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Bulgarian Certified Expert Accountant Exam study materials
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Bulgarian Certified Expert Accountant Exam practice questions

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Question 1Financial Accounting and Financial Reporting

Under IFRS, which measurement basis is used for property, plant and equipment in the revaluation model?

  1. Fair value at the date of revaluation less subsequent accumulated depreciation and impairment losses Correct answer.
  2. Historical cost less accumulated depreciation only
  3. Fair value at initial recognition without any subsequent adjustment
  4. Net realisable value determined at each reporting date

Explanation

The revaluation model carries an asset at its fair value at the revaluation date, reduced by subsequent accumulated depreciation and accumulated impairment losses. Fair value must be reliably measurable and revaluations are kept sufficiently regular. Historical cost is the alternative cost model, not part of the revaluation model.

Question 2Financial Accounting and Financial Reporting

A company sells goods on credit. Under accrual accounting, when should revenue be recognised?

  1. When the sales order is received from the customer
  2. When control of the goods transfers to the customer Correct answer.
  3. When the production of the goods is completed
  4. When the customer settles the invoice in cash

Explanation

Under IFRS 15, revenue is recognised when the performance obligation is satisfied, which occurs when control of the promised goods transfers to the customer. Cash collection is not the trigger under accrual accounting; it only affects the receivable. Order receipt and production completion precede the transfer of control.

Question 3Financial Accounting and Financial Reporting

Which of the following items is classified as a financial liability under IAS 32?

  1. Ordinary shares issued by the reporting entity
  2. Preference shares that are mandatorily redeemable for cash at a fixed future date Correct answer.
  3. A contract to deliver a variable number of the entity's own shares with a fixed monetary value
  4. A contract requiring delivery of a fixed number of the entity's own shares for a fixed amount of cash

Explanation

A financial liability is a contractual obligation to deliver cash or another financial asset, or to exchange financial instruments on potentially unfavourable terms. Mandatorily redeemable preference shares create such an obligation, so they are liabilities rather than equity. Ordinary shares and fixed-for-fixed own-share contracts are normally equity.

Question 4Financial Accounting and Financial Reporting

Under IAS 2, how are fixed production overheads allocated to the cost of inventory?

  1. They are expensed immediately and excluded from inventory cost
  2. On the basis of actual production volume in the period
  3. On the basis of normal capacity of the production facilities Correct answer.
  4. They are allocated only to the extent that inventory remains unsold at year end

Explanation

IAS 2 requires fixed production overheads to be allocated based on the normal capacity of the production facilities. Unallocated overheads arising from low production are expensed. Allocating on actual output would inflate unit cost in periods of abnormally low production.

Question 5Financial Accounting and Financial Reporting

An entity issues a convertible bond. Under IFRS, how is the instrument initially accounted for?

  1. Entirely as a liability at the proceeds received
  2. Split equally between liability and equity components
  3. Entirely as equity at the proceeds received
  4. Split between a liability component measured at fair value of a similar non-convertible bond and an equity component equal to the residual Correct answer.

Explanation

IAS 32 requires a compound instrument to be split into its liability and equity components. The liability is measured first at the fair value of a similar instrument without the conversion feature, and the equity component is the residual. The split is not arbitrary or equal.

Question 6Financial Accounting and Financial Reporting

Which statement best describes the treatment of a change in accounting estimate under IAS 8?

  1. It is treated as a prior period error and corrected through retained earnings
  2. It is applied prospectively by recognising the effect in the current and future periods Correct answer.
  3. It requires retrospective application only if the change is material
  4. It is applied retrospectively with restatement of prior periods

Explanation

Changes in accounting estimates arise from new information or developments and are accounted for prospectively. The effect is recognised in profit or loss in the period of change and future periods if relevant. Retrospective restatement applies to changes in accounting policy and corrections of errors, not estimates.

Question 7Financial Accounting and Financial Reporting

An entity has a defined benefit obligation with a present value of 1,000,000 and plan assets with a fair value of 850,000. What is the net defined benefit liability recognised?

  1. 150,000 Correct answer.
  2. 1,000,000
  3. 850,000
  4. 0, because defined benefit plans are only disclosed

Explanation

The net defined benefit liability is the present value of the defined benefit obligation less the fair value of plan assets. Here 1,000,000 minus 850,000 equals 150,000. The gross obligation and the plan assets are not recognised separately as the net position is presented.

Question 8Financial Accounting and Financial Reporting

Under IFRS 16, how does a lessee initially measure a right-of-use asset?

  1. At the amount of the lease liability plus initial direct costs and any prepaid lease payments, less lease incentives received Correct answer.
  2. At the fair value of the underlying asset at commencement
  3. At the present value of future minimum lease payments only
  4. At the total undiscounted lease payments over the lease term

Explanation

The right-of-use asset is initially measured at the amount of the initial lease liability, adjusted for lease payments made at or before commencement, initial direct costs, and estimated restoration costs, less incentives received. Discounting and inclusion of direct costs are both required. Undiscounted payments or the asset's fair value are not the measurement basis.

Question 9Financial Accounting and Financial Reporting

Which of the following is a key characteristic of a provision under IAS 37?

  1. A present obligation arising from a past event with a probable outflow of resources that can be reliably estimated Correct answer.
  2. A possible obligation whose existence will be confirmed only by uncertain future events
  3. A future operating loss expected from continuing operations
  4. A present obligation that will certainly be settled in a fixed amount

Explanation

A provision is recognised when there is a present obligation from a past event, a probable outflow of economic benefits, and a reliable estimate of the amount. A possible obligation confirmed by uncertain events is a contingent liability and is not recognised. Future operating losses do not meet the definition of a liability.

Question 10Financial Accounting and Financial Reporting

An entity recognises a deferred tax liability on a temporary difference. Which temporary difference typically does not give rise to a deferred tax liability?

  1. Accelerated tax depreciation exceeding accounting depreciation
  2. Initial recognition of goodwill in a business combination Correct answer.
  3. Interest receivable recognised on an accrual basis but taxed on a cash basis
  4. A revaluation surplus on land that will not be reversed

Explanation

IAS 12 prohibits recognition of a deferred tax liability on the initial recognition of goodwill. The other items create taxable temporary differences because the carrying amount exceeds the tax base or because future taxable amounts will arise. Goodwill is the specific exception.

Question 11Financial Accounting and Financial Reporting

Under IAS 7, which of the following is classified as a cash flow from investing activities?

  1. Purchase of property, plant and equipment Correct answer.
  2. Interest paid on borrowings
  3. Proceeds from the issue of ordinary shares
  4. Dividends paid to shareholders

Explanation

Investing activities include the acquisition and disposal of long-term assets and other investments, so the purchase of property, plant and equipment is an investing cash outflow. Issuing shares and paying dividends are financing activities. Interest paid may be classified as operating or financing depending on the policy chosen.

Question 12Financial Accounting and Financial Reporting

An entity's functional currency is the euro, but it presents its financial statements in US dollars. How are assets and liabilities translated for presentation?

  1. At the average rate for the period
  2. At historical rates for all items
  3. At the rate prevailing when the entity was formed
  4. At the closing rate at the reporting date Correct answer.

Explanation

When the presentation currency differs from the functional currency, assets and liabilities are translated at the closing rate. Income and expenses are translated at rates at the dates of the transactions, often approximated by the average rate. Exchange differences are recognised in other comprehensive income.

Question 13Financial Accounting and Financial Reporting

Which of the following best describes the objective of general purpose financial reporting under the Conceptual Framework?

  1. To provide information to management for internal decision making
  2. To ensure compliance with regulatory capital requirements
  3. To determine the taxable profit of the entity
  4. To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors Correct answer.

Explanation

The Conceptual Framework states that the objective is to provide financial information useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. Management accounting and tax reporting serve different purposes. Regulatory capital is a supervisory matter.

Question 14Financial Accounting and Financial Reporting

An entity has an asset with a carrying amount of 500,000 and a recoverable amount of 420,000. What is the impairment loss and how is it recognised?

  1. A loss of 80,000 recognised directly in other comprehensive income
  2. A loss of 80,000 recognised in profit or loss Correct answer.
  3. No loss, because carrying amount exceeds recoverable amount
  4. A loss of 420,000 recognised in profit or loss

Explanation

Under IAS 36, an impairment loss arises when the carrying amount exceeds the recoverable amount. The loss is 500,000 minus 420,000, equal to 80,000, and is recognised in profit or loss unless the asset is carried under the revaluation model. The recoverable amount is not itself the loss.

Question 15Financial Accounting and Financial Reporting

An entity recognises a revaluation surplus on a building of 200,000. A subsequent revaluation decreases the value by 250,000. How is the decrease treated?

  1. 200,000 against the revaluation surplus and 50,000 in profit or loss Correct answer.
  2. Entirely in other comprehensive income
  3. 50,000 against the revaluation surplus and 200,000 in profit or loss
  4. Entirely in profit or loss

Explanation

A decrease is first offset against any existing revaluation surplus for the same asset, with the excess recognised in profit or loss. Here 200,000 eliminates the surplus and the remaining 50,000 is expensed. Recognising the whole decrease in one place ignores the prior surplus.

Question 16Financial Accounting and Financial Reporting

Under IFRS 15, a contract contains two distinct performance obligations. The total transaction price is 900,000 and standalone selling prices are 600,000 and 400,000. How much revenue is allocated to the first obligation?

  1. 360,000
  2. 600,000
  3. 540,000 Correct answer.
  4. 450,000

Explanation

The transaction price is allocated in proportion to standalone selling prices. Total standalone price is 1,000,000, so the first obligation receives 900,000 multiplied by 600,000 divided by 1,000,000, which equals 540,000. The remaining 360,000 is allocated to the second obligation.

Question 17Financial Accounting and Financial Reporting

Which of the following is an example of a non-adjusting event after the reporting period under IAS 10?

  1. Bankruptcy of a customer that had a receivable at the reporting date
  2. A court judgment confirming a liability that existed at the reporting date
  3. Discovery of fraud that occurred before the reporting date
  4. A decline in market value of investments after the reporting date Correct answer.

Explanation

Non-adjusting events are those that arise after the reporting date and do not concern conditions existing at that date. A post-year-end decline in the market value of investments is such an event and requires only disclosure if material. The other items provide evidence of conditions existing at the reporting date and are adjusting.

Question 18Financial Accounting and Financial Reporting

An entity uses the expected credit loss model under IFRS 9. What is the general approach for measuring the loss allowance on a financial asset?

  1. A 12-month expected credit loss initially, moving to lifetime expected credit losses when credit risk increases significantly Correct answer.
  2. No allowance until a default has actually occurred
  3. A 12-month expected credit loss at all times
  4. A lifetime expected credit loss at all times

Explanation

The general approach recognises a 12-month expected credit loss allowance at initial recognition. When credit risk has increased significantly since initial recognition, the allowance is measured at lifetime expected credit losses. Incurred loss and no-allowance approaches are not permitted.

Question 19Financial Accounting and Financial Reporting

A company has an operating lease that is classified as a short-term lease under IFRS 16. How may the lessee account for it?

  1. Recognise the entire lease payments as an expense at commencement
  2. Recognise the lease as a financial instrument at fair value
  3. Recognise a right-of-use asset and lease liability
  4. Recognise the lease payments as an expense on a straight-line basis over the lease term Correct answer.

Explanation

The short-term lease recognition exemption permits a lessee to recognise lease payments as an expense on a straight-line basis over the lease term. This avoids recognising a right-of-use asset and liability. The election must be made by class of underlying asset.

Question 20Financial Accounting and Financial Reporting

Which of the following items is included in the cost of an item of property, plant and equipment under IAS 16?

  1. Costs of introducing a new product or service
  2. Costs of opening a new facility
  3. Initial delivery and handling costs Correct answer.
  4. Costs of conducting business in a new location

Explanation

The cost of an item of property, plant and equipment includes its purchase price, import duties, non-refundable taxes, and directly attributable costs such as delivery and handling. Costs of opening a facility, introducing a product, or relocating are not capitalised. They are expensed as incurred.

Question 21Financial Accounting and Financial Reporting

Under IAS 38, how should research costs be treated?

  1. Expensed as incurred Correct answer.
  2. Recognised as an intangible asset at fair value
  3. Capitalised and amortised over the useful life of the project
  4. Capitalised if the project is expected to be profitable

Explanation

IAS 38 requires research expenditure to be expensed as incurred because no intangible asset can be demonstrated at the research stage. Development costs may be capitalised only if all specified criteria are met. Expected profitability alone is not sufficient.

Question 22Financial Accounting and Financial Reporting

An entity has a defined benefit plan. Actuarial gains and losses arise from changes in actuarial assumptions. Under IAS 19, how may these be treated?

  1. Recognised immediately in profit or loss
  2. Recognised immediately in other comprehensive income and never recycled to profit or loss Correct answer.
  3. Recognised directly in retained earnings
  4. Deferred and amortised over the average remaining service life of employees

Explanation

IAS 19 requires remeasurements, including actuarial gains and losses, to be recognised immediately in other comprehensive income. These amounts are not reclassified to profit or loss in later periods. The corridor approach and amortisation are no longer permitted.

Question 23Financial Accounting and Financial Reporting

An entity has a building with a carrying amount of 2,000,000, a remaining useful life of 20 years and no residual value. It revalues the building to 2,400,000. What is the depreciation expense for the following year on the revalued amount?

  1. 100,000
  2. 80,000
  3. 120,000 Correct answer.
  4. 90,000

Explanation

After revaluation, depreciation is based on the revalued carrying amount over the remaining useful life. 2,400,000 divided by 20 years equals 120,000 per year. The original historical cost is no longer the depreciation base.

Question 24Financial Accounting and Financial Reporting

Under IAS 33, which of the following is included in the denominator for diluted earnings per share?

  1. The weighted average number of ordinary shares plus the weighted average number of potential ordinary shares that would be issued on conversion Correct answer.
  2. The number of preference shares outstanding
  3. The number of ordinary shares at the reporting date
  4. Only the weighted average number of ordinary shares outstanding

Explanation

Diluted EPS uses the weighted average number of ordinary shares plus the weighted average number of potential ordinary shares that would be issued if dilutive instruments were converted. Potential shares are included only if their effect is dilutive. Preference shares are not part of the ordinary share denominator.

Question 25Financial Accounting and Financial Reporting

An entity changes its accounting policy for inventory valuation from weighted average to FIFO. How should this change be accounted for under IAS 8?

  1. Prospectively, with no adjustment to prior periods
  2. Retrospectively, with restatement of prior period comparatives and adjustment to opening retained earnings Correct answer.
  3. By disclosing the change only, with no adjustment
  4. By recognising the cumulative effect in profit or loss in the current period

Explanation

A change in accounting policy is applied retrospectively unless a transitional provision or impracticability applies. Prior period comparatives are restated and the cumulative effect adjusts opening retained earnings. Prospective application applies to changes in estimates, not policies.

Question 26Financial Accounting and Financial Reporting

Under IAS 1, which of the following items is presented in other comprehensive income rather than in profit or loss?

  1. Cost of goods sold
  2. Interest expense on borrowings
  3. Gains on revaluation of property, plant and equipment Correct answer.
  4. Depreciation of property, plant and equipment

Explanation

IAS 1 requires items of other comprehensive income to be presented separately from profit or loss. Revaluation gains on property, plant and equipment are recognised in other comprehensive income under IAS 16, while depreciation, interest expense and cost of goods sold are recognised in profit or loss.

Question 27Financial Accounting and Financial Reporting

An entity has inventory with a cost of 100,000 and a net realisable value of 90,000 at the reporting date. Under IAS 2, what is the measurement of inventory and the effect on profit or loss?

  1. Inventory is measured at 95,000 and a loss of 5,000 is recognised in profit or loss.
  2. Inventory is measured at 100,000 and no loss is recognised.
  3. Inventory is measured at 90,000 and a loss of 10,000 is recognised in profit or loss. Correct answer.
  4. Inventory is measured at 90,000 and a loss of 10,000 is recognised in other comprehensive income.

Explanation

IAS 2 requires inventory to be measured at the lower of cost and net realisable value. When net realisable value is below cost, the difference is recognised as an expense in profit or loss in the period the write-down occurs.

Question 28Financial Accounting and Financial Reporting

Which of the following best describes the purpose of the statement of cash flows under IAS 7?

  1. To present the financial position of an entity at a specific date.
  2. To provide information about an entity's ability to generate cash and cash equivalents and its needs to utilise those cash flows. Correct answer.
  3. To disclose the fair value of financial instruments.
  4. To show the profit or loss for the period on an accrual basis.

Explanation

IAS 7 states that the statement of cash flows provides information about the historical changes in cash and cash equivalents, helping users assess the entity's ability to generate cash and its needs to use those cash flows. It is not a measure of accrual profit, financial position or fair value disclosure.

Question 29Financial Accounting and Financial Reporting

Under IAS 16, which of the following costs is included in the initial measurement of an item of property, plant and equipment?

  1. Costs of advertising and promotional activities
  2. Costs of opening a new facility
  3. Costs of site preparation Correct answer.
  4. Costs of conducting business in a new location

Explanation

IAS 16 specifies that the cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to the location and condition necessary for it to be capable of operating as intended. Site preparation is directly attributable, whereas opening a new facility, conducting business in a new location and advertising are not.

Question 30Financial Accounting and Financial Reporting

An entity has an asset with a carrying amount of 500,000 and a recoverable amount of 420,000. What is the impairment loss and how is it recognised under IAS 36?

  1. No impairment loss is recognised because the asset will be used in the business.
  2. An impairment loss of 80,000 is recognised in other comprehensive income.
  3. An impairment loss of 80,000 is recognised immediately in profit or loss. Correct answer.
  4. An impairment loss of 80,000 is recognised as a deferred tax asset.

Explanation

Under IAS 36, an impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. The loss of 80,000 is recognised immediately in profit or loss unless the asset is carried at a revalued amount, in which case it is treated as a revaluation decrease.

Question 31Financial Accounting and Financial Reporting

An entity issues 10,000 convertible bonds with a face value of 100 each. The bonds carry a coupon rate of 5% and are convertible into ordinary shares at a fixed ratio. The market interest rate for similar non-convertible bonds is 8%. Under IAS 32, how should the proceeds be allocated?

  1. The entire proceeds are classified as a financial liability because the bonds carry a coupon.
  2. The proceeds are allocated equally between liability and equity.
  3. The proceeds are allocated between a financial liability and an equity component based on their relative fair values. Correct answer.
  4. The entire proceeds are classified as equity because the bonds are convertible.

Explanation

IAS 32 requires the issuer of a compound financial instrument to classify the liability and equity components separately. The fair value of the liability component is determined first using the market interest rate for similar non-convertible bonds, and the residual amount is allocated to the equity component.

Question 32Financial Accounting and Financial Reporting

Under IFRS 15, an entity enters into a contract with a customer on 1 July 20X1 to provide services over 12 months. The customer pays the full contract price of 120,000 upfront on 1 July 20X1. The entity's financial year ends on 31 December. How much revenue should be recognised for the year ended 31 December 20X1?

  1. 30,000
  2. 60,000 Correct answer.
  3. 0
  4. 120,000

Explanation

Under IFRS 15, revenue is recognised over time if the performance obligation is satisfied over time. Since the services are provided evenly over 12 months, revenue for the six months from July to December is 60,000. The remaining 60,000 is recognised in the next period.

Question 33Financial Accounting and Financial Reporting

An entity has a defined benefit obligation with a present value of 1,000,000 and plan assets with a fair value of 850,000. The entity also has a net periodic pension cost of 50,000 for the year. Under IAS 19, what is the net defined benefit liability to be recognised in the statement of financial position?

  1. 150,000 Correct answer.
  2. 100,000
  3. 50,000
  4. 0

Explanation

Under IAS 19, the net defined benefit liability is the present value of the defined benefit obligation less the fair value of plan assets. The net periodic pension cost affects profit or loss and other comprehensive income but does not change the net liability at the reporting date unless it is unpaid or unfunded.

Question 34Financial Accounting and Financial Reporting

Under IAS 12, which of the following temporary differences is most likely to give rise to a deferred tax asset?

  1. A gain on sale of an asset recognised in profit or loss but taxable in a later period
  2. Accelerated tax depreciation on machinery
  3. A revaluation surplus on land that is not taxable until sale
  4. A provision for warranty costs that is deductible for tax when paid Correct answer.

Explanation

A provision for warranty costs is recognised as an expense in profit or loss before it is deductible for tax purposes. This creates a deductible temporary difference, which gives rise to a deferred tax asset because future taxable profits will be reduced by the deductible amount.

Question 35Financial Accounting and Financial Reporting

An entity's functional currency is the euro, but it presents its financial statements in US dollars. Its subsidiary operates in a hyperinflationary economy. Under IAS 21 and IAS 29, how should the subsidiary's financial statements be translated for consolidation?

  1. Translate at the closing rate without restating for inflation.
  2. Translate at the historical rate without restating for inflation.
  3. Translate at the average rate for the period without restating for inflation.
  4. Restate for inflation in accordance with IAS 29, then translate at the closing rate. Correct answer.

Explanation

IAS 21 requires that financial statements of a foreign operation in a hyperinflationary economy be restated in accordance with IAS 29 before translation. The restated amounts are then translated at the closing rate, with differences recognised in other comprehensive income.

Question 36Financial Accounting and Financial Reporting

Under IFRS 9, which of the following financial assets is measured at fair value through other comprehensive income?

  1. A loan originated with the intention of immediate resale.
  2. A debt instrument held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and whose contractual cash flows are solely payments of principal and interest. Correct answer.
  3. An equity investment held for trading.
  4. A derivative that is not designated as a hedging instrument.

Explanation

IFRS 9 requires a debt instrument to be measured at fair value through other comprehensive income if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and its contractual cash flows are solely payments of principal and interest.

Question 37Financial Accounting and Financial Reporting

Under IAS 37, how should a provision for restructuring be recognised?

  1. Recognise a provision for future operating losses expected from the restructuring.
  2. Recognise a provision when management has approved the restructuring plan, even if no announcement has been made.
  3. Recognise a provision only when a detailed formal plan exists and a valid expectation has been raised in those affected that the entity will carry out the restructuring. Correct answer.
  4. Recognise a provision for costs of retraining staff that will be retained.

Explanation

IAS 37 requires a constructive obligation for restructuring to exist only when there is a detailed formal plan and a valid expectation has been raised in those affected that the entity will carry out the restructuring. Future operating losses and retraining costs for continuing staff are not recognised as provisions.

Question 38Financial Accounting and Financial Reporting

Under IAS 33, which of the following potential ordinary shares is dilutive?

  1. Share warrants with an exercise price above the market price
  2. Convertible preference shares whose conversion would increase earnings per share
  3. Options that are out of the money
  4. Convertible bonds whose conversion would decrease earnings per share Correct answer.

Explanation

IAS 33 defines a potential ordinary share as dilutive when its conversion to ordinary shares would decrease earnings per share or increase loss per share. Convertible bonds that reduce EPS are therefore dilutive, while out-of-the-money options and warrants are antidilutive.

Question 39Financial Accounting and Financial Reporting

An entity acquires a subsidiary and, in the measurement period, obtains new information about facts and circumstances that existed at the acquisition date. Under IFRS 3, how should the entity account for the adjustment?

  1. Retrospectively adjust the provisional amounts recognised at the acquisition date, with a corresponding adjustment to goodwill. Correct answer.
  2. Adjust the provisional amounts prospectively from the date the information is obtained.
  3. Recognise the adjustment directly in other comprehensive income.
  4. Recognise the adjustment in profit or loss in the period the information is obtained.

Explanation

IFRS 3 requires that, during the measurement period, adjustments to provisional amounts be recognised retrospectively, as if the accounting had been completed at the acquisition date. The adjustment is made against goodwill, and comparative information is revised if necessary.

Question 40Financial Accounting and Financial Reporting

Under IAS 21, an entity has a monetary item receivable from a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future. How should the exchange differences on this item be recognised in the entity's separate financial statements?

  1. Recognise the exchange differences as an adjustment to the cost of the investment.
  2. Recognise the exchange differences in profit or loss as finance costs.
  3. Recognise the exchange differences in other comprehensive income as part of the foreign currency translation reserve. Correct answer.
  4. Recognise the exchange differences as a deferred tax asset.

Explanation

IAS 21 treats a monetary item receivable from or payable to a foreign operation for which settlement is neither planned nor likely in the foreseeable future as part of the entity's net investment in that foreign operation. Exchange differences on such items are recognised in other comprehensive income and reclassified to profit or loss on disposal of the foreign operation.

Question 41International Financial Reporting Standards (IFRS)

Under IFRS, which body is responsible for issuing International Financial Reporting Standards?

  1. The International Accounting Standards Board Correct answer.
  2. The IFRS Interpretations Committee
  3. The IFRS Foundation Trustees
  4. The Monitoring Board

Explanation

The International Accounting Standards Board is the independent standard-setting body that develops and issues IFRS Standards and the Conceptual Framework. The other bodies perform governance, oversight, or interpretive roles rather than issuing the standards themselves.

Question 42International Financial Reporting Standards (IFRS)

According to the Conceptual Framework, which qualitative characteristic is enhanced when information is comparable, verifiable, timely, and understandable?

  1. Faithful representation Correct answer.
  2. Materiality
  3. Relevance
  4. Prudence

Explanation

The Conceptual Framework identifies relevance and faithful representation as the two fundamental qualitative characteristics. Comparability, verifiability, timeliness, and understandability are enhancing characteristics that increase the usefulness of information that is already relevant and faithfully represented.

Question 43International Financial Reporting Standards (IFRS)

An entity purchases equipment for CU 100,000 with an estimated residual value of CU 10,000 and a useful life of five years. Under the cost model with straight-line depreciation, what is the annual depreciation charge?

  1. CU 22,000
  2. CU 10,000
  3. CU 20,000
  4. CU 18,000 Correct answer.

Explanation

Depreciation under IAS 16 allocates the depreciable amount, being cost less residual value, over the useful life. The depreciable amount is CU 90,000 spread over five years, giving CU 18,000 per year.

Question 44International Financial Reporting Standards (IFRS)

Under IFRS 15, when does an entity recognise revenue from a contract with a customer?

  1. When the contract is signed by both parties
  2. When cash is received from the customer
  3. When a performance obligation is satisfied by transferring a promised good or service Correct answer.
  4. When the invoice is issued to the customer

Explanation

IFRS 15 applies a five-step model whose core principle is recognition when control of the promised goods or services passes to the customer. That occurs when the related performance obligation is satisfied, whether at a point in time or over time.

Question 45International Financial Reporting Standards (IFRS)

Under IAS 2, at what amount are inventories measured in the financial statements?

  1. The lower of cost and net realisable value Correct answer.
  2. Cost, revalued annually to fair value
  3. The higher of cost and fair value
  4. Selling price less a normal profit margin

Explanation

IAS 2 requires inventories to be measured at the lower of cost and net realisable value. This ensures assets are not carried above the amount expected to be realised from their sale.

Question 46International Financial Reporting Standards (IFRS)

Which of the following is the correct treatment of a change in accounting estimate under IAS 8?

  1. Disclose it as a prior period error
  2. Apply it by adjusting opening retained earnings only
  3. Apply it retrospectively by restating prior period comparatives
  4. Apply it prospectively, affecting current and future periods Correct answer.

Explanation

IAS 8 requires the effect of a change in accounting estimate to be recognised prospectively from the date of change. Prior periods are not restated because the new information was not previously available.

Question 47International Financial Reporting Standards (IFRS)

Under IAS 7, which of the following is classified as a cash flow from financing activities?

  1. Purchase of property, plant and equipment
  2. Interest received on a bank deposit
  3. Payment of income tax
  4. Proceeds from issuing ordinary shares Correct answer.

Explanation

IAS 7 defines financing activities as those that change the size and composition of contributed equity and borrowings. Issuing shares is a classic financing cash inflow, whereas the other items are operating or investing.

Question 48International Financial Reporting Standards (IFRS)

Under IFRS, what is the present value of a single payment of CU 1,000 due in two years, discounted at 10% per annum compounded annually?

  1. CU 1,000.00
  2. CU 909.09
  3. CU 800.00
  4. CU 826.45 Correct answer.

Explanation

The present value is calculated by dividing the future amount by (1 + r)^n, giving 1,000 / 1.21 = CU 826.45. This reflects the time value of money used in measuring many IFRS assets and liabilities.

Question 49International Financial Reporting Standards (IFRS)

Under IFRS 9, how is a financial asset classified if it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and its contractual cash flows are solely payments of principal and interest?

  1. At fair value through other comprehensive income Correct answer.
  2. At amortised cost
  3. At cost less impairment
  4. At fair value through profit or loss

Explanation

The IFRS 9 classification depends on the business model and the solely-payments-of-principal-and-interest test. A dual objective of collecting and selling, combined with passing the SPPI test, results in measurement at fair value through other comprehensive income.

Question 50International Financial Reporting Standards (IFRS)

Under IAS 36, when should an entity test a cash-generating unit containing goodwill for impairment?

  1. Only on initial recognition of the goodwill
  2. Only when the goodwill is internally generated
  3. Only when there is an indication of impairment
  4. At least annually, and whenever there is an indication of impairment Correct answer.

Explanation

IAS 36 requires goodwill and indefinite-life intangible assets to be tested for impairment at least annually. An additional test is required whenever events or changes in circumstances indicate possible impairment.