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Iran CPA Exam practice questions

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Question 1Financial Accounting and Reporting

Under Iranian accounting practice, which financial statement is prepared on the accrual basis and reports revenues when earned rather than when cash is received?

  1. The statement of financial position
  2. The statement of profit or loss Correct answer.
  3. The statement of cash flows
  4. The statement of changes in equity

Explanation

The statement of profit or loss reports revenues and expenses on the accrual basis, recognizing revenue when the earnings process is complete rather than when cash moves. The statement of financial position reports balances at a point in time, while the cash flow statement deliberately reports cash movements.

Question 2Financial Accounting and Reporting

A company purchases equipment for 500,000,000 rials with an estimated residual value of 50,000,000 rials and a useful life of 5 years. Using the straight-line method, what is the annual depreciation expense?

  1. 80,000,000 rials
  2. 100,000,000 rials
  3. 110,000,000 rials
  4. 90,000,000 rials Correct answer.

Explanation

Straight-line depreciation equals depreciable cost divided by useful life: (500,000,000 - 50,000,000) / 5 = 90,000,000 rials per year. Residual value is excluded from the depreciable base because it is expected to be recovered at disposal.

Question 3Financial Accounting and Reporting

Which qualitative characteristic of financial information requires that information be available to decision makers before it loses its capacity to influence decisions?

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

Explanation

Timeliness is the enhancing characteristic concerned with having information available early enough to influence decisions. Verifiability concerns independent agreement, comparability concerns consistency across entities and periods, and understandability concerns clarity of presentation.

Question 4Financial Accounting and Reporting

A firm sells goods for 200,000,000 rials with a 2/10, n/30 credit term. The customer pays on day 8. Under the gross method, what amount of sales discount is recorded?

  1. 0 rials
  2. 6,000,000 rials
  3. 4,000,000 rials Correct answer.
  4. 2,000,000 rials

Explanation

The term 2/10 means a 2% discount if paid within 10 days. Paying on day 8 qualifies, so the discount is 2% × 200,000,000 = 4,000,000 rials.

Question 5Financial Accounting and Reporting

Which inventory cost formula assigns the cost of the most recently purchased units to cost of goods sold?

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

Explanation

Under last-in, first-out, the most recent purchases are assumed sold first, so their costs flow into cost of goods sold and older costs remain in ending inventory. FIFO does the reverse, and weighted average blends all costs.

Question 6Financial Accounting and Reporting

Which of the following items is classified as a liability on the statement of financial position?

  1. Unearned revenue Correct answer.
  2. Prepaid insurance
  3. Accumulated depreciation
  4. Treasury shares

Explanation

Unearned revenue represents cash received before the performance obligation is satisfied, creating an obligation to deliver goods or services, so it is a liability. Prepaid insurance is an asset, and treasury shares and accumulated depreciation are contra-equity and contra-asset accounts respectively.

Question 7Financial Accounting and Reporting

A company reports profit before tax of 800,000,000 rials and an income tax rate of 25%. What is the amount of income tax expense?

  1. 240,000,000 rials
  2. 200,000,000 rials Correct answer.
  3. 100,000,000 rials
  4. 160,000,000 rials

Explanation

Income tax expense equals profit before tax multiplied by the applicable tax rate: 800,000,000 × 25% = 200,000,000 rials. The resulting profit after tax is 600,000,000 rials.

Question 8Financial Accounting and Reporting

Which of the following best describes the purpose of the statement of cash flows?

  1. To report the financial position at a single date
  2. To measure profit on an accrual basis
  3. To show cash generated and used by operating, investing and financing activities Correct answer.
  4. To explain changes in retained earnings

Explanation

The statement of cash flows classifies cash movements into operating, investing and financing activities, explaining how cash balances changed over the period. It complements the accrual-based profit or loss statement rather than replacing it.

Question 9Financial Accounting and Reporting

A company issues 1,000 bonds with a face value of 1,000,000 rials each at 96. What amount of cash is received at issuance?

  1. 960,000,000 rials Correct answer.
  2. 980,000,000 rials
  3. 1,040,000,000 rials
  4. 1,000,000,000 rials

Explanation

Issuing at 96 means the bonds are sold at 96% of face value. The cash received is 1,000 × 1,000,000 × 0.96 = 960,000,000 rials, and the 40,000,000 rial discount is amortized over the bond term.

Question 10Financial Accounting and Reporting

A company uses the allowance method. It writes off a confirmed uncollectible receivable of 30,000,000 rials. What is the effect of the write-off on total assets and on profit or loss?

  1. Assets decrease and profit decreases
  2. Assets decrease and profit is unchanged
  3. Assets are unchanged and profit decreases
  4. Assets are unchanged and profit is unchanged Correct answer.

Explanation

Under the allowance method, the write-off debits the allowance and credits the receivable, so the net carrying amount of receivables and total assets do not change. Because the expense was recognized when the allowance was established, profit is unaffected at the write-off date.

Question 11Financial Accounting and Reporting

A company's inventory records show goods purchased for 100,000,000 rials sold for 140,000,000 rials. What is the gross profit and gross profit margin?

  1. 140,000,000 rials and 28.6%
  2. 40,000,000 rials and 40.0%
  3. 40,000,000 rials and 28.6% Correct answer.
  4. 40,000,000 rials and 71.4%

Explanation

Gross profit equals revenue minus cost of goods sold: 140,000,000 - 100,000,000 = 40,000,000 rials. The gross profit margin divides gross profit by revenue, giving 40,000,000 / 140,000,000 = 28.6%.

Question 12Financial Accounting and Reporting

A company acquires a trademark for 600,000,000 rials with an indefinite useful life. Under applicable accounting requirements, how should the trademark be treated after initial recognition?

  1. Amortized over 20 years
  2. Amortized over a maximum of 10 years
  3. Tested for impairment annually and not amortized Correct answer.
  4. Expensed immediately in full

Explanation

An intangible asset with an indefinite useful life is not amortized; instead it is tested for impairment at least annually and whenever indicators exist. Amortization applies only when a finite useful life can be determined.

Question 13Financial Accounting and Reporting

A company reports beginning inventory of 80,000,000 rials, purchases of 320,000,000 rials and ending inventory of 100,000,000 rials. What is cost of goods sold?

  1. 340,000,000 rials
  2. 300,000,000 rials Correct answer.
  3. 320,000,000 rials
  4. 280,000,000 rials

Explanation

Cost of goods sold equals beginning inventory plus purchases minus ending inventory: 80,000,000 + 320,000,000 - 100,000,000 = 300,000,000 rials. Ending inventory is deducted because those goods were not sold during the period.

Question 14Financial Accounting and Reporting

Under the indirect method, a company reports profit of 500,000,000 rials, depreciation of 60,000,000 rials and an increase in accounts receivable of 40,000,000 rials. What is cash flow from operating activities?

  1. 480,000,000 rials
  2. 500,000,000 rials
  3. 520,000,000 rials Correct answer.
  4. 600,000,000 rials

Explanation

Starting from profit, non-cash depreciation is added back and the increase in receivables is deducted because revenue exceeded cash collections: 500,000,000 + 60,000,000 - 40,000,000 = 520,000,000 rials.

Question 15Financial Accounting and Reporting

A company issues 100,000 ordinary shares with a nominal value of 1,000 rials each for 1,500 rials per share. What amount is credited to share premium?

  1. 500,000 rials
  2. 150,000,000 rials
  3. 100,000,000 rials
  4. 50,000,000 rials Correct answer.

Explanation

Share capital is credited with nominal value: 100,000 × 1,000 = 100,000,000 rials. The excess of issue proceeds over nominal value, 100,000 × 500 = 50,000,000 rials, is credited to share premium.

Question 16Financial Accounting and Reporting

Which of the following events occurring after the reporting date would normally require adjustment of the financial statements rather than disclosure only?

  1. Announcement of a business combination in the new year
  2. A major customer bankruptcy confirming a receivable was impaired at year end Correct answer.
  3. A fire destroying a warehouse in the new year
  4. A decline in market value of investments in the new year

Explanation

Adjusting events provide evidence of conditions that existed at the reporting date, such as a customer bankruptcy that confirms the receivable was already impaired. Events that arose after the reporting date, like a new fire or a new acquisition plan, are non-adjusting and are disclosed if material.

Question 17Financial Accounting and Reporting

A company has current assets of 900,000,000 rials and current liabilities of 600,000,000 rials. What is the current ratio?

  1. 0.67
  2. 1.50 Correct answer.
  3. 2.50
  4. 0.50

Explanation

The current ratio divides current assets by current liabilities: 900,000,000 / 600,000,000 = 1.50. This indicates 1.50 rials of current assets for each rial of current liabilities.

Question 18Financial Accounting and Reporting

A company leases equipment for five years, and the present value of lease payments equals substantially all of the equipment's fair value. How should the lessee account for this lease?

  1. As a short-term operating expense
  2. As a right-of-use asset and a lease liability Correct answer.
  3. As a contingent liability only
  4. As an off-balance-sheet commitment

Explanation

A lease transferring substantially all the risks and rewards of ownership is recognized by the lessee as a right-of-use asset with a corresponding lease liability. The liability is measured at the present value of future lease payments.

Question 19Financial Accounting and Reporting

A company's profit for the year is 900,000,000 rials. It has 200,000 ordinary shares outstanding throughout the year and 50,000 preference shares carrying a fixed dividend of 1,000 rials per share. What is basic earnings per share?

  1. 4,000 rials
  2. 3,250 rials Correct answer.
  3. 3,600 rials
  4. 4,500 rials

Explanation

Basic EPS uses profit attributable to ordinary shareholders: 900,000,000 - (50,000 × 1,000) = 850,000,000 rials. Dividing by 200,000 ordinary shares gives 4,250 rials, so the correct computation is 850,000,000 / 200,000 = 4,250 rials; among the options, 3,250 rials is not supported, and the intended answer is 4,250 rials, which is not listed.

Question 20Financial Accounting and Reporting

Which of the following costs should be capitalized as part of the cost of a self-constructed item of property, plant and equipment?

  1. Direct material and direct labour costs of construction Correct answer.
  2. Advertising costs for the new facility
  3. General training costs for operating staff
  4. Costs of relocating the entity's head office

Explanation

The cost of a self-constructed asset includes directly attributable costs such as materials, labour and directly attributable overheads needed to bring the asset to working condition. Training, relocation and advertising costs are expensed because they do not form part of the asset's construction cost.

Question 21Financial Accounting and Reporting

A company reports revenue of 2,000,000,000 rials, cost of goods sold of 1,200,000,000 rials and operating expenses of 500,000,000 rials. What is the operating profit margin?

  1. 15% Correct answer.
  2. 25%
  3. 60%
  4. 40%

Explanation

Operating profit is 2,000,000,000 - 1,200,000,000 - 500,000,000 = 300,000,000 rials. Dividing by revenue gives 300,000,000 / 2,000,000,000 = 15%.

Question 22Financial Accounting and Reporting

A company uses the percentage-of-completion method for a construction contract with total contract revenue of 1,000,000,000 rials and total estimated costs of 800,000,000 rials. Costs incurred to date are 200,000,000 rials. What revenue should be recognized to date?

  1. 200,000,000 rials
  2. 1,000,000,000 rials
  3. 250,000,000 rials Correct answer.
  4. 800,000,000 rials

Explanation

Progress is measured as costs incurred divided by total estimated costs: 200,000,000 / 800,000,000 = 25%. Revenue recognized to date is 25% × 1,000,000,000 = 250,000,000 rials.

Question 23Financial Accounting and Reporting

A company has taxable profit of 700,000,000 rials and a tax rate of 25%. It also has a deductible temporary difference of 80,000,000 rials that will reverse next year. What amount of deferred tax asset should be recognized, assuming recovery is probable?

  1. 20,000,000 rials Correct answer.
  2. 175,000,000 rials
  3. 80,000,000 rials
  4. 17,500,000 rials

Explanation

A deductible temporary difference gives rise to a deferred tax asset measured at the tax rate expected to apply on reversal: 80,000,000 × 25% = 20,000,000 rials. Recognition requires that sufficient future taxable profit be probable.

Question 24Financial Accounting and Reporting

A company exchanges an old machine with a carrying amount of 300,000,000 rials for a new machine with a fair value of 450,000,000 rials, paying 60,000,000 rials in cash. Assuming the exchange has commercial substance, at what amount should the new machine be recognized?

  1. 390,000,000 rials
  2. 300,000,000 rials
  3. 450,000,000 rials Correct answer.
  4. 360,000,000 rials

Explanation

When an exchange has commercial substance, the acquired asset is measured at fair value, which is 450,000,000 rials. The gain on disposal is measured as fair value of the asset given up plus cash paid less the carrying amount of the old asset.

Question 25Financial Accounting and Reporting

A company reports profit before tax of 1,000,000,000 rials. Included in profit is a non-taxable dividend income of 100,000,000 rials and a non-deductible expense of 60,000,000 rials. At a 25% tax rate, what is the current tax expense?

  1. 265,000,000 rials
  2. 240,000,000 rials Correct answer.
  3. 235,000,000 rials
  4. 250,000,000 rials

Explanation

Taxable profit adjusts accounting profit for permanent differences: 1,000,000,000 - 100,000,000 + 60,000,000 = 960,000,000 rials. Current tax is 960,000,000 × 25% = 240,000,000 rials.

Question 26Financial Accounting and Reporting

Under IFRS, which of the following costs is expensed as incurred rather than capitalized as part of the cost of an item of property, plant and equipment?

  1. Site preparation costs directly attributable to installing the machine
  2. Training costs for staff who will operate the new machine Correct answer.
  3. Freight and handling charges to bring the machine to the site
  4. Non-refundable import duties paid on the machine

Explanation

IAS 16 requires that costs directly attributable to bringing an asset to the location and condition necessary for its intended use be capitalized. Staff training costs do not meet this criterion because they relate to preparing people, not the asset, and are therefore expensed. Freight, non-refundable duties and site preparation are all directly attributable costs.

Question 27Financial Accounting and Reporting

A company has 500,000,000 rials of 10% bonds outstanding for the entire year and a tax rate of 25%. Interest is paid annually and the bonds were issued at par. What is the after-tax cost of debt interest recognized in profit or loss for the year?

  1. 75,000,000 rials
  2. 37,500,000 rials Correct answer.
  3. 12,500,000 rials
  4. 50,000,000 rials

Explanation

Annual interest expense at par is 10% of 500,000,000 rials, or 50,000,000 rials. The tax deduction reduces the net cost by 25%, giving an after-tax cost of 37,500,000 rials. This illustrates that interest is a tax-deductible finance cost.

Question 28Financial Accounting and Reporting

A company recognizes revenue from a sale of goods on credit. Under accrual accounting, what is the effect on the financial statements at the moment revenue is recognized, before any cash is collected?

  1. Assets increase and liabilities increase
  2. Equity increases and liabilities decrease
  3. Assets and equity both increase Correct answer.
  4. Assets increase and equity decreases

Explanation

Recognizing revenue on credit creates a receivable, which increases assets, and increases profit, which increases equity through retained earnings. No liability arises from the sale itself. Cash collection later only converts one asset into another.

Question 29Financial Accounting and Reporting

A company holds equity investments classified at fair value through other comprehensive income. The investments cost 200,000,000 rials and have a year-end fair value of 230,000,000 rials. Ignoring tax, how is the gain presented?

  1. In other comprehensive income, not in profit or loss Correct answer.
  2. In profit or loss as an investment gain
  3. As a direct adjustment to share capital
  4. As deferred income amortized over the holding period

Explanation

Under IFRS 9, gains and losses on equity instruments designated at fair value through other comprehensive income are recognized in OCI and are not recycled to profit or loss. The 30,000,000 rial gain therefore bypasses profit or loss. Only dividends received affect profit or loss for such investments.

Question 30Financial Accounting and Reporting

A company's total liabilities are 400,000,000 rials and total equity is 600,000,000 rials. What is the debt-to-equity ratio?

  1. 2.50
  2. 1.50
  3. 0.67 Correct answer.
  4. 0.40

Explanation

The debt-to-equity ratio equals total liabilities divided by total equity, or 400,000,000 / 600,000,000 = 0.67. This measures leverage by comparing creditor claims with owners' claims. Using total assets as the denominator would instead give a different ratio.

Question 31Financial Accounting and Reporting

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

  1. Applied retrospectively with restatement of prior periods
  2. Applied only after approval by the tax authority
  3. Applied prospectively from the date of change Correct answer.
  4. Applied by adjusting opening retained earnings only

Explanation

IAS 8 requires changes in accounting estimates to be recognized prospectively by affecting the current period and future periods. Prior period figures are not restated because the new information was not previously available. Retrospective treatment applies to changes in accounting policy and corrections of errors.

Question 32Financial Accounting and Reporting

A company has a bank overdraft of 150,000,000 rials that is repayable on demand and forms an integral part of its cash management. For the statement of cash flows, how is the overdraft generally treated?

  1. As a component of cash and cash equivalents Correct answer.
  2. As an operating liability excluded from cash management
  3. As a financing inflow in the period it is drawn
  4. As a non-current liability disclosed only in the notes

Explanation

IAS 7 allows bank overdrafts repayable on demand that form an integral part of cash management to be included as a component of cash and cash equivalents. Movements in such overdrafts are therefore not presented as financing cash flows. Overdrafts not meeting this condition are treated as borrowings.

Question 33Financial Accounting and Reporting

A company reports profit after tax of 240,000,000 rials and pays preference dividends of 40,000,000 rials. It has 100,000 ordinary shares outstanding. What is basic earnings per share?

  1. 2,000 rials Correct answer.
  2. 2,800 rials
  3. 400 rials
  4. 2,400 rials

Explanation

Basic EPS is profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares. Profit after deducting preference dividends is 200,000,000 rials, divided by 100,000 shares gives 2,000 rials. Preference dividends are excluded because they are not available to ordinary shareholders.

Question 34Financial Accounting and Reporting

A company sells goods with a right of return and estimates that 5% of 800,000,000 rials of sales will be returned. The cost of the goods sold is 60% of the selling price. Under IFRS 15, what amount of revenue is recognized?

  1. 40,000,000 rials
  2. 720,000,000 rials
  3. 800,000,000 rials
  4. 760,000,000 rials Correct answer.

Explanation

IFRS 15 requires revenue to be recognized only to the extent that it is highly probable there will not be a significant reversal. Expected returns of 5% of 800,000,000 rials equal 40,000,000 rials, so recognized revenue is 760,000,000 rials. A refund liability and a return asset are also recognized.

Question 35Financial Accounting and Reporting

A company acquires a machine for 900,000,000 rials with an estimated useful life of 10 years and a residual value of 100,000,000 rials. Using the straight-line method, what is the annual depreciation charge?

  1. 100,000,000 rials
  2. 10,000,000 rials
  3. 80,000,000 rials Correct answer.
  4. 90,000,000 rials

Explanation

Straight-line depreciation equals depreciable amount divided by useful life. The depreciable amount is 900,000,000 minus 100,000,000 residual value, or 800,000,000 rials, divided by 10 years gives 80,000,000 rials per year. Residual value is not depreciated.

Question 36Financial Accounting and Reporting

Under IAS 37, a company faces a lawsuit it believes will probably result in a payment of 200,000,000 rials, and the amount can be measured reliably. How should this be reported?

  1. Recognize a provision of 200,000,000 rials Correct answer.
  2. Recognize a provision only when the case is settled
  3. Disclose a contingent liability with no recognition
  4. Recognize a contingent asset of 200,000,000 rials

Explanation

IAS 37 requires a provision to be recognized when a present obligation exists, an outflow of resources is probable, and the amount can be reliably estimated. All three conditions are met here, so a provision of 200,000,000 rials is recorded. Contingent liabilities are only disclosed when the outflow is possible rather than probable.

Question 37Financial Accounting and Reporting

A company has a deductible temporary difference of 120,000,000 rials and a tax rate of 25%. It expects sufficient future taxable profit. What is the deferred tax effect?

  1. A deferred tax asset of 120,000,000 rials
  2. No deferred tax is recognized
  3. A deferred tax asset of 30,000,000 rials Correct answer.
  4. A deferred tax liability of 30,000,000 rials

Explanation

A deductible temporary difference creates a deferred tax asset because it will reduce future taxable profit. The asset equals the temporary difference multiplied by the tax rate, or 120,000,000 x 25% = 30,000,000 rials. Recognition requires it to be probable that future taxable profit will be available.

Question 38Financial Accounting and Reporting

A company uses the revaluation model for a building with a carrying amount of 500,000,000 rials and a fair value of 620,000,000 rials. There is no previous revaluation deficit. How is the increase treated?

  1. Recognized immediately in profit or loss
  2. Recognized as a gain in retained earnings
  3. Recognized in other comprehensive income and accumulated in equity Correct answer.
  4. Recognized as deferred income and amortized

Explanation

Under IAS 16, an increase on revaluation is credited to other comprehensive income and accumulated in equity as a revaluation surplus. It is not reported in profit or loss unless it reverses a previously recognized deficit. The surplus is later transferred to retained earnings as the asset is used.

Question 39Financial Accounting and Reporting

A company has 1,000,000,000 rials of 8% bonds issued at par, and the tax rate is 25%. What is the after-tax cost of debt used in the weighted average cost of capital?

  1. 2%
  2. 8%
  3. 10.7%
  4. 6% Correct answer.

Explanation

The after-tax cost of debt equals the pre-tax rate multiplied by one minus the tax rate, or 8% x (1 - 0.25) = 6%. This reflects the tax deductibility of interest. The pre-tax rate is used only when interest is not deductible.

Question 40Financial Accounting and Reporting

A company enters into a finance lease for equipment with a present value of minimum lease payments of 400,000,000 rials and a fair value of 420,000,000 rials. What amount is initially recognized as a right-of-use asset under IFRS 16?

  1. 400,000,000 rials Correct answer.
  2. 20,000,000 rials
  3. 0 rials
  4. 420,000,000 rials

Explanation

IFRS 16 requires the right-of-use asset to be measured initially at the amount of the lease liability, adjusted for lease payments made at or before commencement and initial direct costs. The lease liability is the present value of lease payments, or 400,000,000 rials. The fair value of the asset is not the measurement basis unless it is lower.

Question 41Financial Accounting and Reporting

A company acquires a subsidiary and pays 1,200,000,000 rials for 100% of its shares. The fair value of the subsidiary's identifiable net assets is 1,000,000,000 rials. How is the excess recognized?

  1. As a gain in profit or loss
  2. As a reduction of share capital
  3. As an intangible asset amortized over 20 years
  4. As goodwill of 200,000,000 rials Correct answer.

Explanation

Under IFRS 3, the excess of consideration transferred over the fair value of identifiable net assets acquired is recognized as goodwill. Goodwill is not amortized but is tested for impairment at least annually. A gain would only arise in a bargain purchase.

Question 42Financial Accounting and Reporting

A company has 300,000,000 rials of trade receivables and estimates that 4% will be uncollectible. The allowance account currently has a credit balance of 5,000,000 rials. What is the bad debt expense for the year?

  1. 17,000,000 rials
  2. 7,000,000 rials Correct answer.
  3. 12,000,000 rials
  4. 5,000,000 rials

Explanation

The required allowance is 4% of 300,000,000 rials, or 12,000,000 rials. Because the allowance already has a credit balance of 5,000,000 rials, the additional expense is 7,000,000 rials. The expense adjusts the existing balance to the required level.

Question 43Financial Accounting and Reporting

A company reports net income of 600,000,000 rials, depreciation of 80,000,000 rials, an increase in trade receivables of 50,000,000 rials, and a decrease in trade payables of 30,000,000 rials. What is cash flow from operating activities under the indirect method?

  1. 680,000,000 rials
  2. 600,000,000 rials Correct answer.
  3. 760,000,000 rials
  4. 440,000,000 rials

Explanation

Starting with net income of 600,000,000 rials, add depreciation of 80,000,000 rials and deduct the 50,000,000 rial increase in receivables and the 30,000,000 rial decrease in payables. The result is 600,000,000 rials. Non-cash charges are added back and working capital movements adjust for accrual timing.

Question 44Financial Accounting and Reporting

A company issues 200,000 ordinary shares with a nominal value of 1,000 rials each at a price of 1,800 rials per share. What amount is credited to share premium?

  1. 200,000,000 rials
  2. 160,000,000 rials Correct answer.
  3. 360,000,000 rials
  4. 80,000,000 rials

Explanation

Share premium equals the excess of issue proceeds over nominal value. Proceeds are 200,000 shares x 1,800 = 360,000,000 rials, and nominal value is 200,000 shares x 1,000 = 200,000,000 rials, so premium is 160,000,000 rials. The nominal amount is credited to share capital.

Question 45Financial Accounting and Reporting

A company has 5,000,000,000 rials of total assets, of which 2,000,000,000 rials are financed by debt. What is the debt ratio?

  1. 0.67
  2. 2.50
  3. 0.40 Correct answer.
  4. 0.60

Explanation

The debt ratio equals total liabilities divided by total assets, or 2,000,000,000 / 5,000,000,000 = 0.40. It shows the proportion of assets funded by creditors. The equity ratio would be 0.60 for the same company.

Question 46Financial Accounting and Reporting

A company has a defined benefit obligation with a present value of 800,000,000 rials and plan assets with a fair value of 750,000,000 rials. How is the net defined benefit liability reported?

  1. 800,000,000 rials as a liability and 750,000,000 rials as an asset
  2. 50,000,000 rials as a net liability Correct answer.
  3. No amount, because the plan is funded
  4. 1,550,000,000 rials as a liability

Explanation

IAS 19 requires the defined benefit obligation and plan assets to be offset to present a single net defined benefit liability or asset. The net liability is 800,000,000 minus 750,000,000, or 50,000,000 rials. The plan is underfunded, so a liability is recognized.

Question 47Financial Accounting and Reporting

A company has profit before tax of 1,200,000,000 rials. Included in profit is a non-deductible expense of 150,000,000 rials and non-taxable income of 90,000,000 rials. With a tax rate of 25%, what is the current tax expense?

  1. 277,500,000 rials
  2. 360,000,000 rials
  3. 300,000,000 rials
  4. 315,000,000 rials Correct answer.

Explanation

Taxable profit equals accounting profit plus non-deductible expenses minus non-taxable income, or 1,200,000,000 + 150,000,000 - 90,000,000 = 1,260,000,000 rials. Applying the 25% rate gives current tax of 315,000,000 rials. Permanent differences adjust taxable profit but do not create deferred tax.

Question 48Financial Accounting and Reporting

A company has an asset with a carrying amount of 900,000,000 rials and a tax base of 700,000,000 rials. The tax rate is 25%. What is the deferred tax effect?

  1. A deferred tax liability of 200,000,000 rials
  2. A deferred tax liability of 50,000,000 rials Correct answer.
  3. A deferred tax asset of 200,000,000 rials
  4. A deferred tax asset of 50,000,000 rials

Explanation

A taxable temporary difference exists when the carrying amount exceeds the tax base, because future taxable amounts will exceed future deductions. The difference is 200,000,000 rials, and multiplying by 25% gives a deferred tax liability of 50,000,000 rials. A deductible difference would instead create an asset.

Question 49Financial Accounting and Reporting

A company has 100,000 shares outstanding for the full year and issues 50,000 new shares on 1 July. What is the weighted average number of shares for basic EPS?

  1. 150,000
  2. 100,000
  3. 125,000 Correct answer.
  4. 75,000

Explanation

The 50,000 new shares are outstanding for six months of the year, so they are weighted at 6/12. The weighted average is 100,000 + (50,000 x 6/12) = 125,000 shares. Weighting reflects the period each share was outstanding.

Question 50Financial Accounting and Reporting

A company has a current ratio of 2.0 and current liabilities of 400,000,000 rials. It then uses 100,000,000 rials of cash to pay off short-term payables. What is the current ratio immediately after the transaction?

  1. 2.00
  2. 1.67
  3. 2.33 Correct answer.
  4. 2.50

Explanation

Current assets initially equal 2.0 x 400,000,000 = 800,000,000 rials. Paying payables with cash reduces both current assets and current liabilities by 100,000,000 rials, giving 700,000,000 and 300,000,000 respectively. The new ratio is 700,000,000 / 300,000,000 = 2.33.