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CA Sri Lanka Strategic Level Exam study materials
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CA Sri Lanka Strategic Level Exam practice questions

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Question 1Corporate Reporting

Under LKAS 1, which basis of presentation must an entity apply when preparing general purpose financial statements?

  1. Historical cost basis for all assets and liabilities without exception
  2. Cash basis because it best reflects liquidity
  3. Tax basis prescribed by the Inland Revenue Act
  4. Going concern basis unless management intends to liquidate or cease trading Correct answer.

Explanation

LKAS 1 requires financial statements to be prepared on a going concern basis unless management either intends to liquidate the entity or cease trading, or has no realistic alternative but to do so. When that assumption is inappropriate, the financial statements must be prepared on a different basis and that fact disclosed. Cash and tax bases do not satisfy the accrual and fair presentation requirements of LKAS 1.

Question 2Corporate Reporting

An entity changes an accounting policy that is required by a new SLFRS and applies it retrospectively. Which treatment reflects the LKAS 8 requirement when the change is material?

  1. Recognise the cumulative effect in profit or loss for the current year only
  2. Adjust the opening balance of each affected component of equity and comparative amounts as if the new policy had always applied Correct answer.
  3. Apply the new policy prospectively from the date of change without comparatives
  4. Disclose the change but leave prior year figures unchanged

Explanation

LKAS 8 requires retrospective application for voluntary changes and for changes required by a new standard where transitional provisions are silent. This means restating comparative information and adjusting opening retained earnings and other affected equity components. Prospective treatment is permitted only where retrospective application is impracticable.

Question 3Corporate Reporting

Under LKAS 10, which event occurring after the reporting period requires adjustment of the financial statements?

  1. A fire destroying a major plant in the new year
  2. A major business combination announced after year end
  3. A decline in the market value of investments in the new year
  4. A court judgment after year end confirming the amount of a liability that existed at year end Correct answer.

Explanation

LKAS 10 distinguishes adjusting events, which provide evidence of conditions existing at the reporting date, from non-adjusting events. A judgment confirming a year-end obligation is an adjusting event because the liability already existed. Events such as fires, new acquisitions, and subsequent market declines reflect conditions arising after the period end.

Question 4Corporate Reporting

An entity holds a machine with carrying amount of Rs. 800,000. Its fair value less costs of disposal is Rs. 720,000 and its value in use is Rs. 750,000. Under LKAS 36, what is the impairment loss?

  1. Rs. 50,000 Correct answer.
  2. Nil
  3. Rs. 80,000
  4. Rs. 30,000

Explanation

LKAS 36 requires the recoverable amount to be the higher of fair value less costs of disposal and value in use. Here the higher amount is Rs. 750,000, so the impairment loss is Rs. 800,000 less Rs. 750,000, equal to Rs. 50,000. The loss is recognised immediately in profit or loss.

Question 5Corporate Reporting

Which item meets the LKAS 38 recognition criteria for an internally generated intangible asset?

  1. Brand-building advertising expenditure
  2. Research costs incurred before feasibility is established
  3. Costs of training staff to operate new software
  4. Development costs where technical feasibility and intention to complete are demonstrated and future benefits are probable Correct answer.

Explanation

LKAS 38 requires research expenditure to be expensed and permits capitalisation of development costs only when all specified criteria, including technical feasibility, intention and ability to complete, probable future economic benefits, and reliable measurement, are met. Advertising, training and pure research fail these criteria.

Question 6Corporate Reporting

An entity leases equipment for five years with annual payments of Rs. 1,000,000 payable in arrears. The interest rate implicit in the lease is 8%. The present value annuity factor for five years at 8% is 3.993. Under SLFRS 16, what is the initial lease liability?

  1. Rs. 5,000,000
  2. Rs. 4,000,000
  3. Rs. 3,993,000 Correct answer.
  4. Rs. 5,400,000

Explanation

SLFRS 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. Multiplying Rs. 1,000,000 by the annuity factor of 3.993 gives Rs. 3,993,000. The undiscounted total is not the measurement basis.

Question 7Corporate Reporting

Under SLFRS 15, when should an entity recognise revenue from a performance obligation satisfied over time?

  1. Only when the contract is fully completed
  2. Over time if the customer simultaneously receives and consumes benefits, or the entity creates an asset the customer controls, or the asset has no alternative use and the entity has a right to payment for progress Correct answer.
  3. When the invoice is issued to the customer
  4. When cash is received from the customer

Explanation

SLFRS 15 requires revenue to be recognised over time when any one of three criteria is met: the customer simultaneously receives and consumes benefits, the entity's performance creates or enhances an asset the customer controls, or the asset has no alternative use and the entity has an enforceable right to payment for performance completed to date. Otherwise revenue is recognised at a point in time.

Question 8Corporate Reporting

An entity grants 100 share options to each of 50 employees, vesting after three years of service. The fair value at grant date is Rs. 30 per option. All employees are expected to remain. What is the cumulative expense recognised by the end of year two?

  1. Rs. 50,000
  2. Rs. 150,000
  3. Rs. 75,000
  4. Rs. 100,000 Correct answer.

Explanation

Under SLFRS 2, the total fair value of the award is 100 options x 50 employees x Rs. 30, equal to Rs. 150,000, recognised over the three-year vesting period. By the end of year two, two-thirds of the total expense, Rs. 100,000, is recognised cumulatively. The grant-date fair value is not subsequently remeasured.

Question 9Corporate Reporting

Under LKAS 12, how should a deferred tax asset arising from unused tax losses be recognised?

  1. Never recognise until the losses are actually utilised
  2. Recognise to the extent that it is probable that future taxable profit will be available against which the losses can be used Correct answer.
  3. Recognise in full regardless of future profitability
  4. Recognise only when approved by the tax authority

Explanation

LKAS 12 requires a deferred tax asset for unused tax losses to be recognised only to the extent that it is probable that future taxable profits will be available against which the unused losses can be utilised. The assessment considers the existence of taxable temporary differences and the likelihood of future taxable profits.

Question 10Corporate Reporting

A parent owns 80% of a subsidiary. During the year the parent sold goods to the subsidiary for Rs. 500,000 at a gross profit margin of 25%, and half of those goods remain in the subsidiary's inventory at year end. What is the unrealised profit to be eliminated on consolidation?

  1. Rs. 100,000
  2. Rs. 50,000
  3. Rs. 62,500 Correct answer.
  4. Rs. 125,000

Explanation

The unrealised profit is the profit element remaining in inventory at the reporting date. Total profit on the sale is 25% of Rs. 500,000, equal to Rs. 125,000, and only half the goods remain in inventory, so the unrealised profit eliminated is Rs. 62,500. This adjustment is made in full against group profit regardless of the non-controlling interest.

Question 11Corporate Reporting

Under LKAS 21, at which exchange rate should a foreign currency monetary item be translated at the reporting date?

  1. The closing rate at the reporting date Correct answer.
  2. The forward rate for the next reporting period
  3. The average rate for the reporting period
  4. The historical rate at the transaction date

Explanation

LKAS 21 requires foreign currency monetary items to be translated using the closing rate at the reporting date, with resulting exchange differences recognised in profit or loss. Non-monetary items measured at historical cost use the exchange rate at the transaction date. Average rates are only appropriate for translating results of foreign operations over a period.

Question 12Corporate Reporting

Under LKAS 37, when should a provision be recognised for a pending lawsuit?

  1. When a present obligation exists from a past event, an outflow is probable, and a reliable estimate can be made Correct answer.
  2. Whenever a lawsuit has been filed against the entity
  3. Only when the court has issued a final judgment
  4. When management decides to settle the claim voluntarily

Explanation

LKAS 37 requires recognition of a provision 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. A mere lawsuit does not create a provision without those conditions being met. Where an outflow is only possible, disclosure is required instead.

Question 13Corporate Reporting

An entity measures a non-financial asset at fair value under SLFRS 13. Which valuation premise should be applied?

  1. The highest and best use of the asset from the perspective of market participants Correct answer.
  2. The carrying amount of the asset in the entity's books
  3. The current use of the asset by the entity regardless of market participants
  4. The lowest value between market price and replacement cost

Explanation

SLFRS 13 requires fair value to reflect the highest and best use of a non-financial asset from the perspective of market participants, whether or not the entity intends to use it that way. Current use is presumed to be highest and best use unless market evidence indicates otherwise. Fair value is a market-based, not entity-specific, measurement.

Question 14Corporate Reporting

Under SLFRS 9, at what amount are trade receivables without a significant financing component initially measured?

  1. Present value discounted at the market rate
  2. Transaction price Correct answer.
  3. Nominal amount plus expected credit losses
  4. Fair value plus transaction costs

Explanation

SLFRS 9 requires trade receivables without a significant financing component to be initially measured at their transaction price as defined in SLFRS 15. The expected credit loss allowance is applied subsequently under the simplified approach. Discounting and adding transaction costs are not appropriate for short-term receivables.

Question 15Corporate Reporting

An entity has a defined benefit obligation of Rs. 10 million and plan assets of Rs. 9 million at year end. During the year, remeasurement losses of Rs. 400,000 arose. Under LKAS 19, how are remeasurement losses recognised?

  1. In profit or loss immediately
  2. In other comprehensive income and not reclassified to profit or loss in later periods Correct answer.
  3. As a reduction of the plan asset balance only
  4. As an adjustment to the opening retained earnings

Explanation

LKAS 19 requires remeasurements of the net defined benefit liability, including actuarial gains and losses, to be recognised in other comprehensive income. These amounts are not subsequently reclassified to profit or loss. They may be transferred within equity.

Question 16Corporate Reporting

Which of the following best describes the purpose of the Conceptual Framework for Financial Reporting?

  1. To assist in developing consistent standards and resolving issues not covered by a specific standard Correct answer.
  2. To provide a detailed chart of accounts for entities
  3. To override the requirements of any SLFRS where a conflict arises
  4. To prescribe the format of financial statements

Explanation

The Conceptual Framework sets out the objective of general purpose financial reporting and the qualitative characteristics, elements and measurement bases. It assists standard setters in developing standards and preparers in applying judgement where no specific standard applies. It does not override the requirements of individual standards.

Question 17Corporate Reporting

A company has profit before tax of Rs. 2,000,000 and a tax rate of 30%. Non-deductible expenses total Rs. 200,000 and there is a tax-exempt income of Rs. 100,000. What is the current tax expense?

  1. Rs. 630,000 Correct answer.
  2. Rs. 600,000
  3. Rs. 570,000
  4. Rs. 660,000

Explanation

Current tax is calculated on taxable profit, which is accounting profit adjusted for non-deductible expenses and exempt income. Taxable profit is Rs. 2,000,000 plus Rs. 200,000 less Rs. 100,000, equal to Rs. 2,100,000, giving tax of Rs. 630,000 at 30%. The accounting profit multiplied by the tax rate alone ignores these permanent differences.

Question 18Corporate Reporting

Under SLFRS 5, when is a non-current asset classified as held for sale?

  1. When the asset's fair value exceeds its carrying amount
  2. When the asset is temporarily idle
  3. When management has decided to sell the asset within five years
  4. When its carrying amount will be recovered principally through a sale transaction rather than continued use and the sale is highly probable Correct answer.

Explanation

SLFRS 5 requires classification as held for sale when the carrying amount will be recovered principally through a sale rather than continuing use, and the sale is highly probable within one year. The asset is measured at the lower of carrying amount and fair value less costs to sell, and depreciation ceases. A mere intention to sell in five years does not meet the criteria.

Question 19Corporate Reporting

Which of the following is a related party of an entity under LKAS 24?

  1. A government department that collects taxes from the entity
  2. A customer that purchases 2% of the entity's output
  3. A key management personnel of the entity Correct answer.
  4. A trade union representing the entity's employees

Explanation

LKAS 24 defines related parties to include key management personnel and their close family members, subsidiaries, associates, joint ventures, and entities under common control. Ordinary customers, trade unions and tax authorities are not related parties solely by virtue of those relationships.

Question 20Corporate Reporting

An entity has an investment in an associate over which it has significant influence. Under LKAS 28, how should the investment be accounted for in the consolidated financial statements?

  1. At cost less impairment
  2. By full consolidation line by line
  3. At fair value through profit or loss
  4. Using the equity method Correct answer.

Explanation

LKAS 28 requires investments in associates to be accounted for using the equity method in consolidated financial statements. The investment is initially recognised at cost and adjusted thereafter for the investor's share of post-acquisition profits or losses and other comprehensive income. Full consolidation is reserved for subsidiaries.

Question 21Corporate Reporting

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

  1. Proceeds from the issue of debentures Correct answer.
  2. Receipt of dividends from an associate
  3. Payment of income tax
  4. Purchase of property, plant and equipment

Explanation

LKAS 7 classifies cash flows into operating, investing and financing activities. Proceeds from issuing debentures are financing cash flows because they relate to the entity's capital structure. Purchases of property, plant and equipment are investing, while tax payments are generally operating.

Question 22Corporate Reporting

A parent acquires 70% of a subsidiary for Rs. 7,000,000. The fair value of the subsidiary's identifiable net assets is Rs. 8,000,000. Using the proportionate method for non-controlling interest, what is the goodwill?

  1. Rs. 2,400,000
  2. Rs. 1,400,000 Correct answer.
  3. Rs. 600,000
  4. Rs. 1,000,000

Explanation

Under the proportionate method, goodwill is the consideration transferred less the parent's share of the subsidiary's identifiable net assets. The parent's share is 70% of Rs. 8,000,000, equal to Rs. 5,600,000, so goodwill is Rs. 7,000,000 less Rs. 5,600,000, equal to Rs. 1,400,000. The full goodwill method would produce a different figure.

Question 23Corporate Reporting

Under SLFRS 16, how should a lessee subsequently measure a right-of-use asset?

  1. At fair value at each reporting date
  2. At cost less accumulated depreciation and accumulated impairment losses, adjusted for remeasurement of the lease liability Correct answer.
  3. At the undiscounted future lease payments
  4. At the present value of remaining lease payments only

Explanation

SLFRS 16 requires the right-of-use asset to be measured at cost less accumulated depreciation and impairment, adjusted for remeasurements of the lease liability and certain other items. Fair value is not the subsequent measurement basis for the lessee's right-of-use asset unless the revaluation model is applied to a class of property, plant and equipment.

Question 24Corporate Reporting

Under LKAS 16, when an item of property, plant and equipment is revalued, where is a revaluation surplus recognised?

  1. In profit or loss for the year
  2. As a deferred tax asset
  3. In other comprehensive income and accumulated in equity as a revaluation reserve Correct answer.
  4. Directly in retained earnings

Explanation

LKAS 16 requires an increase in carrying amount arising from revaluation to be recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. The surplus is transferred to retained earnings as the asset is used or derecognised. A decrease is recognised in profit or loss unless it reverses a previous surplus.

Question 25Corporate Reporting

Which of the following describes the correct treatment of a government grant related to an asset under LKAS 20?

  1. Recognise the full grant in profit or loss when received
  2. Recognise the grant directly in retained earnings
  3. Recognise the grant as revenue immediately
  4. Present the grant in the statement of financial position as deferred income or deduct it from the carrying amount of the asset Correct answer.

Explanation

LKAS 20 permits two presentation approaches for grants related to assets: setting up the grant as deferred income and amortising it over the useful life, or deducting it from the carrying amount of the asset. The grant is recognised in profit or loss over the periods in which the entity recognises the related costs. Immediate recognition in full is not permitted.

Question 26Corporate Reporting

Under LKAS 10, which of the following events occurring after the reporting period would require the financial statements to be adjusted rather than merely disclosed?

  1. A decline in the market value of investments occurring after the reporting date
  2. A fire that destroyed a major production plant two weeks after the reporting date
  3. The announcement of a business combination plan after the reporting date
  4. A court judgment after the reporting date confirming the amount of a liability that existed at the reporting date Correct answer.

Explanation

LKAS 10 requires adjustment for events that provide evidence of conditions that existed at the reporting date, such as a court judgment confirming a present obligation. Events that arose after the reporting date do not change amounts already recognised but may require disclosure if material.

Question 27Corporate Reporting

An entity prepares its financial statements on a going concern basis. Which condition most directly supports that basis under LKAS 1?

  1. The entity has a positive net asset position at the reporting date
  2. The entity has obtained a bank overdraft facility that is repayable on demand
  3. The entity has reported a profit in each of the last three years
  4. The entity has adequate resources to continue in operation for at least twelve months from the reporting date Correct answer.

Explanation

LKAS 1 requires management to assess the entity's ability to continue as a going concern, considering at least twelve months from the reporting date. Adequate resources to continue operating is the substance of that assessment. Historic profits or a positive net asset position alone do not demonstrate the ability to meet obligations as they fall due.

Question 28Corporate Reporting

An entity has an asset whose carrying amount is Rs. 8,000,000. Its fair value less costs of disposal is Rs. 7,200,000 and its value in use is Rs. 7,500,000. Under LKAS 36, what is the impairment loss to be recognised?

  1. Rs. 0
  2. Rs. 800,000
  3. Rs. 500,000 Correct answer.
  4. Rs. 300,000

Explanation

LKAS 36 requires the recoverable amount to be the higher of fair value less costs of disposal and value in use, which is Rs. 7,500,000. The impairment loss is the carrying amount of Rs. 8,000,000 less the recoverable amount of Rs. 7,500,000, giving Rs. 500,000.

Question 29Corporate Reporting

Under SLFRS 8, an entity changes the presentation of a line item in its financial statements. How should the comparative information be treated?

  1. Comparative amounts are left unchanged because presentation changes apply only prospectively
  2. Comparative amounts are restated only if the auditors approve the change in advance
  3. Comparative amounts are reclassified unless reclassification is impracticable, with disclosure of the nature and amount of reclassifications Correct answer.
  4. Comparative amounts are adjusted through retained earnings without any disclosure

Explanation

SLFRS 8 requires comparative information to be reclassified when the presentation is changed, unless it is impracticable to do so. The nature of any reclassification and the amount of items reclassified must be disclosed so users can understand the change.

Question 30Corporate Reporting

An entity issues a convertible bond with a face value of Rs. 10,000,000 carrying a 5% coupon. The fair value of a similar bond without the conversion option is Rs. 9,200,000. Under LKAS 32, how is the instrument split at initial recognition?

  1. The full proceeds are recognised as a financial liability measured at amortised cost
  2. The full proceeds are recognised within equity because the instrument is convertible
  3. The liability is recognised at Rs. 9,200,000 and the equity component at Rs. 800,000 Correct answer.
  4. The liability is recognised at Rs. 10,000,000 and the conversion option is recognised as a gain in profit or loss

Explanation

LKAS 32 requires the issuer of a compound instrument to separate the liability component, measured first at the fair value of a similar instrument without the equity feature, and the equity component as the residual. Here the liability is Rs. 9,200,000 and the equity component is the residual Rs. 800,000.

Question 31Corporate Reporting

A lessor classifies a lease as a finance lease. Which indicator is most consistent with that classification under SLFRS 16?

  1. The lessee can cancel the lease at any time without penalty
  2. The lease term is for a minor part of the economic life of the underlying asset
  3. The lessor retains the risks and rewards incidental to ownership of the asset
  4. The present value of lease payments amounts to substantially all of the fair value of the underlying asset Correct answer.

Explanation

Under SLFRS 16, a lease is generally a finance lease where the present value of lease payments amounts to substantially all of the fair value of the underlying asset. Other indicators include the lease transferring ownership or covering the major part of the asset's economic life. Retaining significant risks and rewards points to an operating lease.

Question 32Corporate Reporting

An entity has a defined benefit plan. The net defined benefit liability at the start of the year is Rs. 2,000,000 and the net interest rate on that liability is 8%. Service cost for the year is Rs. 600,000 and contributions paid are Rs. 500,000. Ignoring remeasurements, what is the closing net defined benefit liability?

  1. Rs. 2,160,000
  2. Rs. 2,260,000 Correct answer.
  3. Rs. 2,760,000
  4. Rs. 2,100,000

Explanation

Under LKAS 19, net interest on the net defined benefit liability is recognised in profit or loss, calculated as 8% of Rs. 2,000,000, giving Rs. 160,000. The closing liability is Rs. 2,000,000 plus service cost Rs. 600,000 plus net interest Rs. 160,000 less contributions Rs. 500,000, giving Rs. 2,260,000.

Question 33Corporate Reporting

An entity recognises a provision for restructuring. Which cost may be included in the restructuring provision under LKAS 37?

  1. Costs of relocating or redeploying continuing staff
  2. Future operating losses expected from the continuing operations
  3. Costs of retraining staff who will be retained in the continuing business
  4. Directly attributable incremental costs of terminating leases as part of the restructuring Correct answer.

Explanation

LKAS 37 permits a restructuring provision to include only the direct expenditures arising from the restructuring that are necessarily entailed and not associated with ongoing activities. Incremental costs of terminating a lease are of that nature. Retraining, relocation of continuing staff and future operating losses are excluded.

Question 34Corporate Reporting

An entity holds a 25% interest in an associate and applies the equity method. During the year the associate pays a dividend of Rs. 400,000 to the investor. How is that dividend treated in the investor's separate financial statements prepared under LKAS 28?

  1. As a reduction of the carrying amount of the investment Correct answer.
  2. As dividend income in profit or loss
  3. As a reduction of the share of the associate's other comprehensive income
  4. As a direct adjustment to retained earnings

Explanation

Under the equity method, the investor's share of the associate's profit already increases the carrying amount, so a dividend received reduces the investment carrying amount. Recognising dividend income as well would double count the associate's results.

Question 35Corporate Reporting

Which item is presented within other comprehensive income rather than in profit or loss under SLFRS 9?

  1. Dividend income on a held-for-trading equity investment
  2. Interest income on a financial asset measured at amortised cost
  3. Gains on a debt instrument measured at fair value through other comprehensive income Correct answer.
  4. Gains on a financial asset measured at fair value through profit or loss

Explanation

Under SLFRS 9, changes in fair value of a debt instrument measured at fair value through other comprehensive income are recognised in other comprehensive income. Financial assets measured at fair value through profit or loss and at amortised cost recognise the corresponding income and gains in profit or loss.

Question 36Corporate Reporting

A parent holds 60% of a subsidiary and disposes of a 10% interest, reducing its holding to 50% but retaining control. How should the transaction be accounted for in the consolidated financial statements?

  1. As a change in accounting policy applied retrospectively
  2. As a remeasurement of the retained interest to fair value
  3. As an equity transaction with no gain or loss recognised in profit or loss Correct answer.
  4. As a disposal giving rise to a gain or loss in profit or loss

Explanation

Under SLFRS 10, a change in ownership interest that does not result in loss of control is accounted for as an equity transaction. The difference between the consideration and the change in the non-controlling interest is recognised in equity and no gain or loss arises.

Question 37Corporate Reporting

An entity's functional currency is the Sri Lankan rupee and it reports in US dollars. During the year a machine was purchased for USD 200,000 when the exchange rate was Rs. 300 to USD 1. Under LKAS 21, how is the machine translated when presenting the financial statements in US dollars?

  1. At the average rate for the reporting period
  2. At the rate at which the reporting entity expects to settle the amount
  3. At the closing rate at the reporting date
  4. At the exchange rate at the date of purchase, giving USD 200,000 Correct answer.

Explanation

LKAS 21 requires non-monetary assets measured at historical cost to be translated at the exchange rate at the date of the transaction. Translating the group's results from the functional currency into the presentation currency uses the closing rate only for assets and liabilities, but the machine's cost remains its historical amount translated at the transaction date rate.

Question 38Corporate Reporting

Under SLFRS 13, an entity estimates the fair value of a vacant land parcel. Which technique is most consistent with the hierarchy requirement that fair value be based on observable market data where available?

  1. Use of the land's original purchase price adjusted for general inflation
  2. Use of a discounted cash flow model based on the entity's internal development plans
  3. Use of management's estimate of the replacement cost of the land
  4. Use of recent observable transaction prices for comparable land in the same location Correct answer.

Explanation

SLFRS 13 gives priority to Level 1 and Level 2 inputs and requires observable market data to be used where available. Recent observable transaction prices for comparable land are market-based inputs that reflect what the market would pay. Unobservable entity-specific assumptions are Level 3 inputs and are used only when observable inputs are unavailable.

Question 39Corporate Reporting

An entity has a taxable temporary difference of Rs. 3,000,000 at a tax rate of 30%. The entity expects to reverse the difference over two years, with the rate confirmed as 25% for the first year and 30% for the second. Which amount of deferred tax liability is most consistent with LKAS 12?

  1. Rs. 825,000 measured using the average of the two expected rates
  2. Rs. 900,000 measured at the rate expected to apply when the liability is settled Correct answer.
  3. Rs. 0 because the difference will reverse in future periods
  4. Rs. 750,000 measured at the rate expected to apply in the first reversal year

Explanation

LKAS 12 requires deferred tax to be measured at the tax rates expected to apply when the asset is realised or the liability is settled, based on enacted or substantively enacted rates. The liability is therefore measured using the rates expected to apply to the periods of reversal, not simply the current rate or a single forecast year's rate.

Question 40Corporate Reporting

An entity's financial statements contain a material uncertainty related to going concern, but the going concern basis remains appropriate and the disclosures are adequate. How should the auditor report this under SLAuS 570?

  1. Include a separate section headed material uncertainty related to going concern without modifying the opinion Correct answer.
  2. Disclaim an opinion because the outcome of the uncertainty is unknown
  3. Issue an adverse opinion because the going concern basis is used
  4. Include an emphasis of matter paragraph only if management requests it

Explanation

SLAuS 570 requires the auditor to include a separate section under the heading material uncertainty related to going concern when the disclosures are adequate. The opinion is not modified because the going concern basis remains appropriate and the disclosures are sufficient.

Question 41Strategic Business Management

Under Porter's generic strategy framework, a firm that sells a standardised product to a broad market and competes primarily on price is pursuing which strategy?

  1. Differentiation
  2. Cost leadership Correct answer.
  3. Differentiation focus
  4. Cost focus

Explanation

Cost leadership targets a broad market with an acceptable product at the lowest cost, achieved through scale, efficiency and tight cost control. Focus strategies restrict the target to a narrow segment, while differentiation competes on perceived uniqueness rather than price.

Question 42Strategic Business Management

In the BCG growth-share matrix, a business unit with high market growth and a high relative market share is classified as a:

  1. Dog
  2. Star Correct answer.
  3. Cash cow
  4. Question mark

Explanation

A star holds a high share in a fast-growing market, so it typically generates and consumes large cash flows and merits investment. Cash cows are high share in slow growth, question marks low share in fast growth, and dogs low share in slow growth.

Question 43Strategic Business Management

Ansoff's product-market matrix identifies four growth directions. Selling existing products to new customers in a new geographic market is best described as:

  1. Market development Correct answer.
  2. Product development
  3. Market penetration
  4. Diversification

Explanation

Market development takes the existing product offer into new markets, such as new geographies or new customer segments. Penetration grows within existing markets, product development creates new products, and diversification changes both product and market.

Question 44Strategic Business Management

Which element of the PESTLE framework addresses interest rates, inflation and exchange-rate movements affecting a firm's planning?

  1. Legal
  2. Political
  3. Social
  4. Economic Correct answer.

Explanation

The economic layer of PESTLE covers macroeconomic variables such as interest rates, inflation, taxation and currency movements. These directly shape demand, input costs and financing costs in strategic plans.

Question 45Strategic Business Management

According to Mendelow's power-interest matrix, a stakeholder with high power but low interest should normally be managed by:

  1. Keeping them satisfied with minimal but adequate engagement Correct answer.
  2. Keeping them informed with detailed reports
  3. Making the greatest effort to engage them fully
  4. Monitoring them with minimal effort

Explanation

High-power, low-interest stakeholders can block strategy, so the aim is to keep them satisfied without overloading them with detail. Low-power, low-interest parties are merely monitored, while high-power, high-interest parties are key players requiring full engagement.

Question 46Strategic Business Management

In the cultural web model, the stories, symbols, rituals and routines of an organisation are best described as:

  1. The paradigm, which is the core set of assumptions held by members
  2. The behavioural manifestations that reveal the existing paradigm Correct answer.
  3. Formal control systems that prescribe required behaviour
  4. Elements of the external competitive environment

Explanation

The cultural web places the paradigm at the centre, surrounded by stories, symbols, power structures, routines, rituals and control systems that express it. The visible artefacts and behaviours are the observable manifestations through which the paradigm can be diagnosed and changed.

Question 47Strategic Business Management

A company's value chain analysis shows that inbound logistics and outbound logistics together absorb a large share of total cost while competitors outsource them. Which action follows most directly from value chain logic?

  1. Reduce the product range to a single item
  2. Review whether logistics are a core competence or a candidate for outsourcing Correct answer.
  3. Invest more in marketing to raise brand awareness
  4. Increase the price of the product to protect margins

Explanation

Value chain analysis separates activities that create competitive advantage from those that do not, guiding decisions on which to perform internally and which to outsource. High-cost support activities that competitors handle more efficiently are candidates for external provision.

Question 48Strategic Business Management

In the resource-based view, a capability is most likely to yield sustained competitive advantage when it is:

  1. Aligned with short-term operational efficiency targets
  2. Based mainly on financial resources and cash reserves
  3. Valuable, rare, hard to imitate and not readily substitutable Correct answer.
  4. Easily imitable and widely available in the industry

Explanation

The VRIN criteria state that a resource must be valuable, rare, inimitable and non-substitutable to support sustained advantage. Cash and routine efficiency gains can be matched by rivals, so they rarely sustain advantage.

Question 49Strategic Business Management

In the five forces model, which situation most clearly raises the bargaining power of suppliers?

  1. Suppliers are few and the input is critical to the buyer's product Correct answer.
  2. Buyers can readily backward integrate into supplier activities
  3. Many substitute suppliers exist for the same input
  4. The input is a standardised commodity with low switching costs

Explanation

Supplier power rises when suppliers are concentrated, the input is important, and switching is costly. The reverse conditions, many suppliers, standardised inputs and credible backward integration by buyers, all reduce supplier leverage.

Question 50Strategic Business Management

A conglomerate decides to divest a division that no longer fits its core business. Which corporate-level decision does this primarily illustrate?

  1. Process re-engineering
  2. Operational budgeting
  3. Market segmentation
  4. Portfolio restructuring Correct answer.

Explanation

Corporate-level strategy concerns the composition of the business portfolio, including acquisitions and divestments. Divesting a non-core division is a portfolio restructuring decision aimed at focusing resources on core activities.