AAT L4 Financial Statements (Companies) 4

Question 1

A company revalues a property upward by £200,000. The revaluation surplus is recorded in:

Accepted Answer

Other comprehensive income and the revaluation reserve in equity

Answer

Under FRS 102 and IAS 16, an upward revaluation of property is recognised in other comprehensive income and accumulated in the revaluation reserve within equity; it does not pass through profit or loss.

Question 2

In the statement of cash flows, the issue of new share capital is classified as:

Accepted Answer

Financing activity

Answer

Proceeds from issuing new share capital are a financing activity in the statement of cash flows, as they represent obtaining finance from equity shareholders.

Question 3

Under IAS 1 / FRS 102, current liabilities include:

Accepted Answer

Liabilities expected to be settled within 12 months or within the entity's normal operating cycle

Answer

Current liabilities are those expected to be settled within 12 months of the balance sheet date, or within the entity's normal operating cycle — including trade payables, accruals, tax liabilities, and short-term borrowings.

Question 4

The direct method of presenting operating cash flows in a statement of cash flows shows:

Accepted Answer

Actual cash receipts from customers and actual cash payments to suppliers and employees

Answer

The direct method presents gross cash inflows (e.g., receipts from customers) and gross cash outflows (e.g., payments to suppliers, employees, tax authorities) under operating activities — providing more detailed information than the indirect method.

Question 5

Under FRS 102, the threshold test for a 'small' company covers turnover, gross assets, and employees. The turnover limit is:

Accepted Answer

£10.2 million

Answer

Under the Companies Act 2006 (as amended), small company thresholds require two of: turnover ≤ £10.2m, gross assets ≤ £5.1m, employees ≤ 50. FRS 102 Section 1A applies to small entities.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Financial Statements (Companies) 4