Deck 15: Other Key Notes Disclosures

Question 1

Willow Limited and Rupert Limited are the two subsidiaries of Buffy Company. Dan Sanders, one of the directors of Buffy Company, is also a director of Rupert Limited. Dan's wife, Sandra, has 10% of shareholding in Rupert Limited. Which of the followings are related parties to Willow Limited?

A) Buffy Company and Dan Sanders;
B) Buffy Company and Rupert Limited;
C) Rupert Limited and Dan Sanders;
D) Dan Sanders and Sandra Sanders.

Answer 1

B

Question 2

Galaxy Limited is a listed company operating in retail industry with three business units: Milky Way, Andromeda, and Whirlpool. Which of the followings is likely to be the key management personnel of Galaxy Limited?

A) The general manager of Milky Way;
B) The managing director's personal assistant;
C) The company's auditor;
D) The company's IT manager.

Answer 2

A

Question 3

Which of the following is the related party of a reporting entity within the scope of IAS 24?

A) The domestic partner of a director of the reporting entity.
B) A supplier of the reporting entity.
C) The non-dependent children of the reporting entity's CEO.
D) Another subsidiary of the reporting entity's parent.

Answer 3

D

Question 4

Jon holds an investment in Voight Limited that gives him a significant influence over the company. Jon's daughter, Angelina, also has a significant influence over another entity, Jolie Limited. What is the relationship between Voight Limited and Jolie Limited?

A) Voight Limited is a related party of Jolie Limited.
B) Voight Limited has a significant influence over Jolie Limited.
C) Voight Limited and Jolie Limited are not related parties.
D) Voight Limited has control over Jolie Limited.

Question 5

John Berry is one of the non-executive directors of Monash Company. In this current financial year, Monash Company had transactions with the following entities:
I. Borrowed money from ABC Bank.
II. Purchased raw materials from Deakin Company.
III. Loaned money to one of its subsidiaries, Swinburne Company, with 10% per annum.
IV. Sold products to Melbourne Company, of which John Berry is also a director.
Which transactions are not related party transactions between Monash Company and another entity?

A) I and II only;
B) II and III only;
C) I, II and IV;
D) II, III, and IV.

Question 6

IAS 24:

A) prescribes how transactions with related parties are to be measured;
B) defines the recognition criteria of related party transactions;
C) explains the format of financial statements of entities with related parties;
D) deals purely with related party disclosures.

Question 7

Examples of related party transactions that must be disclosed include:

A) settlement of liabilities;
B) disposal of assets;
C) purchase or sales of goods;
D) all of the above.

Question 8

An entity is related to a reporting entity if any of the following conditions apply, except:

A) the reporting entity has significant economic dependence on the entity;
B) both entities are joint venture of the same third party;
C) the entity is the subsidiary of the reporting entity;
D) the entity is a post-employment benefit plan for the reporting entity's employees.

Question 9

Disclosure of related parties is essential in financial reporting because:

A) related parties cannot be trusted;
B) there are certain limits imposed on entities in regards to how many related party transactions they could have; related parties have the potential to affect an entity's profit or loss and financial position that might not otherwise occur;
D) a high number of corporate collapses are caused by related party transactions.

Question 10

The scope of IAS 24 states that IAS 24 shall be applied in identifying the followings, except for:

A) outstanding balances, including commitments, between an entity and its related parties;
B) insider trading with related parties;
C) circumstances in which disclosures of transactions with related parties are required;
D) related party relationships and transactions.

Question 11

In the case where financial statements of parent entity or the ultimate controlling entity are not made publicly available, the reporting entity must disclose:

A) the name of the entity's largest shareholder;
B) the name of the next most senior parent entity whose financial statements are publicly available;
C) the reason of why the parent entity does not make its financial statements publicly available;
D) the level of share ownership of the next most senior parent entity.

Question 12

Maria is one of the directors in Leo Limited, which is one the subsidiaries of Aries Limited. She also has a joint control with Mimi in Virgo Limited. In this circumstance, the followings are related parties to Leo Limited, except for:

A) Mimi;
B) Maria;
C) Aries Limited;
D) Virgo Limited.

Question 13

According to IAS 24, related party disclosures are required irrespective of whether there have been related party transactions when:

A) significant influence exists;
B) control exists;
C) economic dependence exists;
D) all of the above.

Question 14

A government entity controls both Edward Limited and Jacob Limited. Bella Limited and Jasper Limited are the subsidiaries of Edward Limited. Carlisle Cullen is the managing director of Edward Limited. Edward Limited can apply the partial exemption of disclosures in paragraph 25 of IAS 24 to transactions with the following parties, except for:

A) Carlisle Cullen;
B) Jacob Limited;
C) Bella Limited;
D) the government entity.

Question 15

Which of the followings are most likely to be considered as key management personnel of an entity?
I) Chief Financial Officer
II) Admin Officer
III) Non-executive directors
IV) General Manager

A) I, II, and III;
B) II, III, and IV;
C) I, III, and IV;
D) I, II, III, and IV.

Question 16

Two entities are not regarded as related parties simply because:

A) one entity is a post- employment benefit plan for the other entity;
B) one entity is a subsidiary of the other entity;
C) a member of the key management personnel of one entity controls the other entity;
D) a member of the key management personnel of one entity has significant influence over the other entity.

Question 17

An entity in which an investor has significant influence is known as:

A) a joint venture;
B) a related party;
C) a subsidiary;
D) an associate.

Question 18

The following remuneration categories must be disclosed for key management personnel, except for:

A) termination benefits;
B) post-employment benefits;
C) bonus payments;
D) share-based payments.

Question 19

Aladdin is the owner and founder of Genie Limited. Aladdin's wife, Jasmine, has a controlling investment in Jafar Limited. Which of the followings describes the relationship between Genie Limited and Jafar Limited?

A) Genie Limited and Jafar Limited are not related parties.
B) No disclosure about transactions with Jafar Limited is required in the financial statements of Genie Limited.
C) Genie Limited is a related party of Jafar Limited.
D) Genie Limited has control over Jafar Limited.

Question 20

The power to participate in the financial and operating policy decisions of an entity is known as:

A) control;
B) significant influence;
C) share ownership;
D) joint control.

Question 21

EPS refers to:

A) equity per share
B) earnings per shareholder
C) earnings per share
D) earnings per subsidiary

Question 22

Earnings per share disclosed by reporting entities have limitations because of the:
I different accounting methods that can be used in the determination of profit
II different amounts of profit depending on the size of the entity
III ability of an entity to change the number of shares used in the denominator
IV different numbers of shareholders depending on the size of the entity

A) I and IV
B) II and III
C) II and IV
D) I and III

Question 23

IAS 33 applies to the computation and presentation of earnings per share by:

A) only reporting entities whose shares are publicly traded
B) reporting entities whose shares are publicly traded, or of entities that are in the process of issuing ordinary shares that will be traded in public markets
C) only those entities that are in the process of issuing ordinary shares that will be traded in public markets
D) both reporting and non-reporting entities

Question 24

The number of shares used in the calculation of earnings per share is:

A) the number of ordinary and preference shares adjusted by a time-weighting factor which is the number of days in the reporting period that the shares are outstanding as a proportion of the total number of days in the period
B) the number of preference shares adjusted by a time-weighting factor which is the number of days in the reporting period that the shares are outstanding as a proportion of the total number of days in the period
C) the average of the number of ordinary shares outstanding at the beginning and end of the reporting period
D) the number of ordinary shares adjusted by a time-weighting factor which is the number of days in the reporting period that the shares are outstanding as a proportion of the total number of days in the period

Question 25

Which of the following transactions are not related party transactions for an entity?
I) An employee purchased the entity's products on normal trading terms.
II) The entity made an agreement with a trade union about increase in employee's wages.
III) A subsidiary of the entity supplied raw materials to the entity.
IV) The entity lent money to one of its directors.

A) I and II only;
B) I and III only;
C) II and IV only;
D) III and IV only.

Question 26

Harry is a non-executive director of Potter Limited and Hogwarts Limited. Harry's wife, Ginny, is a non-executive director of Weasley Limited. Which of the following statements is correct?

A) Harry is not a related party to Potter Limited.
B) Potter Limited and Hogwarts Limited are not related parties.
C) Ginny is a related party to Hogwarts Limited.
D) Potter Limited and Weasley Limited are related parties.

Question 27

Mary Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2016 as £720 000. The number of ordinary shares on issue up to 31 October 2015 was 50 000. Mary Ltd announced a two-for-one bonus issue of shares effective for each ordinary share outstanding at 31 October 2015. Basic earnings per share at 30 June 2016 is:

A) £4.80
B) £6.17
C) £7.20
D) £9.60

Question 28

The contractually agreed sharing of control over an economic entity is known as:

A) significant influence;
B) significant control;
C) joint control;
D) joint venture.

Question 29

The profit or loss that is used in the calculation of basic earnings per share is calculated as:

A) Profit before tax expense
B) Profit before tax expense - tax expense
C) Profit before tax expense - tax expense - ordinary dividends
D) Profit before tax expense - tax expense - preference dividends

Question 30

Metro Limited is a subsidiary of Matrix Limited. Which of the followings is not a related party to Metro Limited?

A) A pension scheme that offers benefits to employees of Metro Limited.
B) The Managing Director of Matrix Limited.
C) An associate of Metro Limited.
D) A distributor of Metro Limited's products.

Question 31

Under paragraph 4, if an entity presents both consolidated and separate financial statements, the IAS 33 disclosures need only be determined on the basis of:

A) parent entity only
B) subsidiary entities only
C) consolidated information
D) the entity has choice of either parent entity or consolidation

Question 32

ABC Ltd has 21 000 ordinary shares on issue at 1 January 2016 which is the beginning of its reporting period. On 30 June 2016, it issued a further 2000 ordinary shares for cash. On 1 November 2016, ABC Ltd repurchased 600 shares at fair value in a market transaction. The weighted average number of shares for use in the earnings per share calculation is:

A) 21 000 shares
B) 21 700 shares
C) 21 900 shares
D) 22 400 shares

Question 33

The minimum disclosures for related party transactions include the followings, except:

A) provision of doubtful debts related to outstanding balances;
B) the amount of transactions;
C) the amount of the outstanding balances and commitments;
D) the key management personnel of the related party.

Question 34

Earnings per share is calculated by comparing an entity's:

A) revenue with the number of ordinary shares it has on issue
B) profit with the number of shareholders
C) profit with the number of ordinary shares it has on issue
D) revenue with the number of shareholders

Question 35

David is the general manager of Awesome Limited and is considered to be the member of key management personnel. The following transactions occurred between David and Awesome Limited:
?David purchased a product of Awesome Limited on normal trading terms;
?David received remuneration from Awesome Limited amounting to £100 000;
?Awesome Limited issued 20 000 options to David, which can be converted into Awesome Limited's shares if target profit margin of 25% is achieved in the next three years.
Which of the above transactions must be disclosed as related party transactions?

A) The purchase of product and David's remuneration.
B) David's remuneration and the grant of options.
C) The purchase of product and the grant of options.
D) All of the above transactions are related party transactions.

Question 36

VicEd is a government agency that controls Science Limited. Science Limited has two subsidiaries: Bio Limited and Chem Limited. To which entities can Bio Limited apply the disclosure exemption in paragraph 25 of IAS 24?

A) VicEd Limited only;
B) Science Limited only;
C) Science Limited and Chem Limited only;
D) VicEd Limited, Science Limited, and Chem Limited.

Question 37

If an entity chooses to apply the disclosure exemption in paragraph 25 of IAS 24, it is still required to do the followings, except:

A) disclose the nature of the relationship with the government-related entities;
B) identify the government to which it is related;
C) the nature and amount of every transaction with government-related entities;
D) a qualitative or a quantitative indication of the extent of other transactions that are collectively significant.

Question 38

Earnings per share is calculated by:

A) dividing profit or loss attributable to ordinary shareholders of a parent entity, by the number of ordinary shares the entity has on issue at the beginning of the reporting period
B) dividing profit or loss attributable to ordinary shareholders of a parent entity, by the weighted average number of ordinary shares the entity has on issue during the reporting period
C) dividing profit or loss attributable to preference shareholders of a parent entity, by the weighted average number of ordinary shares the entity has on issue during the reporting period
D) dividing profit or loss attributable to ordinary shareholders of a parent entity, by the number of ordinary shares the entity has on issue at the end of the reporting period

Question 39

XYZ Ltd has 10 000 ordinary shares on issue at 1 July 2015 which is the beginning of its reporting period. On 1 May 2016, it issued a further 2000 ordinary shares for cash. The weighted average number of shares for use in the earnings per share calculation is:

A) 10 000 shares
B) 10 333 shares
C) 11 000 shares
D) 12 000 shares

Question 40

Drew is one of the directors of Mellor Limited. In the current financial year, Mellor Limited paid £50 000 to Advice Agency, where Drew's brother works, for the consultancy services it provided. In addition, Mellor Limited also paid £2000 to Drew for a once-off consultancy he provided on a specific project. Which of the following statements describes the relationship between Drew, Mellor Limited, and Advice Agency?

A) Advice Agency is a related party to Mellor Limited.
B) Drew is not a related party to Mellor Limited.
C) The £50 000 consultancy fee is not a related party transaction.
D) The £2000 consultancy fee is not a related party transaction.

Question 41

Any errors or adjustments resulting from changes in accounting policies that are accounted for retrospectively require:

A) a retrospective adjustment to basic earnings per share only
B) a retrospective adjustment to diluted earnings per share only
C) no retrospective adjustment to either basic or diluted earnings per share
D) a retrospective adjustment to both basic and diluted earnings per share

Question 42

A company issues bonus shares for no consideration on 1 August 2014. For the reporting period ended 30 June 2015, the calculation of:

A) only basic earnings per share must be adjusted retrospectively for all periods that are presented in the financial statements
B) only the diluted earnings per share must be adjusted retrospectively for all periods that are presented in the financial statements
C) both basic earnings per share and diluted earnings per share must be adjusted retrospectively for all periods that are presented in the financial statements
D) both basic earnings per share and diluted earnings per share may be adjusted retrospectively at the option of the entity for all periods that are presented in the financial statements

Question 43

If all of the dilutive securities were converted into ordinary shares, the diluted earnings per share ratio:

A) may include an adjustment to increase the weighted average number of ordinary shares that would be outstanding
B) must include an adjustment to decrease the weighted average number of ordinary shares that would be outstanding
C) must include an adjustment to increase the number of ordinary shares that would be outstanding
D) must include an adjustment to increase the weighted average number of ordinary shares that would be outstanding

Question 44

If the entity has a discontinued operation, then it must also calculate and disclose the:

A) the basic and diluted earnings per share ratios for the discontinued operation in the statement of profit or loss and other comprehensive income.
B) the basic earnings per share ratio only for the discontinued operation in the statement of profit or loss and other comprehensive income.
C) the diluted earnings per share ratio only for the discontinued operation in the statement of profit or loss and other comprehensive income.
D) the basic and diluted earnings per share ratios for the discontinued operation in the statement of profit or loss and other comprehensive income only if the discontinued operation contributed a profit in the current reporting period

Question 45

Paragraphs 70-73 of IAS 33 prescribe various disclosures relating to earnings per share. The disclosures include: I the amounts used as the numerators (earnings) in the ratios
II a reconciliation of the earnings amounts to the profit or loss attributable to the parent entity for the period including the individual effect of each class of instruments that affects earnings per share
III the number of ordinary shares outstanding at the end of the financial year
IV the weighted average number of ordinary shares used as the denominator in the ratios

A) I, II and III
B) I, III and IV
C) II, III and IV
D) I, II and IV

Question 46

The basic earnings per share and diluted earnings per share ratios must be presented in an entity's:

A) statement of financial position even if the amounts are negative
B) statement of profit or loss and other comprehensive income even if the amounts are negative
C) statement of profit or loss and other comprehensive income only if the amounts are positive
D) statement of changes in equity even if the amounts are negative

Question 47

Use the following information to answer questions
Harry Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2016 as €960 000. The average market price of the entity's shares during the period is €4.00 per share. The weighted average number of ordinary shares on issue during the period is 1 000 000. The weighted average number of shares under share options arrangements during the year is 200 000 and the exercise price of shares under option is €3.50.
The basic earnings per share at 30 June 2016 is:

A) €0.80
B) €0.96
C) €3.50
D) €4.00

Question 48

Use the following information to answer questions
Harry Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2016 as €960 000. The average market price of the entity's shares during the period is €4.00 per share. The weighted average number of ordinary shares on issue during the period is 1 000 000. The weighted average number of shares under share options arrangements during the year is 200 000 and the exercise price of shares under option is €3.50.
The diluted earnings per share at 30 June 2016 is:

A) €0.80
B) €0.94
C) €1.24
D) €4.00

Question 49

For the purposes of calculating diluted earnings per share, an entity shall adjust the profit attributable to ordinary shareholders by the after-tax effect of the following item(s) related to dilutive potential ordinary shares:

A) dividends only
B) dividends, interest, other income or expenses
C) interest only
D) other income or expenses only