AAT L4 Financial Statements (Companies) 3

Question 1

Under FRS 102, a provision is recognised when:

Accepted Answer

There is a present obligation, an outflow is probable, and a reliable estimate of the amount can be made

Answer

FRS 102 Section 21 requires all three criteria: a present obligation (legal or constructive), a probable outflow of economic resources, and a reliable estimate of the obligation's amount.

Question 2

In consolidated accounts, unrealised profit on intragroup inventory sales is eliminated by:

Accepted Answer

Reducing closing inventory and reducing group profit by the unrealised profit amount

Answer

When one group company sells goods to another at a profit and those goods remain in inventory at year end, the unrealised profit must be eliminated from both group inventory and group profit to prevent overstating the group's results.

Question 3

For a company, the statutory requirement to prepare consolidated (group) financial statements generally applies when:

Accepted Answer

The company is a parent and the group exceeds the small group exemption thresholds

Answer

UK company law (following IFRS/FRS 102) requires a parent company to prepare consolidated accounts unless the group qualifies for the small group exemption (meeting two of: turnover ≤£10.2m, gross assets ≤£5.1m, employees ≤50 — at group level, the higher thresholds apply).

Question 4

Under FRS 102, deferred tax is calculated on:

Accepted Answer

Temporary differences between the carrying amount of assets/liabilities and their tax base

Answer

FRS 102 Section 29 requires deferred tax on temporary differences (timing differences) — differences between accounting carrying values and tax values that will reverse in future periods.

Question 5

Earnings per share (EPS) for a listed UK company is required to be disclosed under:

Accepted Answer

IAS 33 for companies whose shares are publicly traded

Answer

IAS 33 requires EPS disclosure by entities whose ordinary or potential ordinary shares are publicly traded. Listed UK companies applying IFRS (or FRS 101) must disclose basic and diluted EPS.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Financial Statements (Companies) 3