Sample- Final Exam_2013(1)

# How is a revaluation loss on non current assets

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(6) How is a revaluation loss on non-current assets accounted for? a) Revaluation loss is booked to profit and loss. b) Revaluation loss is booked to other comprehensive income. c) Revaluation loss is booked to profit and loss or to other comprehensive income, depending on any pre-existing revaluation surplus. d) Revaluation loss is not recognized in other comprehensive income. (7) Which of the following is not a characteristic of property, plant and equipment (PPE)?

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Question 2 Inventory ( 12 marks – 12 minutes, updated on April 13, 2013 ) Monster Bikes manufactures off-road bicycles. In 2011, the company’s accountant recorded the following costs into the inventory account: Variable costs (raw materials, labour, variable overhead) \$10,680,000 Fixed manufacturing overhead 2,000,000 Salary of company president 300,000 Advertising and promotion 500,000 Total \$13,480,000 The company had no work-in-process at the end of both 2010 and 2011. Finished goods at the end of 2010 amounted to 6,000 bikes at \$250/bike. Production was 50,000 bikes and 4,000 bikes remained in the December 31, 2011 inventory. The company uses a periodic inventory system and the FIFO cost-flow assumption. Required: a. Provide the journal entry to correct the error in the inventory account. [2 marks] b. Compute the ending value of inventory and the cost of goods sold for 2011. [4 marks] Ending finished goods inventory = COGS = c. If the error in inventory costing had not be corrected as per part (a), by how much would inventory be overstated at the end of 2011? [3 marks] d. If the company uses the weighted-average cost method, how much would be the ending value of inventory and cost of goods sold for 2011. [4 marks] Ending finished goods inventory = COGS =
Question 3: investments (15 pts. 20 minutes) Greek Corp. is a profitable company. Over the last 3 years, it has accumulated a substantial amount of excess cash. It is considering investing in a manufacturing company, but has not yet found a suitable company. To earn returns on its excess cash and to minimize risk, Greek invests its excess cash in investment-grade corporate bonds. The following describes the events surrounding one of Greek’s investments: 1. On January 1, 2007, Greek paid \$1,000,000 to purchase bonds of Well Inc. These bonds had a face value of \$1,000,000 and pay interest on December 31 at the rate of 6%. 2. On December 31, 2007, the market value of the bonds was \$1,020,000. 3. On March 31, 2008, Greek sold the bonds for \$1,025,000 plus accrued interest. Required Assume that Greek wants to account for its investment in bonds using the new Handbook sections, 1530, Comprehensive income and 3855, Financial instruments. Indicate the amounts to be reported on the balance sheet at the end of 2007 and the amounts to be reported in regular income and other comprehensive income for 2007 and 2008 under 3 scenarios: i) Greek designates the bonds as a held-to-maturity (HTM) investment.

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