ACCA ACCA Financial Reporting Standards 1 — Questions and Answers
Question 1: Under IFRS 15, when should revenue from contracts with customers be recognized?
- When cash is received from the customer
- When the performance obligation is satisfied (Correct answer)
- When the contract is signed
- When the invoice is issued
Correct answer: When the performance obligation is satisfied
IFRS 15 requires revenue to be recognized when (or as) a performance obligation in a contract is satisfied by transferring control of a good or service to the customer.
Question 2: According to IAS 16, which cost elements can be capitalized as part of property, plant and equipment (PPE)?
- Purchase price plus all subsequent maintenance costs
- Purchase price, directly attributable costs, and initial dismantling estimates (Correct answer)
- Purchase price only, excluding taxes
- All costs incurred before and after the asset is in use
Correct answer: Purchase price, directly attributable costs, and initial dismantling estimates
IAS 16 allows capitalization of the purchase price, costs directly attributable to bringing the asset to working condition, and the initial estimate of dismantling costs.
Question 3: Under IAS 36, what is an 'impairment loss' on an asset?
- The excess of carrying amount over recoverable amount (Correct answer)
- The excess of recoverable amount over carrying amount
- The difference between cost and accumulated depreciation
- The fair value less replacement cost
Correct answer: The excess of carrying amount over recoverable amount
An impairment loss occurs when an asset's carrying amount exceeds its recoverable amount (the higher of fair value less costs to sell and value in use).
Question 4: What is the key distinction between 'finance leases' and 'operating leases' under IFRS 16?
- IFRS 16 eliminates the distinction; lessees recognize a right-of-use asset for all leases (Correct answer)
- Finance leases must be capitalized but operating leases remain off-balance sheet
- Operating leases transfer ownership; finance leases do not
- Finance leases apply only to equipment; operating leases apply to property
Correct answer: IFRS 16 eliminates the distinction; lessees recognize a right-of-use asset for all leases
IFRS 16 removed the lessee distinction between finance and operating leases, requiring recognition of a right-of-use asset and lease liability for almost all leases.
Question 5: Under IAS 2, how should inventories be measured on the balance sheet?
- At cost only
- At net realizable value only
- At the lower of cost and net realizable value (Correct answer)
- At the higher of cost and net realizable value
Correct answer: At the lower of cost and net realizable value
IAS 2 requires inventories to be measured at the lower of cost and net realizable value, applying the prudence concept to avoid overstating assets.
Question 6: Which IFRS standard governs the accounting for income taxes, including deferred tax?
- IAS 12 (Correct answer)
- IAS 19
- IFRS 9
- IAS 37
Correct answer: IAS 12
IAS 12 Income Taxes prescribes the accounting treatment for current and deferred income taxes, using the temporary difference approach.
ACCA ACCA Financial Reporting Standards 1
Under IFRS 15, when should revenue from contracts with customers be recognized?