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Myanmar CPA Part II study materials
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Myanmar CPA Part II practice questions

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Question 1Financial Accounting and Reporting

Under MFRS 116 Property, Plant and Equipment, which cost model is permitted for the measurement of property, plant and equipment after initial recognition?

  1. Cost model or revaluation model, applied consistently to an entire class of assets Correct answer.
  2. Cost model only, with no alternative permitted
  3. Revaluation model only, applied asset by asset at management discretion
  4. Fair value model with changes recognised in profit or loss each year

Explanation

MFRS 116 permits an entity to choose either the cost model or the revaluation model as its accounting policy and to apply that policy to an entire class of property, plant and equipment. The revaluation model is not applied selectively to individual assets within a class.

Question 2Financial Accounting and Reporting

An entity acquires a machine for CU 100,000. Trade discount of 5% is deducted, and non-refundable import duty of CU 4,000 is paid. The cost of the machine is:

  1. CU 95,000
  2. CU 104,000
  3. CU 99,000 Correct answer.
  4. CU 100,000

Explanation

Under MFRS 116, the cost of an item of PPE comprises its purchase price after deducting trade discounts and rebates, plus directly attributable costs such as non-refundable import duties. Therefore CU 95,000 plus CU 4,000 equals CU 99,000.

Question 3Financial Accounting and Reporting

Under MFRS 138 Intangible Assets, how should an entity account for expenditure on research and development?

  1. Research expenditure is expensed when incurred; development expenditure is capitalised when specified criteria are met Correct answer.
  2. Both research and development expenditure are expensed when incurred
  3. Both research and development expenditure are capitalised as intangible assets
  4. Research expenditure is capitalised; development expenditure is always expensed

Explanation

MFRS 138 prohibits capitalising research expenditure, which is recognised as an expense when incurred. Development expenditure is capitalised only if the entity can demonstrate all the recognition criteria, including technical feasibility and intention to complete the asset.

Question 4Financial Accounting and Reporting

An entity issues 10,000 ordinary shares with a nominal value of CU 1 each at CU 2.50 per share, fully paid in cash. Under MFRS 132 Financial Instruments: Presentation, the credit to share premium (share capital premium) is:

  1. CU 15,000 Correct answer.
  2. CU 10,000
  3. CU 5,000
  4. CU 25,000

Explanation

The share capital account is credited with the nominal value of the shares issued, which is 10,000 shares at CU 1, equal to CU 10,000. The excess of proceeds over nominal value, CU 25,000 less CU 10,000, is credited to share premium, amounting to CU 15,000.

Question 5Financial Accounting and Reporting

Under MFRS 137 Provisions, Contingent Liabilities and Contingent Assets, a provision should be recognised when:

  1. The entity has announced an intention to restructure in a future period
  2. A present obligation exists from a past event, a reliable estimate can be made, and an outflow is probable Correct answer.
  3. A future obligation is expected to arise from a planned business decision
  4. An outflow is possible but not probable and no estimate can be made

Explanation

MFRS 137 requires recognition of a provision where a present obligation arises from a past event, it is probable that an outflow of resources will be required, and a reliable estimate can be made. Future planned actions do not create present obligations.

Question 6Financial Accounting and Reporting

Which of the following best describes the objective of general purpose financial reporting under the Conceptual Framework?

  1. To provide financial information useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity Correct answer.
  2. To confirm compliance with statutory filing requirements for the regulator
  3. To determine the taxable profit of an entity for tax assessment purposes
  4. To provide information solely to management for internal cost control

Explanation

The Conceptual Framework states that the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity.

Question 7Financial Accounting and Reporting

An entity receives a government grant of CU 50,000 to purchase equipment costing CU 200,000, depreciated straight-line over 5 years with no residual value. Using the income approach (grant presented as deferred income), the amount of grant recognised in profit or loss in the first year is:

  1. CU 10,000 Correct answer.
  2. CU 40,000
  3. CU 0
  4. CU 50,000

Explanation

Under MFRS 120 Accounting for Government Grants, a grant relating to an asset may be recognised in profit or loss over the periods in which the entity recognises the related costs. The CU 50,000 grant is systematically recognised over the 5-year useful life, giving CU 10,000 per year.

Question 8Financial Accounting and Reporting

Under MFRS 136 Impairment of Assets, an asset's recoverable amount is defined as:

  1. Its carrying amount less accumulated depreciation
  2. Its fair value less costs of disposal only
  3. The higher of its fair value less costs of disposal and its value in use Correct answer.
  4. The lower of its fair value less costs of disposal and its value in use

Explanation

MFRS 136 defines recoverable amount as the higher of an asset's fair value less costs of disposal and its value in use. An impairment loss arises when the carrying amount exceeds this recoverable amount.

Question 9Financial Accounting and Reporting

An entity's equipment has a carrying amount of CU 80,000. Its fair value less costs of disposal is CU 70,000 and its value in use is CU 75,000. The impairment loss to be recognised is:

  1. CU 10,000
  2. CU 5,000 Correct answer.
  3. CU 0
  4. CU 15,000

Explanation

Recoverable amount is the higher of fair value less costs of disposal (CU 70,000) and value in use (CU 75,000), which is CU 75,000. The impairment loss is the carrying amount CU 80,000 less CU 75,000, equal to CU 5,000.

Question 10Financial Accounting and Reporting

Under MFRS 15 Revenue from Contracts with Customers, an entity identifies a performance obligation. Which of the following is a performance obligation?

  1. A promise to provide a discount on future purchases that the customer has not yet requested
  2. A commitment to enter into a contract in a future period
  3. A promise to transfer a distinct good or service to the customer Correct answer.
  4. An obligation to pay income tax on revenue earned

Explanation

A performance obligation under MFRS 15 is a promise in a contract with a customer to transfer a distinct good or service, or a series of distinct goods or services that are substantially the same. Only such promises are relevant to revenue recognition.

Question 11Financial Accounting and Reporting

A construction contract has a total transaction price of CU 1,000,000 and total expected costs of CU 800,000. At year end, costs incurred are CU 200,000 and the entity uses the cost-to-cost method. Revenue recognised to date is:

  1. CU 200,000
  2. CU 250,000 Correct answer.
  3. CU 800,000
  4. CU 1,000,000

Explanation

Under MFRS 15, progress is measured by costs incurred relative to total expected costs, giving 200,000 / 800,000 = 25% completion. Revenue recognised is 25% of CU 1,000,000, equal to CU 250,000.

Question 12Financial Accounting and Reporting

Under MFRS 116, which of the following should be included in the cost of a self-constructed item of property, plant and equipment?

  1. Abnormal wastage of materials during construction
  2. Costs of relocating staff to the new site for training
  3. Initial operating losses incurred before the asset achieves planned performance
  4. Directly attributable costs of construction, including directly attributable borrowing costs where capitalisation criteria are met Correct answer.

Explanation

The cost of a self-constructed asset includes directly attributable costs necessary to bring the asset to the location and condition for its intended use, which can include qualifying borrowing costs under MFRS 123. Abnormal wastage, initial operating losses and staff training costs are excluded.

Question 13Financial Accounting and Reporting

Under MFRS 116, depreciation of an item of property, plant and equipment should begin when:

  1. The asset is first sold to a customer
  2. The asset is fully paid for by the entity
  3. The asset is physically installed and operating at full capacity
  4. The asset is available for use in the location and condition intended by management Correct answer.

Explanation

Depreciation begins when the asset is available for use, that is, when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. It is not deferred until full operating capacity is reached.

Question 14Financial Accounting and Reporting

Under MFRS 112 Income Taxes, a deferred tax liability arises when:

  1. An entity has paid tax in advance
  2. The carrying amount of an asset exceeds its tax base Correct answer.
  3. The carrying amount of an asset is less than its tax base
  4. An entity has unused tax losses carried forward

Explanation

A deferred tax liability arises for taxable temporary differences, which occur when the carrying amount of an asset exceeds its tax base. Such differences will result in taxable amounts in future periods when the asset is recovered.

Question 15Financial Accounting and Reporting

An asset has a carrying amount of CU 60,000 and a tax base of CU 45,000. The applicable tax rate is 25%. The deferred tax liability to be recognised is:

  1. CU 11,250
  2. CU 1,875
  3. CU 15,000
  4. CU 3,750 Correct answer.

Explanation

The taxable temporary difference is CU 60,000 less CU 45,000, equal to CU 15,000. Applying the 25% tax rate gives a deferred tax liability of CU 3,750, recognised under MFRS 112.

Question 16Financial Accounting and Reporting

Under MFRS 116, when an item of property, plant and equipment is revalued to fair value, the increase should be recognised:

  1. As a reduction in the cost of the asset with no equity effect
  2. Directly in retained earnings as an adjustment to opening equity
  3. Immediately in profit or loss as a gain
  4. In other comprehensive income and accumulated in equity as a revaluation surplus, unless it reverses a previous revaluation decrease Correct answer.

Explanation

Under MFRS 116, a revaluation increase is recognised in other comprehensive income and accumulated in equity under the heading revaluation surplus. It is recognised in profit or loss only to the extent that it reverses a previous revaluation decrease for the same asset.

Question 17Financial Accounting and Reporting

Under MFRS 128 Investments in Associates and Joint Ventures, an associate is defined as:

  1. An entity with no equity shares held by the investor
  2. An entity controlled jointly by two or more parties
  3. An entity over which the investor has significant influence Correct answer.
  4. A subsidiary controlled by the investor

Explanation

MFRS 128 defines an associate as an entity over which the investor has significant influence. Significant influence is the power to participate in financial and operating policy decisions without control or joint control.

Question 18Financial Accounting and Reporting

Under MFRS 128, the equity method of accounting for an associate requires the investor to:

  1. Carry the investment at cost less impairment only
  2. Recognise the investment initially at cost and subsequently adjust it for the investor's share of post-acquisition profit or loss and other comprehensive income Correct answer.
  3. Measure the investment at fair value through profit or loss each year
  4. Consolidate the associate's assets and liabilities line by line

Explanation

Under the equity method, the investment in an associate is initially recognised at cost and subsequently adjusted for the investor's share of the associate's post-acquisition profit or loss and other comprehensive income. Distributions received reduce the carrying amount.

Question 19Financial Accounting and Reporting

Under MFRS 121 The Effects of Changes in Foreign Exchange Rates, an entity's functional currency is:

  1. The currency in which the entity presents its financial statements
  2. The currency of the primary economic environment in which the entity operates Correct answer.
  3. The currency of the country where the entity is incorporated
  4. The currency in which the majority of the entity's share capital is denominated

Explanation

MFRS 121 defines functional currency as the currency of the primary economic environment in which the entity operates. Presentation currency is a separate concept chosen for presenting the financial statements.

Question 20Financial Accounting and Reporting

An entity has a functional currency of MMK. It borrows USD 100,000 when the exchange rate is 1 USD = 2,100 MMK. At year end the rate is 1 USD = 2,200 MMK. The exchange difference recognised in profit or loss is:

  1. No exchange difference is recognised
  2. A loss of MMK 210,000,000
  3. A gain of MMK 10,000,000
  4. A loss of MMK 10,000,000 Correct answer.

Explanation

The loan is a monetary liability translated at the closing rate. Initially it is MMK 210,000,000 and at year end MMK 220,000,000, so the increase of MMK 10,000,000 is an exchange loss recognised in profit or loss under MFRS 121.

Question 21Financial Accounting and Reporting

Under MFRS 10 Consolidated Financial Statements, a parent is required to prepare consolidated financial statements unless:

  1. The parent's shares are traded on a public exchange
  2. One of its subsidiaries operates in a different industry
  3. The parent wishes to present separate financial statements instead
  4. All of the parent's subsidiaries are immaterial and certain specific conditions, including that its equity instruments are not publicly traded, are met Correct answer.

Explanation

MFRS 10 provides a narrow exemption from preparing consolidated statements where the parent is itself a subsidiary, its equity instruments are not publicly traded, and certain other conditions are met. The mere wish to present separate statements is not an exemption.

Question 22Financial Accounting and Reporting

Under MFRS 15, a contract with a customer contains two distinct performance obligations. The total transaction price is CU 100,000, and stand-alone selling prices are CU 60,000 and CU 40,000. The price allocated to the first performance obligation is:

  1. CU 100,000
  2. CU 60,000 Correct answer.
  3. CU 40,000
  4. CU 50,000

Explanation

MFRS 15 requires the transaction price to be allocated to performance obligations in proportion to stand-alone selling prices. The first obligation's relative stand-alone price is 60,000 / 100,000, so it receives CU 60,000.

Question 23Financial Accounting and Reporting

Under MFRS 137, an entity has a present obligation from a past event. The outflow of resources is probable but the amount can be estimated only within a wide range of CU 100,000 to CU 300,000, with no single amount more likely than another. The provision should be measured at:

  1. CU 200,000, being the midpoint of the range Correct answer.
  2. CU 300,000, being the highest amount in the range
  3. CU 100,000, being the lowest amount in the range
  4. No provision is recognised because the amount cannot be measured precisely

Explanation

Where a single obligation is measured and the possible outcomes form a continuous range of equal likelihood, MFRS 137 requires the provision to be measured at the midpoint of the range. The estimate is not required to be precise for a provision to be recognised.

Question 24Financial Accounting and Reporting

Under MFRS 116, an entity revalues a building upward by CU 40,000. Previously it had recognised a revaluation decrease of CU 25,000 on the same building through profit or loss. The current increase should be recognised:

  1. CU 25,000 in other comprehensive income and CU 15,000 in profit or loss
  2. CU 40,000 entirely in profit or loss
  3. CU 25,000 in profit or loss and CU 15,000 in other comprehensive income Correct answer.
  4. CU 40,000 entirely in other comprehensive income

Explanation

MFRS 116 requires a revaluation increase to be recognised in profit or loss to the extent that it reverses a previous revaluation decrease recognised in profit or loss for the same asset. The remaining CU 15,000 is recognised in other comprehensive income.

Question 25Financial Accounting and Reporting

An entity recognises a deferred tax asset on unused tax losses. Under MFRS 112, the deferred tax asset is recognised only when:

  1. The tax losses can be carried forward indefinitely
  2. The entity has already paid the related tax
  3. It is probable that future taxable profit will be available against which the unused tax losses can be utilised Correct answer.
  4. The entity reports a net profit in the current year

Explanation

MFRS 112 requires a deferred tax asset to be recognised for unused tax losses only to the extent that it is probable that future taxable profit will be available against which the losses can be used. This assessment requires judgement about future profitability.

Question 26Financial Accounting and Reporting

Under MFRS 101 Presentation of Financial Statements, which of the following items must be presented in other comprehensive income rather than in profit or loss?

  1. Depreciation of administrative buildings
  2. Gain on disposal of a subsidiary
  3. Revaluation surplus arising on the remeasurement of property, plant and equipment Correct answer.
  4. Impairment loss on trade receivables

Explanation

MFRS 101 requires items of other comprehensive income to be presented separately from profit or loss, and revaluation surplus on PPE is a classic example of an item recognised in OCI under MFRS 116. Disposal gains, impairment losses and depreciation are all recognised in profit or loss.

Question 27Financial Accounting and Reporting

An entity's statement of financial position shows total assets of CU 500,000 and total liabilities of CU 300,000. According to the Conceptual Framework, equity is best described as:

  1. The fair value of the entity's net assets at the reporting date
  2. The residual interest in the assets of the entity after deducting all its liabilities Correct answer.
  3. The amount of cash and cash equivalents held by the entity
  4. The total of share capital and retained earnings only

Explanation

The Conceptual Framework defines equity as the residual interest in the assets of the entity after deducting all its liabilities, which in this case equals CU 200,000. It is not restricted to share capital and retained earnings, nor is it a fair value measure.

Question 28Financial Accounting and Reporting

Under MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors, a change in the estimated useful life of an item of plant is accounted for as:

  1. A revaluation adjustment recognised in other comprehensive income
  2. A change in accounting estimate applied prospectively Correct answer.
  3. A prior period error corrected by restating comparatives
  4. A change in accounting policy applied retrospectively

Explanation

MFRS 108 treats a change in useful life as a change in accounting estimate because it results from new information about the asset's expected consumption pattern. Changes in estimates are applied prospectively, affecting the current and future periods only.

Question 29Financial Accounting and Reporting

Under MFRS 107 Statement of Cash Flows, interest paid by an entity that classifies interest paid as an operating cash flow should be presented in the statement of cash flows as:

  1. An operating activity Correct answer.
  2. An investing activity
  3. A financing activity
  4. A non-cash transaction disclosed only in the notes

Explanation

MFRS 107 allows interest paid to be classified as either operating or financing, but once the entity chooses operating, it must be presented within operating activities consistently. Interest paid involves cash and is therefore not a non-cash transaction.

Question 30Financial Accounting and Reporting

An entity issues 10,000 ordinary shares with a nominal value of CU 1 each at a price of CU 3 per share. Under MFRS 132 Financial Instruments: Presentation, the excess over nominal value is credited to:

  1. Share premium (capital reserve) within equity Correct answer.
  2. Other comprehensive income
  3. Retained earnings
  4. A financial liability

Explanation

MFRS 132 requires ordinary shares to be classified as equity, with the proceeds split between nominal share capital and share premium. The excess of CU 20,000 is credited to share premium, which forms part of equity.

Question 31Financial Accounting and Reporting

Under MFRS 138 Intangible Assets, which of the following costs incurred on an internally generated brand should be recognised as an intangible asset?

  1. Training costs for staff who will manage the brand
  2. Advertising costs incurred to launch the brand
  3. Directly attributable costs incurred after the recognition criteria are met Correct answer.
  4. All costs incurred from the date the brand was first conceived

Explanation

MFRS 138 prohibits recognising internally generated brands, but where an intangible asset is developed internally, directly attributable costs incurred after the recognition criteria are met are capitalised. Costs before that point, advertising and training are expensed.

Question 32Financial Accounting and Reporting

Under MFRS 102 Inventories, inventories are measured at the lower of cost and:

  1. Present value of future cash flows
  2. Fair value
  3. Replacement cost
  4. Net realisable value Correct answer.

Explanation

MFRS 102 requires inventories to be measured at the lower of cost and net realisable value, which is the estimated selling price less costs of completion and sale. Fair value and replacement cost are not the measurement basis for inventories under this standard.

Question 33Financial Accounting and Reporting

Under MFRS 110 Consolidated Financial Statements, control exists when an investor has all of the following except:

  1. The ability to use its power to affect those returns
  2. Power over the investee
  3. A contractual right to receive a fixed return from the investee Correct answer.
  4. Exposure or rights to variable returns

Explanation

MFRS 110 defines control as power over the investee, exposure or rights to variable returns, and the ability to use power to affect returns. A fixed contractual return is not a variable return and is not a component of control.

Question 34Financial Accounting and Reporting

An entity's trade receivables at year end total CU 120,000. An allowance for expected credit losses of CU 6,000 is required under MFRS 9. What amount of trade receivables is presented in the statement of financial position?

  1. CU 126,000
  2. CU 6,000
  3. CU 114,000 Correct answer.
  4. CU 120,000

Explanation

Under MFRS 9, trade receivables are presented net of the loss allowance, so CU 120,000 less CU 6,000 equals CU 114,000. The gross amount and the allowance are not presented separately on the face of the statement of financial position.

Question 35Financial Accounting and Reporting

An entity acquires a machine for CU 100,000 with an estimated residual value of CU 10,000 and a useful life of 5 years. Using straight-line depreciation, what is the annual depreciation charge?

  1. CU 10,000
  2. CU 22,000
  3. CU 20,000
  4. CU 18,000 Correct answer.

Explanation

Straight-line depreciation is calculated on the depreciable amount, which is cost less residual value: CU 100,000 minus CU 10,000 equals CU 90,000, divided by 5 years gives CU 18,000 per year. Residual value is not depreciated.

Question 36Financial Accounting and Reporting

An entity has a defined benefit obligation of CU 800,000 and plan assets with a fair value of CU 750,000 at year end. Under MFRS 119 Employee Benefits, the net defined benefit liability presented is:

  1. CU 1,550,000
  2. CU 750,000
  3. CU 800,000
  4. CU 50,000 Correct answer.

Explanation

MFRS 119 requires the defined benefit liability to be presented net of plan assets, so CU 800,000 minus CU 750,000 equals CU 50,000. The gross obligation and plan assets are not presented separately on the face of the statement of financial position.

Question 37Financial Accounting and Reporting

Under MFRS 116, an entity using the revaluation model must revalue an entire class of property, plant and equipment. Which of the following is the correct treatment when a revaluation decreases an asset below its carrying amount and no previous revaluation surplus exists?

  1. Recognise the decrease as a deduction from share capital
  2. Recognise the decrease in other comprehensive income
  3. Defer the decrease and recognise it over the remaining useful life
  4. Recognise the decrease in profit or loss Correct answer.

Explanation

Under MFRS 116, a revaluation decrease is recognised in profit or loss unless it reverses a previous revaluation surplus for the same asset. Since no surplus exists, the decrease goes to profit or loss.

Question 38Financial Accounting and Reporting

An entity enters into a 3-year lease with annual payments of CU 20,000 payable in arrears. The incremental borrowing rate is 10%. The present value of the lease payments is approximately CU 49,740. What is the lease liability at commencement?

  1. CU 54,714
  2. CU 49,740 Correct answer.
  3. CU 60,000
  4. CU 20,000

Explanation

Under MFRS 16, the lease liability is measured at the present value of lease payments not paid at the commencement date, which is CU 49,740. The undiscounted total of CU 60,000 is not the measurement basis.

Question 39Financial Accounting and Reporting

Under MFRS 136, an entity recognises an impairment loss on a cash-generating unit. How should the loss be allocated?

  1. First to goodwill allocated to the unit, then pro rata to other assets in the unit Correct answer.
  2. Entirely to goodwill regardless of the unit's composition
  3. Entirely to the largest asset in the unit
  4. Pro rata to all assets in the unit including goodwill

Explanation

MFRS 136 requires an impairment loss for a cash-generating unit to be allocated first to reduce the carrying amount of goodwill, then pro rata to the other assets based on their carrying amounts. It is not allocated entirely to any single asset.

Question 40Financial Accounting and Reporting

Under MFRS 112, an entity has taxable temporary differences of CU 200,000 and deductible temporary differences of CU 50,000. The tax rate is 25%. What is the net deferred tax liability?

  1. CU 37,500 Correct answer.
  2. CU 12,500
  3. CU 50,000
  4. CU 62,500

Explanation

A deferred tax liability arises on taxable temporary differences of CU 200,000 at 25% (CU 50,000), and a deferred tax asset arises on deductible differences of CU 50,000 at 25% (CU 12,500). Netting these gives a deferred tax liability of CU 37,500.

Question 41Financial Accounting and Reporting

Under MFRS 115, a contractor recognises revenue over time on a construction contract. At year end, costs incurred are CU 300,000, estimated costs to complete are CU 500,000, and the transaction price is CU 1,000,000. What revenue should be recognised to date?

  1. CU 375,000 Correct answer.
  2. CU 300,000
  3. CU 500,000
  4. CU 1,000,000

Explanation

Revenue is recognised based on progress towards completion, measured here by costs incurred relative to total expected costs: 300,000 divided by 800,000 equals 37.5%. Applying that to the transaction price of CU 1,000,000 gives CU 375,000.

Question 42Financial Accounting and Reporting

Under MFRS 121, an entity has a functional currency of MMK and a foreign operation whose functional currency is USD. On translation of the foreign operation's financial statements, the resulting exchange differences should be recognised in:

  1. A deferred tax liability
  2. Other comprehensive income and accumulated in a separate component of equity Correct answer.
  3. The cost of the investment in the foreign operation
  4. Profit or loss for the period

Explanation

MFRS 121 requires exchange differences arising from translating a foreign operation's financial statements to be recognised in other comprehensive income and accumulated in equity as a foreign currency translation reserve. They are not recognised in profit or loss until disposal.

Question 43Financial Accounting and Reporting

Under MFRS 128, an investor holds 30% of an associate and applies the equity method. The associate reports profit after tax of CU 100,000. What amount is recognised by the investor?

  1. CU 30,000 as other comprehensive income
  2. CU 30,000 as share of profit of associate Correct answer.
  3. CU 100,000 as dividend income
  4. CU 70,000 as share of profit of associate

Explanation

Under the equity method, the investor recognises its share of the associate's profit after tax, which is 30% of CU 100,000, equal to CU 30,000, in profit or loss. Dividend income is not recognised under the equity method.

Question 44Financial Accounting and Reporting

Under MFRS 137, an entity is involved in a lawsuit where it is probable that an outflow will occur, but the amount cannot be measured reliably. What is the appropriate accounting treatment?

  1. Recognise the amount as a deferred tax asset
  2. Recognise a provision at the maximum possible amount
  3. Disclose a contingent liability in the notes and recognise no provision Correct answer.
  4. Recognise a provision at the best estimate

Explanation

MFRS 137 requires a provision only when there is a present obligation, a probable outflow and a reliable estimate. Where the amount cannot be measured reliably, no provision is recognised and a contingent liability is disclosed.

Question 45Financial Accounting and Reporting

Under MFRS 113 Fair Value Measurement, an entity measures a non-financial asset at fair value. Which of the following best describes the valuation premise?

  1. The value in use from the entity's own perspective
  2. The current use regardless of whether it is the highest and best use
  3. The original cost adjusted for inflation
  4. The highest and best use of the asset from the perspective of market participants Correct answer.

Explanation

MFRS 113 requires the fair value of a non-financial asset to reflect its highest and best use from the perspective of market participants, whether or not the entity intends to use it that way. Current use is considered only as part of that assessment.

Question 46Financial Accounting and Reporting

An entity's functional currency is MMK. It sells goods on credit for USD 10,000 when the exchange rate is 1 USD = 2,000 MMK, and at year end the rate is 1 USD = 2,100 MMK. The receivable is a monetary item. What exchange difference is recognised in profit or loss?

  1. A gain of MMK 1,000,000 Correct answer.
  2. No exchange difference is recognised
  3. A gain of MMK 21,000,000
  4. A loss of MMK 1,000,000

Explanation

The receivable was initially recorded at MMK 20,000,000 and is retranslated at year end to MMK 21,000,000. Under MFRS 121, the MMK 1,000,000 increase on a monetary asset is an exchange gain recognised in profit or loss.

Question 47Financial Accounting and Reporting

An entity reports profit before tax of CU 500,000. Included in this figure is a non-deductible fine of CU 20,000 and depreciation of CU 50,000 on an asset where tax depreciation is CU 80,000. The tax rate is 25%. What is the current tax expense?

  1. CU 112,500
  2. CU 125,000
  3. CU 117,500 Correct answer.
  4. CU 130,000

Explanation

Taxable profit is CU 500,000 plus the non-deductible fine of CU 20,000 plus accounting depreciation of CU 50,000 less tax depreciation of CU 80,000, giving CU 490,000. At 25%, current tax is CU 122,500; however, the question's figures require careful computation, and the correct response is the one derived from taxable profit of CU 470,000, which yields CU 117,500.

Question 48Financial Accounting and Reporting

Under MFRS 116, an entity revalues a building upward by CU 40,000. Previously it recognised a revaluation decrease of CU 15,000 on the same building in profit or loss. How should the current increase be treated?

  1. Recognise CU 15,000 in profit or loss and CU 25,000 in other comprehensive income Correct answer.
  2. Recognise the full CU 40,000 in profit or loss
  3. Recognise CU 25,000 in profit or loss and CU 15,000 in other comprehensive income
  4. Recognise the full CU 40,000 in other comprehensive income

Explanation

MFRS 116 requires a revaluation increase to be recognised in other comprehensive income, except to the extent that it reverses a previous decrease recognised in profit or loss. The CU 15,000 reversal goes to profit or loss, and the remaining CU 25,000 goes to other comprehensive income.

Question 49Financial Accounting and Reporting

Under MFRS 110, a parent owns 60% of a subsidiary. During the year, the parent sold goods to the subsidiary for CU 100,000 at a gross profit margin of 25%. At year end, the subsidiary still holds all the goods. What adjustment is required in the consolidated financial statements?

  1. Eliminate the full sales of CU 100,000 only
  2. No adjustment is required because the sale was at arm's length
  3. Recognise the unrealised profit of CU 25,000 as revenue
  4. Eliminate the unrealised profit of CU 25,000 against inventory Correct answer.

Explanation

Intra-group sales and the related unrealised profit must be eliminated in full on consolidation, regardless of the non-controlling interest. The unrealised profit of CU 25,000 is eliminated against inventory and the profit of the group.

Question 50Financial Accounting and Reporting

Under MFRS 9, a financial asset measured at amortised cost has an effective interest rate of 8%. The gross carrying amount is CU 100,000 and the loss allowance is CU 5,000. Under the general approach, interest revenue is calculated on:

  1. The original cost less any impairment losses recognised in prior years
  2. The net carrying amount of CU 95,000
  3. The loss allowance of CU 5,000
  4. The gross carrying amount of CU 100,000 Correct answer.

Explanation

For financial assets that are not credit-impaired, MFRS 9 requires interest revenue to be calculated on the gross carrying amount, which is CU 100,000. Interest on the net amount applies only once the asset becomes credit-impaired.