Mixed Deck — All ACCA AS Topics Flashcards

Which of the following is an allowable deduction when computing property income for a UK landlord?

Answer: Finance costs (given as a basic rate tax reduction)

For individual landlords, finance costs (mortgage interest) are no longer deductible from property income but are instead given as a basic rate (20%) tax reduction. This means higher and additional rate taxpayers receive less relief than they did under the old rules. Capital repayments, extensions, and purchase costs are capital expenditure and not allowable revenue deductions.

For corporation tax purposes, what is the main rate of corporation tax for a company with augmented profits exceeding £250,000 for the financial year 2025?

Answer: 25%

From 1 April 2023, the main rate of corporation tax is 25% for companies with augmented profits exceeding £250,000. Companies with profits of £50,000 or less pay 19% (small profits rate), and those between £50,000 and £250,000 benefit from marginal relief.

A company revalues land from its carrying amount of £200,000 to its fair value of £350,000. How should the revaluation surplus of £150,000 be treated?

Answer: Recognised in other comprehensive income and accumulated in the revaluation surplus within equity

Under IAS 16.39, a revaluation increase (where there is no previous revaluation decrease for the same asset recognised in profit or loss) is recognised in other comprehensive income (OCI) and accumulated in equity under the heading 'revaluation surplus'. It bypasses the income statement entirely unless it reverses a previous decrease.

In a divisional structure, 'goal congruence' means:

Answer: Divisional managers' decisions are aligned with the overall goals of the organisation

Goal congruence exists when divisional managers, acting in their own interests, also act in the best interest of the organisation as a whole.

Which of the following correctly describes 'detection risk'?

Answer: The risk that the auditor's procedures fail to detect existing material misstatements

Detection risk is the risk that audit procedures will not detect a material misstatement that actually exists. The auditor controls detection risk by adjusting the nature, timing and extent of procedures.

The revaluation model under IAS 16 requires that when an asset is revalued upwards:

Answer: The gain is recognised in other comprehensive income and accumulated in the revaluation reserve

Upward revaluations under IAS 16 are credited to other comprehensive income, accumulating in the revaluation reserve (a component of equity), not profit or loss.

According to the IESBA Code of Ethics, which of the following is NOT one of the five fundamental principles of professional ethics?

Answer: Profitability

The five fundamental principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour — profitability is not included.

Under IAS 38 Intangible Assets, how should research expenditure be treated?

Answer: Expensed as incurred

IAS 38.54 requires all research expenditure to be expensed as incurred because, at the research stage, an entity cannot demonstrate that an intangible asset exists that will generate probable future economic benefits. Only development expenditure can be capitalised, and only if all six strict criteria in IAS 38.57 are met.

Which of the following is NOT a ground for compulsory winding up of a company by the court?

Answer: The company has not traded for six months

Failure to trade for six months is not a statutory ground for compulsory winding up. Inability to pay debts, just and equitable grounds, and member numbers falling below minimums are all grounds.

Under the UK Bribery Act 2010, which offence is unique to commercial organisations and has no equivalent individual offence?

Answer: Failure to prevent bribery by an associated person (section 7)

Section 7 creates a strict liability corporate offence where a commercial organisation is guilty if an associated person bribes another to obtain a business advantage, unless adequate prevention procedures were in place.

Under the Insolvency Act 1986, which of the following is the correct order of priority for distribution of assets in a compulsory liquidation?

Answer: Secured creditors (fixed charge), liquidator's costs, preferential creditors, unsecured creditors

The correct priority is: (1) fixed charge holders, (2) costs of liquidation, (3) preferential creditors (e.g., employee wages), (4) floating charge holders, (5) unsecured creditors, (6) shareholders. Fixed charge holders rank first as their security attaches to specific assets.

Corporation tax is charged on a company's:

Answer: Taxable total profits (including trading profits, investment income and chargeable gains)

Corporation tax is charged on a company's taxable total profits, comprising trading profits, non-trading income (e.g., interest) and chargeable gains, less qualifying deductions.

Which of the following is a characteristic of a cost centre?

Answer: The manager is responsible for costs only

A cost centre is a responsibility centre where the manager is accountable only for controllable costs. Revenue responsibility is added in a revenue centre or profit centre, while investment responsibility is added in an investment centre.

Under IAS 36 Impairment of Assets, how is an impairment loss calculated?

Answer: Carrying amount minus the higher of fair value less costs of disposal and value in use

An impairment loss is the amount by which the carrying amount exceeds the recoverable amount. Recoverable amount is the higher of fair value less costs of disposal (FVLCD) and value in use (VIU). Using the higher amount ensures the asset is written down only to the best recovery option available to the entity.

Which of the following is the best example of a 'familiarity threat' under the IESBA Code of Ethics?

Answer: An auditor having a long-standing close personal friendship with the client's finance director

A familiarity threat arises when close or longstanding personal relationships cause a professional accountant to become too sympathetic to a client's interests and less willing to challenge them.

Which of the following best describes a 'balanced scorecard'?

Answer: A performance management framework using financial and non-financial measures across four perspectives

The balanced scorecard (Kaplan & Norton) measures performance across four perspectives: Financial, Customer, Internal Business Processes, and Learning & Growth.

A company manufactures two products, X and Y. Product X has a contribution per unit of £15 and requires 3 machine hours. Product Y has a contribution per unit of £20 and requires 5 machine hours. If machine hours are the binding constraint, which product should be prioritised?

Answer: Product X, because it has higher contribution per limiting factor

When resources are constrained, products should be ranked by contribution per unit of the limiting factor. Product X: £15/3 = £5 per machine hour. Product Y: £20/5 = £4 per machine hour. Product X generates a higher contribution per machine hour (£5 vs £4), so it should be prioritised despite Product Y having a higher contribution per unit.

Which of the following threats to auditor independence is created when the audit firm provides tax advisory services to an audit client?

Answer: Self-review threat

Providing tax advisory services to an audit client creates a self-review threat because the audit team may need to evaluate the results of the tax advice or work performed by colleagues in the same firm. If the tax advice affects figures in the financial statements, the audit team would be reviewing their own firm's work.

A company can either lease or buy a machine costing £50,000. The lease requires annual payments of £12,000 for 5 years. The company's borrowing rate is 8% and the tax rate is 25%. In a lease-versus-buy decision, which discount rate should typically be used?

Answer: The after-tax cost of borrowing

In a lease-versus-buy decision, the appropriate discount rate is the after-tax cost of borrowing. This is because the lease replaces debt financing, so the cash flows should be compared using the cost of the alternative financing source. The after-tax borrowing rate here would be 8% × (1 − 0.25) = 6%. WACC is not appropriate as this is a financing decision, not an investment decision.

Which of the following is a consequence of a company being struck off the register?

Answer: The company ceases to exist as a legal entity

When a company is struck off the register at Companies House, it ceases to exist as a legal entity and its assets vest in the Crown as bona vacantia.