IFRS Sample Questions PDF

1. What is the authoritative status of the Framework?
A. It has the highest level of authority. In case of a conflict between the Framework and a Standard
or Interpretation, the Framework overrides the Standard or Interpretation.
B. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the

Framework. In the absence of a Standard or an Interpretation that specifically applies, the
Framework should be followed.
C. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the

Framework. In the absence of a Standard or an Interpretation that specifically applies to a
transaction, management should consider the applicability of the Framework in developing and
applying an accounting policy that result in information that is relevant and reliable.
D. The Framework applies only when IASB develops new or revised Standards. An entity is never
required to consider the Framework.
2. What is the objective of financial statements according to the Framework?
A. To provide information about the financial position, performance, and changes in financial
position of an entity that is useful to a wide range of users in making economic decisions.
B. To prepare and present a balance sheet, an income statement, a cash flow statement, and a
statement of changes in equity.
C. To prepare and present comparable, relevant, reliable, and understandable information to

investors and creditors.
D. To prepare financial statements in accordance with all applicable Standards and Interpretations.
3. Which of the following are underlying assumptions of financial statements?
A. Relevance and reliability.
B. Financial capital maintenance and physical capital maintenance.
C. Accrual basis and going concern.
D. Prudence and conservatism.

4. What are qualitative characteristics of financial statements according to the Framework?
A. Qualitative characteristics are the attributes that make the information provided in financial
statements useful to users.
B. Qualitative characteristics are broad classes of financial effects of transactions and other events.
C. Qualitative characteristics are non quantitative aspects of an entity’s position and performance
and changes in financial position.
D. Qualitative characteristics measure the extent to which an entity has complied with all relevant
Standards and Interpretations.
5. Which of the following is not a qualitative characteristic of financial statements according to the
Framework?
A. Materiality.
B. Understandability.
C. Comparability.
D. Relevance.
6. When should an item that meets the definition of an element be recognized, according to the
Framework?
A. When it is probable that any future economic benefit associated with the item will flow to or
from the entity.
B. When the element has a cost or value that can be measured with reliability
C. When the entity obtains control of the rights or obligations associated with the item.
D. When it is probable that any future economic benefit associated with the item will flow to or
from the entity and the item has a cost or value that can be measured with reliability.
7. Which of the following reports is not a component of the financial statements according to IAS
1?
A. Balance sheet.
B. Statement of changes in equity.
C. Director’s report.
D. Notes to the financial statements.
8. Andersen Inc. decided to extend its reporting period from a year (12-month period) to a 15-
month period. Which of the following is not required under IAS 1 in case of change in reporting
period?
A. Andersen Inc. should disclose the reason for using a longer period than a period of 12 months.
B. Andersen Inc. should change the reporting period only if other similar entities in the
geographical area in which it generally operates have done so in the current year; otherwise its
financial statements would not be comparable to others.
C. Andersen Inc. should disclose that comparative amounts used in the financial statements are
not entirely comparable.
9. Which of the following information is not specifically a required disclosure of IAS 1?
A. Name of the reporting entity or other means of identification, and any change in that
information from the previous year.
B. Names of major/significant shareholders of the entity.
C. Level of rounding used in presenting the financial statements.
D. Whether the financial statements cover the individual entity or a group of entities.
10. Which one of the following is not required to be presented as minimum information on the face
of the balance sheet, according to IAS 1?
A. Investment property.
B. Investments accounted under the equity method.
C. Biological assets
D. Contingent liability.
11. When an entity opts to present the income statement classifying expenses by function, which of
the following is not required to be disclosed as “additional information”?
A. Depreciation expense.
B. Employee benefits expense.
C. Director’s remuneration.
D. Amortization expense.
12. Largo Corporation prepares its financial statements in accordance with IFRS. Which of the
following items is required disclosure on the income statement?
A. Revenues, cost of goods sold, and advertising expense.
B. Finance costs, tax expense, and income.
C. Operating expenses, non-operating expenses, and ex-traordinary items.
D. Gross profit, operating profits, and net profits.
13. Which of the following may not be disclosed on the in-come statement for a company that
prepares its financial statements in accordance with IFRS?
A. Gain or loss.
B. Tax expense.
C. Gain or loss from extraordinary items.
D. Gain or loss from discontinued operations.

14. Which of the following is true about financial statement requirements under IFRS?
A. Prior year comparative financial statements are required.
B. Income statements for three years are required.
C. Balance sheets for three years are required.
D. There are no specific requirements regarding comparative financial statements.
15. Which of the following terms is used to describe an asset held for more than 12 months?
A. Non-current asset
B. Fixed asset
C. Long-term asset
D. All of the above
16. What type of asset is: – expected to be realised in the normal course of business; or – is held
primarily for trading purposes; or – is cash or a cash equivalent
A. Current asset
B. Non-current asset
C. Intangible asset
D. Long term investments
17. Accumulated profits (minus any losses) held by an entity are called:
A. Provisions
B. Equity
C. Retained earnings
D. Shareholders’ funds
18. Which of the following is a current liability?
A. Bank overdraft
B. Mortgage
C. Preference shares
D. Retained earnings
19. Which of the following is not a required disclosure under IAS 1?
A. Number of employees
B. Assets held for sale
C. Provisions
D. Intangible assets
20. Which of the following is not a component of a Statement of Financial Position?
A. Non-current assets
B. Inventories
C. Cost of goods sold
D. Retained Earnings
E. Deferred tax
21. What is another name for a share’s “nominal value”?
A. Share premium
B. Par value
C. Market value
D. Discounted value
22. How many formats are permitted for income and expense items under IAS 1?
A. One
B. Two
C. Three
D. None
23. Which of the following is not contained in the notes to the financial statements under IAS 1?
A. A statement of compliance with IFRS
B. Measurement basis used
C. Details of specific accounting policies used
D. Numbers of employees
24. Which of the following is true?
A. IAS 1 stipulates the order in which items should be presented
B. IAS 1 stipulates that material items that are different in nature must be presented separately
C. IAS 1 stipulates that material items may be aggregated
D. None of the above
25. Under IAS 1, which of the following must be disclosed on the face of the statement of financial
position?
A. Property, Plant and Equipment
B. Biological Assets
C. Provisions
D. Non-controlling interests
E. All of the above

26. Dividends per share should not be shown in…
A. Statement of Changes in Equity
B. Statement of Financial Position
C. Notes to the financial statements
27. When a company issues shares for more than their nominal amount, the excess is called…
A. Share excess
B. Share premium
C. Share markup
D. Par value
28. Where should extraordinary items appear in an entity’s Statement of Comprehensive Income?
A. Other Comprehensive Income
B. Income Statement
C. Notes
D. Nowhere
29. Which of the following is not a requirement in the financial statements under IAS 1?
A. Name of the entity
B. Whether accounts cover a single entity or a group
C. Chairman’s commentary on performance
D. The accounting period
E. Presentation currency
30. Which of the following is not a liability?
A. Government grants repayable
B. Amounts owed to shareholders as capital
C. Debentures
D. Rebates payable
31. When is offsetting permitted under IAS 1?
A. Always
B. Never
C. When required or permitted under an IFRS
D. When approved by the board of directors
32. Inventory should be stated at
A. Lower of cost and fair value.
B. Lower of cost and net realizable value.
C. Lower of cost and nominal value.
D. Lower of cost and net selling price.
E. Choices b and d.
F. Choices a and c.
G. Choices a, b, and d.
33. Which of the following costs of conversion cannot be included in cost of inventory?
A. Cost of direct labour.
B. Factory rent and utilities.
C. Salaries of sales staff (sales department shares the building with factory supervisor).
D. Factory overheads based on normal capacity.
34. Inventories are assets
A. Used in the production or supply of goods and services for administrative purposes.
B. Held for sale in the ordinary course of business.
C. Held for long-term capital appreciation.
D. In the process of production for such sale.
E. In the form of materials or supplies to be consumed in the production process or the rendering
of services.
F. Choices b and d.
G. Choices b, d, and e.
35. The cost of inventory should not include
A. Purchase price.
B. Import duties and other taxes.
C. Abnormal amounts of wasted materials.
D. Administrative overhead.
E. Fixed and variable production overhead.
F. Selling costs.
G. Choices c, d, and f.
36. FAR WEST INC. manufactures and sells paper envelopes. The stock of envelopes was included in
the closing inventory as of December 31, 2013, at a cost of $50 each per pack. During the final
audit, the auditors noted that the subsequent sale price for the inventory at January 15, 2014,
was $40 each per pack. Furthermore, inquiry reveals that during the physical stock take, a water
leakage has created damages to the paper and the glue. Accordingly, in the following week, FAR
WEST INC. spent a total of $15 per pack for repairing and reapplying glue to the envelopes. The
net realizable value and inventory write-down (loss) amount to
A. $40 and $10 respectively.
B. $45 and $10 respectively.
C. $25 and $25 respectively.
D. $35 and $25 respectively.
E. $30 and $15 respectively.
37. A company determined the following values for its inventory as of the end of its fiscal year:
Historical cost- $100,000, Current replacement cost-$70,000 ,Net realizable value-$90,000,Net
realizable value less a normal profit margin- 85,000, Fair value 95,000.Under IFRS, what amount
should the company report as inventory on its balance sheet?
A. $70,000
B. $85,000
C. $90,000
D. $95,000
38. Under IFRS, which of the following inventory items are not valued at the lower of cost or net
realizable value?
A. Manufactured inventory items.
B. Retail inventory items.
C. Biological inventory items.
D. Industrial inventory items.

39. Lippy Machines is in the business of procuring a specific type of machine and sells them to
international markets. During the year, the Company bought four machines costing $120,000,
$140,000, $130,000 and $100,000 respectively. During the year it sold only one machine for
$140,000 and follows the FIFO method of valuation. Which of the following statements is TRUE?
A. The cost of Inventory is $370,000 and the cost of sales is $100,000
B. The cost of Inventory is $390,000 and the cost of sales is $140,000
C. The cost of Inventory is $370,000 and the cost of sales is $120,000
D. The cost of Inventory is $370,000 and the cost of sales is $490,000
40. Unallocated fixed overheads may be applied to the inventory valuation at the end of the
financial period.
A. True
B. False
41. Inventory held in different geographical locations may use different cost models
A. True
B. False
42. Which of the following costs are not included while computing the cost of purchase?
A. Purchase Price
B. Recoverable taxes
C. Import duties
D. Shipping costs
43. General storage costs must be expensed
A. True
B. False
44. Shaw & Co., imported raw materials from China worth $100,000. They paid $8,000 as import
duties and $2,000 as import taxes (the import taxes were subsequently refunded by the local
government). They paid $15,000 for transportation of the materials from China and another
$2,000 as port handling charges for loading the materials at China.Marketing expenses were
$1,000 and the general administrative overheads amounted to $2,000. What will be the value of
inventories as per IAS 2?
A. $127,000
B. $125,000
C. $128,000
D. $130,000
45. The estimated selling price in the ordinary course of business less estimated cost of completion
and estimated cost of sale is called…
A. Market value
B. Fair value
C. Current value
D. Net realisable value
46. Which of the following cost models is not permitted under IAS 2?
A. First in, First out (‘FIFO’)
B. Last in, Last out (‘LIFO’)
C. Weighted Average
D. Actual cost
47. By allocating fixed factory overheads on normal production levels, low actual production levels
will result in greater fixed overhead allocation to each unit of production.
A. True
B. False
48. Treated as a deferred expense and written off based on the average inventory holding period
A. Recognised as an expense in the period in which the write-down occurs
B. Recognised as an expense in the subsequent period in which such write-down is warranted
C. Recognized as a current liability in the Balance Sheet
49. Under IAS 2, fixed production overheads should be allocated to items of inventory because of
____ production capacity.
A. Actual
B. Normal
C. Abnormal
D. Estimated
50. Wander Limited had inventory with a cost of $10,000 at the end of the financial period, 31
December 2013. It estimated the net realisable value of this inventory was $9,000 at 31
December. One week later, the inventory was sold for $7,000. If their financial statements were
finalised on 14 February 2014, what value should be assigned to this inventory
A. $10,000
B. $9,000
C. $7,000
D. None of these
51. Lipstick Corp manufacturers and sells adhesive warning signs for workplaces. The stock of signs
was included in the closing inventory as of 31 December 2013 at a cost of $50 per pack.During
the final audit the auditors noted that the subsequent selling price for the inventory at 15th
January 2014 was $40 per pack. Furthermore, inquiry reveals that during the physical stock take,
a water leakage has damaged the signs and glue. Accordingly in the following week, Lipstick
Corp spent a total of $15 per pack for repairing and reapplying the glue to the signs. The net
realizable value and inventory write-down (loss) amount to…
A. $40 and $10 respectively
B. $25 and $25 respectively
C. $35 and $25 respectively
D. $30 and $15 respectively
52. Inventories include…
A. Equipment used in the ordinary course of business
B. Tangible assets lying in the store, which are intended for sale
C. Machinery used in the production process which is for sale
D. Materials and supplies used for maintaining property, plant and equipment
E. Intangible assets used in the production process, but not intended for sale
53. The estimated selling price in the ordinary course of business, less any completion costs and
costs of sale is called…
A. Present value
B. Market value
C. Net realisable value
D. Fair value
54. Which of the following costs must be expensed under IAS 2?
A. Costs of purchase that are paid to the suppliers of raw materials
B. Import duties on raw materials that are paid to the authorities
C. Variable production overheads that are allocated to each unit based on actual usage
D. Selling and distribution overheads incurred in the ordinary course of business
55. Which of the following is not permitted as a cost of inventory?
A. Non-recoverable taxes
B. Shipping
C. Fixed manufacturing overheads
D. Storage costs
56. An entity purchases a building and the seller accepts payment partly in equity shares and partly
in debentures of the entity. This transaction should be treated in the cash flow statement as
follows:
A. The purchase of the building should be investing cash outflow and the issuance of shares and
the debentures financing cash outflows.
B. The purchase of the building should be investing cash outflow and the issuance of debentures
financing cash outflows while the issuance of shares investing cash outflow.
C. This does not belong in a cash flow statement and should be disclosed only in the footnotes to
the financial statements.
D. Ignore the transaction totally since it is a noncash transaction. No mention is required in either
the cash flow statement or anywhere else in the financial statements.
57. An entity (other than a financial institution) receives dividends from its investment in shares.
How should it disclose the dividends received in the cash flow statement prepared under IAS 7?
A. Operating cash inflow.
B. Either as operating cash inflow or as investing cash inflow.
C. Either as operating cash inflow or as financing cash inflow.
D. As an adjustment in the “operating activities” section of the cash flow because it is included in
the net income for the year and as a cash inflow in the “financing activities” section of the cash
flow statement.
58. How should gain on sale of an office building owned by the entity be presented in a cash flow
statement?
A. As an inflow in the investing activities section of the cash flow because it pertains to a long-term
asset.
B. As an inflow in the “financing activities” section of the cash flow statement because the building
was constructed with a long-term loan from a bank that needs to be repaid from the sale
proceeds.
C. As an adjustment to the net income in the “operating activities” section of the cash flow
statement prepared under the indirect method.
D. Added to the sale proceeds and presented in the “investing activities” section of the cash flow
statement.
59. How should an unrealized gain on foreign currency translation be presented in a cash flow
statement?
A. As an inflow in the “financing activities” section of the cash flow statement because it arises
from a foreign currency translation.
B. It should be ignored for the purposes of the cash flow statement, as it is an unrealized gain.
C. It should be ignored for the purposes of the cash flow statement as it is an unrealized gain but it
should be disclosed in the footnotes to the financial statements by way of abundant precaution.
D. As an adjustment to the net income in the “operating activities” section of the statement of
cash flows.
60. How should repayment of a long-term loan comprising repayment of the principal amount and
interest due to date on the loan be treated in a cash flow statement?
A. The repayment of the principal portion of the loan is a cash flow belonging in the “investing
activities” section; the interest payment belongs either in the “operating activities” section or
the “financing activities” section.
B. The repayment of the principal portion of the loan is a cash flow belonging in the “investing
activities” section; the interest payment belongs either in the “operating activities” section or
the “investing activities” section.
C. The repayment of the principal portion of the loan is a cash flow belonging in the “investing
activities” section; the interest payment belongs in the “operating activities” section (because
IAS 7 does not permit any alternatives in case of interest payments).
D. The repayment of the principal portion of the loan is a cash flow belonging in the “investing
activities” section; the interest payment should be netted against interest received on bank
deposits, and the net amount of interest should be disclosed in the “operating activities”
section.
61. Glenda Corporation prepares its financial statements in accordance with IFRS. Glenda must
report finance costs on the statement of cash flows
A. In operating activities.
B. Either in operating activities or financing activities.
C. In financing activities.
D. In investing activities or financing activities.
62. Larimer Corporation prepares its financial statements in accordance with IFRS. Larimer acquired
equipment by issuing 5,000 shares of its common stock. How this transaction be reported on the
statement of cash flows?
A. As an outflow of cash from investing activities and inflow of cash from financing activities.
B. As an inflow of cash from financing activities and an out flow of cash from operating activities.
C. At the bottom of the statement of cash flows as a significant noncash transaction.
D. In the notes to the financial statements as a significant noncash transaction.

63. For IFRS purposes, cash advances and loans from bank overdrafts should be reported on the
statement of cash flows as
A. Operating activities.
B. Investing activities.
C. Financing activities.
D. Other significant non-cash activities.
64. Which of the following is not a heading for cash flows under IAS 7?
A. Cash flows from operating activities
B. Cash flows from investing activities
C. Cash flows from normal activities
D. Cash flows from financing activities
65. Activities that result in changes in the size and composition of the equity capital and borrowings
of an entity are called:
A. Operating activities
B. Investing activities
C. Financing activities
D. None of these
66. The principal revenue-producing activities of an entity are called…
B. Investing activities
C. Financing activities
D. None of these
67. Cash payments to and on behalf of employees is an example of cash flows from
B. Financing activities
C. Investing activities
D. None of these
68. Entity A recently sold surplus plant and machinery for cash proceeds of $250,000. Management
decide to deposit the funds with the bank in two term deposit accounts as follows: a) $175,000
into a 12 month term account, earning 4.5% interest. The cash can be withdrawn by giving 7
days’ notice but the entity will incur a penalty, being the loss of all interest earned. b) $75,000
into a 12 month term account earning 3.5% interest. The cash can be withdrawn by giving 7
days’ notice. Interest will be paid for the period of the deposit but only at the rate of 3%, which
is equivalent to the bank’s stated rate for short-term deposits. Management are confident that
they will not need to withdraw the cash from the higher-rate deposit within the term, but want
to keep easy access to the remaining $75,000 to cover any working capital shortfalls that might
arise. Which of the followings are true?
A. Although the principal will be fully recoverable with early withdrawal, the entity will lose all
accumulated interest over the term, which seems to be a significant penalty. The cash is not
needed to meet short term cash commitments and so would not qualify as a cash equivalent.
B. Although the deposit is stated to have a 12 month maturity period, it can be withdrawn with 7
days’ notice. Although this incurs a penalty, the reduction in the rate of interest from 3.5% to 3%
is unlikely to be considered significant. The intention of management is to keep these funds
available for short-term cash needs and so this deposit is likely to qualify as a cash equivalent.
C. Both a) and b)
D. Only a)
E. Only b)
69. Entity A holds units in two money market funds that are redeemable on demand at net asset
value: a) high-returns fund – the fund aims to achieve superior returns and may invest in longer-
term (up to 2 years) sovereign and corporate bonds to do so, including some bonds with higher
credit risk. During the year, entity A invested $80,000 in this fund and recorded a related fair
value gain of $9,300 in profit or loss. Two weeks after the reporting date, entity A converted the
investment into $87,900 cash (ie $1,400 less than the year-end value) b) short-term fund – the
fund holds a low risk portfolio of short-maturity, low credit risk investments designed to achieve
a stable level of income while maintaining the value of each unit at close to nominal value. The
entity uses this fund to ‘park’ surplus cash and invested $100,000 in this fund at the beginning of
the year. The entity will convert this into cash whenever needed to satisfy any working capital
shortfalls or other cash needs. Which of the following statements are true?
A. High-returns fund – although the investment in this fund is readily convertible into cash, the
high-risk portfolio and observed exposure to changes in value determine that it is not a cash
equivalent.
B. Short-term fund – by comparison, this fund seems to be subject to an insignificant risk of change
in value. The investment is readily convertible into cash and is held to meet short-term cash
commitments. It is therefore likely to be classified as a cash equivalent.
C. High-returns fund – as the investment in this fund is readily convertible into cash, it is a cash
equivalent.
D. Both a) and b)
70. Entity A is a property company. During the year it has secured $5m of finance, which is ring-
fenced for use only for a specific development. The funds are held in a designated bank deposit
account to be used only for the purposes of the specific development project, which is expected
to take 3 years to complete. Withdrawals from the account can only be made with the approval
of the lender when specified milestones are met. At the year end, $1m of the fund has been
used on the development and $4m remains in the designated account.
A. the designated account will not meet the definition of cash equivalents
B. the designated account will meet the definition of cash equivalents

71. Entity A has a wholly owned subsidiary Entity B, which holds bank accounts with domestic
banks. Entity B can use the money freely within its local jurisdiction and classifies the amounts
as cash and cash equivalents in accordance with IAS 7, but government restrictions prevent it
from remitting cash abroad to Entity A or to any fellow subsidiary outside the local jurisdiction.
A. Entity B has appropriately classified the amounts as cash and cash equivalents in its individual
financial statements and it seems likely that this is still an appropriate classification in the
consolidated financial statements.
B. Entity B has appropriately classified the amounts as cash and cash equivalents in its individual
financial statements and it seems likely that this is not an appropriate classification in the
consolidated financial statements.
C. Entity B has wrongly classified the amounts as cash and cash equivalents in its individual
financial statements as well as in the consolidated financial statements.
72. Entity C is a furniture retailer. It offers customers two years extended credit for sales over
$1,000. During the year, it recorded revenue for these sales of $980,000 plus finance income of
$65,000 and received cash relating to these sales of $360,000, of which $40,000 related to
interest.
A. entity C is more likely to classify the interest income within operating cash flows
B. entity C is more likely to classify the interest income within investing cash flows
C. both a)and b) either -or
D. only a)
73. Entity A constructs a machine (that is a qualifying asset under IAS 23) and pays construction
expenses of $1,000, which includes $50 of capitalised interest. The entity paid $120 interest in
the year, including the amount capitalised. Entity A normally classifies interest paid as a
financing cash flow.
A. Entity A has to recognise $950 as an investing cash flow and $120 as financing
B. Entity A has to recognise $1, 000 as an investing cash flow and $70 as financing.
C. both a)and b) ( either –or)

74. Entity A is a travel agent that provides travel services to its customers. Customers pay the entity
and entity A then remits the cash to the travel service providers, after deducting the related
agency commissions. The suppliers are responsible for providing services direct to customers
and for settling any claims from customers. Entity A presents as revenue the net commissions
earned in accordance with IAS 18 Revenue. Which of the following statements are true?
A. If the direct method of presenting operating cash flows is used, entity A will present cash
receipts from customers and cash payments to suppliers on a net basis.
B. If the indirect method of presenting operating cash flows is used, net presentation is
automatically reflected
C. Both a) and b)
75. Entity B is a manufacturing company. It obtains a new machine to use within its manufacturing
plant under a 5-year finance lease agreement. Entity B recognises the machine within property,
plant and equipment at an amount of $400,000 and recognises a finance lease liability for
$400,000. By the end of the reporting period, B has paid scheduled repayments of $35,000, of
which $2,900 was recognised as a finance cost in profit or loss. Entity B has a policy of
recognising interest paid within financing activities. Which of the following statements are true?
A. The addition to property, plant and equipment of $400,000 will be shown as a non-cash
transaction in the notes to the financial statements (IAS 7.43) because there is no immediate
cash flow involved at the inception of the lease. The creation of the $400,000 lease liability is
not shown as a financing inflow but is instead disclosed in the non-cash transactions note.
B. The CU2,900 interest element of the lease rentals is included in the total of interest paid within
financing activities in accordance with the entity’s accounting policy and the CU32,100
(CU35,000 – CU2,900) capital element of the lease rentals paid will be classified as a financing
outflow in accordance with IAS 7.17(e).
C. The addition to property, plant and equipment of $400,000 will be shown as a investing activity.
The creation of the $400,000 lease liability is not shown as a financing inflow but is instead
disclosed in the non-cash transactions note.
D. Both a) and b)
76. Entity A constructs a machine (that is a qualifying asset under IAS 23) and pays construction
expenses of $1,000, which includes CU50 of capitalised interest. The entity paid $120 interest in
the year, including the amount capitalised. . Entity B has a policy of recognising interest paid
within financing activities. Which of the following statements are true?
A. Recognise $950 as an investing cash flow and $120 as financing. In this case, the inclusion of a
separate line item ‘interest paid $120’ in financing activities is sufficient to satisfy the IAS 7.32
disclosure requirement
B. Recognise $1,000 as an investing cash flow and $70 as financing. Entity A would also need to
disclose the total amount of $120 interest paid, either at the foot of the Statement of Cash
Flows or in a note to the financial statements.
C. Both a) and b)
77. For companies that prepare financial statements in accordance with IFRS, plant, property, and
equipment should be valued using which models?
A. The cost model or the revaluation model.
B. The cost model or the fair value model.
C. The cost model or the fair value through profit or loss model.
D. The revaluation model or the fair value model.
78. Which is true about the revaluation model for valuing plant, property, and equipment?
A. Revaluation of assets must be made on the last day of the fiscal year.
B. Revaluation of assets must be made on the same date each year.
C. There is no rule for the frequency or date of revaluation.
D. Revaluation of assets must be made every two years.

79. When the revaluation model is used for reporting plant, property, and equipment, the gain or
loss should be included in
A. Income for the period.
B. Gain from revaluation on the income statement.
C. A revaluation surplus account is other comprehensive income.
D. An extraordinary gain or loss on the income statement.
80. Linden Corporation has investment property that is held to earn rental income. Linden prepares
its financial statements in accordance with IFRS. Linden uses the fair value model for reporting
the investment property. Which of the following is true?
A. Changes in fair value are reported as profit or loss in the current period.
B. Changes in fair value are reported as other comprehensive income for the period.
C. Changes in fair value are reported as an extraordinary gain on the income statement.
D. Changes in fair value are reported as deferred revenue for the period.
81. Under IFRS, what valuation methods are used for intangible assets?
A. The cost model or the fair value model.
B. The cost model or the revaluation model.
C. The cost model or the fair value through profit or loss model.
D. The revaluation model or the fair value model.

82. Opponents of accounting harmonization argue that:
A. one set of universally accepted accounting standards would not reduce the cost of preparing
consolidated statements.
B. harmonization is not truly valuable because no significant benefits would be achieved.
C. accounting staff could transfer more easily to other countries of multinational companies.
D. comparability of financial statements is necessary for the globalization of capital markets.
E. cost of capital of multinational companies would increase.
83. According to Nobes, all of the following are reasons for international accounting diversity,
except for:
A. a nation's culture.
B. differences in the purpose for financial reporting.
C. the nature of a country's financing system.
D. the institutional structures of a country.
E. taxation.
84. According to Nobes, a country's culture determines the nature of a country's financing system.
What type of financing system leads to what class of accounting?
A. A weak equity-outsider financing leads to an accounting system for outside shareholders.
B. A weak equity-outsider financing leads to an accounting system for sole proprietors.
C. A strong equity-outsider financing leads to an accounting system for outside shareholders.
D. A strong equity-outsider financing leads to an accounting system for tax.
E. A strong equity-outsider financing leads to an accounting system for creditors.

85. As of April 2001, what is the name of the organization responsible for setting of international
accounting standards?
A. International Accounting Standards Committee
B. International Organization of securities Commissions
C. International Accounting Standards Board
D. European Union
E. World Trade Organization
86. One of the FASB's convergence initiatives intended to remove a variety of individual differences
between IFRSs and U.S. GAAP. This resulted in changes in all of the following, except for:
A. earnings per share.
B. inventory costs.
C. accounting changes.
D. research and development.
E. asset exchanges.
87. Diversity in accounting practices causes the following problems, except for difficulty in gaining
access to foreign markets.
A. a lower cost of capital.
B. a lack of comparability of financial statements between companies from different countries.
C. increased costs in preparing consolidated financial statements by companies with foreign

operations.
D. difficulty for investors to determine attractive acquisitions in foreign countries.

88. IAS 1, "Presentation of Financial Statements," provides guidance on all of the following, except
for:
A. the structure and content of financial statements.
B. the purpose of financial statements.
C. the components of financial statements.
D. the principle of comparative information.
E. revenue recognition.
89. Which of the following is not one of the 5 common factors that influence a country's financial
reporting practices?
A. Legal system.
B. Population.
C. Inflation.
D. Providers of financing.
E. Taxation.
90. The joint project of the IASB and FASB that addresses measurement at full fair value of an
acquired company’s asset and liabilities is known as the:
A. Business Combination Project.
B. Conceptual Framework Project.
C. Revenue Recognition Project.
D. Short-term Convergence Project.
E. Performance Reporting Project.

91. The process of reducing differences in financial reporting practices across countries is referred
to as:
A. Cooperation.
B. Reconciliation.
C. Joint compromise.
D. Joint adoption.
E. Harmonization.
92. Which of the following items would potentially prevent a common set of standards?
A. IFRSs written or translated in several languages
B. Different interpretations of IFRS
C. Similarities in the level of accounting value
D. Principle-based standards
E. Similar national cultures
93. International Financial Reporting Standards (IFRS) could be used by a country by:
A. allowing domestic listed companies to use IFRS.
B. requiring or allowing foreign companies listed on domestic stock exchanges to use IFRS.
C. requiring domestic listed companies to use IFRS in preparing consolidated financial statements.
D. all of the above.
E. adopting IFRS as its national GAAP.

94. The agreement between FASB and IASB to use their best efforts to make financial reporting
standards fully compatible and to ensure compatibility is maintained in the:
A. Business Combinations Project.
B. Convergence Framework Project.
C. Conceptual Research Project.
D. Norwalk Agreement.
E. Companies Act.
95. Differences between IFRS and U.S. GAAP exist. The use of the lower-of-cost-or market rule in
valuing inventory and difference in interpreting market is an example of:
A. timing differences.
B. disclosure differences.
C. recognition differences.
D. presentation differences.
E. measurement differences.
96. The differences between IFRS and U.S. GAAP in the accounting for research and development is
an example of:
A. timing differences.
B. disclosure differences.
C. recognition differences.
D. presentation differences.
E. measurement differences.
97. The sources of regulation which comprise the regulatory framework for financial reporting
include:
A. Legislation
B. Accounting standards
C. Stock exchange regulations
D. All of the above
98. “Accounting standards set out the broad rules which govern financial reporting but do not lay
down the detailed accounting treatments of transactions and other items". True or False?
A. True
B. False
99. The abbreviation "GAAP" stands for:
A. Globally accepted accounting practice
B. Generally accepted accounting practice
C. Globally accepted accounting principles
D. Generally accepted accounting principles
100. Standards issued by the International Accounting Standards Board (IASB) are known as:
A. Financial Reporting Standards (FRSs)
B. International Financial Standards (IFSs)
C. International Financial Reporting Standards (IFRSs)
D. International Accounting Standards (IASs)

101. The body to which the International Accounting Standards Board is responsible is:
A. The IFRS Advisory Council
B. The IFRS Interpretations Committee
C. The IFRS Foundation
D. The Monitoring Board
102. One of the main advantages of standardisation in financial reporting is:
A. Comparability between accounting periods and between entities
B. The production of prudent financial statements
C. Increased flexibility in financial reporting
D. The use of creative accounting practices
103. IFRS1 First-time Adoption of International Financial Reporting Standards defines the date of
transition to IFRS as:
A. The date at the end of the first IFRS reporting period
B. The date at the start of the earliest period for which comparatives are provided in the first IFRS
financial statements
C. The date at the end of the earliest period for which comparatives are provided in the first IFRS
financial statements
D. The date at the start of the first IFRS reporting period
104. "An entity which adopts international financial reporting standards must always adhere to the
requirements of every standard, no matter what the circumstances". True or False?
A. True
B. False
105. The role of the IFRS Advisory Council is to:
A. Chair the meetings of the IASB
B. Interpret the application of international standards
C. Appoint members to the IASB
D. Inform the IASB of the Council's views on standard-setting projects
106. The word "entity" as used by the IASB refers to:
A. Profit-oriented organisations only
B. Companies only
C. Not-for-profit organisations only
D. Corporations only
107. A conceptual framework for financial reporting is:
A. A set of items which make up an entity's financial statements
B. A set of regulations which govern financial reporting
C. A set of principles which underpin financial reporting
D. A set of financial reporting standards
108. Phase A of the IASB conceptual framework was developed jointly with:
A. The UK Accounting Standards Board
B. Accounting standards boards throughout the world
C. The European Union
D. The US Financial Accounting Standards Board

109. The primary users of general purpose financial reports are:
A. Investors and employees
B. Investors and lenders
C. Employees and lenders
D. Investors and customers
110. The fundamental qualitative characteristics of financial information are:
A. Relevance and faithful representation
B. Relevance and comparability
C. Faithful representation and comparability
D. Verifiability and understandability
111. The enhancing qualitative characteristics of financial information include:
A. Relevance and faithful representation
B. Comparability and understandability
C. Relevance and timeliness
D. Understandability and faithful representation
112. Which of the following is not a contributory factor towards faithful representation?
A. Completeness
B. Freedom from error
C. Neutrality
D. Predictive value
113. Allowing a choice of alternative accounting treatments improves the consistency and
comparability of financial statements. True or False?
A. True
B. False
114. The elements of financial statements which relate to financial position are:
A. Income and expenses
B. Income, expenses and equity
C. Assets, liabilities and equity
D. Assets, liabilities, income and expenses
115. If the current cost measurement basis is used, assets are measured at:
A. Replacement cost
B. The amount paid to acquire them
C. The amount which could be obtained by selling them
D. Present value
116. Under the concept of physical capital maintenance, profit is defined in terms of the increase in
an entity's operating capability during an accounting period. True or False?
A. True
B. False
117. 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
118. The IASB requires all entities to produce interim financial statements. True or False?
A. True
B. False
119. An entity which complies with IFRS may depart from the requirements of an international
standard:
A. Whenever it wishes to do so
B. If compliance would produce misleading information
C. If compliance costs would be excessive
D. Never
120. Items of financial information are material if:
A. They are insignificant
B. They could not influence the economic decisions made by the users of financial statements
C. They could influence the economic decisions made by the users of financial statements
D. They are aggregated with other items

121. The information which must be provided so as to properly identify each component of a set of
financial statements does not include:
A. The name of the reporting entity
B. The presentation currency used
C. The level of rounding used
D. The country in which the entity operates
122. 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
123. Standard IAS1 does not prescribe a format for each of the primary financial statements. True or
False?
A. True
B. False
124. The main financial performance statement is:
A. The statement of profit or loss and other comprehensive income
B. The statement of financial position
C. The statement of cash flows

125. 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
126. The notes to the financial statements should provide information:
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
127. The term "accounting policies" refers to:
A. The measurement bases used by an entity
B. The accounting concepts and conventions adopted by an entity
C. The accounting principles applied by an entity
D. All of the above
128. If an accounting standard applies specifically to a certain item, an entity's accounting policy in
relation to that item must normally be determined by applying the relevant standard. True or
False?
A. True
B. False
129. An entity may change one of its accounting policies:
A. Whenever it wishes to do so
B. If this would result in the provision of reliable and more relevant information
C. If this would reduce the cost of preparing the financial statements
D. Never
130. A change in accounting policy which does not result from the initial application of an
international standard must normally be accounted for:
A. Retrospectively
B. Prospectively
C. Either retrospectively or prospectively
D. Prospectively unless it is impracticable to do so
131. For all changes in accounting policy, the entity concerned must disclose:
A. The title of the international standard that has caused the change to occur
B. The reasons which suggest that the change will provide reliable and more relevant information
C. The nature of the change
D. The fact that the change has been accounted for in accordance with transitional provisions
specified in the applicable standard
132. A change in an accounting estimate should be accounted for:
A. Retrospectively
B. Prospectively
D. Retrospectively unless it is impracticable to do so
133. The use of estimates always undermines the reliability of financial statements. True or False?
A. True
B. False
134. Prior period errors could be caused by:
A. Fraud
B. Mistakes in applying accounting policies
C. Mathematical errors
D. Any of the above
135. A material prior period error should be corrected:
A. Retrospectively
B. Prospectively
D. Prospectively unless it is impracticable to do so

136. An entity's financial statements provide comparative figures for the previous five accounting
periods. If the entity accounts for an item retrospectively, then:
A. Comparative figures for the previous five accounting periods are not restated in any
circumstances
B. Comparative figures for all of the previous five accounting periods may need to be restated
C. Comparative figures are restated for the prior accounting period but never for the four previous
accounting periods
D. The entity may choose whether or not to restate comparative figures
137. Which of the following items qualifies as property, plant and equipment?
A. A machine bought for resale to a customer
B. A machine bought for use during a single accounting period
C. A machine bought for use in more than one accounting period
D. Computer software bought for use in more than one accounting period
138. The "carrying amount" of an item of property, plant and equipment generally refers to:
A. The cost of the item
B. The replacement cost of the item
C. The depreciable amount of the item
D. The amount at which the item is recognised in the financial statements

139. A company pays £40,000 to replace a major component of a factory machine. The faulty
component that is replaced is sold for £2,000. The carrying amount of the machine just before
this replacement occurs is £450,000, of which £10,000 relates to the faulty component that is
being replaced. The revised carrying amount of the machine after the replacement occurs and
the profit or loss on disposal of the faulty component are:
A. Carrying amount £490,000, Loss £8,000
B. Carrying amount £480,000, Loss £8,000
C. Carrying amount £480,000, Loss £10,000
D. Carrying amount £490,000, Profit £2,000
140. Which of the following would not be included in the cost of an item of property, plant and
equipment?
A. Delivery and installation charges
B. Testing costs
C. Refundable value added tax
D. Site preparation costs
141. 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:
A. 2013 Income £30,000 2014 Expense £70,000
B. 2013 Other comprehensive income £30,000 2014 Expense £70,000
C. 2013 Other comprehensive income £30,000 2014 Negative other comprehensive income
£70,000
D. 2013 Other comprehensive income £30,000 2014 Negative other comprehensive income
£30,000 Expense £40,000
142. Depreciation is defined as the fall in value of an asset during an accounting period. True or
False?
A. True
B. False
143. 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:
A. £3,083
B. £7,000
C. £4,550
D. £4,209
144. Borrowing costs that are directly attributable to the acquisition of a qualifying asset must be
capitalised as part of the cost of that asset. True or False?
A. True
B. False
145. A company has the following general borrowings outstanding throughout the whole of an
accounting year: 6.5% Bank loan of £400,000 8% Bank loan of £800,000 If a qualifying asset
costing £50,000 is funded out of these general borrowings, the capitalisation rate that should be
used is:
A. 7.25%
B. 6.5%
C. 8%
D. 7.5%
146. If investment property is measured using the fair value model, a gain arising from a change in
the fair value of an investment property must be:
A. Recognised in the calculation of profit or loss
B. Recognised as other comprehensive income
C. Credited to a revaluation reserve
D. Ignored
147. 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
148. Which of the following would not be included in the cost of a separately acquired intangible
asset?
A. Non-refundable value added tax
B. Employee costs incurred in preparing the asset for its intended use
C. Costs incurred in using the asset
D. Testing costs
149. How should research and development expenditure be dealt with in an entity's financial
statements?
A. Research and development expenditure should always be written off as an expense
B. Research and development expenditure should always be capitalised as an intangible asset
C. Research expenditure should always be written off as an expense but development expenditure
should always be capitalised as an intangible asset
D. Research expenditure should always be written off as an expense but development expenditure
should be capitalised as an intangible asset if it satisfies certain conditions
150. Expenditure on advertising and promotion never gives rise to the acquisition of an intangible
asset. True or False?
A. True
B. False
151. The revaluation model cannot be used for the measurement of an intangible asset unless:
A. The asset is revalued every year
B. The fair value of the asset is determined by a professional valuer
C. There is an active market in that type of asset
D. The revaluation model is also used for tangible assets

152. On 31 December 2012, a company acquires an intangible asset for £50,000. The asset is
revalued at £42,000 on 31 December 2013 and £57,000 on 31 December 2014. The company
prepares financial statements to 31 December each year and uses the revaluation model in
relation to this class of intangible assets. The correct accounting treatment of each revaluation
in the statement of comprehensive income is as follows:
A. 2013 Expense £8,000 2014 Income £8,000 Other comprehensive income £7,000
B. 2013 Expense £8,000 2014 Income £15,000
C. 2013 Expense £8,000 2014 Other comprehensive income £15,000
D. 2013 Negative other comprehensive income £8,000 2014 Other comprehensive income £15,000
153. The amortisation method used in relation to an intangible asset should be chosen so as to:
A. Write off the asset as soon as possible
B. Reflect the usage pattern of the asset
C. Evenly spread the cost of the asset over its useful life
D. Maximise the amortisation charge in the early years of the asset's useful life
154. International standard IFRS3 states that goodwill acquired in a business combination is:
A. An asset which arises from the acquired entity's good reputation
B. An asset which arises from the acquired entity's strong customer relationships
C. An asset which arises from assets acquired in the business combination that are individually
identified
D. An asset which arises from assets acquired in the business combination that are not individually
identified
155. Negative goodwill arising on a business combination should be shown as a negative asset in the
statement of financial position. True or False?
A. True
B. False
156. Goodwill acquired in a business combination should subsequently be measured:
A. At cost
B. At cost less accumulated amortisation
C. At cost less accumulated impairment losses
D. At cost less accumulated amortisation and less accumulated impairment losses
157. Which of the following would qualify as a small or medium-sized entity in accordance with the
criteria specified in the IFRS for SMEs?
A. A company which is listed on the Stock Exchange
B. An unlisted manufacturing company which is not managed by its shareholders
C. An insurance company
D. A small owner-managed business
158. The IFRS for SMEs states that the qualitative characteristics of financial information are:
A. Materiality, faithful representation, consistency and prudence
B. Assets, liabilities, equity, income and expenses
C. Understandability, relevance, reliability and comparability
D. Comparability, verifiability, timeliness and understandability
159. The measurement bases specified in the IFRS for SMEs are:
A. Historical cost and fair value
B. Historical cost, current cost, realisable value and present value
C. Historical cost and realisable value
D. Historical cost and present value

160. A small or medium-sized entity which has no other comprehensive income may dispense with
the statement of comprehensive income and present an income statement. True or False?
A. True
B. False
161. All small and medium-sized entities must present a statement of changes in equity. True or
False?
A. True
B. False
162. The IFRS for SMEs requires that (in most cases) investment property should be measured
initially at cost but at fair value thereafter. True or False?
A. True
B. False
163. In common with IAS16, the IFRS for SMEs allows property, plant and equipment to be measured
at a revalued amount. True or False?
A. True
B. False
164. The IFRS for SMEs requires that an intangible asset may be recognised only if the asset results
from expenditure incurred internally. True or False?
A. True
B. False
165. In common with IFRS3, the IFRS for SMEs does not allow goodwill to be amortised. True or
False?
A. True
B. False
166. Certain topics are not dealt with in the IFRS for SMEs. These topics include:
A. Hyperinflation
B. Foreign currency translation
C. Related party disclosures
D. Earnings per share
167. An impairment loss is:
A. The amount by which the recoverable amount of an asset exceeds its carrying amount
B. The amount by which the recoverable amount of an asset exceeds its written down value
C. The amount by which the carrying amount of an asset exceeds its recoverable amount
D. The amount by which the carrying amount of an asset exceeds its market value
168. Which of the following is not an external indication of impairment?
A. An unexpected decline in the asset's market value
B. The asset becoming idle
C. An adverse technological change
D. An adverse change in the market in which the entity operates

169. An asset's recoverable amount is equal to:
A. The lower of the asset's fair value less costs of disposal and its value in use
B. The lower of the asset's value in use and its carrying amount
C. The higher of the asset's value in use and its carrying amount
D. The higher of the asset's fair value less costs of disposal and its value in use
170. 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:
A. £10,000
B. £6,000
C. £4,000
D. £nil
171. How often should goodwill acquired in a business combination be tested for impairment?
A. Every year
B. Whenever there are external indications of impairment
C. Whenever there are internal indications of impairment
D. Never
172. The IAS36 definition of "corporate assets" specifically excludes goodwill. True or False?
A. True
B. False
173. 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?
A. Goodwill £130,000, PPE £250,000
B. Goodwill £190,000, PPE £190,000
C. Goodwill £nil, PPE £380,000
D. Goodwill £250,000, PPE £130,000
174. 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?
A. £60,000
B. £54,000
C. £49,720
D. £54,540
175. Which of the following is not an internal indication of the fact that an impairment loss has now
decreased or no longer exists?
A. A favourable change has occurred to the manner in which the asset will be used
B. There is evidence that the economic performance of the asset will be better than expected
C. The asset's market value has increased significantly
D. A favourable change has occurred to the extent to which the asset will be used
176. A previously-recognised impairment loss relating to goodwill should be reversed if there is

evidence that the loss no longer exists. True or False?
A. True
B. False
177. A non-current asset should be classified as held for sale only if:
A. Its carrying amount will be recovered principally through a sale transaction rather than through
continuing use
B. Its carrying amount will be recovered wholly through a sale transaction rather than through
continuing use
C. Its carrying amount will be recovered principally through continuing use rather than through a
sale transaction
D. Its carrying amount will be recovered wholly through continuing use rather than through a sale
transaction
178. The conditions which must be satisfied in order for the sale of an asset to be deemed "highly
probable" include:
A. Management is considering a plan to sell the asset
B. The asset is being marketed at a price which greatly exceeds its fair value
C. A completed sale is expected within five years
179. A disposal group always consists of a number of cash-generating units. True or False?
A. True
B. False
180. A non-current asset held for sale should be measured at:
A. The higher of the asset's carrying amount when originally classified as held for sale and its fair
value less costs to sell
B. The asset's carrying amount when originally classified as held for sale, less any accumulated
depreciation since that date
C. Fair value less costs to sell
D. The lower of the asset's carrying amount when originally classified as held for sale and its fair
value less costs to sell
181. On 1 November 2013, a company which prepares financial statements to 31 March each year
classifies a non-current asset as held for sale. The asset's carrying amount on 1 November 2013
is £40,000 and its fair value less costs to sell is £35,000. The asset is still held on 31 March 2014,
when its fair value less costs to sell is £27,500. The impairment losses that should be recognised
are:
A. 1/11/2013 £nil; 31/3/2014 £12,500
B. 1/11/2013 £5,000; 31/3/2014 £12,500
C. 1/11/2013 £5,000; 31/3/2014 £7,500
D. 1/11/2013 £nil; 31/3/2014 £nil
182. If certain types of asset are classified as held for sale, they should continue to be measured in
accordance with the standard that normally applies to that type of asset rather than being
measured in accordance with the requirements of standard IFRS5. True or False?
A. True
B. False
183. An asset which ceases to be classified as held for sale should be measured at the lower of its
carrying amount before being classified as held for sale (less any depreciation that would
normally have been charged in the meantime) and:
A. Fair value less costs to sell at the date of the decision not to sell
B. Value in use at the date of the decision not to sell
C. The higher of fair value less costs to sell and value in use at the date of the decision not to sell
D. The lower of fair value less costs to sell and value in use at the date of the decision not to sell
184. Non-current assets held for sale should be presented separately from other assets in the
statement of financial position. True or False?
A. True
B. False
185. A discontinued operation is defined as a component of an entity which:
A. Has been disposed of
B. Is classified as held for sale
C. Has been disposed of or is classified as held for sale
D. Is expected to be disposed of within the next 12 months
186. With regard to discontinued operations, an entity's statement of comprehensive income should
show a single amount comprising:
A. The post-tax profit or loss of discontinued operations
B. The post-tax profit or loss of discontinued operations and the post-tax gain or loss on the
remeasurement or disposal of the assets of discontinued operations
C. The pre-tax profit or loss of discontinued operations
D. The pre-tax profit or loss of discontinued operations and the pre-tax gain or loss on the
remeasurement or disposal of the assets of discontinued operations
187. Which of the following situations would normally lead to a lease being classified as a finance
lease?
A. The lease does not transfer ownership of the leased asset to the lessee by the end of the lease
term
B. The lessee has the option to purchase the asset at a price which makes it reasonably certain that
this option will be exercised
C. The lease term is not for the major part of the asset's economic life
D. At the inception of the lease, the present value of the minimum lease payments does not
amount to substantially all of the fair value of the asset
188. A lease of land which does not transfer legal title to the lessee by the end of the lease term
cannot be a finance lease. True or False?
A. True
B. False
189. In relation to operating leases, which of the following statements is not true?
A. The lessee has not taken on the risks and rewards incidental to ownership
B. The leased item is not shown as an asset in the lessee's financial statements
C. The lease payments are recognised as an expense in the lessee's financial statements
D. The leased item is not shown as an asset in the lessor's financial statements
190. At the commencement of a finance lease, IAS17 requires that the lessee should recognise both
an asset and a liability to the lessor. These should be measured at:
A. The fair value of the leased item
B. The present value of the minimum lease payments
C. The lower of the fair value of the leased item and the present value of the minimum lease
payments
D. The higher of the fair value of the leased item and the present value of the minimum lease
payments
191. The total finance charge arising in relation to a finance lease is equal to:
A. The excess of the initial liability to the lessor over the total of the minimum lease payments
B. The excess of the total of the minimum lease payments over the initial liability to the lessor
C. The total of the minimum lease payments
D. The initial liability to the lessor
acquires a machine on a finance lease. The fair value of the machine on 1 January 2013 is
£50,000 and the company is required to make three lease payments of £19,753 each. These
payments fall due on 31 December 2013, 2014 and 2015. The rate of interest implicit in the
lease is 9% per annum. Calculate the finance charge which should be shown in the company's
financial statements for the year to 31 December 2013 if the total finance charge is allocated to
accounting periods using the level spread method.
A. £3,086
B. £9,259
C. £19,753
D. £4,500
accounting periods using the sum of digits method.
A. £3,086
B. £9,259
C. £4,500
D. £4,629
accounting periods using the actuarial method.
A. £3,086
B. £9,259
C. £4,500
D. £4,629
lease is 9% per annum. Assuming that the total finance charge is allocated to accounting periods
using the actuarial method, calculate the liability to the lessor at 31 December 2013 and show
how this should be split between current and non-current liabilities.
A. Total £34,747, Non-current £18,121, Current £16,626
B. Total £34,747, Non-current £16,626, Current £18,121
C. Total £32,970, Non-current £16,485, Current £16,485
D. Total £34,747, Non-current £14,994, Current £19,753
196. In the case of a finance lease, the statement of financial position of the lessor shows the leased
item as an asset so long as legal title to the item is not transferred to the lessee. True or False?
A. True
B. False
197. 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?
A. True
B. False
198. Which of the following items cannot be included in the cost of inventories?
A. Irrecoverable import duties payable on the acquisition of inventories
B. Fixed production overheads
C. The cost of abnormal wastage of materials and labour
D. Variable production overheads
199. Which of the following items should be included in the cost of inventories?
A. Conversion costs
B. The cost of abnormal wastage of materials and labour
C. Selling costs
D. The cost of storing finished goods
200. The cost formulas permitted by IAS2 are:

A. FIFO and LIFO
B. FIFO and AVCO
C. LIFO and AVCO
D. FIFO, LIFO and AVCO
201. The FIFO cost formula assumes that:

A. The inventory items which are sold or consumed are those acquired most recently
B. The inventory items which are sold or consumed are those acquired longest ago
C. The inventory items which are sold or consumed are a mixture of those acquired in the last 12
months
D. Newer inventory items are sold or consumed before older inventory items
202. 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
203. On 31 December 2013, 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 2013 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
204. The definition of "construction contract" given by international standard IAS11 includes
contracts for the destruction of assets. True or False?
A. True
B. False
205. The stage of completion of a construction contract may be determined by:
A. Comparing the costs incurred for the work performed to date with the estimated total costs
B. Carrying out a survey of the work performed to date
C. Considering the physical proportion of the contract work completed
D. Any of the above
206. The expected profits of a construction contract are spread over the period of the contract, but
any expected losses are accounted for in full as soon as they become probable. True or False?
A. True
B. False
207. A financial instrument is:

A. A type of contract
B. A type of asset
C. A type of liability
D. A type of asset or liability
208. The accounting principle applied by standard IAS32 when distinguishing between liabilities and
equity is:
A. Prudence
B. Neutrality
C. Substance over form
D. Consistency
209. Redeemable preference shares should be classified (from the issuing company's point of view)
as:
A. An equity instrument
B. A financial asset
C. A financial liability
D. A compound financial instrument
210. After initial recognition, held-to-maturity investments (e.g. loan stocks which the entity holding
the stocks intends to hold until maturity) should normally be measured at:
A. Fair value
B. Amortised cost
C. Original cost
D. Fair value or amortised cost
211. The amortised cost of a financial asset is equal to:
A. The amount at which the asset was originally recognised
B. The fair value of the asset
C. The amount at which the asset was originally recognised, plus interest earned to date
D. The amount at which the asset was originally recognised, plus interest earned to date, less
repayments received to date
212. On 1 January 2014, a company buys £50,000 of 7% loan stock for £47,865. Interest is received
on 31 December each year and the stock will be redeemed at a premium of 10% on 31
December 2017. The effective interest rate is 10.5% per annum. Calculate the amortised cost of
the loan stock at 31 December 2014.
A. £50,000
B. £49,391
C. £51,526
D. £51,750
213. An impairment loss should be recognised if a trade receivable becomes wholly or partly
uncollectible. True or False?
A. True
B. False
214. Trade payables must always be measured at amortised cost using the effective interest method.
True or False?
A. True
B. False
215. A company issues £500,000 of 6.5% loan stock at a discount of 8%. Issue costs of £25,000 are
incurred. The loan stock should be measured initially at:
A. £500,000
B. £475,000
C. £460,000
D. £435,000
216. Credit risk is the risk that:
A. One party to a financial instrument will cause a financial loss for the other party by failing to
discharge an obligation
B. The fair value of a financial asset or liability will fluctuate because of changes in exchange rates
C. An entity will encounter difficulty in meeting its obligations associated with financial liabilities
D. The fair value of a financial asset or liability will fluctuate because of changes in interest rates
217. International standard IAS37 defines a provision as:

A. A liability which is legally enforceable
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
218. 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
219. A past event is an obligating event only if it gives rise to a legally enforceable obligation. True or
False?
A. True
B. False
220. The amount of a provision should be the "best estimate" of the expenditure required to settle
the obligation concerned. This estimate:
A. Should always be discounted to present value
B. Should not be adjusted to reflect future events that may affect the amount of the required
expenditure, whether or not those events are likely to occur
C. Must always be made on the basis of advice from independent experts
D. Should be the amount that would rationally be paid to settle or transfer the obligation
221. If a provision relates to a large population of items, the amount of the provision should be
calculated as:
A. The maximum expenditure that could possibly be required to settle the obligation
B. The expected value of the expenditure that will be required to settle the obligation
C. The minimum expenditure that could possibly be required to settle the obligation
D. The present value of the maximum expenditure that could possibly be required to settle the
obligation
222. Should a provision be recognised in relation to: (a) future operating losses? (b) onerous
contracts?
A. (a) No (b) Yes
B. (a) Yes (b) No
C. (a) Yes (b) Yes
D. (a) No (b) No
223. In general terms, a contingent liability is a possible obligation that depends upon the outcome of
an uncertain future event that is not within the control of the entity concerned. True or False?
A. True
B. False
224. Contingent liabilities are:

A. Always recognised in the statement of financial position
B. Always disclosed in the notes to the financial statements
C. Recognised in the statement of financial position unless the possibility of an outflow of
economic benefits is remote
D. Disclosed in the notes unless the possibility of an outflow of economic benefits is remote
225. Contingent assets are:

A. Always recognised in the statement of financial position
B. Always disclosed in the notes to the financial statements
C. Disclosed in the notes if an inflow of economic benefits is probable
D. Disclosed in the notes unless an inflow of economic benefits is only remotely possible
226. International standard IAS10 requires that financial statements should be adjusted to take
account of any events occurring between the end of the reporting period and the date when the
financial statements are authorised for issue. True or False?
A. True
B. False
227. With regard to the definition of revenue given by international standard IAS18, which of the
following statements is true?
A. Revenue may arise from either ordinary activities or extraordinary activities
B. Revenue may arise from the sale of goods, the rendering of services or the use by other parties
of an entity's assets
C. Revenue includes cash received from borrowings
D. Revenue includes cash received from share issues
228. If the inflow of cash relating to a sales transaction is delayed until some time after the
transaction has occurred, the amount of revenue arising is discounted to present value, so long
as the effect of such discounting is material. True or False?
A. True
B. False
229. Which of the following is not a condition which must be satisfied before revenue arising from a
sale of goods may be recognised?
A. The seller has transferred the significant risks and rewards of ownership to the buyer
B. The seller no longer has effective control over the goods concerned
C. It is certain that the economic benefits associated with the transaction will flow to the seller
D. The costs incurred in respect of the transaction can be measured reliably
230. In the case of a sale of goods, the risks and rewards of ownership always pass from the seller to
the buyer when legal title to the goods is transferred. True or False?
A. True
B. False
231. Which of the following is a condition which must be satisfied before revenue arising from the
rendering of services may be recognised?
A. The amount of revenue can be measured reliably
B. It is certain that the economic benefits associated with the transaction will flow to the seller
C. The sales transaction is 100% complete at the end of the reporting period
D. The costs incurred in respect of the transaction can be measured with certainty
232. Revenue consisting of dividends from other companies is not recognised until actually received.
True or False?
A. True
B. False
233. If goods are sold on approval, revenue may be recognised even if the buyer has not formally
accepted the goods, so long as the goods have been delivered to the buyer and the time period
for rejection and return has elapsed. True or False?
A. True
B. False
234. The accounting principle applied by standard IAS18 when determining whether or not revenue
should be recognised in respect of a sale and repurchase agreement is:
A. Relevance
B. Verifiability
C. Prudence
D. Substance over form
235. If the selling price of goods includes an amount for after-sales servicing and support, then:
A. This amount should be recognised as revenue as soon as the seller has transferred the risks and
rewards of ownership of the goods to the buyer
B. This amount should be deferred and not recognised as revenue until the servicing and support
period has come to an end
C. This amount should be deferred and recognised as revenue over the period in which the
servicing and support services are provided
D. The amount of revenue associated with servicing and support services is equal to the expected
costs of providing these services
236. If goods are shipped to a recipient who undertakes to sell these goods on behalf of the shipper,
revenue should not be recognised until the goods have been sold to a third party. True or False?
A. True
B. False
237. Short-term employee benefits do not include:
A. Employer's social security contributions
B. Bonuses payable more than 12 months after the end of the period in which the related
employee services are performed
C. Benefits in kind
D. Short-term sick pay
238. An employer's statement of financial position should show a liability equal to the expected
amount payable in the following 12 months as a result of unused entitlement to non-
accumulating short-term paid absences. True or False?
A. True
B. False
239. Defined benefit plans are post-retirement benefit plans where:

A. The employer pays an agreed level of contributions into the pension fund each year and is not
obliged to make any further contributions
B. The risk that benefits will be less than expected falls upon the employees
C. The employer is legally obliged to provide an agreed level of post-employment benefits
D. The employer is legally or constructively obliged to provide an agreed level of post-employment
benefits
240. In the case of a defined benefit plan, the employer's statement of financial position should
show:
A. A liability equal to the undiscounted defined benefit obligation at the end of the reporting
period
B. An asset equal to the cost of the plan assets at the end of the reporting period
C. An asset or liability equal to the difference between the present value of the defined benefit
obligation at the end of the reporting period and the fair value of the plan assets at the end of
the reporting period
D. An asset or liability equal to the difference between the present value of the defined benefit
obligation at the end of the reporting period and the cost of the plan assets at the end of the
reporting period
241. In the case of a defined benefit plan, the expense shown in the employer's statement of
comprehensive income should normally include:
A. The present value of the current service cost for the reporting period
B. The interest cost for the period
C. The interest income for the period
D. All of the above
242. The interest cost in relation to a defined benefit plan arises because the accumulated benefits
which employees had earned at the end of the previous period are now one period closer to
being paid. True or False?
A. True
B. False
243. In the case of a defined benefit plan, actuarial gains may arise because:
A. Benefits paid during the period are less than employee contributions
B. There are favourable differences between actuarial assumptions made at the end of the
previous period and actual events which have occurred in the current period
C. There are adverse differences between actuarial assumptions made at the end of the previous
period and actual events which have occurred in the current period
D. Benefits paid during the period are less than employer contributions
244. In the case of a defined benefit scheme, the items which must be shown in other comprehensive
income in the statement of comprehensive income are:
A. Actuarial gains or losses and the return on plan assets (less interest income)
B. Interest cost and interest income
C. Actuarial gains or losses only
D. Return on plan assets only
245. Which of the following items is always treated as a long-term employee benefit?
A. A bonus payable wholly before 12 months after the end of the period in which the related
employee services are performed
B. Employee wages and salaries
C. A bonus which is not payable wholly before 12 months after the end of the period in which the
related employee services are performed
D. A company car provided for an employee's use
246. Redundancy payments to employees should be recognised as an expense in the employer's
statement of comprehensive income as soon as the employer is considering making those
employees redundant. True or False?
A. True
B. False
247. Current tax should be measured using tax rates and tax laws that:
A. Have been enacted by the end of the reporting period
B. Have been enacted by the date that the financial statements are authorised for issue
C. Have been enacted or substantively enacted by the end of the reporting period
D. Have been enacted or substantively enacted by the date that the financial statements are
authorised for issue
248. A company's estimate of its current tax liability for the year to 31 December 2012 differed from
the actual tax liability by £10,000. This resulted in a credit balance of £10,000 being shown in
the company's trial balance as at 31 December 2013. The current tax liability for the year to 31
December 2013 is estimated to be £340,000. The current tax expense which should be shown in
the statement of comprehensive income for the year to 31 December 2013 is:
A. £10,000
B. £340,000
C. £350,000
D. £330,000
249. Deferred tax should be accounted for in relation to certain differences between taxable profit
and accounting profit. The differences which require an entity to account for deferred tax are:
A. Temporary differences
B. Permanent differences
C. Both temporary differences and permanent differences
D. Neither temporary differences nor permanent differences
250. A company's financial statements for the year to 30 June 2014 show a pre-tax profit of
£500,000. This is after charging depreciation of £100,000. Depreciation for the year for tax
purposes is £160,000. Assuming that the rate of tax paid by the company is 20%, the required
transfer to or from the company's deferred tax account is:
A. A transfer of £12,000 to the deferred tax account
B. A transfer of £12,000 from the deferred tax account
C. A transfer of £32,000 to the deferred tax account
D. A transfer of £32,000 from the deferred tax account
251. A company's financial statements for the year to 31 March 2014 show a pre-tax profit of
£2,700,000. This is after charging depreciation of £320,000. Depreciation for the year for tax
purposes is £150,000. Assuming that the rate of tax paid by the company is 23%, the required
transfer to or from the company's deferred tax account is:
A. A transfer of £39,100 to the deferred tax account
B. A transfer of £39,100 from the deferred tax account
C. A transfer of £34,500 to the deferred tax account
D. A transfer of £34,500 from the deferred tax account
252. The tax base of an asset is defined by international standard IAS12 as the amount which is
attributable to that asset for tax purposes. If the tax base of an asset is less than its carrying
amount, this is evidence of:
A. A taxable permanent difference
B. A deductible permanent difference
C. A taxable temporary difference
D. A deductible temporary difference
253. An item of property, plant and equipment is shown in a company's statement of financial
position at its written down value of £420,000. For tax purposes, the item's written down value
is £610,000. The residual value of the item at the end of its useful life is expected to be £nil.
Assuming that the company pays tax at 23%, the resulting deferred tax asset or liability is:
A. Deferred tax asset of £190,000
B. Deferred tax asset of £43,700
C. £nil
D. Deferred tax liability of £43,700
254. Unpaid expenses are shown in a company's statement of financial position as a current liability
of £30,000. These expenses have already been deducted when computing accounting profit but
will not be deducted for tax purposes until they are paid. Assuming that the company pays tax at
20%, the resulting deferred tax asset or liability is:
A. Deferred tax asset of £30,000
B. Deferred tax asset of £6,000
C. £nil
D. Deferred tax liability of £6,000
255. A deferred tax asset should never be recognised in relation to unused tax losses carried forward
for deduction against future taxable profits. True or False?
A. True
B. False
256. A deferred tax liability must be recognised for all taxable temporary differences. True or False?
A. True
B. False
257. Which of the following is not a characteristic of an entity's cash equivalents, as defined by
international standard IAS7?
A. A short-term investment
B. A highly liquid investment
C. An investment which is readily convertible into known amounts of cash
D. An investment which is subject to significant risk of changes in value
258. Bank overdrafts are generally regarded as a component of an entity's cash and cash equivalents.
True or False?
A. True
B. False
259. Cash inflows and outflows arising from operating activities do not include:
A. Cash receipts from the sale of goods and services
B. Cash receipts from the sale of property, plant and equipment
C. Cash payments to employees
D. Cash payments to suppliers for goods and services
260. Which of the following is a cash inflow or outflow arising from investing activities?
A. Cash received from the repayment of loans made to other parties
B. Royalties received
C. Cash repaid to lenders
D. Cash received on the issue of loan stock
261. Which of the following is not a cash inflow or outflow arising from financing activities?
A. Cash proceeds of a share issue
B. Cash proceeds from issuing debentures
C. Cash payments to acquire equity of other entities
D. Cash repayments of amounts borrowed
262. If cash flows from operating activities are reported using the direct method, the statement of
cash flows does not show:
A. Cash received from customers
B. Depreciation charges
C. Cash paid to suppliers
D. Cash paid to employees
263. A company uses the indirect method for reporting cash flows from operating activities. During
an accounting period, inventories have risen by £5,000, trade receivables have fallen by £4,000
and trade payables have risen by £3,000. When calculating the net cash inflow or outflow from
operating activities, the required adjustments are as follows:
A. Subtract £5,000, Add £4,000, Subtract £3,000
B. Add £5,000, Subtract £4,000, Add £3,000
C. Add £5,000, Subtract £4,000, Subtract £3,000
D. Subtract £5,000, Add £4,000, Add £3,000
264. A company uses the indirect method for reporting cash flows from operating activities. During
an accounting period, plant which had cost £30,000 some years ago was sold for £3,000. The
accumulated depreciation on this plant at the time of disposal was £25,000. The effects of this
transaction on the statement of cash flows are as follows:
A. Operating activities: Subtract loss on disposal £2,000 Investing activities: Cash received on
disposal of plant £3,000
B. Operating activities: Add disposal proceeds £3,000 Investing activities: Subtract loss on disposal
of plant £2,000
C. Operating activities: Add back loss on disposal £2,000 Investing activities: Cash received on
D. Operating activities: Add back loss on disposal £5,000 Investing activities: Cash received on
265. The sale of an investment which ranks as a cash equivalent is treated as a cash inflow from
investing activities. True or False?
A. True
B. False
266. IAS7 requires that all entities which comply with international standards should present a
statement of cash flows. True or False?
A. True
B. False
267. During an accounting period, a parent company sells goods to one of its subsidiaries for £10,000.
These goods cost the parent company £6,000. By the end of the accounting period, all of the
goods have been sold by the subsidiary to customers outside the group. The adjustments
required when preparing the group statement of comprehensive income are:
A. Subtract £10,000 from group sales revenue and subtract £6,000 from group cost of sales
B. Subtract £10,000 from group sales revenue and subtract £10,000 from group cost of sales
C. No adjustments required
D. Subtract £10,000 from group sales revenue and subtract £4,000 from group retained earnings
These goods cost the parent company £6,000. At the end of the accounting period, three-
quarters of the goods have been sold by the subsidiary to customers outside the group but the
remaining one-quarter of the goods are still held in inventories. The adjustments required when
preparing the group statement of comprehensive income are:
C. Subtract £10,000 from group sales revenue and subtract £9,000 from group cost of sales
D. Subtract £10,000 from group sales revenue and subtract £11,000 from group cost of sales
269. A parent company owns 73% of a subsidiary's ordinary shares. The non-controlling interest in
the group statement of financial position is measured at the appropriate proportion of the
subsidiary's identifiable net assets. An impairment loss in relation to goodwill arising on
consolidation should be accounted for in the group statement of comprehensive income as
follows:
A. Recognise 100% of the impairment loss as a group expense
B. Recognise 73% of the impairment loss as a group expense and subtract the remaining 27% from
the profit attributable to the non-controlling interest
C. Do nothing
D. Recognise 73% of the impairment loss as a group expense but make no further adjustments
270. The amount of profit attributable to the non-controlling interest in a 90% subsidiary is equal to:
A. 10% of the group profit before tax

B. 10% of the group profit after tax
C. 10% of the subsidiary's profit before tax
D. 10% of the subsidiary's profit after tax
271. When preparing a set of group financial statements, the correct treatment of dividends paid by
a subsidiary company to its non-controlling shareholders is to:
A. Deduct them in the non-controlling interest column in the group statement of changes in equity
B. Cancel them against dividends received by the parent company
C. Ignore them completely
D. Add them in the non-controlling interest column in the group statement of changes in equity
272. In an accounting period, a parent company has sales of £867,000 and its 80% subsidiary has
sales of £121,000. The group sales figure for the period is £963,800. True or False?
A. True
B. False
273. In an accounting period, a parent company has pre-tax profits of £5m and profits after tax of
£3.5m. Its 75% subsidiary has pre-tax profits of £2m and profits after tax of £1.4m. The profit
attributable to the non-controlling interest is:
A. £500,000
B. £1,750,000
C. £350,000
D. £1,225,000
274. If a subsidiary company is acquired part of the way through an accounting period, the group's
share of the subsidiary's pre-acquisition profit is included in the statement of comprehensive
income for the period. True or False?
A. True
B. False
275. Which of the following is an example of an intra-group item which is cancelled out when
preparing the group statement of comprehensive income?
A. Interest payable by a subsidiary to its parent
B. Management expenses charged by one subsidiary to another
C. Administrative fees charged by a parent to a subsidiary
D. All of the above
276. A parent company and its subsidiaries form a single entity for legal purposes. True or False?
A. True
B. False
277. One of the perceived weaknesses of historical cost accounting in times of inflation is that:
A. Profits are understated
B. Depreciation charges are overstated
C. Monetary assets are not shown in the statement of financial position
D. Holding gains on inventories are not identified
278. A company's only asset on 1 January is cash of £50,000. All of this cash is immediately spent on
inventories, 60% of which are sold for £42,000 on 31 January. There are no other transactions
during the month of January. The index of general prices rose by 2% during the month. Calculate
the company's profit for the month: (a) in nominal capital terms, and (b) in terms of general
purchasing power.
A. £12,000 (b) £12,000
B. £12,000 (b) £11,400
C. £11,400 (b) £12,000
D. £12,000 (b) £11,000
279. At the start of an accounting period, a company has a long-term liability of £100,000 on which
interest is payable at 6% per annum. The full £100,000 is still owing at the end of the period,
during which the index of general prices increased by 7.5%. What is the real cost of this debt for
the period in terms of general purchasing power?
A. Cost £6,000
B. Cost £13,500
C. Gain £1,500
D. Cost £1,500
280. If financial statements are drawn up on the historical cost basis, holding gains on inventories are
shown separately in the statement of comprehensive income. True or False?
A. True
B. False
281. The basic principle of current purchasing power (CPP) accounting is that each transaction is
adjusted to reflect the change in the general purchasing power of money since the transaction
occurred. True or False?
A. True
B. False
282. The basic principle of current cost accounting (CCA) is that assets consumed during an
accounting period are shown at their current values at the time of consumption and that assets
remaining at the end of the period are shown at their original cost. True or False?
A. True
B. False
283. Which of the following is not regarded as an indicator of hyperinflation?

A. The general population prefers to keep its wealth in non-monetary assets
B. Credit sales take place at prices which compensate for the expected loss in purchasing power
during the credit period
C. Wages are index-linked
D. The cumulative rate of inflation over a five-year period is approaching 100%
284. International standard IAS29 adopts a current purchasing power approach to the restatement of
financial statements. True or False?
A. True
B. False
285. The main steps required in the preparation of a restated statement of financial position (in
accordance with the requirements of IAS29) do not include:
A. The restatement of non-monetary items carried at historical cost
B. The restatement of non-monetary items carried at a valuation
C. The restatement of monetary items
D. The restatement of each component of equity
286. If an entity prepares restated financial statements in accordance with the requirements of
IAS29, the gain or loss on the entity's net monetary position is shown in other comprehensive
income. True or False?
A. True
B. False
287. 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
288. When a parent company acquires a subsidiary, the amount paid for goodwill is equal to the
amount paid by the parent company for its shares in the subsidiary company, less:
A. The nominal value of those shares
B. The market value of those shares
C. The nominal value of those shares plus the parent's stake in the subsidiary's reserves
D. The market value of those shares plus the parent's stake in the subsidiary's reserves
289. On 1 July 2014, A Ltd pays £870,000 to acquire the entire share capital of B Ltd. The equity of B
Ltd on that date consists of ordinary share capital of £400,000 and retained earnings of
£210,000. The fair value of the non-current assets of B Ltd on 1 July 2014 exceeds their carrying
amount by £35,000. The amount paid for goodwill by A Ltd is:
A. £470,000
B. £260,000
C. £295,000
D. £225,000
290. On 1 May 2012, C Ltd paid £430,000 to acquire the entire share capital of D Ltd. The equity of D
Ltd on that date consisted of ordinary share capital of £200,000 and retained earnings of
£90,000. All of its assets and liabilities were carried at fair value. On 30 April 2014, the retained
earnings of C Ltd and D Ltd are £970,000 and £115,000 respectively. Goodwill arising on
consolidation has suffered an impairment loss of 25% since 1 May 2012. Group retained
earnings at 30 April 2014 are:
A. £960,000
B. £1,085,000
C. £1,050,000
D. £980,000
291. On 1 January 2011, E Ltd paid £560,000 to acquire 80% of the ordinary share capital of F Ltd. The
equity of F Ltd on that date consisted of ordinary share capital of £300,000 and retained
earnings of £150,000. All of its assets and liabilities were carried at fair value. On 31 December
2014, the retained earnings of E Ltd and F Ltd are £1,870,000 and £65,000 respectively. Goodwill
arising on consolidation has suffered an impairment loss of 70% since 1 January 2011. The
goodwill figure which should be shown in the consolidated statement of financial position at 31
December 2014 is:
A. £140,000
B. £60,000
C. £77,000
D. £33,000
292. On 1 January 2011, E Ltd paid £560,000 to acquire 80% of the ordinary share capital of F Ltd. The
equity of F Ltd on that date consisted of ordinary share capital of £300,000 and retained
earnings of £150,000. All of its assets and liabilities were carried at fair value. On 31 December
2014, the retained earnings of E Ltd and F Ltd are £1,870,000 and £65,000 respectively. Goodwill
arising on consolidation has suffered an impairment loss of 70% since 1 January 2011. The
retained earnings figure which should be shown in the consolidated statement of financial
position at 31 December 2014 is:
A. £1,725,000
B. £1,708,000
C. £1,645,000
D. £1,662,000
293. A company's preference shareholders are not entitled to a share of the company's reserves.
True or false?
A. True
B. False
294. Which of the following is not an example of an intra-group balance?
A. A loan made by a parent company to a subsidiary
B. A loan made by one subsidiary to another
C. A trade receivable owing to a subsidiary by an individual who is one of its customers
D. A trade payable owing to a subsidiary by its parent company
295. 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
296. 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
These goods cost the parent company £6,000. By the end of the accounting period, all of the
goods have been sold by the subsidiary to customers outside the group. The adjustments
required when preparing the group statement of comprehensive income are:
C. No adjustments required
D. Subtract £10,000 from group sales revenue and subtract £4,000 from group retained earnings
These goods cost the parent company £6,000. At the end of the accounting period, three-
quarters of the goods have been sold by the subsidiary to customers outside the group but the
remaining one-quarter of the goods are still held in inventories. The adjustments required when
preparing the group statement of comprehensive income are:
C. Subtract £10,000 from group sales revenue and subtract £9,000 from group cost of sales
D. Subtract £10,000 from group sales revenue and subtract £11,000 from group cost of sales
299. A parent company owns 73% of a subsidiary's ordinary shares. The non-controlling interest in
the group statement of financial position is measured at the appropriate proportion of the
subsidiary's identifiable net assets. An impairment loss in relation to goodwill arising on
consolidation should be accounted for in the group statement of comprehensive income as
follows:
A. Recognise 100% of the impairment loss as a group expense
B. Recognise 73% of the impairment loss as a group expense and subtract the remaining 27% from
the profit attributable to the non-controlling interest
C. Do nothing
D. Recognise 73% of the impairment loss as a group expense but make no further adjustments
300. The amount of profit attributable to the non-controlling interest in a 90% subsidiary is equal to:
A. 10% of the group profit before tax
B. 10% of the group profit after tax
C. 10% of the subsidiary's profit before tax
D. 10% of the subsidiary's profit after tax
301. When preparing a set of group financial statements, the correct treatment of dividends paid by
a subsidiary company to its non-controlling shareholders is to:
A. Deduct them in the non-controlling interest column in the group statement of changes in equity
B. Cancel them against dividends received by the parent company
C. Ignore them completely
D. Add them in the non-controlling interest column in the group statement of changes in equity
302. In an accounting period, a parent company has sales of £867,000 and its 80% subsidiary has
sales of £121,000. The group sales figure for the period is £963,800. True or False?
A. True
B. False
303. In an accounting period, a parent company has pre-tax profits of £5m and profits after tax of
£3.5m. Its 75% subsidiary has pre-tax profits of £2m and profits after tax of £1.4m. The profit
attributable to the non-controlling interest is:
A. £500,000
B. £1,750,000
C. £350,000
D. £1,225,000
304. If a subsidiary company is acquired part of the way through an accounting period, the group's
share of the subsidiary's pre-acquisition profit is included in the statement of comprehensive
income for the period. True or False?
A. True
B. False
305. Which of the following is an example of an intra-group item which is cancelled out when
preparing the group statement of comprehensive income?
A. Interest payable by a subsidiary to its parent
B. Management expenses charged by one subsidiary to another
C. Administrative fees charged by a parent to a subsidiary
D. All of the above
306. A parent company and its subsidiaries form a single entity for legal purposes. True or False?
A. True
B. False
307. An associate is an entity over which the investor has:

A. Control
B. Joint control
C. Significant influence
D. Some influence
308. Significant influence is normally presumed to exist if the investor owns at least a certain
percentage of the investee company's ordinary shares. This percentage is:
A. 51%
B. 50%
C. 10%
D. 20%
309. An investment in an associate is normally accounted for using the equity method. This method
requires that the investment in the associate is:
A. Initially recognised at cost and not adjusted thereafter
B. Initially recognised at cost and then adjusted in each subsequent accounting period to reflect
the investor's share of the associate's profit or loss for the period
C. Recognised at fair value
D. Initially recognised at cost and then adjusted to fair value in subsequent accounting periods
310. On 1 May 2013, V Ltd acquired 35% of the ordinary share capital of W Ltd at a cost of £472,500.
It was agreed that this amount was equal to 35% of the fair value of the net assets of W Ltd on
that date. In the year to 30 April 2014, W Ltd made a profit after tax of £80,000 and paid an
ordinary dividend of £32,000. In the financial statements of V Ltd, the carrying amount of the
investment in W Ltd as at 30 April 2014 should be:
A. £472,500
B. £489,300
C. £520,500
D. £500,500
311. An investor company has a 22% interest in an associate. During an accounting period, the
investor bought goods from the associate for £70,000. These goods had cost the associate
£50,000. One-quarter of the goods remained in the investor's inventories at the end of the
period. The unrealised profit is:
A. £1,100
B. £5,000
C. £4,400
D. £20,000
312. Any goodwill which is included in the carrying amount of an investment in an associate is not
separately recognised and is not separately tested for impairment. True or False?
A. True
B. False
313. If an investor company owns less than 20% of an investee's voting power, the investor cannot
have significant influence over the investee and therefore the investee cannot be the investor's
associate. True or False?
A. True
B. False
314. The two categories of joint arrangement recognised by international standard IFRS11 are:
A. Joint operations and joint enterprises
B. Joint ventures and joint enterprises
C. Joint operations and joint ventures
D. Joint ventures and joint contracts
315. An interest in a joint operation must be accounted for by the equity method. True or False?
A. True
B. False
316. With the equity method of accounting, the investor's share of the investee's revenue is added to
the investor's own revenue in the investor's statement of comprehensive income. True or False?
A. True
B. False
317. The fact that an entity has related parties cannot have any effect on the entity's financial
performance unless there are transactions between the entity and those parties. True or False?
A. True
B. False
318. International standard IAS24 requires an entity's financial statements to be restated so that
transactions with related parties are reported at the prices that would have applied if the
transactions had been carried out at arm's length. True or False?
A. True
B. False
319. A person (P) is necessarily related to a reporting entity (R) if:
A. P owns ordinary shares in R
B. P's grandfather has control over R
C. P is an employee of R
D. P is the domestic partner of a director of R
320. A person (P) is not necessarily related to a reporting entity (R) if:
A. P is a major customer of R
B. P is a director of R
C. P is a director of R's parent company
D. P's father has significant influence over R
321. An entity (E) is necessarily related to a reporting entity (R) if:

A. E owns ordinary shares in R
B. E is a major supplier of R
C. E and R are both subsidiaries of the same parent
D. E is a bank which lends money to R
322. An entity (E) is not necessarily related to a reporting entity (R) if:
A. E is an associate of R
B. E has significant influence over R
C. E is a subsidiary of a subsidiary of R
D. E and R have a director in common
323. An entity's functional currency is defined by international standard IAS21 as the currency in
which the entity's financial statements are presented. True or False?
A. True
B. False
324. Factors which might help to determine an entity's functional currency include:
A. The currency that mainly influences sales prices for the entity's goods and services
B. The currency that mainly influences the costs of providing goods and services
C. The currency in which funds from financing activities are generated
D. All of the above
325. A company prepares financial statements to 31 December each year and has the pound sterling
as its functional currency. On 29 October 2013, the company buys inventory for $28,380. This
amount is still unpaid at 31 December 2013. The inventory is all sold during the month of
December. Exchange rates are £1 = $1.65 on 29 October 2013 and £1 = $1.72 on 31 December
2013. Calculate: (a) the amount in £ at which the purchase and the trade payable should be
recorded on 29 October 2013 (b) the amount in £ at which the trade payable should be shown in
the statement of financial position at 31 December 2013 (c) the exchange difference which
arises.
A. (a) £17,200 (b) £17,200 (c) £nil

B. (a) £17,200 (b) £16,500 (c) £700 (favourable)
C. (a) £16,500 (b) £16,500 (c) £nil
D. (a) £17,200 (b) £16,500 (c) £700 (adverse)
326. When translating from an entity's functional currency to a presentation currency, any resulting
exchange differences are recognised in other comprehensive income. True or False?
A. True
B. False
327. A company's figures for an accounting period include sales £56m, PBIT £1.4m, equity £16m and
non-current liabilities £4m. The company's return on capital employed for the period is:
A. 2.5%
B. 8.75%
C. 35%
D. 7%
328. A company's figures for an accounting period include profit after tax £3m, ordinary share capital
and reserves £8m and preference share capital £2m. The preference dividend was £200,000.
The company's return on equity for the period is:
A. 35%
B. 37.5%
C. 30%
D. 28%
329. A company's figures for an accounting period include sales £25m, cost of sales £15m and equity
£5m. The gross profit margin for the period is:
A. 60%
B. 50%
C. 40%
D. 30%
330. A company's current assets and current liabilities at the end of an accounting period are £6m
and £2.4m respectively. Current assets include inventories of £1.8m. The current ratio and the
quick assets ratio at the end of the period are:
A. 2.5 and 0.75
B. 2.5 and 1.75
C. 1.75 and 2.5
D. 2.5 and 0.7
331. A company has inventory of £7m at the start of an accounting period and £8m at the end of the
period. Sales for the period are £60m and the gross profit is £15m. The inventory holding period
is:
A. 46 days
B. 61 days
C. 49 days
D. 65 days
332. A company's average trade receivables and trade payables for an accounting period are £12.5m
and £18m respectively. Credit sales and credit purchases for the period are £210m and £78m
respectively. The trade receivables collection period and the trade payables collection period
are:
A. 59 days and 31 days
B. 16.8 days and 4.3 days
C. 6.2 days and 11.7 days
D. 22 days and 84 days
333. A company's profit after tax for an accounting period is £12m. The company's issued share
capital consists of 50m ordinary shares of 50p each and 10m preference shares of £1 each. The
preference dividend is £1m. Earnings per share for the period are:
A. 22p
B. 20p
C. 34.3p
D. 44p
334. In general, a low price/earnings ratio is viewed more favourably than a high price/earnings ratio.
True or False?
A. True
B. False
335. A company's profit after tax for an accounting period is £27.5m. Issued share capital consists of
50m ordinary shares of £1. There are no preference shares. A dividend of 22p per share is paid
for the period and the market price per ordinary share is £3.90. Dividend cover and dividend
yield for the period are:
A. 0.4 and 17.7%
B. 0.4 and 5.64%
C. 2.5 and 22%
D. 2.5 and 5.64%
336. The capital gearing ratio measures the extent to which a company's long-term finance has been
provided by shareholders rather than lenders. True or False?
A. True
B. False
337. All companies which comply with international standards must present EPS figures in the
statement of comprehensive income. True or False?
A. True
B. False
338. A company's issued share capital throughout an accounting period consists of 500,000 ordinary
shares of 20p and 80,000 preference shares of £1. Profit after tax for the period is £320,000 and
the preference dividend is £8,000. Basic EPS for the period is:
A. 64p
B. 62.4p
C. 55.2p
D. £3.12
339. On 1 January 2013, a company's issued share capital consisted of 120,000 ordinary shares of £1.
On 1 May 2013, the company issued another 30,000 ordinary shares and on 1 July 2013 the
company issued a further 50,000 shares. Both issues were made at full market price. The
weighted average number of shares outstanding during the year to 31 December 2013 was:
A. 165,000
B. 160,000
C. 156,667
D. 175,000
340. A company's profit after tax for the year to 30 June 2014 was £1m. The company's issued share
capital at 1 July 2013 consisted of 2,400,000 ordinary shares of 50p each. A further 300,000
shares were issued at full market price on 1 September 2013. Basic EPS for the year is:
Open Hint for Question 4 in a new window.
A. 75.5p
B. 39.2p
C. 78.4p
D. 37.7p
341. When calculating earnings per share, a bonus issue made during the current accounting period
is treated as if it had been made at the beginning of the earliest period for which comparative
figures are presented. True or False?
A. True
B. False
342. A company's profit after tax for the year to 31 December 2013 was £150,000. The comparative
figure for 2012 was £135,000. The company's issued share capital at 1 January 2012 consisted of
240,000 ordinary shares. A 1 for 4 bonus issue was made on 1 July 2013. There were no other
share issues in either year. Basic EPS for 2013 and restated basic EPS for 2012 are:
A. 55.6p and 50p
B. 50p and 45p
C. 50p and 56.25p
D. 55.6p and 56.25p
343. In February 2014, a company makes a 1 for 10 rights issue at 70p per share. The market value of
the company's shares just before this rights issue was £1.25 per share. The theoretical market
value per share after the rights issue has been made is:
A. 70p
B. £1.32
C. £1.20
D. £1.14
344. A company's profit after tax for the year to 31 December 2013 was £275,000. The company's
issued share capital on 1 January 2013 consisted of 350,000 ordinary shares. On 1 April 2013,
the company made a 1 for 7 rights issue at £1 per share. The market value of the company's
shares just before this rights issue was £1.40 per share. Basic EPS for 2013 is:
A. 70.1p
B. 75.8p
C. 68.75p
D. 70.4p
345. Diluted EPS can never exceed basic EPS. True or False?
A. True
B. False
346. In most cases, share options will not have a dilutive effect on EPS when they are exercised. True
or False?
A. True
B. False
347. Which of the following is a characteristic of an operating segment, as defined by international
standard IFRS8?
A. It engages in business activities from which it may earn revenues and incur expenses
B. Its operating results are regularly reviewed by the chief operating decision maker
C. Discrete financial information is available
D. All of the above
348. Every operating segment of an entity is also a reportable segment. True or False?
A. True
B. False
349. IFRS8 specifically identifies certain similarities which must exist between operating segments in
order for them to be combined into one segment for financial reporting purposes. These
similarities do not include:
A. Similar products and services
B. Similar types of customer
C. Similar types of supplier
D. A similar regulatory environment
350. A reportable segment is an operating segment which meets any of several 10% thresholds.
Which of the following is not one of these thresholds?
A. Segment assets are at least 10% of the total assets of all operating segments
B. Segment liabilities are at least 10% of the total liabilities of all operating segments
C. Segment revenue is at least 10% of the total revenue of all operating segments
D. Segment profit or loss is at least 10% of the greater of the total profit of all profitable operating
segments and the total loss of all loss-making operating segments
351. A company's total external revenue for an accounting period is £15m. There is no inter-segment
revenue. The company's total assets are £43m. The total profit or all profitable segments for the
period is £2.6m and the total losses of all loss-making segments are £1.9m. Operating segment X
has external revenue of £1.3m, total assets of £3.7m and a loss of £220,000. Which of the
following statements is true?
A. Segment X is a reportable segment because it has revenue of £1.3m
B. Segment X is a reportable segment because it has assets of £3.7m
C. Segment X is a reportable segment because it has a loss of £220,000
D. Segment X is not a reportable segment
352. IFRS8 requires that entities should disclose certain information about reportable segments (if
regularly provided to the chief operating decision maker). This information does not include:
A. Segment revenue
B. Segment cost of sales
C. Segment depreciation
D. Segment interest expense
353. An entity must provide a reconciliation between the total revenue of reportable segments and
the entity's total revenue. True or False?
A. True
B. False
354. The classes of "entity-wide" disclosures required by IFRS8 do not include information about:
A. The entity's management structure
B. The entity's products and services
C. The geographical areas in which the entity operates
D. The entity's major customers
355. In general, a major customer is one that accounts for at least 5% of an entity's external
revenues. True or False?
A. True
B. False
356. IFRS8 requires an entity to disclose the identity of its major customers. True or False?
A. True
B. False

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1. What is the authoritative status of the Framework?

B. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the

C. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the

2. What is the objective of financial statements according to the Framework?

C. To prepare and present comparable, relevant, reliable, and understandable information to

3. Which of the following are underlying assumptions of financial statements?

A. Relevance and reliability.

B. Financial capital maintenance and physical capital maintenance.

C. Accrual basis and going concern.

D. Prudence and conservatism.

B. Statement of changes in equity.

D. Notes to the financial statements.

9. Which of the following information is not specifically a required disclosure of IAS 1?

B. Names of major/significant shareholders of the entity.

C. Level of rounding used in presenting the financial statements.

B. Investments accounted under the equity method.

B. Employee benefits expense.

A. Revenues, cost of goods sold, and advertising expense.

B. Finance costs, tax expense, and income.

C. Operating expenses, non-operating expenses, and ex-traordinary items.

D. Gross profit, operating profits, and net profits.

C. Gain or loss from extraordinary items.

D. Gain or loss from discontinued operations.

A. Prior year comparative financial statements are required.

B. Income statements for three years are required.

C. Balance sheets for three years are required.

D. There are no specific requirements regarding comparative financial statements.

D. All of the above

D. Long term investments

19. Which of the following is not a required disclosure under IAS 1?

B. Assets held for sale

20. Which of the following is not a component of a Statement of Financial Position?

C. Cost of goods sold

21. What is another name for a share’s “nominal value”?

A. A statement of compliance with IFRS

B. Measurement basis used

C. Details of specific accounting policies used

24. Which of the following is true?

A. IAS 1 stipulates the order in which items should be presented

C. IAS 1 stipulates that material items may be aggregated

D. None of the above

A. Property, Plant and Equipment

E. All of the above

A. Statement of Changes in Equity

B. Statement of Financial Position

C. Notes to the financial statements

A. Other Comprehensive Income

A. Name of the entity

B. Whether accounts cover a single entity or a group

C. Chairman’s commentary on performance

D. The accounting period

A. Government grants repayable

B. Amounts owed to shareholders as capital

31. When is offsetting permitted under IAS 1?

C. When required or permitted under an IFRS

D. When approved by the board of directors

32. Inventory should be stated at

A. Lower of cost and fair value.

B. Lower of cost and net realizable value.

C. Lower of cost and nominal value.

D. Lower of cost and net selling price.

A. Cost of direct labour.

B. Factory rent and utilities.