Financial Reporting and Accounting
The Financial Reporting and Accounting domain tests whether you can apply the SLFRS/LKAS framework to prepare, adjust and interpret general-purpose financial statements, not merely recall definitions. Questions often combine a measurement issue with a disclosure or ratio consequence.
Core measurement rules
- Apply the Conceptual Framework: recognise an asset only when control, probable economic benefits and measurable cost exist.
- SLFRS 15: identify the contract, separate performance obligations, determine and allocate the transaction price on relative standalone selling prices, then recognise revenue when control transfers.
- SLFRS 16: a lessee recognises a right-of-use asset and lease liability at the present value of lease payments; short-term and low-value exemptions are optional.
- SLFRS 9: classify financial assets by business model and contractual cash-flow characteristics; impairment uses expected credit losses.
- LKAS 2: inventory is measured at the lower of cost and net realisable value, item by item.
- LKAS 12: deferred tax is recognised on temporary differences between carrying amount and tax base.
Worked example
A contract bundles equipment with a standalone selling price of LKR 900,000 and installation with a standalone price of LKR 300,000 for a total price of LKR 1,000,000. Allocate the discount proportionately: equipment LKR 1,000,000 × 900/1,200 = LKR 750,000; installation LKR 250,000. Recognise equipment revenue when control passes. Recognise installation revenue as the service is performed if installation is separately identifiable; if it is not, account for the combined performance obligation.
Traps
Treating a principal as an agent; ignoring the constraint on variable consideration; expensing lease initial direct costs; substituting tax payable for deferred tax; netting inventory classes when NRV is lower for only one class.