Multiple choice questions (Workings are required where necessary)
Q.1 The sources of regulation which comprise the regulatory framework for financial reporting
include:
Select one:
a) Accounting standards
b) Legislation
c) Stock exchange regulations
d) All of the above
Q.2 Standards issued by the International Accounting Standards Board (IASB) are known as:
Select one:
a) Financial Reporting Standards (FRSs)
b) International Financial Reporting Standards (IFRSs)
c) International Financial Standards (IFSs)
d) International Accounting Standards (IASs)
Q.3 One of the main advantages of standardisation in financial reporting is:
Select one:
a) The use of creative accounting practices
b) Comparability between accounting periods and between entities
c) The production of prudent financial statements
d) Increased flexibility in financial reporting
Q.4 A conceptual framework for financial reporting is:
Select one:
a) A set of principles which underpin financial reporting
b) A set of items which make up an entity's financial statements
c) A set of financial reporting standards
d) A set of regulations which govern financial reporting
Q.5 The elements of financial statements which relate to financial position are:
Select one:
a) Income and expenses
b) Assets, liabilities, income and expenses
c) Assets, liabilities and equity
d) Income, expenses and equity
Q.6 The fundamental qualitative characteristics of financial information are:
Select one:
a) Faithful representation and comparability
b) Verifiability and understandability
c) Relevance and faithful representation
d) Relevance and comparability
Q.7 Which of the following would not be included in the cost of an item of property, plant and
equipment?
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Select one:
a) Testing costs
b) Refundable value added tax
c) Delivery and installation charges
d) Site preparation costs
Q.8 Which of the following items qualifies as property, plant and equipment?
Select one:
a) A machine bought for resale to a customer
b) A machine bought for use during a single accounting period
c) Computer software bought for use in more than one accounting period
d) A machine bought for use in more than one accounting period
Q.9 On 1 January 2013, a company which prepares financial statements to 31 December each year
buys an item of equipment for £20,000. Useful life is estimated to be six years and residual value
is expected to be approximately £1,500. The company uses the diminishing balance method of
depreciation at a rate of 35% per annum. To the nearest pound, the depreciation of this item for
the year to 31 December 2014 would be:
Select one:
a) £4,550
b) £7,000
c) £3,083
d) £4,209
Q.10 On 31 December 2012, a company acquires land for £500,000. The land is revalued at
£530,000 on 31 December 2013 and £460,000 on 31 December 2014. The company prepares
financial statements to 31 December each year and uses the revaluation model in relation to land.
The correct accounting treatment of each revaluation in the statement of comprehensive income is
as follows:
Select one:
a) 2013 Other comprehensive income £30,000 2014 Negative other comprehensive income
£30,000 Expense £40,000
b) 2013 Other comprehensive income £30,000 2014 Negative other comprehensive
income £70,000
c) 2013 Income £30,000 2014 Expense £70,000
d) 2013 Other comprehensive income £30,000 2014 Expense £70,000
Q.11 The "carrying amount" of an item of property, plant and equipment generally refers to:
Select one:
a) The depreciable amount of the item
b) The amount at which the item is recognised in the financial statements
c) The cost of the item
d) The replacement cost of the item
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Q.12 The carrying amount of a CGU is £900,000. This consists of goodwill £250,000 and property,
plant and equipment £650,000. The CGU has a recoverable amount of only £520,000. How is the
impairment loss allocated between the assets of the CGU?
Select one:
a) Goodwill £250,000, PPE £130,000
b) Goodwill £nil, PPE £380,000
c) Goodwill £130,000, PPE £250,000
d) Goodwill £190,000, PPE £190,000
Q.13 Which of the following is not an internal indication of the fact that an impairment loss has
now decreased or no longer exists?
Select one:
a) A favourable change has occurred to the extent to which the asset will be used
b) There is evidence that the economic performance of the asset will be better than expected
c) A favourable change has occurred to the manner in which the asset will be used
d) The asset's market value has increased significantly
Q.14 An asset is expected to generate cash inflows of £20,000 per annum for each of the next three
years and then to be scrapped. These cash inflows will occur at the end of each year. The asset will
generate no cash outflows. Using a discounting rate of 10% per annum, what is the asset's value
in use?
Select one:
a) £49,720
b) £54,540
c) £54,000
d) £60,000
Q.15 The IAS36 definition of "corporate assets" specifically excludes goodwill. True or False?
Select one:
a) True
b) False
Q.16 Which of the following is not an external indication of impairment?
Select one:
a) An adverse change in the market in which the entity operates
b) An adverse technological change
c) The asset becoming idle
d) An unexpected decline in the asset's market value
Q.17 An asset's recoverable amount is equal to:
Select one:
a) The higher of the asset's fair value less costs of disposal and its value in use
b) The higher of the asset's value in use and its carrying amount
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c) The lower of the asset's value in use and its carrying amount
d) The lower of the asset's fair value less costs of disposal and its value in use
Q.18 An asset's carrying amount is £25,000. Its fair value less costs of disposal is £15,000 and its
value in use is £19,000. There is an impairment loss of:
Select one:
a) £4,000
b) £10,000
c) £nil
d) £6,000
Q.19 An impairment loss is:
Select one:
a) The amount by which the carrying amount of an asset exceeds its market value
b) The amount by which the recoverable amount of an asset exceeds its carrying amount
c) The amount by which the carrying amount of an asset exceeds its recoverable amount
d) The amount by which the recoverable amount of an asset exceeds its written down value
Q.20 Which of the following is not a component of a complete set of financial statements?
a) A statement of changes in equity
b) A management commentary
c) A set of notes
d) A statement of cash flows
Q.21 Which of the following would generally not be classified as a current asset?
a) An asset held for the purpose of being traded
b) A cash equivalent
c) An asset intended for consumption within the entity's normal operating cycle
d) An asset held for long-term use within the entity
Q.22 Standard IAS1 does not prescribe a format for each of the primary financial statements. True
or False
a) True
b) False
Q.23 The main purpose of the statement of changes in equity is:
a) To show an entity's assets, liabilities and equity at the end of an accounting period
b) To show an entity's income, expenses and profit for an accounting period
c) To show how each component of an entity's equity has changed during an accounting
period
d) To show an entity's total equity at the end of an accounting period
Q.24 The notes to the financial statements should provide information:
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a) About the entity's accounting policies
b) As required by international standards, if not presented elsewhere in the financial
statements
c) Which is relevant to an understanding of the financial statements
d) All of the above
Q.25 Goodwill does not fall within the IAS38 definition of an intangible asset because:
a) It is a monetary asset
b) It is not separable
c) It may not generate future economic benefits
d) None of the above
Q.26 The only way in which a parent-subsidiary relationship can be established is for the parent
company to acquire more than 50% of the ordinary shares of the subsidiary company. True or
False?
a) True
b) False
Q.27 A company's preference shareholders are not entitled to a share of the company's reserves.
True or false?
a) Tue
b) False
Q.28 G Ltd owns 90% of the ordinary share capital of H Ltd. The inventories of H Ltd on 30
November 2013 include goods purchased from G Ltd for £300,000. These goods had been sold to
H Ltd by G Ltd at a markup of 50%. The amount of unrealised profit which should be subtracted
from group inventories and from group retained earnings is:
a) £100,000
b) £90,000
c) £150,000
d) £135,000
Q.29 The difference between the end of the reporting period of a subsidiary and that of its parent
should not exceed six months. True or False?
a) True
b) False
Q.30 The definition of "inventories" given by international standard IAS2 states that items
qualify as inventories only if they are assets held for sale in the ordinary course of business or
assets in the process of production for such sale. True or False?
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a) True
b) False
Q.31. The net realisable value of inventories is defined by IAS2 as:
a) Selling price
b) Cost price
c) Selling price less costs of completion
d) Selling price less costs of completion and selling costs
Q.32 On 31 December 2017, a company has partly-completed inventory with a cost to date of
£26,300. It is expected that further costs of £8,900 will be incurred in order to complete the
inventory. It will then be sold for £47,500. Selling costs will be £2,000. The cost and the net
realisable value of this inventory at 31 December 2017 are:
a) £26,300 and £36,600
b) £26,300 and £38,600
c) £35,200 and £45,500
d) £35,200 and £47,500
Q.33 At the end of an accounting period, the cost of a company's inventory is £450,000. This
includes damaged items with a cost of £25,000 which are expected to be sold for only £10,000
(less selling expenses of 5%). All other items of inventory have a net realisable value which
exceeds cost. The amount at which the company's inventory should be recognised at the end of
the period is:
a) £450,000
b) £434,500
c) £425,000
d) £435,000
Q.34 International standard IAS37 defines a provision as:
a) A liability of uncertain timing and amount
b) A liability which is not legally enforceable
c) A liability of uncertain timing or amount
d) A reduction in the carrying amount of an asset
Q.35. In order that a provision should be recognised in an entity's financial statements, it is
necessary that:
a) The entity has a present obligation
b) The entity has a legally enforceable obligation
c) The entity has a constructive obligation
d) It is possible that an outflow of economic benefits will be required
Q.36 A past event is an obligating event only if it gives rise to a legally enforceable obligation.
True or False?
a) True
b) False
Q.37 Should a provision be recognised in relation to: (a) future operating losses? (b) onerous
contracts?
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(a) No (b) Yes
(a) Yes (b) No
(a) Yes (b) Yes
(a) No (b) No
Q.38 In general terms, a contingent liability is a possible obligation that depends upon the
outcome of a future event that is within the control of the entity. True or False?
a) True
b) False
Q.39 A company is preparing its financial statements for the year to 31 March 2018. Assuming
that each of the following events occurs after 31 March 2018 but before the financial
statements are authorised for issue, which one of them should be classified as a NON-
ADJUSTING event?
a) The sale of inventories which were held on 31 March 2018
b) A change in tax rates that is announced in April 2018 and which has a material impact on
the tax liability for the year to 31 March 2018
c) The bankruptcy of a customer who owed a substantial amount to the company at 31 March
2018
d) The discovery of a major fraud that had occurred in January 2018
Q.40 B Co acquired a non-current asset on 1 January 20X2 for $80,000. It had no residual value
and a useful life of ten years. On 1 January 20X5 the remaining useful life was reviewed and
revised to four years. What will be the depreciation charge for 20X5?
a) $12,800
b) $14,000
c) $8,000
d) $20,000