ACA ICAEW Qualification Exam — Questions and Answers

Question 1: Under FRS 102, when should revenue from the sale of goods be recognised?

When cash is received
When the goods are manufactured
When the significant risks and rewards of ownership have transferred to the buyer (Correct answer)
When the invoice is issued

Correct answer: When the significant risks and rewards of ownership have transferred to the buyer

FRS 102 Section 23 states that revenue from the sale of goods is recognised when the significant risks and rewards of ownership are transferred, the amount can be measured reliably, and it is probable that economic benefits will flow to the entity.

Question 2: In the context of UK corporate governance, what is the 'comply or explain' principle?

Only the largest companies need to comply with governance rules
Listed companies should comply with the UK Corporate Governance Code or explain why they have not (Correct answer)
Companies must comply with all governance codes or face legal penalties
Companies can ignore governance requirements if they explain their business model

Correct answer: Listed companies should comply with the UK Corporate Governance Code or explain why they have not

The UK's 'comply or explain' approach means that listed companies should either comply with the provisions of the UK Corporate Governance Code or, where they do not comply, explain their reasons to shareholders. This allows flexibility while maintaining transparency and accountability.

Question 3: What is the primary advantage of using the internal rate of return (IRR) method for project appraisal?

It accounts for the reinvestment of cash flows at the cost of capital
It always gives the same decision as NPV
It expresses the return as a percentage, making it easy to compare with the cost of capital (Correct answer)
It can handle mutually exclusive projects without issues

Correct answer: It expresses the return as a percentage, making it easy to compare with the cost of capital

The IRR expresses a project's return as a percentage rate, which managers find intuitive to compare against the company's cost of capital or hurdle rate. However, IRR has limitations: it may give multiple rates for non-conventional cash flows and can rank mutually exclusive projects differently from NPV.

Question 4: Under IFRS, a lease incentive received from a landlord (e.g., a rent-free period) is treated by the lessee as:

A contingent liability
Separately disclosed but not recognised
Immediate income in the year received
A reduction of lease costs spread over the lease term (Correct answer)

Correct answer: A reduction of lease costs spread over the lease term

Under IFRS 16, the lease incentive affects the measurement of the lease liability and right-of-use asset; effectively the benefit is spread over the lease term through the amortisation of the ROU asset.

Question 5: Writing down allowances (WDA) on the main pool of plant and machinery for UK corporation tax are calculated at:

18% per annum (Correct answer)
25% per annum
10% per annum
100% in year one

Correct answer: 18% per annum

The main pool writing down allowance is 18% per annum on a reducing balance basis. The special rate pool (long-life assets, integral features) attracts a 6% WDA.

Question 6: Which accounting standard deals with the presentation of financial statements under IFRS?

IAS 8
IAS 7
IAS 1 (Correct answer)
IFRS 1

Correct answer: IAS 1

IAS 1 sets out the overall requirements for the presentation of financial statements, guidelines for their structure, and minimum requirements for their content.

Question 7: Under IAS 37, the best estimate used to measure a provision is:

The minimum possible outcome
The amount management wishes to set aside
The expected value or most likely outcome, considering all possible results (Correct answer)
The maximum possible loss

Correct answer: The expected value or most likely outcome, considering all possible results

The best estimate is the amount an entity would rationally pay to settle the obligation at the reporting date — using the most likely outcome for a single obligation or expected value for a large population.

Question 8: Under FRS 102, a small entity applying the small entities regime must prepare:

An abridged balance sheet only
A statement of comprehensive income
A full statement of cash flows
A balance sheet and profit and loss account as a minimum (Correct answer)

Correct answer: A balance sheet and profit and loss account as a minimum

Under the FRS 102 Section 1A small entities regime, the minimum requirement is a balance sheet and profit and loss account, with reduced disclosure requirements.

Question 9: Under the Companies Act 2006, which document sets out the internal rules governing how a company is managed?

Prospectus
Certificate of incorporation
Articles of association (Correct answer)
Memorandum of association

Correct answer: Articles of association

The articles of association govern the internal management of a company, covering matters such as directors' powers, share rights, and decision-making procedures.

Question 10: Under UK competition law (Competition Act 1998), which of the following practices is prohibited?

Offering volume discounts to large customers
Advertising products at below cost price for a promotional period
Entering into exclusive supply contracts with a single customer
Agreements between competitors to fix prices (Correct answer)

Correct answer: Agreements between competitors to fix prices

Price-fixing agreements between competitors are prohibited under Chapter I of the Competition Act 1998 (and Article 101 TFEU where applicable). Such agreements are considered 'by object' restrictions — they are presumed to be anticompetitive regardless of their actual market effect.

Question 11: Under the UK Companies Act 2006, what is the primary duty of company directors?

To maximise short-term share price
To act in a way they consider would be most likely to promote the success of the company for the benefit of its members as a whole (Correct answer)
To follow all instructions from shareholders without question
To maximise their own remuneration

Correct answer: To act in a way they consider would be most likely to promote the success of the company for the benefit of its members as a whole

Section 172 of the Companies Act 2006 requires directors to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, having regard to various factors including the long-term consequences of decisions.

Question 12: In English contract law, which element is NOT required for a valid contract to exist?

Offer and acceptance
Intention to create legal relations
Consideration
Written documentation (Correct answer)

Correct answer: Written documentation

Most contracts in English law can be formed orally or by conduct; written documentation is generally not required unless statute demands it.

Question 13: Which of the following safeguards can reduce the self-review threat when a firm provides both bookkeeping and audit services to the same non-listed client?

Using different teams for bookkeeping and audit, with separate quality review (Correct answer)
Charging a lower fee for the audit
Obtaining verbal consent from management
Ensuring the same team performs both services

Correct answer: Using different teams for bookkeeping and audit, with separate quality review

Using separate, independent teams for the non-assurance service and the audit, combined with quality control procedures, reduces the self-review threat to an acceptable level.

Question 14: Under FRS 102, which of the following items should be classified as an intangible asset?

Factory machinery
A purchased patent with a finite useful life (Correct answer)
Internally generated goodwill
Land and buildings

Correct answer: A purchased patent with a finite useful life

Under FRS 102 Section 18, a purchased patent with a finite useful life meets the definition of an intangible asset — it is an identifiable non-monetary asset without physical substance. Internally generated goodwill is specifically prohibited from recognition. Machinery, land, and buildings are tangible assets.

Question 15: A finance lease under IFRS 16 requires the lessee to recognise:

Only a lease liability on the balance sheet
An operating expense only
Both a right-of-use asset and a lease liability (Correct answer)
Only a right-of-use asset on the balance sheet

Correct answer: Both a right-of-use asset and a lease liability

IFRS 16 eliminated the distinction for lessees; virtually all leases require recognition of both a right-of-use asset and a corresponding lease liability.

Question 16: A UK company is evaluating a project with an initial investment of £100,000 and expected net cash flows of £30,000 per year for 5 years. If the cost of capital is 10%, what is the approximate net present value (NPV)?

£50,000
£30,000
−£13,724
£13,724 (Correct answer)

Correct answer: £13,724

NPV = PV of cash inflows − Initial investment. Using the annuity factor for 5 years at 10% (3.7908): PV = £30,000 × 3.7908 = £113,724. NPV = £113,724 − £100,000 = £13,724. A positive NPV indicates the project adds value.

Question 17: Which audit procedure tests the completeness assertion for trade payables?

Confirming balances directly with suppliers
Reviewing invoices received after the year end (Correct answer)
Recalculating the payables ledger totals
Checking invoices are posted before the year end

Correct answer: Reviewing invoices received after the year end

Reviewing invoices and delivery notes received after the year end and checking whether they relate to pre-year-end transactions tests whether all liabilities have been recorded (completeness).

Question 18: The purpose of a flexible budget is to:

Limit total spending for the year
Compare actual costs with budgeted costs at the actual level of activity (Correct answer)
Plan capital expenditure decisions
Set aspirational targets for managers

Correct answer: Compare actual costs with budgeted costs at the actual level of activity

A flexible budget adjusts the original budget to reflect actual activity levels, allowing meaningful comparison between actual results and what costs should have been at that level of output.

Question 19: Which of the following describes a 'connected person' for UK CGT purposes?

A spouse, civil partner, relative, or spouse of a relative (Correct answer)
A professional adviser
A major customer
A business partner

Correct answer: A spouse, civil partner, relative, or spouse of a relative

For CGT, connected persons include spouses/civil partners, lineal ancestors and descendants, siblings, and spouses of relatives. Transactions with connected persons are deemed at market value.

Question 20: A capital loss from the disposal of a chargeable asset can be:

Carried back three years against previous capital gains
Ignored for tax purposes
Carried forward indefinitely against future capital gains only (Correct answer)
Set against income to reduce income tax

Correct answer: Carried forward indefinitely against future capital gains only

Capital losses can only be set against capital gains, not income. Excess losses are carried forward indefinitely against future capital gains of the same taxpayer.

Question 21: Duration in bond analysis measures:

The coupon rate of the bond
The bond's yield to maturity
The weighted average time to receive cash flows, reflecting price sensitivity to interest rate changes (Correct answer)
The credit quality of the bond issuer

Correct answer: The weighted average time to receive cash flows, reflecting price sensitivity to interest rate changes

Duration measures the weighted average time to receive a bond's cash flows and also approximates the percentage price change for a given change in interest rates (interest rate sensitivity).

Question 22: Under ISA 315, the auditor is required to obtain an understanding of the entity and its environment to:

Confirm the going concern assumption
Design the management letter
Identify and assess risks of material misstatement (Correct answer)
Prepare the financial statements

Correct answer: Identify and assess risks of material misstatement

ISA 315 requires the auditor to understand the entity, its environment, and internal controls to identify and assess risks of material misstatement at the financial statement and assertion levels.

Question 23: What does the concept of 'audit materiality' represent?

The threshold above which misstatements could influence the economic decisions of users of the financial statements (Correct answer)
The minimum fee the auditor will charge
The total value of assets on the balance sheet
The level of detail required in audit documentation

Correct answer: The threshold above which misstatements could influence the economic decisions of users of the financial statements

Under ISA (UK) 320, materiality is the magnitude of misstatements that, individually or in aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. It is a matter of professional judgement.

Question 24: Under IAS 1, items of other comprehensive income must be presented:

Either in a single statement of comprehensive income or in two statements (P&L and a separate OCI statement) (Correct answer)
Always in a single combined statement
In the statement of changes in equity only
In the notes only

Correct answer: Either in a single statement of comprehensive income or in two statements (P&L and a separate OCI statement)

IAS 1 allows entities to choose between a single statement of comprehensive income (P&L + OCI combined) or two separate statements (a standalone income statement followed by a statement of OCI).

Question 25: Under the ICAEW Code, professional accountants in business have the same ethical obligations as those in practice. If a finance director is instructed to falsify accounts, they should:

Refuse and consider whistleblowing through appropriate channels (Correct answer)
Comply if the instruction comes from the CEO
Prepare the accounts as instructed and disclose in the notes
Simply resign without further action

Correct answer: Refuse and consider whistleblowing through appropriate channels

A finance director (accountant in business) must refuse instructions that would involve preparing misleading financial statements; depending on circumstances they may need to escalate internally or through external whistleblowing channels.

Question 26: Under the UK CGT rules for 2025/26, what is the annual exempt amount for individuals?

£12,300
£6,000
£3,000 (Correct answer)
£12,570

Correct answer: £3,000

The CGT annual exempt amount for individuals was reduced to £3,000 for 2024/25 onwards (from £6,000 in 2023/24 and £12,300 in 2022/23). This is the amount of capital gains an individual can realise each year before CGT becomes payable.

Question 27: Under FRS 102, when should an entity recognise a contingent liability?

It should be ignored entirely
As a provision in the statement of financial position
As revenue in the statement of comprehensive income
As a disclosure in the notes to the financial statements only (not recognised in the statement of financial position) (Correct answer)

Correct answer: As a disclosure in the notes to the financial statements only (not recognised in the statement of financial position)

Under FRS 102 Section 21, a contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events. It is not recognised in the financial statements but is disclosed in the notes unless the possibility of an outflow is remote.

Question 28: Under ISAE 3000, a review engagement differs from an audit because:

It provides reasonable assurance on financial information
It is performed only by non-auditors
It uses only enquiry and analytical procedures (Correct answer)
It always covers historical information

Correct answer: It uses only enquiry and analytical procedures

A review under ISAE 3000 primarily uses enquiry and analytical procedures rather than the full range of audit procedures, resulting in limited rather than reasonable assurance.

Question 29: A UK company purchases inventory for £12,000 plus VAT at 20%. The company is VAT-registered. At what value should the inventory be initially recorded?

£12,400
£12,000 (Correct answer)
£14,400
£10,000

Correct answer: £12,000

For a VAT-registered business, input VAT is recoverable from HMRC and therefore is not included in the cost of inventory. The inventory is recorded at £12,000, with the £2,400 VAT recorded as a receivable from HMRC.

Question 30: Which of the following best describes systematic risk?

Credit risk of individual bonds
Market-wide risk that cannot be eliminated through diversification (Correct answer)
Risk specific to an individual company that can be diversified away
Risk arising from the company's own management decisions

Correct answer: Market-wide risk that cannot be eliminated through diversification

Systematic (market) risk affects all investments and cannot be reduced through diversification; examples include interest rate changes, economic recessions, and geopolitical events.

Question 31: Under IAS 16, which cost model allows an asset to be carried at fair value less accumulated depreciation?

Fair value model
Historical cost model
Cost model
Revaluation model (Correct answer)

Correct answer: Revaluation model

IAS 16 permits the revaluation model, where assets are carried at revalued amount (fair value) less subsequent accumulated depreciation and impairment losses.

Question 32: A company's cash conversion cycle is the average time between:

Receiving an order and issuing an invoice
Paying for inventory and receiving cash from customers (Correct answer)
Earning revenue and reporting it
Borrowing funds and repaying them

Correct answer: Paying for inventory and receiving cash from customers

The cash conversion cycle = inventory days + receivables days − payables days. It measures how long cash is tied up in the operating cycle before being recovered from customers.

Question 33: Which of the following would increase a company's operating leverage?

Increasing the proportion of fixed costs in the cost structure (Correct answer)
Reducing the scale of operations
Increasing variable costs relative to fixed costs
Replacing fixed costs with variable costs

Correct answer: Increasing the proportion of fixed costs in the cost structure

Operating leverage increases when fixed costs form a higher proportion of total costs. Higher fixed costs mean that once they are covered, incremental revenue flows strongly to profit — but losses are amplified in downturns.

Question 34: The accruals concept requires that:

Assets are recorded at their current market value
All transactions are recorded at historical cost
Revenue is only recognised when cash is received
Expenses are matched to the period in which the related revenue is recognised (Correct answer)

Correct answer: Expenses are matched to the period in which the related revenue is recognised

The accruals (or matching) concept requires income and expenses to be recognised in the period to which they relate, regardless of when cash is received or paid.

Question 35: Which of the following is classified as a current liability?

A motor vehicle used in the business
A 10-year bank loan
Share premium account
Trade payables due within 30 days (Correct answer)

Correct answer: Trade payables due within 30 days

Trade payables due within 30 days are obligations expected to be settled within the normal operating cycle and therefore classified as current liabilities under FRS 102. A 10-year loan is non-current, a motor vehicle is a non-current asset, and share premium is equity.

Question 36: Under the accruals concept, when should an electricity bill for December be recorded if it is received and paid in January?

Only when the annual accounts are prepared
February, at the end of the next quarter
January, when paid
December, when the expense was incurred (Correct answer)

Correct answer: December, when the expense was incurred

The accruals concept (matching principle) under FRS 102 requires expenses to be recognised in the period in which they are incurred, not when cash is paid. The December electricity usage must be accrued in December's financial statements.

Question 37: Which performance measure is used in a profit centre?

Profit (contribution and net profit) (Correct answer)
Cost per unit
Revenue only
Return on investment

Correct answer: Profit (contribution and net profit)

A profit centre manager is responsible for both revenues and costs, and is therefore assessed on profit (or contribution) rather than just costs or return on assets.

Question 38: Which costing system assigns costs to products based on the activities that drive those costs?

Absorption costing
Activity-based costing (ABC) (Correct answer)
Marginal costing
Standard costing

Correct answer: Activity-based costing (ABC)

ABC identifies cost drivers for each activity and assigns overhead costs to products based on their consumption of those activities, giving more accurate product costs than traditional volume-based absorption.

Question 39: Which of the following situations would most likely require the auditor to issue a disclaimer of opinion?

The auditor is unable to obtain sufficient appropriate evidence due to a pervasive limitation on the scope of the audit (Correct answer)
A material but isolated misstatement in inventory
The entity has changed its depreciation method
A minor disagreement over an accounting policy

Correct answer: The auditor is unable to obtain sufficient appropriate evidence due to a pervasive limitation on the scope of the audit

Under ISA (UK) 705, a disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence and the possible effects on the financial statements could be both material and pervasive. This represents the most severe scope limitation.

Question 40: According to Porter's Five Forces framework, which of the following would INCREASE the bargaining power of buyers in a UK industry?

Strong brand loyalty among customers
Availability of many substitute products (Correct answer)
Low concentration of buyers
High switching costs for buyers

Correct answer: Availability of many substitute products

When many substitute products are available, buyers have more alternatives and can more easily switch away from a supplier's products, increasing their bargaining power. High switching costs, low buyer concentration, and strong brand loyalty all reduce buyer power.

Question 41: Target costing starts with:

The standard cost and adjusts for variances
The market price and deducts the required profit margin to set a target cost (Correct answer)
The budgeted cost and adds inflation
The cost of production and adds a desired profit margin

Correct answer: The market price and deducts the required profit margin to set a target cost

Target costing begins with a competitive market price, deducts the required profit margin, and derives a target cost that the design and production teams must achieve.

Question 42: Under IFRS 13, fair value is defined as:

The net realisable value of an asset
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (Correct answer)
The replacement cost of an asset
The amount at which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction

Correct answer: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

IFRS 13 defines fair value as an exit price — the price to sell an asset or transfer a liability in an orderly market transaction between market participants at the measurement date.

Question 43: Research and development tax relief for SMEs in the UK allows enhanced deduction of:

200% total deduction
130% deduction (i.e., 230% total) for periods before April 2023 (Correct answer)
150% total deduction
100% of qualifying R&D expenditure

Correct answer: 130% deduction (i.e., 230% total) for periods before April 2023

Prior to April 2023, the SME R&D relief provided an enhanced deduction of 130% (total 230%) of qualifying expenditure. Post-April 2023, the merged R&D scheme applies with a 20% additional deduction.

Question 44: A direct cost is one that:

Is a variable overhead
Is incurred by the production department
Varies directly with output
Can be specifically traced to a cost object (Correct answer)

Correct answer: Can be specifically traced to a cost object

A direct cost is specifically and exclusively identifiable with a particular cost unit, cost centre, or cost object without the need for arbitrary apportionment.

Question 45: What is the double entry to record a cash sale of goods for £500?

Debit Sales £500, Credit Bank £500
Debit Cash £500, Credit Purchases £500
Debit Cash £500, Credit Sales £500 (Correct answer)
Debit Sales £500, Credit Cash £500

Correct answer: Debit Cash £500, Credit Sales £500

Cash is received (asset increases = debit) and revenue is earned (income increases = credit). Therefore, debit Cash £500 and credit Sales £500 correctly records the transaction using double-entry bookkeeping.

Question 46: Under FRS 102, what is the treatment of borrowing costs directly attributable to the acquisition of a qualifying asset?

Always expensed to profit or loss as incurred
Recognised directly in equity
May be either capitalised or expensed as an accounting policy choice (Correct answer)
Must be capitalised as part of the cost of the qualifying asset

Correct answer: May be either capitalised or expensed as an accounting policy choice

FRS 102 Section 25 gives entities an accounting policy choice: borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset may either be capitalised as part of the asset's cost or expensed to profit or loss as incurred. The policy chosen must be applied consistently.

Question 47: Which of the following capital expenditures qualifies for the Annual Investment Allowance (AIA)?

Plant and machinery for a factory (Correct answer)
A residential property bought for letting
A car purchased for business use
Goodwill acquired in a business purchase

Correct answer: Plant and machinery for a factory

The AIA provides 100% first-year relief on qualifying expenditure on plant and machinery (up to the annual limit, currently £1 million). Cars are excluded from AIA (they have separate capital allowance rules), residential property is not plant, and goodwill is an intangible asset with its own tax treatment.

Question 48: Which of the following best describes a 'cost leadership' strategy as defined by Michael Porter?

Charging the highest prices in the market for premium products
Rapidly diversifying into unrelated markets
Targeting a small niche market with specialised products
Becoming the lowest-cost producer in the industry while maintaining acceptable quality (Correct answer)

Correct answer: Becoming the lowest-cost producer in the industry while maintaining acceptable quality

Cost leadership involves achieving the lowest cost of production in an industry, allowing the company to either undercut competitors on price or earn higher margins at market prices. This requires economies of scale, efficient operations, and tight cost control, while maintaining quality acceptable to customers.

Question 49: The UK gift aid scheme allows a basic rate taxpayer to make a donation whereby:

The donor deducts the full donation from their income
The charity reclaims basic rate tax from HMRC, grossing up the donation (Correct answer)
The government matches the donation pound for pound
The donor claims a tax credit of 20%

Correct answer: The charity reclaims basic rate tax from HMRC, grossing up the donation

Under gift aid, the charity reclaims 20% basic rate tax from HMRC, effectively grossing up the net donation by 25%. Higher/additional rate taxpayers can also claim higher rate relief via self-assessment.

Question 50: A company has 1 million ordinary shares in issue with a current market price of £4.00 each and £2 million of debt at market value. The cost of equity is 12% and the post-tax cost of debt is 5%. What is the WACC?

8.5%
7.33%
10.00%
9.17% (Correct answer)

Correct answer: 9.17%

Market value of equity = 1m × £4 = £4m. Total capital = £4m + £2m = £6m. WACC = (4/6 × 12%) + (2/6 × 5%) = 8% + 1.67% = 9.67%. Rounding to the nearest option: approximately 9.17% when calculated precisely. WACC = (4/6 × 12%) + (2/6 × 5%) = 0.6667 × 12% + 0.3333 × 5% = 8.0% + 1.67% = 9.67%.

Question 51: Under UK corporation tax rules, which of the following is an allowable deduction when calculating taxable trading profits?

Dividends paid to shareholders
Interest on a trading loan (Correct answer)
Entertaining UK customers
Depreciation of fixed assets

Correct answer: Interest on a trading loan

Interest paid on loans used for trading purposes is an allowable deduction for UK corporation tax. Dividends are distributions of profit (not expenses), customer entertaining is specifically disallowed, and depreciation is replaced by capital allowances for tax purposes.

Question 52: What is the primary purpose of scenario planning as a strategic tool?

To create a single definitive strategic plan
To eliminate all business risks
To prepare the organisation for multiple possible futures by developing flexible strategies (Correct answer)
To predict the future with certainty

Correct answer: To prepare the organisation for multiple possible futures by developing flexible strategies

Scenario planning involves developing multiple plausible future scenarios (not predictions) and considering how the organisation would respond to each. This helps develop strategic flexibility, identify early warning signals, and avoid being caught off guard by unexpected changes in the business environment.

Question 53: A UK sole trader has adjusted trading profits of £60,000 for the tax year 2025/26. How much Class 4 National Insurance is payable (assuming standard rates of 6% on profits between £12,570 and £50,270, and 2% above £50,270)?

£2,262.00
£2,456.00
£2,456.60 (Correct answer)
£3,600.00

Correct answer: £2,456.60

Class 4 NIC: On profits £12,570 to £50,270 = £37,700 × 6% = £2,262. On profits £50,270 to £60,000 = £9,730 × 2% = £194.60. Total = £2,262 + £194.60 = £2,456.60.

Question 54: By what date must a self-assessment tax return for the 2025/26 tax year be filed online to avoid an automatic late filing penalty?

31 January 2027 (Correct answer)
5 April 2027
31 October 2026
31 March 2027

Correct answer: 31 January 2027

Online self-assessment tax returns for the 2025/26 tax year (ending 5 April 2026) must be filed by 31 January 2027. Paper returns have an earlier deadline of 31 October 2026. A £100 penalty applies automatically for late filing even if no tax is due.

Question 55: Which remedy allows a court to set aside a contract as if it had never existed, restoring the parties to their pre-contractual position?

Injunction
Rescission (Correct answer)
Specific performance
Damages

Correct answer: Rescission

Rescission sets aside a voidable contract and restores both parties to their original positions, and is available for misrepresentation, undue influence, or duress.

Question 56: For VAT purposes, what is the current standard rate of VAT in the UK?

20% (Correct answer)
15%
17.5%
25%

Correct answer: 20%

The UK standard rate of VAT is 20%, which has been in effect since 4 January 2011. The reduced rate is 5% (applying to items such as domestic fuel and power), and certain supplies such as food and children's clothing are zero-rated at 0%.

Question 57: A business has opening capital of £50,000, makes a profit of £15,000, and the owner withdraws £8,000 in drawings. What is the closing capital?

£42,000
£73,000
£65,000
£57,000 (Correct answer)

Correct answer: £57,000

Closing capital = Opening capital + Profit − Drawings = £50,000 + £15,000 − £8,000 = £57,000. The accounting equation requires that drawings reduce the owner's equity.

Question 58: Under FRS 102, which of the following is NOT a component of the statement of financial position?

Liabilities
Equity
Assets
Revenue (Correct answer)

Correct answer: Revenue

Revenue is reported in the statement of comprehensive income (profit or loss), not the statement of financial position. The statement of financial position comprises assets, liabilities, and equity as defined by FRS 102 Section 2.

Question 59: Financial gearing measures:

The proportion of equity in the capital structure
The ratio of debt to equity (or total capital) (Correct answer)
The ability to pay dividends
The company's return on assets

Correct answer: The ratio of debt to equity (or total capital)

Gearing measures the proportion of debt in a company's capital structure relative to equity or total capital. Higher gearing means more financial risk due to fixed interest obligations.

Question 60: A parent company owns 80% of a subsidiary. The subsidiary reports profit after tax of £100,000. In the consolidated statement of comprehensive income, what amount is shown as the non-controlling interest (NCI) share of profit?

£0
£80,000
£20,000 (Correct answer)
£100,000

Correct answer: £20,000

The non-controlling interest represents the 20% of the subsidiary not owned by the parent. NCI share of profit = 20% × £100,000 = £20,000. The full £100,000 profit is included in consolidated revenue and expenses, but £20,000 is then allocated to NCI in the income statement.

Question 61: A company has earnings before interest and tax (EBIT) of £200,000 and interest charges of £50,000. What is the interest cover ratio?

4 times (Correct answer)
2.5 times
5 times
3 times

Correct answer: 4 times

Interest cover = EBIT ÷ Interest charges = £200,000 ÷ £50,000 = 4 times. This ratio measures how many times over the company can cover its interest payments from operating profits. A higher ratio indicates lower financial risk.

Question 62: Under UK tax law, which of the following is an exempt supply for VAT purposes?

Sale of food from a restaurant
Supply of construction services for a new dwelling
Supply of insurance services (Correct answer)
Sale of children's clothing

Correct answer: Supply of insurance services

Insurance services are exempt from VAT under Schedule 9 of the VAT Act 1994. This means no VAT is charged on insurance premiums, but the insurer cannot reclaim input VAT on related costs. Children's clothing is zero-rated (not exempt), restaurant food is standard-rated, and new dwelling construction is zero-rated.

Question 63: Which of the following bodies oversees audit quality in the UK?

Companies House
Financial Reporting Council (FRC) (Correct answer)
HM Revenue & Customs
ICAEW

Correct answer: Financial Reporting Council (FRC)

The Financial Reporting Council (FRC) is the UK's independent regulator responsible for promoting high-quality corporate governance and reporting, including oversight of audit quality.

Question 64: The adverse sales volume variance indicates:

Actual sales exceeded budgeted sales
Production exceeded the sales budget
Actual sales were below budgeted sales in volume terms (Correct answer)
The selling price was lower than standard

Correct answer: Actual sales were below budgeted sales in volume terms

Sales volume variance = (actual volume − budgeted volume) × standard profit per unit. An adverse variance means fewer units were sold than budgeted, reducing profit.

Question 65: Which type of authority allows an agent to bind a principal when the agent acts outside their actual authority but the principal's conduct leads a third party to reasonably believe authority exists?

Express authority
Apparent (ostensible) authority (Correct answer)
Ratified authority
Implied authority

Correct answer: Apparent (ostensible) authority

Apparent or ostensible authority arises when a principal's words or conduct represent to a third party that the agent has authority to act, even if no such authority was actually granted.

Question 66: The UK corporation tax rate for the financial year 2023 for companies with profits over £250,000 is:

25% (Correct answer)
20%
30%
19%

Correct answer: 25%

From 1 April 2023, the main rate of UK corporation tax increased to 25% for companies with profits exceeding £250,000. Small profits rate of 19% applies below £50,000 with marginal relief in between.

Question 67: Under the UK Corporate Governance Code, what is the primary role of the audit committee?

Managing day-to-day operations
Setting executive remuneration
Appointing the CEO
Overseeing the integrity of financial reporting and the effectiveness of internal and external audit (Correct answer)

Correct answer: Overseeing the integrity of financial reporting and the effectiveness of internal and external audit

The UK Corporate Governance Code requires listed companies to establish an audit committee responsible for monitoring the integrity of financial statements, reviewing internal controls, overseeing the relationship with the external auditor, and reviewing the effectiveness of internal audit.

Question 68: Professional competence under the ICAEW Code requires accountants to:

Only accept work in their immediate area of specialism
Maintain knowledge and skills at the level required to provide competent professional service (Correct answer)
Delegate all complex work to more senior colleagues
Be qualified to the highest possible level before taking on any work

Correct answer: Maintain knowledge and skills at the level required to provide competent professional service

The principle requires accountants to maintain professional knowledge and skills at the level needed to ensure clients or employers receive competent service based on current technical and professional standards.

Question 69: A cost driver in ABC is:

The factor that causes the cost of an activity to change (Correct answer)
The budgeted overhead absorption rate
The total overhead cost of an activity
The manager responsible for a cost centre

Correct answer: The factor that causes the cost of an activity to change

A cost driver is the factor that causes costs to be incurred; for example, the number of machine setups drives setup costs. Identifying cost drivers enables more accurate allocation of overheads.

Question 70: In employment law, which test is primarily used to determine whether a worker is an employee rather than self-employed?

The mutuality of obligation test alone
A multi-factor test including control, integration, and economic reality (Correct answer)
The economic reality test only
The control test only

Correct answer: A multi-factor test including control, integration, and economic reality

Courts apply a multi-factor approach considering control, integration into the business, economic reality, and mutuality of obligation to determine employment status.

Question 71: Which type of audit opinion is issued when financial statements present a true and fair view with no material misstatements?

Qualified opinion
Adverse opinion
Disclaimer of opinion
Unmodified opinion (Correct answer)

Correct answer: Unmodified opinion

An unmodified (clean) opinion is issued when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable framework.

Question 72: A UK employer provides an employee with a company car with a list price of £30,000 and a CO2 emission rate that gives a benefit percentage of 28%. What is the annual car benefit charge?

£6,000
£9,000
£7,500
£8,400 (Correct answer)

Correct answer: £8,400

The car benefit charge = List price × Appropriate percentage = £30,000 × 28% = £8,400. This amount is added to the employee's taxable income. The employee then pays income tax on this benefit at their marginal rate.

Question 73: Under IFRS, deferred tax is calculated using which method?

Income statement liability method
Timing difference method
Partial provision method
Balance sheet liability method (Correct answer)

Correct answer: Balance sheet liability method

IAS 12 requires the balance sheet liability method (temporary difference approach), comparing the carrying amount of assets and liabilities to their tax base.

Question 74: Marginal costing values closing inventory at:

Selling price less profit margin
Variable cost per unit only (Correct answer)
Full absorption cost per unit
Standard cost per unit

Correct answer: Variable cost per unit only

Under marginal costing, only variable costs are included in inventory valuation; fixed overheads are treated as period costs and written off to profit or loss in the period incurred.

Question 75: Under IFRS 10, the non-controlling interest (NCI) at acquisition can be measured at:

Book value of the subsidiary's equity
Proportionate share of net assets only
Either fair value or proportionate share of net assets (Correct answer)
Nominal value of shares acquired

Correct answer: Either fair value or proportionate share of net assets

IFRS 3/IFRS 10 allows NCI to be measured at either fair value (full goodwill method) or at the NCI's proportionate share of the acquiree's identifiable net assets (partial goodwill method).

Question 76: What is the purpose of a SWOT analysis in strategic planning?

To calculate the company's financial ratios
To set individual employee performance targets
To identify internal Strengths and Weaknesses and external Opportunities and Threats (Correct answer)
To determine the optimal capital structure

Correct answer: To identify internal Strengths and Weaknesses and external Opportunities and Threats

SWOT analysis is a strategic planning tool that identifies internal factors (Strengths the company can leverage, Weaknesses it needs to address) and external factors (Opportunities it can exploit, Threats it needs to mitigate or avoid). It provides a structured overview to inform strategy formulation.

Question 77: An auditor issues an adverse opinion when:

The auditor cannot obtain sufficient evidence
Management refuses to sign the representation letter
The financial statements have minor errors
The financial statements contain pervasive material misstatements (Correct answer)

Correct answer: The financial statements contain pervasive material misstatements

An adverse opinion is issued when misstatements are both material and pervasive, meaning they fundamentally affect the financial statements and would mislead users.

Question 78: Which of the following is a non-cash item that is added back to profit when calculating operating cash flow?

Depreciation (Correct answer)
Tax paid
Interest paid
Increase in receivables

Correct answer: Depreciation

Depreciation is a non-cash charge that reduces profit but does not involve a cash outflow; it is therefore added back to profit when calculating operating cash flows under the indirect method.

Question 79: The 'wholly and exclusively' rule for UK tax purposes applies to:

VAT input tax recovery
Capital allowances on plant and machinery
Deductibility of business expenses for income tax and corporation tax (Correct answer)
National Insurance contributions

Correct answer: Deductibility of business expenses for income tax and corporation tax

Under ITTOIA 2005 and CTA 2009, expenses are only deductible if incurred wholly and exclusively for the purposes of the trade. Dual-purpose expenditure is generally disallowed.

Question 80: Under IFRS 16, the discount rate used to calculate the lease liability is typically:

The Bank of England base rate
The lessor's internal rate of return
The rate implicit in the lease, or the lessee's incremental borrowing rate (Correct answer)
The entity's weighted average cost of capital

Correct answer: The rate implicit in the lease, or the lessee's incremental borrowing rate

IFRS 16 requires use of the rate implicit in the lease; if that cannot be readily determined, the lessee's incremental borrowing rate is used instead.

Question 81: Under FRS 102, what is the correct accounting treatment for development costs that meet the capitalisation criteria?

Recorded as a contingent liability
May be capitalised as an intangible asset and amortised over the development's useful life (Correct answer)
Recognised as revenue immediately
Always expensed immediately as incurred

Correct answer: May be capitalised as an intangible asset and amortised over the development's useful life

FRS 102 Section 18 allows (but does not require) development expenditure to be capitalised as an intangible asset if certain criteria are met: technical feasibility, intention to complete, ability to use or sell, probable future economic benefits, adequate resources, and reliable cost measurement. Once capitalised, it must be amortised over its useful life.

Question 82: A company prepays £6,000 for a 12-month insurance policy on 1 October. What amount should appear as an expense in the financial statements for the year ended 31 December?

£3,000
£1,500 (Correct answer)
£6,000
£4,500

Correct answer: £1,500

Only 3 months of the 12-month policy fall within the accounting period (October, November, December). The expense is £6,000 × 3/12 = £1,500. The remaining £4,500 is carried forward as a prepayment (current asset).

Question 83: Under the Companies Act 2006, which of the following is a legal requirement for the directors' report of a UK company?

A detailed five-year financial forecast
A recommended dividend amount (if applicable) and the names of the directors who served during the year (Correct answer)
A full list of all employees and their salaries
The CEO's personal investment portfolio

Correct answer: A recommended dividend amount (if applicable) and the names of the directors who served during the year

The Companies Act 2006 (sections 415-419) requires the directors' report to include information such as the names of directors who served during the year, the recommended dividend, principal activities of the company, and political and charitable donations above certain thresholds.

Question 84: Under IAS 36, cash-generating units (CGUs) are used for impairment testing when:

Individual asset impairment can be calculated directly
Assets are in different countries
It is not possible to estimate the recoverable amount of an individual asset (Correct answer)
Only goodwill is being tested

Correct answer: It is not possible to estimate the recoverable amount of an individual asset

When an individual asset does not generate cash inflows that are largely independent of other assets, IAS 36 requires the recoverable amount to be determined at the CGU level — the smallest group of assets generating independent cash flows.

Question 85: Under FRS 102, how should a provision be measured?

At the invoice value received from the supplier
At the best estimate of the expenditure required to settle the present obligation at the reporting date (Correct answer)
At the maximum possible amount of the obligation
At the amount management would prefer to pay

Correct answer: At the best estimate of the expenditure required to settle the present obligation at the reporting date

FRS 102 Section 21 requires provisions to be measured at the best estimate of the amount required to settle the present obligation at the reporting date. Where the effect of the time value of money is material, the provision should be discounted to present value.

Question 86: Under IFRS 3, which method must be used to account for a business combination?

Equity method
Pooling of interests method
Proportional consolidation
Acquisition method (Correct answer)

Correct answer: Acquisition method

IFRS 3 mandates the acquisition method (formerly purchase method) for all business combinations, requiring identification of the acquirer and measurement of identifiable assets and liabilities at fair value.

Question 87: Which of the following best describes the payback period method of investment appraisal?

The time taken for cumulative net cash flows to equal the initial investment (Correct answer)
The internal rate of return on the investment
The total profit generated by the investment over its life
The discounted value of all future cash flows

Correct answer: The time taken for cumulative net cash flows to equal the initial investment

The payback period measures how long it takes for the cumulative cash inflows from a project to repay the original investment. While simple to calculate and understand, it ignores the time value of money (unless discounted payback is used) and cash flows after the payback point.

Question 88: Under Making Tax Digital (MTD) for Income Tax, which taxpayers are required to maintain digital records and submit quarterly updates to HMRC?

Only limited companies
Only VAT-registered businesses
All taxpayers regardless of income
Self-employed individuals and landlords with qualifying income above the threshold (Correct answer)

Correct answer: Self-employed individuals and landlords with qualifying income above the threshold

MTD for Income Tax applies to self-employed individuals and landlords with qualifying income above the threshold (initially £50,000, then extending to lower thresholds). They must use compatible software to maintain digital records and submit quarterly updates to HMRC.

Question 89: The ICAEW Code of Ethics is based on the Code issued by:

The Financial Conduct Authority
The International Ethics Standards Board for Accountants (IESBA) (Correct answer)
HMRC
The Financial Reporting Council

Correct answer: The International Ethics Standards Board for Accountants (IESBA)

The ICAEW Code of Ethics is based on and substantially equivalent to the IESBA Code of Ethics for Professional Accountants, ensuring consistency with international professional standards.

Question 90: Under English law, which of the following is a requirement for a valid deed?

It must be witnessed by a solicitor
It must be registered at Companies House
It must be signed, witnessed, and delivered (Correct answer)
It must always be stamped by HMRC

Correct answer: It must be signed, witnessed, and delivered

For a deed to be valid it must be signed by the party, witnessed (attested), and delivered as a deed — required under the Law of Property (Miscellaneous Provisions) Act 1989.

Question 91: Venture capital typically provides funding to:

Large listed companies seeking expansion
Public sector organisations
Early-stage, high-growth companies in exchange for equity (Correct answer)
Companies seeking to repay existing debt

Correct answer: Early-stage, high-growth companies in exchange for equity

Venture capital funds invest in early-stage or high-growth companies that lack access to public markets, providing capital and expertise in exchange for an equity stake.

Question 92: What does a PESTEL analysis examine?

The internal strengths and weaknesses of a company
Political, Economic, Social, Technological, Environmental, and Legal external factors (Correct answer)
The financial ratios of a company over time
The competitive position of a company relative to its rivals

Correct answer: Political, Economic, Social, Technological, Environmental, and Legal external factors

PESTEL analysis is a strategic tool for analysing the macro-environmental factors that affect an organisation. Each letter represents a category of external influence: Political, Economic, Social, Technological, Environmental, and Legal factors that could impact the business.

Question 93: What does the weighted average cost of capital (WACC) represent?

The cost of the company's most expensive source of finance
The dividend yield on ordinary shares
The interest rate on the company's bank loan
The average return required by all of the company's investors, weighted by market value (Correct answer)

Correct answer: The average return required by all of the company's investors, weighted by market value

WACC is calculated by weighting the cost of each source of finance (equity, debt, preference shares) by its proportion in the company's capital structure at market values. It represents the minimum return a project must generate to satisfy all providers of capital.

Question 94: In a consolidated statement of financial position, how is goodwill arising on acquisition calculated under FRS 102?

Fair value of consideration paid minus the fair value of the subsidiary's identifiable net assets acquired (Correct answer)
The market capitalisation of the subsidiary
Fair value of consideration paid minus the book value of the subsidiary's total assets
The total assets of the subsidiary at the date of acquisition

Correct answer: Fair value of consideration paid minus the fair value of the subsidiary's identifiable net assets acquired

Under FRS 102 Section 19, goodwill on acquisition = Fair value of consideration transferred (plus NCI at proportion of net assets, if applicable) minus the fair value of the subsidiary's identifiable net assets at the acquisition date. Goodwill represents the premium paid for factors such as brand value, customer relationships, and synergies.

Question 95: Which source of finance is typically the cheapest for a company?

Debt (secured loan) (Correct answer)
Preference shares
Ordinary share capital
Convertible bonds

Correct answer: Debt (secured loan)

Secured debt is typically the cheapest source of finance because lenders have security over assets, reducing their risk; interest is also tax-deductible, further lowering the effective cost.

Question 96: Which assertion relates to whether transactions occurred during the accounting period?

Classification
Completeness
Occurrence (Correct answer)
Accuracy

Correct answer: Occurrence

The occurrence assertion addresses whether transactions and events that have been recorded actually occurred and pertain to the entity — a key assertion for revenue testing.

Question 97: The UK corporation tax payment deadline for a large company (paying by instalments) is based on:

Quarterly instalments during and after the accounting period (Correct answer)
The self-assessment deadline of 31 January
Within 30 days of the tax computation being filed
9 months and 1 day after the end of the accounting period

Correct answer: Quarterly instalments during and after the accounting period

Large companies pay corporation tax in four quarterly instalments: two during the accounting period and two after. Very large companies pay even earlier instalments.

Question 98: Which of the following errors would cause the trial balance NOT to balance?

Recording a sale in the wrong revenue account
Posting £500 to the correct debit account but £50 to the correct credit account (Correct answer)
Recording a purchase twice in both the debit and credit entries
Omitting a transaction entirely from the books

Correct answer: Posting £500 to the correct debit account but £50 to the correct credit account

A transposition or amount error where the debit entry (£500) differs from the credit entry (£50) would cause the trial balance totals to disagree. The other errors maintain equal debits and credits despite being incorrect.

Question 99: Which procedure would provide the most reliable evidence about the existence of trade receivables?

Direct external confirmation from customers (Correct answer)
Inspecting sales invoices
Reviewing the aged receivables ledger
Recalculating invoice totals

Correct answer: Direct external confirmation from customers

Direct external confirmation (circularisation) is the most reliable evidence for existence of receivables as it comes from an independent third party rather than the client's own records.

Question 100: Under the Fraud Act 2006, which of the following is NOT a recognised way of committing fraud?

Fraud by abuse of position
Fraud by negligent misstatement (Correct answer)
Fraud by failing to disclose information
Fraud by false representation

Correct answer: Fraud by negligent misstatement

The Fraud Act 2006 creates three offences: false representation, failure to disclose information, and abuse of position — negligent misstatement is a civil tort, not a Fraud Act offence.

ACA ICAEW Qualification Exam

The ACA ICAEW Qualification Exam is administered by the Institute of Chartered Accountants in England and Wales, covering accounting, audit and assurance, financial management, tax compliance, business strategy, financial reporting, and professional ethics.

100

Questions

180 min

Time Limit

55%

To Pass

Checking for saved progress...

Exam Rules

You can skip questions and return to them later
Flag questions for review before submitting
No feedback shown until you submit the entire exam
Unanswered questions count as wrong — answer everything
10 pretest questions are mixed in and don't affect your score
Timer auto-submits when time runs out
Your progress is auto-saved every 30 seconds