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Korea Accounting Manager Level 2 practice questions

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Question 1Financial Accounting Fundamentals

Under K-IFRS, what is the general recognition criterion for an asset in the statement of financial position?

  1. It has been approved by the board of directors and disclosed in the notes
  2. It has been physically delivered to the entity and paid for in cash
  3. It appears in the entity's tax return for the current fiscal year
  4. It is probable that future economic benefits will flow to the entity and its cost or value can be measured reliably Correct answer.

Explanation

The Conceptual Framework defines an asset as a present economic resource controlled by the entity as a result of past events, and recognition requires that the item provides relevant information and is faithfully represented, which in practice means probable future economic benefits and reliable measurement. Physical possession, board approval, or tax filing are not recognition criteria.

Question 2Financial Accounting Fundamentals

A company pays 12,000,000 won on 1 April for a one-year insurance policy covering 1 April to 31 March of the following year. Under accrual accounting, what amount is recognized as insurance expense for the calendar year ending 31 December?

  1. 6,000,000 won
  2. 3,000,000 won
  3. 12,000,000 won
  4. 9,000,000 won Correct answer.

Explanation

Accrual accounting matches expense to the period benefited. Nine months of coverage (April through December) fall in the current year, so 12,000,000 × 9/12 = 9,000,000 won is expensed and 3,000,000 won remains as a prepaid asset.

Question 3Financial Accounting Fundamentals

Which journal entry correctly records the issuance of ordinary shares at a premium under Korean commercial practice?

  1. Debit Cash; credit Share Capital and credit Share Premium Correct answer.
  2. Debit Cash; credit Share Capital only
  3. Debit Cash and debit Share Premium; credit Share Capital
  4. Debit Share Capital; credit Cash and credit Share Premium

Explanation

When shares are issued above par, the par value portion is credited to Share Capital (capital stock) and the excess over par is credited to Share Premium (share issuance surplus), with Cash debited for the total proceeds. Share premium is a capital surplus account, not income.

Question 4Financial Accounting Fundamentals

Which of the following best describes the purpose of the closing process at the end of an accounting period?

  1. To correct errors discovered in the trial balance before financial statements are issued
  2. To transfer balances of temporary accounts to retained earnings so revenue and expense accounts start the next period at zero Correct answer.
  3. To record adjusting entries for accrued revenues and expenses
  4. To reconcile the cash book balance with the bank statement

Explanation

Closing entries zero out temporary accounts such as revenues, expenses, and dividends, transferring their net effect to retained earnings. This ensures that the next period's income statement captures only that period's activity.

Question 5Financial Accounting Fundamentals

A company reports current assets of 400,000,000 won and current liabilities of 250,000,000 won. What is the current ratio?

  1. 1.60 Correct answer.
  2. 2.50
  3. 1.50
  4. 0.63

Explanation

The current ratio equals current assets divided by current liabilities: 400,000,000 ÷ 250,000,000 = 1.60. It measures short-term liquidity, indicating the entity holds 1.60 won of current assets for every won of current liabilities.

Question 6Financial Accounting Fundamentals

Which qualitative characteristic of useful financial information means that information is capable of making a difference in the decisions made by users?

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

Explanation

Relevance is the qualitative characteristic under which information is capable of making a difference in user decisions, including through predictive value, confirmatory value, or both. Materiality is an entity-specific aspect of relevance.

Question 7Financial Accounting Fundamentals

A company uses the allowance method for doubtful accounts. What is the effect on the financial statements when a specific customer's receivable is written off against an existing allowance?

  1. Total assets decrease and profit decreases
  2. Total assets increase and profit increases
  3. Total assets are unchanged and profit is unchanged Correct answer.
  4. Total assets decrease and profit is unchanged

Explanation

Writing off a receivable under the allowance method debits the allowance for doubtful accounts and credits accounts receivable, so the net carrying amount of receivables is unchanged and no new expense is recognized. The expense was already recorded when the allowance was established.

Question 8Financial Accounting Fundamentals

Which statement about the trial balance is correct?

  1. The trial balance is prepared after closing entries to verify retained earnings
  2. The trial balance lists all account balances and total debits must equal total credits Correct answer.
  3. A balanced trial balance proves that no errors were made in recording transactions
  4. The trial balance replaces the statement of financial position for external reporting

Explanation

A trial balance is an internal listing of ledger account balances at a point in time, and its purpose is to test whether total debits equal total credits. Equality of totals does not guarantee the absence of errors such as omissions or mispostings of equal amounts.

Question 9Financial Accounting Fundamentals

A company sells goods for 5,000,000 won with a 2/10, n/30 credit term and uses the gross method. The customer pays on day 8. What amount of cash is received?

  1. 4,750,000 won
  2. 4,900,000 won Correct answer.
  3. 5,000,000 won
  4. 4,600,000 won

Explanation

The term 2/10, n/30 means a 2 percent discount applies if payment is made within 10 days. Paying on day 8 qualifies, so cash received is 5,000,000 × 0.98 = 4,900,000 won, with 100,000 won recorded as a sales discount.

Question 10Financial Accounting Fundamentals

Under K-IFRS, how should research costs and development costs generally be treated?

  1. Both research and development costs are capitalized as intangible assets
  2. Research costs are expensed and development costs are capitalized when recognition criteria are met Correct answer.
  3. Research costs are capitalized and development costs are expensed
  4. Both research and development costs are expensed as incurred

Explanation

K-IFRS 1038 prohibits recognizing research expenditure as an intangible asset and requires expensing it. Development expenditure is capitalized only after the entity can demonstrate technical feasibility, intention and ability to complete and use or sell the asset, probable future benefits, and reliable measurement of costs.

Question 11Financial Accounting Fundamentals

Equipment costing 50,000,000 won with a residual value of 5,000,000 won and a five-year useful life is depreciated using the straight-line method. What is the depreciation expense for the second year?

  1. 8,000,000 won
  2. 5,000,000 won
  3. 9,000,000 won Correct answer.
  4. 10,000,000 won

Explanation

Straight-line depreciation equals (cost minus residual value) divided by useful life: (50,000,000 − 5,000,000) ÷ 5 = 9,000,000 won each year. The same amount applies to the second year because straight-line depreciation is constant.

Question 12Financial Accounting Fundamentals

A company's inventory cost is 30,000,000 won and its net realizable value is 26,000,000 won at year-end. Under K-IFRS, what measurement applies?

  1. Carry inventory at 28,000,000 won as the average of cost and net realizable value
  2. Carry inventory at 26,000,000 won and recognize a write-down of 4,000,000 won Correct answer.
  3. Carry inventory at 30,000,000 won because cost is the primary basis
  4. Carry inventory at 26,000,000 won and defer the loss to the next period

Explanation

K-IFRS 1002 requires inventory to be measured at the lower of cost and net realizable value. When net realizable value falls below cost, the difference is recognized immediately as an expense in profit or loss.

Question 13Financial Accounting Fundamentals

Which of the following is classified as an operating activity in the statement of cash flows under K-IFRS 1007?

  1. Payment of a cash dividend to shareholders
  2. Purchase of machinery for a new production line
  3. Proceeds from the issuance of corporate bonds
  4. Cash paid to suppliers for inventory purchases Correct answer.

Explanation

Operating activities are the principal revenue-producing activities and include cash paid to suppliers and employees, and cash received from customers. Purchasing machinery is investing, while issuing bonds and paying dividends are financing activities.

Question 14Financial Accounting Fundamentals

A company issues a 100,000,000 won face value bond at 97. What is the journal entry at issuance under the gross presentation approach?

  1. Debit Cash 103,000,000; credit Bonds Payable 100,000,000 and credit Premium 3,000,000
  2. Debit Cash 97,000,000 and Debit Discount on Bonds Payable 3,000,000; credit Bonds Payable 100,000,000 Correct answer.
  3. Debit Cash 100,000,000; credit Bonds Payable 100,000,000
  4. Debit Cash 97,000,000; credit Bonds Payable 97,000,000

Explanation

A price of 97 means the bonds were issued at a discount of 3 percent of face value, or 3,000,000 won. Cash received is 97,000,000 won, Bonds Payable is credited at face value of 100,000,000 won, and the discount is debited as a contra-liability account.

Question 15Financial Accounting Fundamentals

At year-end, wages earned by employees but unpaid amount to 3,000,000 won. What adjusting entry is required?

  1. Debit Wages Expense 3,000,000; credit Wages Payable 3,000,000 Correct answer.
  2. Debit Wages Expense 3,000,000; credit Cash 3,000,000
  3. Debit Wages Payable 3,000,000; credit Wages Expense 3,000,000
  4. Debit Prepaid Wages 3,000,000; credit Cash 3,000,000

Explanation

Accrual accounting requires recognizing the expense in the period the employees performed the work, even if payment occurs later. The adjusting entry debits Wages Expense and credits Wages Payable, a current liability.

Question 16Financial Accounting Fundamentals

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

  1. 55,000,000 won
  2. 85,000,000 won Correct answer.
  3. 75,000,000 won
  4. 105,000,000 won

Explanation

Starting from net income, non-cash depreciation is added back and the increase in accounts receivable is subtracted because cash collection lagged behind revenue: 80,000,000 + 15,000,000 − 10,000,000 = 85,000,000 won.

Question 17Financial Accounting Fundamentals

Which of the following is a contingent liability that should be recognized as a provision under K-IFRS 1037?

  1. A possible obligation whose existence will be confirmed only by uncertain future events outside the entity's control
  2. A present obligation from a past event where an outflow is probable and the amount can be reliably estimated Correct answer.
  3. A present obligation where the possibility of outflow is remote
  4. A future operating loss expected from a business restructuring not yet announced

Explanation

A provision is recognized when a present obligation exists from a past event, an outflow of resources is probable, and a reliable estimate can be made. Possible obligations dependent on uncertain future events are contingent liabilities that are disclosed rather than recognized.

Question 18Financial Accounting Fundamentals

A company acquires equipment with a list price of 20,000,000 won, receiving a 5 percent trade discount, and pays 500,000 won for transportation. What is the acquisition cost of the equipment?

  1. 20,500,000 won
  2. 19,000,000 won
  3. 20,000,000 won
  4. 19,500,000 won Correct answer.

Explanation

Trade discounts are deducted from the purchase price, so the invoiced amount is 20,000,000 × 0.95 = 19,000,000 won. Directly attributable costs such as transportation are capitalized, giving 19,500,000 won.

Question 19Financial Accounting Fundamentals

Under K-IFRS 1115, when should revenue from a contract with a customer be recognized?

  1. When the contract is signed and the price is fixed
  2. When the goods are shipped regardless of the shipping terms
  3. When cash is collected from the customer
  4. When control of the promised good or service transfers to the customer Correct answer.

Explanation

The core principle of K-IFRS 1115 is that revenue is recognized when control of the promised good or service transfers to the customer, in an amount reflecting the consideration the entity expects to be entitled to. Collection and contract signing do not determine the timing of recognition.

Question 20Financial Accounting Fundamentals

A company has taxable temporary differences of 20,000,000 won and a tax rate of 25 percent. What is the deferred tax liability?

  1. 20,000,000 won
  2. 5,000,000 won Correct answer.
  3. 4,000,000 won
  4. 25,000,000 won

Explanation

A taxable temporary difference will result in taxable amounts in future periods when the carrying amount of an asset is recovered or a liability is settled. The deferred tax liability is measured at the expected tax rate: 20,000,000 × 25% = 5,000,000 won.

Question 21Financial Accounting Fundamentals

A company reports profit before tax of 100,000,000 won. Included in this figure is a non-deductible entertainment expense of 4,000,000 won and tax-exempt dividend income of 6,000,000 won. With a tax rate of 25 percent, what is the current tax expense?

  1. 24,500,000 won Correct answer.
  2. 25,000,000 won
  3. 26,000,000 won
  4. 27,500,000 won

Explanation

Taxable income adjusts accounting profit for permanent differences: add back the non-deductible expense and deduct the tax-exempt income, giving 100,000,000 + 4,000,000 − 6,000,000 = 98,000,000 won. Current tax is 98,000,000 × 25% = 24,500,000 won.

Question 22Financial Accounting Fundamentals

A company holds a building measured under the revaluation model. Its carrying amount before revaluation is 300,000,000 won and its fair value is 340,000,000 won. There is no prior revaluation surplus. How is the increase recognized?

  1. Recognized in profit or loss as a gain
  2. Recognized in other comprehensive income and accumulated in equity as revaluation surplus Correct answer.
  3. Recognized as a deferred credit and amortized over the remaining useful life
  4. Recognized only in the notes with no journal entry

Explanation

Under K-IFRS 1016, an increase in carrying amount from revaluation is recognized in other comprehensive income and accumulated in equity as revaluation surplus, unless it reverses a previously recognized revaluation decrease in profit or loss.

Question 23Financial Accounting Fundamentals

A company uses the effective interest method for a bond issued at a discount. Which pattern describes interest expense over the bond's life?

  1. Interest expense increases each period as the carrying amount rises toward face value Correct answer.
  2. Interest expense decreases each period as the discount is amortized
  3. Interest expense equals the coupon payment each period
  4. Interest expense is constant each period

Explanation

Under the effective interest method, interest expense equals the carrying amount multiplied by the effective rate. As the discount is amortized, the carrying amount of the liability increases toward face value, so interest expense increases each period.

Question 24Financial Accounting Fundamentals

An entity sells goods on consignment to a distributor. Under K-IFRS 1115, when does the manufacturer recognize revenue?

  1. When the invoice is issued to the distributor
  2. When the distributor sells the goods to an end customer Correct answer.
  3. When the distributor pays the manufacturer for the goods
  4. When the goods are delivered to the distributor's warehouse

Explanation

In a consignment arrangement, the distributor does not obtain control of the goods because it can return unsold goods and has no obligation to pay. The manufacturer recognizes revenue only when the distributor sells the goods to an end customer and control passes to that customer.

Question 25Financial Accounting Fundamentals

A company acquires a 30 percent interest in an associate for 200,000,000 won when the associate's identifiable net assets have a fair value of 600,000,000 won. The associate reports profit of 80,000,000 won and pays dividends of 20,000,000 won. What is the carrying amount of the investment at year-end under the equity method?

  1. 224,000,000 won
  2. 242,000,000 won
  3. 218,000,000 won Correct answer.
  4. 200,000,000 won

Explanation

Under the equity method, the investor recognizes its share of profit (80,000,000 × 30% = 24,000,000 won) and reduces the carrying amount by its share of dividends (20,000,000 × 30% = 6,000,000 won). Thus 200,000,000 + 24,000,000 − 6,000,000 = 218,000,000 won.

Question 26Financial Accounting Fundamentals

Under K-IFRS, which measurement basis is used for an asset in the going concern assumption context when the entity expects to continue in operation for the foreseeable future?

  1. Liquidation value basis for assets expected to be sold within one year
  2. A basis appropriate to the entity's intention to continue operating rather than liquidating Correct answer.
  3. Historical cost basis for all assets regardless of intent
  4. Fair value basis for all assets at each reporting date

Explanation

The going concern assumption means financial statements are prepared on the basis that the entity will continue in operation and has neither the intention nor the need to liquidate. Accordingly, assets and liabilities are measured on a basis consistent with continued operation, not at liquidation values. Only if going concern is not appropriate would a different (break-up) basis be applied.

Question 27Financial Accounting Fundamentals

A company records a 12,000,000 won sale on credit with terms 1/15, n/45 and uses the net method. The customer pays on day 20. What amount is debited to cash?

  1. 11,760,000 won
  2. 12,120,000 won
  3. 12,000,000 won Correct answer.
  4. 11,880,000 won

Explanation

Under the net method, revenue and receivables are initially recorded net of the cash discount, at 11,880,000 won. Because the customer pays after the discount period, the forfeited discount of 120,000 won is credited to a sales discounts forfeited account, and cash received is the full gross amount of 12,000,000 won.

Question 28Financial Accounting Fundamentals

Which element of the financial statements is defined under the K-IFRS Conceptual Framework as a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of economic benefits?

  1. Asset
  2. Liability Correct answer.
  3. Equity
  4. Income

Explanation

A liability is defined as a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Equity is the residual interest after deducting liabilities from assets, and income represents increases in economic benefits. The definition requires a present obligation, so a mere future intention does not create a liability.

Question 29Financial Accounting Fundamentals

An entity's inventory at year-end has a cost of 40,000,000 won and a net realizable value of 37,000,000 won. In the following year the net realizable value rises to 43,000,000 won while cost is unchanged. Under K-IFRS 1002, what is the write-down reversal recognized in the following year?

  1. 43,000,000 won
  2. 6,000,000 won
  3. 0 won
  4. 3,000,000 won Correct answer.

Explanation

The write-down of 3,000,000 won recorded in the prior year is reversed when net realizable value recovers. The reversal is limited to the amount of the original write-down, so only 3,000,000 won is recognized even though net realizable value now exceeds cost by 3,000,000 won. Inventory is not written up above cost.

Question 30Financial Accounting Fundamentals

A machine costing 60,000,000 won with no residual value and a 10-year life is depreciated on a straight-line basis. After four full years, the useful life is revised to a total of eight years. What is the depreciation expense for year five?

  1. 10,000,000 won
  2. 9,000,000 won
  3. 7,500,000 won Correct answer.
  4. 6,000,000 won

Explanation

A change in useful life is a change in accounting estimate applied prospectively. After four years, accumulated depreciation is 24,000,000 won, leaving a carrying amount of 36,000,000 won. The remaining revised life is four years (eight total minus four used), so annual depreciation becomes 9,000,000 won...

Question 31Financial Accounting Fundamentals

Under K-IFRS 1036, at what amount is goodwill carried after initial recognition?

  1. Cost less any accumulated impairment losses Correct answer.
  2. Amortized cost using the effective interest method
  3. Cost less accumulated amortization over its useful life
  4. Revalued amount determined annually by an independent appraiser

Explanation

Goodwill acquired in a business combination is not amortized; instead it is tested for impairment at least annually and whenever there is an indication of impairment. It is carried at cost less accumulated impairment losses. Any impairment loss recognized is not subsequently reversed.

Question 32Financial Accounting Fundamentals

A company issues 1,000 shares with a par value of 5,000 won at an issue price of 8,000 won. What is the credit to share premium (capital surplus) under the par value method?

  1. 3,000,000 won Correct answer.
  2. 8,000,000 won
  3. 2,000,000 won
  4. 5,000,000 won

Explanation

Share capital is recorded at par value, 1,000 shares times 5,000 won, equal to 5,000,000 won. The excess of the issue price over par, 1,000 shares times 3,000 won, is credited to share premium for 3,000,000 won. Total cash received is 8,000,000 won.

Question 33Financial Accounting Fundamentals

Which of the following best describes the purpose of the statement of changes in equity under K-IFRS 1001?

  1. To disclose the entity's accounting policies and significant judgments
  2. To present the entity's assets, liabilities, and equity at a single reporting date
  3. To reconcile opening and closing equity by presenting total comprehensive income, owner transactions, and other equity movements Correct answer.
  4. To show cash inflows and outflows classified by operating, investing, and financing activities

Explanation

The statement of changes in equity reconciles the carrying amount of each component of equity at the beginning and end of the period. It shows total comprehensive income, the effects of retrospective adjustments, and transactions with owners in their capacity as owners. Assets and liabilities at a date belong to the statement of financial position.

Question 34Financial Accounting Fundamentals

A company's accounts receivable ledger shows a debit balance of 200,000,000 won and a customer account with a credit balance of 4,000,000 won. How should these be presented in the statement of financial position?

  1. Receivables of 200,000,000 won and a payable of 4,000,000 won, presented separately Correct answer.
  2. Receivables of 200,000,000 won only, with the credit balance omitted
  3. Receivables of 196,000,000 won as a single net amount
  4. Receivables of 204,000,000 won

Explanation

Under K-IFRS 1001 and 1032, debit and credit balances in customer accounts are not offset unless the entity has a legally enforceable right of set-off and intends to settle net. A credit balance in a customer account is generally presented as a liability, while debit balances are presented as receivables. Therefore receivables of 200,000,000 won and a payable of 4,000,000 won are shown separately.

Question 35Financial Accounting Fundamentals

Under K-IFRS 1037, how should a provision be measured initially?

  1. At the fair value of the obligation discounted at the risk-free rate plus a fixed premium
  2. At the amount expected to be paid in the next reporting period only
  3. At the maximum amount the entity could be required to pay
  4. At the best estimate of the expenditure required to settle the present obligation at the reporting date Correct answer.

Explanation

A provision is measured at the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. Where the effect of the time value of money is material, the provision is discounted using a pre-tax rate reflecting current market assessments of the time value of money and the risks specific to the liability. Uncertain amounts are estimated using expected value or the most likely outcome as appropriate.

Question 36Financial Accounting Fundamentals

An entity leases equipment for five years with annual payments of 10,000,000 won due at the end of each year. The incremental borrowing rate is 6 percent, and the present value annuity factor for five years at 6 percent is 4.2124. What is the initial lease liability under K-IFRS 1116?

  1. 50,000,000 won
  2. 42,124,000 won Correct answer.
  3. 44,651,000 won
  4. 37,363,000 won

Explanation

The lease liability is measured at the present value of the lease payments not paid at the commencement date, discounted using the interest rate implicit in the lease or, if not readily determinable, the lessee's incremental borrowing rate. Here 10,000,000 won times 4.2124 equals 42,124,000 won. The payments are due at the end of each period, so the ordinary annuity factor applies.

Question 37Financial Accounting Fundamentals

Which of the following costs is expensed immediately rather than capitalized as part of the cost of property, plant, and equipment under K-IFRS 1016?

  1. Costs of training staff to operate the new equipment Correct answer.
  2. Installation and assembly costs necessary for intended use
  3. Directly attributable costs of testing whether the asset functions properly
  4. Freight and handling costs incurred to bring the asset to its location

Explanation

The cost of an item of property, plant, and equipment includes its purchase price and any directly attributable costs of bringing the asset to the location and condition necessary for it to be capable of operating as intended. Training costs are not directly attributable to bringing the asset to that condition and are expensed. Freight, installation, and testing costs are capitalized.

Question 38Financial Accounting Fundamentals

A company uses the percentage-of-completion method for a long-term construction contract. Cumulative costs incurred to date are 30,000,000 won, estimated total costs are 100,000,000 won, and the contract price is 150,000,000 won. Revenue previously recognized is 30,000,000 won. What revenue is recognized in the current period under K-IFRS 1115?

  1. 15,000,000 won Correct answer.
  2. 30,000,000 won
  3. 60,000,000 won
  4. 45,000,000 won

Explanation

Progress toward complete satisfaction of the performance obligation is 30 percent (30,000,000 divided by 100,000,000). Cumulative revenue to recognize is 30 percent of 150,000,000 won, or 45,000,000 won. Subtracting the 30,000,000 won previously recognized gives current-period revenue of 15,000,000 won.

Question 39Financial Accounting Fundamentals

Under K-IFRS 1038, how should an entity account for an intangible asset acquired in a business combination?

  1. Recognize it at the acquirer's carrying amount for similar assets
  2. Recognize it only if it meets the separate recognition criteria for internally generated intangibles
  3. Expense it immediately because it was not internally developed
  4. Recognize it at fair value at the acquisition date if it is identifiable and separable or arises from contractual or other legal rights Correct answer.

Explanation

In a business combination, an intangible asset is recognized separately from goodwill if it is identifiable, meaning it is separable or arises from contractual or other legal rights, and its fair value can be measured reliably. It is measured at fair value at the acquisition date. The recognition criteria for internally generated intangibles do not restrict recognition in a business combination.

Question 40Financial Accounting Fundamentals

A company holds a bond classified at amortized cost. The bond has a face value of 100,000,000 won, a coupon rate of 4 percent paid annually, and was purchased at a discount so that the effective interest rate is 5 percent. In the first year, what is the interest income recognized under K-IFRS 1109?

  1. 1,000,000 won
  2. 5,000,000 won Correct answer.
  3. 9,000,000 won
  4. 4,000,000 won

Explanation

Interest income under the effective interest method equals the carrying amount of the financial asset multiplied by the effective interest rate. The carrying amount is the purchase price (present value of the bond's cash flows at 5 percent), and applying 5 percent gives the interest income for the period. The coupon of 4,000,000 won is the cash received, not the income recognized.

Question 41Financial Accounting Fundamentals

Which of the following items is classified as a non-current liability in the statement of financial position?

  1. Unearned revenue expected to be earned within three months
  2. Accrued wages payable to employees
  3. A bank loan repayable in five years Correct answer.
  4. Trade payables due within 30 days

Explanation

A liability is classified as non-current when the entity has an unconditional right to defer settlement for at least twelve months after the reporting period. A loan repayable in five years meets this criterion. Trade payables, accrued wages, and short-term unearned revenue are expected to be settled within the normal operating cycle or within twelve months.

Question 42Financial Accounting Fundamentals

A company reports profit before tax of 200,000,000 won. Non-taxable income is 20,000,000 won and non-deductible expenses are 10,000,000 won. The tax rate is 25 percent. What is the current tax expense?

  1. 50,000,000 won
  2. 52,500,000 won
  3. 47,500,000 won Correct answer.
  4. 45,000,000 won

Explanation

Taxable profit equals accounting profit before tax adjusted for permanent differences: 200,000,000 minus 20,000,000 plus 10,000,000, giving 190,000,000 won. Current tax expense is 25 percent of taxable profit, or 47,500,000 won. Non-taxable income reduces taxable profit and non-deductible expenses increase it.

Question 43Financial Accounting Fundamentals

Under K-IFRS 1008, how should a change in accounting policy be applied?

  1. By discontinuing the prior policy without restating any prior figures
  2. Retrospectively, by adjusting opening retained earnings and restating comparatives unless impracticable Correct answer.
  3. By adjusting only the current period income statement
  4. Prospectively, with disclosure of the effect on future periods only

Explanation

A change in accounting policy required by a standard or applied voluntarily is generally applied retrospectively. The entity adjusts the opening balance of each affected component of equity and restates comparative information as if the new policy had always been applied, unless it is impracticable to determine the period-specific effects.

Question 44Financial Accounting Fundamentals

A company has a defined benefit pension plan. At year-end, the present value of the defined benefit obligation is 300,000,000 won and the fair value of plan assets is 260,000,000 won. What is the net defined benefit liability recognized?

  1. 0 won
  2. 300,000,000 won
  3. 40,000,000 won Correct answer.
  4. 260,000,000 won

Explanation

The net defined benefit liability is the present value of the defined benefit obligation less the fair value of plan assets, measured at the reporting date. Here 300,000,000 minus 260,000,000 equals 40,000,000 won. If plan assets exceeded the obligation, a net defined benefit asset would be recognized subject to the asset ceiling.

Question 45Financial Accounting Fundamentals

Which of the following transactions is presented as a financing activity in the statement of cash flows under K-IFRS 1007?

  1. Cash paid to purchase inventory
  2. Cash paid for income taxes
  3. Cash received from issuing ordinary shares Correct answer.
  4. Cash received from the sale of equipment

Explanation

Financing activities are activities that result in changes in the size and composition of contributed equity and borrowings of the entity. Issuing ordinary shares is a financing cash inflow. Purchases of inventory, sales of equipment, and income tax payments are classified as operating or investing activities as appropriate.

Question 46Financial Accounting Fundamentals

An entity sells goods with a right of return. Under K-IFRS 1115, how is the consideration for the expected returned goods accounted for at the time of sale?

  1. Recognized as a refund liability and an asset for the right to recover the goods Correct answer.
  2. Recognized as revenue and a corresponding expense
  3. Recognized as a reduction of cost of goods sold only
  4. Recognized as deferred revenue until the return period expires

Explanation

When goods are sold with a right of return, the entity recognizes revenue for the consideration it expects to be entitled to and a refund liability for the amount it expects to refund. It also recognizes an asset for its right to recover the returned goods, measured by reference to the former carrying amount. Revenue is not recognized for the portion expected to be returned.

Question 47Financial Accounting Fundamentals

A company uses the direct write-off method for bad debts. On the date a specific account of 2,000,000 won is written off, what is the effect on total assets and net income?

  1. Total assets decrease by 2,000,000 won and net income decreases by 2,000,000 won Correct answer.
  2. Total assets decrease by 2,000,000 won and net income is unaffected
  3. Total assets are unaffected and net income decreases by 2,000,000 won
  4. Total assets and net income are both unaffected

Explanation

Under the direct write-off method, the write-off is recorded by debiting bad debt expense and crediting accounts receivable. This reduces both total assets and net income by the amount written off. The allowance method, by contrast, would reduce net receivables but not net income at the time of write-off, because the expense was already recognized.

Question 48Financial Accounting Fundamentals

Under K-IFRS 1105, how should a non-current asset classified as held for sale be measured?

  1. At fair value, with changes recognized in other comprehensive income
  2. At the lower of its carrying amount and fair value less costs to sell Correct answer.
  3. At its carrying amount, with no remeasurement
  4. At its historical cost less accumulated depreciation

Explanation

A non-current asset classified as held for sale is measured at the lower of its carrying amount and fair value less costs to sell. Once classified as held for sale, depreciation ceases. Any write-down to fair value less costs to sell is recognized as an impairment loss in profit or loss.

Question 49Financial Accounting Fundamentals

An entity has a lawsuit pending at year-end. Legal counsel concludes that an outflow is probable and the amount can be reliably estimated at approximately 50,000,000 won. Under K-IFRS 1037, how should this be reported?

  1. Recognize a provision of 50,000,000 won and disclose the nature of the obligation Correct answer.
  2. Disclose only in the auditor's report
  3. Disclose as a contingent liability only, with no recognition
  4. Recognize a provision only when the lawsuit is finally settled

Explanation

A provision is recognized when the entity has a present obligation from a past event, an outflow of economic benefits is probable, and a reliable estimate can be made. Because all three conditions are met, the entity recognizes a provision of 50,000,000 won and discloses the nature of the obligation and the uncertainties involved. Contingent liability disclosure applies when a present obligation is possible but not probable or cannot be reliably measured.

Question 50Financial Accounting Fundamentals

Which method of presenting the statement of cash flows starts with profit or loss and adjusts for non-cash items and changes in working capital?

  1. Direct method
  2. Indirect method Correct answer.
  3. Equity method
  4. Proportional consolidation method

Explanation

The indirect method begins with profit or loss and adjusts for non-cash transactions, accruals, and deferrals such as depreciation and changes in working capital to arrive at cash flows from operating activities. The direct method presents major classes of gross cash receipts and payments instead. Proportional consolidation and the equity method are consolidation techniques, not cash flow presentation methods.