ACCA AK Financial Accounting (FA) Financial Statements 2

Question 1

Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a provision should be recognised when:

Accepted Answer

A present obligation exists, an outflow of resources is probable, and a reliable estimate can be made

Answer

A possible obligation exists but the probability of outflow is remote

Answer

Any future cost is anticipated regardless of probability

Answer

The entity wishes to smooth its reported profits

Question 2

In a statement of cash flows prepared under IAS 7, where is 'interest paid' classified under the indirect method?

Accepted Answer

It may be classified as either an operating or a financing activity

Answer

It must always be classified as an operating activity

Answer

It must always be classified as a financing activity

Answer

It is excluded from the statement of cash flows

Question 3

A company has trade receivables of £60,000 and estimates that 5% will be irrecoverable. The existing allowance for receivables is £2,000. What adjustment is needed?

Accepted Answer

Increase the allowance by £1,000

Answer

Increase the allowance by £3,000

Answer

Decrease the allowance by £1,000

Answer

No adjustment is required

Question 4

Under IAS 10 Events After the Reporting Period, which of the following is an adjusting event?

Accepted Answer

The settlement after the reporting date of a court case that confirms an obligation existed at the reporting date

Answer

A major fire destroys a warehouse after the reporting date

Answer

A decline in market value of investments after the reporting date

Answer

The announcement of a major acquisition after the reporting date

Question 5

The closing inventory of a business is overstated by £4,000. What effect does this have on the financial statements?

Accepted Answer

Profit is overstated by £4,000 and assets are overstated by £4,000

Answer

Profit is understated by £4,000 and assets are understated by £4,000

Answer

Profit is overstated by £4,000 and liabilities are overstated by £4,000

Answer

Profit is understated by £4,000 and assets are overstated by £4,000

Question 6

Which of the following items would appear in Other Comprehensive Income (OCI) rather than profit or loss?

Accepted Answer

A revaluation surplus on property under the revaluation model of IAS 16

Answer

Revenue from contracts with customers

Answer

Finance costs on a bank loan

Answer

Depreciation of office equipment