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HKICPA QP Module 1 Accounting study materials
HKICPA QP Module 1 Accounting study resources

HKICPA QP Module 1 Accounting: Accounting

HKICPA QP Module 1 Accounting · Work through your exam, one topic at a time.

All guide sections

Accounting

The Accounting domain of the HKICPA QP Module 1 tests whether you can apply HKFRS (substantively IFRS) to prepare, adjust and interpret general purpose financial statements under the Companies Ordinance (Cap. 622). Questions are computational and judgement-based: revenue, leases, financial instruments, consolidation, deferred tax, impairment, provisions and cash flows. You must show measurement, journal entries and disclosure logic, not merely quote a standard.

Core rules to hold

  • Reporting framework: HKFRS applies to general purpose financial statements; going concern, accrual, materiality and substance underpin presentation (HKAS 1).
  • Consolidation: HKFRS 10 control means power over relevant activities, exposure to variable returns and ability to use power; consolidate all subsidiaries. HKFRS 3 uses the acquisition method; identifiable assets and liabilities are measured at acquisition-date fair value; goodwill is not amortised but tested for impairment (HKAS 36).
  • HKFRS 15: five steps-identify the contract, identify performance obligations, determine transaction price, allocate by relative standalone selling price, and recognise when control transfers.
  • HKFRS 16 lessee: recognise a lease liability at the present value of unpaid lease payments and a right-of-use (ROU) asset; subsequently recognise depreciation and interest.
  • HKAS 12: recognise deferred tax on temporary differences using the expected manner of recovery or settlement.
  • HKAS 37: recognise a provision if there is a present obligation, a probable outflow and a reliable estimate; contingent liabilities are disclosed, not recognised.

Worked example

A lessee enters a 3-year lease with annual payments of HK$100,000 in arrears. The incremental borrowing rate is 10%; initial direct costs are HK$20,000; a lease incentive of HK$10,000 is received. The 3-year annuity factor at 10% is 2.48685. Lease liability = 100,000 × 2.48685 = HK$248,685. ROU asset = 248,685 + 20,000 − 10,000 = HK$258,685. Year 1 depreciation (straight-line over the lease term) = 258,685 ÷ 3 = HK$86,228; interest = 248,685 × 10% = HK$24,869. The incentive reduces the ROU asset, not profit; initial direct costs are capitalised.

Mark-losing traps

Using the interest rate implicit in the lease when it is not readily determinable instead of the lessee’s incremental borrowing rate; treating payments in advance as arrears; expensing initial direct costs; crediting incentives to income; depreciating over useful life when ownership does not transfer and no purchase option is reasonably certain. In consolidation, netting fair-value adjustments against goodwill incorrectly and ignoring deferred tax on fair-value uplifts also lose marks.