ACA Financial Reporting 2 — Questions and Answers
Question 1: Under FRS 102 (UK GAAP), an entity that is a micro-entity may apply:
- IFRS for SMEs
- FRS 105 (the Micro-entities Regime) (Correct answer)
- FRS 101 (Reduced Disclosure Framework)
- Full IFRS
Correct answer: FRS 105 (the Micro-entities Regime)
FRS 105 is the UK financial reporting standard for micro-entities (meeting two of three thresholds: turnover ≤£632k, balance sheet ≤£316k, employees ≤10), providing a simplified framework.
Question 2: Under IAS 19, which of the following is recognised in other comprehensive income (OCI) for defined benefit pension schemes?
- Current service cost
- Net interest on the defined benefit liability
- Remeasurement gains and losses (Correct answer)
- Past service cost
Correct answer: Remeasurement gains and losses
IAS 19 requires remeasurement gains and losses (actuarial gains/losses and returns on plan assets excluding interest) to be recognised in OCI and not recycled to profit or loss.
Question 3: Under IFRS 10, the non-controlling interest (NCI) at acquisition can be measured at:
- Proportionate share of net assets only
- Either fair value or proportionate share of net assets (Correct answer)
- Book value of the subsidiary's equity
- Nominal value of shares acquired
Correct answer: Either fair value or proportionate share of net assets
IFRS 3/IFRS 10 allows NCI to be measured at either fair value (full goodwill method) or at the NCI's proportionate share of the acquiree's identifiable net assets (partial goodwill method).
Question 4: Under IAS 27 / IFRS 10, which method is used in the parent's own (separate) financial statements to account for investments in subsidiaries?
- Full consolidation
- Equity method
- Cost or fair value model (Correct answer)
- Proportional consolidation
Correct answer: Cost or fair value model
In separate financial statements, IAS 27 permits investments in subsidiaries to be measured at cost or in accordance with IFRS 9 (fair value). The equity method is not permitted in separate statements.
Question 5: Which of the following would be classified as an item of other comprehensive income (OCI)?
- Operating profit
- Gain on disposal of non-current assets
- Revaluation surplus on PPE (Correct answer)
- Income tax expense
Correct answer: Revaluation surplus on PPE
Under IAS 16's revaluation model, increases in the carrying amount of PPE (revaluation surplus) are recognised in OCI and accumulated in the revaluation reserve within equity.
Question 6: Under IAS 33, diluted EPS includes the effect of:
- Proposed dividends
- All potential ordinary shares that are dilutive (Correct answer)
- Rights issues at full market price
- Prior year exceptional items
Correct answer: All potential ordinary shares that are dilutive
Diluted EPS adjusts both the numerator (for after-tax interest on dilutive debt) and denominator (for all dilutive potential ordinary shares such as convertibles and options) to show the maximum dilution effect.
ACA Financial Reporting 2
Under FRS 102 (UK GAAP), an entity that is a micro-entity may apply: