IFRS MULTIPLE CHOICE QUESTIONS

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Contents
THE REGULATORY FRAMEWORK.................................................................................................... 2
THE IASB CONCEPTUAL FRAMEWORK.......................................................................................... 4
PRESENTATION OF FINANCIAL STATEMENTS (IAS 1) ............................................................... 12
IAS 7 Statement of cash flows ............................................................................................................... 20
IFRS 5 NONCURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS............ 22
IAS 18 Revenue .................................................................................................................................... 24
PART 2: REVENUES AND CONSTRUCTION CONTRACT .............................................................. 25
IFRS 15 - REVENUES FROM CONTRACTS WITH CUSTOMERS ................................................... 29
Provisions, contingencies and events after the balance sheet date (IAS 37 and IAS 10) .......................... 35
IAS 37 PROVISION AND EVENTS AFTER THE REPORTING PERIOD .......................................... 38
IAS 2 and IAS 11 .................................................................................................................................. 43
IAS 16 Property, plant and equipment .................................................................................................. 47
IAS 38 – INTANGIBLES...................................................................................................................... 54
IAS 8 Accounting policies accounting estimates and errors .................................................................... 61
IAS 36 Impairment of assets .................................................................................................................. 68
IAS 17 - LEASES ................................................................................................................................. 77
IAS 21 - THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES ..................................... 79

1
THE REGULATORY FRAMEWORK
1. 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
2. "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
3. 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
4. Standards issued by the International Accounting Standards Board (IASB) are
known as:
A. Financial Reporting Standards (FRSs)
B. International Accounting Standards (IASs)
C. International Financial Reporting Standards (IFRSs)
D. International Financial Standards (IFSs)
5. 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
6. 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
7. 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

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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
8. "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
9. 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. Informthe IASB of the Council's views on standard-setting projects
10. 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

3
THE IASB CONCEPTUAL FRAMEWORK
1. 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
2. The IASB conceptual framework is being 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
3. 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
4. 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
5. 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
6. Which of the following is not a contributory factor towards faithful representation?
a. Completeness
b. Freedom from error
c. Neutrality
d. Predictive value
7. Allowing a choice of alternative accounting treatments improves the consistency and
comparability of financial statements. True or False?
a. True
b. False
8. 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
9. If the current cost measurement basis is used, assets are measured at:
a. Replacement cost
b. The amount paid to acquire them

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 c. The amount which could be obtained by selling them
d. Present value
10. 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

11. Which one of the following is an internal user of financial statements?

a. Management
b. Government
c. Customers
d. Lenders

12. One purpose of accounting information is to help users assess how effectively the managers are
running the business and to make judgements about likely levels of risk and return in the future.
Which user group is most likely to use accounting information for this purpose?
a. Community representatives
b. Employees
c. Government
d. Owners
13. Which one of the following is an internal user of financial information?
a. Tax authorities
b. Lenders
c. Suppliers
d. Management
14. One purpose of accounting information is to help certain users assess how effectively the
managers are running the business and to make judgements about likely levels of risk and return
in the future. Which one of the following user groups is most likely to use accounting
information for this purpose?
a. Government
b. Employees
c. Owners/shareholders/investors
d. Community representatives
15. Which user group usually has most control over the range and content of information it
receives?
a. Lenders
b. Suppliers
c. Managers
d. Investment analysts
16. There are four main qualitative characteristics that influence the usefulness of accounting:
relevance, reliability, comparability and...
a. Accuracy
b. Timeliness
c. Understandability
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 d. Objectivity
17. In order for a piece of information to be reliable, which ONE of the following attributes should it
possess?
a. Absence of significant bias
b. Clarity of reporting
c. Timeliness
d. Consistency
18. In theory, accounting information should be produced until the point where:
a. The value of the information to users is maximised
b. The cost of the information is minimised
c. The value of the information can no longer be quantified in monetary terms
d. The cost of providing it exceeds the benefits
19. For a piece of information to be relevant, it should possess the attribute of...
a. Timeliness
b. Comparability
c. Objectivity
d. Accuracy

20. The idea that financial statements should be free from bias is part of which characteristic?
a. Understandability
b. Relevance
c. Comparability
d. Reliability
21. Which qualitative characteristic is most closely associated with the confirmation of past events
and prediction of future events?
a. Comparability
b. Reliability
c. Relevance
d. Understandability
22. Which qualitative characteristic is enhanced by treating items that are basically the same in the
same manner?
a. Reliability
b. Relevance
c. Comparability
d. Understandability
23. Not-for-profit organisations have _____ user groups to private sector businesses. Their groups
use accounting information for _____ purposes.
a. Different - Decision-making
b. Similar - Regulatory
c. Similar - Decision-making
d. Different - Regulatory
24. Deciding whether to produce an item of accounting information is a question of balancing the
_____ against the _____.
a. Risks - Returns
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 b. Benefits - Costs
c. Time - Effort
d. Revenue - Expenses
25. In addition to possessing the four main qualitative characteristics of accounting, information
must also cross the threshold of ______ to be considered useful.
a. Accuracy
b. Objectivity
c. Materiality
d. Timeliness
26. Which user group is likely to be most interested in the growth of the wealth of a business entity,
and the profit relative to the money tied up in that entity?
a. Employees
b. Investors
c. Customers
d. Lenders
27. The objective of financial accounting is (several possible answers):
a. To support informed judgements and decisions by users
b. To measure the likely risks and returns associated with an entity
c. To provide quantitative information, primarily financial in nature, about economic
entities that is intended to be useful in making economic decisions, in making resolved
choice among alternative courses of action
d. To provide information about the reporting entity's financial performance and financial
position that is useful to present and potential investors for assessing the stewardship of
the entity's management and for making economic decisions
e. To provide timely and accurate information to facilitate budgetary control over
revenues and costs
28. Which user group is likely to be most interested in the growth of wealth of an entity, and the
profit relative to the money tied up in the entity?
a. Customers
b. Lenders
c. Investors
d. Employees
e. None of the above
29. According to the IASB Framework, the main purpose of financial reporting is to:
a. Help the managers to run the business
b. Enable investors to make economic decisions
c. Calculate taxable income
d. Determine distributable profit
e. None of the above is correct
30. According to the IASB Framework:
a. The relative importance of the characteristics in different cases is a matter of
professional judgement
b. Relevance overrides reliability
c. Prudence overrides relevance
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 d. Reliability overrides relevance
e. Relevance and reliability must be maximised, with a trade-off when they conflict

31. The convention of consistency refers to the consistent use of accounting principles for the same
items...
a. In a single period across firms
b. Throughout accounting periods within a reporting entity
c. Throughout an accounting period
d. Within industries
e. Throughout accounting periods within a reporting entity or in a single period across
entities

32. The charging of depreciation expense over the life of an asset rather than the immediate full
expensing of its cost is an example of:
a. Reliability
b. Matching
c. Prudence
d. Consistency
e. None of the above is correct
33. Which of the following statements best describes the term 'going concern'?
a. The potential to contribute to the cash flows of the entity
b. The income less expenses of an entity is negative
c. The ability of the entity to continue in operations for the foreseeable future
d. When current assets less current liabilities become negative
e. None of the above is correct
34. Which of the following is the best description of 'reliability' in relation to information in financial
statements?
a. Comprehensible to users
b. Influence on the economic decisions of users
c. Free from material error
d. Expresses a degree of caution
e. None of the above is correct
35. Which TWO of the following are listed in the IASB Framework as 'underlying assumptions'
regarding financial statements?
a. Financial statements are prepared using the accrual basis of accounting
b. The entity should be viewed as a going concern
c. The financial statements are reliable
d. Any change in accounting policy is neutral
e. None of the above is correct
36. According to the IASB Framework, which TWO of the following characteristics are described as
principal qualitative characteristics that make the information provided in financial statements
useful to users?
a. Understandability
b. Accrual
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 c. Going concern
d. Relevance
e. None of the above is correct
37. Which of the following qualitative characteristics or constraints is violated by this statement? 'A
series of reports that are time-consuming and expensive to prepare are presented to the board
of directors each month even though the reports are never used'
a. Comparability
b. Completeness
c. Balance between benefit and cost
d. Materiality
e. Prudence
38. Which of the following best describes the usefulness of financial statements?
a. General purpose financial statements used by investors, creditors, regulators and
management
b. General purpose financial statements used by parties internal to the business entity
c. Financial statements used mainly by management
d. Financial statements used exclusively by investors
39. What is the objective of accrual accounting?
a. To match expenses with cash received in the period
b. To provide financial information to help investors determine current cash flows
c. To match expenses with revenues earned
d. To match cash inflows with cash outflows
40. When the accrual basis of accounting is used, judgemental adjustments are necessary to
calculate the income and expenses appearing in the income statement.
a. True
b. False
41. The owners' interest in a business is equal to:
a. The total assets less the total liabilities of the business
b. The total assets of the business
c. The total assets less the current liabilities of the business
d. The total liabilities of the business
42. At present, all non-USA-based companies are required to prepare a reconciliation statement
between their profit figure and a profit figure based on the US GAAP, in order that their shares
may continue to be quoted on the USA Stock Exchange.
a. True
b. False
43. One of the required qualitative characteristics of financial statements is that they should be
'relevant'. Which one of the following is not a requirement to make the statements relevant?
a. Have predictive value for future performance
b. Have information value of past costs
c. Have confirmative value for assessing past performance
d. Useful for economic decisions by user groups

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 44. An asset is defined as the right to economic benefit from a resource controlled by the entity as a
result of past transactions. A liability is defined as the obligation to transfer economic benefit as
a result of past transactions.
a. True
b. False
45. A complete definition of an asset is that it is a resource controlled by an entity and from which
future economic benefits are expected to flow.
a. True
b. False
46. A complete definition of a liability is that it is an obligation of an enterprise arising from past
events, the settlement of which is expected to result in the outflow of resources.
a. True
b. False
An asset is defined as the right to economic benefit from a resource controlled by the
enterprise as a result of past transactions. A liability is defined as the obligation to
transfer economic benefit as a result of past transactions.
a. True
b. False
47. If there is a present obligation as a result of an obligating event and a probable outflow of
resources based on a reliable estimate, then an entity should:
a. Report in the following accounting period
b. Disclose a contingent liability
c. Make a provision
d. None of the above
48. There are at least two different concepts of capital maintenance:
 Operating capital maintenance
 Physical capital maintenance

a. True
b. False

UPDATES

CONCEPTUAL FRAMEWORK
1. A conceptual framework sets out the detailed accounting treatment of transactions and
other items.
A. True
B. False
2. Which of the following is not a purpose of a financial reporting conceptual
framework?
A. Development of new reporting practices
B. Evaluation of existing reporting practices

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 C. Enforcement of existing reporting practices
3. Which of the following is not an advantage of having a conceptual framework of
accounting?
A. Development of accounting standards is subject to less political pressure
B. A consistent balance sheet or income statement approach is used to setting
standards
C. Considers the needs of all users
D. Avoids a mixed up approach to setting standards
4. Which of the following is not a disadvantage of having a conceptual framework of
accounting?
A. It does not allow for different conceptual bases depending on the user
B. It does not make the setting of accounting standards easier
C. It may hamper the development of preparing accounting standards
D. It may lead to inconsistent accounting practices
5. GAAP stands for:
A. Generally accepted accounting principles
B. Globally accepted accounting practice
C. Generally allowable accounting principles
D. Generally allowable accounting practice
6. Which of the following are components of Generally Accepted Accounting Practice
(‘GAAP’)?
A. Stock exchange requirements
B. Regional bodies (eg. European Union directives)
C. National accounting standards
D. National company law
E. All of these
7. Which of the following is not a chapter of the IASB Framework?
A. The objective of financial statements
B. The elements of financial statements
C. Concepts of capital and capital maintenance
D. Concepts of income and expenditure
E. Recognition of the elements of financial statements
8. A conceptual framework for accounting is..
A. A set of financial statements
B. A set of rules governing financial reporting
C. A set of components of financial statements
D. A set of principles underpinning financial reporting
9. Conceptual frameworks limit the consistency and comparability of financial
statements.

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 A. True
B. False
10. Which of the following relate to financial position in a set of financial statements?
A. Assets, liabilities, income and expenses
B. Assets, liabilities and equity
C. Income and expenses
D. Income, expenses and liabilities

PRESENTATION OF FINANCIAL STATEMENTS (IAS 1)

1. 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
2. The IASB requires all entities to produce interim financial statements. True or False?
a. True
b. False
3. 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
4. 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
5. 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
6. Which of the following would generally not be classified as a current asset?
a. An asset held for the purpose of being traded

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 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
7. Standard IAS1 does not prescribe a format for each of the primary financial
statements. True or False?
a. True
b. False
8. The main financial performance statement is:
a. The statement of comprehensive income
b. The statement of financial position
c. The statement of changes in equity
d. The statement of cash flows
9. 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
10. 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
11. Which of the following is a correct statement about shareholders' equity?
a. It equals cash at the bank
b. It includes share capital, reserves, retained earnings and non-current liabilities
c. It includes issued share capital and retained earnings
d. It first appears in the income statement when the business is set up
12. If a company had an issued share capital of $450,000 a share premium of $187,500
and a loss of $25,000, what would be the shareholders'equity?
a. $637,500
b. $612,500
c. $600,000
d. $662,500
13. Which of the following is not normally found in the equity section of a company's
statement of financial position?
a. Retained earnings as the profit and loss account balance
b. Ordinary share capital

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 c. Dividends payable to the ordinary shareholders
d. Share premium
14. A computer engineer started with $100,000 in the bank on 1 January. During the
first six months customers paid her $40,000 for software design and she paid out
$25,000 for expenses and drew $5,000 for personal use. How much profit did she
make?
a. $115,000
b. $15,000
c. $110,000
d. $10,000
15. What does an income statement reflect?
a. The assets less non-current liabilities and the resulting profit or loss
b. The income and expenses for a period and the resulting profit or loss
c. The assets less current liabilities and the resulting profit or loss
d. The cash receipts and payments for a period and the resulting cash surplus or
deficit
16. Expenses are recorded:
a. When goods or services are received whether or not cash has been paid
b. When cash is paid after goods or services have been received
c. When cash is paid on receipt of goods or services
d. When cash is paid whether or not goods or services have been received
17. Financial statements include a statement of financial position, an income statement
and a statement of changes in equity. Which TWO of the following are also included
within the financial statements?
a. An auditor's report
b. A statement of cash flows
c. A directors' report
d. Summary of accounting policies
e. None of the above is correct
18. Which of the following are mandatory requirements?
1) Statement of cash flows.
2) Operational and financial review statement.
3) Statement of comprehensive income.
4) Statement of changes in equity.
5) Statement of financial position.
a. 1, 3, 4 and 5
b. 1, 2 and 3
c. 1, 3 and 5
d. None of the above
e. All of the above

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19. Expenses may be classified by function (type of operation) or by their nature (type of
expenditure). In which manner does IAS 1 require the income statement of a
company to be shown?
a. By both
b. By nature only
c. By function only
d. By either
Explanation: Companies can choose to report expenses in their income statement
classified by either their function or their nature.
20. Which of the following are typically included in distribution and selling costs?
1) Warehouse costs.
2) Audit fees.
3) Advertising.
4) Amounts written off trade receivables.
a. 2 and 3
b. 1 and 3
c. 1 and 2
d. 3 and 4
21. IAS 1 illustrates a layout for the statement of financial position in an Appendix.
Comparo Ltd is proposing to use the following layout for its statement of financial
position. Would this be allowed under IAS 1?

Non-current assets

Current assets

Current liabilities

Net current assets

Total assets less current liabilities

Non-current liabilities

Net assets

Equity

a. True
b. False
22. In general, assets and liabilities are permitted to be offset against one another when
the initial transactions occurred at the same time.
a. True
b. False

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 23. Many entities will often have good reasons to change the presentation within their
financial report and changes are permitted as long as the $ amounts of each line
item do not change.
a. True
b. False
24. Financial institutions are permitted to list assets and liabilities on the balance sheet
in order of liquidity.
a. True
b. False

UPDATES:
IAS 1
1. 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
2. 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
3. A current asset or liability is expected to be recovered or settled within..
A. Three months
B. Six months
C. Twelve months
D. Twenty four months
E. None of the above
4. Under IAS 1, how often should financial statements be prepared?
A. At least annually
B. No more than annually

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 C. As often as the company requires
D. Monthly
5. 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
6. 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
7. How many formats are permitted for income and expense items under IAS 1?
A. One
B. Two
C. Three
D. None
8. What is the term used to describe the time between the acquisition of assets for
processing and their realisation in cash or cash equivalents?
A. Processing cycle
B. Turnover
C. Operating cycle
D. Turnaround
9. 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
10. Which sections of an annual report do IFRSs apply to?
A. Management report
B. Financial statements
C. Auditors report
D. Entire annual report
11. Which of the following is a current liability?
A. Bank overdraft
B. Mortgage
C. Preference shares
D. Retained earnings

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12. 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
13. Which of the following is not a liability?
A. Government grants repayable
B. Amounts owed to shareholders as capital
C. Debentures
D. Rebates payable
14. 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
15. Where should extraordinary items appear in an entity’s Statement of Comprehensive
Income?
A. Other Comprehensive Income
B. Income Statement
C. Notes
D. Nowhere
16. 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
17. Which of the following disclosures are not required in relation to share capital on the
SOFP?
A. Number of shares authorised
B. Number of share issued and fully paid
C. Names of individual shareholders
D. Shares in entity held by itself of by related group companies
E. Par value of shares
18. Accumulated profits (minus any losses) held by an entity are called:
A. Provisions
B. Equity
C. Retained earnings
D. Shareholders’ funds
19. Which of the following is not contained in the notes to the financial statements under
IAS 1?

18
 A. A statement of compliance with IFRS
B. Measurement basis used
C. Details of specific accounting policies used
D. Numbers of employees
20. What is another name for a share’s “nominal value”?
A. Share premium
B. Par value
C. Market value
D. Discounted value
21. 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
22. Which of the following is not a requirement of a current liability?
A. Expected to be settled in the entity’s operating cycle
B. Held primarily for trading
C. Expected to be settled within 12 months of reporting period
D. Entity holds an unconditional right to defer settlement for over 12 months after
reporting period
23. Which of the following is not a minimum item on the face of the statement of
comprehensive income?
A. Revenue
B. Finance costs
C. Deferred tax
D. Profit or loss
E. Total comprehensive income
24. Which of the following are examples of current assets?
A. Motor vehicles
B. Prepayments
C. Share premium
D. Goodwill
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

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IAS 7 Statement of cash flows
1. 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
2. Bank overdrafts are generally regarded as a component of an entity's cash and cash
equivalents. True or False?
a. True
b. False
3. 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
4. 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
5. 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
6. 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
7. 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

20
 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
8. 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 disposal of plant £3,000

d. Operating activities:

Add back loss on disposal £5,000

Investing activities:

Cash received on disposal of plant £3,000

9. 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
10. IAS7 requires that all entities which comply with international standards should present
a statement of cash flows. True or False?
a. True

21
 b. False

IFRS 5 NONCURRENT ASSETS HELD FOR SALE AND

DISCONTINUED OPERATIONS
1. 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
2. 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
d. None of the above
3. A disposal group always consists of a number of cash-generating units. True or False?
a. True
b. False
4. 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
5. On 1 November 2011, 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 2011 is £40,000 and its fair value less costs to sell is £35,000. The asset is still
held on 31 March 2012, when its fair value less costs to sell is £27,500. The impairment
losses that should be recognised are:
a. 1/11/2011 £nil; 31/3/2012 £12,500
b. 1/11/2011 £5,000; 31/3/2012 £12,500

22
 c. 1/11/2011 £5,000; 31/3/2012 £7,500
d. 1/11/2011 £nil; 31/3/2012 £nil
6. 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
7. 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
8. 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
9. 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
10. 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

23
IAS 18 Revenue
1. 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
2. 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
3. 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
4. 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?
e. True
f. False
5. 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
6. Revenue consisting of dividends from other companies is not recognised until actually
received. True or False?
a. True
b. False

24
 7. 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
8. 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
9. 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
10. 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

PART 2: REVENUES AND CONSTRUCTION CONTRACT

11. A company received a $12,000 cash deposit from a customer on 21 December but did
not deliver the goods until 8 January. The correct accounting treatment is:
a. A liability of $12,000 will be reported on the balance sheet at the end of
December
b. The income statement will report the revenue in January
c. Cash will be recorded in December
d. All of the above are true
e. All of the above are false
12. In March 2011, Black Ltd received a deposit of $10,000 for goods to be delivered in April
2011, which it reported as sales revenue in its accounts for the year ended 31st March
2011. The effect on the balance sheet is:

25
 a. The owner's interest is overstated and liabilities understated
b. The owner's interest is understated and liabilities overstated
c. Assets are overstated and liabilities understated
d. The owner's interest is understated and liabilities understated
13. Handy Ltd sells mobile phones. It recognises revenue in the income statement when:
a. The cash is collected from customers during the current period
b. Both cash and credit sales are made in the current period less accounts
receivable at the beginning of the period
c. Both cash and credit sales are made in the current period
d. Both cash and credit sales are made in the current period plus the accounts
receivable at the beginning of the period
14. Green, a garden designer, keeps her accounting records on a cash basis. During 2011
she received fees of $100,000. Her trade receivables at the beginning of the year
totalled $20,000 and at the end of the year $30,000. What is her income for 2011
calculated on an accrual basis?
a. $80,000
b. $70,000
c. $160,000
d. $110,000
15. Gogo Limited uses cash basis of accounting and reported sales revenue of $140,000
during the year. Assuming that trade receivables at the end of the year amounted to
$18,000 and $10,000 at the beginning of the year, what is the sales revenue on an
accrual basis for the year?
a. $148,000
b. $140,000
c. $132,000
d. $158,000
16. In September 2011, Entity X received a deposit of $25,000 for goods to be delivered in
October 2011, which it reported as sales revenue in its accounts for the year ended 30
September 2011. The effect on the balance sheet is:
a. The owners' interest is understated and liabilities overstated
b. The owners' interest is overstated and liabilities understated
c. The owners' interest is understated and liabilities understated
d. Assets are overstated and liabilities understated
17. In a transaction involving the sales of goods, performance should be regarded as being
achieved when the following conditions have been fulfilled:
a. The buyer has paid for the goods
b. The seller of the goods has transferred to the buyers the significant risks and
rewards of ownership
c. The seller of the goods has transferred the goods to the buyer

26
 d. All of the above conditions must be fulfilled
18. In addition, which of the following conditions must also be fulfilled?
a. No significant uncertainty exists regarding the consideration that will be derived
from the sale of the goods
b. No significant uncertainty exists regarding the goods being in saleable condition
c. No significant uncertainty exists regarding the extent to which the goods are
returned
d. No significant uncertainty exists regarding the associated costs incurred or to be
incurred in producing or purchasing the goods
e. All of the above conditions must be fulfilled
19. Handy Ltd sells mobile phones. It recognises sales revenue in the income statement:
a. When the cash is collected from customers during the current period
b. When both cash and credit sales are made in the current period
c. When both cash and credit sales are made in the current period less trade
receivables at the beginning of the period
d. When both cash and credit sales are made in the current period plus the trade
receivables at the beginning of the period
20. A company received a $12,000 cash deposit from a customer on 21 December 2011 but
did not deliver the goods until 8 January 2012. The correct accounting treatment is:
a. A liability of $12,000 will be reported on the balance sheet at the end of
December 2011
b. Cash will be recorded for the month of December 2011
c. The income statement will report the revenue in January 2012
d. All of the above are true
e. All of the above are false
21. In March 2011, Black Ltd received a deposit of $10,000 for goods to be delivered in April
2011, which it reported as sales revenue in its accounts for the year ended 31st March
2011. The effect on the balance sheet is:
a. Assets are overstated and liabilities understated
b. The owners' interest is overstated and liabilities understated
c. The owners' interest is understated and liabilities understated
d. The owners' interest is understated and liabilities overstated
22. Bulgar Ltd accepted a 6-month 9% note for $10,000 from a customer on 1 December
2009. The business prepares its annual accounts at 31 March each year. How much
interest should be recognised by Bulgar in its income statement for the years ended 31
March 2010 and 2011?
a. 2010: $600; 2011: $300
b. 2010: $0; 2011: $900
c. 2010: $450; 2011: $450
d. 2010: $1,800; 2011: $0

27
 23. The characteristics of a normal sale are that the vendor relinquishes physical control of
the asset and is no longer affected by changes in the asset, i.e. the risks are transferred.
a. True
b. False
24. The following statements refer to the treatment of construction contracts under IAS 11:
1) Construction contracts are always accounted for individually
2) Construction contracts are usually accounted for individually but can sometimes
be accounted for in groups
3) Construction contracts are usually accounted for individually, but sometimes a
single contract can be accounted for as more than one component

Which of the statements is/are true?

a. 1 and 2
b. Only statement 2 is true
c. 2 and 3
d. All statements are true
25. The following costs relate to an entity that engages in a number of construction
contracts:
1) Depreciation of PPE used on the contracts
2) Administrative costs relating to overall contract activities, allocated on a reasonable
basis
3) Administrative costs relating to the entity in general, allocated on a reasonable basis

Which of the above costs can be included in the cost of construction contracts under the
principles of IAS 11?

a. 1 and 2
b. 1 and 3
c. 2 and 3
d. All of them
e. None of them
26. An entity carries out a construction contract that is 80% complete at the year end.
Relevant details are as follows:

Total contract price $1,000,000

Revenue recognised in previous periods $350,000

Costs incurred in previous periods $300,000

Costs incurred in current period $400,000

Estimated costs to complete the contract $100,000

28
 Costs recognised in income in previous periods $290,000

What will be recognised in the income statement in respect of this contract in the current
period?

a. Revenue: $800,000; costs: $640,000

b. Revenue: $650,000; costs: $400,000
c. Revenue: $450,000; costs: $350,000
d. Revenue: $450,000; costs: $400,000
27. An entity has recognised the following cumulative amounts in its financial statements in
respect of a long-term contract:

Revenue in the income statement $800,000

Costs taken to the income statement $600,000

Costs incurred to date $650,000

Progress payments invoiced to the customer $700,000

What will be the gross amounts shown in the balance sheet in respect of this contract?

a. Due from customers: $100,000

Due to customers: nil

b. Due from customers: $150,000

Due to customers: nil

c. Due from customers: $850,000

Due to customers: nil

d. Due from customers: $800,000

Due to customers: $700,000

PART 3: IFRS 15 - REVENUES FROM

CONTRACTS WITH CUSTOMERS
1. An entity shall recognise revenue to depict the transfer of promised goods or
services to customers in the _________ amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services.

a) Net
29
 b) Residual

c) Gross

d) Cumulative

2. Which of the following is an exception for application of IFRS 15?

a) Lease contracts

b) Insurance contracts

c) Pharmaceutical contracts

d) Financial audit contracts

e) All of the above

f) A and B

3. A contract is wholly unperformed if…

a) The entity has not yet transferred any promised goods or services to the customer

b) The entity has not yet received any consideration in exchange for promised goods or
services

c) The entity is not yet entitled to receive any consideration in exchange for promised
goods or services

d) All of the above

4. A contract modification is the change in the price and/or scope that is approved by
the parties to the contract in a written form only.
A. True
B. False

Explanation: (A contract modification could be approved in writing, by oral agreement or

implied by customary business practices)

5. A good or service that is promised to a customer is distinct if…

a) The customer can benefit from the good or service on its own

b) The customer can benefit from the good or service together with other resources that
are readily available to the customer

30
 c) The entity’s promise to transfer the good or service to the customer is separately
identifiable from other promises in the contract

d) All of the above

6. According to IFRS 15, the asset is transferred to a customer…

a) When the asset is physically delivered to the customer’s premises

b) On the day specified by a contract with the customer

c) When the customer obtains control over it

d) On the day when the entity satisfies all performance obligations, specified in the
contract with the customer

7. On 1 January 201X, a vendor enters into a contract with a customer to build an

item of specialised equipment, for delivery on 30 April 201X. However, the exact
delivery date is hard to estimate. The amount of consideration specified in the
contract is €300,000, but that amount will be decreased or increased by €500 for
each day, depending on whether the actual delivery date is before or after 30 April
201X. How should a vendor determine a transaction price for this contract?

a) A vendor needs to apply the most likely amount method in order to predict the amount
of consideration, because there is a range of possible outcomes

b) A vendor needs to apply expected value method in order to predict the amount of
consideration, because there is a range of possible outcomes

c) The transaction price for this contract should be the same as specified in the contract
with a customer, which is €300,000

d) The transaction price may only be calculated when the equipment is delivered and
exact amount of consideration is known

8. With regard to the definition of revenue given by IFRS15, which of the following
statements is true?
A. Revenue arises from ordinary activities only
B. Revenue may arise from either ordinary activities or extraordinary activities
C. Revenue includes cash received from share issues
D. Revenue includes cash received from borrowings
9. If the agreed date of payment by a customer is later than the date on which goods
or services are transferred to that customer, part of the consideration should
always be treated as finance income (not revenue). True or False?

31
 A. True
B. False
10. Step 1 of the "five-step model" states that certain conditions must be satisfied
before an entity can account for a contract with a customer. Which of the
following is not one of these conditions?
A. The payment terms can be identified
B. The entity and the customer have approved the contract and are committed to perform
their contractual obligations
C. Each party's rights with regard to the goods or services concerned can be identified
D. It is certain that the entity will collect the consideration to which it is entitled
11. A contract modification is always treated as a separate contract for the purposes of
IFRS15. True or False?
A. True
B. False
12. A single contract with a customer could include more than one performance
obligation and it is necessary to identify each performance obligation in the
contract. True or False?
A. True
B. False
13. A company enters into a contract to build a factory for a customer. The agreed
price is £2m and the specified completion date is 31 October 2020. However, the
contract provides that the company should receive an incentive payment of a
further £250,000 if the factory is completed by 30 September 2020. Similarly, the
price will be reduced by £250,000 if the factory is not completed until after 30
November 2020.

The company estimates that there is a 15% probability that the factory will be completed
by 30 September 2020, an 80% probability that it will be completed in October 2016 or
November 2020 and a 5% probability that it will not be completed until after 30
November 2020.

What is the expected value of the transaction price for this contract?

A. £2m
B. £2.125m
C. £1.975m
D. £2.025m
14. The accounting principle applied by IFRS15 when determining whether or not
revenue should be recognised in respect of a repurchase agreement is:
A. Substance over form

32
B. Verifiability
C. Prudence
D. Relevance
15. A performance obligation is satisfied over time if:
A. The entity does not have an enforceable right to payment for the performance that has
been completed to date
B. The entity's performance creates an asset that the customer controls as it is created
C. The entity's performance creates an asset which has an alternative use to the entity
D. The customer does not receive or consume the benefits provided by the entity's
performance until the obligation is completely satisfied
16. A company enters into a contract to supply three distinct products to a customer.
The promise to supply each of these products is regarded as a separate
performance obligation. The stand-alone prices of the three products (if sold
singly) are:

Product X £12,500

Product Y £24,000

Product Z £27,500

The agreed contract price is £57,600. How should this price be allocated to performance
obligations?

A. Product X £10,367; Product Y £21,867; Product Z £25,366

B. Product X £11,250; Product Y £21,600; Product Z £24,750
C. Product X £19,200; Product Y £19,200; Product Z £19,200
D. Product X £12,500; Product Y £24,000; Product Z £27,500
17. If a contract with a customer provides a warranty, then the warranty always
represents a separate performance obligation and part of the transaction price must
be allocated to it. True or False?
A. True
B. False
18. In general, contract costs incurred in relation to a contract with a customer must
be:
A. Recognised as an asset if they relate to a performance obligation which has not yet
been satisfied
B. Recognised as an asset if they are not expected to be recovered
C. Recognised as an expense when incurred
D. Recognised as an asset if they relate to a performance obligation which has been
satisfied

33
 19. The carrying amount of contract costs relating to a performance obligation and
recognised as an asset is £120,000. Further costs required in order to satisfy the
obligation are estimated to be £30,000. The consideration receivable by the
company when the obligation is satisfied is £132,000.

Calculate the amount of the impairment loss (if any) which should be deducted from the
contract asset and recognised as an expense.

A. £18,000
B. £42,000
C. £nil
D. £30,000

34
Provisions, contingencies and events after the balance sheet date
(IAS 37 and IAS 10)
1. Provisions can be distinguished from other liabilities such as creditors and loans from a
bank when both criteria are met:
i. There is uncertainty about the amount of the future expenditure required in
settlement; and
ii. There is uncertainty about the timing of the settlement event.
a. True
b. False
2. IAS establishes rules for recognition and measurement of provisions. Consider the
following:
1) future operating losses
2) accumulated amortisation of development costs
3) overdraft facilities offered by a Bank
4) onerous contracts.

Which of the above are likely to be included in the requirements for recognition as provisions
according to IAS 37?

a. 1, 3, 4
b. 1, 2, 4
c. 2, 3
d. 1, 2, 3
e. 1, 4
f. 2, 3, 4
3. If the likelihood of a contingent liability is possible, then the only disclosure required is:
(a) an estimate of its financial effect; and (b) the possibility of any reimbursement.
a. True
b. False
4. A provision for restructuring would normally reflect a situation when:
a. The amount recognised as a provisions will include both direct and indirect costs
of restructuring
b. The Board of Directors have decided to carry out the restructuring, although this
has not yet been announced
c. The company has sold an option to purchase that part of their business to an
investor outside of the company
d. All of the above
e. None of the above
5. IAS 37 also applies to lease accounting>
a. True

35
 b. False
6. Trevelyan & Co. is being sued for damages. When preparing its 2012 financial
statements the directors took the view that the likelihood of any payments having to be
made to the claimant was remote.

In preparing the 2013 financial statements their view was that it was possible that such
payments would have to be made, and in preparing the 2014 statements their view was
that such payments were probable.

For the 2015 statements there was virtual certainty that the payments would have to be
made. The payments were actually made in 2016.

In which financial statements must provision for the payments first be made?

a. 2012
b. 2015
c. 2013
d. 2016
e. 2014
7. An event which has occurred after balance date will not ever be taken into account in
post-balance date adjustments
a. True
b. False
8. IAS 10 defines the time period in which events after balance date need to be considered
as:
a. Those events occurring before the end of the audit of the results
b. Those events occurring up until midnight before the day of the Annual General
Meeting
c. Those events occurring within six months of balance date
d. Those events occurring before the Directors have authorised the financial report
e. Those events occurring within one month of balance date
9. When an event is determined to be an adjusting event, the adjustment of the amounts
involved may impact on any or all components within the financial report.>
a. True
b. False
10. What is the correct accounting treatment for a dividend which has been declared after
balance date and not paid before the financial statements are authorised for issue?
a. It is recognised directly as a debit to equity
b. It is an unrealised gain as part of comprehensive income
c. It is a component (expense) of comprehensive income
d. It is not recognised in the balance sheet and only disclosed in a Note (if material)

36
UPDATES:
IAS 10
1. An announcement of a major restructuring of a company is an adjusting event.
A. True
B. False
2. Events that provide evidence of conditions that existed at the end of the reporting
period are called…
A. Adjusting events
B. Non-adjusting events
3. A customer issues legal proceedings against Super Limited shortly after the end of its
financial reporting period. Is this an adjusting event?
A. Yes
B. No
4. Which of the following is an example of a non-adjusting event?
A. Sale of inventory for less than its carrying value shortly after the reporting period
B. Amounts received in respect of an insurance claim being negotiated at the period
end
C. Destruction of a machine by fire after the reporting period
D. Bankruptcy of a major customer with a balance owing at the period end
5. The liquidation of a major customer after the period end is an adjusting event.
A. True
B. False
6. Mercury Limited is preparing the financial statements for the period to 31 December
20x3. On 7 January 20x4, its sales rep crashed his company car, writing it off.
Unfortunately the vehicle was uninsured at the time of the crash.

Mercury’s CFO would like to write off the value of the vehicle in the financial statements
to 31 December 20x3. May he do this?

A. Yes
B. No
7. Events that arise after the financial statements are published are…
A. Adjusting events
B. Non-adjusting events
8. Evidence of a permanent deterioration of property value prior to year-end is a non-
adjusting event.
A. True
B. False

37
IAS 37 PROVISION AND EVENTS AFTER THE REPORTING
PERIOD
1. 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
2. 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
3. A past event is an obligating event only if it gives rise to a legally enforceable obligation. True or
False?
a. True
b. False
4. 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
5. 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
6. 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
7. 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

38
 b. False
8. 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
9. 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
10. 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

UPDATES
1. Provisions are reported as part of trade and other payables in the financial statements.
A. True
B. False
2. Which of the following does not create a constructive obligation under IAS 37?
A. Established pattern of past practice
B. Legislation
C. Published policies
D. A current statement
3. A provision for warranties should be made on the class of claims as a whole.
A. True
B. False
4. A contingent asset is one where ______ obligation will arise from past events, which
will be confirmed by events in the future.
A. a possible
B. a probable
C. an uncertain
D. a definite
5. When another party will reimburse some or all of the expenditure required to settle a
provision, the reimbursement should be recognised…
A. as a deduction against the provision
B. as a separate line in equity
39
 C. as a separate asset
D. as a note to the financial statements
6. An entity may avoid disclosure requirements if they expect it would seriously
prejudice the position of the entity in dispute with other parties.
A. True
B. False
7. If an entity has a warranty obligation and expects, with more than 50% probability, it
will result in some payments from the entity, a provision should be made for:
A. 50% of the expected amount of the payments
B. The expected amount of the payments
C. An amount agreed upon by management
D. The entire amount of the sales in the period
8. Under IAS 37 a ‘probable transfer of resources’ when referring to a provision
means…
A. Possible
B. More likely than not
C. Almost certain
D. Definite
9. Pools Plc. wishes to create a provision for future operating losses. Is this allowed
under IAS 37?
A. Yes
B. No
10. Which of the following is not a disclosure requirement for a contingent liability?
A. Exact timing of outflow
B. Indication of uncertainties relating to the amount
C. Estimated financial effect
D. Possibility of any reimbursement
11. Podge Limited created a provision for $100,000 against a certain event which never
materialised. During the financial year, another event costing $80,000 occurred.

May Podge Limited use part of the $100,00 provision against the new event?

A. Yes
B. No
12. A provision is the same as an accrual.
A. True
B. False
13. When a restructuring involves the sale of an operation, at what point may an
obligation arise under IAS 37?
A. When business is marketed for sale

40
 B. When a preferred buyer is located
C. When an expression of interest is filed
D. When a binding sale agreement is executed
14. The amount of a provision shall be the _________ of the expenditures expected to be
required to settle the obligation.
A. Market value
B. Fair value
C. Cost value
D. Present value
15. The cost of major overhauls of assets such as ships may be provisioned over a number
of years prior to the overhaul.
A. True
B. False
16. An entity may recognise a present obligation under an onerous contract as a provision.
A. True
B. False
17. Gains from the expected disposal of assets may be taken into account when measuring
a provision.
A. True
B. False
18. Where is a contingent liability contained in the financial statements?
A. As a non-current liability
B. A current liability
C. In equity
D. A note to the financial statements
19. A provision is a liability….
A. of uncertain timing but certain amount
B. of uncertain timing or amount
C. of certain timing but uncertain amount
D. none of these
20. When another party will reimburse some or all of the expenditure required to settle a
provision, the reimbursement should only be recognised when its receipt is…
A. Probable
B. Virtually certain
C. Possible
D. More probable than not
21. Which of the following is a restructuring cost under IAS 37?
A. Relocation of staff
B. Marketing

41
 C. Investment in new distribution networks
D. Relocation of business activities from one region to another
22. Contingent assets should be recognised in the financial statements when they are…
A. Possible
B. Probable
C. Definite
D. Received
23. Which of the following is not a restructuring cost?
A. Fundamental change in operations
B. Retraining staff
C. Sale of a line of business
D. Change in management structure

42
IAS 2 and IAS 11
1. 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
2. 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
3. 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
4. The cost formulas permitted by IAS2 are:
a. FIFO and LIFO
b. FIFO and AVCO
c. LIFO and AVCO
d. FIFO, LIFO and AVCO
5. 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
6. 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
7. On 31 December 2011, 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 2011 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
8. The definition of "construction contract" given by international standard IAS11 includes
contracts for the destruction of assets. True or False?

43
 a. True
b. False
9. 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
10. 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

PART 2:

IAS 2

1. In order to make a profit, sales revenue should match the costs of goods sold or services
rendered plus a margin sufficient to cover all other costs including interest costs, administrative
expenses and depreciation.
a. True
b. False
2. Inventories in North America are termed stocks in the UK.
a. True
b. False
3. An entity manufactures in its factory parts, which are then transported to a number of
distribution centres. The following costs relate to the manufacture of the parts:
1) Fixed production overheads, apportioned on a reasonable basis
2) Costs of transporting the parts from the factory to the distribution centres
3) Costs of returning the transportation vehicles from the distribution centres to the factory
4) The ongoing costs of storing the parts at the distribution centres prior to their use

Which of the above costs should be included in the cost of parts at the distribution centres under IAS 2?

a. 2 and 4
b. 1 and 4
c. 1 and 2
d. 2 and 3
4. In addition to the FIFO method of computing the cost of inventory, IAS 2 also allows:
a. Neither the LIFO method nor the weighted average cost method
b. The weighted average cost method and the specific identification method
c. The LIFO method and the specific identification method
d. Both the LIFO method and the weighted average cost method
5. An entity purchases raw materials from an overseas supplier. The following costs are relevant to
the purchase:

44
 1) Customs duties incurred in importing the product into the country
2) Costs of transporting the product from the overseas supplier to the entity
3) Exchange losses incurred when settling the liability to pay for the materials

Which of these costs can validly be regarded as part of the cost of the inventory?

a. 2 and 3
b. 1 and 2
c. 1 and 3
d. All of them
e. None of them
6. The following are costs that might be deducted from the selling price of inventories in order to
compute their NRV:
1) Trade discounts
2) Discounts for prompt payment
3) Costs of conversion of work in progress

Which of the above costs are deductible under the principles of IAS 2?

a. 1 and 2
b. 2 and 3
c. 1 and 3
d. All of them
e. None of them
7. An error that results in the closing inventory being understated will have no effect on the gross
profit of the following period.
a. True
b. False
8. Which of the following inventory valuation methods are companies permitted to use?
1) FIFO
2) LIFO
3) Weighted average cost
4) Base stock
a. 2 and 4
b. 2 and 3
c. 1 and 3
d. 1 and 4
9. A publisher of a series of cook books includes in the cost of the books the charges from a panel
of Testers for each recipe. These should be treated as part of the cost of each book.
a. True
b. False
10. What does NRV mean?
a. Net Replacement Value
b. Non-Revised Value
c. Non-Referenced Value

45
 d. Net Realisable Value
11. Which of the following are estimates which usually have to be made in order to determine NRV?
1) Estimated selling costs
2) Expected costs to complete the manufacturing process
3) Expected selling price
a. 2 and 3
b. 1, 2 and 3
c. 1 and 2
d. 1 and 3
12. Estimates of net realisable value should take into account changing prices after the reporting
date to the extent these confirm conditions existing within the reporting period.
a. True
b. False
13. Estimates of net realisable value should not take into account the specific intended use of the
inventory when estimating selling price, e.g an order for a particular customer.
a. True
b. False
14. The amount of any write down of inventories to NRV may be recognised in the Statement of
Comprehensive Income as an extraordinary line item, provided the entity is consistent in its
treatment of such losses.
a. True
b. False

46
IAS 16 Property, plant and equipment
1. 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
2. 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
3. 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
4. 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
5. On 31 December 2011, a company acquires land for £500,000. The land is revalued at £530,000
on 31 December 2012 and £460,000 on 31 December 2013.

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. 2012Income £30,000

2013Expense £70,000

b. 2012Other comprehensive income £30,000

2013Expense £70,000

47
 c. 2012Other comprehensive income £30,000

2013Negative other comprehensive income £70,000

d. 2012Other comprehensive income £30,000

2013Negative other comprehensive income £30,000

Expense £40,000

6. Depreciation is defined as the fall in value of an asset during an accounting period. True or
False?
a. True
b. False
7. On 1 January 2011, 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 2012 would be:

a. £3,083
b. £7,000
c. £4,550
d. £4,209
8. 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
9. 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%
10. 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
48
11. Management are required to make a number of choices of accounting policies with regard to
Property, Plant, and Equipment. Which of the following are the most relevant policy choices
both during the construction of a specialised asset on site and after its first full year of use?
1. Determining which transportation and import duty costs should be capitalised as
part of the cost of the asset during its construction
2. The cost of the parts of Board meetings dedicated to decisions regarding the asset
construction
3. Method of depreciation and useful life of the asset
4. The policy for inventory measurement
a. 1 and 4
b. 1 and 2
c. 3 and 4
d. 1 and 3
e. 2 and 3
f. 2 and 4
12. A higher residual value results in lower profit.
a. True
b. False
13. Which of the following types of expenditure is not permitted to be capitalised in respect of an
asset that is already in use?
a. Expenditure that makes the asset operate more efficiently
b. Expenditure that maintains the current operating capacity of the asset
c. Expenditure that increases the estimated useful economic life of the asset
d. Expenditure that increases the annual output of the asset
14. Salvage value is the same as residual value.
a. True
b. False
15. When using a diminishing value method of calculating the depreciation charge each year, the
depreciable amount is determined by deducting residual value from cost.
a. True
b. False
16. An asset was purchased for $1m on 1 January 2011. At the date of purchase the asset had an
estimated useful economic life of 5 years and an estimated residual value of $100,000. At the
end of the year following purchase the residual value estimate was revised to $120,000. What is
the appropriate depreciation charge for the year ended 31 December 2011 in respect of this
asset?
a. $200,000
b. $180,000
c. $156,000
d. $176,000
17. When the residual value of an asset is decreased, there will be lower profits because of an
increase in the depreciation charge.
a. True
b. False
49
 18. A company is assessing the impact on net profit and return on equity (earnings/equity) when
the useful life of an asset is increased.
1) There will be higher profits because of a decrease in the depreciation charge
2) There will be higher return on equity because of a bigger percentage increase in profit
versus the equity increase
3) There will be lower return on equity because of a lower percentage increase in profit
versus the asset increase.

Which of the statements are true?

a. None of the above

b. 1 and 3
c. All of the above
d. 1 and 2
19. After the initial recognition, an investment property must be measured at fair value.
a. True
b. False
20. Choosing a high ....... has the opposite effect of choosing a ........., all other things being equal.
a. rate of diminishing value/high depreciable amount
b. discount rate/high tax rate
c. residual value/short useful life
d. None of the above

UPDATES:
1. Under IAS 16, if an asset is idle…
A. Depreciation is paused
B. Depreciation for the entire period does not apply
C. Depreciation continues
D. Depreciation is ignored
2. Which of the following is not a component of cost of an asset?
A. Purchase price
B. Import duties
C. Refundable sales tax
D. Estimate of compulsory future dismantling costs
3. Which of these is an allowable cost of an asset under IAS 16?
A. Professional fees
B. General overheads
C. Initial operating losses
D. Administration expenses
4. If one large asset has a number of individual components with different useful lives,
how should this be depreciated?

50
 A. Treat as one asset
B. Break down into different parts
C. Expense it all
D. Treat as one asset, but disclose in the notes to the financial statements
5. What is the net amount an entity expects to obtain for an asset at the end of its useful
life?
A. Residual value
B. Depreciated value
C. Present value
D. Fair value
6. When an asset is sold or disposed of, where is the gain or loss recognised?
A. Asset disposal account
B. Profit and loss
C. Revaluation reserve
D. Depreciation
7. Under IAS 16, how often should the useful life of an asset be reviewed?
A. At least at each financial year end
B. Every six months
C. At management’s discretion
D. Never
8. Which of the following is not an asset that falls under the scope of IAS 16?
A. Tangible assets
B. Assets held for the production or supply of goods or services
C. Assets held for sale in the normal course of business
D. Assets expected to be used for more than one period
9. If an asset increases in value, the increase is noted as…
A. An increase in net profit in the SOCI
B. An increase in revaluation surplus in the SOFP and other comprehensive income
in the SOCI
C. An increase in retained earnings in SOFP
D. An increase in “other profit” in SOCI
10. When an item of property, plant and equipment is revalued, what should be revalued?
A. A selection of assets decided by management
B. The whole class of assets to which it belongs
C. The individual asset
D. A selection of assets picked at random
11. A change in depreciation method is a…
A. Change in accounting policy
B. Change in accounting estimate

51
 C. Change in accounting method
D. Change in accounting standard
12. What is an impairment loss?
A. The amount by which the carrying amount of an asset exceeds the recoverable
amount
B. The amount by which the market value of an asset exceeds the net present value
C. The difference between the fair value of an asset and the net realisable value of the
asset
D. The amount by which the carrying amount of an asset exceeds the book value
13. A company purchases land with an office building. The building has a useful life of
20 years. How should the land be depreciated?
A. Depreciate over 20 years
B. Depreciate over useful life of the land
C. Don’t depreciate the land
D. None of these
14. The purpose of depreciation is so an asset can be replaced at the end of its useful life.
A. True
B. False
15. If an asset decreases in value, the decrease is noted as…
A. An expense in the SOCI
B. A decrease in the “revaluation surplus” in the SOFP
C. A decrease in retained earnings in the SOFP
D. As “valuation deficit” in the SOFP
16. Under IAS 16, which of the following is not allowable as a directly attributable cost
of a machine?
A. Initial test batches
B. Site preparation
C. Delivery
D. Estimated dismantling costs
17. What is the amount an asset could achieve if sold between knowledgeable, willing
parties in an arms length transaction?
A. Current value
B. Net present value
C. Written down value
D. Fair value
18. Which of the following is covered by IAS 16 – Property, Plant and Equipment?
A. Assets held for sale
B. Biological assets related to agricultural activity
C. Exploration assets

52
 D. Office buildings
E. All of these
19. hat is the amount an asset is recognised at in the SOFP less any accumulated
depreciation or impairment losses?
A. Carrying amount
B. Residual value
C. Impairment amount
D. Fair value
20. When it is _______ that future economic benefits associated with an asset will flow to
the entity, and the costs can be _____ measured, it should be recognised as an asset.
A. Possible, reasonably
B. Possible, reliably
C. Probable, reliably
D. Probable, reasonably
21. Under IAS 16, which two subsequent accounting treatments are allowed subsequently
to initial recognition?
A. Cost model and present value model
B. Cost model and revaluation model
C. Fair value model and revaluation model
D. Fair value model and cost model
22. How should an asset be initially recognised in the financial statements?
A. Measure at market value
B. Measure at cost
C. Measure at net realisable value
D. Measure at fair value
23. Under IAS 16, if assets are exchanged in an arms length, commercial transaction,
their value will be measured at:
A. Written down value
B. Fair value
C. Carrying value
D. Net present value
24. Which of the following disclosures is not required when an asset is revalued?
A. Name of valuer
B. Basis used
C. Effective date of revaluation
D. Revaluation surplus
E. Whether valuer was independent

53
IAS 38 – INTANGIBLES
1. Goodwill does not fall within the IAS38 definition of an intangible asset because:
a. It is a monetary asset
b. It is not separable
c. It may not generate future economic benefits
d. None of the above
2. 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
3. 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
4. Expenditure on advertising and promotion never gives rise to the acquisition of an
intangible asset. True or False?
a. True
b. False
5. 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
6. On 31 December 2011, a company acquires an intangible asset for £50,000. The asset is
revalued at £42,000 on 31 December 2012 and £57,000 on 31 December 2013.

The company prepares financial statements to 31 December each year and uses the
revaluation model in relation to this class of intangible assets.

54
 The correct accounting treatment of each revaluation in the statement of
comprehensive income is as follows:

a. 2012Expense £8,000

2013Income £8,000

Other comprehensive income £7,000

b. 2012Expense £8,000

2013Income £15,000

c. 2012Expense £8,000

2013Other comprehensive income £15,000

d. 2012Negative other comprehensive income £8,000

2013Other comprehensive income £15,000

7. 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
8. 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
9. 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
10. 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

55
 11. An intangible asset with an indefinite useful life is nevertheless required to be amortised
over the most probable useful life.
a. True
b. False

12. IAS 38 - Intangible Assets - includes the following examples of research and
development expenditure:

1. Activities aimed at obtaining new knowledge

2. The design of tools, jigs, moulds and dies involving new technology

3. The design, construction and testing of a chosen alternative for new or improved
materials, devices, products, processes, systems or services

4. The search for alternatives for materials, devices, products, processes, systems and
services

Which of these items is development expenditure?

a. 2 and 4
b. 2 and 3
c. None of them
d. 1 and 4
e. All of them
13. Amortisation methods for intangible assets do not permit the Units of Production
method.
a. True
b. False

14. Amortisation and depreciation reflect similar accounting practices, and are more or less
different names for the same thing.
a. True
b. False

15. According to IAS 38 - Intangible Assets, which accounting treatment is specified for
amortising (or writing down) goodwill?
a. Not amortising goodwill, but reviewing it annually for impairment and expensing
any impairment loss
b. Amortising goodwill over its expected life
c. Writing off the goodwill directly to reserves in the year of acquisition

56
 d. Keeping goodwill in the balance sheet unchanged (i.e. no amortisation and no
impairment test)
16. If the pattern in which the asset's future economic benefits are expected to be
consumed by the entity cannot be determined, then amortisation of the intangible asset
is required to be made on a straight-line basis.
a. True
b. False

17. The competitive advantage in today's economy lies mostly within the areas of
unrecognised intangible competencies or potential capabilities. That these cannot be
measured does not impact on the utility of historic cost-based financial reports.
a. True
b. False

18. What factor might a company take into account when attempting to enhance the
representational faithfulness of a reported website cost.
a. The costs charged by an artistic contractor for an animated logo, not yet paid to
the contractor
b. The net present value of its residual value
c. The possibility of increased revenues
d. None of these listed factors
e. All of these listed factors

UPDATES
1. Big Limited has spent $100,000 developing a software product, which is obsolete
before it reaches the market.

May Big Limited recognise the $100,000 expense as an intangible asset?

A. Yes
B. No
2. What is the initial recognition measurement of an intangible asset?
A. Cost
B. Fair value
C. Net present value
D. Market value
3. A company may internally generate an intangible asset.
A. True
B. False

57
4. If one intangible asset is exchanged for another, the cost of the intangible is measured
at….
A. Book value
B. Fair value
C. Present value
D. Estimated value
5. When does amortisation of an intangible asset commence?
A. When the asset is substantially complete
B. When the asset is available for use
C. When management determine
D. At the start of the accounting period
6. When an intangible asset is sold, the gain or loss is recognised…
A. in Equity
B. in the Profit or Loss
C. in the Statement of Financial Position
D. in the Statement of Cash Flows
7. Intangible assets with an indefinite useful life should not be amortised.
A. True
B. False
8. Which of the following measurement models is not permitted for the subsequent
measurement of intangible assets under IAS 38?
A. Cost model
B. Capital Assets pricing model
C. Revaluation model
D. None of these
9. Which of the following is an intangible asset under IAS 38?
A. Patent rights
B. Market share
C. Customer loyalty
D. Technical knowledge training
10. Jumbo Limited wishes to record staff training and education costs as an intangible
asset, as this gives the company’s employees’ technical knowledge which is a
competitive advantage.

May Jumbo Limited record the training costs as an intangible asset?

A. Yes
B. No
11. Which of the following is not an example of an intangible asset?
A. Cash in bank

58
 B. Customer lists
C. Trademarks
D. Software patents
12. What are intangible assets?
A. Monetary assets without physical substance
B. Monetary assets with physical substance
C. Non-monetary assets without physical substance
D. Non-monetary assets with physical substance
13. Which of the following internally generated items may not be recognised as intangible
assets?
A. Mastheads
B. Customer lists
C. Brands
D. Publishing Titles
E. All of these
14. An entity may classify an internal project’s cost as either research or development if it
cannot distinguish between each phase.
A. True
B. False
15. If an asset is revalued, and the revised valuation is less than its current valuation,
where will the change be noted?
A. Statement of Financial Position under “Decrease in asset value”
B. Income Statement as an expense
C. Statement of Financial Position under “Revaluation deficit”
D. Equity under “Revaluation deficit”
16. Research costs may be recorded as an intangible asset.
A. True
B. False
17. How often should the useful life of an intangible asset with a finite useful life be
reviewed?
A. Every six months
B. Every year
C. Every five years
D. At management’s discretion
18. An intangible asset with a finite useful life should be amortised over…
A. Its expected useful life
B. A period determined by management
C. Five years
D. No foreseeable limit

59
19. If an intangible asset is revalued upwards, the increase in value should be credited…
A. to the Income Statement under “Other Income”
B. to the Income Statement under “Revaluation of Assets”
C. to the Statement of Financial Position under “Revaluation Surplus”
D. to Equity under “Revaluation Surplus”
20. Which of the following is not a requirement to capitalise development costs under
IAS 38 – Intangible Assets?
A. It must be technically feasible
B. The entity intends to sell the completed intangible asset
C. The entity can demonstrate how the asset will generate future economic benefits
D. The commercial feasibility for the asset may be uncertain
21. An entity is permitted to use the revaluation model for the initial recognition of an
intangible asset.
A. True
B. False
22. Where is the amortisation of an intangible asset recognised?
A. Profit or Loss
B. Equity
C. Statement of Financial Position
D. Statement of Cash Flows

60
IAS 8 Accounting policies accounting estimates and errors
1. 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
2. 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
3. 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
4. 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
5. 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
6. A change in an accounting estimate should be accounted for:
a. Retrospectively
b. Prospectively
c. Either retrospectively or prospectively
d. Retrospectively unless it is impracticable to do so
7. The use of estimates always undermines the reliability of financial statements. True or False?
a. True
b. False
8. Prior period errors could be caused by:
a. Fraud
b. Mistakes in applying accounting policies
c. Mathematical errors
61
 d. Any of the above
9. A material prior period error should be corrected:
a. Retrospectively
b. Prospectively
c. Either retrospectively or prospectively
d. Prospectively unless it is impracticable to do so
10. 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
11. What is a characteristic of comparative information on adoption of IFRS?
a. It is only required for balance sheet items
b. It is part of management discussion and analysis
c. It is too costly to prepare
d. It is often offered on the basis of five years of data
12. An entity needs to adjust an error in an earlier estimate for employee health care in a prior
financial statement. Which of these is true?
a. The estimate is to take into account added costs from a later epidemic
b. As it is only an estimate it does not need to be adjusted
c. Actual costs which occurred six months after balance date can be used instead of the
estimate
d. The estimate is not to take into account hindsight about added costs from a later
epidemic
13. What do retrospective applications relate to?
a. Changes in accruals policies only
b. Changes in any category of accounting policies
c. Comprehensive income adjustments only
d. Earnings management
14. What does retrospective restatement relate to?
a. Adjustments for dividends approved at the Annual General Meeting
b. The correction of material prior period errors
c. Adjustments to take account of doubtful debts which turned bad after balance date
d. SEC rulings regarding restatements
15. One circumstance which might give rise to a prior period adjustment being impractical is when?
a. The adjustment will result in lower reported earnings
b. There has been a change of auditors
c. The financial report has been authorised for issue
d. The necessary information cannot be recreated to make the adjustment

62
 16. In making an adjustment to an estimate in a prior period which resulted from a change in an
accounting policy......
a. The new estimate is required to be valued with a net present value calculation to reflect
current values
b. The new estimate has to reflect the circumstances when the original transaction
occurred
c. With the benefit of more recent knowledge, there is a higher probability threshold in
the recognition criteria
d. The new estimate has to also reflect the circumstances which have arisen since the
original transaction occurred
17. Many items in a financial report cannot be measured with precision, but can only be estimated.
This fact reflects the need for the financial statements to...?
a. Include intangible assets
b. Be based on the lower of cost or market asset values
c. Be prepared on a going concern basis
d. Be based on the latest and most reliable information
18. Which of the following is not an example of an estimate in current assets or contra assets in a
financial report?
a. Bad debts
b. Cash
c. Depreciation
d. The fair value of a financial asset
19. A change in the measurement basis applied...?
a. Occurs when there is a change in auditor
b. Signals earnings management
c. Is a change in an accounting estimate
d. Is a change in an accounting policy
20. Which of the following standards do not permit any choice between alternative accounting
treatments?
a. IAS 2 - the Rule of lower of cost or market (NRV)
b. IAS 16 Property Plant and Equipment
c. IA 38 Intangible assets
d. IAS 1 Presentation of Financial Statements

UPDATES:
IAS 8
1. When an IFRS specifically applies to a transaction, then accounting policies should be
determined:
A. By ignoring the IFRS
B. By applying the IFRS
C. By using the industry practice for the transaction
D. None of these
63
2. Which of the following is not a change in accounting policy?
A. Change in the method of depreciation
B. Change in the method of valuation of inventory
C. Accounting for a transaction that did not previously occur
D. Change in the method of revenue recognition
E. Change in the cost formula of valuing inventory
3. When a change in accounting policy is applied retrospectively then the change shall
be…
A. noted in the income statement of the current reporting period
B. adjusted in equity
C. noted in the income statement of the previous reporting period
D. disclosed in the notes to the financial statements without making adjustments in
the financial statements
4. Changes in accounting estimates are applied retrospectively.
A. True
B. False
5. When is prospective application of a change in accounting policy allowed?
A. Never
B. When management approve
C. When it’s impracticable to calculate the cumulative effect of the change
D. None of these
6. A change in accounting estimate may include the correction of an accounting error.
A. True
B. False
7. Changes in accounting policies are applied…
A. Prospectively
B. Retrospectively
C. Immediately
D. None of the above
8. A change in accounting policy should be disclosed in subsequent financial statements.
A. True
B. False
9. Which of the following is not an example of an accounting estimate?
A. Bad debts
B. Inventory obsolescence
C. Warranty obligations
D. Fair value of a financial asset
E. Purchase price of a fixed asset
10. When an entity applies an IFRS before its effective date…
A. the effect of the IFRS shall be recognized only in the income statement.
B. the early adoption should be disclosed.
C. the effect of the IFRS should be recognised only in the Statement of Changes in
Equity.
D. the transitional provisions may be ignored.
11. Retrospective application of an accounting policy means:
64
 A. Application of accounting policies as if that policy had always been applied.
B. Application of accounting policies from the year in which change in accounting
policies happened.
C. Application of accounting policies from the immediately preceding year in which
the change in accounting policies happened.
D. Application of accounting policies without giving effect to the future.
E. Application of accounting policies without giving effect to the prior period items.
12. Which of the following is a change in accounting policy?
A. Adopting a new accounting policy for a kind of transaction that was never
previously dealt with by the entity.
B. Adopting a new accounting policy for a type of transaction that was previously
dealt with by the entity.
C. Adopting a new accounting policy for a transaction, which occurred in the past,
but was not material.
13. In the absence of an IFRS that specifically applies to a transaction, then…
A. The transaction should not be accounted in the financial statements
B. The transaction should be ignored and such a fact should be disclosed in the notes
to the financial statements
C. The auditors of the entity shall decide the suitable accounting policy
D. The management shall use its judgment in determining a suitable accounting
policy
14. A change to the useful life of an asset is a change in accounting policy.
A. True
B. False
15. Material misstatements are considered to be material if:
A. They aggregate to more than 2% of the entity’s turnover for the reporting period.
B. They individually influence the economic decisions made by the users of financial
statements
C. They individually or collectively influence the economic decisions made by the
users of financial statements
D. They aggregate to more than $5,000 during the reporting period.
E. They are misstatements relating statements of inventory (i.e. Raw Materials, Work
in Progress and Finished Goods)
16. The specific principles, bases, conventions, rules and practices applied by an entity in
preparing and presenting financial statements are called…
A. Accounting policies
B. Accounting estimates
C. Accounting principles
D. GAAP
17. An increase in bad debt provisions is a change in accounting estimate.
A. True
B. False

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18. If a revaluation policy is adopted for tangible, non-current assets for the first time, this
is a change in accounting policy.
A. True
B. False
19. In previous financial statements Mega Supermarkets Ltd valued its inventory on a
weighted average basis. This year it has decided to account for it on a first-in, first-out
(FIFO) basis. How should Mega Supermarkets account for this change?
A. Prospectively as it is a change in estimate
B. Prospectively as it is a change in accounting policy
C. Retrospectively as it is a correction of an error
D. Retrospectively as it is a change in accounting policy
20. When a change in accounting policy is applied retrospectively, then the comparative
information for the prior period shall be…
A. Restated as far as is practicable
B. Restated for ten years or from the year of first financial information whichever is
earlier
C. Restated for five years or from the year of first information whichever is earlier
D. Not to be restated
21. Which of the following is a change in accounting estimate?
A. Misinterpretation of facts
B. Provision for obsolescence
C. Change in inventory valuation method from weighted average to FIFO
D. Oversights
22. A company provides for bad debts at the rate of 2% of the sales. With effect from
2020, it has decided to change it to 3% of sales. The sales for 2019 are $100,000 and
for 2020, $200,000. In the financial statements of the year 2020, which of the
following treatment is appropriate?
A. Calculate the retrospective effect of the change and charge it to income statement
of 2020
B. Apply the change prospectively from 2020
C. Calculate the retrospective effect of the change and charge it to the equity
D. Calculate the prospective effect of the change and charge it to equity
23. Which of the following is not a valid reason to change an accounting policy?
A. Change in statute
B. Change in accounting standard
C. Board of directors approve change
D. Management decide it would result in better financial statements
24. Accounting policies across various reporting periods may vary depending on the
needs of the reporting entity.
A. True
B. False

66
25. When a public company changes an accounting policy voluntarily, it has to:
A. Treat the effect of the change as an extraordinary item
B. Treat it prospectively and adjust the effect of the change in the current period and
future periods
C. Inform shareholders prior to taking the decision
D. Account for it retrospectively
26. When a change in accounting policy takes place, comparative information should be
restated unless…
A. Management agree not to
B. It is impracticable to do so
C. More than five periods have to be restated
D. It would be difficult to do so

67
IAS 36 Impairment of assets
1. 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
2. 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
3. An asset's recoverable amount is equal to:
a. The lower of the asset's fair value less costs to sell 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 to sell and its value in use
4. An asset's carrying amount is £25,000. Its fair value less costs to sell 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
5. 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
6. The IAS36 definition of "corporate assets" specifically excludes goodwill. True or False?
a. True
b. False
7. 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

68
 d. Goodwill £250,000, PPE £130,000
8. 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
9. 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
10. 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

PART 2:

11. Fair value less costs to sell is the same as NRV.

a. True
b. False
12. NRV means...?
a. Net Residual Value
b. Net Realisable Value
c. Net Recoverable Value
d. Net Recognition Value
e. None of the above
13. A higher residual value results in lower profit.
a. True
b. False
14. The following statements relate to the implementation of an impairment review under IAS 36:
1) If the fair value less costs to sell of an asset is greater than its carrying value then the
asset has not suffered impairment and it is unnecessary to compute value in use
2) When calculating value in use it is necessary to use a post-tax cost of capital
3) If an asset has not previously been revalued then impairment losses are always
recognised in the income statement

Which of the statements are true?

a. 2 and 3

69
 b. 1 and 3
c. 1 and 2
d. All of them
e. None of them
15. Cash generating units (CGUs) are groups of assets that generate income streams largely
independent of each other.
a. True
b. False
16. Some of the key external sources of information which should be used to consider whether or
not an asset has been impaired include:
1) An asset's market value has declined significantly more than would be expected as a result
of the passage of time
2) Market interest rates have increased to the extent these would materially affect the
calculation of the asset's value in use
3) There has been significant volatility in the entity's share price due to currency fluctuations.
4) There have been significant and negative technological events impacting on the firm value.

Which three sources are most relevant to an impairment test on the asset?

a. 1, 2 and 3
b. 1, 2, and 4
c. 2, 3 and 4
d. All of them
e. None of them
17. When an impairment review of a CGU is required, the review of the CGU will include not only
tangible assets, but also intangible assets and attributed goodwill.
a. True
b. False
18. Generally an impairment loss is recognised...
a. Any of these are equally likely
b. As an expense in the income statement
c. As a component of accumulated depreciation
d. As a loss in the statement of comprehensive income
e. None of these are permitted
f. Directly in equity
19. The calculation of value in use will involve making estimates of future cash flows. These
estimates must be based on reasonable assumptions, and a greater weight should be given to
internal rather than external evidence.
a. True
b. False
20. Which ones of the following outflows are likely to be included in calculating value in use from
the continued use of an asset?
a. Increased maintenance and operating costs
b. Tax receipts and payments

70
 c. All of these are likely to be relevant
d. Cash outflows relating to current trade payables
e. None of these are relevant
f. Cash outflows from financing activities
21. It is not always necessary to determine both the asset's NRV and value in use.
a. True
b. False
22. Internal sources of information which may suggest impairment might include...

The economic performance of the asset is worse than expected

Impact of publicity over brand values

There is evidence of physical damage or obsolescence of the asset

The cash flows required for operating the asset are much higher than budgeted

a. 1, 2, and 3
b. 1, 3 and 4
c. 2, 3, and 4
d. All of them
e. None of them
23. The discount rate used in calculating an asset's value in use should be the .............which reflects
....................
a. Current pre-tax interest rate / the time value of money
b. Interest rate charged on borrowings during its construction / the historic cost of the
asset
c. Current after-tax interest rate / the time value of money
d. Any of these options
e. None of these options

UPDATES
1. How often should a cash generating unit to which goodwill has been assigned, be
tested for impairment?
A. At management’s discretion
B. Every six months
C. Every year
D. As often as practicable
2. Goodwill and intangible assets with indefinite useful lives must be tested for
impairment at least every five years.
A. True
B. False

71
3. When the recoverable amount of an asset is less than its carrying value in the
Statement of Financial Poisition, the asset is…
A. in a revaluation deficit
B. impaired
C. flawed
D. in negative equity
4. The carrying amount of an asset should not be reduced below the highest of

1. Its fair value less cost to sell

2. Its value in use

3. Zero

A. True
B. False
5. The carrying amount of an asset is defined under IAS 36 as…
A. The amount at which an asset is recognised after adding any accumulated
depreciation and accumulated impairment losses.
B. The amount at which an asset is recognised after deducting any accumulated
depreciation and accumulated impairment losses.
C. The amount at which an asset is recognised after deducting any accumulated
depreciation and adding back any accumulated impairment losses.
D. The amount at which an asset is recognised after adding any revaluation gains and
accumulated impairment losses.
E. The amount at which an asset is recognised after deducting any revaluation losses
and accumulated impairment losses.
6. When should a reversal of an impairment loss be recognised?
A. Never
B. Immediately
C. When approved by the board of directors
D. None of these
7. In measuring Value in Use, the discount rate used for discounting the cash flows
should be the…
A. Pre-tax rate that reflects the market assessment of time value of money and risks
specific to the asset
B. Pre-tax rate that reflects the market assessment of time value of money and risks
specific to the entity’s competitors
C. Post-tax rate that reflects the entity’s assessment of time value of money and risks
specific to the asset

72
 D. Pre-tax rate that reflects the entity’s assessment of time value of money and risks
specific to the asset
8. The smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other group assets or groups of assets are
called…
A. Division
B. Cash-generating unit
C. Department
D. Operating Segment
9. Which of the following is not permitted as a cost to sell under IAS 36?
A. Cost to dismantle machine
B. Auctioneers fees
C. Standard wages for employees
D. Transport costs for machine
10. If the fair value less costs to sell for an asset cannot be determined, then recoverable
amount is its…
A. Fair value
B. Market value
C. Replacement value
D. Value in use
E. Recorded value
11. The amount, which an asset is recorded in the Statement of Financial Position, less
any accumulated depreciation and impairment losses, is called…
A. Carrying amount
B. Present value
C. Fair value
D. Net realisable value
12. Value in use is…
A. The discounted present value of future cash flows expected to arise from
continuing use of asset, and from its disposal at the end of its useful life.
B. The discounted future value of future cash flows expected to arise from continuing
use of asset, and from its disposal at the end of its useful life.
C. The discounted present value of historical cash flows expected to arise from
continuing use of asset, and from its disposal at the end of its useful life.
D. The undiscounted present value of future cash flows expected to arise from
continuing use of asset, and from its disposal at the end of its useful life.
E. The undiscounted future value of present cash flows expected to arise from
continuing use of asset, and from its disposal at the end of its useful life.
13. When should a reversal of a goodwill impairment be recognised?

73
 A. Immediately
B. At the end of the accounting period
C. At management’s discretion
D. Never
14. Under IAS 36, when it is not possible to calculate the recoverable amount of a single
asset, what should be done?
A. A rough estimate should be provided
B. The recoverable amount of its cash generating unit should be calculated
C. A disclosure should be provided in the notes to the financial statements
D. The value should remain unchanged
15. An asset is said to be impaired if…
A. Its carrying amount exceeds its net discounted cash inflows
B. Its recoverable amount exceeds its carrying amount
C. Its carrying amount exceeds its recoverable amount
D. Its carrying amount is less than its market value
16. Which of the following is an external indication of impairment?
A. Physical damage
B. Decline in market value
C. Asset is part of a restructuring or held for disposal
D. Worse economic performance than expected
E. All of these
17. What is the treatment of an impairment loss under IAS 36?
A. Write it off against profit immediately
B. Write it off against profit over a defined period agreed by management
C. Record a liability in the SOFP for “Impairment losses”
D. Record it in Equity under “Revaluations”
18. When a reversal of an impairment loss occurs, which of the following adjustments are
to be made?
A. Recognise in the income statement and adjust the depreciation for future periods
B. Recognise in the income statement without adjustment to the depreciation for
future periods
C. Recognise in the statement of changes in equity and adjust the depreciation for
future periods
D. Recognise in the statement of changes in equity without adjustment to the
depreciation for future periods
19. Which of the following is not covered by IAS 36 – Impairment?
A. Property, Plant and Equipment
B. Inventory
C. Motor Vehicles

74
 D. Intangible assets
20. A cash-generating unit is defined as…
A. the smallest identifiable group of assets that generates cash inflows that are largely
independent from the cash inflows of other assets.
B. the easiest identifiable group of assets that generates cash inflows that are largely
independent from the cash inflows of other assets.
C. the smallest identifiable group of assets that generates cash outflows that are
largely independent from the cash outflows of other assets.
D. the largest identifiable group of assets that generates cash inflows that is largely
independent from the cash inflows of other assets.
21. When an impairment loss occurs, the carrying amount of the asset should be reduced
to its ____
A. Market value
B. Recoverable amount
C. Net present value
D. Value in use
22. When should an impairment loss be recognised?
A. Immediately
B. Over a number of accounting periods
C. At management’s discretion
D. When requested by the entity’s auditors
23. The present value of expected future cash flows generated by an asset, plus its
expected disposal value is called…
A. Net present value
B. Value in use
C. Fair value
D. Market value
24. Under IAS 36, what is the recoverable amount of an asset?
A. The lower of its cost and net realisable value
B. The higher of fair value less costs of disposal and value in use
C. The lower of net present value and cost
D. The higher of net present value and cost
25. IAS 36 presumes that budgets and forecasts while arriving at cash flow projections
should be…
A. more than ten years
B. not more than ten years
C. not more than five years
D. not more than three years
26. Which of the following is an external indication of impairment?

75
 A. Damage to an asset
B. Ongoing losses
C. Decline in market value
D. Management commitment to undergo a restructuring
27. When a cash-generating unit has an impairment loss, the loss must first be applied
to…
A. goodwill
B. any assets obviously impaired
C. against all assets on a pro-rata basis
D. on the entire cash generating unit on a pro-rata basis

76
IAS 17 - LEASES
1. Which of the following is not an indication a lease is a finance lease?
A. The lease transfers ownership of the asset to the lessee at the end of the lease
B. The lease term is for a short part of the economic life of the asset
C. The leased assets are specialised in nature
D. The present value of minimum lease payment amounts to substantially all of the
fair value of the asset
2. How should the minimum lease payments (‘MLP’) of a land and building lease get
apportioned?
A. Treat entirely as building
B. Treat entirely as land
C. Apportion MLP between land and buildings based on fair value of leasehold
interests
D. Apportion MLP between land and buildings based on management’s judgement
3. In an operating lease, if a rebate is received, how should it be recorded in the
financial statements?
A. Treat as deferred income and release to P&L over the lease term
B. Recognise immediately as income
C. Deduct from the value of the lease payments
D. Ignore
4. Lease payments should be split into an interest component and expense
component.
A. True
B. False
5. A leased asset should be depreciated over the…
A. Shorter of the lease term and the asset’s useful life
B. Longer of the lease term and the asset’s useful life
C. Entire lease term
D. Useful life of the asset
6. In a land lease, if title does not pass at the end of a lease to the lessee, it is
normally treated as:
A. Finance lease
B. Operating lease
7. Which of the following is not a disclosure requirement for finance leases:
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A. Carrying amount of asset
B. Market value of asset
C. General description of significant leasing arrangements
D. Reconciliation between total minimum lease payments and their present value
8. How should the minimum lease payments (‘MLP’) of a land and building lease get
apportioned?
A. Treat entirely as building
B. Treat entirely as land
C. Apportion MLP between land and buildings based on fair value of leasehold
interests
D. Apportion MLP between land and buildings based on management’s judgement
9. Finance leases are accounted for in a similar manner to
A. Credit transactions
B. Cash transactions
C. Sale and leaseback agreements
D. Loan forgiveness
10. IAS 17 assumes a lessor will not recover their asset, which is leased under a
finance lease.
A. True
B. False
11. When a lease transfers substantially all the risks and rewards of ownership to
lessee, this is called…
A. A finance lease
B. An operating lease
C. A buy-to-let agreement
D. A rental agreement
12. What type of lease is presumed, when the present value of minimum lease
payments is approximately equal to the fair value of the lease assets?
A. Finance lease
B. Operating lease
13. Operating leases are mostly ______ agreements.
A. Long term
B. Medium term
C. Short term
D. Verbal
14. The payments over the lease term the lessee can or must make is called…
A. Principal
B. Interest
C. Present value payments

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 D. Minimum lease payments

IAS 21 - THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE

RATES
1. 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
2. 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
3. A company prepares financial statements to 31 December each year and has the
pound sterling as its functional currency. On 29 October 2020, the company buys
inventory for $28,380. This amount is still unpaid at 31 December 2020. The
inventory is all sold during the month of December. Exchange rates are £1 = $1.65 on
29 October 2020 and £1 = $1.72 on 31 December 2020. Calculate: (a) the amount in £
at which the purchase and the trade payable should be recorded on 29 October 2020
(b) the amount in £ at which the trade payable should be shown in the statement of
financial position at 31 December 2020 (c) the exchange difference which arises.
A. £17,200 (b) £17,200 (c) £nil
B. £17,200 (b) £16,500 (c) £700 (favourable)
C. £16,500 (b) £16,500 (c) £nil
D. £17,200 (b) £16,500 (c) £700 (adverse)
4. 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

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