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Kazakhstan CAP practice questions

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Question 1Financial Accounting and Reporting (IFRS)

Under IFRS, which characteristic makes financial information capable of making a difference in users' decisions, and therefore qualifies it as relevant?

  1. Comparability across reporting periods
  2. Predictive value or confirmatory value Correct answer.
  3. Timeliness of quarterly reporting
  4. Faithful representation and completeness

Explanation

Relevance under the Conceptual Framework is driven by the information's capacity to make a difference in decisions, which arises through predictive value, confirmatory value, or both. Faithful representation, comparability and timeliness are either separate qualitative characteristics or enhancing characteristics, not the determinants of relevance.

Question 2Financial Accounting and Reporting (IFRS)

An entity sells goods on 1 March with control transferring to the customer on that date, but the customer pays on 1 June. Under IFRS 15, when should revenue be recognized?

  1. On 1 March, when the performance obligation is satisfied Correct answer.
  2. On 1 June, when cash is received
  3. When the invoice is issued to the customer
  4. Ratably over the period from March to June

Explanation

IFRS 15 requires revenue to be recognized when the performance obligation is satisfied, which occurs when control of the goods transfers to the customer. The timing of payment and invoicing does not govern recognition; a receivable is recognized in the interim.

Question 3Financial Accounting and Reporting (IFRS)

Which measurement basis does IAS 16 require an entity to elect for a class of property, plant and equipment after initial recognition?

  1. Cost model only
  2. Lower of cost and net realizable value
  3. Cost model or revaluation model Correct answer.
  4. Fair value model only

Explanation

IAS 16 permits an accounting policy choice between the cost model and the revaluation model, applied consistently to an entire class of assets. The fair value model and lower-of-cost-and-NRV are not IAS 16 measurement bases for PP&E.

Question 4Financial Accounting and Reporting (IFRS)

Under IAS 2, how should inventory be measured?

  1. At the lower of cost and net realizable value Correct answer.
  2. At the higher of cost and fair value
  3. At fair value through profit or loss
  4. Always at historical cost with no write-downs

Explanation

IAS 2 requires inventories to be measured at the lower of cost and net realizable value, ensuring assets are not carried above the amount expected to be realized. Write-downs to net realizable value are recognized as an expense in the period they arise.

Question 5Financial Accounting and Reporting (IFRS)

An entity issues a financial instrument that requires the issuer to deliver a fixed number of its own equity shares in exchange for a fixed amount of cash. How is this instrument classified under IAS 32?

  1. As a compound instrument split between liability and equity
  2. As an equity instrument Correct answer.
  3. As a derivative measured at fair value through profit or loss
  4. As a financial liability

Explanation

A contract to deliver a fixed number of the entity's own equity shares for a fixed amount of cash satisfies the fixed-for-fixed criterion and is classified as equity under IAS 32. If the number of shares or the cash amount varied, the instrument would generally be a liability.

Question 6Financial Accounting and Reporting (IFRS)

Under IAS 36, what is the recoverable amount of a cash-generating unit?

  1. The higher of its fair value less costs of disposal and its value in use Correct answer.
  2. Its net selling price less expected decommissioning costs
  3. The lower of its carrying amount and its fair value
  4. Its value in use determined solely by discounted cash flows

Explanation

IAS 36 defines recoverable amount as the higher of fair value less costs of disposal and value in use. An impairment loss is recognized when the carrying amount exceeds this recoverable amount.

Question 7Financial Accounting and Reporting (IFRS)

An entity leases equipment for five years with annual payments of 100,000 payable at the end of each year, and the interest rate implicit in the lease is 5%. The present value annuity factor for five periods at 5% is 4.3295. What is the initial lease liability recognized under IFRS 16?

  1. 500,000
  2. 432,950 Correct answer.
  3. 432,950 plus the present value of any residual value guarantee
  4. 100,000 recognized each year as an expense

Explanation

IFRS 16 requires the lease liability to be measured at the present value of the lease payments not paid at the commencement date, discounted at the interest rate implicit in the lease. Multiplying 100,000 by the 4.3295 annuity factor gives 432,950.

Question 8Financial Accounting and Reporting (IFRS)

Under IAS 12, how should deferred tax assets and liabilities be measured?

  1. At the tax rates expected to apply when the asset is realized or the liability is settled Correct answer.
  2. At the tax rate in force at the reporting date only
  3. At the average tax rate over the preceding five years
  4. At the rate applicable to the entity's home jurisdiction regardless of where it operates

Explanation

IAS 12 requires deferred tax to be measured at the tax rates expected to apply in the period when the asset is realized or the liability settled, based on enacted or substantively enacted rates. Using only the current rate ignores known future rate changes.

Question 9Financial Accounting and Reporting (IFRS)

An entity has a defined benefit obligation of 1,000,000 and plan assets of 900,000 at year end. During the year, the net defined benefit liability increased by 40,000 due to actuarial losses. Under IAS 19, where are remeasurements of the net defined benefit liability recognized?

  1. As an adjustment to the cost of the related assets
  2. In other comprehensive income and not reclassified to profit or loss Correct answer.
  3. Directly in retained earnings as a prior period adjustment
  4. In profit or loss as part of employee benefit expense

Explanation

IAS 19 requires remeasurements of the net defined benefit liability, including actuarial gains and losses, to be recognized in other comprehensive income. These amounts are not subsequently reclassified to profit or loss.

Question 10Financial Accounting and Reporting (IFRS)

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

  1. It is applied retrospectively with restatement of comparatives
  2. It is applied prospectively from the date of change Correct answer.
  3. It requires disclosure of the effect on future periods only if material
  4. It is treated as a prior period error

Explanation

IAS 8 requires changes in accounting estimates to be recognized prospectively by affecting the current and future periods. Retrospective restatement is reserved for changes in accounting policy and correction of prior period errors.

Question 11Financial Accounting and Reporting (IFRS)

An entity has a 30% interest in an associate and applies the equity method under IAS 28. The associate reports profit of 200,000 for the year. What amount is recognized in the investor's profit or loss?

  1. 60,000 Correct answer.
  2. Nil, because dividends are the only recognized income
  3. 200,000
  4. 30,000

Explanation

Under the equity method, the investor recognizes its share of the associate's profit or loss, calculated as 30% of 200,000, which equals 60,000. Dividends received reduce the carrying amount of the investment rather than being recognized as income.

Question 12Financial Accounting and Reporting (IFRS)

Under IFRS 15, how should an entity allocate a transaction price that includes a discount when the contract has multiple performance obligations?

  1. Allocate the discount only to goods, never to services
  2. Recognize the discount immediately as a reduction of revenue in the period
  3. Allocate the discount entirely to the last performance obligation satisfied
  4. Allocate the discount proportionately to all performance obligations unless the criteria for allocating it to specific obligations are met Correct answer.

Explanation

IFRS 15 requires the transaction price, including any discount, to be allocated to performance obligations based on relative stand-alone selling prices. A discount is allocated entirely to specific obligations only when specified criteria about observable evidence are met.

Question 13Financial Accounting and Reporting (IFRS)

An entity changes the estimated useful life of a machine from 10 to 6 years. How should this be accounted for under IAS 8?

  1. By adjusting the opening balance of retained earnings
  2. As a change in accounting policy applied retrospectively
  3. Prospectively, by depreciating the remaining carrying amount over the revised remaining life Correct answer.
  4. Retrospectively, by restating prior years' depreciation

Explanation

A change in useful life is a change in accounting estimate and is applied prospectively. The remaining carrying amount is depreciated over the revised remaining useful life, with no restatement of prior periods.

Question 14Financial Accounting and Reporting (IFRS)

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

  1. Interest paid on a bank loan
  2. Cash received from the issue of ordinary shares
  3. Payment of dividends to shareholders
  4. Purchase of property, plant and equipment for cash Correct answer.

Explanation

IAS 7 classifies acquisition and disposal of long-term assets as investing activities. Issuing shares and paying dividends are financing activities, and interest paid may be financing or operating depending on the policy elected.

Question 15Financial Accounting and Reporting (IFRS)

An entity has a provision for a lawsuit where the amount is uncertain but a reliable estimate can be made and an outflow is probable. Under IAS 37, how should it be recognized?

  1. Disclose a contingent liability without recognizing a provision
  2. Recognize a receivable for the expected insurance recovery
  3. Recognize a provision measured at the best estimate of the expenditure required Correct answer.
  4. Recognize the provision only when the court has issued a final judgment

Explanation

IAS 37 requires recognition of a provision when a present obligation exists, an outflow is probable, and a reliable estimate can be made. The provision is measured at the best estimate of the expenditure required to settle the obligation.

Question 16Financial Accounting and Reporting (IFRS)

Under IFRS 15, when does an entity recognize revenue from a performance obligation satisfied over time?

  1. Only when the customer takes physical possession of the completed asset
  2. When the entity has received full payment in advance
  3. When the entity's performance creates or enhances an asset the customer controls, or creates an asset with no alternative use and the entity has an enforceable right to payment Correct answer.
  4. When the contract is signed and the price is fixed

Explanation

IFRS 15 requires revenue over time when one of the specified criteria is met, including customer control of the asset as it is created or an asset with no alternative use plus an enforceable right to payment. Otherwise, revenue is recognized at a point in time.

Question 17Financial Accounting and Reporting (IFRS)

Under IAS 21, an entity's functional currency is the currency of the primary economic environment in which it operates. Which factor is most directly relevant in determining functional currency?

  1. The currency in which dividends are declared to shareholders
  2. The currency that mainly influences sales prices and costs of providing goods or services Correct answer.
  3. The currency in which the share capital was originally issued
  4. The currency of the country where the entity is legally incorporated

Explanation

IAS 21 emphasizes the currency that mainly influences sales prices and the currency that mainly influences labor, material and other costs. Incorporation currency and capital issuance currency are secondary indicators, not primary determinants.

Question 18Financial Accounting and Reporting (IFRS)

A company has a machine with a carrying amount of 500,000, a fair value less costs of disposal of 420,000, and a value in use of 450,000. What impairment loss should be recognized under IAS 36?

  1. Nil, because value in use exceeds fair value less costs of disposal
  2. 50,000 Correct answer.
  3. 80,000
  4. 30,000

Explanation

Recoverable amount is the higher of fair value less costs of disposal and value in use, which is 450,000. The impairment loss is the carrying amount of 500,000 less 450,000, equal to 50,000.

Question 19Financial Accounting and Reporting (IFRS)

Under IFRS 9, how are expected credit losses on trade receivables without a significant financing component generally measured?

  1. At an amount equal to 12-month expected credit losses
  2. At the full invoice amount until collection is attempted
  3. At an amount equal to lifetime expected credit losses Correct answer.
  4. Only when the receivable becomes credit-impaired

Explanation

IFRS 9 permits the simplified approach for trade receivables, requiring lifetime expected credit losses to be recognized from initial recognition. This avoids tracking changes in credit risk for short-term receivables.

Question 20Financial Accounting and Reporting (IFRS)

An entity issues 1,000 convertible bonds with a face value of 1,000 each. The liability component is measured at 900,000 and the equity component at 100,000. How is the equity component treated under IAS 32?

  1. Amortized to profit or loss over the bond term
  2. Reclassified to retained earnings at each reporting date
  3. Recognized as a liability until conversion occurs
  4. Recognized in equity and not subsequently remeasured Correct answer.

Explanation

Under IAS 32, the equity component of a compound instrument is recognized in equity and is not subsequently remeasured. The liability component is measured at amortized cost using the effective interest method.

Question 21Financial Accounting and Reporting (IFRS)

Under IAS 40, an entity that chooses the fair value model for investment property must also do which of the following?

  1. Apply the revaluation model to owner-occupied property
  2. Disclose the fair value only in the notes while carrying at cost
  3. Depreciate the property over its useful life
  4. Recognize changes in fair value in profit or loss for the period Correct answer.

Explanation

Under the fair value model, investment property is not depreciated and changes in fair value are recognized in profit or loss. The cost model alternative requires disclosure of fair value but carries the asset at cost less depreciation.

Question 22Financial Accounting and Reporting (IFRS)

An entity acquires a subsidiary and identifies a customer list with a useful life of five years. Under IFRS 3, how is the customer list initially measured?

  1. At the present value of future expected cost savings only
  2. At fair value at the acquisition date Correct answer.
  3. At the carrying amount recorded by the acquiree
  4. At nominal value because it is an intangible asset

Explanation

IFRS 3 requires identifiable intangible assets acquired in a business combination to be recognized at fair value at the acquisition date, provided they meet the recognition criteria. The acquiree's carrying amount is irrelevant.

Question 23Financial Accounting and Reporting (IFRS)

Under IAS 33, how is diluted earnings per share calculated?

  1. By using the highest possible number of shares regardless of dilution
  2. By dividing profit by the number of shares outstanding at year end
  3. By ignoring potential ordinary shares if they are anti-dilutive
  4. By adjusting profit and the weighted average number of shares for the effects of all dilutive potential ordinary shares Correct answer.

Explanation

IAS 33 requires diluted EPS to reflect the dilution that would occur if dilutive potential ordinary shares were converted, adjusting both profit and the weighted average share count. Anti-dilutive potential shares are excluded.

Question 24Financial Accounting and Reporting (IFRS)

Under IFRS 15, how should an entity account for a contract modification that adds a distinct good at a price equal to its stand-alone selling price?

  1. As a reduction of the transaction price of existing obligations
  2. As a termination of the original contract and creation of a new one
  3. As a separate contract Correct answer.
  4. As a cumulative catch-up adjustment to revenue

Explanation

A modification that adds a distinct good or service at a price reflecting its stand-alone selling price is accounted for as a separate contract. Other modifications are treated as termination and creation of a new contract or as part of the existing contract.

Question 25Financial Accounting and Reporting (IFRS)

Under IAS 1, when does an entity classify a liability as current?

  1. Only when the liability is due within three months
  2. When it expects to settle the liability in its normal operating cycle or within twelve months after the reporting period Correct answer.
  3. When the liability arises from a financing arrangement
  4. When the entity has an unconditional right to defer settlement for at least twenty-four months

Explanation

IAS 1 classifies a liability as current when the entity expects to settle it in its normal operating cycle, it is held primarily for trading, it is due within twelve months, or there is no unconditional right to defer settlement beyond twelve months.

Question 26Financial Accounting and Reporting (IFRS)

Under IAS 2, at what amount are inventories measured in the statement of financial position?

  1. Historical cost, with no subsequent adjustment permitted
  2. Replacement cost determined at each reporting date
  3. The higher of cost and fair value less costs to sell
  4. The lower of cost and net realisable value Correct answer.

Explanation

IAS 2 requires inventories to be measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Question 27Financial Accounting and Reporting (IFRS)

Under IAS 16, how is the depreciation method for an item of property, plant and equipment selected and reviewed?

  1. It is selected to reflect the pattern of consumption of benefits and reviewed at least at each year end Correct answer.
  2. It must always be the straight-line method unless tax rules require otherwise
  3. It is reviewed only when the asset is revalued or impaired
  4. It is fixed at initial recognition and may not be changed

Explanation

IAS 16 requires the depreciation method to reflect the pattern in which the asset's future economic benefits are expected to be consumed. The method is reviewed at least at each financial year-end, and any change is accounted for as a change in accounting estimate under IAS 8.

Question 28Financial Accounting and Reporting (IFRS)

Under IFRS 16, how does a lessee initially measure a lease liability?

  1. At the present value of the lease payments not paid at the commencement date Correct answer.
  2. At the total of undiscounted lease payments over the lease term
  3. At the fair value of the underlying asset at inception
  4. At the amount of the first lease payment only

Explanation

IFRS 16 requires the lease liability to be measured at the present value of lease payments not paid at the commencement date, discounted using the interest rate implicit in the lease or the lessee's incremental borrowing rate. The right-of-use asset is then adjusted for initial direct costs and other items.

Question 29Financial Accounting and Reporting (IFRS)

Under IAS 37, when should a provision be recognised?

  1. Whenever management intends to incur future operating expenditure
  2. Only when the obligation has been settled in cash during the period
  3. When the possible outflow is remote but quantifiable
  4. When a present obligation from a past event exists, an outflow is probable, and a reliable estimate can be made Correct answer.

Explanation

IAS 37 requires recognition when a present obligation arising from a past event exists, it is probable that an outflow of resources will be required, and a reliable estimate can be made. If any of these conditions is not met, no provision is recognised.

Question 30Financial Accounting and Reporting (IFRS)

Under IAS 10, which event occurring after the reporting period would require adjustment of the financial statements?

  1. The bankruptcy of a customer whose receivable existed at the reporting date Correct answer.
  2. A business combination announced after the reporting date
  3. A decline in the market value of investments in the following period
  4. A fire that destroyed a major plant in the following period

Explanation

IAS 10 distinguishes adjusting events, which provide evidence of conditions that existed at the reporting date, from non-adjusting events. A customer's bankruptcy that confirms the receivable was impaired at year end is an adjusting event requiring the receivable to be written down.

Question 31Financial Accounting and Reporting (IFRS)

Under IAS 38, how should expenditure on research be treated?

  1. Recognised as an intangible asset if a market exists for the output
  2. Expensed when incurred, because no intangible asset can be recognised Correct answer.
  3. Capitalised and amortised over the expected period of benefit
  4. Recognised as an asset only if management approves the project

Explanation

IAS 38 prohibits recognition of an intangible asset arising from research, so research expenditure is expensed when incurred. Development expenditure may be capitalised only when all the specified recognition criteria are met.

Question 32Financial Accounting and Reporting (IFRS)

Under IAS 1, which item must be presented in other comprehensive income rather than in profit or loss?

  1. Revaluation surplus arising on property, plant and equipment under the revaluation model Correct answer.
  2. Cost of goods sold for the period
  3. Impairment loss on trade receivables
  4. Depreciation of property, plant and equipment

Explanation

IAS 1 requires items of other comprehensive income to be presented separately, and the revaluation surplus recognised under IAS 16 is an example of an item taken to other comprehensive income. Depreciation, cost of sales and receivable impairments are recognised in profit or loss.

Question 33Financial Accounting and Reporting (IFRS)

Under IAS 7, how should interest paid by a financial institution be classified in the statement of cash flows?

  1. As a financing cash flow that must be netted against interest received
  2. As an operating cash flow, because interest paid is normally classified as operating for financial institutions Correct answer.
  3. Always as an operating cash flow for every entity
  4. As an investing cash flow in all circumstances

Explanation

IAS 7 permits interest paid to be classified as operating or financing, but requires consistency. For financial institutions, interest paid and interest received are normally classified as operating cash flows because they relate to the entity's main revenue-producing activities.

Question 34Financial Accounting and Reporting (IFRS)

An entity buys equipment for 120,000 with a residual value of 20,000 and a useful life of five years, using straight-line depreciation. What is the annual depreciation charge under IAS 16?

  1. 12,000
  2. 28,000
  3. 24,000
  4. 20,000 Correct answer.

Explanation

Depreciation under IAS 16 is allocated over the useful life after deducting the residual value, so the depreciable amount is 100,000 spread over five years. This gives an annual charge of 20,000.

Question 35Financial Accounting and Reporting (IFRS)

An entity sells goods for 200,000 with a right of return permitting customers to return goods within 30 days, and it expects returns of 5%. Under IFRS 15, how much revenue is recognised at the transaction date?

  1. 190,000 Correct answer.
  2. 10,000
  3. 200,000
  4. 180,000

Explanation

IFRS 15 requires revenue to be recognised only to the extent that it is highly probable there will not be a significant reversal. The expected return of 5% (10,000) is therefore not recognised as revenue, and a refund liability is recorded.

Question 36Financial Accounting and Reporting (IFRS)

An entity issues a financial liability at a discount, and the effective interest rate exceeds the coupon rate. How does the carrying amount of the liability behave over time under IFRS 9?

  1. It decreases as the discount is amortised
  2. It remains constant until maturity
  3. It is remeasured to fair value at each reporting date
  4. It increases as interest expense accrues at the effective rate Correct answer.

Explanation

Under the amortised cost method in IFRS 9, interest expense is calculated using the effective interest rate applied to the carrying amount, and the difference from the coupon paid increases the carrying amount. The liability therefore accretes towards its face value over its life.

Question 37Financial Accounting and Reporting (IFRS)

An entity has a defined contribution plan and contributes 50,000 during the year, of which 5,000 remains unpaid at year end. What is recognised under IAS 19?

  1. An expense of 45,000 and no liability
  2. An expense of 5,000 and a liability of 50,000
  3. An expense of 50,000 and a liability of 5,000 Correct answer.
  4. An expense of 50,000 and an asset of 5,000

Explanation

Under IAS 19, the cost of a defined contribution plan is the contribution payable in exchange for service, recognised as an expense. Contributions unpaid at the reporting date are recognised as a liability, so the expense is 50,000 and the liability is 5,000.

Question 38Financial Accounting and Reporting (IFRS)

An entity holds 40% of the shares of another entity, has two of five board seats, and participates in policy decisions. How should the investment be accounted for under IAS 28?

  1. At cost, because 40% is below the control threshold
  2. As a financial asset at fair value through profit or loss
  3. Using the equity method, because significant influence is presumed at 20% or more Correct answer.
  4. By full consolidation, because the entity has control

Explanation

IAS 28 presumes significant influence when an entity holds 20% or more of the voting power, absent evidence to the contrary. Board representation and participation in policy decisions support that conclusion, so the equity method applies.

Question 39Financial Accounting and Reporting (IFRS)

An entity has taxable temporary differences of 80,000 and deductible temporary differences of 30,000, with an enacted tax rate of 20%. Assuming the deferred tax asset is recoverable, what is the net deferred tax position under IAS 12?

  1. A net deferred tax liability of 22,000
  2. A net deferred tax asset of 16,000
  3. A net deferred tax asset of 10,000
  4. A net deferred tax liability of 10,000 Correct answer.

Explanation

The taxable temporary difference creates a deferred tax liability of 16,000, and the deductible temporary difference creates a deferred tax asset of 6,000. Offsetting where the criteria are met gives a net deferred tax liability of 10,000.

Question 40Financial Accounting and Reporting (IFRS)

An entity recognises a revaluation surplus on a building of 90,000 under the IAS 16 revaluation model. What is the effect on the financial statements?

  1. An increase in profit or loss for the period
  2. An increase in other comprehensive income and in equity Correct answer.
  3. A reduction in the carrying amount of the building
  4. An increase in the deferred tax liability only

Explanation

Under IAS 16, a revaluation increase is recognised in other comprehensive income and accumulated in equity as a revaluation surplus, unless it reverses a previous revaluation decrease recognised in profit or loss. It does not increase profit for the period.

Question 41Financial Accounting and Reporting (IFRS)

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

  1. Equity, because they carry a fixed dividend rate
  2. A compound instrument split between liability and equity
  3. Contingent liability disclosed only in the notes
  4. A financial liability, because the entity has an obligation to deliver cash on redemption Correct answer.

Explanation

IAS 32 classifies an instrument as a financial liability when the issuer has an obligation to deliver cash or another financial asset. Mandatory redemption on a fixed date creates such an obligation, so the preference shares are a liability regardless of the fixed dividend rate.

Question 42Financial Accounting and Reporting (IFRS)

An entity has a machine with a carrying amount of 300,000, a fair value less costs of disposal of 250,000, and a value in use of 280,000. What impairment loss is recognised under IAS 36?

  1. 20,000 Correct answer.
  2. 30,000
  3. 0
  4. 50,000

Explanation

Recoverable amount is the higher of fair value less costs of disposal and value in use, which is 280,000. The impairment loss is the carrying amount of 300,000 less the recoverable amount of 280,000, giving 20,000.

Question 43Financial Accounting and Reporting (IFRS)

An entity pays 500,000 for 100% of a subsidiary whose identifiable net assets have a fair value of 420,000. What is recognised under IFRS 3?

  1. Goodwill of 80,000 expensed immediately
  2. A reduction of the subsidiary's net assets to 420,000
  3. Goodwill of 80,000 as an asset Correct answer.
  4. A gain on a bargain purchase of 80,000 in profit or loss

Explanation

Under IFRS 3, goodwill is the excess of the consideration transferred over the acquirer's interest in the fair value of identifiable net assets acquired. Here that is 500,000 less 420,000, giving goodwill of 80,000 recognised as an asset.

Question 44Financial Accounting and Reporting (IFRS)

An entity applies the fair value model under IAS 40 to an investment property. How is a gain from a change in fair value recognised?

  1. Only when the property is sold
  2. In other comprehensive income and accumulated in equity
  3. As a direct adjustment to retained earnings
  4. In profit or loss for the period in which it arises Correct answer.

Explanation

Under the fair value model in IAS 40, a gain or loss from a change in fair value is recognised in profit or loss in the period in which it arises. This differs from the IAS 16 revaluation model, where increases go to other comprehensive income.

Question 45Financial Accounting and Reporting (IFRS)

An entity has 100,000 of revenue-related taxable income and tax losses carried forward of 40,000, with a tax rate of 20%. Assuming recovery is probable, what is the current tax expense under IAS 12?

  1. 20,000
  2. 12,000 Correct answer.
  3. 28,000
  4. 8,000

Explanation

Taxable profit after using the losses is 60,000, so current tax at 20% is 12,000. The unused losses reduce the taxable amount in the current period rather than creating a deferred tax asset balance in this scenario.

Question 46Financial Accounting and Reporting (IFRS)

An entity reports profit before tax of 1,000,000, non-deductible expenses of 100,000, and a tax rate of 20%. What is the effective tax rate under IAS 12?

  1. 24%
  2. 20%
  3. 18%
  4. 22% Correct answer.

Explanation

Taxable profit is 1,100,000 after adding back non-deductible expenses, giving tax of 220,000. Expressed against accounting profit before tax of 1,000,000, the effective tax rate is 22%, which differs from the statutory 20%.

Question 47Financial Accounting and Reporting (IFRS)

An entity provides a free maintenance service for two years with the sale of equipment, and the standalone selling price of the service is 30,000 while the equipment's standalone price is 270,000. The total transaction price is 270,000. Under IFRS 15, how much revenue is allocated to the service?

  1. 0
  2. 30,000
  3. 27,000 Correct answer.
  4. 15,000

Explanation

The transaction price is allocated on the basis of relative standalone selling prices, giving the service 30,000 out of 300,000, or 10% of the total. Applied to the 270,000 transaction price, this gives 27,000 allocated to the service.

Question 48Financial Accounting and Reporting (IFRS)

An entity has a right-of-use asset and lease liability measured at 400,000 at commencement, a lease term of four years, and an incremental borrowing rate of 8%. Which statement about the first year's expense profile under IFRS 16 is correct?

  1. The total expense is constant each year because the lease is treated like an operating lease
  2. Interest expense is lower in earlier years because the liability declines
  3. Depreciation is calculated on the lease liability rather than the right-of-use asset
  4. Interest expense is higher in earlier years and depreciation is constant, so total expense is front-loaded Correct answer.

Explanation

Under IFRS 16, the right-of-use asset is depreciated on a straight-line basis while interest is calculated on the declining lease liability balance. Because interest is highest in the first year, the combined expense is front-loaded compared with later years.

Question 49Financial Accounting and Reporting (IFRS)

An entity has a defined benefit obligation of 2,000,000 and plan assets of 1,850,000. During the year, remeasurement gains on the obligation were 60,000 and the return on plan assets excluding interest was a loss of 20,000. How is the net remeasurement recognised under IAS 19?

  1. A net gain of 40,000 as a direct adjustment to the asset ceiling
  2. A net gain of 40,000 in profit or loss
  3. A net gain of 40,000 in other comprehensive income Correct answer.
  4. A net loss of 80,000 in other comprehensive income

Explanation

IAS 19 requires remeasurements of the net defined benefit liability, including actuarial gains and losses and the return on plan assets excluding amounts included in net interest, to be recognised in other comprehensive income. They are not recycled to profit or loss.

Question 50Financial Accounting and Reporting (IFRS)

An entity has a financial asset measured at fair value through other comprehensive income, and the cumulative fair value gain of 50,000 is reclassified on derecognition. Under IFRS 9, what is the treatment for an equity instrument designated at fair value through other comprehensive income?

  1. The cumulative gain is recognised as a deferred tax asset
  2. The cumulative gain is transferred within equity and is never reclassified to profit or loss Correct answer.
  3. The cumulative gain is reclassified to profit or loss
  4. The cumulative gain is used to adjust the cost of the asset sold

Explanation

Under IFRS 9, for equity instruments designated at fair value through other comprehensive income, gains and losses remain in other comprehensive income and are never reclassified to profit or loss, although transfers within equity are permitted. This differs from debt instruments measured at fair value through other comprehensive income, where recycling applies.