ACCA AS Financial Reporting 2 — Questions and Answers
Question 1: Under IAS 38, an internally generated brand should be:
- Capitalised at development cost
- Recognised as an intangible asset at fair value
- Expensed as incurred; it cannot be recognised as an intangible asset (Correct answer)
- Amortised over 20 years
Correct answer: Expensed as incurred; it cannot be recognised as an intangible asset
IAS 38 prohibits recognition of internally generated brands, mastheads, customer lists and similar items as intangible assets. Their costs must be expensed as incurred.
Question 2: Goodwill arising on consolidation is calculated as:
- Fair value of consideration paid less fair value of net assets acquired (Correct answer)
- Purchase price less book value of net assets acquired
- Total assets of the subsidiary less its total liabilities
- Market capitalisation of the acquiree less its equity
Correct answer: Fair value of consideration paid less fair value of net assets acquired
IFRS 3 goodwill = Fair value of consideration transferred + Fair value of non-controlling interest − Fair value of identifiable net assets acquired.
Question 3: Under IAS 21, which exchange rate is used to translate a foreign currency transaction at the date of a sale?
- Closing rate at the year end
- Rate at the date of the transaction (spot rate) (Correct answer)
- Average rate for the year
- Rate at the date of payment
Correct answer: Rate at the date of the transaction (spot rate)
Under IAS 21, foreign currency transactions are initially recorded at the spot exchange rate at the transaction date. Monetary items are subsequently retranslated at the closing rate.
Question 4: Under IAS 36, an impairment loss on an asset is recognised when:
- The carrying amount exceeds the asset's recoverable amount (Correct answer)
- The carrying amount is less than the asset's fair value
- The asset is fully depreciated
- The market value falls below cost
Correct answer: The carrying amount exceeds the asset's recoverable amount
IAS 36: an asset is impaired if its carrying amount exceeds its recoverable amount (the higher of fair value less costs to sell and value in use). An impairment loss is recognised immediately.
Question 5: Which of the following is the correct treatment for a finance lease in the lessee's financial statements under IFRS 16?
- Lease payments are expensed as operating costs
- A right-of-use asset and lease liability are recognised on the balance sheet (Correct answer)
- Only the interest element is shown on the balance sheet
- The asset is disclosed in the notes only
Correct answer: A right-of-use asset and lease liability are recognised on the balance sheet
IFRS 16 requires lessees to recognise a right-of-use asset (the present value of future lease payments) and a corresponding lease liability on the statement of financial position for virtually all leases.
Question 6: Earnings per share (EPS) under IAS 33 is calculated as:
- Profit before tax ÷ Weighted average number of shares
- Profit attributable to ordinary equity holders ÷ Weighted average ordinary shares in issue (Correct answer)
- Total equity ÷ Number of shares issued
- Net profit ÷ Total shares authorised
Correct answer: Profit attributable to ordinary equity holders ÷ Weighted average ordinary shares in issue
Basic EPS = Profit attributable to ordinary equity holders of the parent ÷ Weighted average number of ordinary shares outstanding during the period.
ACCA AS Financial Reporting 2
Under IAS 38, an internally generated brand should be: