PAF – Karachi Institute of Economics and Technology City Campus

Course: Financial Reporting F-7

Faculty: Jalal Ahmad Khan
Class ID: 111361
Semester : Fall 2022
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Name: Habiba M Farooq.

Reg ID # 64551.
ASSIGN #5:

Q1. Define the financial instruments?

A1. Any asset which holds capital and can be traded in the market is referred to as a financial
instrument. Some examples of financial instruments are cheques, shares, stocks, bonds,
futures, and options contracts.
Q2. What is factoring of receivables?
A2. Accounts receivable factoring is a way of financing your business by selling unpaid invoices for cash
advances. A factoring company pays you a large percentage of the outstanding invoice amount, follows
up with your customer for payment, and then pays you the remainder of what you're owed, minus fees.
Kit questions:
1. 171- 175 MCQ bank- leasing.
171 On 1 January 20X6 Fellini hired a machine under a lease. The present value of the lease
payments was $3.3 million. Instalments of $700,000 are payable annually in advance with
the first payment made on 1 January 20X6. The interest rate implicit in the lease is 6%. What
amount will appear under non-current liabilities in respect of this lease in the statement of
financial position of Fellini at 31 December 20X7? [Answers to nearest $'000].
A. 171 $,000 Initial liability 3,300
Payment (700)
2,600
Interest 6% 156
Balance 31.12.X6 2,756
Payment (700)
2,056
Interest 6% 123
Balance 31.12.X7 2,179
Current 700 Non-current 1,479
172 Which of the following situations does NOT suggest that an arrangement constitutes a
lease?
A. D The lessee does not have right of use of an identified asset as the lessor has
substitution rights.
 173 A company acquired an item of plant under a lease on 1 April 20X7. The present value of the
lease payments was $15.6 million and the rentals are $6 million per annum paid in arrears
for three years on 31 March each year. The interest rate implicit in the lease is 8% per
annum. What amount will appear under current liabilities in respect of this lease in the
statement of financial position at March 2018?
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A. $'000 Initial liability 15,600
Interest 8% 1,248
Payment (6,000)
Balance 31.3.X8 10,848
Interest 8% 868
Payment (6,000)
Balance 31.3.X9 5,716
Current liability = 10,848 – 5,716 = 5,132
174 At what amount does IFRS 16 Leases require a lessee to measure a right-of-use asset
acquired under a lease?
A. C Lease liability + other direct costs + prepayments – incentives.
175 On 1 October 20X3, Fresco acquired an item of plant under a five-year lease agreement. The
initial measurement of the liability was $25 million. The agreement had an implicit finance
cost of 10% per annum and required an immediate deposit of $2 million and annual rentals
of $6 million paid on 30 September each year for five years. What will be the interest
charged in respect of this lease in Fresco's statement of profit or loss as a at sep 2015 20*5
A. D $'000 Liability 1 October 20X3 (25m – 2m) 23,000
Interest at 10% for y/e 30 September 20X4 2,300
Payment (6,000)
Balance 30 September 20X4 19,300
Interest at 10% for y/e 30 September 20X5 1,930.
2. 181- 185 fino MCQ case.
181. Over what period should Fino depreciate the right-of-use asset?
A. D From the commencement of the lease to the shorter of the end of the lease term and
the end of the useful life of the plant.
182. Fino incurred initial direct costs of $20,000 and received lease incentives from the
manufacturer totaling $7,000. After four years it will have to dismantle the plant at an
estimated (discounted) cost of $15,000. What is the initial measurement of the right-of-use
asset?
A. B $378,000 $'000
Lease liability 350
Initial direct costs 20
Dismantling costs 15
Lease incentives (7) 378
183. The finance director questions why the lease payments cannot be simply charged to
profit or loss. Which TWO of the following, if true, would indicate that this was the correct
treatment?
 A. B Where the agreement is for less than 12 months or the underlying asset is of low value,
lease payments can be charged directly to profit or loss.
184. What is the amount that should be shown under non-current liabilities at 30 September
20X7 in respect of this plant?
A. A $
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Opening liability 1.4.X7 350,000
1.4. X7 payment (100,000)
Balance 1.4.X7 250,000
Interest to 30.9.X7 (250,000 × 10% × 6/12) 12,500
Balance 30.9.X7 262,500
Interest to 1.4.X8 (250,000 × 10% × 6/12) 12,500
1.4. X8 payment (100,000)
Capital balance due 30.9.X8 175,000
185. On 1 April 20X7 Fino also took out a lease on another piece of equipment. The lease
runs for ten months and payments of $1,000 per month are payable in arrears. As an
incentive to enter into the lease, Fino received the first month rent free. What amount
should be recognized as payments under short-term leases for the period up to 30
September 20X7?
A. D ((9,000/10) × 6) = $5,400.
3. 186-190 mcqs bank – provisions and events after the reporting period.
186. What is the amount of the provision that should be made by Candle in accordance with
IAS 37 Provisions, contingent liabilities and contingent assets?
A. D Loss of the case is not 'probable', so no provision is made, but the legal costs will have
to be paid so should be provided for.
187. How should this $2 million future cost be recognized in the financial statements?
A. A $2 million should be provided for and capitalized as part of the cost of the mine. It will
then be depreciated over the useful life.
188. Which one of the following would NOT be valid grounds for a provision?
A. D The cost of the overhaul will be capitalized when it takes place. No obligation exists
before the overhaul is carried out. The other options would all give rise to valid
provisions.
189. Which one of the following events taking place after the year end but before the
financial statements were authorized for issue would require adjustment in accordance with
IAS 10 Events after the reporting period?
A. C We can assume that these faults also existed at the year end, so this is the only option
which would require adjustment. The others have all taken place after the year end.
190. Which of the following statements are correct in accordance with IAS 37 Provisions,
contingent liabilities and contingent assets?
A. B A restructuring provision must not include the costs of retraining or relocating staff.
4. 209- 211 MCQ bank – accounting for taxation.
209. A company's trial balance shows a debit balance of $2.1 million brought forward on current
tax and a credit balance of $5.4 million on deferred tax. The tax charge for the current year is
 estimated at $16.2 million and the carrying amounts of net assets are $13 million in excess of
their tax base. The income tax rate is 30% what amount will be shown as income tax in the
statement of profit or loss for the year?
A. C $'000
Charge for year 16,200
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Under provision 2,100
Adjust deferred tax (W) (1,500)
Grapevine Profit or loss charge 16,800

210. A company's trial balance at 31 December 20X3 shows a debit balance of $700,000 on
current tax and a credit balance of $8,400,000 on deferred tax. The directors have estimated the
provision for income tax for the year at $4.5 million and the required deferred tax provision is
$5.6 million, $1.2 million of which relates to a revaluation. What is the profit or loss income tax
charge for the year ended 31 December 20X3?
A. C $'000
Prior year under provision 700
Current provision 4,500
Movement of deferred tax (8.4 – 5.6) (2,800)
Deferred tax on revaluation surplus (1,200)
Tax charge for the year 1,200
211. The following information relates to an entity.
(i) At 1 January 20X8 the carrying amount of non-current assets exceeded their tax written
down value by $850,000.
(ii) For the year to 31 December 20X8 the entity claimed depreciation for tax purposes of
$500,000 and charged depreciation of $450,000 in the financial statements.
(iii) During the year ended 31 December 20X8 the entity revalued a property. The revaluation
surplus was $250,000. There are no current plans to sell the property.
(iv) The tax rate was 30% throughout the year. What is the provision for deferred tax required
by IAS 12 Income Taxes at 31 December 20X8?
A. D $'000 B/f 850
Year to 31.12.X8 (500 – 450) 50
Revaluation surplus 250
1,150
× 30% 345