ACCA AS Financial Reporting — Questions and Answers
Question 1: Under IFRS 15, revenue is recognised when:
- Cash is received from the customer
- A performance obligation is satisfied by transferring a promised good or service to the customer (Correct answer)
- An invoice is raised
- A contract is signed
Correct answer: A performance obligation is satisfied by transferring a promised good or service to the customer
IFRS 15 uses a five-step model: identify contract, identify performance obligations, determine transaction price, allocate price, recognise revenue when (or as) each obligation is satisfied.
Question 2: Under IAS 16, property, plant and equipment is initially recognised at:
- Fair value
- Net realisable value
- Cost (Correct answer)
- Replacement cost
Correct answer: Cost
Under IAS 16, PPE is initially measured at cost, comprising purchase price plus directly attributable costs of bringing the asset to its intended location and condition.
Question 3: The revaluation model under IAS 16 requires that when an asset is revalued upwards:
- The gain is recognised in profit or loss
- The gain is recognised in other comprehensive income and accumulated in the revaluation reserve (Correct answer)
- The asset is derecognised and replaced
- Depreciation ceases
Correct answer: The gain is recognised in other comprehensive income and accumulated in the revaluation reserve
Upward revaluations under IAS 16 are credited to other comprehensive income, accumulating in the revaluation reserve (a component of equity), not profit or loss.
Question 4: Under IFRS 9, a financial asset measured at amortised cost is one held:
- To earn fair value gains
- Within a business model to collect contractual cash flows, which are solely payments of principal and interest (Correct answer)
- For trading in the short term
- To provide collateral for borrowings
Correct answer: Within a business model to collect contractual cash flows, which are solely payments of principal and interest
IFRS 9 requires amortised cost for financial assets held within a 'hold to collect' business model where cash flows are solely SPPI (solely payments of principal and interest).
Question 5: Under IAS 37, a provision should be recognised when:
- A possible obligation exists that depends on an uncertain future event
- There is a present obligation, a probable outflow of resources, and a reliable estimate can be made (Correct answer)
- Management decides to make a general provision
- A potential asset is identified
Correct answer: There is a present obligation, a probable outflow of resources, and a reliable estimate can be made
IAS 37: a provision is recognised when (1) there is a present obligation (legal or constructive), (2) it is probable that an outflow of economic resources will be required, and (3) the amount can be reliably estimated.
Question 6: Which of the following is a key difference between IFRS and UK GAAP (FRS 102)?
- FRS 102 requires fair value for all non-current assets
- IFRS does not permit the cost model for investment property
- IFRS is mandatory for UK listed companies' consolidated statements; FRS 102 is typically used by unlisted UK entities (Correct answer)
- FRS 102 requires full IFRS disclosures
Correct answer: IFRS is mandatory for UK listed companies' consolidated statements; FRS 102 is typically used by unlisted UK entities
UK listed companies must use IFRS for consolidated financial statements (EU-adopted/UK-endorsed IFRS). Most unlisted UK companies use FRS 102 (the UK and Ireland standard).
ACCA AS Financial Reporting
Under IFRS 15, revenue is recognised when: