AAT Level 4 - Professional Diploma in Accounting Financial Reporting Frameworks Questions and Answers

Question 1

According to Section 2 of FRS 102 'Concepts and Pervasive Principles', which of the following are the principal qualitative characteristics that make the information in financial statements useful?

Accepted Answer

Relevance, Reliability, Comparability, and Understandability

Answer

FRS 102 Section 2 explicitly identifies the principal qualitative characteristics as Understandability, Relevance, Reliability, and Comparability. These characteristics ensure that financial information is useful for a wide range of users in making economic decisions. The other options list a mixture of accounting concepts (Accruals, Going Concern), principles from other frameworks (Faithful Representation is a key term in the IFRS conceptual framework), or other desirable qualities that are subsets of the main characteristics.

Question 2

A private limited company in the UK has an accounting reference date of 30 June. For its financial year ended 30 June 2025, what is the statutory deadline for filing its annual accounts with Companies House?

Accepted Answer

31 March 2026

Answer

Under the Companies Act 2006, private limited companies are required to file their annual accounts with Companies House within 9 months of their accounting reference date. A 9-month period from 30 June 2025 ends on 31 March 2026. Public limited companies have a shorter deadline of 6 months.

Question 3

A UK company wishes to apply FRS 105, 'The Financial Reporting Standard applicable to the Micro-entities Regime'. Which of the following would disqualify the company from being treated as a micro-entity, regardless of its size?

Accepted Answer

It is a parent company that is required to prepare consolidated financial statements.

Answer

While there are specific size thresholds for turnover, balance sheet total, and employee numbers, certain types of entities are explicitly excluded from the micro-entity regime. A parent company that is required by law to prepare consolidated (group) accounts cannot apply FRS 105, even if it individually meets the size criteria. The other options are all within the prescribed thresholds for a micro-entity (Turnover ≤ £632,000, Balance Sheet ≤ £316,000, Employees ≤ 10).

Question 4

A UK company, which reports under FRS 102, owns a building carried under the revaluation model. At the start of the year, the building's carrying amount was £800,000. At the year-end, a professional valuer assesses its fair value to be £870,000. This is the first revaluation of this asset. How should the £70,000 revaluation gain be recognised in the financial statements?

Accepted Answer

As a credit to the Revaluation Surplus, reported under Other Comprehensive Income.

Answer

According to FRS 102 Section 17, an increase in an asset's carrying amount as a result of a revaluation should be recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. It is not recognised in the Statement of Profit or Loss unless it reverses a previous revaluation decrease recognised in profit. As this is the first revaluation, the entire gain goes to Other Comprehensive Income.

Question 5

On 1 October 2024, a company with a 31 December year-end receives an order and a full payment of £24,000 for a 12-month maintenance contract, which commences on 1 November 2024. Under FRS 102, how much revenue should be recognised from this contract in the Statement of Profit or Loss for the year ended 31 December 2024?

Accepted Answer

£4,000

Answer

In line with FRS 102 and the accruals concept, revenue from rendering services is recognised over the period in which the services are provided, not when the cash is received. The £24,000 contract covers 12 months, meaning revenue is earned at £2,000 per month (£24,000 / 12). By the year-end of 31 December 2024, two months of service have been provided (November and December). Therefore, the revenue to be recognised is 2 x £2,000 = £4,000. The remaining £20,000 is treated as deferred income on the Statement of Financial Position.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT Level 4 - Professional Diploma in Accounting Financial Reporting Frameworks Questions and Answers