F7 Financial Reporting
All questions in this paper is compulsory,therefore it is essential to be well prepared to build knowledge andapplication of all topics across the whole syllabus. The papers comprise twosections as follows:
Section A contains twenty 2 mark (40 marks intotal) multiple choice questions (MCQs) whilst Section B comprises of two 15mark questions and one 30 mark question.
The change in the structure of this paperto include a MCQs is to allow each exam diet to cover most of the syllabus. Asmentioned earlier, you will have to study the whole syllabus and not concentrate solely on what are perceived to be topics that are popularlytested. Here are three examples of MCQs in the June 2015 exam diet that werenot well answered.
Example 1
Faithful representation is a fundamental characteristic of useful information within the IASB’s Conceptual framework forfinancial reporting.
Which of the following accounting treatments correctly applies the principle of faithful representation?
A. reporting a transaction based on itslegal status rather than its economic substance
B. excluding a subsidiary from consolidation because its activitiesare not compatible with those of the rest of the group.
C. recording the whole of the net proceeds from the issue of a loannote which is potentially convertible to equity shares as debt (liability).
D. allocating part of the sale proceeds of a motor vehicle tointerest received even though it was sold with 0% (interest free) finance.
The correct answer to this question was D.
Example 2
Which of the following statements relating to intangible assets istrue?
A. all intangible assets must be carried at amortised cost or at animpaired amount; they cannot be r*ued upwards
B. the development of a newprocess which is not expected to increase sales revenues may still berecognised has been assembled and has physical substance
C. expenditure on the prototype of a new engine cannot be classified as an intangible asset because theproto type has been assembled and has physical substance
D. impairment losses for a cash generating unit are first applied to goodwill and then to other intangible assets before being applied to tangible assets.
The correct answer to this question was B. This is because thoughthe development process would not generate additional sales revenues, but itcould obtain costs saving, such as new cheaper and better materials or moreefficient production methods. These too can deliver future economic benefits and so can be capitalised subject to other criteria being deemed satisfied.