Financial Accounting and Reporting Flashcards
6 cards from real ACA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Financial Accounting and Reporting flashcards as text
Under FRS 102, which of the following items should be classified as an intangible asset?
Answer: A purchased patent with a finite useful life
Under FRS 102 Section 18, a purchased patent with a finite useful life meets the definition of an intangible asset — it is an identifiable non-monetary asset without physical substance. Internally generated goodwill is specifically prohibited from recognition. Machinery, land, and buildings are tangible assets.
Under FRS 102, what is the correct accounting treatment for development costs that meet the capitalisation criteria?
Answer: May be capitalised as an intangible asset and amortised over the development's useful life
FRS 102 Section 18 allows (but does not require) development expenditure to be capitalised as an intangible asset if certain criteria are met: technical feasibility, intention to complete, ability to use or sell, probable future economic benefits, adequate resources, and reliable cost measurement. Once capitalised, it must be amortised over its useful life.
A UK company issues 100,000 ordinary shares with a nominal value of £1 each at a price of £3.50 per share. What is the share premium arising from this issue?
Answer: £250,000
Share premium = (Issue price − Nominal value) × Number of shares = (£3.50 − £1.00) × 100,000 = £250,000. The total proceeds of £350,000 are split between share capital (£100,000 at nominal value) and share premium (£250,000). Share premium is a non-distributable reserve under the Companies Act 2006.
Under FRS 102, how should a provision be measured?
Answer: At the best estimate of the expenditure required to settle the present obligation at the reporting date
FRS 102 Section 21 requires provisions to be measured at the best estimate of the amount required to settle the present obligation at the reporting date. Where the effect of the time value of money is material, the provision should be discounted to present value.
Under the Companies Act 2006, which of the following is a legal requirement for the directors' report of a UK company?
Answer: A recommended dividend amount (if applicable) and the names of the directors who served during the year
The Companies Act 2006 (sections 415-419) requires the directors' report to include information such as the names of directors who served during the year, the recommended dividend, principal activities of the company, and political and charitable donations above certain thresholds.
Under FRS 102, what is the treatment of borrowing costs directly attributable to the acquisition of a qualifying asset?
Answer: May be either capitalised or expensed as an accounting policy choice
FRS 102 Section 25 gives entities an accounting policy choice: borrowing costs directly attributable to the acquisition, construction, or production of a qualifying asset may either be capitalised as part of the asset's cost or expensed to profit or loss as incurred. The policy chosen must be applied consistently.