AAT L4 Financial Statements of Limited Companies 2

Question 1

A limited company acquired 80% of a subsidiary for £640,000. At acquisition, the subsidiary's net assets had a fair value of £700,000. What is the goodwill arising on consolidation?

Accepted Answer

£80,000

Answer

The parent's share of net assets is 80% x £700,000 = £560,000. Goodwill = consideration paid - parent's share of fair value of net assets = £640,000 - £560,000 = £80,000.

Question 2

Under FRS 102, how should a government grant related to the purchase of a non-current asset be presented in the statement of financial position?

Accepted Answer

Either as deferred income or deducted from the asset's carrying amount

Answer

FRS 102 Section 24 permits two approaches for government grants relating to assets: recognise as deferred income and release systematically, or deduct the grant from the asset's carrying amount. Both methods are acceptable.

Question 3

A company has the following items. Which should be classified as a current liability?

I. Bank overdraft repayable on demand
II. Trade payables due in 45 days
III. 5-year bank loan (next instalment due in 3 months)
IV. Debentures maturing in 18 months

Accepted Answer

I, II, and III only

Answer

Current liabilities are those due within 12 months or payable on demand. The bank overdraft (on demand), trade payables (45 days), and the next instalment of the bank loan (3 months) are all current. The debentures maturing in 18 months are non-current.

Question 4

When preparing consolidated financial statements, intra-group sales of £120,000 were made during the year. At the year end, £30,000 of these goods remained in the subsidiary's inventory. The parent applies a mark-up of 25% on cost. What is the provision for unrealised profit?

Accepted Answer

£6,000

Answer

Mark-up of 25% on cost means profit is 25/125 of selling price. PUP = £30,000 x 25/125 = £6,000. Only goods remaining in inventory at year end contain unrealised profit.

Question 5

Which of the following would appear in the statement of changes in equity?

Accepted Answer

Total comprehensive income for the year

Answer

The statement of changes in equity shows movements in equity during the period, including total comprehensive income, dividends paid, share issues, and reserve transfers. Revenue appears in the income statement; PPE purchases and loan proceeds appear in the cash flow statement.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Financial Statements of Limited Companies 2