AAT L4 Financial Statements (Companies) 2

Question 1

The non-controlling interest (NCI) in a consolidated balance sheet represents:

Accepted Answer

The portion of the subsidiary's equity not owned by the parent

Answer

NCI is the equity interest in a subsidiary not attributable to the parent company — it represents the minority shareholders' share of the subsidiary's net assets.

Question 2

Under FRS 102, development costs are capitalised when:

Accepted Answer

Specific criteria are met including technical feasibility, intention to complete, and probability of future economic benefits

Answer

FRS 102 Section 18 permits (and in some cases requires) capitalisation of development costs when specific recognition criteria are met, similar to IAS 38 criteria.

Question 3

Under FRS 102, a finance lease is one in which:

Accepted Answer

Substantially all risks and rewards of ownership are transferred to the lessee

Answer

Under FRS 102 Section 20, a finance lease transfers substantially all the risks and rewards incidental to ownership of the underlying asset to the lessee, regardless of whether title ultimately passes.

Question 4

Which of the following is shown as a non-current liability in a company's balance sheet?

Accepted Answer

A 5-year loan from the bank, classified by repayment profile

Answer

A 5-year bank loan's non-current portion (repayable after more than 12 months) is classified as a non-current liability. The portion due within 12 months is reclassified as current.

Question 5

When preparing a statement of cash flows under the indirect method, which of the following is deducted from operating profit?

Accepted Answer

An increase in inventories

Answer

An increase in inventories means the business purchased more inventory than it sold — a use of cash. This is deducted from operating profit in the indirect method cash flow statement.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Financial Statements (Companies) 2