible loan stock (60)
Profit before tax 920
Income tax at 30% (276)
Profit for the year 644
Required: What is the diluted earnings per share for the year ended 31 March 20X2?

39
Activity 5: Diluted EPS – options
Galaxy Co has a profit for the year of $3 million for the year. 1.4 million ordinary shares were in issue
during the year.
Galaxy Co also had 250,000 options outstanding for the whole year with an exercise price of $15. The
AMP of one ordinary share during the period was $20.
Required: What is the diluted EPS?

40
 Chapter 19: Interpretation of financial statements
Activity 1: Return on Capital Employed
Extracts from the financial statements of Burke for the year ended 31 December 20X1 are shown below:

Required: Calculate Burke's return on capital employed for the year ended 31 December 20X1. Give
your answer as a percentage to one decimal place.
Activity 2: Profitability ratios
The following information is available for two potential acquisition targets. The entities have similar
capital structures and both operate in the manufacturing sector.
Required: Which THREE of the following statements give realistic conclusions that could be drawn
from the above information? Tick the correct answers.
Fulton Hutton
Revenue $460m $240m
Gross profit margin 25% 14%
Net profit margin 10% 9%

o Hutton has sourced cheaper raw materials than Fulton

o Fulton operates its production process more efficiently than Hutton with less wastage and more
goods produced per machine hour.
o Hutton operates in the low price end of the market but incurs similar manufacturing costs to
Fulton.
o Fulton's management exercises better cost control of the entity's non-production overheads than
Hutton's management.
o Hutton has access to cheaper interest rates on its borrowings than Fulton.
Activity 3: Liquidity
Which of the following independent options is the most likely cause of the movement in Robbo's current
ratio? Given the current ratio is 2.1 in the year 20X3 and 2.4 in the year 20X2

41
Tick the correct answer.
o Replacement of an overdraft with a long-term loan
o A decrease in the length of credit terms offered by suppliers
o As issue of five-year bonds
o A significant write down of obsolete inventory
Activity 4: Working capital ratios
Tungsten Co has the following working capital ratios:
20X9 20X8
Current ratio 1.2 1.5
Receivables collection period 75 days 50 days
Payables payment period 30 days 45 days
Inventory holding period 42 days 35 days

Required: Which TWO of the following statements are correct?

o Tungsten Co's liquidity and working capital has improved in 20X9.
o Tungsten Co is receiving cash more quickly from customers in 20X9 than in 20X8.
o Tungsten Co is suffering from a worsening liquidity situation in 20X9
o Tungsten Co is paying its suppliers more quickly in 20X9 than in 20X8.
Activity 5: Gearing
The following is an extract from the statement of financial position of Fleck Co:

Required: What is the gearing ratio for Fleck (calculated as debt/(debt + equity))? Give your answer as
a percentage to one decimal place.

42
Activity 6: Stakeholder
Yogi Co is a public company and extracts from its most recent financial statements are provided below:

43
Notes
(a) On 1 April 20X4, Yogi Co sold the net assets (including goodwill) of a separately operated division
of its business for $8 million cash on which it made a profit of $1 million. This transaction required
shareholder approval and, in order to secure this, the management of Yogi Co offered shareholders a
dividend of 40 cents for each share in issue out of the proceeds of the sale. The trading results of the
division which are included in the SOPL for the year ending 31 March 20X4 above are:

(b) Key ratios for Yogi Co for 20X4 (as originally reported) are as follows:

Required: Calculate the equivalent ratios for Yogi Co:

a) For the year ended 31 March 20X4, after excluding the contribution made by the division that
has been sold; and
b) For the year ended 31 Morch 20X5, excluding the profit on the sale of the division.
Required: Comment on the comparative financial performance and position of Yogi Co for the year
ended 31 March 20X5.
Activity 7: Single entity interpretation
Below are the summarised financial statements for the year to 31 March 20X5 and 20X6 of Heywood
Bottles Co, a company which manufactures bottles for many different drinks companies.

44
Note. The statements for the year to 31 March 20X6 have not been audited.
The directors were disappointed in the profit for the year to 31 March 20X5 and held a board meeting
in April 20X5 to discuss future strategy. The Managing Director was insistent that the way to improve
the company's results was to increase sales and market share. As a result, the following actions were
implemented.
a) An aggressive marketing campaign costing S12 million was undertaken. Due to expected long-
term benefits S6 million of this has been included as a current asset in the statement of financial
position at 31 March 20X6.
b) A 'price promise' to undercut any other supplier's price was announced in the advertising
campaign.
c) A major contract with Koola Drinks Co was signed that accounted for a substantial proportion
of the company's output. This contract was obtained through very competitive tendering.
d) The credit period for receivables was extended from two to three months.
A preliminary review by the board of the accounts to 31 March 20X6 concluded that the company's
performance had deteriorated rather than improved. There was particular concern over the prospect of
renewing the bank facility because the maximum agreed level of S30 million had been exceeded. The
board decided that it was time to seek independent professional advice on the company's situation.

45
Required: In the capacity of a business consultant, prepare a report for the board of Heywood Bottles
Co based on a review of the company's performance for the year to 31 March 20X6 in comparison with
the previous year. Particular emphasis should be given to the effects of the implementation of the actions
referred to in points (a) to (d) above.

46
 Chapter 20: Limitations of financial statements and
interpretation techniques
Activity 1: Which THREE of the following are valid limitations of ratio analysis of published financial
statements?
o Published financial statements are frequently unreliable as a result either of fraud or of error on
the part of management.
o Published financial statements contain estimates such as depreciation.
o There are no prior year figures to compare to current year figures.
o Accounting policies may vary between companies, making comparisons difficult.
o The nature and character of a business may change over time, making strictly numerical
comparisons misleading.
o The nature of the industry may be volatile, making intercompany comparison within the
industry misleading
Activity 2: Interpreting asset turnover ratio
An analyst is comparing the non-current asset turnover ratios of two listed businesses engaged in similar
activities. The non-current asset turnover ratio of one entity is almost 50% higher than that of the other
entity, and she concludes that the entity with the higher non-current asset turnover ratio is utilising its
assets far more effectively.
Required: Which THREE of the following suggest this conclusion might not be valid?
o One entity revalues its properties and the other entity holds its assets under the historical cost
model.
o One entity buys its assets for cash and the other entity leases its assets under long-term leases
for all, or substantially all, the asset's useful life.
o One entity has assets nearing the end of their useful life, whilst the other entity has recently
acquired new assets.
o One entity depreciates its assets over a much shorter useful life than the other entity.
o One entity pays a higher rate of interest on its borrowings than the other.
o One entity has significantly higher gearing than the other.

47
 Chapter 21: Preparation of Statement of Cash Flows
Activity 1: Thorstved Co
Below are the statements of financial position for Thorstved Co at 31 December 20X7 and 31 December
20X8 and the statement of profit or loss and OCI for the year ended 31 December 20X8.
a) Depreciation of property, plant and equipment during 20X8 was $54,000 and deferred
development expenditure amortised was $25,000.
b) Proceeds from the sale of equipment were $58,000, giving rise to a profit of $7,000. No other
items of property, plant and equipment were disposed of during the year.
c) Finance costs represent interest paid on the loan notes. New loan notes were issued on 1 January
20X8.
d) The company revalued its property at the year end. Company policy is to treat revaluations as
realised profits when the asset is retired or disposed of.

48
Required: Prepare a statement of cash flows for Thorstved Co for the year ended 31 December 20X8,
using the indirect method in accordance with IAS 7.
Activity 2: Colby Co
Colby Co's statement of profit or loss for the year ended 31 December 20X2 and statements of
financialposition at 31 December 20X1 and 31 December 20X2 were as follows.
• During the year, the company paid $90,000 for a new piece of machinery.
• Dividends paid during 20X2 totalled $66,000 and interest paid was $28,000.

Colby Co
Statement of Profit or Loss for the year ended 31 Dec 20X2
$’000 $’000
Revenue 720
COGS (70)
Gross profit 650
Wages expense 94
Depreciation Expense 118
Loss on disposal of Non-current Asset 18
(230)
420
Interest expense (28)
Profit before tax 392
Income tax expense (124)
Profit for the year 268

Colby Co
Statement of Financial Position as at 31 December
20X2 20X1
$’000 $’000 $’000 $’000
Assets
Property, plant and equipment
Cost 1,596 1,560
Accumulated depreciation 318 224
1,278 1,336
Current Assets
Inventory 24 20

49
 Trade receivables 76 58
Bank 48 56
148 134
Total Assets 1,426 1,470
Equity and liabilities
Equity
Share Capital 360 340
Share Premium 36 24
Retained Earnings 716 514
Total Equity 1,112 878
Liabilities
Non-current loans 200 500
Current liabilities
Trade payables 12 6
Tax payable 102 86
114 92
Total liabilities 314 592
Total equity and liabilities 1,426 1,470

Required: Prepare a statement of cash flows for Colby Co for the year ended 31 December 20X2 in
accordance with the requirements of IAS 7, using the indirect method.
Activity 3: Helium Co had the following transactions during the year.
a) Purchases from suppliers were $19,500, of which $2,550 was unpaid at the year end. Brought
forward payables were $1,000.
b) Wages and salaries amounted to $10,500, of which $750 was unpaid at the year end. The
accounts for the previous year showed an accrual for wages and salaries of $1,500.
c) Interest of $2,100 on a long term loan was paid in the year. ·
d) Sales revenue was $33,400, including $900 receivables at the year end. Brought forward
receivables were $400.
e) Interest on cash deposits at the bank amounted to $75.
Required: Calculate the cash flow from operating activities using the direct method.

50
 Chapter 21: Interpretation of Statement of Cash Flows
Activity 1: Tabba Co
The following draft financial statements relate to Tabba Co, a private company:

51
Additional information
a) During the year Tabba Co sold its factory for its fair value $12 million.
b) Plant acquired under leases during the year gave rise to right-of-use assets of $1.5 million.
Required: Using the information above, comment on the change in the financial position of Tabba Co
during the year ended 30 September 20X5.

52
Activity 2: Interpretation of a cash flow for Emma Co

53
The following information is available

Required: Refer to the financial statements and additional information relating to Emma Co.
Using the information referenced above, comment on the change in the financial position of Emma Co
during the year ended 30 September 20X5.

54
Activity 3: Financial adaptability
The following is an extract from the statement of cash flows of Quebec Co for the year ended 31
December 20X1:

Required: Based on the information provided, which of the following independent statements would be
a realistic conclusion about the financial adaptability of Quebec Co for the year ended 31 December
20X1?
o The failure of Quebec Co to raise long-term finance to fund its investing activities has resulted
in a deterioration of Quebec Co's financial adaptability and liquidity.
o Quebec Co must be in decline as there is a negative cash flow relating to investing activities.
o The management of Quebec Co has shown competent stewardship of the entity's resources by
relying on an overdraft to fund the excess outflow on investing activities not covered by the
inflow from operating activities.
o The working capital management of Quebec Co has deteriorated year on year.

55