I85PREP
⌘ K
ACA Corporate Reporting study materials
ACA Corporate Reporting study resources

ACA Corporate Reporting practice questions

One question at a time. Build your ACA Corporate Reporting understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Corporate reporting

Under IFRS, which framework does an entity apply when determining the measurement basis for assets and liabilities in its general purpose financial statements?

  1. The Conceptual Framework for Financial Reporting Correct answer.
  2. The IASB Due Process Handbook
  3. The IFRS Practice Statement on Management Commentary
  4. The IFRS for SMEs Standard

Explanation

The Conceptual Framework sets out the objective of general purpose financial reporting, the qualitative characteristics of useful information, and the definitions and recognition criteria for assets, liabilities, income and equity. It guides the IASB in developing Standards and helps preparers apply them where no Standard addresses a transaction. The other documents govern disclosure narrative, a separate reduced-disclosure regime, or the Board's procedures rather than measurement concepts.

Question 2Corporate reporting

An entity's financial statements are prepared on a going concern basis. Which condition best supports that basis under IAS 1?

  1. The entity reported a profit in each of the last three reporting periods
  2. The entity has obtained an unmodified audit opinion in the prior year
  3. Management has no intention to liquidate or cease trading, and no realistic alternative exists Correct answer.
  4. The entity's shares are listed on a recognised stock exchange

Explanation

IAS 1 requires an entity to prepare financial statements on a going concern basis unless management either intends to liquidate the entity, cease trading, or has no realistic alternative but to do so. Profit history, listing status and prior audit opinions are indicators that may inform the assessment but are not the criterion itself. When material uncertainties exist, they must be disclosed.

Question 3Corporate reporting

A machine is purchased for CU 100,000 with a residual value of CU 10,000 and a useful life of five years. Using straight-line depreciation, what is the annual depreciation charge?

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

Explanation

Depreciation under IAS 16 allocates the depreciable amount, being cost less residual value, over the useful life. Here the depreciable amount is CU 90,000 spread over five years, giving CU 18,000 each year. Residual value is not depreciated because it is expected to be recovered on disposal.

Question 4Corporate reporting

Which item is presented within other comprehensive income rather than in profit or loss?

  1. Cost of inventories sold during the period
  2. Depreciation of office equipment used for administration
  3. Impairment loss on trade receivables
  4. Gains on revaluation of property, plant and equipment under the revaluation model Correct answer.

Explanation

IAS 1 permits items of income and expense to be presented in other comprehensive income when a Standard requires or permits it. Revaluation surpluses on property, plant and equipment recognised under the IAS 16 revaluation model are recognised in OCI and accumulated in equity as a revaluation reserve. Administrative depreciation, receivable impairments and cost of sales are recognised directly in profit or loss.

Question 5Corporate reporting

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

  1. When control of the promised good or service transfers to the customer Correct answer.
  2. When the contract is signed by both parties
  3. When cash is received from the customer
  4. When the customer is invoiced for the goods or services

Explanation

The core principle of IFRS 15 is that revenue is recognised to depict the transfer of promised goods or services in an amount reflecting the consideration the entity expects to be entitled to. Recognition occurs when the performance obligation is satisfied, which is when control passes to the customer. Invoicing, cash collection and contract signing are separate events that may occur at different times.

Question 6Corporate reporting

An entity leases equipment for five years with annual payments of CU 20,000 payable in arrears. The lessee applies the IFRS 16 recognition exemption for short-term leases. What is the correct accounting treatment?

  1. Recognise the equipment as an owned asset with a corresponding finance charge
  2. Recognise a right-of-use asset and a lease liability at the present value of payments
  3. Recognise the payments as a distribution to the lessor in equity
  4. Recognise lease payments as an expense on a straight-line basis over the lease term Correct answer.

Explanation

IFRS 16 permits a lessee to elect not to recognise a right-of-use asset and lease liability for short-term leases, defined as leases with a term of 12 months or less at commencement without a purchase option. A five-year lease does not qualify, so the exemption is unavailable and the payments must be capitalised. The election is made by class of underlying asset.

Question 7Corporate reporting

Which statement correctly describes the IASB's objective when developing IFRS Standards?

  1. To develop Standards that bring transparency, accountability and efficiency to financial markets Correct answer.
  2. To replace national company law in member jurisdictions
  3. To guarantee that reported profits are stable across economic cycles
  4. To prescribe uniform tax treatments for multinational groups

Explanation

The IFRS Foundation's mission is to develop Standards that bring transparency, accountability and efficiency to financial markets around the world, fostering trust and economic growth. IFRS Standards are financial reporting requirements and do not set tax rules or override national company law. They also cannot guarantee profit stability, since faithful representation requires reporting actual economic effects.

Question 8Corporate reporting

An entity issues a financial instrument that is redeemable at the holder's option for a fixed cash amount. How should the instrument be classified under IAS 32?

  1. As a compound instrument split between liability and equity
  2. As equity, because the holder has chosen to invest
  3. As a financial liability, because the entity has an obligation to deliver cash Correct answer.
  4. As a contingent asset disclosed in the notes

Explanation

IAS 32 classifies an instrument as a financial liability if the issuer has a contractual obligation to deliver cash or another financial asset. A holder put option that requires redemption for cash creates such an obligation, so the instrument is a liability even though the redemption is at the holder's discretion. Equity classification requires the absence of any obligation to deliver cash.

Question 9Corporate reporting

Under IAS 36, at what amount is an impaired cash-generating unit measured after an impairment loss is allocated?

  1. The lower of carrying amount and recoverable amount, with the loss allocated first to goodwill Correct answer.
  2. Historical cost less accumulated depreciation
  3. Fair value at the reporting date
  4. The higher of fair value less costs of disposal and value in use

Explanation

An impairment loss arises when the carrying amount of a cash-generating unit exceeds its recoverable amount, which is the higher of fair value less costs of disposal and value in use. The loss is allocated first to reduce goodwill and then pro rata to other assets, subject to a floor so no asset is written below its own recoverable amount. The unit is therefore carried at the lower of its pre-impairment carrying amount and recoverable amount.

Question 10Corporate reporting

An entity has a defined benefit obligation with a present value of CU 500,000 and plan assets with a fair value of CU 460,000. What is the net defined benefit liability recognised in the statement of financial position?

  1. CU 460,000
  2. CU 960,000
  3. CU 500,000
  4. CU 40,000 Correct answer.

Explanation

IAS 19 requires the net defined benefit liability or asset to be measured as the present value of the defined benefit obligation less the fair value of plan assets. Subtracting CU 460,000 from CU 500,000 gives a net liability of CU 40,000. The gross figures are not presented as separate liabilities and assets on the face of the statement of financial position.

Question 11Corporate reporting

An entity changes an accounting policy for inventory measurement. Which treatment is required under IAS 8 if the change is not required by a new Standard and no transitional provisions apply?

  1. Recognise the cumulative effect in profit or loss in the current period
  2. Disclose the change in the notes without adjusting any amounts
  3. Apply the change prospectively from the date of change
  4. Apply the change retrospectively, adjusting opening equity and restating comparatives Correct answer.

Explanation

IAS 8 requires voluntary changes in accounting policy to be applied retrospectively unless it is impracticable to determine period-specific effects. Retrospective application means restating comparative information and adjusting the opening balance of each affected component of equity. Prospective application is reserved for changes in accounting estimate and for cases of impracticability.

Question 12Corporate reporting

Which of the following best describes the IAS 10 treatment of dividends declared after the reporting period but before the financial statements are authorised for issue?

  1. They are a non-adjusting event and are disclosed in the notes Correct answer.
  2. They are ignored entirely because they occur after the reporting date
  3. They are an adjusting event requiring recognition as a liability
  4. They are recognised as a liability because they relate to the reporting period

Explanation

IAS 10 states that dividends declared after the reporting period do not represent an obligation at the end of the reporting period because no obligation exists at that date. They are therefore treated as a non-adjusting event, but IFRS requires disclosure so users understand the effect on equity. Recognition as a liability in the reporting period would misstate the position at the period end.

Question 13Corporate reporting

An entity holds a debt instrument measured at amortised cost. Which condition must be met for that classification under IFRS 9?

  1. The entity intends to trade the instrument within 12 months of acquisition
  2. The instrument is designated at fair value through other comprehensive income on initial recognition
  3. The business model is to hold to collect contractual cash flows, and those flows are solely payments of principal and interest Correct answer.
  4. The instrument is an equity investment held for strategic purposes

Explanation

IFRS 9 classifies financial assets by reference to the entity's business model for managing the assets and the contractual cash flow characteristics of the asset. Amortised cost applies where the objective is to hold assets to collect contractual cash flows and those cash flows are solely payments of principal and interest on the principal outstanding. Trading intent or equity features would preclude that classification.

Question 14Corporate reporting

A company reports profit before tax of CU 200,000. Tax depreciation exceeds accounting depreciation by CU 30,000, and the tax rate is 25%. What deferred tax effect arises?

  1. A deferred tax liability of CU 50,000
  2. A deferred tax asset of CU 7,500
  3. A deferred tax liability of CU 7,500 Correct answer.
  4. No deferred tax, because the difference is temporary

Explanation

A taxable temporary difference arises where the carrying amount of an asset exceeds its tax base, which occurs when tax depreciation runs ahead of accounting depreciation. Multiplying the CU 30,000 difference by the 25% tax rate gives a deferred tax liability of CU 7,500. The liability will reverse as future taxable profits are reduced by lower tax depreciation.

Question 15Corporate reporting

Under IFRS 15, how is the transaction price allocated when a contract contains multiple distinct performance obligations?

  1. Entirely to the performance obligation satisfied first
  2. Equally between the performance obligations regardless of value
  3. Based on the entity's cost of fulfilling each obligation
  4. On the basis of relative stand-alone selling prices of each performance obligation Correct answer.

Explanation

IFRS 15 requires the transaction price to be allocated to each performance obligation in proportion to its stand-alone selling price. Where stand-alone selling prices are not directly observable, they are estimated using an adjusted market assessment, expected cost plus a margin, or the residual approach where criteria are met. Equal allocation or allocation by cost alone would not reflect the value transferred to the customer.

Question 16Corporate reporting

Which disclosure is specifically required by IAS 24 for related party transactions?

  1. The names of all employees who are not key management personnel
  2. The nature of the relationship and information about the transactions, outstanding balances and commitments Correct answer.
  3. The fair value of all property, plant and equipment held by the entity
  4. The entity's budgeted revenue for the next financial year

Explanation

IAS 24 requires disclosure of relationships, transactions and outstanding balances, including commitments, with related parties, together with the amounts involved and any provisions for doubtful debts. For key management personnel, total compensation must be disclosed by category. The Standard does not require employee name lists, asset fair values, or forward budgets.

Question 17Corporate reporting

An entity recognises a provision for a restructuring announced before the reporting date. Which condition must be satisfied under IAS 37?

  1. A present obligation exists from a past obligating event, and a reliable estimate can be made Correct answer.
  2. The restructuring is expected to improve future profitability
  3. The entity has sufficient cash reserves to fund the restructuring
  4. The entity's board has approved a draft plan that has not been communicated

Explanation

IAS 37 requires recognition of a provision where a present obligation exists as a result of a past event, an outflow of resources is probable, and a reliable estimate can be made. For restructuring, a constructive obligation arises only when a detailed formal plan exists and those affected have a valid expectation that the restructuring will be carried out. Board approval without communication does not create an obligating event.

Question 18Corporate reporting

An entity uses the revaluation model for a class of buildings. A revaluation surplus arises on one building. How is it treated under IAS 16?

  1. Recognised immediately in profit or loss as a gain
  2. Recognised as a reduction of the related deferred tax liability only
  3. Recognised as an increase in share capital
  4. Recognised in other comprehensive income and accumulated in equity as a revaluation surplus Correct answer.

Explanation

Under the IAS 16 revaluation model, an increase in carrying amount is recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. The exception is that the increase is recognised in profit or loss to the extent it reverses a previous revaluation decrease for the same asset. The surplus is not share capital and is not measured net of deferred tax in the way described.

Question 19Corporate reporting

A parent controls a subsidiary but holds only 70% of its equity. How are the non-controlling interest and the subsidiary's results presented under IFRS 10?

  1. The subsidiary is not consolidated because the parent does not own 100%
  2. The subsidiary is accounted for using the equity method in the consolidated statements
  3. The subsidiary is consolidated in full, with non-controlling interest presented separately within equity Correct answer.
  4. The subsidiary is consolidated proportionately to the parent's 70% holding

Explanation

IFRS 10 requires consolidation of all subsidiaries over which the parent has control, regardless of the ownership percentage. The full assets, liabilities, income and expenses of the subsidiary are combined, and the non-controlling interest in the net assets and results is presented separately within equity. Proportional consolidation and equity accounting are not permitted for controlled subsidiaries under IFRS.

Question 20Corporate reporting

Which of the following is a key difference between the IFRS for SMEs Standard and full IFRS Standards?

  1. The IFRS for SMEs Standard simplifies recognition and measurement requirements and reduces disclosure Correct answer.
  2. The IFRS for SMEs Standard prohibits the use of the accrual basis of accounting
  3. The IFRS for SMEs Standard applies to all entities listed on a recognised exchange
  4. The IFRS for SMEs Standard requires fair value measurement for all financial assets

Explanation

The IFRS for SMEs Standard is a self-contained standard for entities without public accountability, based on full IFRS but with simplifications in recognition, measurement and disclosure. Listed entities are excluded because they have public accountability. The Standard retains accrual accounting and does not mandate fair value for all financial assets.

Question 21Corporate reporting

An entity recognises a deferred tax asset for unused tax losses. Under IAS 12, when is recognition appropriate?

  1. Whenever the entity has incurred a loss in the current period
  2. Only when the losses arise from a discontinued operation
  3. When it is probable that future taxable profit will be available against which the losses can be used Correct answer.
  4. Only when the tax authority has formally approved the losses

Explanation

IAS 12 requires a deferred tax asset to be recognised for unused tax losses only to the extent that it is probable that future taxable profits will be available against which the losses can be utilised. The existence of unused losses is itself evidence that future taxable profit may not be available, so additional evidence is needed. Reassessment is required at each reporting date.

Question 22Corporate reporting

An entity measures a financial liability at fair value through profit or loss. Under IFRS 9, how is the effect of changes in the liability's own credit risk presented?

  1. In other comprehensive income, unless doing so would create or enlarge an accounting mismatch Correct answer.
  2. As a deduction from the carrying amount without recognition in any statement
  3. In equity as a direct adjustment to retained earnings
  4. Always in profit or loss together with all other fair value changes

Explanation

IFRS 9 requires the portion of the change in fair value of a financial liability designated at fair value through profit or loss that is attributable to changes in the liability's own credit risk to be presented in other comprehensive income. The exception is where recognising the effect in OCI would create or enlarge an accounting mismatch in profit or loss, in which case it is presented in profit or loss. Amounts in OCI are not subsequently recycled to profit or loss.

Question 23Corporate reporting

A group disposes of a subsidiary that constituted a major line of business. How is the disposal presented under IFRS 5?

  1. As a discontinued operation, with a single amount in profit or loss and comparative restatement Correct answer.
  2. As a change in accounting policy applied retrospectively through opening equity
  3. As an ordinary disposal with no separate presentation because the subsidiary was consolidated
  4. As an adjusting event after the reporting period requiring restatement of prior years

Explanation

IFRS 5 requires a component representing a separate major line of business that is disposed of or held for sale to be presented as a discontinued operation. The results are shown as a single amount in profit or loss comprising the post-tax profit or loss and the post-tax gain or loss on disposal, with comparatives restated. Additional analysis is disclosed in the notes.

Question 24Corporate reporting

An entity enters a sale and leaseback transaction. The transfer qualifies as a sale under IFRS 15, and the leaseback is a finance lease. How is the right-of-use asset initially measured under IFRS 16?

  1. At the present value of all future lease payments without adjustment
  2. At the full fair value of the asset at the date of the transaction
  3. At the proportion of the previous carrying amount of the asset that relates to the right of use retained Correct answer.
  4. At nil, because the asset has been sold

Explanation

Where a sale and leaseback qualifies as a sale, IFRS 16 requires the seller-lessee to measure the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained. Only the amount of gain or loss relating to the rights transferred to the buyer-lessor is recognised. Measuring at full fair value or nil would misstate the retained interest.

Question 25Corporate reporting

An entity applies the expected credit loss model under IFRS 9 to trade receivables without a significant financing component. Which approach is required?

  1. A loss allowance recognised only when the receivable is written off
  2. No loss allowance until a receivable is more than 90 days past due
  3. A loss allowance measured at an amount equal to lifetime expected credit losses Correct answer.
  4. A loss allowance measured at 12-month expected credit losses until default occurs

Explanation

IFRS 9 contains a simplified approach that permits or requires a loss allowance at an amount equal to lifetime expected credit losses for trade receivables, contract assets and lease receivables. This avoids tracking changes in credit risk through the three-stage general model. The allowance is recognised from initial recognition and updated at each reporting date.

Question 26Corporate reporting

Under the IASB's Conceptual Framework, which measurement basis reflects the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date?

  1. Historical cost
  2. Value in use
  3. Current cost
  4. Fair value Correct answer.

Explanation

The Conceptual Framework identifies fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Historical cost and current cost are entry-type or transaction-based measures, and value in use is an entity-specific present value of expected cash flows.

Question 27Corporate reporting

An entity's reporting period ends 31 December 20X1. On 15 February 20X2, before the financial statements are authorised for issue, the entity's factory is destroyed by fire. The factory is uninsured and the loss is material. How should this event be reflected in the 20X1 financial statements under IAS 10?

  1. Adjust the carrying amounts of assets in the 20X1 statements to reflect the fire loss.
  2. Ignore the event because it occurred after the reporting period.
  3. Recognise a provision for the loss in the 20X1 statement of financial position.
  4. Disclose the nature and estimated financial effect as a non-adjusting event. Correct answer.

Explanation

IAS 10 requires non-adjusting events after the reporting period, which indicate conditions that arose after the reporting date, to be disclosed where material. The fire occurred in 20X2 and does not provide evidence of conditions existing at 31 December 20X1, so it is a non-adjusting event requiring disclosure rather than adjustment.

Question 28Corporate reporting

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

  1. Cash received from the issue of ordinary shares
  2. Cash paid to suppliers for inventory purchases
  3. Cash received from the sale of property, plant and equipment Correct answer.
  4. Cash paid as interest on a bank loan

Explanation

IAS 7 classifies cash flows from the acquisition and disposal of long-term assets and other investments not included in cash equivalents as investing activities. Proceeds from selling property, plant and equipment therefore fall within investing activities.

Question 29Corporate reporting

An entity holds 40% of the ordinary shares of an associate and applies the equity method under IAS 28. The associate reports profit of CU 100,000 for the year. What amount does the investor recognise in profit or loss in respect of the associate, before any impairment considerations?

  1. CU 0
  2. CU 40,000 Correct answer.
  3. CU 60,000
  4. CU 100,000

Explanation

Under the equity method the investor recognises its share of the associate's profit or loss in profit or loss. With a 40% interest and profit of CU 100,000, the recognised amount is CU 40,000.

Question 30Corporate reporting

Which of the following is a required component of the statement of financial position under IAS 1?

  1. Trade and other receivables Correct answer.
  2. Dividends declared per share
  3. Total comprehensive income for the period
  4. Earnings per share

Explanation

IAS 1 requires the statement of financial position to present line items including trade and other receivables, inventories, property, plant and equipment and cash. Total comprehensive income and earnings per share belong to the statement of profit or loss and other comprehensive income, not the statement of financial position.

Question 31Corporate reporting

Under IAS 37, how is a provision for a future operating loss distinguished from a provision for an onerous contract?

  1. Neither is recognised because both relate to future events.
  2. Future operating losses are not recognised, whereas a present obligation under an onerous contract is provided for. Correct answer.
  3. Future operating losses may be recognised if they are probable and reliably estimable.
  4. Both are recognised when the entity has a detailed formal plan for future operations.

Explanation

IAS 37 prohibits recognising provisions for future operating losses because no present obligation exists at the reporting date. An onerous contract, however, creates a present obligation for unavoidable costs of meeting the contract that exceed the economic benefits expected.

Question 32Corporate reporting

An entity's functional currency is the euro. It has a receivable denominated in US dollars that is a monetary item. At the reporting date the dollar has strengthened against the euro. How is the resulting exchange difference treated under IAS 21?

  1. Recognised in profit or loss in the period in which it arises. Correct answer.
  2. Adjusted against the carrying amount of the related revenue.
  3. Recognised in other comprehensive income and reclassified on settlement.
  4. Deferred and recognised over the remaining life of the receivable.

Explanation

IAS 21 requires exchange differences arising on monetary items to be recognised in profit or loss in the period in which they arise, except for items forming part of a net investment in a foreign operation. The receivable's retranslation at the closing rate therefore flows through profit or loss.

Question 33Corporate reporting

Under IAS 2, which cost formula is required for inventories that are not ordinarily interchangeable and for goods produced for specific projects?

  1. Last-in, first-out
  2. First-in, first-out
  3. Specific identification of individual costs Correct answer.
  4. Weighted average cost

Explanation

IAS 2 requires specific identification of individual costs for inventories that are not ordinarily interchangeable and for goods produced and segregated for specific projects. FIFO and weighted average cost are permitted only for inventories that are ordinarily interchangeable.

Question 34Corporate reporting

An entity issues 1,000 convertible bonds with a face value of CU 100 each. The liability component is measured at CU 90,000 and the equity component at CU 10,000 at initial recognition. Two years later the bonds are converted into ordinary shares. How is the equity component treated on conversion under IAS 32?

  1. It is transferred to share capital and share premium as part of the conversion. Correct answer.
  2. It is reclassified to profit or loss as a gain on conversion.
  3. It is derecognised against retained earnings only.
  4. It remains in the equity component reserve permanently.

Explanation

On conversion, the liability component is extinguished and the equity component originally recognised remains in equity, being transferred to share capital and share premium along with any shares issued. It is not recycled to profit or loss because it was always an equity instrument.

Question 35Corporate reporting

An entity grants 100 share options to each of its 50 employees, vesting after three years of service. At the end of year 1, the entity expects all 50 employees to remain. The fair value of each option at grant date is CU 12. What expense is recognised in year 1 under IFRS 2?

  1. CU 60,000
  2. CU 6,000
  3. CU 10,000
  4. CU 20,000 Correct answer.

Explanation

Total fair value of the award is 100 options × 50 employees × CU 12 = CU 60,000, recognised over the three-year vesting period. Year 1 expense is therefore CU 60,000 ÷ 3 = CU 20,000, based on the grant-date fair value and expected vesting.

Question 36Corporate reporting

An entity recognises revenue from a construction contract over time using an input method based on costs incurred. Total contract revenue is CU 1,000,000 and total expected costs are CU 800,000. By the end of year 1, costs incurred are CU 200,000. What revenue is recognised in year 1 under IFRS 15?

  1. CU 1,000,000
  2. CU 160,000
  3. CU 250,000 Correct answer.
  4. CU 200,000

Explanation

Progress towards satisfaction of the performance obligation is 200,000 ÷ 800,000 = 25%. Revenue recognised is 25% × CU 1,000,000 = CU 250,000, reflecting the transfer of control measured by progress.

Question 37Corporate reporting

An entity owns a building carried at CU 1,000,000 under the cost model. At the reporting date its recoverable amount is CU 850,000 and its fair value less costs of disposal is CU 870,000. What impairment loss is recognised under IAS 36?

  1. CU 130,000
  2. CU 0
  3. CU 20,000
  4. CU 150,000 Correct answer.

Explanation

Recoverable amount is the higher of fair value less costs of disposal (CU 870,000) and value in use. Assuming value in use does not exceed CU 870,000, recoverable amount is CU 870,000 and the impairment is CU 1,000,000 − CU 870,000 = CU 130,000.

Question 38Corporate reporting

A parent sells goods to its 80%-owned subsidiary at a profit of CU 50,000 during the year. At year end, half of those goods remain in the subsidiary's inventory. What adjustment is made in the consolidated financial statements?

  1. Eliminate unrealised profit of CU 25,000 attributable entirely to the parent.
  2. Eliminate unrealised profit of CU 25,000, allocated between the parent and NCI. Correct answer.
  3. Eliminate the full CU 50,000 profit against the parent's retained earnings.
  4. No adjustment is needed because the sale was at arm's length.

Explanation

Intra-group profits on goods still held at year end are unrealised and must be eliminated in full. Because the sale was upstream (subsidiary to parent) or downstream, the elimination of CU 25,000 (half of CU 50,000) is allocated between the parent and NCI according to the direction of the sale under IFRS 10.

Question 39Corporate reporting

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

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

Explanation

The right-of-use asset is initially measured at the amount of the lease liability plus payments made at or before commencement, initial direct costs, and estimated restoration costs, less lease incentives received. It is not measured at fair value or at undiscounted payments.

Question 40Corporate reporting

An entity has a defined benefit plan. The present value of the obligation at the start of the year is CU 400,000 and the fair value of plan assets is CU 350,000. Current service cost is CU 50,000, the discount rate is 5% and the expected return on assets equals the discount rate. What is the net interest on the net defined benefit liability for the year under IAS 19?

  1. CU 5,000
  2. CU 17,500
  3. CU 2,500 Correct answer.
  4. CU 20,000

Explanation

Under IAS 19 the net interest is calculated on the net defined benefit liability at the start of the period using the discount rate. The net liability is CU 400,000 − CU 350,000 = CU 50,000, so net interest is 5% × CU 50,000 = CU 2,500.

Question 41Corporate reporting

Under IFRS 15, a contract with a customer includes a right of return. How should the entity account for the expected returns at the point of sale?

  1. Recognise revenue only for goods not expected to be returned, and a refund liability plus a return asset for the right to recover goods. Correct answer.
  2. Recognise a provision for returns equal to the full sales value.
  3. Recognise revenue for all goods transferred and no liability.
  4. Defer all revenue until the return period expires.

Explanation

IFRS 15 requires revenue to be recognised only to the extent it is highly probable there will not be a significant reversal, so revenue is reduced for expected returns. The entity recognises a refund liability for the consideration expected to be returned and a return asset for the right to recover the goods.

Question 42Corporate reporting

An entity changes the measurement of a class of property from the cost model to the revaluation model. How is this change treated under IAS 8 and IAS 16?

  1. As a change in accounting estimate applied prospectively.
  2. As a change in accounting policy, but the revaluation is applied prospectively from the date of change. Correct answer.
  3. As a correction of a prior period error.
  4. As a change in accounting policy applied retrospectively to prior periods.

Explanation

A change from the cost model to the revaluation model is a change in accounting policy, but IAS 16 requires it to be accounted for as a revaluation from the date of change rather than by restating prior periods. The cumulative effect is recognised in other comprehensive income as a revaluation surplus.

Question 43Corporate reporting

An entity has taxable temporary differences of CU 80,000 and deductible temporary differences of CU 30,000. The tax rate is 25%. What is the net deferred tax liability recognised under IAS 12, assuming all differences are expected to reverse and the entity is profitable?

  1. CU 27,500
  2. CU 12,500 Correct answer.
  3. CU 7,500
  4. CU 20,000

Explanation

Deferred tax is measured on the net temporary difference at the expected tax rate. Net taxable temporary difference is CU 80,000 − CU 30,000 = CU 50,000, multiplied by 25% gives a deferred tax liability of CU 12,500.

Question 44Corporate reporting

A parent acquires 100% of a subsidiary for CU 900,000. The fair value of the subsidiary's identifiable net assets at acquisition is CU 700,000. What is the goodwill recognised under IFRS 3?

  1. CU 700,000
  2. CU 200,000 Correct answer.
  3. CU 1,600,000
  4. CU 900,000

Explanation

Goodwill is the excess of the consideration transferred over the fair value of identifiable net assets acquired. CU 900,000 − CU 700,000 = CU 200,000 of goodwill, recognised as an asset at acquisition.

Question 45Corporate reporting

Under IFRS 15, how should an entity account for a significant financing component in a contract where the customer pays in advance?

  1. A financing component is recognised only if the period exceeds five years.
  2. No adjustment is made because the customer pays before delivery.
  3. Revenue is adjusted for the time value of money, with interest expense recognised over the period before delivery. Correct answer.
  4. The entire advance is recognised as revenue at the date of payment.

Explanation

IFRS 15 requires adjustment for a significant financing component whenever the timing of payments provides financing to either party, including advance payments. The entity recognises a contract liability accreted with interest expense until the performance obligation is satisfied.

Question 46Corporate reporting

An entity measures a non-controlling interest at its proportionate share of the subsidiary's identifiable net assets at acquisition. How does this affect the goodwill recognised compared with measuring NCI at fair value?

  1. Goodwill is recognised only for the parent's share and the NCI share is expensed.
  2. Goodwill is higher because the NCI's share of goodwill is included.
  3. Goodwill is unchanged because NCI measurement affects only equity.
  4. Goodwill is lower because no goodwill is attributed to the NCI. Correct answer.

Explanation

Measuring NCI at its proportionate share of identifiable net assets recognises goodwill only in respect of the parent's ownership interest. Measuring NCI at fair value includes the NCI's share of goodwill, so the proportionate method produces lower goodwill.

Question 47Corporate reporting

An entity has a machine with a carrying amount of CU 500,000 and a remaining useful life of five years. It is revalued to CU 600,000, creating a surplus of CU 100,000. In the following year, the asset's fair value falls to CU 420,000. How is the revaluation decrease treated under IAS 16?

  1. Recognise the full decrease of CU 180,000 in profit or loss.
  2. Recognise CU 100,000 against the revaluation surplus and CU 80,000 in profit or loss. Correct answer.
  3. Recognise CU 80,000 against the revaluation surplus and CU 100,000 in profit or loss.
  4. Recognise the full decrease in other comprehensive income.

Explanation

A revaluation decrease is first offset against any existing revaluation surplus for the same asset to the extent of that surplus. The remaining decrease is recognised in profit or loss, so CU 100,000 is charged to OCI surplus and CU 80,000 to profit or loss.

Question 48Corporate reporting

A group classifies a disposal group as held for sale. Its carrying amount is CU 800,000, its fair value less costs to sell is CU 720,000, and it includes goodwill of CU 50,000. How is the impairment loss allocated under IFRS 5?

  1. Allocate the loss first to goodwill of CU 50,000, then the remaining CU 30,000 to other assets pro rata. Correct answer.
  2. Allocate the CU 80,000 loss pro rata across all assets in the disposal group.
  3. Allocate the full CU 80,000 loss to the non-current assets only.
  4. Recognise no loss until the disposal is completed.

Explanation

IFRS 5 requires an impairment loss on a disposal group to be allocated first to reduce goodwill, then to the other assets pro rata based on their carrying amounts. The CU 80,000 loss therefore reduces goodwill by CU 50,000 and the remaining CU 30,000 is allocated to other assets.

Question 49Corporate reporting

An entity has a foreign operation whose functional currency is different from the parent's presentation currency. On disposal of the foreign operation, how is the cumulative exchange difference recognised in other comprehensive income treated under IAS 21?

  1. It remains in equity and is never recycled.
  2. It is reclassified to profit or loss as part of the gain or loss on disposal. Correct answer.
  3. It is transferred directly to retained earnings without affecting profit or loss.
  4. It is used to adjust the carrying amount of the remaining foreign operations.

Explanation

IAS 21 requires the cumulative amount of exchange differences recognised in other comprehensive income for a foreign operation to be reclassified from equity to profit or loss on disposal. This recycling ensures the total gain or loss on disposal reflects the full effect of currency movements.

Question 50Corporate reporting

An entity has an asset retirement obligation for a mine. At initial recognition the present value of the obligation is CU 1,000,000 and is included in the cost of the asset. The discount rate is 6% and the obligation is measured using the expected present value technique. In the second year, how is the unwinding of the discount recognised under IAS 37 and IFRIC 1?

  1. As a finance cost in profit or loss for the period. Correct answer.
  2. As a revaluation surplus in other comprehensive income.
  3. As part of the cost of the asset, increasing the asset's carrying amount.
  4. As a reduction of the decommissioning provision without affecting profit or loss.

Explanation

Under IAS 37, the increase in a provision due to the passage of time is recognised as a finance cost in profit or loss. IFRIC 1 confirms that changes in the decommissioning liability arising from the unwinding of the discount are expensed rather than capitalised.