ACA Accounting (IFRS/UK GAAP) 4 — Questions and Answers
Question 1: Under IAS 33, basic earnings per share is calculated as:
- Profit before tax divided by weighted average shares
- Profit attributable to ordinary shareholders divided by weighted average ordinary shares outstanding (Correct answer)
- Total earnings divided by shares issued at year end
- Net profit divided by shares in issue at the start of the year
Correct answer: Profit attributable to ordinary shareholders divided by weighted average ordinary shares outstanding
IAS 33 defines basic EPS as profit or loss attributable to ordinary equity holders divided by the weighted average number of ordinary shares outstanding during the period.
Question 2: Under IFRS 3, which method must be used to account for a business combination?
- Pooling of interests method
- Proportional consolidation
- Acquisition method (Correct answer)
- Equity method
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 3: Under IAS 28, the equity method requires the investor to recognise its share of the associate's:
- Revenue and expenses line by line
- Post-acquisition profit or loss in profit or loss (Correct answer)
- Gross assets and liabilities
- Only dividends received
Correct answer: Post-acquisition profit or loss in profit or loss
Under the equity method, the investment is initially recognised at cost and adjusted for the investor's share of the associate's post-acquisition profits or losses.
Question 4: Which standard requires disclosure of related party transactions?
- IAS 24 (Correct answer)
- IAS 26
- IAS 27
- IAS 29
Correct answer: IAS 24
IAS 24 requires disclosure of relationships, transactions, and outstanding balances with related parties so users can assess how those relationships might affect financial statements.
Question 5: Under FRS 102, a small entity applying the small entities regime must prepare:
- A full statement of cash flows
- An abridged balance sheet only
- A balance sheet and profit and loss account as a minimum (Correct answer)
- A statement of comprehensive income
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 6: Under IAS 7, which method of presenting operating cash flows starts with profit before tax?
- Direct method
- Accruals method
- Indirect method (Correct answer)
- Net method
Correct answer: Indirect method
The indirect method starts with profit before tax and adjusts for non-cash items, working capital changes, and investing/financing items to arrive at cash from operations.
ACA Accounting (IFRS/UK GAAP) 4
Under IAS 33, basic earnings per share is calculated as: