FR: FINANCIAL REPORTING 

65 A
In times of rising prices,  asset values will be understated,  as historical cost will not be a  true
representation of the asset values. Additionally,  the real purchase cost of replacement items
will not  be incorporated,  meaning that profits are overstated. 
B and  D relate to asset values being overstated,  which is incorrect. Unrecognised  gains is
irrelevant.

66 C,  D
It is important to learn that the four enhancing characteristics are verifiability,  comparability, 
understandability and  timeliness.

67 
Change in Change in
accounting policy accounting estimate
Classifying commission earned  as revenue in
the statement of profit  or loss,  having

previously classified  it as other operating
income
Revising the remaining useful life of a 

depreciable asset

A change of classification in presentation in financial statements is a  change of accounting
policy under IAS 8.

68 B
Item A is an adjustment when preparing consolidated  financial statements. Item C is an
accounting estimate,  and  item D is applying the same policy as previously,  with a  correction
to the figure used.

69 B,  E
Inventory should  be measured  at the lower of cost and  net realisable value (NRV). The frames
had  cost Bouani $20,000 to manufacture. The question does not indicate any selling costs to
be incurred  so NRV must be the $30,000 agreed  selling price. This means that the frames
should  continue to be carried  at $20,000,  being the lower of cost and  NRV. The fact that the
frames could  now be manufactured  for $15,000 is not relevant. 
The cost of the pedals is $60,000 (3,000 pedals × $20). The NRV would  be $58,000 ([3,000
pedals x $21]  less $5,000 costs to repair). As the pedals are currently being held  at a  cost of
$60,000,  the carrying amount should  now be reduced  to the lower NRV amount.

70  B
The logs will be classed  as inventory. The land  will be classed  as property,  plant  and 
equipment. The development costs will be treated  as an intangible asset.

234 KAPLAN  PUBLISHING 