ACCA AS Financial Reporting (FR)

Question 1

Under IAS 16 Property, Plant and Equipment, which of the following costs should be included in the initial measurement of an item of PPE?

Accepted Answer

Cost of testing whether the asset functions properly

Answer

IAS 16.17 states that the cost of an item of PPE includes directly attributable costs of bringing the asset to the condition necessary for it to be capable of operating as intended, which includes testing costs (less any revenue from items produced during testing). Staff training, admin overheads, and relocation costs are expensed as incurred.

Question 2

According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, when should a provision be recognised?

Accepted Answer

When there is a present obligation from a past event, and it is probable that an outflow of resources will be required, and a reliable estimate can be made

Answer

IAS 37.14 requires all three conditions to be met: (1) present obligation from a past event, (2) probable outflow of economic benefits, and (3) reliable estimate of the amount. A possible obligation (not probable) is disclosed as a contingent liability. An obligation with no reliable estimate is also a contingent liability.

Question 3

Under IFRS 15 Revenue from Contracts with Customers, at which step is revenue recognised?

Accepted Answer

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Answer

IFRS 15 follows a five-step model. Revenue is recognised at Step 5 when (or as) the entity satisfies a performance obligation by transferring a promised good or service to the customer. This occurs when the customer obtains control of the asset. The earlier steps identify the contract, obligations, and pricing.

Question 4

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?

Accepted Answer

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

Answer

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.

Question 5

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

Accepted Answer

Settlement after the reporting date of a court case confirming the entity had a present obligation at the reporting date

Answer

An adjusting event provides evidence of conditions that existed at the reporting date. The settlement of a court case after year end that confirms a liability existed at the reporting date is adjusting — the financial statements should be adjusted. A new acquisition, flood, and market decline are non-adjusting events (conditions arose after the reporting date).

ACCA Applied Skills Practice Test

ACCA Applied Skills Practice Test

ACCA AS Financial Reporting (FR)