An entity prepares quarterly interim financial

9. An entity prepares quarterly interim financial reports in accordance with IAS 34. The entity sells
electrical goods, and normally 5% of customers claim on their warranty. The provision in the
first quarter was calculated as 5% of sales to date, which was $10 million. However, in the
second quarter, a design fault was found and warranty claims were expected to be 10% for the
whole of the year. Sales in the second quarter were $15 million. What would be the provision
charged in the second quarter’s interim financial statements?
(a) $750,000
(b) $1.25 million.
(c) $1.5 million.
(d) $2 million.
Answer: (d) [10% of ($10 + $15) – (5% of $10)], that is, $2 million
1. IAS 36 applies to which of the following assets?
(a) Inventories.
(b) Financial assets.
(c) Assets held for sale.
(d) Property, plant, and equipment.
Answer: (d)
2. Value-in-use is
(a) The market value.

(b) The discounted present value of future cash flows arising from use of the asset and
from its disposal.
(c) The higher of an asset’s fair value less cost to sell and its market value.
(d) The amount at which the asset is recognized in the balance sheet.
Answer: (b)
3. If the fair value less costs to sell cannot be deter- mined
(a) The asset is not impaired.
(b) The recoverable amount is the value-in-use.
(c) The net realizable value is used.
(d) The carrying value of the asset remains the same.
Answer: (b)
4. If assets are to be disposed of
(a) The recoverable amount is the fair value less costs to sell.
(b) The recoverable amount is the value-in-use.
(c) The asset is not impaired.
(d) The recoverable amount is the carrying value.
Answer: (a)
5. Estimates of future cash flows normally would cover projections over a maximum of
(a) Five years.
(b) Ten years.
(c) Fifteen years.
(d) Twenty years.
Answer: (a)
6. An entity has a database that it purchased five years ago. At that date, the database had
15,000 customer addresses on it. Since the date of purchase, 1,000 addresses have been
taken from the list and 2,000 addresses have been added to the list. It is an- ticipated that
in two years’ time, a further 4,000 ad- dresses will have been added to the list. In
determining the value-in-use of the customer lists, how many addresses should be taken
into account at the current date?
(a) 15,000

(b) 16,000
(c) 20,000
(d) 21,000
Answer: (b)
7. Which of the following is the best evidence of an asset’s fair value less costs to sell?
(a) An asset that is trading in an active market.
(b) The price in a binding sale agreement.
(c) Information available that determines the disposal value of the asset in an arm’s-
length transaction.
(d) The carrying value of the asset.
Answer: (b)