ACCA SP Strategic Business Reporting — Questions and Answers
Question 1: Under IFRS 3, how is goodwill measured at acquisition?
- As the excess of the purchase price over the book value of net assets
- As fair value of consideration plus fair value of NCI minus fair value of identifiable net assets acquired (Correct answer)
- As the present value of expected future super-profits
- As the difference between market capitalisation and total equity
Correct answer: As fair value of consideration plus fair value of NCI minus fair value of identifiable net assets acquired
IFRS 3: Goodwill = Fair value of consideration transferred + Fair value of non-controlling interest (NCI) − Fair value of identifiable net assets acquired at the acquisition date.
Question 2: Under IFRS 10, which of the following criteria must be met for one entity to control another?
- Ownership of more than 50% of voting rights only
- Power over the investee, exposure to variable returns, and ability to use power to affect those returns (Correct answer)
- Owning more than 20% of shares
- Providing more than half of the entity's funding
Correct answer: Power over the investee, exposure to variable returns, and ability to use power to affect those returns
IFRS 10 defines control through three elements: (1) power over the investee, (2) exposure/rights to variable returns, and (3) ability to use power to affect returns. All three must be present.
Question 3: How are associates accounted for in consolidated financial statements under IAS 28?
- Full consolidation (line by line)
- Equity method (share of net assets and share of profit recognised) (Correct answer)
- Fair value through profit or loss
- Cost method only
Correct answer: Equity method (share of net assets and share of profit recognised)
IAS 28 requires associates (significant influence, typically 20-50% ownership) to be accounted for using the equity method: the investment is carried at cost adjusted for the investor's share of net assets and profits.
Question 4: Under IFRS 5, a non-current asset classified as 'held for sale' should be measured at:
- Cost
- Carrying amount (cost less accumulated depreciation)
- The lower of carrying amount and fair value less costs to sell (Correct answer)
- Net realisable value only
Correct answer: The lower of carrying amount and fair value less costs to sell
IFRS 5: assets held for sale are measured at the lower of (a) carrying amount and (b) fair value less costs to sell, and are no longer depreciated.
Question 5: Under IAS 12, a deferred tax liability arises when:
- The tax base of an asset exceeds its carrying amount
- The carrying amount of an asset exceeds its tax base (creating a taxable temporary difference) (Correct answer)
- A loss is carried forward for tax relief
- A provision is recognised in the accounts before tax relief is available
Correct answer: The carrying amount of an asset exceeds its tax base (creating a taxable temporary difference)
A deferred tax liability arises from taxable temporary differences — when the carrying amount of an asset exceeds its tax base, meaning more taxable profit will arise in the future than the accounting profit suggests.
Question 6: Which of the following is a component of 'other comprehensive income' (OCI) under IAS 1?
- Revenue from ordinary activities
- Gains on revaluation of PPE under IAS 16 (Correct answer)
- Finance costs
- Dividends paid to shareholders
Correct answer: Gains on revaluation of PPE under IAS 16
IAS 1 requires OCI to include items not recognised in profit or loss, such as gains on revaluation of PPE (IAS 16), remeasurements of defined benefit pension plans (IAS 19), and translation differences (IAS 21).
ACCA SP Strategic Business Reporting
Under IFRS 3, how is goodwill measured at acquisition?