ACCA AK Financial Accounting (FA) Financial Statements — Questions and Answers
Question 1: Under IAS 1 Presentation of Financial Statements, which of the following is NOT a component of a complete set of financial statements?
- Statement of profit or loss and other comprehensive income
- Statement of financial position
- Statement of cash flows
- Tax computation (Correct answer)
Correct answer: Tax computation
IAS 1 requires five components: statement of financial position; statement of profit or loss and other comprehensive income; statement of changes in equity; statement of cash flows; and notes. A tax computation is not a required financial statement under IAS 1.
Question 2: Under IAS 16 Property, Plant and Equipment, which of the following costs should be included in the initial measurement of a purchased machine?
- Staff training costs for operating the machine
- Import duties and non-refundable purchase taxes (Correct answer)
- Costs of relocating the machine to a different factory after initial installation
- Advertising costs for products made by the machine
Correct answer: Import duties and non-refundable purchase taxes
IAS 16 requires that the cost of an item of PPE includes its purchase price plus import duties and non-refundable taxes, plus any directly attributable costs of bringing the asset to working condition. Training, relocation after use, and advertising are not directly attributable.
Question 3: A company has revenue of £800,000, cost of sales of £480,000, distribution costs of £60,000, administrative expenses of £80,000, and finance costs of £20,000. What is the profit before tax?
- £320,000
- £260,000
- £180,000
- £160,000 (Correct answer)
Correct answer: £160,000
Gross profit = £800,000 − £480,000 = £320,000. Operating profit = £320,000 − £60,000 − £80,000 = £180,000. Profit before tax = £180,000 − £20,000 = £160,000.
Question 4: Under IAS 2 Inventories, which of the following should be included in the cost of inventory?
- Selling costs
- Storage costs of finished goods awaiting sale
- Costs of conversion including production overheads based on normal capacity (Correct answer)
- Abnormal waste of materials
Correct answer: Costs of conversion including production overheads based on normal capacity
IAS 2 states that inventory cost includes costs of purchase, costs of conversion, and other costs incurred in bringing inventories to their present location and condition. Conversion costs include production overheads allocated based on normal capacity. Selling costs, post-production storage, and abnormal waste are excluded.
Question 5: What is the correct treatment of a government grant related to an asset under IAS 20?
- Recognise the full grant as revenue immediately on receipt
- Either deduct the grant from the asset's carrying amount or recognise it as deferred income (Correct answer)
- Record the grant as a liability that is never released
- Ignore the grant in the financial statements
Correct answer: Either deduct the grant from the asset's carrying amount or recognise it as deferred income
IAS 20 permits two methods for asset-related grants: (1) deduct the grant from the carrying amount of the asset, reducing depreciation; or (2) treat it as deferred income, releasing it to profit or loss systematically over the asset's useful life.
Question 6: A non-current asset cost £50,000, has a useful life of 10 years, and a residual value of £5,000. Using the straight-line method, what is the annual depreciation charge?
- £5,000
- £4,500 (Correct answer)
- £50,000
- £45,000
Correct answer: £4,500
Straight-line depreciation = (Cost − Residual value) ÷ Useful life = (£50,000 − £5,000) ÷ 10 = £4,500 per year.
ACCA AK Financial Accounting (FA) Financial Statements
Under IAS 1 Presentation of Financial Statements, which of the following is NOT a component of a complete set of financial statements?