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Question 1Financial Reporting and Accounting Standards

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

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

Explanation

The International Accounting Standards Board is the independent standard-setting body that develops and issues IFRS Standards and related pronouncements. The other bodies perform oversight, governance, or interpretive-support roles rather than primary standard setting.

Question 2Financial Reporting and Accounting Standards

According to the IASB Conceptual Framework, which qualitative characteristic is enhanced when information is complete, neutral, and free from error?

  1. Verifiability
  2. Comparability
  3. Timeliness
  4. Faithful representation Correct answer.

Explanation

Faithful representation requires that information depict the economic substance of phenomena completely, neutrally, and without material error. The other characteristics are enhancing qualities that increase usefulness but do not define completeness and neutrality.

Question 3Financial Reporting and Accounting Standards

An entity pays 1,000 in cash for inventory. Under the Conceptual Framework, which element is affected on the asset side?

  1. A decrease in equity
  2. A decrease in income
  3. An increase in a liability
  4. An increase in an asset Correct answer.

Explanation

Acquiring inventory increases one asset (inventory) while decreasing another (cash), so total assets are unchanged but an asset account increases. No liability, equity, or income element arises from a simple asset exchange.

Question 4Financial Reporting and Accounting Standards

Under IAS 1, which of the following is a required component of a complete set of financial statements?

  1. A management commentary
  2. A director remuneration report
  3. A five-year summary of key ratios
  4. A statement of changes in equity Correct answer.

Explanation

IAS 1 requires a statement of changes in equity as part of a complete set of financial statements, alongside the statement of financial position, statement of profit or loss and OCI, statement of cash flows, and notes. Management commentary and summaries are not mandated by IAS 1.

Question 5Financial Reporting and Accounting Standards

An entity's reporting period changes, and it presents comparative information. Under IAS 1, what must the entity disclose when the length of the reporting period changes?

  1. A restated opening balance for every account
  2. The prior period's full financial statements again
  3. Only the new period end date
  4. The reason for the change and the fact that comparatives are not comparable Correct answer.

Explanation

When the length of the reporting period changes, IAS 1 requires disclosure of the reason for the change and the fact that the comparative amounts are not entirely comparable. Simply stating dates or reissuing prior statements does not satisfy the requirement.

Question 6Financial Reporting and Accounting Standards

Under IAS 8, a change in accounting estimate is accounted for how?

  1. Prospectively from the date of change Correct answer.
  2. By disclosing a prior period error
  3. Retrospectively with restatement of prior periods
  4. By adjusting opening retained earnings

Explanation

Changes in accounting estimates are applied prospectively, affecting current and future periods rather than restating the past. Retrospective treatment applies to changes in accounting policy and corrections of prior period errors, not to estimate changes.

Question 7Financial Reporting and Accounting Standards

Which condition must be met for an entity to recognize a provision under IAS 37?

  1. A future operating loss expected in the next period
  2. A present obligation arising from a past event, probable outflow, and reliable estimate Correct answer.
  3. A possible obligation that is only remotely likely
  4. A constructive obligation that management may avoid at will

Explanation

IAS 37 requires a present obligation from a past event, a probable outflow of resources, and a reliable estimate of the amount. If any condition fails, no provision is recognized; a contingent liability may instead be disclosed.

Question 8Financial Reporting and Accounting Standards

Under IFRS 15, revenue is recognized when control of a good or service transfers. Which indicator most directly suggests control has passed to the customer?

  1. The entity has incurred production costs
  2. The entity has signed a non-binding letter of intent
  3. The entity has invoiced the customer
  4. The customer has legal title and physical possession Correct answer.

Explanation

Transfer of legal title and physical possession are indicators that the customer has obtained control of the asset. Incurring costs or issuing an invoice does not by itself demonstrate that control has transferred.

Question 9Financial Reporting and Accounting Standards

An entity enters a contract with a customer and identifies multiple performance obligations. Under IFRS 15, the transaction price is allocated to each obligation based on what?

  1. The cost incurred for each obligation
  2. The relative stand-alone selling prices Correct answer.
  3. Equal amounts per obligation
  4. The order in which obligations are satisfied

Explanation

IFRS 15 requires allocating the transaction price to performance obligations in proportion to their relative stand-alone selling prices. Cost, timing, or equal splits are not the default allocation basis.

Question 10Financial Reporting and Accounting Standards

Under IAS 16, which cost may be capitalized as part of the cost of an item of property, plant, and equipment?

  1. Initial delivery and handling costs Correct answer.
  2. Training costs for staff operating the asset
  3. Costs of opening a new facility
  4. Costs of introducing a new product

Explanation

IAS 16 includes costs directly attributable to bringing the asset to the location and condition for its intended use, such as delivery and handling. Costs of opening a facility, introducing a product, and staff training are expensed.

Question 11Financial Reporting and Accounting Standards

Under IAS 16, how is the residual value of an item of property, plant, and equipment generally determined?

  1. As the asset's original cost
  2. As the estimated amount obtainable on disposal, net of disposal costs Correct answer.
  3. As the present value of expected future cash flows
  4. As the asset's carrying amount at the reporting date

Explanation

Residual value is the estimated amount an entity would currently obtain from disposal of the asset, net of estimated disposal costs, assuming the asset were already of the age and condition expected at the end of its useful life. It is not the original cost or carrying amount.

Question 12Financial Reporting and Accounting Standards

Under IAS 36, when should an entity test goodwill for impairment?

  1. Every quarter regardless of indicators
  2. Only when there is an indication of impairment
  3. Only at initial recognition
  4. Annually, and whenever there is an indication of impairment Correct answer.

Explanation

Goodwill and intangible assets with indefinite useful lives must be tested for impairment annually, and also whenever there is an indication of impairment. Testing only on indicators or only at recognition would not meet IAS 36.

Question 13Financial Reporting and Accounting Standards

An asset's recoverable amount under IAS 36 is defined as which of the following?

  1. The higher of cost and fair value
  2. The higher of fair value less costs of disposal and value in use Correct answer.
  3. The lower of fair value less costs of disposal and value in use
  4. The lower of cost and net realizable value

Explanation

Recoverable amount is the higher of fair value less costs of disposal and value in use, because the entity would rationally choose the more advantageous option. Using the lower amount would understate the recoverable value.

Question 14Financial Reporting and Accounting Standards

Under IAS 2, inventory is measured at the lower of cost and net realizable value. What does net realizable value represent?

  1. Fair value less costs to buy
  2. Historical purchase price less accumulated depreciation
  3. Replacement cost in the current market
  4. Estimated selling price less costs to complete and sell Correct answer.

Explanation

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. It is not replacement cost or historical cost.

Question 15Financial Reporting and Accounting Standards

Under IAS 7, which item is classified as a cash flow from investing activities?

  1. Cash received from a bank loan
  2. Cash paid to suppliers for inventory
  3. Cash received from issuing shares
  4. Cash paid to purchase equipment Correct answer.

Explanation

Purchases of property, plant, and equipment are investing activities because they relate to acquiring long-term assets. Issuing shares and borrowing are financing activities, while payments to suppliers are operating activities.

Question 16Financial Reporting and Accounting Standards

Under IAS 12, a deferred tax liability generally arises when which situation occurs?

  1. An entity reports an accounting loss
  2. The carrying amount of an asset exceeds its tax base Correct answer.
  3. The tax base of an asset exceeds its carrying amount
  4. An entity pays tax in advance of earning income

Explanation

A taxable temporary difference arises when an asset's carrying amount exceeds its tax base, creating future taxable amounts and thus a deferred tax liability. The opposite situation generally creates a deductible difference and a deferred tax asset.

Question 17Financial Reporting and Accounting Standards

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

  1. At the present value of future variable lease payments
  2. At the fair value of the underlying asset
  3. At the amount of the lease liability plus initial direct costs and lease prepayments Correct answer.
  4. At the total undiscounted lease payments

Explanation

The right-of-use asset is initially measured at the amount of the lease liability, adjusted for initial direct costs, prepaid lease payments, and certain other items. Undiscounted payments and variable payments excluded from the liability are not the measurement basis.

Question 18Financial Reporting and Accounting Standards

Under IAS 21, an entity's functional currency is defined as which of the following?

  1. The currency in which the entity presents its financial statements
  2. The currency of the primary economic environment in which the entity operates Correct answer.
  3. The currency most used by the entity's competitors
  4. The currency of the country where the entity is incorporated

Explanation

Functional currency is the currency of the primary economic environment in which the entity operates, determined by factors such as sales prices and cost drivers. Presentation currency and country of incorporation are separate considerations.

Question 19Financial Reporting and Accounting Standards

Under IFRS 9, which measurement category applies to a financial asset held within a business model whose objective is to collect contractual cash flows, where those flows are solely payments of principal and interest?

  1. Amortized cost Correct answer.
  2. Fair value through other comprehensive income
  3. Cost less impairment
  4. Fair value through profit or loss

Explanation

A financial asset is measured at amortized cost when the business model objective is to hold assets to collect contractual cash flows and the cash flows are solely payments of principal and interest. Failing either condition leads to fair value measurement.

Question 20Financial Reporting and Accounting Standards

Under IAS 10, which event occurring after the reporting period would require adjustment of the financial statements?

  1. A major business combination announced after the period end
  2. A decline in market prices after the period end
  3. A court judgment confirming a liability that existed at the reporting date Correct answer.
  4. A fire destroying a major plant after the period end

Explanation

Events after the reporting period that provide evidence of conditions existing at the reporting date are adjusting events. A judgment confirming a pre-existing obligation adjusts the amounts recognized, whereas new post-period events are generally non-adjusting.

Question 21Financial Reporting and Accounting Standards

Under IAS 24, which party is a related party of the reporting entity?

  1. A bank that provides a loan at market rates
  2. A customer that purchases goods under standard terms
  3. A key management personnel member of the entity Correct answer.
  4. A government agency that collects taxes

Explanation

Key management personnel are related parties because they have authority and responsibility for planning, directing, and controlling the entity. Customers, tax authorities, and lenders dealing at arm's length are not related parties solely for that reason.

Question 22Financial Reporting and Accounting Standards

Under IAS 33, which shares are included in the denominator for diluted earnings per share?

  1. Only shares issued at the period end
  2. Only weighted average ordinary shares outstanding
  3. Ordinary shares excluding treasury shares and potential shares
  4. Ordinary shares plus the weighted average of dilutive potential ordinary shares Correct answer.

Explanation

Diluted EPS adjusts the denominator to include the weighted average number of ordinary shares that would be issued on conversion of all dilutive potential ordinary shares. Basic EPS uses only weighted average ordinary shares outstanding.

Question 23Financial Reporting and Accounting Standards

Under IAS 23, which borrowing costs must be capitalized?

  1. Borrowing costs directly attributable to the acquisition or construction of a qualifying asset Correct answer.
  2. All borrowing costs regardless of the asset
  3. Only borrowing costs on assets measured at fair value
  4. Only borrowing costs incurred after the asset is ready for use

Explanation

IAS 23 requires capitalization of borrowing costs directly attributable to acquiring, constructing, or producing a qualifying asset. Other borrowing costs are expensed, and capitalization ceases when the asset is ready for its intended use.

Question 24Financial Reporting and Accounting Standards

Under IFRS 3, how are acquisition-related transaction costs generally treated by the acquirer?

  1. Recognized as a deferred asset
  2. Capitalized as part of goodwill
  3. Deducted from the consideration transferred
  4. Expensed as incurred Correct answer.

Explanation

IFRS 3 requires acquisition-related costs to be expensed in the periods in which they are incurred, with limited exceptions such as costs to issue debt or equity. They are not included in the consideration transferred or goodwill.

Question 25Financial Reporting and Accounting Standards

Under IAS 40, an entity that chooses the fair value model for investment property must do which of the following?

  1. Recognize changes in fair value in profit or loss Correct answer.
  2. Recognize changes in fair value in other comprehensive income
  3. Depreciate the property over its useful life
  4. Apply the cost model to all other investment property

Explanation

Under the fair value model, investment property is measured at fair value with changes recognized in profit or loss, and it is not depreciated. Revaluation gains under IAS 16 go to OCI, but that treatment does not apply to the IAS 40 fair value model.

Question 26Financial Reporting and Accounting Standards

Under the IASB's Conceptual Framework, which qualitative characteristic requires information to influence users' economic decisions?

  1. Timeliness
  2. Verifiability
  3. Comparability
  4. Relevance Correct answer.

Explanation

Relevance is a fundamental qualitative characteristic; information is relevant when it has predictive value, confirmatory value, or both, and is capable of making a difference in decisions. Verifiability, timeliness, and comparability are enhancing characteristics that support useful information but do not by themselves define decision influence.

Question 27Financial Reporting and Accounting Standards

Which body is responsible for issuing International Financial Reporting Standards?

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

Explanation

The International Accounting Standards Board develops and issues IFRS Standards and the Conceptual Framework. The Interpretations Committee issues narrow interpretations, the Trustees oversee governance and financing, and IFAC is a global professional accountancy body.

Question 28Financial Reporting and Accounting Standards

An entity prepares financial statements on a going concern basis. Which circumstance most clearly indicates that this basis may no longer be appropriate?

  1. The entity has defaulted on a loan and lenders have demanded immediate repayment with no refinancing available Correct answer.
  2. The entity reported a net loss for the current year only
  3. The entity's management intends to reduce headcount next year
  4. The entity's main customer renewed its supply contract for a further two years

Explanation

Going concern assumes the entity will continue in operation for the foreseeable future. A loan default coupled with an immediate demand for repayment and no available refinancing threatens the entity's ability to continue, which is the classic indicator that the basis may be inappropriate.

Question 29Financial Reporting and Accounting Standards

Which of the following best describes the IFRS requirement when an entity departs from a standard to achieve a fair presentation?

  1. The departure is permitted whenever management judges it material
  2. The departure is permitted only if the relevant regulatory framework requires or otherwise does not prohibit it and the effect is disclosed Correct answer.
  3. The departure is prohibited under all circumstances
  4. The departure requires prior approval from the entity's auditor

Explanation

IAS 1 permits departure from a requirement in the extremely rare circumstances where compliance would be so misleading that it conflicts with the objective of financial statements, and only where the regulatory framework does not prohibit it. The entity must disclose the nature, reason, and financial effect of the departure.

Question 30Financial Reporting and Accounting Standards

Under IAS 1, when does an entity classify a liability as current?

  1. When it arises from a financing arrangement
  2. When it has been outstanding for more than one year
  3. When it is denominated in a foreign currency
  4. When the entity expects to settle it within twelve months after the reporting period Correct answer.

Explanation

IAS 1 classifies a liability as current when the entity expects to settle it in its normal operating cycle, holds it primarily for trading, it is due within twelve months after the reporting period, or the entity has no unconditional right to defer settlement beyond twelve months. The twelve-month settlement expectation is therefore a valid current classification criterion.

Question 31Financial Reporting and Accounting Standards

An entity changes the presentation of a line item in its financial statements. Under IAS 1, what must the entity do?

  1. Treat the change as a change in accounting policy requiring retrospective restatement of all prior years presented
  2. Restate prior period comparatives and disclose the nature, amount, and reason for the reclassification Correct answer.
  3. Apply the change prospectively only, with no comparative adjustment
  4. Obtain shareholder approval before reclassifying

Explanation

When an entity reclassifies items, IAS 1 requires it to reclassify comparative amounts and disclose the nature of the reclassification, the amount reclassified, and the reason. If reclassification of comparatives is impracticable, the entity discloses that fact and the nature of the adjustments that would have been made.

Question 32Financial Reporting and Accounting Standards

Which of the following is a fundamental qualitative characteristic of useful financial information under the Conceptual Framework?

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

Explanation

The two fundamental qualitative characteristics are relevance and faithful representation. Faithful representation means information is complete, neutral, and free from error. Consistency is an enhancing characteristic, prudence is a component of neutrality, and materiality is an entity-specific aspect of relevance.

Question 33Financial Reporting and Accounting Standards

An entity recognises an asset in its statement of financial position. Under the Conceptual Framework, which two criteria must be met for recognition?

  1. The item has been approved by the board and is supported by an external valuation
  2. The item meets the definition of an element and recognition provides relevant information that is a faithful representation Correct answer.
  3. The item is probable of future economic benefit and is measured at fair value
  4. The item has a physical form and a determinable useful life

Explanation

Recognition links the element definition to the qualitative characteristics: an item is recognised when it meets the definition of an asset, liability, equity, income, or expense and recognising it, with the resulting measurement, provides relevant and faithfully representative information. Cost constraints and measurement uncertainty are considered in that assessment.

Question 34Financial Reporting and Accounting Standards

An entity's financial statements are authorised for issue on 20 March, and the reporting period ends 31 December. A fire destroys a major plant on 10 February before authorisation. How should this be treated under IAS 10?

  1. As an adjusting event only if the plant was insured
  2. As an adjusting event restating the prior year's asset carrying amounts
  3. Ignored entirely because it occurred after the reporting period
  4. As a non-adjusting event, with disclosure of the nature and estimated financial effect Correct answer.

Explanation

IAS 10 distinguishes adjusting events, which provide evidence of conditions existing at the reporting date, from non-adjusting events, which concern conditions arising after that date. A fire occurring in the new period does not change conditions at year end, so it is non-adjusting, but material non-adjusting events require disclosure of their nature and estimated financial effect.

Question 35Financial Reporting and Accounting Standards

Which of the following is an adjusting event under IAS 10?

  1. The bankruptcy of a customer whose receivable was outstanding at the reporting date Correct answer.
  2. A decline in market value of investments after the reporting date
  3. A major business combination announced after the reporting date
  4. A flood damaging inventory after the reporting date

Explanation

Adjusting events provide evidence of conditions that existed at the reporting date. A customer's bankruptcy confirms that the receivable was impaired at year end, so the carrying amount should be adjusted. The other events reflect conditions that arose after the reporting date.

Question 36Financial Reporting and Accounting Standards

Under IAS 34, which of the following is a minimum required component of an interim financial report?

  1. An audit report for each interim period
  2. A condensed statement of financial position and condensed statement of profit or loss and other comprehensive income Correct answer.
  3. A full management commentary and sustainability report
  4. A statement of cash flows prepared only annually

Explanation

IAS 34 requires a condensed statement of financial position, a condensed statement of profit or loss and other comprehensive income, a condensed statement of changes in equity, a condensed statement of cash flows, and selected explanatory notes. Full management commentary, sustainability reporting, and interim audits are not minimum IAS 34 components.

Question 37Financial Reporting and Accounting Standards

An entity changes an accounting policy that is required by a new IFRS with no transitional provisions. Under IAS 8, how is the change applied?

  1. By adjusting only the current year's profit or loss
  2. By disclosing the change and applying it to future periods only
  3. Retrospectively, adjusting opening equity and restating comparatives Correct answer.
  4. Prospectively from the date of change

Explanation

IAS 8 requires retrospective application for voluntary changes in accounting policy and for changes required by a new standard unless the standard specifies transitional provisions. Retrospective application means adjusting the opening balance of each affected component of equity and restating comparative information as if the new policy had always applied.

Question 38Financial Reporting and Accounting Standards

An entity discovers a material error in its prior year financial statements. Under IAS 8, how is the correction generally treated?

  1. Retrospectively, by restating comparatives and adjusting opening retained earnings Correct answer.
  2. By recognising the correction directly in other comprehensive income
  3. As a change in accounting estimate recognised in current profit or loss
  4. Prospectively, with disclosure only

Explanation

IAS 8 requires material prior period errors to be corrected retrospectively in the first set of financial statements authorised for issue after discovery. The entity restates comparative amounts and adjusts the opening balance of retained earnings, with disclosure of the nature and amount of the correction.

Question 39Financial Reporting and Accounting Standards

Which of the following is a related party disclosure requirement under IAS 24?

  1. The nature of the relationship and information about transactions, outstanding balances, and commitments with related parties Correct answer.
  2. The name of the entity's largest customer
  3. The identity of all shareholders holding any shares
  4. The remuneration of every employee above a specified grade

Explanation

IAS 24 requires disclosure of the nature of the related party relationship and information about transactions, outstanding balances including terms and guarantees, and commitments, sufficient for users to understand the potential effect on the financial statements. Customer identity, general employee pay scales, and all shareholders are not related party disclosures.

Question 40Financial Reporting and Accounting Standards

An entity's financial statements are presented in a currency different from its functional currency. Under IAS 21, how are assets and liabilities translated for presentation?

  1. At the average rate for the period
  2. At the rate expected to apply when the item is settled
  3. At the closing rate at the reporting date Correct answer.
  4. At the historical exchange rate on the transaction date

Explanation

When the presentation currency differs from the functional currency, IAS 21 requires assets and liabilities to be translated at the closing rate, income and expenses at rates at the dates of the transactions (an average is often used as an approximation), and resulting exchange differences in other comprehensive income.

Question 41Financial Reporting and Accounting Standards

Under IAS 21, an exchange difference arising on the translation of a monetary item denominated in a foreign currency is generally recognised where?

  1. Directly in retained earnings
  2. In profit or loss in the period in which it arises Correct answer.
  3. As an adjustment to the cost of the related asset
  4. In other comprehensive income

Explanation

Exchange differences on monetary items are recognised in profit or loss in the period in which they arise, with limited exceptions such as differences on monetary items forming part of a net investment in a foreign operation. Non-monetary items measured at fair value follow the recognition of the fair value change.

Question 42Financial Reporting and Accounting Standards

An entity issues a financial instrument that contains both a liability component and an equity component. Under IAS 32, how is the instrument initially accounted for?

  1. At the lower of the liability and equity fair values
  2. The components are classified separately, with the equity component measured as the residual after deducting the liability component from the fair value of the instrument as a whole Correct answer.
  3. Entirely as equity because equity features are present
  4. Entirely as a liability measured at fair value

Explanation

IAS 32 requires the issuer of a compound instrument to classify the liability and equity components separately. The liability is measured first at the fair value of a similar instrument without the equity feature, and the equity component is the residual amount after deducting that liability from the fair value of the compound instrument.

Question 43Financial Reporting and Accounting Standards

Under IFRS 9, when is a financial asset classified as measured at amortised cost?

  1. When it is a derivative designated as a hedging instrument
  2. When it is held for trading and measured at fair value through profit or loss
  3. When it is held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest Correct answer.
  4. When it is an equity investment held for strategic purposes

Explanation

IFRS 9 classifies a financial asset at amortised cost only if two conditions are met: the business model objective is to hold assets to collect contractual cash flows, and the contractual cash flows are solely payments of principal and interest on the principal amount outstanding. Failing either condition leads to fair value measurement.

Question 44Financial Reporting and Accounting Standards

Under IFRS 9, how is the impairment loss allowance for trade receivables without a significant financing component generally measured?

  1. Using twelve-month expected credit losses only
  2. Using fair value changes recognised in other comprehensive income
  3. Using lifetime expected credit losses via a simplified approach Correct answer.
  4. Using incurred losses identified at the reporting date

Explanation

IFRS 9 permits a simplified approach for trade receivables, contract assets, and lease receivables, under which the loss allowance is always measured at an amount equal to lifetime expected credit losses. A provision matrix based on historical loss experience adjusted for forward-looking factors is commonly used.

Question 45Financial Reporting and Accounting Standards

Under IFRS 15, how should an entity allocate the transaction price when a contract has multiple performance obligations?

  1. On the basis of the relative stand-alone selling prices of each distinct good or service Correct answer.
  2. Based on the cost incurred for each obligation
  3. Based on the order in which obligations are satisfied
  4. Equally among all performance obligations

Explanation

IFRS 15 requires the transaction price to be allocated to each performance obligation in proportion to stand-alone selling prices. Where a stand-alone selling price is not directly observable, the entity estimates it using an appropriate method such as adjusted market assessment, expected cost plus a margin, or the residual approach in limited circumstances.

Question 46Financial Reporting and Accounting Standards

Under IFRS 15, an entity receives a non-refundable upfront payment at contract inception for a service that will be provided over three years. How should the payment generally be accounted for?

  1. Recognised as a contract liability and released as revenue over the period the service is provided Correct answer.
  2. Recognised as other income at inception
  3. Deferred until the contract ends and then recognised in full
  4. Recognised immediately as revenue at inception

Explanation

A non-refundable upfront fee is generally an advance payment for future goods or services rather than revenue of the current period. It is recognised as a contract liability and released as the related performance obligation is satisfied over the service period.

Question 47Financial Reporting and Accounting Standards

Under IAS 37, how is a reimbursement from a third party for a recognised provision treated?

  1. Recognised as a separate asset only when it is virtually certain to be received Correct answer.
  2. Deducted directly from the provision amount in all cases
  3. Recognised only when the cash is received
  4. Ignored until the related outflow occurs

Explanation

IAS 37 requires a reimbursement to be recognised as a separate asset only when it is virtually certain that the reimbursement will be received if the entity settles the obligation. The expense relating to the provision may be presented net of the reimbursement in the statement of profit or loss.

Question 48Financial Reporting and Accounting Standards

Under IAS 38, which of the following costs may be capitalised as part of the cost of an internally generated intangible asset?

  1. Expenditure on research activities
  2. Expenditure on development activities that meets the capitalisation criteria Correct answer.
  3. Training costs for staff operating the new process
  4. Advertising costs to launch the new product

Explanation

IAS 38 requires research expenditure to be expensed as incurred. Development expenditure may be capitalised only when the entity can demonstrate technical feasibility, intention and ability to complete and use or sell the asset, probable future economic benefits, and reliable measurement of costs, among other criteria.

Question 49Financial Reporting and Accounting Standards

Under IAS 36, an entity recognises an impairment loss on a cash-generating unit that includes non-controlling interests measured using the proportionate method. How is the impairment allocated?

  1. Entirely against the parent's retained earnings
  2. Equally among all assets including goodwill
  3. First to reduce goodwill, then pro rata to other assets of the unit, but not to the non-controlling interests' share of goodwill Correct answer.
  4. Entirely to the non-controlling interests first

Explanation

When the proportionate method is used, goodwill recognised in the consolidated financial statements reflects only the parent's share. The impairment loss is allocated first to reduce the carrying amount of goodwill and then pro rata to the other assets of the unit, with no allocation to non-controlling interests' unrecognised goodwill.

Question 50Financial Reporting and Accounting Standards

Under IAS 16, how is depreciation of an item of property, plant, and equipment generally recognised?

  1. Only when the asset is disposed of
  2. Always directly against retained earnings
  3. As an expense in profit or loss unless it is included in the carrying amount of another asset Correct answer.
  4. As a reduction of the revaluation surplus

Explanation

IAS 16 requires depreciation to be recognised in profit or loss unless it is included in the carrying amount of another asset, such as inventory or a self-constructed asset. Depreciation reflects the consumption of the asset's future economic benefits over its useful life.