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Korea Tax Accounting Technician Level 2 (TAT 2급) study materials
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Korea Tax Accounting Technician Level 2 (TAT 2급) practice questions

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Question 1Financial accounting and transaction evidence

Which of the following items is correctly classified as 'Cash and Cash Equivalents' (현금및현금성자산) on the statement of financial position under General Corporate Accounting Standards (일반기업회계기준)?

  1. A commercial draft received from a customer maturing in 6 months
  2. A cashier's check (자기앞수표) issued by a commercial bank and ready for immediate deposit Correct answer.
  3. A post-dated check (선일자수표) maturing in 45 days
  4. A 1-year time deposit (정기예금) pledged as collateral for short-term bank borrowings

Explanation

Cash and cash equivalents include currency and currency substitutes such as bank-issued cashier's checks (자기앞수표) and postal money orders (우편환증서), as well as short-term financial instruments with maturities of three months or less from the acquisition date. Cashier's checks are payable on demand and serve as legal cash equivalents.

Question 2Financial accounting and transaction evidence

Under General Corporate Accounting Standards, how are valuation gains or losses on trading securities (단기매매증권평가손익) presented in the financial statements at the end of the reporting period?

  1. Recognized in profit or loss for the period as non-operating income or expense (영업외손익) Correct answer.
  2. Recognized directly in equity as other comprehensive income (기타포괄손익누계액)
  3. Recorded as a contra-asset valuation allowance without affecting net income
  4. Deferred on the statement of financial position until the securities are sold

Explanation

Trading securities (단기매매증권) are held for short-term profit realization and are measured at fair value at the end of each reporting period. Any unrealized holding gains or losses are recognized directly in profit or loss for the period as non-operating income or expenses (영업외손익).

Question 3Financial accounting and transaction evidence

At the end of the accounting period, Daehan Co. determines that the required allowance for doubtful accounts (대손충당금) is KRW 200,000, but the existing allowance balance before adjustment is KRW 350,000. Which accounting entry should Daehan Co. record?

  1. (Debit) Bad Debt Expense KRW 150,000 / (Credit) Allowance for Doubtful Accounts KRW 150,000
  2. (Debit) Allowance for Doubtful Accounts KRW 150,000 / (Credit) Reversal of Allowance for Doubtful Accounts KRW 150,000 Correct answer.
  3. (Debit) Allowance for Doubtful Accounts KRW 150,000 / (Credit) Retained Earnings KRW 150,000
  4. (Debit) Reversal of Allowance for Doubtful Accounts KRW 150,000 / (Credit) Bad Debt Expense KRW 150,000

Explanation

When the existing allowance balance exceeds the estimated required amount at year-end, the excess must be reversed. The entry debits Allowance for Doubtful Accounts (대손충당금) by KRW 150,000 and credits Reversal of Allowance for Doubtful Accounts (대손충당금환입) for KRW 150,000, presented as a deduction from selling and administrative expenses (판매비와관리비) or as non-operating income under K-GAAP.

Question 4Financial accounting and transaction evidence

On May 1, 2026, Nara Co. received a 6-month promissory note (약속어음) with a face value of KRW 10,000,000 and an annual interest rate of 6% maturing on October 31, 2026. On July 31, 2026, Nara Co. discounted the note at a bank at an annual discount rate of 8% under a true-sale transaction (매각거래). How much loss on disposal of trade receivables (매출채권처분손실) should Nara Co. recognize upon discount?

  1. KRW 104,000
  2. KRW 206,000
  3. KRW 56,000 Correct answer.
  4. KRW 150,000

Explanation

Maturity value = Principal + Interest = KRW 10,000,000 + (KRW 10,000,000 × 6% × 6/12) = KRW 10,300,000. Discount period from July 31 to October 31 is 3 months. Bank discount charge = KRW 10,300,000 × 8% × 3/12 = KRW 206,000. Net proceeds = KRW 10,300,000 - KRW 206,000 = KRW 10,094,000. The book value of the note at July 31 includes 3 months of accrued interest: KRW 10,000,000 + (KRW 10,000,000 × 6% × 3/12) = KRW 10,150,000. Loss on disposal of trade receivables = Book value (KRW 10,150,000) - Net proceeds (KRW 10,094,000) = KRW 56,000.

Question 5Financial accounting and transaction evidence

During a period of consistently rising purchase prices (물가상승기), which inventory valuation method produces the lowest Cost of Goods Sold (매출원가), the highest ending inventory (기말재고), and the highest net income (당기순이익), assuming inventory levels do not decline?

  1. First-In, First-Out method (FIFO / 선입선출법) Correct answer.
  2. Last-In, First-Out method (LIFO / 후입선출법)
  3. Weighted-average cost method (총평균법)
  4. Moving-average cost method (이동평균법)

Explanation

During periods of rising prices, the First-In, First-Out (FIFO) method assigns earlier, lower unit purchase costs to Cost of Goods Sold and the most recent, higher costs to ending inventory. This results in the lowest COGS, the highest ending inventory valuation, and consequently the highest reported net income.

Question 6Financial accounting and transaction evidence

On December 28, 2026, Mirae Co. purchased merchandise of KRW 5,000,000 shipped FOB shipping point (선적지인도조건). As of December 31, 2026, the goods were still in transit and not physically present in Mirae Co.'s warehouse. How should these goods in transit (미착품) be treated in Mirae Co.'s year-end financial statements?

  1. Excluded from inventory and recorded as purchases only upon warehouse arrival in January 2027
  2. Included in ending inventory but excluded from accounts payable until arrival
  3. Recorded as a contingent liability and disclosed only in the notes to financial statements
  4. Included in ending inventory and recognized as accounts payable (매입채무) on December 31, 2026 Correct answer.

Explanation

Under FOB shipping point (선적지인도조건), ownership title and risks pass to the buyer at the moment the seller delivers the goods to the shipping carrier. Therefore, goods in transit at year-end belong to Mirae Co. and must be included in ending inventory and recorded as accounts payable.

Question 7Financial accounting and transaction evidence

Goryeo Co. delivered 100 units of merchandise costing KRW 20,000 each to a consignee (수탁자) on consignment (적송품). By December 31, the consignee had sold 70 units to third-party customers for KRW 30,000 each and held 30 unsold units in its warehouse. How should Goryeo Co. account for these goods at year-end?

  1. Recognize sales revenue for 100 units because physical possession was transferred to the consignee
  2. Recognize sales revenue for 70 units and include the remaining 30 units (KRW 600,000) in Goryeo Co.'s ending inventory Correct answer.
  3. Include all 100 units in ending inventory because the consignment settlement statement was not yet finalized
  4. Recognize sales revenue for 70 units and write off the remaining 30 units as consignment sales commission expense

Explanation

In consignment sales (위탁판매), revenue is recognized only when the consignee sells the consigned goods to an external customer. Therefore, Goryeo Co. recognizes revenue for 70 units, and the 30 unsold units remaining with the consignee are legally owned by Goryeo Co. and must be included in its ending inventory at cost (30 units × KRW 20,000 = KRW 600,000).

Question 8Financial accounting and transaction evidence

At the end of 2026, Taeyang Co. holds 500 units of Product A in stock. The acquisition cost per unit is KRW 10,000. Due to market decline, the estimated selling price per unit is KRW 9,200, and estimated selling costs are KRW 400 per unit. Under the lower of cost or net realizable value (LCM / 저가법) rule, what is the inventory valuation loss (재고자산평가손실) to be recognized?

  1. KRW 400,000
  2. KRW 200,000
  3. KRW 600,000 Correct answer.
  4. KRW 800,000

Explanation

Net Realizable Value (NRV / 순실현가능가치) = Estimated Selling Price - Estimated Selling Costs = KRW 9,200 - KRW 400 = KRW 8,800 per unit. Valuation loss per unit = Cost (KRW 10,000) - NRV (KRW 8,800) = KRW 1,200 per unit. Total valuation loss = 500 units × KRW 1,200 = KRW 600,000.

Question 9Financial accounting and transaction evidence

Under General Corporate Accounting Standards (일반기업회계기준), how should inventory shrinkage loss (재고자산감모손실) and inventory valuation loss (재고자산평가손실) be classified in the income statement?

  1. Normal shrinkage loss and valuation loss are included in Cost of Goods Sold (매출원가); abnormal shrinkage loss is classified as non-operating expense (영업외비용) Correct answer.
  2. Both normal and abnormal shrinkage losses are included in Cost of Goods Sold; valuation loss is classified as non-operating expense
  3. All inventory shrinkage losses and valuation losses are classified as selling and administrative expenses (판매비와관리비)
  4. Valuation loss is treated as other comprehensive income; normal shrinkage is treated as Cost of Goods Sold

Explanation

Under K-GAAP, normal inventory shrinkage loss (정상감모손실) and inventory valuation loss (재고자산평가손실) are treated as components of Cost of Goods Sold (매출원가). In contrast, abnormal shrinkage loss (비정상감모손실) resulting from theft, mishandling, or disasters is classified as non-operating expense (영업외비용).

Question 10Financial accounting and transaction evidence

Baekdu Co. reported book inventory of 1,000 units at a unit cost of KRW 2,000. A physical stocktake revealed 950 actual units on hand. Management determined that 30 units of the shortage was normal shrinkage, and 20 units was abnormal shrinkage. Furthermore, the net realizable value of the remaining units was KRW 1,800 per unit. What is the total addition to Cost of Goods Sold (매출원가) arising from normal shrinkage and valuation loss?

  1. KRW 100,000
  2. KRW 190,000
  3. KRW 210,000
  4. KRW 250,000 Correct answer.

Explanation

Normal shrinkage loss = 30 units × KRW 2,000 = KRW 60,000 (added to COGS). Abnormal shrinkage loss = 20 units × KRW 2,000 = KRW 40,000 (non-operating expense). Valuation loss applies to the actual remaining 950 units: 950 units × (KRW 2,000 - KRW 1,800) = KRW 190,000 (added to COGS). Total addition to Cost of Goods Sold = KRW 60,000 + KRW 190,000 = KRW 250,000.

Question 11Financial accounting and transaction evidence

In 2025, Namsan Co. wrote down inventory with an original cost of KRW 1,000,000 to its net realizable value of KRW 800,000, recognizing an inventory valuation loss of KRW 200,000. At the end of 2026, due to market recovery, the net realizable value of this remaining inventory increased to KRW 1,150,000. How much reversal of inventory valuation loss (재고자산평가손실환입) should Namsan Co. recognize in 2026?

  1. KRW 350,000
  2. KRW 200,000 Correct answer.
  3. KRW 150,000
  4. KRW 0

Explanation

Under General Corporate Accounting Standards, when circumstances that previously caused inventory to be written down below cost no longer exist, the write-down is reversed. However, the reversal is strictly capped at the original historical cost. Therefore, the reversal cannot exceed the prior write-down of KRW 200,000, bringing the inventory carrying amount back to its original cost of KRW 1,000,000.

Question 12Financial accounting and transaction evidence

Under General Corporate Accounting Standards, when trade receivables (매출채권) are transferred or factored to a financial institution, under which condition should the transaction be accounted for as a sale (매각거래) rather than a collateralized borrowing (차입거래)?

  1. When the transferor retains the obligation to repurchase the receivables at a fixed price upon maturity
  2. When the transferee does not have the practical ability to sell or pledge the transferred receivables
  3. When substantially all the risks and rewards of ownership are transferred and the transferor retains no effective control over the transferred assets Correct answer.
  4. Whenever cash consideration is received, regardless of recourse provisions or default guarantees

Explanation

For a transfer of financial assets to be derecognized as a sale (매각거래), the transferor must surrender control over the contractual rights that comprise the financial asset, and substantially all risks and rewards of ownership must be transferred to the transferee without a repurchase obligation.

Question 13Financial accounting and transaction evidence

On October 15, 2026, a flood destroyed the entire warehouse of Halla Co. The company's records showed: beginning inventory on January 1 of KRW 2,000,000, net purchases up to October 15 of KRW 8,000,000, and net sales up to October 15 of KRW 12,000,000. Halla Co.'s historical gross profit margin on sales (매출총이익률) has consistently been 25%. Salvaged damaged goods can be sold for KRW 300,000. Using the gross profit method (매출총이익률법), what is the estimated inventory flood loss?

  1. KRW 700,000 Correct answer.
  2. KRW 1,000,000
  3. KRW 1,700,000
  4. KRW 2,000,000

Explanation

Cost of goods available for sale = Beginning inventory (KRW 2,000,000) + Net purchases (KRW 8,000,000) = KRW 10,000,000. Estimated COGS = Net sales × (1 - Gross profit margin) = KRW 12,000,000 × (1 - 0.25) = KRW 9,000,000. Estimated inventory on hand immediately before the flood = KRW 10,000,000 - KRW 9,000,000 = KRW 1,000,000. Flood loss = Estimated inventory (KRW 1,000,000) - Salvage value (KRW 300,000) = KRW 700,000.

Question 14Financial accounting and transaction evidence

Which of the following costs should NOT be capitalized as part of the acquisition cost of machinery (기계장치의 취득원가)?

  1. Import customs duties (관세) and non-refundable acquisition taxes
  2. Freight and insurance incurred during transportation to the factory
  3. Advertising and opening ceremony expenses incurred to launch the new production line Correct answer.
  4. Site preparation and test run costs incurred to verify that the equipment functions properly

Explanation

Under General Corporate Accounting Standards, the acquisition cost of a tangible asset includes purchase price and all directly attributable costs incurred to bring the asset to the location and condition necessary for its intended use. Advertising, promotional events, opening ceremonies, and general administrative expenses are expensed as incurred and cannot be capitalized.

Question 15Financial accounting and transaction evidence

Dongha Co. purchased a parcel of land with an existing obsolete building for a lump sum of KRW 500,000,000 with the sole intention of immediately demolishing the old building to construct a new modern manufacturing plant. Dongha Co. incurred demolition costs of KRW 30,000,000 and received KRW 5,000,000 from the sale of salvaged scrap materials from the old building. How should these costs be accounted for?

  1. Allocate KRW 500,000,000 between land and building; record net demolition cost of KRW 25,000,000 as building disposal loss
  2. Capitalize the entire KRW 500,000,000 purchase price and the net demolition cost of KRW 25,000,000 as Land (토지) acquisition cost Correct answer.
  3. Capitalize the lump-sum price as Land, but capitalize the net demolition cost as the acquisition cost of the new building
  4. Record the net demolition cost of KRW 25,000,000 immediately as non-operating expense

Explanation

When land and an existing building are acquired with the intention of demolishing the building to prepare the land for new construction, the entire purchase price is recognized as Land (토지). Furthermore, demolition costs less proceeds from salvaged scrap (KRW 30,000,000 - KRW 5,000,000 = KRW 25,000,000) are directly attributable costs of preparing the site and must also be added to Land acquisition cost.

Question 16Financial accounting and transaction evidence

A company spent KRW 20,000,000 to replace the engine of a commercial cargo vessel, which significantly extends the vessel's useful life by 5 years and increases its fuel efficiency. By mistake, the accountant recorded this entire transaction as Repairs and Maintenance Expense (수선비). What is the effect of this accounting error on the current period's financial statements?

  1. Assets are overstated and net income is understated
  2. Assets are understated and liabilities are overstated
  3. Assets are overstated and equity is overstated
  4. Assets are understated and net income is understated Correct answer.

Explanation

An expenditure that extends an asset's useful life or improves its capacity is a capital expenditure (자본적 지출) that should be added to the asset's carrying value. Recording it as an expense (수익적 지출) causes current period expenses to be overstated, net income to be understated, and ending assets (and retained earnings) to be understated.

Question 17Financial accounting and transaction evidence

Under General Corporate Accounting Standards, how should a government grant (정부보조금) received specifically to subsidize the acquisition of depreciable equipment be presented in the statement of financial position?

  1. Presented as a deduction from the acquisition cost of the related equipment (자산차감계정) Correct answer.
  2. Recognized immediately as non-operating revenue (국고보조금수익) upon receipt of cash
  3. Recorded as an addition to capital surplus (자본잉여금) under equity
  4. Presented as a current liability under unearned revenue (선수수익) until equipment is retired

Explanation

Under K-GAAP, government grants tied to the acquisition of depreciable assets are presented as a contra-asset deduction (차감계정) from the related asset. As the asset is depreciated over its useful life, the government grant is offset against depreciation expense, matching the benefit over the asset's service period.

Question 18Financial accounting and transaction evidence

Which of the following statements regarding depreciation methods (감가상각방법) is FALSE under General Corporate Accounting Standards?

  1. The straight-line method (정액법) allocates an equal amount of depreciation expense to each period over the asset's useful life
  2. The declining balance method (정률법) applies a constant rate to the declining book value of the asset at the beginning of each period
  3. The sum-of-the-years'-digits method (연수합계법) calculates depreciation by multiplying the depreciable base by an increasing fraction each year Correct answer.
  4. The units-of-production method (생산량비례법) recognizes depreciation expense based on the expected output or usage of the asset

Explanation

The sum-of-the-years'-digits method (연수합계법) is an accelerated depreciation method that multiplies the depreciable base (Cost - Residual value) by a decreasing fraction each year (e.g., 5/15, 4/15, 3/15...), resulting in higher depreciation in early years and decreasing depreciation over time.

Question 19Financial accounting and transaction evidence

On January 1, 2025, Wonju Co. acquired manufacturing equipment for KRW 10,000,000. The estimated useful life is 5 years, residual value is KRW 500,000, and the declining balance depreciation rate is 0.451. What is the depreciation expense for Year 2 (fiscal year 2026) using the declining balance method (정률법)?

  1. KRW 4,510,000
  2. KRW 2,475,990 Correct answer.
  3. KRW 2,352,000
  4. KRW 1,900,000

Explanation

In the declining balance method, residual value is not deducted when computing annual depreciation. Year 1 (2025) depreciation = KRW 10,000,000 × 0.451 = KRW 4,510,000. Book value at beginning of Year 2 = KRW 10,000,000 - KRW 4,510,000 = KRW 5,490,000. Year 2 (2026) depreciation = KRW 5,490,000 × 0.451 = KRW 2,475,990.

Question 20Financial accounting and transaction evidence

Samhwa Co. purchased a delivery truck on January 1, 2024, for KRW 20,000,000 with an initial estimated useful life of 5 years and zero residual value, using straight-line depreciation. On January 1, 2026, after 2 years of use, Samhwa Co. revised the truck's total remaining useful life to 5 additional years (total 7 years) and residual value to KRW 2,000,000. Under K-GAAP, how should this change in accounting estimate be handled, and what is the depreciation expense for 2026?

  1. Retrospectively adjust prior years' financial statements and record depreciation of KRW 2,571,429
  2. Prospective application; depreciation expense for 2026 is KRW 2,400,000
  3. Retrospectively adjust beginning retained earnings; depreciation expense for 2026 is KRW 2,000,000
  4. Prospective application (전진법); depreciation expense for 2026 is KRW 2,000,000 Correct answer.

Explanation

A change in useful life or residual value is a change in accounting estimate (회계추정의 변경) and must be accounted for prospectively (전진법) without restating prior periods. Cost = KRW 20,000,000; annual depreciation for 2024 and 2025 = KRW 4,000,000/year. Accumulated depreciation at January 1, 2026 = KRW 8,000,000; carrying amount = KRW 12,000,000. Remaining depreciable base = KRW 12,000,000 - KRW 2,000,000 = KRW 10,000,000. New annual depreciation = KRW 10,000,000 / 5 remaining years = KRW 2,000,000.

Question 21Financial accounting and transaction evidence

On January 1, 2024, Jinheung Co. acquired a machine for KRW 30,000,000 (useful life 5 years, residual value KRW 0, straight-line method). On September 30, 2026, the company sold the machine for KRW 15,000,000 in cash. What is the gain or loss on disposal of tangible assets (유형자산처분손익) recognized on September 30, 2026?

  1. Gain on disposal of tangible assets of KRW 1,500,000 Correct answer.
  2. Loss on disposal of tangible assets of KRW 3,000,000
  3. Gain on disposal of tangible assets of KRW 3,000,000
  4. Loss on disposal of tangible assets of KRW 1,500,000

Explanation

Annual depreciation = KRW 30,000,000 / 5 = KRW 6,000,000. Depreciation for 2024 and 2025 = KRW 12,000,000. Depreciation for 2026 (Jan 1 to Sep 30 = 9 months) = KRW 6,000,000 × 9/12 = KRW 4,500,000. Total accumulated depreciation at disposal = KRW 16,500,000. Book value at disposal = KRW 30,000,000 - KRW 16,500,000 = KRW 13,500,000. Sale proceeds = KRW 15,000,000. Gain on disposal = KRW 15,000,000 - KRW 13,500,000 = Gain of KRW 1,500,000.

Question 22Financial accounting and transaction evidence

Under General Corporate Accounting Standards, when a company exchanges a tangible asset in a transaction that has commercial substance (상업적 실질), what is the primary basis for measuring the acquisition cost of the newly acquired asset?

  1. The book value of the newly acquired asset on the counterparty's balance sheet
  2. The historical cost of the asset given up plus any cash received
  3. The fair value of the asset given up (제공한 자산의 공정가치), adjusted by the amount of any cash transferred Correct answer.
  4. The appraised tax assessment value of the acquired asset

Explanation

When an exchange transaction possesses commercial substance, the acquired asset is measured at the fair value of the asset given up (제공한 자산의 공정가치) plus cash paid (or minus cash received), unless the fair value of the acquired asset is more clearly evident. Any difference between the fair value and carrying amount of the asset given up is recognized in profit or loss.

Question 23Financial accounting and transaction evidence

Which of the following statements regarding intangible assets (무형자산) is FALSE under General Corporate Accounting Standards?

  1. An intangible asset must meet identifiability (식별가능성), control (통제), and future economic benefits criteria
  2. Internally generated goodwill (내부창출 영업권) may be recognized as an intangible asset if reliably appraised by an independent valuation agency Correct answer.
  3. Goodwill acquired in a business combination (사업결합으로 취득한 영업권) is recognized as an asset and amortized over its useful life up to 20 years
  4. Patents, trademarks, and software purchased from external parties are recognized as intangible assets at their acquisition cost

Explanation

Under General Corporate Accounting Standards, internally generated goodwill (내부창출 영업권) cannot be recognized as an asset because it lacks identifiability and cannot be reliably measured separate from the enterprise as a whole. Only goodwill acquired in a business combination can be capitalized.

Question 24Financial accounting and transaction evidence

Hanmi Co. incurred research and development expenditures during 2026. Under K-GAAP, which of the following expenditures can be capitalized as Development Costs (개발비) rather than expensed as incurred?

  1. Activities aimed at obtaining new scientific knowledge and preliminary material testing
  2. Routine quality control testing during daily commercial production
  3. Formulation and design of potential alternative products in the exploration phase
  4. Costs of designing, constructing, and testing a pre-production prototype where technical feasibility, intention to complete, and future economic viability are demonstrably established Correct answer.

Explanation

Under K-GAAP, all research phase expenditures must be expensed as incurred. Development phase expenditures can be capitalized as an intangible asset (개발비) ONLY when all six strict conditions are met: technical feasibility, intention to complete, ability to use or sell, generation of probable future economic benefits, availability of resources, and reliable measurement.

Question 25Financial accounting and transaction evidence

Under General Corporate Accounting Standards, what is the default rule regarding the amortization period, amortization method, and residual value of intangible assets when no specific contract or statutory provision dictates otherwise?

  1. Amortization period cannot exceed 20 years; straight-line method if no reliable pattern exists; residual value is assumed to be zero Correct answer.
  2. Amortization period cannot exceed 40 years; declining balance method is required; residual value is 10% of cost
  3. Intangible assets are not amortized but are tested annually for impairment only
  4. Amortization period is fixed at 5 years; sum-of-the-years'-digits method is default; residual value is determined by market quote

Explanation

Under K-GAAP, the amortization period for intangible assets cannot exceed 20 years unless a longer period is clearly justified by related laws or contracts. If a reliable pattern of consumption cannot be determined, the straight-line method must be adopted. Residual value is assumed to be zero unless a third party has committed to purchase the asset at the end of its useful life.

Question 26Financial accounting and transaction evidence

Which of the following obligations is NOT classified as a current liability (유동부채) on the balance sheet as of December 31, 2026?

  1. Trade accounts payable (외상매입금) due in 60 days
  2. Current portion of long-term borrowings (유동성장기부채) maturing in September 2027
  3. A 3-year bank loan maturing in December 2029 for which the company has no refinancing agreement Correct answer.
  4. Accrued salaries (미지급급여) and unearned rent revenue (선수임대료) to be earned within the next 12 months

Explanation

A 3-year bank loan maturing in December 2029 (three years away) is classified as a non-current liability (비유동부채). Liabilities that are expected to be settled within one year from the reporting date or within the normal operating cycle are classified as current liabilities.

Question 27Financial accounting and transaction evidence

Under General Corporate Accounting Standards, when must a company recognize a provision (충당부채) on the statement of financial position rather than merely disclosing a contingent liability (우발부채) in the notes?

  1. When an outflow of economic resources is remotely possible and the amount can be roughly guessed
  2. When a present obligation exists as a result of a past event, an outflow of resources is probable (가능성이 매우 높음), and a reliable estimate of the obligation can be made Correct answer.
  3. Whenever the company is named as a defendant in any legal lawsuit, regardless of probability of loss
  4. Only when a final court judgment has been rendered and execution order delivered

Explanation

Under K-GAAP, a provision (충당부채) must be recognized if and only if: (1) an entity has a present obligation (legal or constructive) resulting from a past event; (2) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (3) a reliable estimate can be made of the amount of the obligation. If outflow is only possible, it is disclosed as a contingent liability.

Question 28Financial accounting and transaction evidence

Pyeonghwa Co. began offering a 1-year warranty on all products sold starting in 2026. During 2026, total product sales were KRW 100,000,000. Based on industry statistics, warranty repair costs are estimated at 3% of sales. Actual warranty repair costs incurred and paid in cash during 2026 were KRW 1,200,000. What is the balance of the product warranty provision (판매보증충당부채) on the balance sheet at December 31, 2026?

  1. KRW 3,000,000
  2. KRW 1,200,000
  3. KRW 4,200,000
  4. KRW 1,800,000 Correct answer.

Explanation

Total warranty expense recognized for 2026 = Sales × 3% = KRW 100,000,000 × 3% = KRW 3,000,000. Actual repairs incurred during the year reduced the provision: (Debit) Product Warranty Provision KRW 1,200,000 / (Credit) Cash KRW 1,200,000. Ending warranty provision balance = KRW 3,000,000 - KRW 1,200,000 = KRW 1,800,000.

Question 29Financial accounting and transaction evidence

When a company issues 3-year bonds payable with a stated coupon rate of 5% at a time when the prevailing market effective interest rate is 7%, what is the relationship between the issuance price and face value, and how is the discount accounted for?

  1. The bonds are issued at a discount (할인발행); the discount on bonds payable (사채할인발행차금) is presented as a contra-liability deducting from bonds payable face value Correct answer.
  2. The bonds are issued at a premium (할증발행); the premium is presented as an addition to bonds payable face value
  3. The bonds are issued at face value (액면발행); the interest rate difference is recognized immediately as an expense
  4. The bonds are issued at a discount; the discount is recognized immediately as non-operating expense in the year of issue

Explanation

When the market effective interest rate (7%) exceeds the contractual coupon interest rate (5%), investors will only purchase the bonds at a price below face value, resulting in a discount issuance (할인발행). Under K-GAAP, discount on bonds payable (사채할인발행차금) is recorded as a contra-liability account deducting from bonds payable and is amortized over the bond term using the effective interest method.

Question 30Financial accounting and transaction evidence

On January 1, 2026, Ilshin Co. issued 3-year bonds with a face value of KRW 10,000,000 and an annual coupon rate of 5% (payable annually on December 31) for KRW 9,475,800. The effective market interest rate at issuance was 7%. Using the effective interest method (유효이자율법), what is the bond discount amortization (사채할인발행차금 상각액) and interest expense (이자비용) for the year ended December 31, 2026?

  1. Interest expense KRW 500,000; Amortization KRW 0
  2. Interest expense KRW 700,000; Amortization KRW 200,000
  3. Interest expense KRW 663,306; Amortization KRW 163,306 Correct answer.
  4. Interest expense KRW 500,000; Amortization KRW 163,306

Explanation

Interest expense = Beginning carrying amount × Effective interest rate = KRW 9,475,800 × 7% = KRW 663,306. Coupon cash interest paid = Face value × Stated rate = KRW 10,000,000 × 5% = KRW 500,000. Amortization of discount on bonds payable = Interest expense - Cash interest = KRW 663,306 - KRW 500,000 = KRW 163,306.

Question 31Financial accounting and transaction evidence

On December 31, 2026, Hansung Co. retired bonds payable with a face value of KRW 10,000,000 early by repurchasing them in the open market for KRW 9,800,000. At the time of retirement, the unamortized discount on bonds payable (사채할인발행차금 미상각잔액) was KRW 400,000. What gain or loss on bond retirement (사채상환손익) should Hansung Co. recognize?

  1. Gain on bond retirement of KRW 200,000
  2. Loss on bond retirement of KRW 200,000 Correct answer.
  3. Gain on bond retirement of KRW 400,000
  4. Loss on bond retirement of KRW 600,000

Explanation

Carrying amount of the bonds = Face value - Unamortized discount = KRW 10,000,000 - KRW 400,000 = KRW 9,600,000. Redemption repurchase price = KRW 9,800,000. Gain/Loss on bond redemption = Carrying amount (KRW 9,600,000) - Redemption price (KRW 9,800,000) = Loss on retirement of KRW 200,000.

Question 32Financial accounting and transaction evidence

Under General Corporate Accounting Standards, equity is divided into five distinct sections: Capital Stock (자본금), Capital Surplus (자본잉여금), Capital Adjustments (자본조정), Accumulated Other Comprehensive Income (기타포괄손익누계액), and Retained Earnings (이익잉여금). Which of the following items is correctly classified as Capital Surplus (자본잉여금)?

  1. Treasury stock (자기주식)
  2. Discount on stock issuance (주식할인발행차금)
  3. Unrealized gains on available-for-sale securities (매도가능증권평가이익)
  4. Gain on capital reduction (감자차익) and gain on disposal of treasury stock (자기주식처분이익) Correct answer.

Explanation

Capital Surplus (자본잉여금) includes equity increases from capital transactions beyond par value, namely: Paid-in capital in excess of par (주식발행초과금), Gain on capital reduction (감자차익), and Gain on disposal of treasury stock (자기주식처분이익).

Question 33Financial accounting and transaction evidence

Yongsan Co. retired 1,000 shares of its own common stock (par value KRW 5,000 per share) that had previously been reacquired as treasury stock at KRW 4,200 per share. What is the correct journal entry to record this retirement of treasury stock (자기주식의 소각)?

  1. (Debit) Common Stock KRW 5,000,000 / (Credit) Treasury Stock KRW 4,200,000, Gain on Capital Reduction KRW 800,000 Correct answer.
  2. (Debit) Common Stock KRW 5,000,000 / (Credit) Treasury Stock KRW 4,200,000, Gain on Disposal of Treasury Stock KRW 800,000
  3. (Debit) Treasury Stock KRW 4,200,000, Loss on Capital Reduction KRW 800,000 / (Credit) Common Stock KRW 5,000,000
  4. (Debit) Common Stock KRW 4,200,000 / (Credit) Treasury Stock KRW 4,200,000

Explanation

When treasury stock is retired (cancelled), Common Stock (자본금) is always debited at its legal par value (1,000 shares × KRW 5,000 = KRW 5,000,000), and Treasury Stock is credited at its acquisition cost (1,000 shares × KRW 4,200 = KRW 4,200,000). The excess of par value over acquisition cost represents an increase in capital from capital reduction, credited to Gain on Capital Reduction (감자차익 KRW 800,000), a capital surplus account.

Question 34Financial accounting and transaction evidence

Under General Corporate Accounting Standards, which of the following is NOT a required criterion for recognizing revenue from the sale of goods (재화의 판매)?

  1. The enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods
  2. Full cash consideration has been collected and deposited into the company's designated bank account Correct answer.
  3. The enterprise retains neither continuing managerial involvement nor effective control over the goods sold
  4. The amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the enterprise

Explanation

Under the accrual basis of K-GAAP, cash collection is not a condition for revenue recognition. Revenue from sales of goods is recognized when risks and rewards are transferred, effective control is surrendered, revenue is reliably measurable, and economic benefits are probable, regardless of whether cash has been received or a trade receivable is recorded.

Question 35Financial accounting and transaction evidence

On January 1, 2026, Geumgang Co. sold heavy industrial machinery under a 3-year long-term installment sale contract (장기할부판매) for three equal annual payments of KRW 10,000,000 due each December 31 (nominal total KRW 30,000,000). The cash sales price of the machinery on the delivery date was KRW 24,868,500 (present value at market interest rate 10%). How should Geumgang Co. recognize revenue and interest income for 2026 under K-GAAP?

  1. Recognize Sales Revenue of KRW 24,868,500 on delivery date January 1, and recognize Interest Income of KRW 2,486,850 for 2026 Correct answer.
  2. Recognize Sales Revenue of KRW 10,000,000 each year as installments are collected, with zero interest income
  3. Recognize Sales Revenue of KRW 30,000,000 on delivery date January 1, and no interest income over the 3 years
  4. Recognize Sales Revenue of KRW 24,868,500, but defer all interest income until the final installment is paid

Explanation

Under K-GAAP, when goods are sold on long-term installment terms, sales revenue is recognized at the delivery date measured at the present value of the installment payments (cash sales price of KRW 24,868,500). The difference between the total nominal amount (KRW 30,000,000) and present value is recorded as Present Value Discount (현재가치할인차금) and recognized as Interest Income over the installment period using the effective interest method: Year 1 interest income = KRW 24,868,500 × 10% = KRW 2,486,850.

Question 36Financial accounting and transaction evidence

Which of the following statements regarding the preparation and presentation of the Statement of Financial Position (재무상태표) is FALSE under General Corporate Accounting Standards?

  1. Assets and liabilities must generally be presented in the order of liquidity (유동성배열법), listing more liquid items first
  2. Assets and liabilities must be presented in gross amounts (총액주의); offsetting assets against liabilities is prohibited unless specifically permitted
  3. Assets and liabilities must be classified as current or non-current based on the 1-year rule or normal operating cycle
  4. Capital surplus (자본잉여금) and capital adjustments (자본조정) may be netted against each other and reported as a single summary line item Correct answer.

Explanation

Under K-GAAP, the five components of equity (Capital Stock, Capital Surplus, Capital Adjustments, AOCI, and Retained Earnings) represent legally and economically distinct categories and must be presented separately; netting capital surplus against capital adjustments is strictly prohibited.

Question 37Financial accounting and transaction evidence

Under General Corporate Accounting Standards, how should a change in accounting policy (회계정책의 변경) vs a change in accounting estimate (회계추정의 변경) be accounted for?

  1. Both accounting policy changes and accounting estimate changes are applied prospectively
  2. Accounting policy changes are applied retrospectively (소급법) by adjusting beginning retained earnings, whereas accounting estimate changes are applied prospectively (전진법) Correct answer.
  3. Accounting policy changes are applied prospectively, whereas accounting estimate changes are applied retrospectively
  4. Both accounting policy changes and accounting estimate changes require restating all prior years' income statements

Explanation

Under K-GAAP Chapter 5, changes in accounting policies (such as changing inventory cost flow from weighted average to FIFO) are applied retrospectively (소급법) by adjusting comparative prior periods and the beginning balance of retained earnings. Conversely, changes in accounting estimates (such as changing bad debt percentages or asset useful lives) are applied prospectively (전진법) affecting only the current and future periods.

Question 38Earned income, withholding and settlement

Which of the following items is EXCLUDED from earned income (근로소득) under the Korean Income Tax Act (소득세법)?

  1. Performance bonuses and overtime premiums paid by the employer
  2. Retirement income (퇴직소득) received upon severance of employment Correct answer.
  3. Stock option exercise gains realized while employed at the company
  4. Housing allowances paid in cash to executive officers

Explanation

Under the Korean Income Tax Act, retirement income (퇴직소득) resulting from severance or retirement is classified as a separate category of income subject to scheduled separate taxation (분류과세), and is not included in earned income (근로소득) or global income (종합소득).

Question 39Earned income, withholding and settlement

During May 2026, an employee received the following monthly compensation items from their employer: Base salary KRW 3,500,000; Position allowance KRW 300,000; Meal allowance KRW 250,000 (company does not provide meals); Self-driving subsidy KRW 300,000 (employee uses own car for business pursuant to policy); Childcare allowance KRW 200,000 (for 4-year-old child). What is the employee's monthly taxable earned wage (과세대상 급여액)?

  1. KRW 4,550,000
  2. KRW 4,000,000
  3. KRW 3,950,000 Correct answer.
  4. KRW 3,800,000

Explanation

Total gross compensation = KRW 3,500,000 + 300,000 + 250,000 + 300,000 + 200,000 = KRW 4,550,000. Non-taxable items: Meal allowance non-taxable up to KRW 200,000 (taxable excess = KRW 50,000); Self-driving subsidy non-taxable up to KRW 200,000 (taxable excess = KRW 100,000); Childcare allowance non-taxable up to KRW 200,000 (taxable excess = KRW 0). Total non-taxable items = KRW 200,000 + KRW 200,000 + KRW 200,000 = KRW 600,000. Taxable earned wage = KRW 4,550,000 - KRW 600,000 = KRW 3,950,000.

Question 40Earned income, withholding and settlement

When an employer withholds income tax from regular monthly wages using the Simplified Tax Table for Earned Income (근로소득 간이세액표), which two factors are used to look up the withholding tax amount?

  1. Total length of company service and annual bonus percentage
  2. Monthly taxable earned wage amount (월급여액) and number of qualifying dependents (공제대상 가족수) Correct answer.
  3. Employee's total assets and spouse's annual income
  4. Credit card usage in the preceding month and medical expense receipts

Explanation

The Simplified Tax Table for Earned Income (간이세액표) specifies monthly withholding tax amounts based on: (1) the employee's monthly taxable earned wage (excluding non-taxable income); and (2) the number of qualifying dependents for basic personal deductions.

Question 41Earned income, withholding and settlement

What is the statutory filing and payment deadline for the Monthly Withholding Tax Return (원천징수이행상황신고서) under the Korean Income Tax Act?

  1. By the last day of the month in which the salary was paid
  2. Within 15 days following the end of each quarter
  3. By the 10th day of the month immediately following the month in which the income was paid (지급일이 속하는 달의 다음 달 10일까지) Correct answer.
  4. Together with the annual corporate tax return on March 31

Explanation

Under Article 128 of the Income Tax Act, withholding agents must remit withheld income taxes and submit the Withholding Tax Return (원천징수이행상황신고서) to the competent tax office by the 10th day of the month following the month in which the income was paid.

Question 42Earned income, withholding and settlement

What is the primary purpose and mechanism of Year-End Tax Settlement (연말정산) for wage earners under the Korean Income Tax Act?

  1. To audit corporate tax returns of the employer
  2. To assess whether an employee is eligible for state pension benefits
  3. To accurately compute the final annual individual income tax liability on total earned income, compare it against the cumulative taxes withheld monthly during the year, and collect the deficit or refund the excess Correct answer.
  4. To transfer an employee's personal tax obligations permanently to the employer

Explanation

Year-end tax settlement (연말정산) is the statutory process conducted in February where an employer calculates an employee's definitive annual income tax liability based on actual annual income, family deductions, and tax credits, and reconciles this against the sum of monthly taxes withheld under the Simplified Tax Table, issuing a refund or withholding additional tax.

Question 43Earned income, withholding and settlement

An employee's 2026 year-end tax settlement produces the following final figures: Calculated tax (산출세액) of KRW 2,500,000; Earned income tax credit (근로소득세액공제) of KRW 660,000; Special tax credits (insurance, medical, education) of KRW 540,000; Total income tax already withheld monthly during 2026 (기납부세액) of KRW 1,800,000. What is the employee's final tax settlement result (차감징수 또는 환급세액)?

  1. Additional tax payment of KRW 500,000
  2. Tax refund of KRW 500,000 (차감환급세액 KRW 500,000) Correct answer.
  3. Tax refund of KRW 700,000
  4. Additional tax payment of KRW 1,300,000

Explanation

Determined annual tax liability (결정세액) = Calculated tax - Tax credits = KRW 2,500,000 - KRW 660,000 (earned income credit) - KRW 540,000 (special tax credits) = KRW 1,300,000. Final settlement amount = Determined tax (KRW 1,300,000) - Already withheld tax (KRW 1,800,000) = -KRW 500,000. Because the tax already withheld exceeds the final determined tax liability by KRW 500,000, the employee receives a tax refund of KRW 500,000.

Question 44Value-added tax, invoices and transaction classification

Under the Korean Value-Added Tax Act (부가가치세법), what constitutes a taxable 'supply of goods' (재화의 공급)?

  1. Transfer of goods based on all contractual or legal grounds, including sales, exchanges, auctions, and expropriation Correct answer.
  2. Offering real estate or inventory as collateral (물적 담보 제공) to secure a bank loan
  3. Transferring an entire business as a going concern (포괄적 사업양도) including all assets and liabilities
  4. Payment of local inheritance or gift taxes in kind (상속세 및 증여세의 물납) using commercial real estate

Explanation

Under Article 9 of the Value-Added Tax Act, the supply of goods is defined as the transfer of goods based on all contractual or legal grounds (sales contracts, barter exchanges, auctions, compulsory expropriations). Offering collateral, comprehensive business transfer, and payment of taxes in kind are statutory non-supplies (재화의 공급으로 보지 않는 것).

Question 45Value-added tax, invoices and transaction classification

Which of the following transactions is legally NOT considered a supply of goods (재화의 공급으로 보지 아니하는 것) under Article 10 of the Korean Value-Added Tax Act?

  1. Transferring merchandise under a consignment sale contract where the consignee has completed sales to consumers
  2. Delivering goods under a 2-year conditional sales contract upon satisfaction of terms
  3. Selling factory machinery through an auction pursuant to the Civil Execution Act (민사집행법에 따른 경매)
  4. Comprehensive transfer of all business rights, assets, and liabilities as a going concern (사업의 포괄적 양도) Correct answer.

Explanation

The Korean Value-Added Tax Act explicitly provides that a comprehensive transfer of a business (사업의 포괄적 양도), provision of collateral, and payment of taxes in kind are not considered taxable supplies of goods, because the transferee simply steps into the shoes of the transferor.

Question 46Value-added tax, invoices and transaction classification

Which of the following transactions is classified as a taxable supply of services (용역의 공급) under the Korean Value-Added Tax Act?

  1. Leasing an unregistered farmland parcel for agricultural cultivation
  2. Leasing an apartment unit exclusively for permanent residential living purposes (주택임대용역)
  3. Leasing commercial office space and retail storefronts (상가건물 임대용역) Correct answer.
  4. Providing self-directed employee training services within a registered school

Explanation

Leasing commercial real estate (상가건물 임대용역) is a taxable supply of services subject to the standard 10% VAT. In contrast, the lease of residential housing (주택임대용역) and the lease of agricultural land are tax-exempt supplies (면세) under the VAT Act.

Question 47Value-added tax, invoices and transaction classification

Under the deemed supply (간주공급) rules of the Korean Value-Added Tax Act, in which of the following cases is an enterprise deemed to have made a taxable supply of goods?

  1. Distributing promotional merchandise samples (견본품) free of charge to prospective corporate buyers
  2. Using company-manufactured inventory goods as fuel or parts for small passenger cars not used directly for business (비영업용 소형승용차), where input tax was deducted at purchase Correct answer.
  3. Providing required occupational protective workwear, safety goggles, and helmets to factory floor workers
  4. Transferring inventory between warehouses located within the same registered business place

Explanation

When an enterprise uses manufactured or purchased goods (for which input tax was originally deducted) for non-business small passenger cars, self-supply for exempt business, or personal use, it is treated as a deemed supply (자가공급). Distributing product samples, providing safety workwear, and moving goods within the same business place are statutory exclusions from deemed supply.

Question 48Value-added tax, invoices and transaction classification

Samyang Co. operates a manufacturing factory in Incheon and a direct sales showroom in Seoul as separate registered business establishments (각각 별도 사업장). Incheon factory transfers finished goods to Seoul showroom exclusively for sales purposes (판매목적 타사업장 반출). Incheon factory has NOT applied for consolidated business place payment (주사업장 총괄납부) or business unit taxation (사업자단위과세). How is this transfer treated under the VAT Act?

  1. Treated as a deemed supply of goods (간주공급); Incheon factory must issue a tax invoice to Seoul showroom at acquisition cost (or manufacturing cost) Correct answer.
  2. Exempt from VAT because both locations belong to the same legal corporate entity
  3. Treated as a zero-rated supply of goods requiring no tax invoice
  4. Treated as a supply of services subject to deemed rent calculation

Explanation

Under Article 10 of the VAT Act, transferring goods to another business establishment of the same enterprise for sales purposes (판매목적 타사업장 반출) is deemed a taxable supply of goods, and a tax invoice must be issued (generally at cost) to prevent tax deferral, unless the company is under consolidated payment or business unit taxation.

Question 49Value-added tax, invoices and transaction classification

A sole proprietor registered for VAT closed down their business on September 30, 2026. On the closure date, the business held depreciable machinery acquired on October 10, 2025, for KRW 20,000,000 (VAT input tax of KRW 2,000,000 was fully deducted). Under the deemed supply upon closure (폐업시 잔존재화) rule, what is the VAT tax base for this remaining machinery, assuming a depreciation rate of 25% per 6-month tax period?

  1. KRW 20,000,000
  2. KRW 15,000,000
  3. KRW 5,000,000
  4. KRW 10,000,000 Correct answer.

Explanation

For depreciable assets (other than buildings), the statutory deemed tax base upon closure = Acquisition cost × [1 - (25% × Number of elapsed taxable periods)]. Acquisition date October 10, 2025 is in the 2nd period of 2025. Elapsed periods: 2nd period of 2025 (1 period) and 1st period of 2026 (1 period) = 2 elapsed periods. (The closure occurs in the 2nd period of 2026, which is the period of closure itself and not counted as elapsed). Deemed tax base = KRW 20,000,000 × [1 - (25% × 2)] = KRW 20,000,000 × 50% = KRW 10,000,000.

Question 50Value-added tax, invoices and transaction classification

Which of the following items is DEDUCTED from total sales value when calculating the VAT tax base (부가가치세 과세표준)?

  1. Sales incentives paid in cash to distributors (판매장려금)
  2. Sales allowances (매출에누리), sales returns (매출환입), and prompt payment cash discounts (매출할인) Correct answer.
  3. Losses from bad debts (대손금)
  4. Late payment penalties and default penalty interest (연체이자)

Explanation

Under Article 29 of the VAT Act, sales allowances (매출에누리), sales returns (매출환입), and early settlement cash discounts (매출할인) are directly deducted from gross sales to determine the taxable supply value (tax base). Sales incentives, bad debts, and repair warranty deposits are NOT deducted from the tax base.