Assignment 1

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ASSIGNMENT 1
1. Although most items in financial statements are shown at their historical cost, increasingly the IASB is
requiring or allowing current cost to be used in many areas of financial reporting. Drexler acquired an
item of plant on 1 October 2012 at a cost of $500,000. It has an expected life of five years (straight-line
depreciation) and an estimated residual value of 10% of its historical cost or current cost as appropriate.
As at 30 September 2014, the manufacturer of the plant still makes the same item of plant and its current
price is $600,000.
What is the correct carrying amount to be shown in the statement of financial position of Drexler
as at 30 September 2014 under historical cost and current cost?
Historical cost current cost
$ $
A 320,000 600,000
B 320,000 384,000
C 300,000 600,000
D 300,000 384,000
2. Recognition is the process of including within the financial statements items which meet the definition of
an element according to the IASB’s Conceptual Framework for Financial Reporting.
Which of the following items should be recognised as an asset in the statement of financial position
of a company?
A A skilled and efficient workforce which has been very expensive to train. Some of these staff are still in
the employment of the company
B A highly lucrative contract signed during the year which is due to commence shortly after the year end
C A government grant relating to the purchase of an item of plant several years ago which has a remaining
life of four years
D A receivable from a customer which has been sold (factored) to a finance company. The finance
company has full recourse to the company for any losses
3. Comparability is identified as an enhancing qualitative characteristic in the IASB’s Conceptual framework

for financial reporting.
Which of the following does NOT improve comparability?
A Restating the financial statements of previous years when there has been a change of accounting policy
B Prohibiting changes of accounting policy unless required by an IFRS or to give more relevant and
reliable information
C Disclosing discontinued operations in financial statements
D Applying an entity’s current accounting policy to a transaction which an entity has not engaged in
before
4. Which of the following is NOT the outcome of a biological transformation according to IAS 41?
A Growth
B Harvest
C Procreation
D Degeneration
5. The IASB’s Conceptual framework for financial reporting defines recognition as the process of
incorporating in the financial statements an item which meets the definition of an element and satisfies
certain criteria.
Which of the following elements should be recognised in the financial statements of an entity in the
manner described?
A As a non-current liability: a provision for possible hurricane damage to property for a company located
in an area which experiences a high incidence of hurricanes
B In equity: irredeemable preference shares
C As a trade receivable: an amount of $10,000 due from a customer which has been sold (factored) to a
finance company with no recourse to the seller
D In revenue: the whole of the proceeds from the sale of an item of manufactured plant which has to be
maintained by the seller for three years as part of the sale agreement
6. Trasten Co operates in an emerging market with a fast-growing economy where prices increase
frequently.
Which of the following statements are true when using historical cost accounting compared to
current value accounting in this type of market?
(1) Capital employed which is calculated using historical costs is understated compared to current value
capital employed
(2) Historical cost profits are overstated in comparison to current value profits
(3) Capital employed which is calculated using historical costs is overstated compared to current value
capital employed
(4) Historical cost profits are understated in comparison to current value profits
A 1 and 2
B 1 and 4
C 2 and 3
D 3 and 4
7. In preparing financial statements for the year ended 31 March 20X6, the inventory count was carried out
on April 20X6. The value of inventory counted was $36 million. Between 31 March and 4 April goods with
a cost of $2.7 million were received into inventory and sales of $7.8 million were made at a mark-up on
cost of 30%.
At what amount should inventory be stated in the statement of financial position as at 31 March
20X6?
$ …………………..

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3. Comparability is identified as an enhancing qualitative characteristic in the IASB’s Conceptual framework

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