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ITC Entrance Exam practice questions

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Question 1Financial Accounting and Reporting

Under the accrual basis of accounting, revenue is recognised when:

  1. Cash is received from the customer
  2. The related expense is paid in the same period
  3. An invoice is printed and mailed to the customer
  4. The performance obligation is satisfied, regardless of when cash is received Correct answer.

Explanation

Accrual accounting records revenue when the entity satisfies its performance obligation by transferring promised goods or services, not when cash changes hands. The matching of expenses follows the recognition of revenue but does not control it.

Question 2Financial Accounting and Reporting

A company pays 12,000 in advance for a one-year insurance policy on 1 April. If no adjusting entry is made at 31 December, what is the effect on the financial statements for that year?

  1. Liabilities are overstated and profit is understated
  2. Assets are overstated and profit is overstated Correct answer.
  3. Assets are overstated and liabilities are understated
  4. Assets are understated and profit is understated

Explanation

Paying in advance creates a prepaid asset that must be expensed as the coverage period elapses. Without the adjustment, the full 12,000 remains on the balance sheet and no expense is recorded, so both assets and profit are too high.

Question 3Financial Accounting and Reporting

Which of the following best describes the purpose of the trial balance?

  1. To determine the profit or loss for the reporting period
  2. To prove that every transaction was recorded in the correct account
  3. To detect arithmetic equality of debit and credit balances before statements are prepared Correct answer.
  4. To confirm that the financial statements comply with accounting standards

Explanation

A trial balance lists account balances and confirms that total debits equal total credits. It is a mechanical check of double-entry equality, not a test of correctness or compliance.

Question 4Financial Accounting and Reporting

An entity sells goods for 50,000 with a two-year warranty. Historical data indicate warranty costs of about 3% of sales. Under accrual accounting, the warranty provision at the sale date is:

  1. Recognised as an expense and a liability of 1,500 Correct answer.
  2. Disclosed only in the notes with no journal entry
  3. Recognised as a liability of 1,500 with a corresponding decrease in revenue
  4. Not recognised until a claim is actually received

Explanation

A present obligation arises from the sale, and its amount can be reliably estimated from experience. The estimated cost is charged to expense and credited to a warranty provision liability in the period of sale.

Question 5Financial Accounting and Reporting

Which inventory cost formula is prohibited under IFRS but permitted under US GAAP?

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

Explanation

IAS 2 prohibits LIFO because it can distort the balance sheet and does not reflect a reliable current cost. US GAAP permits LIFO, creating a well-known convergence difference between the two frameworks.

Question 6Financial Accounting and Reporting

A machine costing 100,000 has an estimated residual value of 10,000 and a useful life of 5 years. Using straight-line depreciation, the annual charge is:

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

Explanation

Straight-line depreciation equals depreciable amount divided by useful life. The depreciable amount is 100,000 minus 10,000 equals 90,000, and dividing by 5 years gives 18,000 per year.

Question 7Financial Accounting and Reporting

Which of the following is classified as a current liability?

  1. Accounts payable due within 45 days Correct answer.
  2. A long-term loan repayable in 2031
  3. A ten-year bond issued at par
  4. Retained earnings

Explanation

A liability is current when the entity expects to settle it within twelve months of the reporting date or within its normal operating cycle. Trade payables due in 45 days meet that definition.

Question 8Financial Accounting and Reporting

A company issues 10,000 ordinary shares with a par value of 1 for 6 per share. The credit to share premium (additional paid-in capital) is:

  1. 50,000 Correct answer.
  2. 10,000
  3. 6,000
  4. 60,000

Explanation

Proceeds total 60,000. Of this, 10,000 is credited to share capital at par, and the excess of 50,000 is credited to share premium, which is a component of equity.

Question 9Financial Accounting and Reporting

Under IFRS, a research expenditure incurred in developing a new process is generally:

  1. Capitalised as an intangible asset once technical feasibility is proven
  2. Recorded directly against retained earnings
  3. Recognised as a deferred charge and amortised over ten years
  4. Expensed as incurred because the future economic benefits are not yet demonstrable Correct answer.

Explanation

IAS 38 requires research costs to be expensed because the entity cannot yet demonstrate probable future economic benefits. Capitalisation begins only at the development stage once the specified criteria are met.

Question 10Financial Accounting and Reporting

A firm uses the allowance method. It writes off a specific customer balance of 4,000 as uncollectible. What is the immediate effect of the write-off on total assets and profit?

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

Explanation

The allowance was already established through bad debt expense, so the write-off only reduces both accounts receivable and the allowance. Total net receivables and profit are therefore unaffected at the moment of write-off.

Question 11Financial Accounting and Reporting

In a bank reconciliation, an outstanding cheque written by the company but not yet presented causes:

  1. Both balances to be equal after adjustment
  2. The bank statement balance to be higher than the book balance Correct answer.
  3. A permanent difference that requires a journal entry
  4. The book balance to be higher than the bank statement balance

Explanation

The company has already recorded the payment, reducing its book cash, but the bank has not yet deducted it. The bank statement therefore shows a higher balance until the cheque clears.

Question 12Financial Accounting and Reporting

Which qualitative characteristic is enhanced when financial information can be compared across entities using similar measurement bases?

  1. Timeliness
  2. Materiality
  3. Comparability Correct answer.
  4. Prudence

Explanation

Comparability lets users identify similarities and differences between items and between entities. It is an enhancing characteristic supported by consistent accounting policies and adequate disclosure.

Question 13Financial Accounting and Reporting

An entity has profit before tax of 200,000. The tax rate is 25%, and there is a non-deductible fine of 20,000. What is the income tax expense?

  1. 45,000
  2. 55,000 Correct answer.
  3. 60,000
  4. 50,000

Explanation

Taxable profit equals 200,000 plus the non-deductible 20,000, giving 220,000. Applying the 25% rate gives an income tax expense of 55,000.

Question 14Financial Accounting and Reporting

A company reports net income of 80,000, depreciation of 15,000, and an increase in accounts receivable of 10,000. Under the indirect method, cash flow from operating activities is:

  1. 80,000
  2. 75,000
  3. 105,000
  4. 85,000 Correct answer.

Explanation

Start with net income of 80,000, add back the non-cash depreciation of 15,000, and deduct the 10,000 increase in receivables because cash collected lagged sales. The result is 85,000.

Question 15Financial Accounting and Reporting

Under IFRS, interest paid by an entity without a clearly identified financing activity may be classified as:

  1. Equity transactions only
  2. Operating or financing, applied consistently Correct answer.
  3. Financing only
  4. Investing only

Explanation

IAS 7 allows interest paid to be presented as an operating cash flow or as a financing cash flow, provided the choice is applied consistently. US GAAP requires interest paid to be classified as operating.

Question 16Financial Accounting and Reporting

A company's current assets are 300,000 and current liabilities are 150,000. It then pays 50,000 of accounts payable using cash. The current ratio will:

  1. Remain unchanged
  2. Decrease
  3. Become negative
  4. Increase Correct answer.

Explanation

Before payment the ratio is 2.0. After paying, current assets are 250,000 and current liabilities 100,000, giving 2.5. Because the ratio exceeded 1, an equal reduction of both sides raises it.

Question 17Financial Accounting and Reporting

Which of the following events occurring after the reporting date is an adjusting event?

  1. A fire that destroyed a major warehouse in the following month
  2. Announcement of a major restructuring plan after year end
  3. A decline in market prices of investments in the following period
  4. Settlement of a court case confirming the amount of a provision recognised at year end Correct answer.

Explanation

An adjusting event provides evidence of conditions that existed at the reporting date. Settlement of a case that was already provided for confirms the year-end estimate and requires adjustment.

Question 18Financial Accounting and Reporting

A lessee classifies a lease as a finance lease under IFRS 16. At commencement, the lessee recognises:

  1. Only the lease payments as they become payable
  2. A prepaid expense for the full lease term
  3. A right-of-use asset and a lease liability at the present value of future payments Correct answer.
  4. An intangible asset measured at fair value

Explanation

IFRS 16 requires the lessee to recognise a right-of-use asset and a lease liability measured at the present value of remaining lease payments. The liability is subsequently measured using the effective interest method.

Question 19Financial Accounting and Reporting

Under the equity method, an investor's share of an associate's profit is:

  1. Recognised in other comprehensive income only
  2. Recognised in the investor's profit or loss and added to the investment carrying amount Correct answer.
  3. Recognised only when the investment is sold
  4. Recognised as dividend income when cash is received

Explanation

The equity method increases the investment carrying amount by the investor's share of the associate's profit and recognises that share in the investor's profit or loss. Dividends received reduce the carrying amount rather than create income.

Question 20Financial Accounting and Reporting

A company reports sales of 500,000, cost of goods sold of 300,000, and operating expenses of 120,000. Its gross profit margin is:

  1. 40% Correct answer.
  2. 60%
  3. 16%
  4. 24%

Explanation

Gross profit equals 500,000 minus 300,000, which is 200,000. Dividing by sales of 500,000 gives a gross profit margin of 40%.

Question 21Financial Accounting and Reporting

Which of the following would be reported in other comprehensive income rather than profit or loss?

  1. Depreciation of plant and equipment
  2. Gain on remeasurement of a defined benefit obligation Correct answer.
  3. Interest expense on a bank loan
  4. Sales returns and allowances

Explanation

Remeasurements of defined benefit obligations, including actuarial gains and losses, are recognised in other comprehensive income under IAS 19. They are not recycled to profit or loss in later periods.

Question 22Financial Accounting and Reporting

A parent owns 80% of a subsidiary. The subsidiary reports net profit of 100,000. In the consolidated income statement, the non-controlling interest share is:

  1. 0
  2. 80,000
  3. 100,000
  4. 20,000 Correct answer.

Explanation

Non-controlling interest represents the portion of the subsidiary's results attributable to owners other than the parent. With a 20% outside holding, its share of profit is 20,000, presented separately from the parent's profit.

Question 23Financial Accounting and Reporting

An asset is sold for 30,000 cash. Its carrying amount is 22,000 and original cost was 40,000. What is the effect on the statement of cash flows under the indirect method?

  1. No cash flow is reported because the asset was sold below cost
  2. An 8,000 investing inflow and a 22,000 operating outflow
  3. A 30,000 investing inflow and an 8,000 gain deducted from operating cash flow Correct answer.
  4. A 30,000 operating inflow and no adjustment for the gain

Explanation

Sale proceeds of 30,000 are an investing cash inflow. Because the 8,000 gain is included in net income but is not an operating cash flow, it must be deducted in the operating section of the indirect reconciliation.

Question 24Financial Accounting and Reporting

Which measurement basis is used for the initial recognition of property, plant and equipment under IAS 16?

  1. Revalued amount less accumulated depreciation
  2. Net realisable value
  3. Cost, including directly attributable costs of bringing the asset to its location and condition Correct answer.
  4. Fair value at the reporting date

Explanation

IAS 16 requires PPE to be initially measured at cost, which includes the purchase price and directly attributable costs such as delivery, installation, and testing. Revaluation is an optional subsequent measurement policy.

Question 25Financial Accounting and Reporting

An entity changes an accounting policy that is required by a new standard. Under IAS 8, the change is generally applied:

  1. Prospectively from the date of change
  2. By disclosing the effect only in the notes
  3. Retrospectively, adjusting opening retained earnings and comparatives Correct answer.
  4. By restating only the current year figures

Explanation

IAS 8 requires retrospective application for changes in accounting policy, with restatement of comparatives and adjustment of opening retained earnings. Prospective treatment is limited to cases where retrospective application is impracticable or transitional provisions require it.

Question 26Financial Accounting and Reporting

A company receives a 12,000 advance from a customer for goods to be delivered next month. Under accrual accounting, how should this amount be recorded at the time of receipt?

  1. As equity of 12,000
  2. As revenue of 12,000
  3. As a liability of 12,000 Correct answer.
  4. As an asset of 12,000

Explanation

Under accrual accounting, revenue is recognised only when the performance obligation is satisfied, which has not yet occurred. The cash received creates an obligation to deliver goods, so it is recorded as a liability (deferred or unearned revenue) until delivery. Cash increases and the liability increases by the same amount.

Question 27Financial Accounting and Reporting

Which accounting concept requires that a business's financial statements be kept separate from the personal transactions of its owners?

  1. Going concern
  2. Materiality
  3. Matching principle
  4. Separate entity assumption Correct answer.

Explanation

The separate entity (economic entity) assumption treats the business as distinct from its owners, so owner personal spending is not business expense. Going concern concerns continuity of operations, matching concerns expense timing against revenue, and materiality concerns significance of amounts.

Question 28Financial Accounting and Reporting

A company purchases inventory for 5,000 on credit, terms 2/10, net 30, and uses the gross method. It pays within the discount period. What amount is recorded as a purchase discount?

  1. 100 Correct answer.
  2. 500
  3. 250
  4. 50

Explanation

The term 2/10 means a 2% discount if paid within 10 days. Two percent of 5,000 equals 100, recorded as a purchase discount (or reduction of inventory cost). The full invoice is initially recorded at gross, and the discount is recognised on payment.

Question 29Financial Accounting and Reporting

Which financial statement reports the changes in a company's equity during a period, including share issues, dividends, and profit?

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

Explanation

The statement of changes in equity reconciles opening and closing equity by showing share issues, dividends, other comprehensive income, and profit for the period. The statement of financial position shows balances at a point in time, and the statement of profit or loss covers performance only.

Question 30Financial Accounting and Reporting

A trial balance has total debits of 84,000 and total credits of 83,400. Which error is most likely to explain this difference?

  1. A sale of 600 omitted from both accounts
  2. A purchase of 600 posted to the wrong expense account
  3. A payment of 600 recorded correctly in both accounts
  4. A transposition error of 600 in one ledger account Correct answer.

Explanation

A difference of 600 that is divisible by 9 often signals a transposition (digits reversed). Errors that affect both debit and credit equally, such as omission or wrong account posting, keep the trial balance in balance and cannot explain a one-sided difference.

Question 31Financial Accounting and Reporting

A company's gross profit is 180,000 and its cost of goods sold is 420,000. What are its net sales?

  1. 420,000
  2. 180,000
  3. 240,000
  4. 600,000 Correct answer.

Explanation

Net sales equal cost of goods sold plus gross profit, because gross profit is sales minus cost of goods sold. Adding 420,000 and 180,000 gives 600,000. Gross profit margin would then be 30%.

Question 32Financial Accounting and Reporting

Which of the following is an example of an internal control designed to safeguard cash receipts?

  1. Daily banking of cash receipts with sequential pre-numbered receipts issued Correct answer.
  2. Allowing the same employee to prepare and approve supplier payments
  3. Reconciling the bank account annually only
  4. One cashier both receives cash and records the cash sales in the ledger

Explanation

Sequential pre-numbered receipts and prompt banking provide an audit trail and reduce the risk of theft or unrecorded cash. Segregation of duties requires that custody and record-keeping be separated, so combining them weakens control. Frequent, not annual, bank reconciliations are expected.

Question 33Financial Accounting and Reporting

An entity's total liabilities are 250,000 and its equity is 400,000. Using the accounting equation, what are its total assets?

  1. 250,000
  2. 150,000
  3. 400,000
  4. 650,000 Correct answer.

Explanation

The accounting equation states that assets equal liabilities plus equity. Adding 250,000 and 400,000 gives total assets of 650,000. This relationship must hold after every recorded transaction.

Question 34Financial Accounting and Reporting

A company uses the straight-line method for accounting depreciation but an accelerated method for tax purposes. This difference is best described as:

  1. A change in accounting estimate
  2. A temporary difference that creates a deferred tax balance Correct answer.
  3. A permanent difference that never reverses
  4. An error requiring prior period restatement

Explanation

Differences between the carrying amount of an asset and its tax base are temporary differences that reverse over time and give rise to deferred tax under IAS 12. Permanent differences, such as non-deductible fines, never reverse and create no deferred tax.

Question 35Financial Accounting and Reporting

An entity grants a 6,000 allowance for doubtful debts. Later, a customer whose debt was already provided for pays 6,000 in full. What is the effect on the allowance account when the recovery is recorded?

  1. The allowance is decreased by 6,000 Correct answer.
  2. The allowance is increased by 3,000
  3. The allowance is increased by 6,000
  4. The allowance is unchanged

Explanation

When a debt previously written off is recovered, the entry reinstates the receivable and restores the allowance, then records the cash receipt and removes the receivable. The net effect is to reduce the allowance by the amount recovered. Cash and the allowance both move, leaving profit unaffected in substance.

Question 36Financial Accounting and Reporting

A machine with a carrying amount of 40,000 is revalued to 55,000 under the revaluation model. There was no previous revaluation. How is the increase treated?

  1. Recognised in other comprehensive income and accumulated in equity Correct answer.
  2. Recognised as a reduction of depreciation expense
  3. Recognised as a liability until the asset is sold
  4. Recognised in profit or loss as a gain

Explanation

Under IAS 16, an upward revaluation with no prior downward revaluation is credited to other comprehensive income and accumulated in a revaluation surplus within equity. It is not reported in profit or loss, and it is not a liability.

Question 37Financial Accounting and Reporting

A company has profit before tax of 150,000. Depreciation is 30,000, a gain on disposal of equipment is 10,000, and trade receivables increased by 12,000. Under the indirect method, what is cash generated from operations before tax paid?

  1. 178,000
  2. 138,000
  3. 182,000
  4. 158,000 Correct answer.

Explanation

Start with 150,000, add back depreciation of 30,000, deduct the non-operating gain of 10,000, and deduct the increase in receivables of 12,000. The result is 158,000. Gains on disposal are removed because their cash effect belongs in investing activities.

Question 38Financial Accounting and Reporting

An entity issues a 100,000 zero-coupon bond at a discount, receiving 92,000, and will repay 100,000 in three years. Under the amortised cost method, how is the 8,000 discount treated?

  1. Recognised as an expense immediately at issue
  2. Recognised as finance cost over the life of the bond using the effective interest rate Correct answer.
  3. Ignored until the bond is repaid
  4. Recognised as a reduction of share capital

Explanation

Under IFRS 9, the bond is initially measured at 92,000 and the discount is amortised to profit or loss as a finance cost over its term using the effective interest method. This raises the carrying amount gradually to the redemption value of 100,000. Immediate expensing or ignoring the discount misstates periodic interest.

Question 39Financial Accounting and Reporting

A company's inventory cost is 80,000, its estimated selling price is 95,000, and costs to complete and sell are 20,000. Under IAS 2, at what amount should the inventory be measured?

  1. 95,000
  2. 75,000 Correct answer.
  3. 20,000
  4. 80,000

Explanation

IAS 2 requires inventory to be measured at the lower of cost and net realisable value. Net realisable value is 95,000 minus 20,000, which equals 75,000, and this is below cost of 80,000, so the write-down to 75,000 is required.

Question 40Financial Accounting and Reporting

An entity pays 300,000 for 30% of an associate. During the year the associate reports profit of 120,000 and pays dividends of 40,000. Under the equity method, what is the carrying amount of the investment at year end?

  1. 300,000
  2. 324,000 Correct answer.
  3. 336,000
  4. 312,000

Explanation

The investor adds its 30% share of profit (36,000) and deducts its 30% share of dividends (12,000). Starting from 300,000, the carrying amount becomes 324,000. Dividends reduce the investment because they represent a return of the investor's share of net assets.

Question 41Financial Accounting and Reporting

Which of the following costs should be capitalised as part of the cost of a newly acquired item of machinery under IAS 16?

  1. Cost of site preparation and installation Correct answer.
  2. Losses incurred while the machine was idle during a strike
  3. Staff training on operating the machine
  4. Advertising to promote products made by the machine

Explanation

IAS 16 includes costs directly attributable to bringing the asset to the location and condition necessary for its intended use, such as site preparation and installation. Training, advertising, and abnormal idle losses are expensed because they do not form part of the asset's cost.

Question 42Financial Accounting and Reporting

A company's bank statement shows a balance of 50,000. Deposits in transit are 4,000 and outstanding cheques are 6,000. What is the adjusted cash book balance shown by the reconciliation?

  1. 48,000 Correct answer.
  2. 60,000
  3. 52,000
  4. 44,000

Explanation

To reconcile the bank statement to the true cash balance, add deposits in transit and deduct outstanding cheques. Thus 50,000 plus 4,000 minus 6,000 equals 48,000. The cash book is then adjusted only for items the bank has recorded but the company has not.

Question 43Financial Accounting and Reporting

An entity has 1,000,000 of 5% preference shares that are mandatorily redeemable on a fixed date. How should these shares be classified under IAS 32?

  1. As a contingent asset
  2. As other comprehensive income
  3. As a financial liability because the entity has an obligation to deliver cash Correct answer.
  4. As equity because they are called shares

Explanation

IAS 32 classifies a financial instrument by its substance. A mandatory redemption obligation means the entity must deliver cash, so the instrument is a financial liability, and the 5% distribution is finance cost. The legal label of shares does not determine classification.

Question 44Financial Accounting and Reporting

A company reports revenue of 900,000, cost of sales of 540,000, and operating expenses of 210,000. What is its operating profit margin?

  1. 40%
  2. 60%
  3. 16.7% Correct answer.
  4. 23.3%

Explanation

Operating profit is 900,000 minus 540,000 minus 210,000, which equals 150,000. Dividing by revenue of 900,000 gives 16.7%. The gross margin would be 40%, but operating margin also deducts operating expenses.

Question 45Financial Accounting and Reporting

A company's quick ratio is 0.8 and its current ratio is 1.6. Which conclusion is most consistent with these figures?

  1. The company has no current liabilities
  2. The company has negative working capital
  3. The company's cash position is excessive
  4. The company holds a large proportion of current assets as inventory Correct answer.

Explanation

The quick ratio excludes inventory, and the large gap between 1.6 and 0.8 indicates inventory makes up a substantial part of current assets. Current liabilities clearly exist, and a current ratio above 1 means working capital is positive.

Question 46Financial Accounting and Reporting

An entity leases equipment for four years with annual payments of 25,000 due at the end of each year. The lessee's incremental borrowing rate is 10%, and the present value annuity factor is 3.170. What liability is recognised at commencement under IFRS 16?

  1. 100,000
  2. 79,250 Correct answer.
  3. 75,000
  4. 25,000

Explanation

The lease liability is the present value of future lease payments, calculated as 25,000 multiplied by 3.170, which equals 79,250. The undiscounted total of 100,000 ignores the time value of money, and IFRS 16 requires discounting.

Question 47Financial Accounting and Reporting

A parent sells inventory costing 60,000 to its subsidiary for 80,000. At year end the subsidiary still holds all of it. What consolidation adjustment is required?

  1. Increase consolidated revenue by 20,000
  2. Reduce consolidated profit by 20,000 and inventory by 20,000 Correct answer.
  3. Increase consolidated inventory by 20,000
  4. No adjustment because the sale is at arm's length

Explanation

Intragroup profit on goods still held at year end is unrealised and must be eliminated. The adjustment removes the 20,000 markup from both inventory and consolidated profit. The sale is intragroup, so arm's length pricing does not prevent elimination.

Question 48Financial Accounting and Reporting

An entity recognises a provision for a court case. In the following year, new evidence indicates the probable outflow is significantly higher than the original estimate. How should the change be treated under IAS 37?

  1. As a prior period error restated retrospectively
  2. As a change in accounting policy applied retrospectively
  3. As an adjustment to retained earnings opening balance
  4. As a change in accounting estimate recognised in profit or loss in the current period Correct answer.

Explanation

Provisions are reviewed at each reporting date, and revisions to the amount reflect new information about conditions that existed. IAS 8 treats this as a change in accounting estimate, recognised prospectively in profit or loss. It is not a prior period error or a policy change.

Question 49Financial Accounting and Reporting

A company has taxable profit of 400,000. Tax depreciation exceeds accounting depreciation by 50,000, creating a taxable temporary difference, and the tax rate is 25%. What deferred tax should be recognised?

  1. A deferred tax asset of 12,500
  2. A deferred tax liability of 100,000
  3. No deferred tax because the difference is temporary
  4. A deferred tax liability of 12,500 Correct answer.

Explanation

A taxable temporary difference means future taxable amounts will exceed accounting deductions, so a deferred tax liability arises. Multiplying 50,000 by 25% gives 12,500. Temporary differences do require deferred tax precisely because they reverse in future periods.

Question 50Financial Accounting and Reporting

An entity has a defined benefit obligation with a present value of 500,000 and plan assets with a fair value of 460,000. Actuarial losses of 30,000 arise during the year. Under IAS 19, how are these remeasurement losses recognised?

  1. In other comprehensive income and not reclassified to profit or loss Correct answer.
  2. As a direct adjustment to share capital
  3. As a reduction of the plan asset fair value only
  4. In profit or loss as an operating expense

Explanation

IAS 19 requires actuarial gains and losses, the return on plan assets excluding interest, and changes in the asset ceiling to be recognised in other comprehensive income. These remeasurements are not subsequently reclassified to profit or loss. The net defined benefit liability of 40,000 is presented on the statement of financial position.