Advanced Accounting – 20 Difficult Questions & Answers
1. Which of the following events requires recognition of a liability under accrual
accounting?
A) Signing a purchase agreement with no delivery
B) Payment in advance for future services
C) Receiving goods before the invoice is issued
D) Discussing terms of a future transaction
✅ Correct Answer: C
2. Under IFRS, how are biological assets generally measured?
A) Historical cost
B) Lower of cost or market
C) Amortized cost
D) Fair value less costs to sell
✅ Correct Answer: D
3. Which of the following is not considered a component of other comprehensive
income (OCI)?
A) Unrealized gains on available-for-sale financial assets
B) Foreign currency translation differences
C) Gains from revaluation of property, plant and equipment
D) Interest revenue from investments
✅ Correct Answer: D
4. Which method is required for inventory valuation under IFRS when inventory is
interchangeable?
A) LIFO
B) FIFO or weighted average
C) Specific identification only
D) Retail method
✅ Correct Answer: B
5. A contingent liability should be recognized in the financial statements when:
A) It is possible but not probable
B) It is remote
C) It is probable and measurable
D) It is disclosed in the notes
✅ Correct Answer: C
6. Which of the following is a primary limitation of the historical cost concept?
A) Subjectivity in valuation
B) Overstates assets during inflation
C) Reflects current market values
D) Violates the matching principle
✅ Correct Answer: B
7. Which financial statement is most directly linked to the balance sheet through
retained earnings?
A) Cash Flow Statement
B) Income Statement
C) Statement of Financial Position
D) Notes to the Accounts
✅ Correct Answer: B
8. Under the equity method, how is the investor’s share of investee’s profit recorded?
A) As dividend income
B) As an increase in investment account
C) As other income
D) As deferred revenue
✅ Correct Answer: B
9. A company issues bonds at a discount. Over the bond's life, the carrying value of the
bond will:
A) Increase toward face value
B) Decrease below issue price
C) Stay constant
D) Increase above face value
✅ Correct Answer: A
10. Which of the following would result in an increase in cash flow from financing
activities?
A) Purchase of treasury stock
B) Dividend payment
C) Issuance of common stock
D) Payment of bond interest
✅ Correct Answer: C
11. Impairment testing of goodwill is required under IFRS:
A) Annually and when indicators of impairment exist
B) Only if the market value of shares decreases
C) Only when assets are sold
D) At management’s discretion
✅ Correct Answer: A
12. Which of the following accounting treatments is not permitted under IFRS?
A) Revaluation of intangible assets
B) Use of LIFO method for inventory
C) Fair value measurement of financial instruments
D) Capitalization of borrowing costs
✅ Correct Answer: B
13. The matching principle requires that:
A) Revenue be recognized when cash is received
B) Expenses be recognized in the same period as the revenue they help generate
C) Assets equal liabilities
D) Transactions be recorded in cash terms
✅ Correct Answer: B
14. What is the primary objective of segment reporting?
A) To eliminate intercompany transactions
B) To measure tax liabilities
C) To provide information about different business units
D) To value intangible assets
✅ Correct Answer: C
15. Which of the following items would not be capitalized into the cost of a fixed asset?
A) Purchase price
B) Installation cost
C) Interest on a loan used to acquire the asset
D) Maintenance cost incurred after installation
✅ Correct Answer: D
16. Under the revaluation model for PPE (Property, Plant and Equipment), increases in
fair value are:
A) Always recorded as revenue
B) Recognized in OCI
C) Ignored unless asset is sold
D) Taken to retained earnings
✅ Correct Answer: B
17. Which accounting treatment is correct for software development costs under IFRS?
A) Expensed as incurred
B) Capitalized during research phase
C) Capitalized only in the development phase if criteria are met
D) Deferred until the product is sold
✅ Correct Answer: C
18. What is the effect of overstating ending inventory on net income?
A) No effect
B) Understates net income
C) Overstates net income
D) Has no effect on balance sheet
✅ Correct Answer: C
19. Which ratio best measures a company's ability to cover interest with its operating
income?
A) Quick ratio
B) Return on equity
C) Times interest earned
D) Debt-to-equity ratio
✅ Correct Answer: C
20. In a statement of cash flows prepared using the indirect method, depreciation is:
A) Added back to net income
B) Deducted from net income
C) Reported as an investing activity
D) Ignored
✅ Correct Answer: A